UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission File Number: 000-17119
QUANTRX BIOMEDICAL CORPORATION
(Name of small business issuer in its charter)
Nevada 33-0202574
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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Securities registered under Section 12(b) of the Exchange Act:
None
Securities Registered Pursuant to Section 12(g) of the Exchange Act
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. [X] Yes [ ]
No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes[ ] No [X]
State issuer's revenues for its most recent fiscal year. $55,645
At February 28, 2006 the aggregate market value of the common stock held by non-affiliates of the issuer was approximately $35,188,336 based upon the closing price of $1.85 reported for such date.
The number of shares outstanding of the issuer's common stock as of February 28, 2006 was 30,523,974.
Transitional Small Business Disclosure Form (Check one):
Yes [ ] No [ X ]
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING EXHIBITS THERETO, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FORECASTS", "PLANS", "FUTURE", "STRATEGY", OR WORDS OF SIMILAR MEANING. VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING THOSE DESCRIBED IN "RISK FACTORS" ON PAGE SEVEN HEREOF. THE COMPANY ASSUMES NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.
PART I
As used in this annual report on Form 10-KSB, "we," "us," "our," "QuantRx" and "Company" refer to QuantRx Biomedical Corporation, unless the context otherwise requires.
Item 1. Description of Business
Overview
We incorporated on December 5, 1986 under the laws of the State of Nevada. On November 20, 2005, we filed with the Secretary of State of Nevada an amendment to our Articles of Incorporation to change our name from A-Fem Medical Corporation to QuantRx Biomedical Corporation. Our principal business office is located at 321 Norristown Road, Suite 230, Ambler, Pennsylvania. We also have offices in Tualatin and Sherwood, Oregon.
Our Business
QuantRx is a biomedical company that is committed to the research, development, acquisition and commercialization, directly or in collaboration with other commercial partners, of proprietary medical technology platforms and products for diagnostics and treatment of medical needs.
The Company has developed three proprietary platforms: the Miniform, a disposable technology with current applications in the incontinence and hemorrhoidal over-the-counter (OTC) markets; Rapid-Sense, a point-of-care diagnostic (POC) technology; and PadKit, a diagnostic sample collection technology. These three technologies are in different stages of development, as better specified below. Our strategy is to commercialize our products through partners or distributors, contracting the manufacturing to third parties while maintaining control over the manufacturing process. Our Products and Product Candidates
The Miniform is a patented technology with applications in the catamenial and hemorrhoidal OTC markets. Until 2000, the Company marketed the inSync(R) Miniform as an alternative to tampons, pads and liners for light flow, or in combination for heavier flow protection. The inSync(R) Miniform was distributed through regional retail brokers, and was commercialized in approximately 3,600 stores in the western regions of the United States. In addition, the Company is developing an OTC hemorrhoid product, based on the Miniform. The Company intends to market such product under the Unique(R) trademark through distribution arrangements. Based on the results from the preclinical research conducted at the University of Belfast on vaginal drug delivery, the Company believes that the Miniform may have additional applications as an innovative drug delivery system.
Rapid-Sense(R) is a diagnostic technology that can be used for various POC applications, from pregnancy tests to drug screens. The Company has obtained FDA clearance to market its Affirm (TM) pregnancy test, as a class I OTC product, and has notified the FDA of its intent to market a POC cotinine test as an OTC - exempt device. We intend to supply all of the Company's products as OEM products for specific customers, or through established distributors in the target market.
Clinical research has shown that miniforms can be used as sample-collection devices to retrieve and store biological samples, allowing patients to self-collect a sample at the time and place of their choosing, and to mail it to a clinical laboratory for analysis. The sample can be then used for diagnosis and screening for drugs, genetic conditions, and human disease. The Company obtained a patent to cover this application, and plans to commercialize any products it may develop under this patent under the PadKit(R) trademark. Sales of this product will require extensive additional clinical testing prior to submission to the U.S. Food and Drug Administration (FDA) for marketing approval.
Competition
Our industry is highly competitive and characterized by rapid and significant technological change. 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 and marketing capabilities.
We face, and will continue to face, competition from organizations such as pharmaceutical and biotechnology companies, as well as academic and research institutions. Some of these organizations are pursuing products based on technologies similar to our technologies, including Inverness Medical Innovations, Inc., Biosite, Inc., Quiadel, Meridian Bioscience, and others. These organizations have
developed and are currently marketing products, and are pursuing other technological approaches designed to produce products that compete with our product candidates.
Any product candidates that we successfully develop, which are approved for sale by the FDA or similar international regulatory authorities in other countries, may compete with competitive products currently being used or that may become available in the future. Many 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. Therefore, we cannot assure you that any of our product candidates, if approved for sale, will compete successfully and that another organization will not succeed in developing and commercializing products that render our technology or product candidates non-competitive or obsolete.
Raw Materials and Manufacturing
The Company does not have manufacturing capacity, and contracts the manufacturing of all of its products to third-party manufacturers. All manufactured products are produced under standard operating procedures (SOPs) developed and controlled by the Company, which specifies approved raw materials, vendors, and manufacturing methodology.
Intellectual Property Rights and Patents
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, the patent positions of companies like ours involve complex legal and factual questions and, therefore, their enforceability 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.
The Company owns the following United States patents:
1) U.S. Patent No. 4,995,150 Issued
Title: Method and Apparatus for Making Feminine Hygienic
Interlabia Pads
2) U.S. Patent No. 5,575,047 Issued
Title: Method for Making Biodegradable Absorbent Pads
3) U.S. Patent No. 6,183,455 Issued
Title: Biodegradable Absorbent Pads
4) U.S. Patent No. 6,811,549 Issued
Title: Administration of Therapeutic or Diagnostic Agents
Using Interlabial Pad
5) U.S. Patent No. 6,699,722 Issued
Title: Positive Detection Lateral-Flow Apparatus and Method for
Small and Large Analytes
6) U.S. Patent No. 5,725,481 Issued
Title: Method and Apparatus for Collecting Vaginal Fluid and
Exfoliated Cells
7) U.S. Patent No. 6,007,498 Issued
Title: Method and Apparatus for Collecting Vaginal Fluid and
Exfoliated Cells
8) U.S. Patent No. 6,174,293 Issued
Title: Method and Apparatus for Collecting Vaginal Fluid and
Exfoliated Vaginal Cells for Diagnostic Purposes
9) U.S. Patent No. 6,258,548 Issued
Title: Single or Multiple Analyte Semi-Quantitative/Quantitative
Rapid Diagnostic
10) U.S. Patent No. 6,306,665 Issued
Title: Covalent Bonding of Molecules to an Activated Solid Phase
Material, and Devices Made Using the Material
11) U.S. Patent No. 6,365,417 Issued
Title: Collection Device for Lateral Flow Chromatography
12) U.S. Patent No. 6,998,273
Title: Collection Device for Lateral Flow Technology
QuantRx holds the following United States trademarks for its current products:
1. PadKit 2251770 & 2380818
2. Rapid-Sense 2428650
3. inSync 2211028
4. Unique 2166616
Licensing and Collaborative Agreements
The Company has entered into a licensing agreement with Branan Medical Corporation to license its use of the Rapid-Sense technology in connection with the oral screening of drugs of abuse.
Regulatory Requirements
Our products and manufacturing activities are 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 under it, the FDA regulates the development, clinical testing, manufacture, packaging, labeling, storage, distribution and promotion of medical devices. Before a new device can be introduced to the market, the manufacturer must generally obtain marketing clearance through a section 510(k) notification approval, through a Premarket Approval (PMA), or New Drug Application (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. Class I, unless exempted, and Class II devices are marketed following FDA clearance of a Section 510(k) premarket notification. Since 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.
All of our OTC products derived from the Miniform technology, including Unique(R) and inSync(R), are currently classified as Class I - exempt devices, requiring written notification to the FDA before marketing. The Company's product candidates, including Affirm and Rapid-Sense(R), generally require validation and notification to the FDA under Section 510(k) prior to commercialization. The Company does not currently market (nor is currently developing) any product that requires full clinical validation as a Class III product under FDA regulations.
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 the company to retain records for up to seven years, and be subject to periodic regulatory review and inspection of all facilities and documents by the FDA.
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. Company personnel and non-affiliated contract auditors periodically inspect the contract manufactures to assure they remain in compliance.
In January 1997, the Company was granted approval to market its Affirm (TM) pregnancy test as a Class II device. In April 1997, our Miniform product line was officially re-classified from Class II to Class I - exempt, by the FDA. In May 2000, the Company provided the FDA with notification of its intent to market Unique(R) in the OTC hemorrhoid market. Company facilities have been inspected by the FDA on several occasions, and have never received a notice of non-compliance or regulatory infraction.
Many of our product candidates will require significant clinical validation prior to obtaining marketing clearance from the FDA. The Company intends to continue to build a team, which will include senior management, affiliated and non-affiliated personnel with regulatory expertise, and consultants with scientific skills to prepare for, and review the results from clinical field trials. The Company's Medical Advisory Board, consisting of scientific Ph.D.s and M.D.s, will also contribute to the scientific and medical validity of its clinical trials when appropriate. The Company intends to contract the actual trials to Contract Research Organizations (CRO), whose expertise and business success is focused on proper and through completion of Clinical Trials.
Research and Development Activities
We spent the following amounts on research and development activities during the years ended December 31, 2005 and 2004:
2005: $136,862
2004: None
We expect that our research and development expenses will continue to increase.
Employees
As of December 31, 2005, we had five employees, three of which are full-time employees. Our employees are not represented by a labor organization or covered by a collective bargaining agreement.
Risk Factors
If any of the following risks actually occur, our business, results of operations and financial condition could be adversely affected.
We have a history of incurring net losses and we may never become profitable.
For the year ended December 31, 2005, the Company had an accumulated deficit of $22,821,723. Our losses resulted principally from costs related to our research programs and the development of our product candidates and general and administrative costs relating to our operations. Since the Company presently has limited sources of revenues and is committed to continuing its research and development activities, we anticipate incurring substantial and increasing losses in 2006. We cannot assure you that we will ever become profitable.
We may be forced to delay or curtail the development or commercialization of our product candidates if we are unable to obtain additional funding.
We expect that our need for additional capital will be substantial and the extent of this need will depend on many factors, some of which are beyond our control, including the successful and continued development of our product candidates; the costs associated with protecting and expanding our patent and other intellectual property rights; future payments, if any, received or made under existing or possible
future collaborative arrangements; the timing of regulatory approvals needed to market our product candidates; and market acceptance of our products.
It is possible that the Company will not generate positive cash flow from operations for several years. We cannot assure you that funds will be available to us in the future on favorable terms, if at all. If adequate funds are not available to us on terms that we find acceptable, or at all, we may be required to delay, reduce the scope of, or eliminate research and development efforts or clinical trials on any or all of our product candidates. We may also be forced to curtail or restructure our operations, obtain funds by entering into arrangements with collaborators on unattractive terms or relinquish rights to certain technologies or product candidates that we would not otherwise relinquish in order to continue independent operations.
The Company will face intense competition from other companies in the pharmaceutical industry.
The Company is engaged in a segment of the pharmaceutical industry that is highly competitive. If successfully brought into the marketplace, any of the Company's products will likely compete with several existing products. The Company anticipates that it 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 the Company. Competitive products may render the Company's products obsolete or noncompetitive prior to the Company's recovery of development and commercialization expenses.
Many of the Company's competitors will 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 pharmaceutical and 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 the Company, which would have a material adverse effect on the Company.
There is no assurance that the Company's products will have market acceptance.
The success of the Company 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 products of 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.
We are dependent on third parties for the marketing and sale of our products. We have entered into a license agreement with Branan Medical Corporation to license the use of our Rapid-Sense technology in connection with drugs-of-abuse oral screening. We may enter into other agreements providing for the commercialization of our product candidates. We intend to sell other product candidates through our current agreement with third parties and establish relationships with other companies to commercialize them in other countries around the world. We currently have limited internal sales and
marketing capabilities, or an 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 marketing and sales arrangements with other companies to sell our products in the United States or abroad, our product revenues will depend on their efforts, which may not be successful.
The Company's success will be dependent on licenses and proprietary rights it receives from other parties, and on any patents it may obtain.
Our success will depend in large part on the ability of the Company and its 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 (iv) obtain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur, both in the U.S. and in foreign countries.
The patent positions of pharmaceutical companies, including those of the Company, are uncertain and involve complex legal and factual questions. There is no guarantee that the Company or its 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 licensed to the Company. In addition, we cannot be certain that any patents issued to or licensed by the Company will not be challenged, invalidated, infringed or circumvented, or that the rights granted thereunder will provide competitive disadvantages to the Company.
Litigation, which could result in substantial cost, may also be necessary to enforce any patents to which the Company has rights, or to determine the scope, validity and unenforceability of other parties' proprietary rights, which may affect the rights of the Company. U.S. patents carry a presumption of validity and generally can be invalidated only through clear and convincing evidence. There can be no assurance that the Company's 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 the Company pending resolution of the disputed matters.
The Company may also rely on unpatented trade secrets and know-how to maintain its competitive position, which it seeks 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 the Company will have adequate remedies for any breach, or that trade secrets will not otherwise become known or be independently discovered by competitors.
Protecting our proprietary rights is difficult and costly.
The patent positions of pharmaceutical and 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 the Company 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 may be unable to retain skilled personnel and maintain key relationships.
The success of our business depends, 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 from numerous pharmaceutical and biotechnology companies, universities and other research institutions. There can be no assurance that the Company will be able to attract and retain such individuals on commercially acceptable terms or at all, and the failure to do so would have a material adverse effect on the Company.
The Company does not have manufacturing capabilities and may not be able to efficiently develop manufacturing capabilities or contract for such services from third parties on commercially acceptable terms.
The Company does not have any manufacturing capacity. When required, the Company will seek to establish relationships with third-party manufacturers for the commercial production of our products. There can be no assurance that the Company will be able to establish relationships with third-party manufacturers on commercially acceptable terms 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.
The dependence upon third parties for the manufacture of 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 its manufacturing requirements on commercially acceptable terms would have a material adverse effect on the Company.
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.
The business of the Company will expose it 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 the Company. The Company intends to obtain insurance coverage if and when the Company begins marketing commercial products. However, there can be no assurance that the Company will be able to obtain product liability insurance on commercially acceptable terms or that the Company 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 series of claims brought against the Company 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 risk 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 our shares, like that of many biotechnology companies, is highly volatile.
Market prices for the Company's 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 the Company or its 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 common stock of the Company.
The issuance of shares of our preferred stock may adversely affect our Common Stock.
The board of directors of the Company 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 common stock, if the rights, preferences and privileges of such preferred stock (i) restrict the declaration or payment of dividends on common stock, (ii) dilute the voting power of common stock, (iii) impair the liquidation rights of the common stock or (iv) delay or prevent a change in control of the Company from occurring, among other possibilities.
Item 2. Description of Property
Our corporate headquarters are located at 321 Norristown Road, Suite 230, Amber, PA, in approximately 570 square feet of space occupied under a lease with a monthly rate of $948 that expires on June 30, 2006. Also we lease 450 square feet of office space at 8215 SW Tualatin-Sherwood Road, Suite 200, Tualatin, OR, under a lease on a month-to-month basis at a monthly rate of approximately $900.
In addition, we lease approximately 1500 square feet of commercial space in Sherwood, Oregon, at a monthly rate of approximately $1,189. This lease will expire on April 30, 2006.
We expect that our current facilities will be sufficient for the foreseeable future. To the extent that we require additional space in the near future, we believe that we will be able to secure additional leased facilities at commercially reasonable rates.
Item 3. Legal Proceedings
As of the date hereof, the Company is not a party to or engaged in any material legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
In December 2005, the Company, formerly known as A-Fem Medical Corporation, changed its name to QuantRx Biomedical Corporation. Amendments to the Company's Articles of Incorporation and Bylaws to adopt such name change were approved by (i) the unanimous written consent of the Board of Directors of the Company and (ii) a written consent, in lieu of a meeting of stockholders, that was executed by the holders of 16,625,430 shares of our capital stock, on an as converted basis, representing approximately 50.93% of our then outstanding voting capital stock, on an as converted basis.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters Our Common Stock
Our common stock traded on the OTC Pink Sheets under the symbol "AFEM.PK." Upon the change of our corporate name to QuantRx Biomedical Corporation on December 2, 2005, our trading symbol was changed to "QTXB." Our common stock has a limited and sporadic trading history. The prices below are based on high and low reported sales prices as reported by the Pink Sheets during the calendar quarters indicated. The prices represent quotations between dealers without adjustment for retail mark-up, mark-down or commission and do not necessarily represent actual transactions.
High Low
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Year ended December 31, 2005
Fourth Quarter $ 2.00 $ 0.95
Third Quarter $ 1.50 $ 0.50
Second Quarter $ 0.75 $ 0.30
First Quarter $ 0.76 $ 0.25
Year ended December 31, 2004
Fourth Quarter $ 0.76 $ 0.04
Third Quarter $ 0.12 $ 0.00
Second Quarter $ 0.07 $ 0.00
First Quarter $ 0.31 $ 0.00
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Stockholders
As of February 28, 2006 there were approximately 320 holders of record of our common stock.
Dividends
We have not declared nor paid any cash dividends on our common stock. We currently anticipate that we will retain all of our future earnings for use in the expansion and operation of our business, thus we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Purchases of Equity Securities
During the year ended December 31, 2005, we did not purchase any outstanding shares of our equity securities, nor did any person or entity purchase any outstanding equity securities of the company on our behalf.
Recent Sales of Unregistered Securities
On October 29, 2004, the Company issued a warrant to Goldman, Sachs & Co. in consideration of that entity's introduction of the Company to investors that purchased shares of common stock in October
and November 2004. The warrant represents the right to purchase 956,873 shares of common stock at an exercise price of $0.50.
In November 2004, the Company closed a sale of an aggregate of 3,184,640 shares of common stock, at a price of $0.05 per share, to ten accredited investors for gross proceeds of $159,232 in cash.
On February 28, 2005, the Company issued a warrant to Dr. Shalom Hirschman in consideration of that individual's introduction of the Company to investors that purchased shares of common stock in an issue that closed May 27, 2005. The warrant represents the right to purchase 500,000 shares of common stock at an exercise price of $0.01.
On March 1, 2005, the Company issued warrants to Charles Finnegan, Jr. and Alfred Thurber, Jr. in consideration of certain public relations services done for the Company. The warrants represent in the aggregate the right to purchase 70,000 shares of Common Stock at an exercise price of $0.50.
On May 3, 2005, the Company granted an option to Walter Witoshkin, our Chief Executive Officer, to purchase up to 1,000,000 shares of common stock at an exercise price of $0.50 per share. 333,000 shares vested immediately on the date of grant and will continue to vest with respect to approximately 18,527 shares each monthly anniversary thereafter until fully-vested.
On May 27, 2005, the Company completed a private placement of 2,171,982 shares of common stock and warrants to purchase an aggregate of 1,085,996 shares of common stock at $0.85 per share to accredited investors for gross proceeds of $1,086,244 in cash. The Company issued warrants to purchase 217,198 shares of common stock at $0.55 per share in total valued at $111,271 and paid cash commissions of $76,794 in connection with the private placement to Dawson James, Inc., and issued an additional 570,000 warrants to purchase 570,000 shares of Company common stock at a per share price ranging from $0.01 to $0.50 in total valued at $324,093 for services related to the financing, resulting in total offering costs of $512,158.
On May 27, 2005, 375,000 shares of Series A convertible preferred stock were converted into shares of the Company's common stock, $0.01 par value. In 2005, the 375,000 shares of preferred stock were converted into 562,500 shares of common stock with 375,000 issued and another 187,500 to be administered. For all corporate purposes the 562,500 shares were deemed issued and outstanding as of December 31, 2005.
On November 8, 2005, the Company issued a warrant to Burnham Hill Partners in consideration of certain financial consulting services. The warrant represents the right to purchase 100,000 shares of common stock at an exercise price of $2.00.
In the fourth quarter of 2005, a related party note due to Douglas McKay in the amount of $400,000 was negotiated and a settlement agreement resulted in the issuance to Douglas McKay of 900,000 shares of our common stock in complete payment of the note. The shares were issued at $0.44 per share.
In the fourth quarter of 2005, a note due to Richard Schroeder in the amount of $15,000 was negotiated and a settlement agreement resulted in the issuance to Richard Schroeder of 34,090 shares of our common stock in complete payment of the note. The shares were issued at $0.44 per share.
In the fourth quarter of 2005, a loan with Richard Schroeder in the amount of $4,000 was negotiated and a settlement agreement resulted in the issuance of 80,000 shares of our common stock in complete payment of the note. The shares were issued at $0.05 per share.
As of December 31, 2005, the Company had issued $875,000 principal amount of 8% convertible promissory notes to certain private accredited investors. These notes were non-conventional convertible debts giving rise to a related embedded derivative subject to net share settlement as an equity derivative. Also, each note holder received vested warrants with a five year term to purchase in total 131,250 shares of our common stock at an exercise price of $1.50 in total value of at $208,031. In association with this debt, the Company issued warrants for services to purchase 45,120 shares of common stock at $1.50 per share in total valued at $71,515 and paid cash commissions of $56,400 in connection with the private placement to Dawson James, Inc. resulting in total deferred debt offering cost of $127,915. This round of financing commenced in December, 2005, and was closed on February 15, 2006. Subsequent to December 31, 2005, the Company raised an additional $3,155,000 in additional 8% convertible promissory notes.
The issuances of the above securities were deemed to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the Securities Act or Regulation D promulgated under the Securities Act, as transactions by an issuer not involving a public offering.
Item 6. Management's Discussion and Analysis
The following discussion of our financial condition should be read together with our financial statements and related notes included in this annual report on Form 10-KSB. Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the financial statements and accompanying notes. The SEC has defined a company's critical accounting policies as the ones that are most important to the portrayal of the company's financial condition and results of operations, and which require the company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. All significant estimates and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and updated when necessary. We believe that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions.
Additional information on significant accounting principles is provided in Note 2 of the attached financial statements.
We believe that our short-term and long-term liquidity can be affected by many factors, some of which are beyond our control, including the successful and continued development of our product candidates; the costs associated with protecting and expanding our patent and other intellectual property rights; future payments, if any, received or made under existing or possible future collaborative arrangements; the timing of regulatory approvals needed to market our product candidates; and market acceptance of our products.
We believe that the ability to develop and commercialize our diagnostic products and other technologies will depend in significant part on our ability to:
o enter into effective sales, marketing and distribution arrangements with other parties;
o operate without infringing upon the proprietary rights of others;
o obtain patents;
o develop and obtain additional patents and technologies in our key operating areas of interest; and
o establish relationships with third-party manufacturers.
Our Results of Operations
We recognized revenues of $55,645 and $66,364 for the years ended December 31, 2005 and 2004 respectively. Total operating expenses for the years ended December 31, 2005 and 2004 were $1,123,664 and $157,549, respectively. Highlights of the major components of these expenses are detailed and discussed below:
Year Ended Year Ended
December 31, 2005 December 31, 2004
------------------ ------------------
Professional fees $ 285,815 $ 102,033
General & $ 605,842 $50,691
Administrative
Research & $ 136,862 -
Development
|
Professional fees include the costs of legal, consulting and auditing services provided to us. The majority of these expenses relate to consulting fees incurred as we required external assistance in preparing and maintaining our financial records. The increase in professional fees from 2004 to 2005 is primarily due to legal fees associated with the protection of our patents and regulatory compliance. While we are unable to estimate future costs of this nature with any degree of certainty, we intend to retain a limited number of skilled management to reduce the need for extensive assistance from outside law firms, consultants and accounting professionals.
General and administrative expenses include but are not limited to payroll, rent, office expenses and stock registrar expenses. The increase in general and administrative expenses from 2004 to 2005 is primarily due to the hiring of employees and the expenses related to bringing the Company back to an operational status. While we are unable to estimate future costs of this nature with any degree of certainty, management will continue to explore possibilities to maintain cost efficiency in this area.
Research and development expense primarily reflects technical consulting and expenses incurred in connection with the development of our product candidates. The increase in research and development expenses reflects the Company's effort to expand and enhance its intellectual property positions.
Revenues for the years 2005 and 2004 are primarily derived from a licensing agreement for a specific use of our Rapid-Sense technology in drug of abuse diagnostics as well as a technology evaluation agreement for the Rapid-Sense technology.
Management's Discussion of Quarterly Results of Operations for 2004 and 2005
2005 (Unaudited)
JANUARY - MARCH APRIL - JUNE JULY - SEPTEMBER OCTOBER - DECEMBER
--------------- ------------ ---------------- ------------------
Revenue from License $12,841 $12,841 $12,841 $17,121
Professional Fees $11,361 $103,169 $146,033 $25,252
General & $13,365 $94,482 $323,369 $174,626
Administrative
Research & Development $33,016 $30,039 $33,885 $39,922
|
The Company receives licensing fees from Branan Medical Corporation in connection with a Rapid-Sense license agreement, which represented the source of all our revenues for 2005.
The increase in operating expenses reflects the Company's effort to expand and enhance its intellectual property positions and bring the Company to an operational status, as well as the hiring of employees to assist in bringing the Company to a fully functional status.
2004 (Unaudited)
JANUARY - MARCH APRIL - JUNE JULY - SEPTEMBER OCTOBER - DECEMBER
--------------- ------------ ---------------- ------------------
Revenue from License $27,841 $17,121 $8,561 $12,841
Professional Fees $38,240 $18,271 $12,548 $32,974
|
In the first quarter, the Company received $15,000 from Martin Diagnostics for a technology evaluation agreement and $12,841 from Branan Medical Corporation for a license agreement. The funds were primarily used to pay legal invoices, the stock registrar, and two consultants.
In the second quarter, the Company received $17,121 from Branan Medical Corporation and primarily used the funds to pay legal invoices, the stock registrar, and two consultants.
In the third quarter, the Company received $8,561 from Branan Medical Corporation and primarily used the funds to pay legal invoices, the stock registrar, and two consultants.
In the fourth quarter, the Company received $12,841 from Branan Medical Corporation. The Company also received $159,232 as consideration for the sale of its common stock, and a $10,240 advance against future stock issue. The funds were primarily used to pay both current and past invoices, as well as establishing an office.
Liquidity and Capital Resources
At December 31, 2005, the Company had cash and cash equivalents of $990,523 as compared to $108,471 at December 31, 2004.
During 2005, the Company raised $1,009,450, which is net of cash issuance costs of $76,794, from private placement of its common stock. In association with this financing, warrants to purchase our common stock at exercise prices ranging from $0.01 to $0.55 valued in total at $435,364 were issued for services related to the financing. These resources were primarily used to fund operating activities.
During 2005, the Company received $37,500 upon the exercises of common stock warrants.
In December 2005, the Company raised $818,600, which is net of cash issuance costs of $56,400, from the issuance of 8% convertible promissory notes. In association with the financing, warrants to purchase our common stock at an exercise price of $1.50 valued in total at $71,515 were issued for services related to the financing. These resources will be primarily used to fund operating activities.
The Company expects to be able to expand operation with the use of additional financing and increased revenues from operations.
As we continue to develop our current product candidates, we plan to expand our licensing activity for multiple uses of our Rapid-Sense diagnostic technology, as well as enter into collaborative arrangements with selected strategic partners for the development of new product candidates.
We estimate that our Miniform and Pad-Kit technologies will enable us to launch products into both the OTC marketplace and Medical Laboratory market in conjunction with established partners.
Off-Balance Sheet Arrangements
We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Product Liability Insurance Coverage
We estimate that the Company will acquire product liability insurance, as it introduces products into the marketplace.
Item 7. Financial Statements.
Audited balance sheets for the years ended December 31, 2005 and 2004 and audited statements of operations, changes in stockholders' equity (deficit) and cash flows for the years ended December 31, 2005 and 2004 are included beginning immediately following the signature page to this report, beginning on page F-1.
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 8A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is communicated to our management including our Chief Executive Officer and Chief Financial Officer as appropriate. With the supervision and with the participation of our management, including the principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined under Exchange Act Rules 13a-15(e) and 15(d)-15(e)), as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer have concluded that these disclosure controls and procedures were effective as of December 31, 2005.
Managements Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2005.
All internal control systems, no matter how well designed, have inherent limitations. Management therefore is continuing to improve on the design of such controls.
Item 8B. Other Information
Not Applicable.
PART III
Item 9. Directors and Executive Officers
The following table sets forth the Company's Executive Officers and Directors as of December 31, 2005:
Directors & Executive Officers Age Position
------------------------------ --- ----------------------------------
Walter W. Witoshkin 61 Director, CEO & President
William H. Fleming, Ph.D. 59 Director, Secretary & Chief
Scientific Officer
Sasha Afanassiev 38 CFO, Treasurer & V.P. of Finance
Cynthia Horton 41 V.P. of Diagnostics
Evan Levine 40 Director
Dr. Shalom Hirschman 69 Director
|
Walter Witoshkin has served as Director, President and CEO of QuantRx since April, 2005. Prior to this, Mr. Witoshkin was a partner and founder of Trident Group, LLC, a management consulting enterprise. Mr. Witoshkin currently maintains his interest in Trident Group, LLC.
William H. Fleming, Ph.D., has served as Vice President-Diagnostics of QuantRx from August, 1997 through July 2005, as a Director and Secretary of QuantRx since February 1994, and as Acting CEO from 2003 until May, 2005. From February 1994 through August 1997, Dr. Fleming served as President and Chief Operating Officer of QuantRx. He has served as Chief Scientific Officer of the Company since July, 2005. In addition, he was president, chief operating officer and a director of ProFem from July 1993 until its merger with QuantRx in June 1994. From April 1992 until July 1993, Dr. Fleming served as an associate with Sovereign Ventures, a healthcare consulting firm; concurrently he served as director of corporate development of Antivirals, Inc., a biotechnology company involved in antisense technology. Dr. Fleming is a director of ERC, a non-profit company.
Sasha Afanassiev, CPA, has served as CFO and Vice President-Finance of QuantRx since September, 2005. In addition, Mr. Afanassiev has served as Treasurer of the Company since December 2005. Prior to this, Mr. Afanassiev was the principal and founder of an accounting and tax consulting firm. Mr. Afanassiev currently maintains his interest in the firm.
Cynthia Horton has served as Vice President-Diagnostics of QuantRx since July, 2005. Mrs. Horton was the national sales manager for Applied Biotech, Inc., an Inverness Medical Innovations Company. Prior to that, she also directed sales for Drugs of Abuse POC's, Professional POC's for Women Health and branded OTC products for private label customers, at ABI, and its predecessor Forefront Diagnostics.
Evan Levine has served as a Director of QuantRx since September, 2005. Mr. Levine is currently Vice Chairman, President and Chief Executive Officer of ADVENTRX Pharmaceuticals, Inc. a publicly traded biotechnology company. Mr. Levine is also Managing Member of Mark Capital, LLC, a Venture
Capital Fund. Mr. Levine has over 18 years of investment banking, venture capital, arbitrage and senior corporate management experience.
Shalom Hirschman has served as a Director of QuantRx since September, 2005. Dr. Hirschman was Professor of Medicine, Director of the Division of Infectious Diseases and Vice-Chairman of the Department of Medicine at Mt. Sinai School of Medicine and the Mount Sinai Hospital. He spent nearly three decades at Mt. Sinai until his retirement. He then became the CEO, President and chief scientific officer of Advanced Viral Research Corp. from which he retired in 2004.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's Directors and officers, and persons who own more than 10% of a registered class of the Company's equity securities ("Section 16 Persons"), to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Section 16 Persons are required by SEC regulation to furnish the Company with copies of all Section 16(a) reports they file. Based on the Company's review of the forms it has received, on other reports filed by Section 16 Persons with the SEC and on the Company's records, the Company believes that during 2005, (1) Shalom Hirschman did not timely file a Form 3 to report the beneficial ownership of 500,000 warrants to purchase 500,000 shares of common stock and did not timely file a Form 4 for the acquisition of 500,000 common shares upon the exercise of those warrants, (2) Walter Witoshkin did not timely file a Form 3 to report the grant of 1,000,000 common stock options, (3) Evan Levine did not timely file a Form 3 to report the beneficial ownership of our capital stock, and (4) the Company has determined, not conclusively, that Matthew Balk did not timely file a Form 3, as a more than 10% owner, to report the beneficial ownership of our capital stock.
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Company's code of ethics may also be obtained by any person without charge by sending a written request addressed to: QuantRx Biomedical Corporation, 321 Norristown Road, Suite 230, Ambler, PA 19002.
Audit Committee
As of the date hereof, Shalom Hirschman and William Fleming serve on the audit committee of the Company's board of directors. William Fleming is the chairperson of the audit committee. The Company does not yet have an independent financial expert serving on the Audit Committee, as it is in the process of establishing a complete Board.
Item 10. Executive Compensation
Executive Compensation Table
The following Summary Compensation Table sets forth summary information as to compensation received by the Company's Chief Executive Officer and each of the other most highly compensated persons who were serving as executive officers of the Company as of December 31, 2005.
Annual Securities All Other
Name & Principal Position Year Salary underlying Options Compensation
------------------------------------ ----------- --------- ---------------------- ---------------
Walter W. Witoshkin 2003 $ - - $ -
CEO & President 2004 $ - - $ -
2005 $ 112,500 1,000,000 $ -
William H. Fleming 2003 $ - - $ 12,472
Secretary & Chief Scientific 2004 $ - - $ 31,815
Officer
2005 $ 67,292 - $ 51,500
Sasha Afanassiev 2003 $ - - $ -
CFO, Treasurer & V.P. of Finance 2004 $ - - $ -
2005 $ 19,250 - $ -
Cynthia Horton 2003 $ - - $ -
V.P. of Diagnostics 2004 $ - - $ -
2005 $ 45,833 - $ 10,000
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For the year ended December 31, 2004 there were no stock options issued. See notes of included audited financial statements for additional details.
Option Grants
The following table sets forth information regarding all options granted in the year ended December 31, 2005.
Number of Percent of total
shares of options granted
Common Stock to employees in
underlying the year ended Exercise Expiration
options granted December 31, 2005 Price Date Fair Value of Grant
---------------- ------------------ -------- ----------- --------------------
Walter W. Witoshkin 1,000,000 100% $ 0.50 05/03/2015 $ 298,900
|
The Company used the Black-Scholes option price calculation to value the options granted in 2005 using the following assumptions: risk-free rate of 3.78%; volatility of 1.85; actual term and exercise price of warrants granted.
The options granted in 2005 vest as follows; 333,000 shares vested on May 3, 2005 and the remaining options will continue to vest with respect to 18,527 shares each monthly anniversary thereafter until fully-vested.
Aggregated Option Exercises in Last Year and Year-End Values
No executive officer exercised any options during the year ended December 31, 2005.
The following table provides information regarding the number of shares covered by both exercisable and unexercisable stock options held by the named executive officers as of December 31, 2005, and the value of "in-the-money" options, which values represent the positive spread between the exercise price of any such options and the year-end value of the common stock of the Company.
Number of Securities Underlying
Unexercised Options at Value of In-The-Money
December 31, 2005 Options at December 31, 2005
----------------- -- ---------------- ---------------- --- ----------------
Exercisable Unexercisable Exercisable Unexercisable
----------------- ----------------- ----------------- ------------------
Walter W. Witoshkin 481,218 518,782 $ 548,589 $ 591,411
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The value is based on the closing price of common stock of the Company
of $1.64 on December 31, 2005, less the
option exercise price.
Compensation of Directors
Directors do not receive any compensation for their serving on the Board of Directors of the Company.
Employment Contracts
We have entered into an employment contract with our Chief Executive Officer that provides for the continuation of salary if terminated for reasons other than cause, as defined in those agreements. At December 31, 2005, the future employment contract commitment for such key executive based on stated termination clause was approximately $240,000.
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of February 28, 2006, concerning the ownership of common stock by (i) each stockholder of the Company known by the Company to be the beneficial owner of more than 5% of the outstanding shares of common stock or preferred stock, (ii) each current member of the board of directors of the Company and (iii) each executive officer of the Company named in the Summary Compensation Table appearing under "Executive Compensation" above.
The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 of the Securities Exchange Act and the information is not necessarily indicative of beneficial ownership for any other purpose. Under that rule, beneficial ownership includes any shares as to which the individual or entity has voting power or investment power and any shares that the individual has the right to acquire within 60 days through the exercise of any stock option or other right. Unless otherwise indicated in the footnotes or table, each person or entity has sole voting and investment power, or shares such powers with his or her spouse, with respect to the shares shown as beneficially owned.
The Company had only common stock outstanding at February 28, 2006; therefore the following table refers to our common stock.
Amount and Nature
of Beneficial
Name and Address of Ownership as of Percentage of
Beneficial Owner (1) February 28, 2006 Class (2)
-------------------- ----------------- ---------
Walter W. Witoshkin 555,327 1.79%
William H. Fleming 492,034 1.61%
Shalom Hirschman 500,000 1.64%
Evan Levine(3) 4,783,209 15.67%
6725 Mesa Ridge Road,
Suite 100
San Diego, CA 92121
Matthew Balk(4) 5,728,009 18.77%
570 Lexington Avenue
New York, NY 10021
Cass Gunther Adelman(5) 2,100,000 6.88%
570 Lexington Avenue
New York, NY 10021
Mark Capital, LLC 3,758,009 12.31%
6725 Mesa Ridge Road,
Suite 100
San Diego, CA 92121
Sherbrooke Partners, LLC 4,508,009 14.77%
570 Lexington Avenue
New York, NY 10021
CGA Resources, LLC 1,800,000 5.90%
570 Lexington Avenue
New York, NY 10021
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Item 12. Certain Relationships and Related Transactions
On April 13, 1998, we entered into a loan agreement with Doug McKay for an aggregate loan amount of $400,000. We entered into the foregoing loan agreement in order to meet operational needs. The loan agreement is unsecured, bears no interest and is due on demand. During 2005, the note was negotiated and settled with the issuance of 900,000 common shares, $0.01 par value. The shares were issued at $0.44 per share.
In the first quarter of 2005, the Company granted to Dr. Shalom Hirschman, currently a member of the Company's board of directors, 500,000 warrants to purchase common stock of the Company. Such warrants were issued prior to Dr. Shalom Hirschman's appointment to the Board. The warrants have an exercise price of $0.01. The warrants were issued pursuant to an agreement to secure financing for the Company and are valued at $295,400. The value of this transaction was deemed to be part of the $512,158 of offering costs assigned to our 2005 private placement.
On November 8, 2005 the Company issued 100,000 common stock warrants with a five year term to purchase 100,000 shares of common stock at an exercise price of $2.00. The warrants were issued as payment for financial advisory services to Burnham Hill Partners, of which Matthew Balk, a beneficial owner of more than 5% of outstanding shares of common stock, is a managing member. The fair value for these warrants was $115,000, of which $33,306 was expensed in the year ended December 31, 2005, with the remaining $81,694 recorded as prepaid consulting at December 31, 2005, to be expensed in 2006 per the contract term.
Exhibit
No. Description
------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 filed with Form 10-KSB
filed on April 16, 2001)
3.2 Certificate of Amendment to the Articles of Incorporation of the
Company, dated November 30, 2005
3.3 Bylaws of the Company (incorporated by reference to Exhibit 3.2
filed with Form 10KSB40/A filed on September 23, 1999)
3.4 Certificate of Amendment to the Bylaws of the Company dated
December 2, 2005
4.1 Form of 8% Convertible Promissory among the Company and investors
4.2 Form of Warrant to Purchase Shares of Common Stock among the Company
and investors
4.3 Form of Warrant to Purchase Common Stock among the Company and
investors
4.4 Warrant to Purchase Common Stock, dated November 8, 2005, between
the Company and Burnham Hill Partners
10.1 Letter Agreement, dated December 3, 2005, between the Company and
Univest Capital Limited
10.2 Letter Agreement, dated November 8, 2005, between the Company and
Burnham Hill Partners
10.3 Letter Agreement, dated November 1, 2005, between the Company and
Dawson James Securities, Inc.
10.4 Letter Agreement, dated April 13, 2005, between the Company Dawson
James Securities, Inc.
14.1 Ethical Guidelines adopted by the Board of Directors of the Company
on May 31, 2005
31.1 Certification of Principal Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
32.1* Certification of Principal Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2* Certification of Principal Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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* The certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report on Form 10-KSB pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed "filed" by QuantRx Biomedical Corporation for purposes of Section 18 of the Exchange Act.
Item 14. Principal Accounting Fees and Services
The aggregate fees billed for professional services rendered by Williams & Webster, P.S. for the audit of our annual financial statements and the reviews of financial statements included in our Forms 10-QSB for years 2005 and 2004 are set forth in the table below.
2005 2004
-------- --------
Williams & Webster, P.S, $31,598 $27,624
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Audit-Related Fees
During the years ended December 31, 2005 and 2004, no assurance or related services were performed by Williams & Webster P.S. that were reasonably related to the performance of the audit or review of our financial statements.
Tax Fees
During the years ended December 31, 2005 and 2004, no fees were billed by Williams & Webster, P.S. for tax compliance, tax advice or tax planning services.
All Other Fees
During the years ended December 31, 2005 and 2004, no fees were billed by Williams & Webster, P.S. other than the fees set forth under the caption "Audit Fees" above. Pre-Approval Policies and Procedures of the Audit Committee
The Audit Committee has the sole authority to appoint, terminate and replace our independent auditor. The Audit Committee may not delegate these responsibilities. The Audit Committee has the sole authority to approve the scope, fees and terms of all audit engagements, as well as all permissible non-audit engagements of our independent auditor.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
QuantRx Biomedical Corporation
Date: March 31, 2006 By: /s/ Walter W. Witoshkin
-------------------------------------
Walter W. Witoshkin, CEO & President
(Principal Executive Officer)
Date: March 31, 2006 By: /s/ Sasha Afanassiev
-------------------------------------
Sasha Afanassiev, CFO, Treasurer & V.P.
of Finance
(Principal Financial Officer)
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
QuantRx Biomedical Corporation
Date: March 31, 2006 By: /s/ Walter W. Witoshkin
-------------------------------------
Walter W. Witoshkin, Director
|
QuantRx Biomedical Corporation
Date: March 31, 2006 By: /s/ William H. Fleming
-------------------------------------
William H. Fleming, Director
Date: March 31, 2006 QuantRx Biomedical Corporation
By: /s/Shalom Hirschman
-------------------------------------
Dr. Shalom Hirschman, Director
|
STATEMENT OF INFORMATION FURNISHED
The following financial statements have been prepared in accordance with Form 10-KSB instructions and in the opinion of management contain all adjustments (consisting of only normal and recurring accruals) necessary to present fairly the financial position as of December 31, 2005 and 2004, the results of operations for the years ended December 31, 2005 and 2004, cash flows for the years ended December 31, 2005 and 2004, and Statements of Stockholders' Equity (Deficit) for the years ended December 31, 2005 and 2004. These results have been determined on the basis of generally accepted accounting principles and practices applied consistently.
QUANTRX BIOMEDICAL CORPORATION
FINANCIAL STATEMENTS
Table of Contents
Report of Independent Registered Public Accounting Firm F-3
Balance Sheets for the Years Ended
December 31, 2005 and 2004 F-4
Statements of Operations for the Years Ended
December 31, 2005 and 2004 F-5
Statements of Cash Flows for the Years Ended
December 31, 2005 and 2004 F-6
Statements of Stockholders Equity (Deficit)
for the Years Ended December 31, 2005
and 2004 F-7
Notes to Financial Statements F-8
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QuantRx Biomedical Corporation
Ambler, Pennsylvania
We have audited the accompanying balance sheets of QuantRx Biomedical Corporation as of December 31, 2005 and 2004, and the related statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of QuantRx Biomedical Corporation as of December 31, 2005 and 2004 and the results of its operations, stockholders' equity (deficit) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
March 30, 2006
QUANTRX BIOMEDICAL CORPORATION
BALANCE SHEETS
--------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 December 31, 2004
---------------------- --------------------
ASSETS
Current Assets
Cash and cash equivalents $ 990,523 $ 108,471
Prepaid expenses 131,745 10,990
Deferred financing costs, net 124,134 -
Deposits 2,362 585
---------------------- --------------------
Total Current Assets 1,248,764 120,046
---------------------- --------------------
Equipment, net 10,437 -
Intangible assets, net 62,729 67,553
---------------------- --------------------
Total Assets $ 1,321,930 $ 187,599
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable 126,408 146,211
Accrued expenses 85,400 123,156
Short-term convertible notes payable, net of discount $ 26,907 $ -
Short-term loans payable 28,500 52,500
Note payable - related party - 400,000
---------------------- --------------------
Total Current Liabilities 267,215 721,867
---------------------- --------------------
Commitments and contingencies - -
Stockholders' Equity (Deficit)
Convertible preferred stock -
$0.01 par value, 25,000,000 authorized
Series A shares 9,750,000 designated;
8,141,147 and 7,492,135 shares issued and outstanding 81,411 74,921
Common stock; $0.01 par value, 75,000,000 authorized;
18,239,773 and 13,906,198 shares issued and outstanding 182,397 139,061
Additional paid-in capital 23,612,630 20,980,915
Accumulated deficit (22,821,723) (21,729,165)
---------------------- --------------------
Total Stockholders' Equity (Deficit) 1,054,715 (534,268)
---------------------- --------------------
Total Liabilities and Stockholders' Equity (Deficit) $ 1,321,930 $ 187,599
====================== =====================
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The accompanying notes are an integral part of these financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
--------------------------------------------
2005 2004
-------------------- --------------------
Revenues from licensing $ 55,645 $ 66,364
-------------------- --------------------
Operating expenses:
Sales and marketing 88,194 -
General and administrative 605,842 50,691
Professional fees 285,815 102,033
Research and development 136,862 -
Amortization 4,824 4,825
Depreciation 2,127 -
-------------------- --------------------
Total operating expenses 1,123,664 157,549
-------------------- --------------------
Loss from operations (1,068,019) (91,185)
Other income (expense):
Interest income 8,724 -
Interest expense (2,575) -
Amortization of debt discount to interest expense (26,907) -
Amortization of deferred financing costs to interest expense (3,781) -
Gain on relinquishment of liability claims - 61,103
Other income (expense), net - 10,240
-------------------- --------------------
Total other income (expense), net (24,539) 71,343
-------------------- --------------------
Loss before taxes (1,092,558) (19,842)
Provision for income taxes - -
-------------------- --------------------
Net loss $ (1,092,558) $ (19,842)
==================== ====================
Basic and diluted net loss per common share:
Basic $ (0.07) $ nil
==================== ====================
Diluted $ (0.07) $ nil
==================== ====================
Weighted average shares used in per share calculation:
Basic 15,731,487 13,906,198
Diluted 15,731,487 13,906,198
|
The accompanying notes are an integral part of these financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31,
------------------------------------
2005 2004
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,092,558) $ (19,842)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 6,951 4,825
Interest expense related to amortization of non-cash discount, 30,688 -
non-cash beneficial conversion feature and deferred financing costs
Non-cash stock-based compensation expense 143,836 -
Non-cash fair value of warrants issued for consulting 115,000 -
(Increase) decrease in:
Prepaid expenses (120,755) (10,990)
Deposits (1,777) (585)
Increase (decrease) in:
Accounts payable (65,963) (84,292)
Accrued expenses (37,756) 39,697
----------------- ---------------
Net cash used by investing activities (1,022,334) (71,187)
----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (12,564) -
----------------- ---------------
Net cash used by investing activities (12,564) -
----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock and warrants, net of issuance costs 1,009,450 159,232
Proceeds from exercise of warrants 37,500 -
Proceeds from issuance of convertible notes 875,000 -
Cash financing costs due for issuance of convertible notes (56,400) -
Increase in payables for debt issuance costs 56,400 -
Net borrowing (repayments) of short term notes payable (5,000) -
----------------- ---------------
Net cash provided by financing activities 1,916,950 159,232
----------------- ---------------
Net increase (decrease) in cash and cash equivalents 882,052 88,045
Cash and cash equivalents, beginning of period 108,471 20,426
----------------- ---------------
Cash and cash equivalents, end of period $ 990,523 $ 108,471
================= ===============
Supplemental cash flow disclosures:
Interest expense paid in cash $ 314 $ -
Income tax paid $ - $ -
Supplemental disclosure of non-cash activities:
Issuance of preferred stock for accounts payable $ 10,240 $ -
Issuance of common stock to satisfy short term loans $ 19,000 $ -
Issuance of common stock to satisfy related party note payable $ 400,000 $ -
Fair value of warrants issued to placement agents for debt financing $ 71,515 $ -
costs
[Fair value of warrants issued with convertible notes $ 208,031 $ -
[Fair value of imbedded beneficial conversion derivative feature $ 666,969 $ -
The accompanying notes are an integral part of these financial statements.
|
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------------------------------------------------------------------------------------------
Stock
-----------------------------------------------------------------
Preferred Common
------------------------------ ------------------------------- Additional
Number Number Paid-in
of Share Amount of Shares Amount Capital
------------ ------------ ------------- ------------ ---------------
BALANCE, DECEMBER 31, 2003 7,492,135 $ 74,921 10,721,558 $ 107,215 $ 20,549,640
Adjustment of accrued payroll, - - - - 303,889
contributed capital
Issuance of common stock - - 3,184,640 31,846 127,386
Net loss for the year ended - - - - -
December 31, 2004
BALANCE, DECEMBER 31, 2004 7,492,135 $ 74,921 13,906,198 $ 139,061 $ 20,980,915
Issuance of common stock at $0.50
per share, net of cash issuance - - 2,171,982 21,720 987,730
costs of $76,794
Issuance of common stock in
exchange for debt at an average - - 1,014,090 10,141 408,859
price of $0.41 per share
Exercise of common stock warrants - - 585,000 5,850 31,650
Conversion of Series A convertible (375,000) (3,750) 562,500 5,625 (1,875)
preferred stock to common stock
Fair value of stock-based - - - - 143,836
compensation
Exercise of preferred stock
warrants for payable at $0.01 per 1,024,012 10,240 - - -
share
Fair value of warrants issued for - - - - 115,000
consulting
Fair value of warrants issued with - - - - 208,031
convertible notes
Fair value of embedded beneficial
conversion derivative feature of - - - - 666,969
convertible notes
Fair value of warrants issued for - - - - 71,515
debt financing costs
Fractional share reconciling - - 3 - -
adjustment
Net loss for the year ended - - - - -
December 31, 2005
------------ ------------ ------------- ------------ ---------------
BALANCE, DECEMBER 31, 2005 8,141,147 $ 81,411 18,239,773 $ 182,397 $ 23,612,630
Total
Subscription Accumulated Stockholder's
Receivable Deficit (Deficit)
--------------- ---------------- -----------------
BALANCE, DECEMBER 31, 2003 $ (52,000) $ (21,709,323) $ (1,029,547)
Adjustment of accrued payroll, 52,000 - 355,889
contributed capital
Issuance of common stock - - 159,232
Net loss for the year ended - (19,842) (19,842)
December 31, 2004
BALANCE, DECEMBER 31, 2004 $ - $ (21,729,165) $ (534,268)
Issuance of common stock at $0.50
per share, net of cash issuance - - 1,009,450
costs of $76,794
Issuance of common stock in
exchange for debt at an average - - 419,000
price of $0.41 per share
Exercise of common stock warrants - - 37,500
Conversion of Series A convertible - - -
preferred stock to common stock
Fair value of stock-based - - 143,836
compensation
Exercise of preferred stock
warrants for payable at $0.01 per - - 10,240
share
Fair value of warrants issued for - - 115,000
consulting
Fair value of warrants issued with - - 208,031
convertible notes
Fair value of embedded beneficial
conversion derivative feature of - - 666,969
convertible notes
Fair value of warrants issued for - - 71,515
debt financing costs
Fractional share reconciling - - -
adjustment
Net loss for the year ended - (1,092,558) (1,092,558)
December 31, 2005
--------------- ---------------- -----------------
BALANCE, DECEMBER 31, 2005 $ - $ (22,821,723) $ 1,054,715
-----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
|
QUANTRX BIOMEDICAL CORPORATION
1. DESCRIPTION OF BUSINESS
QuantRx Biomedical Corporation, formerly A-Fem Medical Corporation, was incorporated on December 5, 1986 in the State of Nevada. The Company's principal business office is located at 321 Norristown Road, Suite 230, Ambler, Pennsylvania. The Company also has offices in Tualatin and Sherwood, Oregon.
QuantRx Biomedical Corporation (hereinafter "QuantRx" or the "Company") is a biomedical company that is committed to the research, development, acquisition and commercialization, directly or in collaboration with other commercial partners, of proprietary medical technology platforms and products for diagnostics and treatment of medical needs.
The Company has developed three proprietary platforms: The Miniform, a disposable technology that can be used as a drug delivery system; Rapid-Sense, a point-of-care broadly enabling, diagnostic technology; and, the PadKit, a diagnostic sample collection technology. These three technologies are in different stages of development ranging from commercialization to proof of concept. The Company's goal is to bring all products to commercialization with manufacturing control maintained by QuantRx and sales and marketing managed through a strategic partner, where appropriate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of QuantRx Biomedical Corporation 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 and have been consistently applied in the preparation of the financial statements.
The Company accounts for its stock option plan under the recognition and measurement principles of the revised statement to Statement of Financial Accounting Standards No. 123, "Share-Based Payments" (hereinafter "SFAS No. 123 (R)"). Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed in SFAS No. 123 (R), which resulted in stock-based compensation expense for the year ended December 31, 2005 of $143,836. The Company had no stock-based compensation expense for the year ended December 31, 2004.
QuantRx carries its accounts receivable at net realizable value. The Company provides reserves against trade receivables for estimated losses that may result from a customers' inability to pay. The
amount is determined by analyzing known uncollectible accounts, aged receivables, economic conditions in the customers' country or industry, historical losses and customer credit-worthiness. Additionally, all accounts with aged balances greater than one year are fully reserved for. Amounts later determined and specifically identified to be uncollectible are charged or written off against the reserve. The Company had no receivables or bad debts at its annual reporting dates in the accompanying financial statements.
Following guidance by EITF 00-27, the Company allocates a portion of proceeds received from convertible notes to warrants (granted to note holders) and also to the beneficial conversion feature of the debt. The value of the warrants and the beneficial conversion feature are recorded on the balance sheet as a debt discount and as an increase to stockholders' equity. The discounts are amortized over the life of the loans.
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. Cash equivalents consisted of money market funds at December 31, 2005. The Company had no cash equivalents at December 31, 2004.
The Company maintains its cash and cash equivalents in commercial accounts at a major financial institution. Although the financial institution is considered creditworthy and has not experienced any losses on its deposits as of December 31, 2005, the Company's cash balances exceeded Federal Deposit Insurance Corporation limits at December 31, 2005 and 2004 by $889,173 and $8,471, respectively.
In December 2005, the Company issued convertible notes and warrants which would require QuantRx to issue shares of common stock upon conversion of these securities. The Company accounts for the fair values of the outstanding warrants to purchase common stock and the conversion feature of its convertible notes in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and EITF Issue No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock," which requires the Company to bifurcate and separately account for the conversion feature and warrants as derivatives. The embedded beneficial conversion derivative and warrants are accounted for as equity derivatives since they can only be settled through net share settlement under the agreement. The Company is required to carry these derivatives on its balance sheet as equity and the unrealized changes in the value of these derivatives are not reflected in net loss as changes in fair value. If these derivatives were determined to be liabilities subject to net cash settlement, the Company would have to carry them as liabilities subject to fair market changes which would be reflected in earnings. Such changes in fair value are recorded as an adjustment to reconcile net loss to net cash used in operating activities in the statement of cash flows.
The Company computes net income (loss) per common share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share." Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share
equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as including common stock equivalents in the calculation of diluted earnings per share would have been antidilutive.
As of December 31, 2005, the Company had outstanding 1,060,000 common stock options and 2,663,937 common stock warrants, 8,141,147 convertible preferred shares and 180,000 preferred stock warrants convertible into 12,481,720 common shares in total, and convertible debt subject to beneficial conversion of 875,000 shares. The above options, warrants, and convertible securities were deemed to be antidilutive for the Company's year end of December 31, 2005.
As of December 31, 2004, the Company had outstanding 210,000 common stock options and 1,244,943 common stock warrants, and 7,492,135 convertible preferred shares and 1,204,012 preferred stock warrants convertible into 13,044,221 common shares in total. The above options, warrants, and convertible securities were deemed to be antidilutive for the Company's year end of December 31, 2004.
Equipment is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company's fixed assets at December 31, 2005 consisted of computer equipment and office equipment, with estimated useful lives of three years. Depreciation expense was $2,127 for the year ended December 31, 2005. The Company had no fixed assets nor depreciation expense for the year ended December 31, 2004. Expenditures for repairs and maintenance are expensed as incurred.
The Company's financial instruments primarily consist of cash and cash equivalents, prepaid expenses and other deferred charges, accounts payable, accrued expenses and other current liabilities. All instruments are accounted for on an historical cost basis, which, due to the short maturity of these financial instruments, approximates the fair value at the reporting dates of these financial statements.
The fair value of derivative instruments is based on valuations using a market value approach. This approach determines the fair value of the securities sold by the Company by using one or more methods that compare these securities to similar securities that have been sold.
The Company follows the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (hereinafter SFAS No. 109) under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The provisions of SFAS No. 109 also require the recognition of future tax benefits such as net operating loss carryforwards, to the extent that the realization of such benefits is more likely than not. To the extent that it is more likely than not that such benefits will not be received, the Company records a valuation allowance against the related deferred tax asset.
The Company's intangible assets consist of patents, which are carried at the legal cost to obtain them. Patents with an original recorded cost of $82,028 are being amortized using the straight line method over an estimated useful life of seventeen years. Amortization expense totaled $4,824 and $4,825 for the years ended December 31, 2005 and 2004, respectively. The estimated aggregate amortization expense for each of the five succeeding years is $4,824.
In March 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 156, "Accounting for Servicing
of Financial Assets, an Amendment of FASB Statement No. 140," (hereinafter "SFAS
No. 156). This statement requires an entity to recognize a servicing asset or
servicing liability each time it undertakes an obligation to service a financial
asset by entering into a servicing contract in any of the following situations:
a transfer of the servicer's financial assets that meets the requirements for
sale accounting; a transfer of the servicer's financial assets to a qualifying
special-purpose entity in a guaranteed mortgage securitization in which the
transferor retains all of the resulting securities and classifies them as either
available-for-sale securities or trading securities; or an acquisition or
assumption of an obligation to service a financial asset that does not relate to
financial assets of the servicer or its consolidated affiliates. The statement
also requires all separately recognized servicing assets and servicing
liabilities to be initially recorded at fair value, if practicable and permits
an entity to choose either the amortization or fair value method for subsequent
measurement of each class of servicing assets and liabilities. The statement
further permits, at its initial adoption, a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights, without calling into question the treatment of other
available-for-sale securities under Statement No. 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entity's exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value and
requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets and
servicing liabilities. This statement is effective for fiscal years beginning
after September 15, 2006, with early adoption permitted as of the beginning of
an entity's fiscal year. Management believes the adoption of this statement will
have no impact on the Company's financial condition or results of operations.
In February 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 155, "Accounting for Certain Hybrid Financial Instruments, an Amendment of FASB Standards No. 133 and 140," (hereinafter SFAS No. 155). This statement established the accounting for certain derivatives embedded in other instruments. It simplifies accounting for certain hybrid financial instruments by permitting fair value remeasurement for any hybrid instrument that contains an embedded derivative that would otherwise require bifurcation under SFAS No. 133 as well as eliminating a restriction on the passive derivative instruments that a qualifying special-purpose entity may hold under SFAS No. 140. This statement allows a public entity to irrevocably elect to initially and subsequently measure a hybrid instrument that would be required to be separated into a host contract and derivative in its entirety at fair value (with changes in fair value recognized in earnings) so long as that instrument is not designated as a hedging instrument pursuant to the statement. SFAS No. 140 previously prohibited a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This statement is effective for fiscal years beginning after September 15, 2006, with early adoption permitted as of the beginning of an
entity's fiscal year. Management believes the adoption of this statement will have no impact on the Company's financial condition or results of operations.
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, "Accounting Changes and Error Corrections," (hereinafter "SFAS No. 154") which replaces Accounting Principles Board Opinion No. 20, "Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion No. 28". SFAS No. 154 provides guidance on accounting for and reporting changes in accounting principle and error corrections. SFAS No. 154 requires that changes in accounting principle be applied retrospectively to prior period financial statements and is effective for fiscal years beginning after December 15, 2005. The Company does not expect SFAS No. 154 to have a material impact on its consolidated financial position, results of operations, or cash flows.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, "Exchanges of Nonmonetary Assets - an Amendment of APB Opinion No. 29," (hereinafter "SFAS No. 153"). This statement eliminates the exception to fair value for exchanges of similar productive assets and replaces it with a general exception for exchange transactions that do not have commercial substance, defined as transactions that are not expected to result in significant changes in the cash flows of the reporting entity. The Company has determined that the adoption of the statement had no immediate impact on the Company's financial condition or results of operations.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (R), "Share-Based Payments" (hereinafter "SFAS No. 123 (R)"). This statement replaces FASB Statement No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123 (R) establishes standards for the accounting for share-based payment transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This statement covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. SFAS No. 123 (R) requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date (with limited exceptions). That cost will be recognized in the entity's financial statements over the period during which the employee is required to provide services in exchange for the award. The Company has adopted SFAS No. 123 (R) which resulted in recognizing $143,836 in stock based compensation for the year ended December 31, 2005.
In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, "Inventory Costs-- an amendment of ARB No. 43, Chapter 4." This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . ." This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Management does not believe the adoption of this statement will have any immediate material impact on the Company as the Company maintains no inventory.
Certain amounts from prior periods have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company's accumulated deficit or net losses presented.
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. The Company periodically reviews its capitalized intangible assets to assess recoverability based on the projected undiscounted cash flows from operations, and impairments are recognized in operating results when a permanent diminution in value occurs. As of December 31, 2005, impairment of assets was not deemed necessary.
The Company recognizes revenue when persuasive evidence of an arrangement exists and delivery has occurred, provided the fee is fixed or determinable and collection is probable. The Company assesses whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a fee is based upon a variable such as acceptance by the customer, the Company accounts for the fee as not being fixed and determinable. In these cases, the Company defers revenue and recognizes it when it becomes due and payable. The Company assesses the probability of collection based on a number of factors, including past transaction history with the customer and the current financial condition of the customer. If the Company determines that collection of a fee is not reasonably assured, revenue is deferred until the time collection becomes reasonably assured.
Revenue from support agreements is recognized on a straight-line basis over the life of the contract, although the fee is due and payable at the time the agreement is signed or upon annual renewal.
The Company recognizes revenue from nonrefundable minimum royalty agreements from distributors or resellers upon delivery of product to the distributor or reseller, provided no significant obligations remain outstanding, the fee is fixed and determinable, and collection is probable. Once minimum royalties have been received, additional royalties are recognized as revenue when earned based on the distributor's or reseller's contractual reporting obligations.
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.
In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company examines on a periodic basis the carrying value of its tangible and intangible assets to determine whether there are any impairment losses. This standard establishes a single accounting model for long-lived assets to be disposed of by sale, including discontinued operations, and requires that these long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or discontinued operations. The determination of any impairment would include a comparison of estimated future cash flows anticipated to be generated during the remaining life of the assets to the net carrying value of the assets. For the years ended December 31, 2005 and 2004, no asset impairments were identified or recorded.
3. OTHER BALANCE SHEET INFORMATION
Components of selected captions in the accompanying balance sheets
consist of:
---------------------------------------------
December 31,
---------------------------------------------
2005 2004
----------------------- ----------------
Prepaid expenses:
Prepaid consulting - affiliate $ 81,694 $ -
Prepaid insurance 25,478 -
Prepaid legal 15,000 -
Prepaid rent 2,014 10,990
Prepaid travel 6,691 -
Other 868 -
----------------------- ----------------
Prepaid expenses $ 131,745 $ 10,990
======================= ================
Deferred financing costs:
Deferred financing costs $ 127,915 $ -
Less: accumulated amortization 3,781 -
----------------------- ----------------
Deferred financing costs, net $ 124,134 $ -
======================= ================
Equipment:
Computers and office equipment $ 12,564 $ -
Less: accumulated depreciation 2,127 -
----------------------- ----------------
Equipment, net $ 10,437 $ -
======================= ================
Short-term convertible notes payable, net:
Short-term convertible notes $ 875,000 $ -
Less: discount for warrants and conversion feature, net 848,093 -
----------------------- ----------------
Short-term convertible notes payable, net $ 26,907 $ -
======================= ================
Accrued expenses:
Professional fees $ 72,200 $ 123,156
Other 13,200 -
----------------------- ----------------
Accrued expenses $ 85,400 123,156
======================= ================
|
4. CONVERTIBLE DEBT
As of December 31, 2005, the Company had issued $875,000 principal amount of 8% convertible promissory notes to certain private accredited investors. These notes were non-conventional convertible debts giving rise to a related embedded derivative subject to net share settlement as an equity derivative. Also, each note holder received vested warrants with a five year term to purchase in total 131,250 shares of our common stock at an exercise price of $1.50 in total value at $208,031. In association with this debt, the Company issued warrants for services to purchase 45,120 shares of common stock at $1.50 per share in total valued at $71,515 and paid cash commissions of $56,400 in connection with the private placement to Dawson James, Inc. resulting in total deferred debt offering cost of $127,915. This round of financing commenced in December, 2005, and was closed on February 15, 2006. Subsequent to December 31, 2005, the Company raised an additional $3,155,000 in additional 8% convertible promissory notes.
The outstanding principal and interest on the promissory notes is payable by QuantRx on or before December 31, 2006. Interest on the outstanding principal amount of the promissory notes will accrue at a rate of 8% per annum. The note agreements contain provisions which would allow the Company to "net-share settle" any payment of the principal of these notes and accrued interest. The outstanding principal amount of the promissory notes and all accrued but unpaid interest will automatically be exchanged into any of QuantRx's securities issued in a qualified equity or equity based financing or combination of equity financings with gross proceeds totaling at least $2,000,000. For purposes of determining the number of equity securities, including warrants, to be received by the holders of the 8% convertible promissory notes upon such exchange, such holders will be deemed to have tendered 110% of the outstanding principal amount of the promissory notes and all accrued but unpaid interest as payment of the purchase price in such qualified financing. Upon such conversion, the holders will automatically be deemed to be purchasers in the qualified financing, and will be granted all rights afforded such purchasers. Upon consummation of the qualified financing, the 8% convertible promissory notes will cease to exist, and all of QuantRx's obligations under such promissory notes will terminate.
In the event QuantRx does not complete a qualified financing, QuantRx shall repay the entire principal balance then outstanding on December 31, 2006. Interest on the outstanding principal balance of the notes shall be computed on the basis of the actual number of days elapsed and a year of three hundred and sixty (360) days and shall be payable on the maturity date by the Company in cash or, at the option of the Company, in shares of the Company's equity securities. Commencing six months after the date of issuance of the promissory notes, a holder may elect to convert the outstanding balance of such promissory note into shares of QuantRx's common stock at a price per share of $1.00.
The Company allocated $208,031 of the principal amount of the 8% convertible promissory notes to the warrants as original issue discount, which represented the fair value of the warrants at the dates of issuance. In accordance with SFAS No. 133 and EITF 00-19, the Company determined that the notes contained an embedded equity derivative. The derivative which is the embedded beneficial conversion feature is only subject to net share settlement and is accounted for as an equity derivative under EITF 00-19. The Company also allocated $666,969 of the principal amount of the 8% convertible promissory notes to the embedded derivative of the beneficial conversion feature as original issue discount. The embedded derivative beneficial conversion feature was calculated in accordance with guidance from EITF 98-5 and 00-27 concerning the intrinsic value of conversion features. Accordingly, the value of the discount was limited to the value of the underlying debt after the effects of allocating fair value to the warrants. The discounts have been recorded as additional paid-in capital from the derivative transactions. In addition, as of December 31, 2005, placement agents involved in the financing were due cash commissions of $56,400 and warrants to purchase 45,120 shares of our common stock, the terms of which are identical to the warrants issued to investors. The fair value of the warrants issued to the placement agents is $71,515. The fair value of the warrants and the cash commissions are recorded as
deferred financing costs. The total original issue discount related to the warrants issued to the investors and the beneficial conversion feature and the deferred financing costs are being amortized to interest expense over the term of the convertible promissory notes. Interest expense, including amortization of original issue discount and deferred financing costs, related to the 8% convertible promissory notes was $32,948 for 2005.
5. COMMITMENTS AND CONTINGENCIES
The Company has operating leases for all of its office and warehouse space, all of which have expiration dates in 2006. Rent expense relating to our operating leases was approximately $36,695 and $2,198 for the years ended 2005 and 2004, respectively. The remaining commitment under our operating leases, all of which is due in 2006, is approximately $10,445.
The Company has retained an accounting firm to prepare all outstanding income tax returns. The Company has determined that due to operating losses and net loss carry forwards; there are no outstanding income tax liabilities.
The Company has entered into an employment contract with a key Company executive that provides for the continuation of salary to the executive if terminated for reasons other than cause, as defined in those agreements. At December 31, 2005, the future employment contract commitment for such key executive based on this termination clause was approximately $240,000.
6. INCOME TAXES
At December 31, 2005, the Company had net deferred tax assets calculated at an expected blended rate of 38% of approximately $8,293,873, 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 net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been established at December 31, 2005. The significant components of the deferred tax asset are as follows:
At December 31,
-------------------------------------------
2005 2004
------------------- --------------------
NOL - Beginning of year $ 21,255,572 $ 21,864,512
Expiration of NOL (263,313) (628,782)
Loss for year 833,722 19,842
------------------- --------------------
NOL - End of year $ 21,825,981 $ 21,255,572
=================== ====================
|
As of December 31, ------------------- --------------------
Deferred tax asset $ 8,293,873 $ 8,077,117
Deferred tax asset valuation
allowance (8,293,873) (8,077,117)
-- ---------------- --- ----------------
-- ---------------- --- ----------------
Net deferred tax assets $ - $ -
=================== ====================
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At December 31, 2005, the Company has net operating loss carryforwards of approximately $21,825,981, which expire in the years 2006 through 2025. The net change in the allowance account was $216,756 for the years ended December 31, 2005 and 2004.
7. CAPITAL STOCK
The Company has authorized 25,000,000 shares of preferred stock, of which 9,750,000 are designated Series A convertible preferred stock, $0.01 par value, with a conversion ratio of 1.5 common shares for each share of Series A preferred stock. The remaining 15,250,000 authorized preferred shares have not yet been designated by the Company. The Company had issued and outstanding 8,141,147 and 7,492,135 shares of its Series A convertible preferred stock at December 31, 2005 and 2004, respectively.
In the second quarter of 2005, 375,000 shares of Series A convertible preferred stock were converted into shares of common stock, $0.01 par value. In 2005, the 375,000 shares of preferred stock were converted into 562,500 shares of common stock with 375,000 issued and another 187,500 awaiting administrative issuance. For all corporate purposes the 562,500 shares were deemed issued and outstanding as of December 31, 2005.
In the third quarter of 2005, a total of 1,024,012 preferred stock warrants were exercised and exchanged for 1,024,012 shares of Series A convertible preferred stock, $0.01 par value. The warrants were exercised at a price of $0.01 per share. In 2004, the Company received $10,240. Preferred stock was issued in the third quarter of 2005 in satisfaction of this liability.
The Company has authorized 75,000,000 shares of its common stock, $0.01 par value. The Company had issued and outstanding 18,239,773 and 13,906,198 shares of its common stock at December 31, 2005 and 2004, respectively.
On May 27, 2005, the Company completed a private placement of 2,171,982 shares of common stock and warrants to purchase an aggregate of 1,085,996 shares of common stock at $0.85 per share to accredited investors for gross proceeds of $1,086,244 in cash. The Company issued warrants to purchase 217,198 shares of common stock at $0.55 per share in total valued at $111,271 and paid cash commissions of $76,794 in connection with the private placement to Dawson James, Inc., and an additional 570,000 warrants to purchase 570,000 shares of our common stock at a per share price ranging from $0.01 to $0.50 in total valued at $324,093 to individuals for services related to the financing, resulting in total offering costs of $512,158.
In the second quarter of 2005, a total of 35,000 common stock warrants were exercised and exchanged for 35,000 common shares, $0.01 par value. The exercise price was $0.50 per share and the Company received proceeds of $17,500.
In the fourth quarter of 2005, 550,000 common stock warrants were exercised and exchanged for 550,000 common shares, $0.01 par value. The exercise prices ranged from $0.01 to $0.40. The Company received proceeds from these transactions totaling $20,000.
In the fourth quarter of 2005, a related party note in the amount of $400,000 was negotiated and a settlement agreement resulted in the issuance of 900,000 shares of our common stock in complete payment of the note. The shares were issued at $0.44 per share.
In the fourth quarter of 2005, a note in the amount of $15,000 was negotiated and a settlement agreement resulted in the issuance of 34,090 shares of our common stock in complete payment of the note. The shares were issued at $0.44 per share.
In the fourth quarter of 2005, a loan in the amount of $4,000 was negotiated and a settlement agreement resulted in the issuance of 80,000 shares of our common stock in complete payment of the note. The shares were issued at $0.05 per share.
In November 2004, the Company closed a sale of an aggregate of 3,184,640 shares of common stock, at a price of $0.05 per share, to ten accredited investors for gross proceeds of $159,232 in cash.
8. STOCK PURCHASE WARRANTS
On May 27, 2005 QuantRx closed an offering of its common stock, $0.01 par value, and warrants to purchase its common stock, through a private placement to accredited investors. Each investor received a five-year warrant to purchase an amount of common shares that equals 50% of the number of shares of common stock purchased by such investor in the offering. The exercise price of the warrants is $0.85 per share. A total of 1,085,996 common stock warrants were issued to purchase an aggregate of 1,085,996 shares of common stock in connection with the offering.
QuantRx agreed to issue common stock warrants covering Company common stock, $0.01 par value, to various entities who were involved in the common stock issue closed May 27, 2005 as follows: in the first quarter of 2005, 500,000 common stock warrants with an exercise price of $0.01 were issued pursuant to an agreement to secure financing for the Company. In the first quarter of 2005, 70,000 common stock warrants with an exercise price of $0.50 were issued pursuant to an agreement for certain public relations work done to assist in securing financing for the Company. In the second quarter of 2005, 217,198 common stock warrants with an exercise price of $0.55 were issued to an underwriter involved in the common stock issue. All of these warrants were valued using the fair value method as prescribed by SFAS No. 123 (R), resulting in a valuation associated with these warrants of $435,365. The valuation placed on these warrants was deemed by the Company to be additional costs related to the issuance of common stock. The costs were therefore charged against additional paid-in capital and resulted in a memorandum entry only.
As of December 31, 2005, the Company had issued $875,000 principal amount of the 8% convertible promissory notes to certain private accredited investors, together with 131,250 vested warrants with a five year term to purchase 131,250 shares of common stock at an exercise price of $1.50. The Company allocated $208,031 of the principal amount of the 8% convertible promissory notes to the warrants as original issue discount, which represented the fair value of the warrants. In addition, placement agents involved in the financing received warrants to purchase 45,120 shares of common stock, the terms of which are identical to the warrants issued to investors. The fair value of the warrants issued to the placement agents of $71,515 was recorded as deferred financing costs. See Note 4.
On November 8, 2005 the Company issued 100,000 common stock warrants with a five year term to purchase 100,000 shares of common stock at an exercise price of $2.00. The warrants were issued as payment for a consulting contract, and the fair value of $115,000 for these warrants was recorded as consulting expense.
In 2005, 585,000 common stock warrants were exercised and exchanged for 585,000 shares of common stock, $0.01 par value, resulting in proceeds to the Company of $37,500. The exercise prices ranged from $0.01 to $0.50.
On October 29, 2004, the Company issued a warrant in consideration of an entity's introduction of the Company to investors that purchased shares of common stock in October and November 2004. The warrant represents the right to purchase 956,873 shares of common stock at an exercise price of $0.50.
The following is a summary of all common stock warrant activity during the two years ended December 31, 2005:
Number of Exercise Weighted
Shares Under Price Per Average
Warrants Share Exercise Price
-------------- -------------- ---------------
Warrants issued and exercisable at 12/31/03 288,070 0.01 - 2.88 1.75
Warrants granted 956,873 0.50 0.50
Warrants expired - - -
Warrants exercised - - -
-------------- -------------- ---------------
Warrants issued and exercisable at 12/31/04 1,244,943 0.01 - 2.88 0.79
Warrants granted 2,149,564 0.01 - 2.00 0.72
Warrants expired (145,570) 1.92 - 2.88 2.58
Warrants exercised (585,000) 0.01 - 0.50 0.06
-------------- -------------- ---------------
Warrants issued and exercisable at 12/31/05 2,663,937 $ 0.01 - 2.00 $ 0.80
============== ============== ===============
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The following represents additional information related to common stock warrants outstanding and exercisable at December 31, 2005:
Outstanding and Exercisable
----------------------------------------------------------------
Exercise Price Weighted
Average
Remaining
Number of Shares Contract Life Weighted Average
Under Warrants in Years Exercise Price
---------------------------------------------- ---------------------- ---------------- ---------------------
$0.01 5,000 .18 $ 0.01
0.20 12,500 .68 0.20
0.50 991,873 5.53 0.50
0.55 217,198 6.42 0.55
0.85 1,085,996 4.40 0.85
1.50 251,370 3.61 1.50
2.00 100,000 4.85 2.00
------------------ ----------- ---------------
2,663,937 4.90 0.80
------------------ ----------- $--------------
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The Company used the Black-Scholes option price calculation to value the warrants granted in 2005 using the following assumptions: risk-free rate of 3.78%; volatility of 1.85; actual term and exercise price of warrants granted.
In the third quarter of 2005, a total of 1,024,012 preferred stock warrants were exercised and exchanged for 1,024,012 shares of Series A convertible preferred stock, $0.01 par value. The warrants were exercised at a price of $0.01 per share. In 2004, the Company received $10,240. Preferred stock was issued during the third quarter of 2005 in satisfaction of this liability.
The following is a summary of all preferred stock warrant activity during the two years ended December 31, 2005:
Exercise Weighted
Price Per Average
Number of Shares Share Exercise Price
----------------- ----------------- -----------------
Warrants issued and exercisable at 12/31/03 1,204,012 0.01 - 4.25 0.39
Warrants granted - - -
Warrants expired - - -
Warrants exercised - - -
----------------- ----------------- -----------------
Warrants issued and exercisable at 12/31/04 1,204,012 0.01 - 4.25 .79
Warrants granted - - -
Warrants expired - - -
Warrants exercised (1,024,012) 0.01 0.01
----------------- ----------------- -----------------
Warrants issued and exercisable at 12/31/05 180,000 $ 1.92 - 4.25 $ 2.57
================= ================= =================
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The following represents additional information related to preferred stock warrants outstanding and exercisable at December 31, 2005:
Outstanding and Exercisable
-----------------------------------------------------------------------
Number of Weighted Average Weighted
Shares Under Remaining Average
Exercise Price Warrants Contract Life Exercise Price
--------------------------------------------- ----------------------- ------------------ ----------------------
$1.92 130,000 2.67 $ 1.92
4.25 50,000 2.67 4.25
----------------------- ------------------ -- -------------------
180,000 2.67 $ 2.57
----------------------- ------------------ -- -------------------
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9. COMMON STOCK OPTIONS
In 2001, the Company adopted the 1994 Incentive and Non-Qualified Stock Option Plan, as amended in 2001, (hereinafter "the Plan") under which 5,100,000 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 nonqualified 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.
In 2005, a total of 1,000,000 common stock options were granted to an executive officer and issued from the Company's Incentive and Non-Qualified Stock Option Plan. The options were issued with an exercise price of $0.50 and will fully vest after three years of service. The options were valued using the fair value method as prescribed by SFAS No. 123 (R), resulting in a total value associated with these options of $298,900. Pursuant to SFAS No. 123 (R), this amount will be accrued to compensation expense over the expected service term, three years, as vested. The accrued compensation expense related to these options for the year ended December 31, 2005 is $143,836 and has been expensed in the year ended December 31, 2005 pursuant to the application of SFAS No. 123 (R), and credited to additional paid-in capital.
The following is a summary of all common stock option activity during the two years ended December 31, 2005:
Shares Under Weighted Average
Options Outstanding Exercise Price
--------------------- -----------------------
Outstanding at December 31, 2003 210,000 2.28
Options granted - -
Options forfeited - -
Options exercised - -
--------------------- -----------------------
Outstanding at December 31, 2004 210,000 2.28
Options granted 1,000,000 0.50
Options forfeited (150,000) 2.80
Options exercised - -
--------------------- -----------------------
Outstanding at December 31, 2005 1,060,000 $ $0.53
===================== =======================
Weighted Average
Exercise Price Per
Options Exercisable Share
--------------------- -----------------------
Exercisable at December 31, 2004 210,000 2.28
--------------------- -----------------------
Exercisable at December 31, 2005 541,218 $ 0.56
===================== =======================
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The following represents additional information related to common stock options outstanding and exercisable at December 31, 2005:
Outstanding Exercisable
-------------------------------------------------------- --------------------------------------
Weighted
Average
Remaining Weighted
Number of Contract Life Average Number of Weighted Average
Exercise Price Shares in Years Exercise Price Shares Exercise Price
-------------- --------------- ---------------- ----------------- ------------- ---------------------
$0.50 1,000,000 9.34 $ 0.50 481,218 $ 0.50
$1.00 60,000 4.18 1.00 60,000 1.00
--------------- ---------------- ----------------- ------------- ---------------------
1,060,000 9.05 $ 0.53 541,218 $ 0.56
--------------- ---------------- ----------------- ------------- ---------------------
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Total compensation cost related to nonvested stock options as of December 31, 2005 was $155,064.
Weighted average period of nonvested stock options was 2.3 years as of December 31, 2005.
The Company used the Black-Scholes option price calculation to value the options granted in 2005 using the following assumptions: risk-free rate of 3.78%; volatility of 1.85; actual term and exercise price of warrants granted.
10. NET LOSS PER SHARE
Basic and diluted net loss per share are required to be computed using the methods prescribed by Statement of Financial Accounting Standards No. 128, "Earnings per Share." Net loss per share is calculated using the weighted average number of common shares outstanding for the period. A net loss was reported in each of the years ended December 31, 2005 and 2004. Stock options for the purchase of 1,060,000 and 210,000 common shares at December 31, 2005 and 2004, respectively, and common stock warrants for the purchase of 2,663,937 and 1,244,943 common shares at December 31, 2005 and 2004, respectively, were not included in net loss per share calculations, because to do so would have been anti-dilutive. In addition, shares of Company convertible preferred stock and warrants covering shares of the Company's convertible preferred stock, as well as convertible promissory notes, outstanding at December 31, 2005 were not included in net loss per share calculations because to do so would have been anti-dilutive.
11. RELATED PARTY TRANSACTIONS
A member of the Company's board of directors serves as a consultant to the Company on various business, strategic, and technical issues. The Company entered into an agreement for these services in 2005, prior to his appointment to the Board. Fees paid and expensed for these services by the Company during the year ended December 31, 2005 were $28,000. In addition to the contract fees paid, reimbursable expenses totaling $506 were paid and expensed in 2005.
A member of the Company's board of directors was issued 500,000 common stock warrants in the first quarter of 2005, prior to his appointment to the Board. The warrants have an exercise price of $0.01. The warrants were issued pursuant to an agreement to secure financing for the Company. See Note 7.
The Company has a temporary arrangement in which it leases office space from Trident Group, LLC, of which the current chief executive officer is a principal. In addition to a monthly rental payment for office space, the Company reimburses Trident for related office expenses. The Company entered into the agreement in the second quarter of 2005. The total amount paid and expensed by the Company under this arrangement was $11,880 in 2005.
The Company had an agreement with Trident Group, LLC whereby a
principal member of Trident provided various consulting services to the Company.
The Company's current chief executive officer is a principal member of Trident,
LLC. The Company entered into the agreement in the second quarter of 2005, prior
to his appointment. The total amount of the contracted services was $10,000, and
was expensed and paid in 2005. In addition to the fees, reimbursable expenses
were also paid under this contract. The total amount paid for these expenses in
2005 was $11,776. This was a temporary arrangement while the Company was setting
up its banking and credit card company, and payroll service company
relationships.
On November 8, 2005 the Company issued 100,000 common stock warrants with a five year term to purchase 100,000 shares of common stock at an exercise price of $2.00. The warrants were issued as payment for financial advisory services to a firm in which a more than 10% stockholder is affiliated. The fair value for these warrants was $115,000, of which $33,306 was expensed in the year ended December 31, 2005, with the remaining $81,694 recorded as prepaid consulting at December 31, 2005, to be expensed in 2006 per the contract term. See Note 7.
The current chief financial officer of the Company served as a consultant prior to his appointment. The Company entered into an agreement with his accounting consulting firm for these services in the third quarter of 2005. The total amount of the contracted services was $9,500, all of which was paid and expensed in 2005.
In the fourth quarter of 2005, a related party note payable in the amount of $400,000 was settled with the issuance of 900,000 common shares, $0.01 par value. The shares were issued at $0.44 per share. See Note 7.
12. SIGNIFICANT EVENTS
On December 9, 2005, QuantRx Biomedical Corporation (the "Company"), formerly known as A-Fem Medical Corporation, formally announced a corporate name change, which became effective on December 2, 2005.
The Company filed with the Secretary of State of Nevada an amendment to its articles of incorporation to effect the corporate name change. The Company also amended its bylaws to reflect the name change. The amendments to the Company's articles of incorporation and bylaws were approved by the unanimous written consent of the Board of Directors of the Company and by the holders of a majority of the issued and outstanding capital stock, on an as converted basis, of the Company.
13. SUBSEQUENT EVENTS On February 15, 2006, the Company closed on a $4,030,000 round of financing. In connection with the financing, QuantRx issued 8% convertible promissory notes in the aggregate principal amount of $4,030,000, of which $875,000 were issued in 2005, and warrants to purchase shares of QuantRx's common stock. Proceeds of the financing will be used for general corporate purposes.
The outstanding principal and interest on the promissory notes is payable by QuantRx on or before December 31, 2006. Interest on the outstanding principal amount of the promissory notes will accrue at a rate of 8% per annum. The outstanding principal amount of the promissory notes and all accrued but unpaid interest will automatically be exchanged into any of QuantRx's securities issued in a qualified equity or equity based financing or combination of equity financings with gross proceeds totaling at least $2,000,000. For purposes of determining the number of equity securities, including warrants, to be received by the holders of the 8% convertible promissory notes upon such exchange, such holders will be deemed to have tendered 110% of the outstanding principal amount of the promissory notes and all accrued but unpaid interest as payment of the purchase price in such qualified financing. Upon such conversion, the holders will automatically be deemed to be purchasers in the qualified financing, and will be granted all rights afforded such purchasers. Upon consummation of the qualified financing, the 8% convertible promissory notes will cease to exist, and all of QuantRx's obligations under such promissory notes will terminate.
In the event QuantRx does not complete a qualified financing, QuantRx shall repay the entire principal balance outstanding on December 31, 2006. Interest on the outstanding principal balance of the note shall be computed on the basis of the actual number of days elapsed and a year of three hundred and sixty (360) days and shall be payable on the maturity date by the Company in cash or, at the option of the Company, in shares of the Company's equity securities. Commencing six months after the date of issuance of the promissory note, a holder may elect to convert the outstanding balance of such promissory note into shares of QuantRx's common stock at a price per share of $1.00.
Upon the occurrence of an event of default, QuantRx must pay to the holders of the 8% convertible promissory notes, on demand, interest on the outstanding principal balance of such promissory notes, from the date of the event of default until payment in full, at the rate of 12% per annum.
In consideration for the loaned funds evidenced by the promissory notes, for each $100,000 in principal amount loaned to QuantRx, QuantRx issued a warrant exercisable for 15,000 shares of QuantRx's common stock at a per share exercise price of $1.50. Any investor loaning at least $500,000 in principal amount to QuantRx received an additional warrant exercisable for 125,000 shares of QuantRx's common stock at a per share exercise price of $1.50 per share. In connection with the financing, QuantRx issued warrants to investors to purchase 854,500 shares of its common stock, of which 131,250 were issued in 2005.
QuantRx has agreed to pay various placement agents compensation based on the gross proceeds received from investors located by such agents. Cash payments made by QuantRx to such placement agents did not exceed 8% of the aggregate gross proceeds received in connection with the financing. QuantRx also issued to such placement agents warrants to purchase shares of its common stock to not exceed 8% of the aggregate gross proceeds received in connection with the financing.
Effective February 13, 2006, holders of all outstanding shares of the Series A convertible preferred stock of QuantRx exercised their rights under the terms of the series A preferred stock to convert all of their outstanding shares of Series A preferred stock into shares of QuantRx's common stock. Each share of series A preferred stock was converted into 1.5 shares of QuantRx's common stock, resulting in the issuance by QuantRx of 12,399,221 common shares. As of the date hereof, there are no shares of Series A preferred stock outstanding. Additionally, warrants to purchase 180,000 shares Series A preferred stock were submitted and exchanged for warrants to purchase 180,000 shares of common stock, with the same terms as the original warrants.
In the first quarter of 2006, 67,480 common stock warrants were exercised and exchanged for 67,480 shares of our common stock, $0.01 par value, resulting in proceeds to the Company of $41,858. The exercise prices ranged from $0.20 to $0.85.
On March 10, 2006, the Company and FluoroPharma, Inc., a Delaware corporation, consummated transactions contemplated by an investment agreement under which FluoroPharma issued to QuantRx (i) approximately 1,096,170 shares of FluoroPharma's common stock, $0.001 par value, and (ii) an option to purchase 260,000 shares of FluoroPharma's common stock at an exercise price of $0.75, in exchange for a capital contribution from QuantRx in the aggregate amount of approximately $1,566,023. At the closing, QuantRx owned approximately 27.4% of the issued and outstanding shares of common stock of FluoroPharma, and upon exercise of the option (assuming FluoroPharma does not issue any additional shares of common stock, which issuance must be approved by QuantRx) QuantRx will own approximately an additional 6.1% of the issued and outstanding shares of common stock of FluoroPharma.
Under the investment agreement, QuantRx may in the future acquire, at its option and in its sole discretion, a majority interest in FluoroPharma through a series of staged investments. Such staged investments will take the form of cash investments by QuantRx in FluoroPharma at increasing valuations upon the achievement by FluoroPharma of certain milestones with respect to the successful completion of Phase I and Phase II trials for certain compounds being developed by FluoroPharma. Any subsequent investment in FluoroPharma by QuantRx will be consummated pursuant to the terms and subject to the conditions set forth in separate definitive agreements.
In accordance with the investment agreement, effective as of March 10, 2006, FluoroPharma caused all of its issued and outstanding shares of preferred stock to be converted into shares of its common stock.
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
A-FEM MEDICAL CORPORATION
A-Fem Medical Corporation (the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Nevada, does hereby certify:
1. The name of the corporation is A-Fem Medical Corporation.
2. The articles of incorporation of the Corporation is hereby amended by striking out Article I thereof and by substituting in lieu of said Article the following new Article:
"ARTICLE I. NAME. The name of the Corporation is QuantRx Biomedical Corporation."
3. The amendment of the articles of incorporation herein certified has been duly adopted in accordance with the provisions of Sections 78.315, 78.320 and 78.390 of the Nevada Revised Statutes.
Executed on this 30th day of November, 2005.
A-FEM MEDICAL CORPORATION
By: /s/ Walter Witoshkin
--------------------------------
Name: Walter Witoshkin
Title: President and Chief Executive Officer
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EXHIBIT 3.4
AMENDMENT TO
BYLAWS
OF A-FEM MEDICAL CORPORATION
(Effective December 2, 2005)
The title of the Bylaws of A-Fem Medical Corporation is hereby deleted in its entirety, and the following title is hereby substituted in its place:
"BYLAWS
QUANTRX BIOMEDICAL CORPORATION
(fka A-Fem Medical Corporation)"
EXHIBIT 4.1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR QUANTRX BIOMEDICAL CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
QUANTRX BIOMEDICAL CORPORATION
(FORMERLY A-FEM MEDICAL CORPORATION)
8% CONVERTIBLE PROMISSORY NOTE
U.S. $______________________ Issuance Date: __________ __, 2005 No.: PN-05-_________________ Maturity Date: December 31, 2006
FOR VALUE RECEIVED, the undersigned, QuantRx Biomedical Corporation (Formerly A-Fem Medical Corporation), a Nevada corporation (the "Company"), hereby promises to pay to the order of __________________________, or any future permitted holder of this promissory note (the "Payee"), at the principal address of the Payee set forth herein, or at such other place as the Payee may designate in writing to the Company, the principal sum of _____________________________ Dollars ($________________) or such other amount as may be outstanding hereunder, together with all accrued but unpaid interest, in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts and in immediately available funds, as provided in this promissory note (this "Note").
1. Exchange of Principal and Interest into Qualified Financing. Following the Issuance Date, the outstanding principal amount of this Note together with all accrued but unpaid interest hereunder (the "Outstanding Balance"), shall automatically be exchanged into shares of the Company issued in an equity or equity based financing or combination of equity financings with gross proceeds totaling at least $2,000,000 (a "Qualified Financing"); provided, however, that for purposes of determining the number of equity securities (including warrants) to be received by the Payee upon such exchange, the Payee shall be deemed to have tendered 110% of the Outstanding Balance of the Note as payment of the purchase price in the Qualified Financing. Upon such conversion pursuant to a Qualified Financing, the Payee shall automatically be deemed to be a purchaser in such Qualified Financing and shall be granted all rights afforded a purchaser in the Qualified Financing, and upon consummation of a Qualified Financing, this Note shall cease to exist and all rights and obligations of the Company and the Payee shall terminate.
2. In consideration for the loan evidenced by this Note, the Payee shall be issued Bridge Warrants in the form attached to the Loan Letter Agreement dated as of the date hereof (the "Loan
Letter") as Exhibit B for the issuance of 15,000 shares of common stock of the Company per $100,000 of Note principal amount, at an exercise price of $1.50.
3. Voluntary Conversion of Principal and Interest. At the option of the Payee, six (6) months following the Issuance Date, the Outstanding Balance of this Note may be converted into common shares of the Company at a price per share of $1.00 at any time the Note remains outstanding.
4. Principal and Interest Payments.
(a) In the event the Company does not complete a Qualified Financing, the Company shall repay the entire principal balance then outstanding on December 31, 2006 (the "Maturity Date").
(b) Interest on the outstanding principal balance of this Note shall accrue at a rate of eight percent (8%) per annum. Interest on the outstanding principal balance of the Note shall be computed on the basis of the actual number of days elapsed and a year of three hundred and sixty (360) days and shall be payable on the Maturity Date by the Company in cash or, at the option of the Company, in shares of the Company's equity securities. Furthermore, upon the occurrence of an Event of Default, then to the extent permitted by law, the Company will pay interest to the Payee, payable on demand, on the outstanding principal balance of the Note from the date of the Event of Default until payment in full at the rate of twelve percent (12%) per annum.
5. Non-Business Days. Whenever any payment to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be due on the next succeeding business day and such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.
6. Representations and Warranties of the Company. The Company represents and warrants to the Payee as follows:
(a) The Company has been duly incorporated and is validly existing and in good standing under the laws of the state of Nevada, with full corporate power and authority to own, lease and operate its properties and to conduct its business as currently conducted.
(b) This Note has been duly authorized, validly executed and delivered on behalf of the Company and is a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject to limitations on enforcement by general principles of equity and by bankruptcy or other laws affecting the enforcement of creditors' rights generally, and the Company has full power and authority to execute and deliver this Note and to perform its obligations hereunder.
(c) The execution, delivery and performance of this Note
will not (i) conflict with or result in a breach of or a default under any of
the terms or provisions of, (A) the Company's articles of incorporation or
by-laws, or (B) any material provision of any indenture, mortgage, deed of trust
or other material agreement or instrument to which the Company is a party or by
which it or any of its material properties or assets is bound, (ii) result in a
violation of any material provision of any law, statute, rule, regulation, or
any existing applicable decree, judgment or order by any court, Federal or state
regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company, or any of its material properties or assets or
(iii) result in the creation or imposition of any
material lien, charge or encumbrance upon any material property or assets of the Company or any of its subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or to which any of their property or any of them is subject, except in the cases of (i), (ii) and (iii), as would not have a Material Adverse Effect as such term is defined in the Loan Letter.
(d) No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Note.
7. Events of Default. The occurrence of any of the following events shall be an "Event of Default" under this Note:
(a) the Company shall fail to make the payment of any amount of any principal outstanding for a period of ten (10) business days after the date such payment shall become due and payable hereunder; or
(b) the Company shall fail to make any payment of interest for a period of ten (10) business days after the date such interest shall become due and payable hereunder; or
(c) any representation, warranty or certification made by the Company herein or in any certificate or financial statement shall prove to have been false or incorrect or breached in a material respect on the date as of which made; or
(d) the holder of any indebtedness of the Company or any of its subsidiaries shall accelerate any payment of any amount or amounts of principal or interest on any indebtedness (the "Indebtedness") (other than the Indebtedness hereunder) prior to its stated maturity or payment date the aggregate principal amount of which Indebtedness of all such persons is in excess of $1,000,000, whether such Indebtedness now exists or shall hereinafter be created, and such accelerated payment entitles the holder thereof to immediate payment of such Indebtedness which is due and owing and such indebtedness has not been discharged in full or such acceleration has not been stayed, rescinded or annulled within ten (10) business days of such acceleration; or
(e) A judgment or order for the payment of money shall be rendered against the Company or any of its subsidiaries in excess of $1,000,000 in the aggregate (net of any applicable insurance coverage) for all such judgments or orders against all such persons (treating any deductibles, self insurance or retention as not so covered) that shall not be discharged, and all such judgments and orders remain outstanding, and there shall be any period of ninety (90) consecutive days following entry of the judgment or order in excess of $1,000,000 or the judgment or order which causes the aggregate amount described above to exceed $1,000,000 during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or
(f) the Company shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code or under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement of creditors' rights generally, (v) acquiesce
in writing to any petition filed against it in an involuntary case under the Bankruptcy Code or under the comparable laws of any jurisdiction (foreign or domestic), or (vi) take any action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing; or
(g) a proceeding or case shall be commenced in respect of
the Company or any of its subsidiaries without its application or consent, in
any court of competent jurisdiction, seeking (i) the liquidation,
reorganization, moratorium, dissolution, winding up, or composition or
readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial part of its
assets or (iii) similar relief in respect of it under any law providing for the
relief of debtors, and such proceeding or case described in clause (i), (ii) or
(iii) shall continue undismissed, or unstayed and in effect, for a period of
thirty (30) consecutive days or any order for relief shall be entered in an
involuntary case under the Bankruptcy Code or under the comparable laws of any
jurisdiction (foreign or domestic) against the Company or any of its
subsidiaries or action under the laws of any jurisdiction (foreign or domestic)
analogous to any of the foregoing shall be taken with respect to the Company or
any of its subsidiaries and shall continue undismissed, or unstayed and in
effect for a period of thirty (30) consecutive days; or
8. Remedies Upon An Event of Default. If an Event of Default
shall have occurred and shall be continuing, the Payee of this Note may at any
time at its option, (a) declare the entire unpaid principal balance of this
Note, together with all interest accrued hereon, due and payable, and thereupon,
the same shall be accelerated and so due and payable; provided, however, that
upon the occurrence of an Event of Default described in (i) Sections 5(f) and
(g), without presentment, demand, protest, or notice, all of which are hereby
expressly unconditionally and irrevocably waived by the Company, the outstanding
principal balance and accrued interest hereunder shall be automatically due and
payable, and (ii) Sections 5(a) through (e), the Payee may exercise or otherwise
enforce any one or more of the Payee's rights, powers, privileges, remedies and
interests under this Note or applicable law. No course of delay on the part of
the Payee shall operate as a waiver thereof or otherwise prejudice the right of
the Payee. No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise. Notwithstanding the foregoing, Payee agrees that its rights and
remedies hereunder are limited to receipt of cash or shares of the Company's
equity securities in the amounts described herein.
9. Replacement. Upon receipt of a duly executed, notarized and unsecured written statement from the Payee with respect to the loss, theft or destruction of this Note (or any replacement hereof), and without requiring an indemnity bond or other security, or, in the case of a mutilation of this Note, upon surrender and cancellation of such Note, the Company shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note.
10. Parties in Interest, Transferability. This Note shall be
binding upon the Company and its successors and assigns and the terms hereof
shall inure to the benefit of the Payee and its successors and permitted
assigns. This Note may be transferred or sold, subject to the provisions of
Section 17 of this Note, or pledged, hypothecated or otherwise granted as
security by the Payee.
11. Amendments. This Note may not be modified or amended in any manner except in writing executed by the Company and the Payee.
12. Notices. Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery by
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The Company will
give written notice to the Payee at least thirty (30) days prior to the date on
which the Company closes its books or takes a record (x) with respect to any
dividend or distribution upon the common stock of the Company, (y) with respect
to any pro rata subscription offer to holders of common stock of the Company or
(z) for determining rights to vote with respect to a Major Transaction,
dissolution, liquidation or winding-up and in no event shall such notice be
provided to such holder prior to such information being made known to the
public. The Company will also give written notice to the Payee at least twenty
(20) days prior to the date on which dissolution, liquidation or winding-up will
take place and in no event shall such notice be provided to the Payee prior to
such information being made known to the public.
Address of the Payee: ______________________
______________________
______________________
______________________
______________________
Address of the Company: QuantRx Biomedical Corporation
321 Norristown Road
Suite 230
Ambler, PA 19002
Attn.: Mr. Walter Witoshkin
With a copy to: Greenberg Traurig, LLP
The MetLife Building
200 Park Avenue
Floor 14
New York, NY 10166
Attn.: Michael D. Helsel, Esq.
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13. Governing Law. This Note shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the choice of law provisions. This Note shall not be interpreted or construed with any presumption against the party causing this Note to be drafted.
14. Headings. Article and section headings in this Note are included herein for purposes of convenience of reference only and shall not constitute a part of this Note for any other purpose.
15. Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a Payee's right to pursue actual damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments and the like (and the computation thereof) shall be the amounts to be received by the Payee and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof).
16. Failure or Indulgence Not Waiver. No failure or delay on the part of the Payee in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
17. Binding Effect. The obligations of the Company and the Payee set forth herein shall be binding upon the successors and assigns of each such party, whether or not such successors or assigns are permitted by the terms hereof.
18. Compliance with Securities Laws. The Payee of this Note acknowledges that this Note is being acquired solely for the Payee's own account and not as a nominee for any other party, and for investment, and that the Payee shall not offer, sell or otherwise dispose of this Note other than in compliance with the laws of the United States of America and as guided by the rules of the Securities and Exchange Commission. This Note and any Note issued in substitution or replacement therefore shall be stamped or imprinted with a legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR QUANTRX BIOMEDICAL CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
19. Severability. The provisions of this Note are severable, and if any provision shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall not in any manner affect such provision in any other jurisdiction or any other provision of this Note in any jurisdiction.
20. Consent to Jurisdiction. Each of the Company and the Payee
(i) hereby irrevocably submits to the jurisdiction of the United States District
Court sitting in the Southern District of New York and the courts of the State
of New York located in New York County for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Payee
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address set forth in Section 12
hereof and agrees that such service shall constitute good and sufficient service
of
process and notice thereof. Nothing in this Section 20 shall affect or limit any right to serve process in any other manner permitted by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company has caused this Note to be executed and delivered as of the date first written above.
QUANTRX BIOMEDICAL CORPORATION
WIRING INSTRUCTIONS:
Wachovia Bank ABA # 031201467
QuantrRx Biomedical Corporation Escrow Account # 2000018430505
Reference: Stephanie Micua
Vice President Commercial Banking
2240 Butler Pike; Plymouth Meeting, PA 19462
610-834-2345
EXHIBIT 4.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR QUANTRX BIOMEDICAL CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
QUANTRX BIOMEDICAL CORPORATION
Expires _________________, 2010
No.: __-___ Number of Shares:_____________
Date of Issuance:___________, 2005
FOR VALUE RECEIVED, subject to the provisions hereinafter set forth, the undersigned, QuantRx Biomedical Corporation, a Nevada corporation (together with its successors and assigns, the "Issuer"), hereby certifies that _______________________________ or its registered assigns is entitled to subscribe for and purchase, during the period specified in this Warrant, up to ____________________________________ (_____________) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 9 hereof.
1. Term. The right to subscribe for and purchase shares of Warrant Stock represented hereby shall commence on _____________, 2005 and shall expire at 5:00 p.m., eastern time, on ___________, 2010 (such period being the "Term").
2. Method of Exercise Payment; Issuance of New Warrant; Transfer and Exchange.
(a) Time of Exercise. The purchase rights represented by this Warrant may be exercised in whole or in part at any time and from time to time during the Term.
(b) Method of Exercise. The Holder hereof may exercise
this Warrant, in whole or in part, by the surrender of this Warrant (with the
exercise form attached hereto duly executed) at the principal office of the
Issuer, and by the payment to the Issuer of an amount of consideration therefor
equal to the Warrant Price in effect on the date of such exercise multiplied by
the number of shares of Warrant Stock with respect to which this Warrant is then
being exercised, payable at such Holder's election (i) by certified or official
bank check or by wire transfer to an account designated by the Issuer, (ii) by
"cashless exercise" in accordance with the provisions of subsection (c) of this
Section 2, but only when a registration statement under Securities Act providing
for the resale of the Warrant Stock is not then in effect, or (iii) by a
combination of the foregoing methods of payment selected by the Holder of this
Warrant.
(c) Cashless Exercise. Notwithstanding any provisions herein to the contrary and commencing one (1) year following the Original Issue Date, if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock either (A) has not been declared effective by the Securities and Exchange Commission by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement), or (B) is not effective at the time of exercise of this Warrant, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:
B
Where X = the number of shares of Common Stock to be
issued to the Holder.
Y the number of shares of Common Stock
purchasable upon exercise of all of the
Warrant or, if only a portion of the Warrant
is being exercised, the portion of the Warrant
being exercised.
A = the Warrant Price.
B = the Per Share Market Value of one share of
Common Stock.
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(d) Issuance of Stock Certificates. In the event of any exercise of the rights represented by this Warrant in accordance with and subject to the terms and conditions hereof, (i) certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding five (5) Trading Days
after such exercise or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company ("DTC") account on the Holder's behalf via the Deposit Withdrawal Agent Commission System ("DWAC") within a reasonable time, not exceeding five (5) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise and (ii) unless this Warrant has expired, a new Warrant representing the number of shares of Warrant Stock, if any, with respect to which this Warrant shall not then have been exercised (less any amount thereof which shall have been canceled in payment or partial payment of the Warrant Price as hereinabove provided) shall also be issued to the Holder hereof at the Issuer's expense within such time.
(e) Transferability of Warrant. Subject to Section 2(g), this Warrant may be transferred by a Holder without the consent of the Issuer. If transferred pursuant to this paragraph and subject to the provisions of subsection (g) of this Section 2, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the Issuer for Warrants for the purchase of the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant hereto.
(f) Continuing Rights of Holder. The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.
(g) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant or the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR QUANTRX BIOMEDICAL CORPORATION SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The Issuer agrees to reissue this Warrant or
certificates representing any of the Warrant Stock, without the legend
set forth above if at such time, prior to making any transfer of any
such securities, the Holder shall give written notice to the Issuer
describing the manner and terms of such transfer and removal as the
Issuer may reasonably request. Such proposed transfer and removal will
not be effected until: (a) either (i) the Issuer has received an
opinion of counsel reasonably satisfactory to the Issuer, to the effect
that the registration of such securities under the Securities Act is
not required in connection with such proposed transfer, (ii) a
registration statement under the Securities Act covering such proposed
disposition has been filed by the Issuer with the Securities and
Exchange Commission and has become effective under the Securities Act,
(iii) the Issuer has received other evidence reasonably satisfactory to
the Issuer that such registration and qualification under the
Securities Act and state securities laws are not required, or (iv) the
Holder provides the Issuer with reasonable assurances that such
security can be sold pursuant to Rule 144 under the Securities Act; and
(b) either (i) the Issuer has received an opinion of counsel reasonably
satisfactory to the Issuer, to the effect that registration or
qualification under the securities or "blue sky" laws of any state is
not required in connection with such proposed disposition, or (ii)
compliance with applicable state securities or "blue sky" laws has been
effected or a valid exemption exists with respect thereto. The Issuer
will respond to any such notice from a holder within ten (10) business
days. In the case of any proposed transfer under this Section 2(g), the
Issuer will use reasonable efforts to comply with any such applicable
state securities or "blue sky" laws, but shall in no event be required,
(x) to qualify to do business in any state where it is not then
qualified, or (y) to take any action that would subject it to tax or to
the general service of process in any state where it is not then
subject. The restrictions on transfer contained in this Section 2(g)
shall be in addition to, and not by way of limitation of, any other
restrictions on transfer contained in any other section of this
Warrant.
(h) In no event may the Holder exercise this Warrant in whole or in part unless the Holder is an "accredited investor" as defined in Regulation D under the Securities Act.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants.
(a) Stock Fully Paid. The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock that may be issued upon the exercise of this Warrant or otherwise hereunder will, upon issuance, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by or through the Issuer. The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issue upon exercise of this Warrant a sufficient number of shares of Common Stock to provide for the exercise of this Warrant.
(b) Reservation. If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any governmental authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder, and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.
(c) Covenants. The Issuer shall not by any action including, without limitation, amending the Articles of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder hereof.
(d) Loss, Theft, Destruction of Warrants. Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.
4. Adjustment of Warrant Price and Warrant Share Number. The number of shares of Common Stock for which this Warrant is exercisable, and the price at which such shares may be purchased upon exercise of this Warrant, shall be subject to adjustment from time to time as set forth in this Section 4. The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with Section 5.
(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale.
(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a "Triggering Event"): (a) consolidate with or merge into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price in effect at the time immediately prior to the consummation of such Triggering Event in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, cash and property to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto, subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for elsewhere in this Section 4.
(ii) Notwithstanding anything contained in this Warrant to the contrary, the Issuer will not effect any Triggering Event if, prior to the consummation thereof, each Person (other than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such shares of Securities, cash or property as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.
(b) Stock Dividends, Subdivisions and Combinations. If at any time the Issuer shall:
(i) take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, Additional Shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,
then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.
(c) Certain Other Distributions. If at any time the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive any dividend or other distribution of:
(i) cash (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Issuer),
(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock),
then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B) the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer and supported by an opinion
from an investment banking firm of recognized national standing acceptable to the Holder) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Issuer to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4(c) and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).
(d) Issuance of Additional Shares of Common Stock.
(i) In the event the Issuer shall at any time following the Original Issue Date issue any Additional Shares of Common Stock (otherwise than as provided in the foregoing subsections (a) through (c) of this Section 4), at a price per share less than the Warrant Price then in effect or without consideration, then the Warrant Price upon each such issuance shall be adjusted to that price determined by multiplying the Warrant Price then in effect by a fraction:
(A) the numerator of which shall be equal to the sum of (x) the number of shares of Outstanding Common Stock immediately prior to the issuance of such Additional Shares of Common Stock plus (y) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Warrant Price then in effect, and
(B) the denominator of which shall be equal to the number of shares of Outstanding Common Stock immediately after the issuance of such Additional Shares of Common Stock.
(ii) No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of Section 4(d) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any Common Stock Equivalents, if any such adjustment shall previously have been made upon the issuance of such Common Stock Equivalents or upon the issuance of any warrant or other rights therefor pursuant to Sections 4(e) or 4(f), or in connection with any Permitted Issuances.
(e) Issuance of Warrants or Other Rights. If at any time the Issuer shall take a record of the Holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Issuer is the surviving corporation) issue or sell any warrants or options, whether or not immediately exercisable, and the Warrant Consideration (hereafter defined) per share for which Common
Stock is issuable upon the exercise of such warrant or option shall be less than the Warrant Price in effect immediately prior to the time of such issue or sale, then the Warrant Price then in effect immediately prior to the time of such issue or sale, shall be adjusted to that price (rounded to the nearest cent) determined by multiplying the Warrant Price by a fraction: (1) the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance or sale of such warrants or options plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the Warrant Consideration multiplied by the number of shares of Common Stock issuable upon the exercise or conversion of all such warrants or options, would purchase at a price per share equal to the Warrant Price then in effect, and (2) the denominator of which shall be equal to the number of shares of Common Stock that would be outstanding assuming the exercise or conversion of all such warrants and options. No adjustments of the Warrant Price then in effect shall be made upon the actual issue of such Common Stock or of such Common Stock Equivalents upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such Common Stock Equivalents. No adjustments of the Warrant Price shall be required under this Section 4(e) in connection with any Permitted Issuances.
(f) Issuance of Common Stock Equivalents. If at any time the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Issuer is the surviving corporation) issue or sell, any Common Stock Equivalents, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the Common Stock Equivalent Consideration (hereafter defined) per share for which Common Stock is issuable upon such conversion or exchange shall be less than the Warrant Price in effect immediately prior to the time of such issue or sale, then the Warrant Price then in effect immediately prior to the time of such issue or sale, shall upon each such issuance or sale be adjusted to that price (rounded to the nearest cent) determined by multiplying the Warrant Price by a fraction: (1) the numerator of which shall be equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to the issuance or sale of such Common Stock Equivalents plus (B) the number of shares of Common Stock (rounded to the nearest whole share) which the Common Stock Equivalent Consideration multiplied by the number of shares of Common Stock issuable upon the exercise or conversion of all such Common Stock Equivalents, would purchase at a price per share equal to the Warrant Price then in effect, and (2) the denominator of which shall be equal to the number of shares of Common Stock that would be outstanding assuming the exercise or conversion of all such Common Stock Equivalents. No further adjustment of the Warrant Price then in effect shall be made under this Section 4(f) upon the issuance of any Common Stock Equivalents which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 4(e). No further adjustments of the Warrant Price then in effect shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Common Stock Equivalents. No adjustments of the Warrant Price shall be required under this Section 4(f) in connection with any Permitted Issuances.
(g) Superseding Adjustment. If, at any time after any adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in
effect shall have been made pursuant to Section 4(e) or Section 4(f) as the result of any issuance of warrants, other rights or Common Stock Equivalents, and (i) such warrants or other rights, or the right of conversion or exchange in such other Common Stock Equivalents, shall expire, and all or a portion of such warrants or other rights, or the right of conversion or exchange with respect to all or a portion of such other Common Stock Equivalents, as the case may be shall not have been exercised, or (ii) the consideration per share for which shares of Common Stock are issuable pursuant to such Common Stock Equivalents, shall be increased solely by virtue of provisions therein contained for an automatic increase in such consideration per share upon the occurrence of a specified date or event, then for each outstanding Warrant such previous adjustment shall be rescinded and annulled and the Additional Shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Upon the occurrence of an event set forth in this Section 4(g) above, there shall be a recomputation made of the effect of such Common Stock Equivalents on the basis of: (i) treating the number of Additional Shares of Common Stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or other rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (ii) treating any such Common Stock Equivalents which then remain outstanding as having been granted or issued immediately after the time of such increase of the consideration per share for which shares of Common Stock or other property are issuable under such Common Stock Equivalents; whereupon a new adjustment of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled.
(h) Purchase of Common Stock by the Issuer. If the Issuer at any time while this Warrant is outstanding shall, directly or indirectly through a Subsidiary or otherwise, purchase, redeem or otherwise acquire any shares of Common Stock at a price per share greater than the Per Share Market Value, then the Warrant Price upon each such purchase, redemption or acquisition shall be adjusted to that price determined by multiplying such Warrant Price by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such purchase, redemption or acquisition minus the number of shares of Common Stock which the aggregate consideration for the total number of such shares of Common Stock so purchased, redeemed or acquired would purchase at the Per Share Market Value; and (ii) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such purchase, redemption or acquisition. For the purposes of this subsection (h), the date as of which the Per Share Market Price shall be computed shall be the earlier of (x) the date on which the Issuer shall enter into a firm contract for the purchase, redemption or acquisition of such Common Stock, or (y) the date of actual purchase, redemption or acquisition of such Common Stock. For the purposes of this subsection (h), a purchase, redemption or acquisition of a Common Stock Equivalent shall be deemed to be a purchase of the underlying Common Stock, and the computation herein required shall be made on the basis of the full exercise, conversion or exchange of such Common Stock Equivalent on the date as of which such computation is required hereby to be made, whether or not such Common Stock Equivalent is actually exercisable, convertible or exchangeable on such date.
(i) Other Provisions applicable to Adjustments under this Section. The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration. To the extent that any Additional Shares of Common Stock or any Common Stock Equivalents (or any warrants or other rights therefor) shall be issued for cash consideration, the consideration received by the Issuer therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock Equivalents are offered by the Issuer for subscription, the subscription price, or, if such Additional Shares of Common Stock or Common Stock Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Issuer. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other rights divided by the number of shares of Common Stock issuable upon the exercise of such warrant or right plus the additional consideration payable to the Issuer upon exercise of such warrant or other right for one share of Common Stock (together the "Warrant Consideration"). The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration received by the Issuer for issuing such Common Stock Equivalent, divided by the number of shares of Common Stock issuable upon the conversion or other exercise of such Common Stock Equivalent, plus the additional consideration, if any, payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Stock Equivalent for one share of Common Stock (together the "Common Stock Equivalent Consideration"). In case of the issuance at any time of any Additional Shares of Common Stock or Common Stock Equivalents in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Issuer shall be deemed to have received for such Additional Shares of Common Stock or Common Stock Equivalents a consideration equal to the amount of such dividend so paid or satisfied.
(ii) When Adjustments to Be Made. The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment,
together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.
(iii) Fractional Interests. In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one one-hundredth (1/100th) of a share.
(iv) When Adjustment Not Required. If the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.
(j) Form of Warrant after Adjustments. The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.
(k) Escrow of Warrant Stock. If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Issuer and escrowed property returned.
5. Notice of Adjustments. Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an "adjustment"), the Issuer shall cause an executive officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to one of the national accounting firms currently known as the "big five" selected by the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer
shall have no such right of objection. The firm selected by the Holder of this
Warrant as provided in the preceding sentence shall be instructed to deliver a
written opinion as to such matters to the Issuer and such Holder within thirty
(30) days after submission to it of such dispute. Such opinion shall be final
and binding on the parties hereto.
6. Fractional Shares. No fractional shares of Warrant Stock will be issued in connection with and exercise hereof, but in lieu of such fractional shares, the Issuer shall make a cash payment therefor equal in amount to the product of the applicable fraction multiplied by the Per Share Market Value then in effect.
7. Call. Notwithstanding anything herein to the contrary,
commencing one (1) year following the date the Registration Statement (as
defined below) is declared effective by the Securities and Exchange Commission,
the Issuer may call up to one hundred percent (100%) of this Warrant then still
outstanding by providing the Holder of this Warrant written notice pursuant to
Section 13 (the "Call Notice"); provided, that, in connection with any call by
the Issuer under this Section 7, (A) the Per Share Market Value of the Common
Stock has been greater than $3.00 for a period of twenty (20) consecutive
Trading Days immediately prior to the date of delivery of the Call Notice (a
"Call Notice Period"); (B) a registration statement under the Securities Act
providing for the resale of the (i) Warrant Stock and (ii) the shares of Common
Stock and the shares of Common Stock issuable upon conversion of the Issuer's
Series A Preferred Stock which are not saleable in the public securities market
pursuant to the exemption from registration under the Securities Act provided by
Rule 144(k) of Regulation D, issued pursuant to the Purchase Agreement, (the
"Registration Statement") is then in effect and has been effective, without
lapse or suspension of any kind, for a period of sixty (60) consecutive calendar
days, (C) trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the OTC Bulletin Board (or other exchange
or market on which the Common Stock is trading) and (D) the Issuer is in
material compliance with the terms and conditions of this Warrant and the other
Loan Documents (as defined in the Purchase Agreement); provided, further, that
the Registration Statement must be effective from the date of delivery of the
Call Notice until the date which is the later of (i) the date the Holder
exercises the Warrant pursuant to the Call Notice and (ii) the 20th day after
the Holder receives the Call Notice (the "Early Termination Date"). The rights
and privileges granted pursuant to this Warrant with respect to the shares of
Warrant Stock subject to the Call Notice (the "Called Warrant Shares") shall
expire on the Early Termination Date if this Warrant is not exercised with
respect to such Called Warrant Shares prior to such Early Termination Date. In
the event this Warrant is not exercised with respect to the Called Warrant
Shares, the Issuer shall remit to the Holder of this Warrant (i) $.01 per Called
Warrant Share and (ii) a new Warrant representing the number of shares of
Warrant Stock, if any, which shall not have been subject to the Call Notice upon
the Holder tendering to the Issuer the applicable Warrant certificate.
8. Certain Exercise Restrictions.
(a) Notwithstanding anything to the contrary set forth in this Warrant, at no time may a Holder of this Warrant exercise this Warrant if the number of shares of Common Stock to be issued pursuant to such exercise would cause the number of shares of Common
Stock owned by the Holder at such time to exceed, when aggregated with all other shares of Common Stock owned by such Holder at such time, the number of shares of Common Stock which would result in such Holder beneficially owning (as determined in accordance with Section 13(d) of the Exchange Act and the rules thereunder) in excess of 4.9% of all of the Common Stock outstanding at such time; provided, however, that upon the Holder of this Warrant providing the Issuer with seventy-five (75) days notice (pursuant to Section 13 hereof) (the "Waiver Notice") that such Holder would like to waive this Section 8(a) with regard to any or all shares of Common Stock issuable upon exercise of this Warrant, this Section 8(a) will be of no force or effect with regard to all or a portion of the Warrant referenced in the Waiver Notice; provided, further, that this provision shall be of no further force or effect (i) during the seventy-five (75) days immediately preceding the expiration of the term of this Warrant or (ii) upon the Holder's receipt of a Call Notice.
(b) Notwithstanding anything to the contrary set forth in
this Warrant, at no time may a Holder of this Warrant exercise this Warrant if
the number of shares of Common Stock to be issued pursuant to such exercise
would cause the number of shares of Common Stock owned by the Holder at such
time to exceed, when aggregated with all other shares of Common Stock owned by
such Holder at such time, the number of shares of Common Stock which would
result in such Holder beneficially owning (as determined in accordance with
Section 13(d) of the Exchange Act and the rules thereunder) in excess of 9.9% of
all of the Common Stock outstanding at such time; provided, however, that upon a
holder of this Warrant providing the Issuer with a Waiver Notice that such
holder would like to waive this Section 8(b) with regard to any or all shares of
Common Stock issuable upon exercise of this Warrant, this Section 8(b) shall be
of no force or effect with regard to those shares of Warrant Stock referenced in
the Waiver Notice; provided, further, that this provision shall be of no further
force or effect (i) during the seventy-five (75) days immediately preceding the
expiration of the term of this Warrant or (ii) upon the Holder's receipt of a
Call Notice.
9. Definitions. For the purposes of this Warrant, the following terms have the following meanings:
"Additional Shares of Common Stock" means all shares of Common Stock (including Common Stock Equivalents) issued by the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by the Issuer after the Original Issue Date, except for Permitted Issuances.
"Board" shall mean the Board of Directors of the Issuer.
"Capital Stock" means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.
"Certificate of Incorporation" means the Certificate of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended,
modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.
"Common Stock" means the Common Stock, par value $.001 per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.
"Common Stock Equivalent" means any Convertible Security or warrant, option or other right to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Security.
"Common Stock Equivalent Consideration" has the meaning specified in Section 4 (i) (i) hereof.
"Convertible Securities" means evidences of Indebtedness, shares of Capital Stock or other Securities which are or may be at any time convertible into or exchangeable for Additional Shares of Common Stock. The term "Convertible Security" means one of the Convertible Securities.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Governmental Authority" means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.
"Holders" mean the Persons who shall from time to time own any Warrant. The term "Holder" means one of the Holders.
"Independent Appraiser" means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.
"Issuer" means QuantRx Biomedical Corporation, a Nevada corporation, and its successors.
"Majority Holders" means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding.
"Original Issue Date" means __________, 2005.
"OTC Bulletin Board" means the over-the-counter electronic bulletin board.
"Other Common" means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.
"Outstanding Common Stock" means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.
"Permitted Issuances" means (i) the issuance of the Warrant
Stock; (ii) issuances in connection with strategic license
agreements or other partnering arrangements so long as such
issuances are not for the exclusive purpose of raising capital;
(iii) issuances (other than for cash) in connection with a merger,
acquisition or consolidation of the Issuer or any of its
Subsidiaries; (iv) issuances in connection with a bona fide firm
underwritten public offering by the Issuer of its shares of Common
Stock; (v) issuances after the Original Issue Date by the Issuer of
Securities that result from commitments of the Issuer that are
either described in the Issuer's periodic filings with the
Securities and Exchange Commission or otherwise arose on or prior to
the date hereof; (vi) issuances after the Original Issue Date of so
many shares of Common Stock and the grant of options and warrants
after the Original Issue Date to the Issuer's officers, directors
and employees ("Issuer's Personnel" and each such issuance and grant
an "Issuance and/or Grant to Issuer Personnel"), which
(A) shares of Common Stock issued to Issuer Personnel plus
(B) the shares of Common Stock issuable upon the exercise of such options and warrants granted to Issuer Personnel,
in aggregate, would not exceed 10% (the "Issuance Limit") of the aggregate of the number of the Issuer's shares of Common Stock
(C) outstanding plus
(D) issuable upon the exercise, conversion or exchange of all Common Stock Equivalents outstanding (excluding, however, from this subclause D shares issuable upon exercise of warrants and options which are more than 125% of the Per Share Market Value of the Common Stock at the time of such Issuance and/or Grant to Issuer Personnel),
at the time the Permitted Issuance and/or Grant to Issuer Personnel is being calculated; provided that (1) the exercise price of such options and warrants at the time granted to Issuer Personnel shall not be less than the then Per Share Market Value of the Common Stock and (2) during the period from the Original Issuance Date through the twelve-month anniversary of the Original Issuance Date, the Issuance and/or Grant to Issuer
Personnel shall not in the aggregate exceed one-third of the Issuance Limit at the time of such Issuance and/or Grant to Issuer Personnel, and during the period from the Original Issuance Date through the twenty-four month anniversary of the Original Issuance Date, the Issuance and/or Grant to Issuer Personnel shall not in aggregate exceed two-thirds of the then Issuance Limit at the time of such Issuance and/or Grant to Issuer Personnel; (vii) common stock or warrants to third party providers of goods or services provided or in satisfaction of outstanding liabilities, as approved by the Company's Board of Directors; (viii) securities issued upon the exercise, conversion or exchange of any Common Stock Equivalents outstanding on the Original Issue Date and shares of Common Stock hereafter issued upon the exercise of options hereafter granted pursuant to the Company's stock option plan as it now exists; (ix) any warrants, shares of Common Stock or other securities issued to a placement agent and its designees for the transactions contemplated by the Purchase Agreement or in any other sales of the Company's securities and any securities issued in connection with any financial advisory agreements of the Issuer and the shares of Common Stock issued upon exercise of any such warrants or conversion of any such other securities and (x) any Securities issued in connection with the Qualified Financing (as defined in the 8% Convertible Promissory Note issued by the Issuer on the date hereof.
"Person" means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.
"Per Share Market Value" means on any particular date (a) the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (b) if the Common Stock is not then reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the relevant conversion period, as determined in good faith by the holder, or (c) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by the Board in good faith; provided, however, that the Majority Holders, after receipt of the determination by the Board, shall have the right to select, jointly with the Issuer, an Independent Appraiser, in which case, the fair market value shall be the determination by such Independent Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. The determination of fair market value shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.
"Purchase Agreement" means the Loan Letter Agreement dated as of ___________, 2005 among the Issuer and the lenders party thereto.
"Securities" means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. "Security" means one of the Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute then in effect.
"Subsidiary" means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.
"Term" has the meaning specified in Section 1 hereof.
"Trading Day" means (a) a day on which the Common Stock is traded on the OTC Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided, however, that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.
"Voting Stock" means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.
"Warrants" means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.
"Warrant Consideration" has the meaning specified in Section 4(i)(i) hereof.
"Warrant Price" initially means U.S. $1.50, as such price may be adjusted from time to time as shall result from the adjustments specified in this Warrant, including Section 4 hereto.
"Warrant Share Number" means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after
giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.
"Warrant Stock" means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.
10. Other Notices. In case at any time:
(A) the Issuer shall make any distributions to the holders of Common Stock; or
(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or of any Common Stock Equivalents or other rights; or
(C) there shall be any reclassification of the Capital Stock of the Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least ten (10) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto. This Warrant entitles the Holder to receive
copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.
11. Amendment and Waiver. Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided, however, that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 11 without the consent of the Holder of this Warrant.
12. Governing Law. This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted.
13. Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earlier of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice prior to 5:00 p.m., eastern time, on a Trading Day, (ii) the Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile telephone number specified for notice later than 5:00 p.m., eastern time, on any date and earlier than 11:59 p.m., eastern time, on such date, (iii) the Trading Day following the date of mailing, if sent by nationally recognized overnight courier service or (iv) actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be with respect to the Holder of this Warrant or of Warrant Stock issued pursuant hereto, addressed to such Holder at its last known address or facsimile number appearing on the books of the Issuer maintained for such purposes, or with respect to the Issuer, addressed to:
QuantRx Biomedical Corporation
321 Norristown Road
Suite 230
Ambler, PA 19002
Attn: Mr. Walter Witoshkin
Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.
14. Warrant Agent. The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.
15. Remedies. The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.
16. Successors and Assigns. This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.
17. Modification and Severability. If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.
18. Headings. The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
19. No Rights of Stockholder. The Holder shall not have, solely on account of such status, any rights of a stockholder of the Issuer, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Issuer, except as provided in this Warrant.
IN WITNESS WHEREOF, the Issuer has executed this Warrant as of the day and year first above written.
QUANTRX BIOMEDICAL CORPORATION
Title:
EXERCISE FORM
WARRANT
QUANTRX BIOMEDICAL CORPORATION
The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of QuantRx Biomedical Corporation covered by the within Warrant.
Dated: Signature
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ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.
Dated: Signature
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PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
Dated: Signature
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FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of _______________.
EXHIBIT 4.3
[GRAPHIC OMITTED] 4889 Tualatin-Sherwood Road Suite 405 Sherwood, OR 97140
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE RECEIVED PURSUANT TO THE EXERCISE OF THIS WARRANT WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR SUCH SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND ANY REGISTRATION OR QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE SECURITIES LAWS.
NO. ISSUED: MAY 27, 2005
WARRANT TO PURCHASE COMMON STOCK
EXPIRES MAY 27, 2010
This warrant (this "WARRANT") certifies that, for good and valuable consideration, _______________ (the "HOLDER") is entitled to purchase from A-Fem Medical Corporation, a Nevada corporation (the "COMPANY"), ___________________________ (________) fully paid and nonassessable shares of Common Stock, par value $0.01 per share ("COMMON STOCK"), of the Company (as adjusted pursuant to Section 3) (the "WARRANT SHARES") at a price per share equal to Eighty-five Cents ($0.85) (as adjusted pursuant to Section 3) (the "EXERCISE PRICE", upon the terms and subject to the conditions hereinafter set forth.
1. EXERCISE; PAYMENT.
(A) Exercise Period. This Warrant may be exercised in whole or part by the Holder during the term (as set forth in Section 7) and in compliance with the provisions of this Warrant at any time after the date of issuance set forth above (the "WARRANT DATE"), by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A (the "NOTICE OF EXERCISE") duly executed) at the principal office of the Company. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder.
(B) Exercise. Upon exercise of this Warrant, the Holder shall pay to the Company an amount equal to the product of (x) the Exercise Price multiplied by (y) the total number of
Warrant Shares purchased pursuant to this Warrant, by wire transfer or cashier's check payable to the order of the Company. The Holder shall be deemed to have become the holder of record of, and shall be treated for all purposes as the record holder of, the Warrant Shares represented thereby (and such Warrant Shares shall be deemed to have been issued) immediately prior to the close of business on the date upon which this Warrant is exercised. (C) Stock Certificates. In the event of the exercise of this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the Holder promptly after exercise but in no event more than ten (10) business days after such exercise.
2. STOCK FULLY PAID; RESERVATION OF SHARES. All of the Warrant Shares issuable upon the exercise of this Warrant will, upon issuance in accordance with the terms of this Warrant, be fully paid and nonassessable, and free from all preemptive rights, rights of first refusal or first offer, taxes, liens and charges with respect to the issuance thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and kind of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price payable therefore shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:
(A) Reclassification, Consolidation or Reorganization. In case of any reclassification of the Common Stock (other than a change in par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a Change of Control, as defined below) (any of which is a "REORGANIZATION TRANSACTION"), the Company, or such successor corporation as the case may be, shall execute a new warrant, providing that the Holder shall have the right to exercise such new warrant, and procure upon such exercise and payment of the same aggregate Exercise Price, in lieu of the Warrant Shares theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property as would be payable for the Warrant Shares issuable upon exercise of this Warrant as if such Warrant Shares were outstanding immediately prior to the consummation of the Reorganization Transaction. For purposes of this Warrant, the term "Change of Control" shall mean (i) any acquisition of the Company by means of merger, acquisition, or other form of corporate reorganization in which outstanding shares of the Company are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary or parent (other than a reincorporation transaction or change of domicile) and pursuant to which the holders of the outstanding voting securities of the Company immediately prior to such consolidation, merger or other transaction fail to hold equity securities representing a majority of the voting power of the Company or surviving entity immediately following such consolidation, merger or other transaction (excluding voting securities of the acquiring corporation held by such holders prior to such transaction) or (ii) a sale of all or substantially all of the assets of the Company.
(B) Stock Splits, Dividends and Combinations. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
(C) Adjustment Upon Issuance of Shares of Common Stock Below Exercise Price.
(I) If the Company, at any time or from time to time, issues or sells any Additional Shares of Common Stock (as defined below), other than as provided in the foregoing subsections of this Section 3, for a price per share (which, in the case of options, warrants, convertible securities or other rights, includes the amounts paid therefore plus the exercise price, conversion price or other such amounts payable thereunder) that is less than the then applicable Exercise Price, then and in each such case, the then applicable Exercise Price shall automatically be reduced as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Exercise Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (B)the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such Exercise Price, and (ii) the denominator of which shall be the number of shares of Common Stock deemed outstanding (as defined below) immediately prior to such issue or sale plus the total number of Additional Shares of Common Stock so issued; provided, however, that upon the expiration or other termination of options, warrants, or other rights to purchase or acquire shares of Common Stock, and upon the expiration or termination of the right to convert or exchange convertible or exchangeable securities (whether by reason of redemption or otherwise), if any thereof shall not have been exercised, converted or exchanged, as applicable, the number of shares of Common Stock deemed to be outstanding pursuant to this Section 3(c) shall be reduced by the number of shares as to which options, warrants, and rights to purchase or acquire shares of Common Stock shall have expired or terminated unexercised, and as to which conversion or exchange rights shall have expired or terminated unexercised, and such number of shares shall no longer be deemed to be outstanding; and the Exercise Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares of Common Stock actually issued. For purposes of the preceding sentence, the number of shares of Common Stock deemed to be outstanding as of a given date shall be the sum of (A) the number of shares of Common Stock actually outstanding, (B) the number of Shares for which the Warrant could be exercised on the day immediately preceding the given date, and
(C) the number of shares of Common Stock which could be obtained through the exercise or conversion of all other rights, options and convertible securities outstanding on the day immediately preceding the given date. "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of Common Stock, and all options, warrants, convertible securities or other rights to purchase or acquire shares of Common Stock, issued by the Company other than (A) shares of Common Stock and/or options, warrants or other Common Stock purchase rights, where such options, warrants or other rights are issued both (i) with exercise prices per share of Common Stock at the then-current fair market value of a share of Common Stock, as determined in good faith by the Board of Directors of the Company, and (ii) to employees, officers or directors of, or consultants to, the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Company's Board of Directors and (B) shares of Common Stock issued pursuant to the exercise of options, warrants or convertible securities outstanding as of the date hereof.
(ii) In the event that the exercise price, conversion price, purchase price or other price at which shares of Common Stock are purchasable pursuant to any options, warrants, convertible securities or other rights to purchase or acquire Common Stock is reduced at any time or from time to time (other than under or by reason of provisions designed to protect against dilution), then, upon such reduction becoming effective, the Exercise Price then in effect hereunder shall forthwith be decreased to such Exercise Price as would have been obtained had the adjustments made and required under this Section 3 upon the issuance of such options, warrants, convertible securities or other rights been made upon the basis of (and the total consideration received therefore) (A) the issuance of the number of shares of Common Stock theretofore actually delivered upon the exercise, conversion or exchange of such options, warrants, convertible securities or other rights, (B) the issuance of all of the Common Stock and all other options, warrants, convertible securities and other rights to purchase or acquire Common Stock issued after the issuance of the modified options, warrants, convertible securities or other rights, and (C) the original issuance at the time of the reduction of any such options, warrants, convertible securities or other rights then still outstanding.
(iii) In no event shall an adjustment under this Section 3(c) be made if it would result in an increase in the then applicable Exercise Price.
(d) Notice of Corporate Action. If at any time (i) the Company shall take
a record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend (other than a cash dividend payable out of earnings or earned
surplus legally available for the payment of dividends under the laws of State
of Nevada) or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right; (ii) there shall be any
capital reorganization of the Company, any reclassification or recapitalization
of the capital stock of the Company or any consolidation or merger of the
Company with, or any sale, transfer or other disposition of all or substantially
all the property, assets or business of the Company to, another corporation; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company, then, in any one or more of such cases, the Company shall give to the Holder (i) at least 10 business days prior written notice of the date on which a record date shall be selected for such dividend, distribution or right or for determining rights to vote in respect of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, and (ii) in the case of any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up, at least 10 business days prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause also shall specify (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, the date on which the holders of Common Stock shall be entitled to any such dividend, distribution or right, and the amount and character thereof, and (ii) the date on which any such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up is to take place and the time, if any such time is to be fixed, as of which the holders of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, merger, consolidation, sale, transfer, disposition, dissolution, liquidation or winding up. Each such written notice shall be sufficiently given if addressed to the Holder at the last address of the Holder appearing on the books of the Company and delivered in accordance with Section 12(d).
4. REDEMPTION. This Warrant may be redeemed by the Company at a price of ONE
CENT ($.01) per Warrant Share on ten (10) days' notice to the Holder (the
"NOTICE") if (i) the closing bid price of the Company's Common Stock exceeds ONE
DOLLAR AND SEVENTY CENTS ($1.70) for twenty (20) consecutive trading days and
(ii) a registration statement covering the Warrant Shares has been declared
effective by the Securities and Exchange Commission and such registration
statement remains effective thirty (30) days prior to the date of the notice.
5. TRANSFER OF WARRANT AND RESALE OF WARRANT SHARES.
(a) This Warrant may only be transferred in compliance with federal and state securities laws.
(b) At the time of the surrender of this Warrant in connection with any transfer of this Warrant or the resale of the Warrant Shares, the Company may require, as a condition of allowing such transfer (i) that the Holder or transferee of this Warrant or the Warrant shares as the case may be, furnish to the Company a written opinion of counsel that is reasonably acceptable to the Company to the effect that such transfer may be made without registration under the Securities Act or qualification under any state securities laws, (ii) that the Holder or transferee execute and deliver to the Company an investment representation letter in form and substance acceptable to the Company containing among other provisions representations and warranties similar to those set forth in Section 6 and (iii) that the transferee be an "accredited investor" as defined in Rule 501 (a) promulgated under the Securities Act. Transfer of this Warrant and all rights hereunder, in whole or in part, in accordance with the foregoing provisions, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the principal office of the Company or the office or agency designated by the Company, together with a written assignment of this Warrant substantially in the form of Exhibit B hereto duly executed by
the Holder or its attorney-in-fact and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denomination specified in such instrument of assignment, and shall issue to the Holder a new warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall be deemed cancelled. This Section 5 shall survive the exercise or expiration of the Warrant.
6. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(A) EXEMPT TRANSACTION; RESTRICTED SECURITIES. The Holder understands that this Warrant is being offered and sold in reliance on one or more exemptions from registration provided for under the Securities Act, and that the Company's reliance upon such exemptions is predicated, in part, upon the Holder's representations and warranties set forth in this Warrant. The Holder understands that this Warrant and the Warrant Shares are "restricted securities" as such term is defined in Rule 144 promulgated under the Securities Act {"Rule 144"). The Holder understands that the Holder may resell the Warrant Shares pursuant to Rule 144 only after the satisfaction of certain requirements, including the requirement that the Warrant Shares be held for at least one year prior to resale.
(B) INVESTMENT INTENT; ACCREDITATION; AUTHORITY. The Holder is acquiring this Warrant for investment for the Holder's own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act. The Holder is an "accredited investor" within the meaning of the Securities Act. The Holder has the full right, power, authority and capacity to enter into and perform this Warrant and the terms of this Warrant constitute valid and binding obligations of the Holder enforceable in accordance with its terms, except as the same may be limited by equitable principles and by bankruptcy, insolvency, moratorium, and other laws of general application affecting the enforcement of creditors' rights.
(C) KNOWLEDGE AND EXPERIENCE. The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Holder's investment in this Warrant and has the ability to bear the economic risks of such investment.
(D) DOMICILE. The Holder is a bona fide resident and domiciliary (not a temporary or transient resident) of the jurisdiction indicated on the signature page to this Warrant and the Holder has no present intention of becoming a resident of any other state or jurisdiction.
7. CONDITIONS TO EXERCISE OF WARRANT.
(a) Each certificate evidencing the Warrant Shares issued upon exercise of this Warrant shall be stamped or imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT') AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(B) REMOVAL OF LEGEND AND TRANSFER RESTRICTIONS. Any legend endorsed on a
certificate pursuant to this Section 7 shall be removed, and the Company shall
issue a certificate without such legend to the holder of such Warrant Shares if
(i) such Warrant Shares are resold pursuant to a registration statement under
the Securities Act and a prospectus meeting the requirements of Section 11 of
the Securities Act is delivered or deemed delivered to the purchaser of such
Warrant Shares, (ii) if such holder satisfies the requirements of Rule 144(k)
under the Securities Act or (iii) if such holder provides the Company with an
opinion of counsel for such holder of the Warrant Shares, reasonably
satisfactory to the Company, to the effect that a sale, transfer or assignment
of such Warrant Shares may be made without registration and that upon such sale,
transfer or assignment such Warrant Shares will not be deemed "restricted
securities," as such term is defined in Rule 144 under the Securities Act.
8. FRACTIONAL SHARES. No fractional Warrant Shares will be issued in connection with any exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefore upon the basis of the Exercise Price then in effect.
9. NO RIGHTS OF STOCKHOLDERS. The Holder shall not be entitled to vote or receive dividends or be deemed the holder of Warrant Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive dividends or subscription rights or otherwise with respect to the Warrant Shares until this Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise of this Warrant shall have become deliverable, as provided in this Warrant.
10. REGISTRATION RIGHTS. The Holder shall have the registration rights set forth in Section 8 of the Securities Purchase Agreement, dated as of the date hereof, among the Company and the Investors set forth on Schedule 1 thereto.
11. TERM OF WARRANT. This Warrant shall become exercisable on the Warrant Date and shall no longer be exercisable as of the earlier of (i) 5:00 p.m., Pacific time, on May 27, 2010; and (ii) immediately prior to the consummation of a Change of Control.
12. MISCELLANEOUS.
(A) This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Nevada, without giving effect to principles of conflicts of laws.
(B) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms of this Warrant.
(C) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of the Holder and of the Warrant Shares issued or issuable upon the exercise of this Warrant.
(D) Any notice provided for or permitted under this Warrant shall be
treated as having been given (i) upon receipt, when delivered personally, (ii)
one day after sending, when sent by commercial overnight courier with written
verification of receipt, (iii) upon confirmed transmission when sent via
facsimile on a business day prior to 5:00 pm (Pacific time) or, if sent after
5:00 pm (Pacific time), the next business day after confirmed transmission or
(iv) three business days after deposit with the United States Postal Service,
when mailed postage prepaid by certified or registered mail, return receipt
requested, addressed, if to the Company, at 14889 Tualatin-Sherwood Road, Suite
405, Sherwood, OR 97140, (f) (503) 740-4465, Attention: William Fleming, or, if
to the Holder, at such address or facsimile number as the Holder shall have
furnished to the Company in writing, or at such other place of which the other
party has been notified in accordance with the provisions of this Section ll
(d).
(E) This Warrant constitutes the full and entire understanding and agreement between the parties with regard to the subjects of this Warrant.
(F) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at the Holder's expense will execute and deliver to the holder of record, in lieu thereof, a new Warrant of like date and tenor.
(G) This Warrant and any provision of this Warrant may be amended, waived or terminated only by an instrument in writing signed by the Company and the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have executed this Warrant as of the Warrant Date.
A-FEM MEDICAL CORPORATION
Name: Walter Witoshkin
Its: President/Chief Executive Officer
HOLDER
EXHIBIT A
NOTICE OF EXERCISE
TO: A-Fem Medical Corporation
1. The undersigned hereby elects to purchase _________ Warrant Shares pursuant to the terms of Section l(b) of the Warrant to Purchase Capital Stock dated March ___, 2005 (the "WARRANT"), between the undersigned and A-Fem Medical Corporation (the "COMPANY"), and tenders herewith payment of the aggregate Exercise Price of such Warrant Shares in full.
2. Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
Name: ----------------------------
Address: ----------------------------
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3. ______________ hereby represents and warrants that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares, and that all representations and warranties of the undersigned set forth in Section 6 of the Warrant were true and correct as of the Warrant Date (as defined in the Warrant) and are true and correct as of the date hereof.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________ (the "HOLDER"), party to the Warrant to Purchase Common Stock, dated _________, 2005 (the "WARRANT"), with A-Fem Medical Corporation (the "Company)r), hereby sells, assigns and transfers unto the assignee named below all of the rights of the Holder under the Warrant, with respect to the number of shares of Common Stock set forth below:
and does hereby irrevocably constitute and appoint ___________ attorney-in-fact to register such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.
(Print Name and Title)
(Signature)
(Witness)
NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.
EXHIBIT 4.4
THIS WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE RECEIVED PURSUANT TO THE EXERCISE OF THIS WARRANT WILL BE, ACQUIRED SOLELY FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION THEREOF. NEITHER THIS WARRANT NOR SUCH SHARES (TOGETHER, THE "SECURITIES") HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE ACT AND ANY REGISTRATION OR QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE SECURITIES LAWS.
No. W052005-CON-1
ISSUED: NOVEMBER 8, 2005
WARRANT TO PURCHASE COMMON STOCK
Expires November 8, 2010
This warrant (this "Warrant") certifies that, for good and valuable consideration, BURNHAM HILL PARTNERS (the "Holder"), is entitled to purchase from QuantRx Biomedical Corporation, a Nevada corporation (the "Company"), ONE HUNDRED THOUSAND (100,000) fully paid and nonassessable shares of Common Stock, par value $0.01 per share ("Common Stock"), of the Company (as adjusted pursuant to Section 3) (the "Warrant Shares") at a price per share equal to TWO DOLLARS ($2.00) (as adjusted pursuant to Section 3) (the "Exercise Price"), upon the terms and subject to the conditions hereinafter set forth.
1. EXERCISE; PAYMENT.
(a) Exercise Period. This Warrant may be exercised in whole or part by the Holder during the term (as set forth in Section 7) and in compliance with the provisions of this Warrant at any time after the date of issuance set forth above (the "Warrant Date"), by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A (the "Notice of Exercise") duly executed) at the principal office of the Company. If this Warrant shall have been exercised in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased shares of Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder.
(b) Exercise. Upon exercise of this Warrant, the Holder shall pay to the Company an amount equal to the product of (x) the Exercise Price multiplied by (y) the total number of Warrant Shares purchased pursuant to this Warrant, by wire transfer or cashier's check
payable to the order of the Company. The Holder shall be deemed to have become the holder of record of, and shall be treated for all purposes as the record holder of, the Warrant Shares represented thereby (and such Warrant Shares shall be deemed to have been issued) immediately prior to the close of business on the date upon which this Warrant is exercised.
(c) Cashless Exercise. Notwithstanding any provisions herein to the contrary and commencing one (1) year following the Warrant Date, if the per share market value of one share of Common Stock is greater than the Exercise Price (at the date of calculation as set forth below) and a registration statement under the Securities Act of 1933, as amended (the "Securities Act") providing for the resale of the Warrant Shares is not effective at the time of exercise of this Warrant, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:
Where X =
the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
A = the Exercise Price.
B = the per share market value of one share of Common Stock.
(d) Stock Certificates. In the event of the exercise of this Warrant, certificates for the Warrant Shares so purchased shall be delivered to the Holder promptly after exercise but in no event more than ten (10) business days after such exercise.
2. STOCK FULLY PAID; RESERVATION OF SHARES. All of the Warrant Shares issuable upon the exercise of this Warrant will, upon issuance in accordance with the terms of this Warrant, be fully paid and nonassessable, and free from all preemptive rights, rights of first refusal or first offer, taxes, liens and charges with respect to the issuance thereof. During the period within which the rights represented by this Warrant may be exercised, the Company shall at all times have authorized and reserved for issuance a sufficient number of shares of its Common Stock to provide for the exercise of this Warrant.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number and kind of Warrant Shares purchasable upon the exercise of this Warrant and the Exercise Price payable therefor shall be subject to adjustment from time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Consolidation or Reorganization. In case of any reclassification of the Common Stock (other than a change in par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a Change of Control, as defined below) (any of which is a "Reorganization Transaction"), the Company, or such successor corporation as the case may be, shall execute a new warrant, providing that the Holder shall have the right to exercise such new warrant, and procure upon such exercise and payment of the same aggregate Exercise Price, in lieu of the Warrant Shares theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property as would be payable for the Warrant Shares issuable upon exercise of this Warrant as if such Warrant Shares were outstanding immediately prior to the consummation of the Reorganization Transaction. For purposes of this Warrant, the term "Change of Control" shall mean (i) any acquisition of the Company by means of merger, acquisition, or other form of corporate reorganization in which outstanding shares of the Company are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring corporation or its subsidiary or parent (other than a reincorporation transaction or change of domicile) and pursuant to which the holders of the outstanding voting securities of the Company immediately prior to such consolidation, merger or other transaction fail to hold equity securities representing a majority of the voting power of the Company or surviving entity immediately following such consolidation, merger or other transaction (excluding voting securities of the acquiring corporation held by such holders prior to such transaction) or (ii) a sale of all or substantially all of the assets of the Company.
(b) Stock Splits, Dividends and Combinations. In the event that the Company shall at any time subdivide the outstanding shares of Common Stock, or shall issue a stock dividend on its outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such subdivision or to the issuance of such stock dividend shall be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the Company shall at any time combine the outstanding shares of Common Stock, the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such combination shall be proportionately decreased, and the Exercise Price shall be proportionately increased, effective at the close of business on the date of such subdivision, stock dividend or combination, as the case may be.
(c) Adjustment Upon Issuance of Shares of Common Stock Below Exercise Price.
(i) If the Company, at any time or from time to time, issues or sells any Additional Shares of Common Stock (as defined below), other than as provided in the foregoing subsections of this Section 3, for a price per share (which, in the case of options, warrants, convertible securities or other rights, includes the amounts paid therefor plus the exercise price, conversion price or other such amounts payable thereunder) that is less than the then applicable Exercise Price, then and in each such case, the then applicable Exercise Price shall automatically be reduced as of the opening of business on the date of such issue or sale, to a price determined by multiplying the Exercise Price by a fraction (i) the numerator of which shall be (A) the number of shares of Common Stock deemed outstanding (as determined below) immediately prior to such issue or sale, plus (B) the
number of shares of Common Stock which the aggregate consideration
received by the Company for the total number of Additional Shares of
Common Stock so issued would purchase at such Exercise Price, and (ii)
the denominator of which shall be the number of shares of Common Stock
deemed outstanding (as defined below) immediately prior to such issue
or sale plus the total number of Additional Shares of Common Stock so
issued; provided, however, that upon the expiration or other
termination of options, warrants, or other rights to purchase or
acquire shares of Common Stock, and upon the expiration or termination
of the right to convert or exchange convertible or exchangeable
securities (whether by reason of redemption or otherwise), if any
thereof shall not have been exercised, converted or exchanged, as
applicable, the number of shares of Common Stock deemed to be
outstanding pursuant to this Section 3(c) shall be reduced by the
number of shares as to which options, warrants, and rights to purchase
or acquire shares of Common Stock shall have expired or terminated
unexercised, and as to which conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no
longer be deemed to be outstanding; and the Exercise Price then in
effect shall forthwith be readjusted and thereafter be the price that
it would have been had adjustment been made on the basis of the
issuance only of the shares of Common Stock actually issued. For
purposes of the preceding sentence, the number of shares of Common
Stock deemed to be outstanding as of a given date shall be the sum of
(A) the number of shares of Common Stock actually outstanding, (B) the
number of Shares for which the Warrant could be exercised on the day
immediately preceding the given date, and (C) the number of shares of
Common Stock which could be obtained through the exercise or conversion
of all other rights, options and convertible securities outstanding on
the day immediately preceding the given date. "Additional Shares of
Common Stock" shall mean all shares of Common Stock, and all options,
warrants, convertible securities or other rights to purchase or acquire
shares of Common Stock, issued by the Company other than (A) shares of
Common Stock and/or options, warrants or other Common Stock purchase
rights, where such options, warrants or other rights are issued both
(i) with exercise prices per share of Common Stock at the then-current
fair market value of a share of Common Stock, as determined in good
faith by the Board of Directors of the Company, and (ii) to employees,
officers or directors of, or consultants to, the Company or any
subsidiary pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Company's Board of Directors and
(B) shares of Common Stock issued pursuant to the exercise of options,
warrants or convertible securities outstanding as of the date hereof.
(ii) In the event that the exercise price, conversion price, purchase price or other price at which shares of Common Stock are purchasable pursuant to any options, warrants, convertible securities or other rights to purchase or acquire Common Stock is reduced at any time or from time to time (other than under or by reason of provisions designed to protect against dilution), then, upon such reduction becoming effective, the Exercise Price then in effect hereunder shall forthwith be decreased to such Exercise Price as would have been obtained had the adjustments made and required under this Section 3 upon the issuance of such
options, warrants, convertible securities or other rights been made upon the basis of (and the total consideration received therefor) (A) the issuance of the number of shares of Common Stock theretofore actually delivered upon the exercise, conversion or exchange of such options, warrants, convertible securities or other rights, (B) the issuance of all of the Common Stock and all other options, warrants, convertible securities and other rights to purchase or acquire Common Stock issued after the issuance of the modified options, warrants, convertible securities or other rights, and (C) the original issuance at the time of the reduction of any such options, warrants, convertible securities or other rights then still outstanding.
(iii)In no event shall an adjustment under this Section 3(c) be made if it would result in an increase in the then applicable Exercise Price.
(d) Notice of Corporate Action. If at any time (i) the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend (other than a cash dividend payable
out of earnings or earned surplus legally available for the payment of
dividends under the laws of State of Nevada) or other distribution, or any
right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to
receive any other right; (ii) there shall be any capital reorganization of
the Company, any reclassification or recapitalization of the capital stock
of the Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation; or
(iii) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company, then, in any one or more of such cases, the
Company shall give to the Holder (i) at least 10 business days prior
written notice of the date on which a record date shall be selected for
such dividend, distribution or right or for determining rights to vote in
respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up, and (ii) in the case of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, at least 10 business days prior
written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause also shall specify (i) the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall
be entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if
any such time is to be fixed, as of which the holders of Common Stock shall
be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up. Each such written notice shall be sufficiently
given if addressed to the Holder at the last address of the Holder
appearing on the books of the Company and delivered in accordance with
Section 12(d).
4. REDEMPTION. This Warrant may be redeemed by the Company at a price of One
Cent ($.01) per Warrant Share on ten (10) days' notice to the Holder (the
"Notice") if (i) the closing bid price of the Company's Common Stock exceeds One
Dollar and Seventy Cents ($1.70) for twenty (20) consecutive trading days and
(ii) a registration statement covering the Warrant Shares has been declared
effective by the Securities and Exchange Commission and such registration
statement remains effective thirty (30) days prior to the date of the notice.
5. TRANSFER OF WARRANT AND RESALE OF WARRANT SHARES.
(a) This Warrant may only be transferred in compliance with federal and state securities laws.
(b) At the time of the surrender of this Warrant in connection with
any transfer of this Warrant or the resale of the Warrant Shares, the
Company may require, as a condition of allowing such transfer (i) that the
Holder or transferee of this Warrant or the Warrant Shares as the case may
be, furnish to the Company a written opinion of counsel that is reasonably
acceptable to the Company to the effect that such transfer may be made
without registration under the Securities Act or qualification under any
state securities laws, (ii) that the Holder or transferee execute and
deliver to the Company an investment representation letter in form and
substance acceptable to the Company containing among other provisions
representations and warranties similar to those set forth in Section 6 and
(iii) that the transferee be an "accredited investor" as defined in Rule
501(a) promulgated under the Securities Act. Transfer of this Warrant and
all rights hereunder, in whole or in part, in accordance with the foregoing
provisions, shall be registered on the books of the Company to be
maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company or the office or agency designated by the
Company, together with a written assignment of this Warrant substantially
in the form of Exhibit B hereto duly executed by the Holder or its
attorney-in-fact and funds sufficient to pay any transfer taxes payable
upon the making of such transfer. Upon such surrender and, if required,
such payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the Holder a
new warrant evidencing the portion of this Warrant not so assigned, and
this Warrant shall be deemed cancelled. This Section 5 shall survive the
exercise or expiration of the Warrant.
6. REPRESENTATIONS AND WARRANTIES OF HOLDER.
(a) Exempt Transaction; Restricted Securities. The Holder understands that this Warrant is being offered and sold in reliance on one or more exemptions from registration provided for under the Securities Act, and that the Company's reliance upon such exemptions is predicated, in part, upon the Holder's representations and warranties set forth in this Warrant. The Holder understands that this Warrant and the Warrant Shares are "restricted securities" as such term is defined in Rule 144 promulgated under the Securities Act ("Rule 144"). The Holder understands that the Holder may resell the Warrant Shares pursuant to Rule 144 only after the satisfaction of certain requirements, including the requirement that the Warrant Shares be held for at least one year prior to resale.
(b) INVESTMENT INTENT ACCREDITATION; AUTHORITY. The Holder is acquiring this Warrant for investment for the Holder's own account, not as nominee or agent, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act. The Holder is an "accredited investor" within the meaning of the Securities Act. The Holder has the full right, power, authority and capacity to enter into and perform this Warrant and the terms of this Warrant constitute valid and binding obligations of the Holder enforceable in accordance with its terms, except as the same may be limited by equitable principles and by bankruptcy, insolvency, moratorium, and other laws of general application affecting the enforcement of creditors' rights.
(c) KNOWLEDGE AND EXPERIENCE. The Holder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Holder's investment in this Warrant and has the ability to bear the economic risks of such investment.
(d) DOMICILE. The Holder is a bona fide resident and domiciliary (not a temporary or transient resident) of the jurisdiction indicated on the signature page to this Warrant and the Holder has no present intention of becoming a resident of any other state or jurisdiction.
7. CONDITIONS TO EXERCISE OF WARRANT.
(a) Each certificate evidencing the Warrant Shares issued upon exercise of this Warrant shall be stamped or imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
(b) REMOVAL OF LEGED AND TRANSFER RESTRICTIONS. Any legend endorsed on a certificate pursuant to this Section 7 shall be removed, and the Company shall issue a certificate without such legend to the holder of such Warrant Shares if (i) such Warrant Shares are resold pursuant to a registration statement under the Securities Act and a prospectus meeting the requirements of Section 11 of the Securities Act is delivered or deemed delivered to the purchaser of such Warrant Shares, (ii) if such holder satisfies the requirements of Rule 144(k) under the Securities Act or (iii) if such holder provides the Company with an opinion of counsel for such holder of the Warrant Shares, reasonably satisfactory to the Company, to the effect that a sale, transfer or assignment of such Warrant Shares may be made without registration and that upon such sale, transfer or assignment such Warrant Shares will not be deemed "restricted securities," as such term is defined in Rule 144 under the Securities Act.
8. FRACTIONAL SHARES. No fractional Warrant Shares will be issued in connection with any exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the Exercise Price then in effect.
9. NO RIGHTS OF STOCKHOLDERS. The Holder shall not be entitled to vote or receive dividends or be deemed the holder of Warrant Shares or any other securities of the Company which may at any time be issuable on the exercise of this Warrant for any purpose, nor shall anything contained herein be construed to confer upon the Holder any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive dividends or subscription rights or otherwise with respect to the Warrant Shares until this Warrant shall have been exercised and the Warrant Shares purchasable upon the exercise of this Warrant shall have become deliverable, as provided in this Warrant.
10. Piggyback Registration. If the Company at any time proposes to register any
of its securities under the Securities Act for sale to the public, whether for
its own account or for the account of other security holders or both (except
with respect to registration statements on Forms S-4 or S-8 or another form not
available for registering the registrable securities for sale to the public), it
will give written notice to the Holder of its intention so to do. Upon the
written request of the Holder, received by the Company within 30 days after the
giving of any such notice by the Company, to register any of the Holder's
Warrant Shares, the Company will use reasonable best efforts to cause the
Holder's Warrant Shares as to which registration shall have been so requested to
be included in the securities to be covered by the registration statement
proposed to be filed by the Company. If any registration pursuant to this
Section 10 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of the Holder's Warrant Shares to be included in such
an underwriting may be reduced on a pari passu basis, or eliminated entirely, if
and to the extent that the managing underwriter shall be of the opinion that
such inclusion would adversely affect the marketing of the securities to be sold
by the Company.
11. TERM OF WARRANT. This Warrant shall become exercisable on the Warrant Date and shall no longer be exercisable as of the earlier of (i) 5:00 p.m., New York time, November 8, 2010; and (ii) immediately prior to the consummation of a Change of Control.
12. MISCELLANEOUS.
(a) This Warrant shall be construed and enforced in accordance with and governed by the laws of the State of Nevada, without giving effect to principles of conflicts of laws.
(b) The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms of this Warrant.
(c) The terms of this Warrant shall be binding upon and shall inure to the benefit of any successors or assigns of the Company and of the Holder and of the Warrant Shares issued or issuable upon the exercise of this Warrant.
(d) Any notice provided for or permitted under this Warrant shall be
treated as having been given (i) upon receipt, when delivered personally,
(ii) one day after sending, when sent by commercial overnight courier with
written verification of receipt, (iii) upon confirmed transmission when
sent via facsimile on a business day prior to 5:00 p.m. (New York time) or,
if sent after 5:00 p.m.( New York time), the next business day after
confirmed transmission or (iv) three business days after deposit with the
United States Postal Service, when mailed postage prepaid by certified or
registered mail, return receipt requested, addressed, if to the Company, at
321 Norristown Road, Suite 230, Ambler, PA 19002, (f) (215) 540-4315,
Attention: Walter Witoshkin, or, if to the Holder, at such address or
facsimile number as the Holder shall have furnished to the Company in
writing, or at such other place of which the other party has been notified
in accordance with the provisions of this Section 12(d).
(e) This Warrant constitutes the full and entire understanding and agreement between the parties with regard to the subjects of this Warrant.
(f) Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at the Holder's expense will execute and deliver to the holder of record, in lieu thereof, a new Warrant of like date and tenor.
(g) This Warrant and any provision of this Warrant may be amended, waived or terminated only by an instrument in writing signed by the Company and the Holder.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties have executed this Warrant as of the Warrant Date.
QUANTRX BIOMEDICAL CORPORATION
Name: Walter Witoshkin
Its: President and Chief Executive Officer
HOLDER
SIGNATURE PAGE TO WARRANT TO PURCHASE COMMON STOCK
EXHIBIT A
NOTICE OF EXERCISE
TO: QuantRx Biomedical Corporation
1. The undersigned hereby elects to purchase ______________ Warrant Shares pursuant to the terms of Section 1(b) of the Warrant to Purchase Capital Stock dated November 8, 2005 (the "Warrant"), between the undersigned and QuantRx Biomedical Corporation (the "Company"), and tenders herewith payment of the aggregate Exercise Price of such Warrant Shares in full.
2. Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
3. ____________________ hereby represents and warrants that the aforesaid shares of Common Stock are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof, and that the undersigned has no present intention of distributing or reselling such shares, and that all representations and warranties of the undersigned set forth in Section 6 of the Warrant were true and correct as of the Warrant Date (as defined in the Warrant) and are true and correct as of the date hereof.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, _________________________ (the "Holder"), party to the Warrant to Purchase Common Stock, dated November 8, 2005 (the "Warrant"), with QuantRx Biomedical Corporation (the "Company"), hereby sells, assigns and transfers unto the assignee named below all of the rights of the Holder under the Warrant, with respect to the number of shares of Common Stock set forth below:
and does hereby irrevocably constitute and appoint ____________ attorney-in-fact to register such transfer on the books of the Company, maintained for the purpose, with full power of substitution in the premises.
NOTICE: The signature on this assignment must correspond with the name as written upon the face of the Warrant in every particular, without alteration or enlargement or any change whatsoever.
Exhibit 10.1
December 3, 2005
Mr. Walter Witoshkin
QuantRx Biomedical Corporation
321 Norristown Road, Suite 230
Ambler, PA 19002
Dear Mr. Witoshkin
The purpose of this letter agreement (the "Agreement") is to set forth the terms and conditions pursuant to which Uninvest Capital Ltd. shall introduce QuantRx Biomedical Corporation (the "Company") to one or more investors in connection with the proposed offering (the "Offering") of securities of the Company. The terms of such Offering and the Securities shall be mutually agreed upon by the Company and the investors. Uninvest Capital Ltd. engagement under this Agreement shall be non-exclusive.
In consideration of the services rendered by Uninvest Capital Ltd. under this Agreement, the Company agrees to pay Uninvest Capital Ltd. the following fees and other compensation: A cash fee payable upon the closing of the Offering equal to 8% of the aggregate capital raised by Uninvest Capital Ltd. and warrants to purchase 8% of the shares to be issued on an as converted basis of this Offering to the investors introduced by Uninvest Capital Ltd
This agreement shall be governed by the laws of the State of Pennsylvania, without regard to conflicts of law principle. Any dispute arising out of this agreement shall be adjudicated in the courts of the State of Pennsylvania or in the federal courts sitting in the Eastern District.
This Agreement constitutes the entire understanding and agreement between the parties hereto with respect to its subject matter and there are no agreements or understandings with respect to the subject matter hereof which are not contained in this agreement. If the foregoing correctly states our agreement, please confirm this by signing and returning to us the duplicate copy of this letter.
Thank you.
Univest Capital Limited
By: /s/Emst Pernet
-----------------------------------
Emst Pernet
Manager
|
Agreed to and accepted as of the date first written above:
QuantRx Biomedical Corporation
By: /s/Walter Witoshkin
-----------------------------------
Walter Witoshkin
President & CEO
|
EXHIBIT 10.2
BURNHAM HILL PARTNERS
A DIVISION OF PALI CAPITAL INC.
370 LEXINGTON AVENUE TEL 212-980-2200
NEW YORK, NEW YORK 10022 FAX 212-980-9466
November 8, 2005
Mr. Walter Witoshkin
A-Fem Medical Corporation
321 Norristown Rd. Suite 230
Ambler, PA 19002
Dear Mr. Witoshkin.:
This agreement confirms the engagement of Burnham Hill Partners, a division of Pali Capital, Inc. ("BHP") by A-Fern Medical Corporation ("A-Fem" or the "Company") as its financial advisor in connection with one or more potential strategic transactions, which may include an acquisition, partnership, strategic alliance or merger (a. "Strategic Transaction"). In the event the Company elects to pursue an equity or debt financing during the term of this engagement or an equity or debt financing is required in connection with a Strategic Transaction, BHP and the Company shall enter into a separate letter agreement, to be negotiated in good faith on commercially standard terms, related to such financing activity. This engagement shall have a term of six months, which term may be extended upon mutual written agreement of the parties.
As part of BHP's engagement, at the Company's request, BHP will use its commercially reasonable best efforts to:
(a) assist the Company in analyzing and evaluating the business, operations and financial position of each suitable prospect for a Strategic Transaction;
(b) assist the Company with its due diligence efforts related to each potential Strategic Transaction;
(c) assist the Company in structuring and negotiating each Strategic Transaction; and
(d) be available at the Company's request to meet with your Board of Directors to discuss any proposed Strategic Transaction and its financial implications;
(e) assist the Company with the identification of potential merger, acquisition, partnership or strategic alliance candidates; andassist the Company in identifying potential sources of funding.
In connection with BHP's engagement hereunder, the Company shall compensate BHP as set forth below:
(a) Upon execution of this engagement, the Company shall issue to BHP and its registered assignees 100,000 common stock purchase warrants exercisable at $2.00 per share (the "Advisory Warrants"). The Advisory Warrants shall have a term of five years, a cashless exercise provision, standard weighted average anti-dilution protection and piggyback registration rights.
(b) The Company shall pay an advisory of $50,000 to BHP when the Company's cash balance exceeds $5,000,000
The Company shall reimburse BHP for out of pocket expenses incurred in connection with this engagement, subject to a cap of ten thousand ($10,000.00) dollars.
Notice given pursuant to any of the provisions of this Agreement shall be given in writing and shall be sent by recognized overnight courier or personally delivered (a) if to the Company, to the address listed above. Attention: Chief Executive Officer; and (b) if to BHP, to its office at 570 Lexington, 3rd Floor, New York, NY 10022. Attention; Jason Adelman, Managing Director.
No financial advice rendered by BHP pursuant to this Agreement may be disclosed publicly without BHP's prior written approval, except as may be required by law, regulation or court order.
This Agreement shall be governed by the laws of the State of New York applicable to agreements made and to be performed entirely within such State. The Company may terminate this Agreement upon thirty days written notice to B.
If any provision of this Agreement is determined to be invalid or unenforceable in any respect, such determination will not effect such prevision in any other respect or any other provision of this Agreement. The Indemnification Agreement attached hereto entered into between, the Company and BHF shall apply to this engagement.
Please confirm that the foregoing correctly sets forth our agreement by signing and returning to BHP the enclosed duplicate copy of this Agreement.
Very truly yours,
Burnham Hill Partners, a division of Pali Capital, Inc.
By: /s/Jason T. Adelman
--------------------------------------------
Name: Jason T. Adelman
Title: Managing Director
|
Accepted and agreed to as of the date written above
A-Fem Medical Corporation
By: /s/Walter Witoshkin
------------------------------------------
Name: Walter Witoshkin
Title: Chief Executive Officer
|
TO: Burnham Hill Partners
A division of Pali Capital, Inc. Date: November 8, 2005
570 Lexington Avenue
New York, NY 10022
In connection with your engagement pursuant to on letter Agreement of even date herewith (the "Engagement"), we agree to indemnify and hold harmless Burnham Hill Partners, a division of Pali Capital, Inc. ("BHP") and its affiliates, the respective directors, officers, partners, agents and employees BHP and its affiliates, and each other person, if any, controlling BHP or any of its affiliates (collectively, "Indemnified Persons"), from and against, and we agree that no Indemnified Person shall have any liability to us or our owners, parents, affiliates, security holders for, any losses, claims, damages or liabilities (including actions or proceedings in respect thereof) (collectively "Losses") (A) related to or arising out of (i) our actions or failures to act (including statements or omissions made, or information provided, by us or our agents) or (ii) actions or failures to act by an Indemnified Person with our consent or in reliance on our actions or failures to act, or (B) otherwise related to or arising out of the Engagement or your performance thereof, except that this clause (B) shall not apply to any Losses that are finally judicially determined to have resulted primarily from your bad faith, willful misconduct or gross negligence or breach of the letter Agreement. If such indemnification is for any reason not available or insufficient to hold you harmless, we agree to contribute to the Losses involved in such proportion as is appropriate to reflect the relative benefits received by us and by you with respect to the Engagement or, if such allocation is judicially determined unavailable, in such proportions as is appropriate to reflect other equitable considerations such as the relative fault of us on the one hand and of you on the other hand; provided however, that, to the extent permitted by applicable law, the Indemnified Persons shall not be responsible for amounts which in the aggregate are in excess of the amount of all fees actually received by you from us in connection with the Engagement. Relative benefits to us, on the one hand, and you on the other hand, with respect to the Engagement shall be deemed to be in the same proportion as (i) the total value paid or proposed to be paid or received or proposed to be received by us or our security holders, as the case may be, pursuant to the transactions), whether or not consummated, contemplated by the Engagement bears to (ii) all fees paid or proposed to be paid to you by us in connection with the Engagement.
We will reimburse each Indemnified Person for all expenses (including reasonable fees and disbursement of counsel) promptly after they are incurred after submission to us of documentation related to the incurrence of such expenses by such Indemnified Person in connection with investigating, preparing for or defending any action, claim investigation, inquiry, arbitration or other proceeding ("Action") referred to above (or enforcing this Agreement or any related engagement Agreement), whether or not in connection with pending or threatened litigation in which any Indemnified Person is a party, and whether or not such Action is initiated or brought by you. We further agree that we will not settle or compromise or consent to the entry of any judgment in any pending or threatened Action in respect of which indemnification may be sought hereunder (whether or not an indemnified Person is a party thereof) unless we have given you reasonable prior written notice thereof and used all reasonable efforts, after consultation with you, to obtain an unconditional release of each Indemnified Person from all liability arising from the event thereof.
In the event that we are called or subpoenaed to give testimony in a court of law, you agree to pay our expenses related thereto and for every day or part thereof that we are required to be there or in preparation thereof. Our obligations hereunder shall be in addition to any rights that any Indemnified Person may have at common law or otherwise. Solely for the purpose of enforcing this Agreement, we hereby consent to personal jurisdiction on and to service and venue in any court in which any claim which is subject to this Agreement is brought by or against any Indemnified Person. We acknowledge that in connection with this Engagement you are acting as an independent contractor with duties owing solely to us. YOU HEREBY AGREE, AND WE HEREBY AGREE ON OUR OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON BEHALF OF OUR SECURITY HOLDERS, TO WAIVE ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY CLAIM, COUNTER-CLAIM OR ACTION ARISING OUT OF THE ENGAGEMENT, YOUR PERFORMANCE THEREOF OR THIS AGREEMENT.
The provisions of this Agreement shall Apply to the Engagement (including related activities prior to the date hereof) and any modification (hereof and shall remain in full force and effect regardless of the completion or termination of the Engagement. This Agreement and any other Agreements relating to the Engagement shall be governed by and construed in accordance with the laws of the State of New York, without regard to conflicts of law principles thereof.
Very truly yours,
Accepted and Agreed;
Burnham Hill Partners, Client: A-Fem Medical Corporation
a Division of Pali Capital, Inc.
By: /s/Jason Adelman By: /s/Walter Witoshkin
---------------------------- -------------------------------
Name: Jason Adelman Name: Walter Witoshkin
Title: Managing Director Title: Chief Executive Officer
|
EXHIBIT 10.3
[GRAPHIC OMITTED]
November 1, 2005
Walter W. Witoshkin
QuantRx Biomedical Corporation
(Formerly A-Fem Medical
Corporation)
321 Norristown Road Suite 230
Ambler, PA 19002
Dear Mr. Witoshkin:
The purpose of this letter agreement (the "Agreement") is to set forth the terms and' conditions pursuant to which Dawson James Securities, Inc., ("Dawson James") shall introduce QuantRx Biomedical Corporation (the "Company") to one or more investors in connection with the proposed offering (the "Offering") of securities (the "Securities") of the Company. The terms of such Offering and the Securities shall be mutually agreed upon by the Company and the investor(s). Dawson James's engagement under this Agreement shall be non-exclusive. The identities of the investors to which Dawson James introduces the Company shall be proprietary.. information of Dawson James and shall not be divulged to third parties by the Company, nor used by the Company outside the scope of Dawson James's engagement as described herein, other than as required by applicable law.
In consideration of the services rendered by Dawson James under this Agreement, the Company agrees to pay Dawson James the following fees and other compensation: A cash fee payable immediately upon the dosing of any portion of any Financing (including without limitation the Offering) equal to 8% of the aggregate capital raised by Dawson James Securities and warrants to purchase 8% of the units sold to the investor(s) by Dawson James Securities.
This Agreement shall be governed by and construed in accordance with the laws of the State of Florida, without regard to conflicts of law principles. Any dispute arising out of this Agreement shall be adjudicated in the courts of the State of
Florida or in the federal courts sitting in the Southern District of Florida, and each of the parties hereto agrees that service of process upon it by registered or certified mail at its address set forth herein shall be deemed adequate and lawful. The Company shall indemnify Dawson James in accordance with the terms of the Securities Purchase Agreement among the Company and the purchasers. The Company acknowledges and agrees that Dawson James is not and shall not be construed as a fiduciary of the Company and shall have no duties or liabilities to the equity holders or the creditors of the Company or any other person by virtue of this Agreement or the retention of Dawson James hereunder, all of which are hereby expressly waived.
This Agreement constitutes the entire understanding and agreement between the parties hereto with respect to its subject matter and there are no agreements or understandings with respect to the subject matter hereof which are not contained in this Agreement. This Agreement may be modified only in writing signed by the party to be charged hereunder.
If the foregoing correctly sets forth our agreement, please confirm this by signing and returning to us the duplicate copy of this letter.
Thank you
Dawson James Securities, Inc.
By: /s/Robert D. Keyser, Jr.
------------------------------------------
Robert D. Keyser Jr.
CEO
By: /s/Al Poliak
--------------------------------------
Al Poliak, President
|
Agreed to and accepted as of the date first written above:
QuantRx Biomedical Corporation
By: /s/Walter Witoshkin ------------------------------------------ Witoshkin President, CEO |
EXHIBIT 10.4
[GRAPHIC OMITTED] Main Office
925 South Federal Highway
GO" Floor
Boca Raton, FL 33432
Toll Free: 1-866-928-0928
Telephone: 561-391-5555 Fax: 561-391-3757
Member NASD/SIPC
April 13, 2005
Mr. William I'I. Fleming, Ph. D
Vice Chairman & COO
A-Fem Medical Corporation
14889 Tualatin-Sherwood Road
Ste. 405
Sherwood, OR 97140
RE: Private Placement of Securities for A-Fem Medical Corporation
Dear Mr. Fleming:
This binding letter of intent confirms our understanding that A-Fem Medical Corporation (together with its affiliates and subsidiaries, "A-Fem Medical Corporation " or the "Company") has engaged Dawson James Securities, Inc. (together with its affiliates and subsidiaries, "Dawson James") to act as a "non-exclusive" placement agent of the Company ("Placement Agent") in connection with a best efforts private placement offering of the Company's Common Stock and Warrants (the "Placement"). This letter will confirm our acceptance and set forth the terms of the engagement agreed to between Dawson lames and the Company.
1. Information. In connection with the Placement Agent's activities hereunder, the Company will furnish Dawson James with all material and information regarding the business and financial condition of the Company, including but not limited to last three years financial statements, financial projections, material conaacts. all documents evidencing indebtedness, sales and marketing plans, labor and executive compensation agreements, environmental matters, tax matters, intellectual property matters, litigation matters and such other data, information or files that may be material to the business of the Company or otherwise requested by Dawson James (the "Information"). The Company will cooperate with Dawson James in furnishing all Information as may be requested by Dawson James from time to time and will provide access to the officers, directors, employees, accountants, counsel and other professionals of the Company to the extent Dawson James deems appropriate. The Company represents and warrants that all Information, including but not limited to the Company's financial statements, will be complete and correct in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading. The Company recognizes and confirms that the non-exclusive Placement Agent: (i) will use and rely primarily on the Information and on information available from generally recognized public sources in performing the services contemplated by this letter without having independently verified the same; (ii) is authorized as the Company's financial advisor and placement agent to transmit to any prospective investor a copy or copies, forms of purchase agreements and any other legal documentation supplied to the Placement Agent for transmission to any prospective investor by or on behalf of the Company or by any of the Company's officers, representatives or agents, in connection with the performance of the Placement Agent's services hereunder or any transaction contemplated hereby; (iii) does not assume responsibility for the accuracy or completeness of the Information and such other information; (iv) will not make an appraisal of any assets of the Company; and (v) retains the right to continue to perform due diligence during the course of the engagement. Accordingly, the Company agrees that Dawson James assumes no responsibility for the accuracy and completeness of the Information. The Placement Agent agrees to keep the Information confidential and will not make use thereof, except in connection with services hereunder for the Company, unless; (i) disclosure is required by law or requested by any government, regulatory or self-regulatory agency or body in which event the Placement Agent will provide the Company with reasonable advance notice of such proposed disclosure; (ii) any information is or becomes generally available to the public; or (iii) any Information was or becomes available to the Placement Agent on a non-confidential basis from a source other than the Company or any of its representatives.
2. Compensation. As compensation for services rendered and to be rendered hereunder by Dawson James, the Company agrees to pay Dawson James as follows;
a) An amount in cash equal to ten percent (10%) of the principal amount of any Placement placed and/or commined by any investor originating from a relationship with the Company and payable at the time of each closing of the Financing ("Placement Fee").
b) The Company will issue to Dawson James warrants to purchase
shares of the Company's Common Stock equal to ten percent (10%) of the number of
common shares ("Shares") issued in the Placement. Such Warrants will be issued
pursuant to a Warrant Agreement to be signed by the Company and Dawson James or
any assignee of Dawson James, which agreement shall provide, among other things,
that the Warrants shall be exercisable at an exercise price equal to the price
at which the Shares are sold to investors in the Placement, shall expire seven
(7) years from the date of first closing, include registration rights at the
time that all shares issued in this Placement are registered, and provisions for
cashless exercise, and such other terms as are normal and customary for Warrants
of this type.
c) Notwithstanding any termination of this Agreement pursuant to the terms hereof or otherwise, if on or before the twenty four (24) month anniversary of the final closing of the Placement, the Company enters into a definitive commitment relating to a Placement (or any portion thereof), capital raise, or consummates a Placement with any party, or the Company enters into a defmitive commitment relating to a Placement (or any portion thereof) with any financing source introduced to the Company by Dawson James, the Company agrees to pay Dawson James all such compensation pursuant to the terms of Section 2 'Compensation" of this Agreement.
3. Certain Placement Procedures. The Company and the Placement Agent each represents to the other that it has not taken, and the Company and the Placement Agent each agrees with the other that it will not take any action, directly or indirectly, so as to cause the Placement to fail to be entitled to rely upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the "Act"). In effecting the Placement, the Company and the Placement Agent each agrees to comply in all material respects with applicable provisions of the Act and any regulations thereunder and any applicable state laws and requirements. The Company agrees that any representations and warranties made by it to any investor in the Placement shall be deemed also to be made to the Placement Agent for its benefit. The Company agrees that it shall cause any opinion of its counsel delivered to any investors in the Placement also to be addressed and delivered to the Placement Agent, or to cause such counsel to deliver to the Placement Agent a letter authorizing it to rely upon such opinion. Upon completion of the Placement, all shares placed by the Placement Agent will be deposited into a Dawson James client account for the benefit of each investor.
4. Termination; Survival of Provisions. This Agreement may be terminated by the Placement Agent or the Company at any time upon thirty (30) days prior written notice to the other parry, provided, however, that: (a) any termination or completion of Dawson James's engagement hereunder shall not affect the Company's obligation to indemnity Dawson Janus as provided in the separate letter agreement referred to above and (b) any termination by the Company of Dawson James' engagement hereunder shall not affect the Company's obligation to pay fees to the extent provided for in Section 2(c) herein, and any unpaid amounts thereunder shall be accelerated and be immediately due and payable to Dawson James on the termination date; and (c) any termination by Dawson James of Dawson James's engagement hereunder shall not affect the Company's obligation to pay fees and reimburse the expenses accruing prior to such termination to the extent provided for herein. All such fees and reimbursements due the Placement Agent, shall be paid to the Placement Agent on or before the Termination Date (in the event such fees and reimbursements are earned or owed as of the Termination Date) or upon the closing of the Placement or any applicable portion thereof (in the event such fees are due pursuant to the terms of Section 2 "Compensation" hereof).
5. Governing Law; Amendment; Headings. This Agreement and all controversies arising from and relating to performance under this agreement shall be governed by and construed in accordance with the laws of the State of Florida, without giving effect to such state's rules concerning conflicts of laws. This Agreement may not be modified or amended except in writing duly executed by the parties hereto. The section headings in this Agreement have been inserted as a matter of convenience of reference and are not pan of this Agreement.
6. Nondisclosure of Confidential Information. Dawson James and the Company mutually agree that they will not disclose any confidential information received from the other party to others except with the wntten permission of the other party or as such disclosure may be required by law. Dawson James has been retained under this agreement as an independent contractor with duties owed solely to the Company. The advice, written or oral, rendered by Dawson James pursuant to this Agreement is intended solely for the benefit and use of the Company in considering the matters to which this agreement relates, and the Company agrees that such advice may not be relied upon by any other person, used for any other purpose, reproduced, disseminated, or referred to at any time, in any manner or for any purpose, nor shall any public references to Dawson James be made by the Company, without the prior written consent of Dawson James, which consent shall not be unreasonably withheld.
7. Successors and Assigns. The benefits of this Agreement shall inure to the parities hereto, their respective successors and assigns and to the indemnified parties hereunder and their respective successors and assigns, and the obligations and
liabilities assumed in this Agreement shall be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained herein to the contrary, neither the Placement Agent nor the Company shall assign to an unaffiliated third patty any of its obligations hereunder.
8. Press Announcements. The Company agrees that Dawson James shall, upon a successful transaction, have the right to place advertisements in financial and other newspapers and journals at its own expense describing its services to the Company hereunder.
9. Expenses. The Company will pay all of its costs relating to the Placement contemplated hereby, including, without limitation, audit expenses, issuance costs and taxes, counsel fees for the preparation of the Offering Documents, filing fees and disbursements of counsel relating to the qualification of the offered securities under federal securities laws, and legal fees and expenses of counsel in connection with qualifying the offered securines under state blue sky laws. To the extent required by law, the Company shall qualify the offered securities for offer and sale in those jurisdictions designated by Dawson James. The Company's counsel shall be responsible for state blue sky securities laws compliance by the Company.
10. Conditions of the Obligations of Dawson James.
The obligations of Dawson James to act as agent hereunder, to find purchasers for the Placement, and to attend and to deliver documents at Closing shall be subject to the following conditions:
(a) Between the date hereof and Closing, the Company and its subsidiaries shall not have sustained any loss on account of fue, explosion, flood, accident, calamity or other cause, of such character as materially affects the business or property of the Company and its subsidiaries, whether or not such loss is covered by insurance.
(b) Between the date hereof and Closing, there shall be no litigation instituted or threatened against the Company or any subsidiary (other than as set forth in the Offering Document) and there shall be no proceeding instituted or threatened before or by any federal or state commission, regulatory body or administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding would materially adversely affect the business, franchises, licenses, permits, operations or financial condition or income of the Company.
(c) Except as contemplated herein or as set forth in the Offering Document, during the period subsequent to the date hereof, and prior to Closing, the Company and each subsidiary: (i) shall have conducted its business in the usual and ordinary manner as the same was being conducted on the date hereof, and (ii) except in the ordinary course of its business, the Company and each subsidiary shall not have incurred any liabilities or obligations (direct or contingent), or disposed of any assets, or entered into any material transaction or suffered or experienced any substantially adverse change in its condition, financial or otherwise, or in its working capital position. At Closing, the capitalization of the Company shall be substantially the same as set forth in the Offering Document.
(d) The authorization for the issuance and delivery of the offered securities in the Placement and the Offering Document and related materials, and for the execution and delivery of this Agreement, and all other legal matters incident thereto, shall be reasonably satisfactory in all respects to counsel for Dawson James.
(e) The representations and warranties of the Company made in this Agreement or in any document or certificate delivered to Dawson James pursuant hereto shall be true and correct on and as of the Closing with the same force and effect as though such representations and warranties have been made on and as of the Closing.
(f) The Company shall have performed and complied in all material respects with all covenants, terms and agreements to be performed and complied with by the Company on or before the Closing.
(g) The Company shall have provided such certificates as Dawson James shall reasonably request.
(h) The Company and its President shall provide certificates to Dawson James cenifying that the proceeds of the Placement will be used in accordance with the uses designated in "Use of Proceeds" in the Offering Document.
(i) The Company shall have furnished a "Cold Comfort" letter on and as of the Closing, in each case describing procedures carried our to a date within five (5) days of the date of the leuer, from independent public accountants for the Company, substantially in the form approved by Dawson James.
11. Indemnification
(a) The Company agrees to indemnify and hold harmless DAWSON JAMES and each person, if any, who controls DAWSON JAMES within the meaning of the 1933 Act or the 1934 Act (together. the "Acts"), the DAWSON JAMES' affiliated entities, partners, employees, legal counsel and agents (the "DJ Indemnified Parties") against any losses, claims, damages, obligations, penalties, judgments, awards, liabilities, costs, expenses and disbursements (and any and all actions, suits, proceedings and investigations in respect thereof and any and all legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise), joint or several, to which DAWSON JAMES or such person may be subject, under the Acts or otherwise. including, without limitation, the costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with Iitigation in which the DAWSON JAMES is a party), directly or indirectly, caused by, relating to, based upon, arising out of. or in connection with (i) the violation or breach of any representation, warranty or covenant or agreement of the Company set forth in this Agreement or in any instrument, document, agreement or certificate delivered by the Company in connection herewith; (ii) any untrue statement or omission or any alleged untrue statement or omission in the Offering Document or selling material, excluding information contained in or omitted from the Offering Document or selling material in reliance upon, and in conformity with, information furnished to the Company by DAWSON JAMES or any Participating Broker-Dealer specifically for use in preparation of the Offering Document or selling material, as the case may be: (iii) any information provided by or on behalf of Company in order to qualify or exempt the Offered Securities for sale in any jurisdiction; or (iv) the failure of the Company to comply with the provisions of the Acts and the regulations thereunder, including Regulation D; and will reimburse the DJ Indemnified Parties for any legal or other expenses reasonably incurred by the DJ Indemnified Parries in connection with investigation of or defending against any such loss, claim, expense, damage, liability, (or actions in respect thereof); provided, however, that the Company shall not be required to indemnify the DJ Indemnified Parries for any payment made to any claimant in settlement of any suit or claim unless such payment is agreed to by the Company (which agreement shall not be unreasonably withheld) or by a coup having jurisdiction of the controversy. This inndemnity agreement shall remain in full force and effect notwithstanding any investigation trade by DAWSON JAMES or on DAWSON JAMES' behalf, shall survive consummation of the sale of the Offered Securities hereunder and all be in addition to any liability which the Company may otherwise have.
(b) DAWSON JAMES agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Acts, Company's affiliated entities, partners, employees, legal counsel and agents (the "Company Indemnified Parties") against any losses, claims, expenses, damages or liabilities (or actions in respect thereof), joint or several, to which the Company Indemnified Parties or any such controlling person may become subject, under the Acts or otherwise, insofar as such losses, claims, expenses, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or omission .or any alleged untrue statement or omission in the Offering Document contained in or omitted from the Offering Document in reliance on, and in conformity with, information furnished to the Company by DAWSON JAMES or any Participating Broker-Dealer or either of them specifically for use in preparation of the Offering Document or selling material, as the case may be; and will reimburse the Company Indemnified Parties for any legal or other expenses reasonably incurred by them in connection with investigating or defending against any such loss, claim, expense, damage, liability, (or actions in respect thereof); provided, however, that DAWSON JAMES shall not be required to indemnify the Company Indemnified Parties for any payment made to any claimant in settlement of any suit or claim unless such payment is approved by a court having jurisdiction over the controversy or DAWSON JAMES agrees to such settlement (which agreement shall not be unreasonably withheld): and provided further that DAWSON JAMES shall not be liable under this Section 11(b) for any losses, claims, expenses, damages or liabilities arising out of any act or failure to act on the pan of any other person except DAWSON JAMES, its partners, employees and agents (including registered representatives) or any Participating Broker-Dealer. This indemnity agreement shell remain in full force and effect notwithstanding any investigation made by or on behalf of the Company and shall survive consummation of the sale of the Offered Securities hereunder and the termination of this Agreement. and shall be in addition to any liability which DAWSON JAMES may otherwise have. Notwithstanding the foregoing, in no event shall the amount that the DAWSON JAMES is required to indemnify the Company Indemnified Parties, exceed in the aggregate the compensation received by the DAWSON JAMES hereunder, except in the case of fraud on the pan of the DAWSON JAMES.
(c) The indemnified parry shall noti fy the indemnifying party in writing promptly after the sons or other first legal process giving information of the nature of any and all claims which have been served upon the indemnified parry. In case any action is brought against any indemnified parry upon any such claim the indemnifying party shall be entitled to participate at its own expense in the defense, or if it so elects, in accordance with arrangements satisfactory to any other indemnifying arty or parties similarly notified, to assume the defense thereof, with counsel who shall be satisfactory to such indemnified party and other indemnified parties who are defendants in such action; and after notice from the indemnifying parry to such indemnified party of its election so to assume the defense thereof and the retaining of such counsel by the indemnifying party, the indemnifying party shall not be liable to such indemnified party under this Section 11 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof, other than the reasonable costs of investigation, unless the indemnified party shall have reasonably concluded that there are or may be defenses available to it which are different from or in addition to those available to the indemnifying party (in which case the indemnifying party shall not have the right to direct the defense of such action on behalf of the indemnified parry), in any of which circumstances such expenses shall be borne by the indemnifying parry.
12. Counterparts. For the convenience of the patties, this Agreement may be executed in any number of counterparts, each of which shall be, and shall be deemed to be, an original instrument, but all of which taken together shall constitute one and the same Agreement.
If the terms of our engagement as set forth in this letter are satisfactory to you, please sign and date the enclosed copy of this letter and indemnification form and send back to us. If this agreement is not executed by both parties within five (5) days from its date, it shall cease to be a valid offer to assist and represent the Company.
Very truly yours,
By: /s/Robert D. Keyser Jr.
----------------------------------------
Robert D. Keyser Jr
Chief Executive Officer
Dawson James Securities
(a division of Viewtrade Financial)
|
ACCEPTED AND AGREED TO: as of the date hereof:
For:
EXHIBIT 14.1
ETHICAL GUIDELINES
ADOPTED BY THE BOARD OF DIRECTORS
OF
QUANTRX BIOMEDICAL CORPORATION
ON MAY 31, 2005
INTRODUCTION
These Ethical Guidelines will serve as QuantRx Biomedical Corporation's ("QuantRx") Code of Ethics ("Guidelines") and as such they cover a wide spectrum of business practices and procedures. They do not cover every issue that may arise, but they set out some basic principles to guide all employees and directors of QuantRx. We expect all of our employees and directors to comply with them and to seek to avoid even the appearance of improper behavior. These Guidelines should also be provided to and followed by QuantRx's agents and representatives, including consultants. Although the Guidelines refer to our employees and sometimes, our officer (each of whom is an employee) and directors, all Guidelines apply to our directors even when we do not specifically refer to them.
If a law conflicts with a policy in these Guidelines, you must comply with the law. If you have any questions about these conflicts, you should ask your supervisor how to handle the situation.
Those who violate these Guidelines may be subject to disciplinary
action, which may include termination of employment, depending on the nature of
the violation. If you are in a situation, which you believe may violate or lead
to a violation of these Guidelines, follow the recommendations described in
Section 14 below.
1. COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Obeying the law, both in letter and in spirit, is the foundation on which QuantRx's ethical standards and our reputation are built. All employees must respect and obey the laws of the cities, states and nations in which we operate. Although not all employees are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel.
If requested, QuantRx will hold information and training sessions to promote compliance with laws, rules and regulations, including insider trading laws.
2. CONFLICTS OF INTEREST
A "conflict of interest" exists when a person's private interest interferes in any way with the interests of QuantRx. A conflict may arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her QuantRx work objectively and effectively. Conflicts of interest may also arise when an employee, officer or director, or members of his or her family, receives improper personal benefits as a result of his or her position with QuantRx.
Because it is usually a conflict of interest for an QuantRx employee to perform services simultaneously for a customer or supplier, prior board of directors' approval is required. You are not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business connection with our customers, suppliers or competitors, except on our behalf. Conflicts of interest are prohibited as a matter of QuantRx policy, except under specific guidelines approved by the Board of Directors. Conflicts of interest may not always be clear-cut, so if you have a question, you should consult with higher levels of management or QuantRx's legal counsel. Any employee, officer or director who becomes aware of a conflict or potential conflict should bring it to the attention of a supervisor, manager or other appropriate personnel or consult the procedures described in Section 14 below.
3. INSIDER TRADING
Employees who have access to confidential information are not permitted to use or share that information for trading purposes or for any other purpose except the conduct of our business. All non-public information about QuantRx should be considered confidential information. To use non-public information for personal benefit (financial or otherwise) or to "tip" others who might make an investment decision on the basis of this information is not only unethical but also illegal. In order to assist with compliance with laws against insider trading, QuantRx has adopted a specific policy governing employees' trading in securities of QuantRx. This policy has been distributed to our employees and directors and is also available upon request to every employee and director. If you have any questions, please consult Kenneth Williams, Esquire, QuantRx's general counsel at 503-224-5560.
4. CORPORATE OPPORTUNITIES
Employees, officers and directors are prohibited from taking for themselves personally, opportunities that are discovered through the use of corporate property, information, or position, without the written consent of the Board of Directors. No employee, officer or director may use corporate property, information, or position, for improper personal gain, and no employee may compete with QuantRx directly or indirectly. Employees, officers and directors owe a duty to QuantRx to advance its legitimate interests when the opportunity to do so arises.
5. COMPETITION AND FAIR DEALING
We seek to outperform our competition fairly and honestly. Stealing or misappropriating proprietary information, possessing trade secret information that was obtained without the owner's consent, or inducing such disclosures by current or former employees of other companies is prohibited. Each employee should endeavor to respect the rights of, and deal fairly with, QuantRx's customers, suppliers, competitors and other employees. No employee should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair dealing practice. The purpose of business entertainment and gifts in a commercial setting is to create goodwill and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by an QuantRx employee, officer or director (or family member) unless it: (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be construed as a bride or payoff and (5) does not violate any laws or regulations. Please discuss with your supervisor any gifts or proposed gifts which you are not certain are appropriate. Please use common sense.
6. DISCRIMINATION AND HARASSMENT
The diversity of QuantRx's employees is a tremendous asset. We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment. Examples may include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances.
7. HEALTH AND SAFETY
QuantRx strives to provide each employee with a safe and healthy work environment. Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries and unsafe equipment, practices or conditions.
Violence and threatening behavior are not permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of alcohol or illegal drugs in the workplace will not be tolerated.
8. RECORD-KEEPING
QuantRx requires honest and accurate recording and reporting of information in order to make responsible business decisions. For example, only the true and actual number of hours worked should be reported.
Some employees are authorized to use business expense accounts, which must be documented and recorded accurately. If you are not sure whether a certain expense is legitimate, ask your supervisor or QuantRx's chief financial officer or controller.
All of QuantRx's books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect QuantRx's transactions and
must conform both to applicable legal requirements and to QuantRx's system of internal controls.
Business records and communications often become public, and we should avoid exaggeration, derogatory remarks, guesswork, or inappropriate characterizations of people and companies that can be misunderstood. This applies equally to e-mail, internal memos, and formal reports. Recently, reports have surfaced of embarrassing comments made in e-mails that have caused harm to companies. Please exercise common sense in writing e-mails. Records should always be retained or destroyed according to QuantRx's record retention policies. In accordance with those policies, in the event of litigation or governmental investigation please consult QuantRx's legal counsel.
9. CONFIDENTIALITY
Employees must maintain the confidentiality of confidential information entrusted to them by QuantRx or its customers except when disclosure is authorized by QuantRx's legal counsel or required by laws or regulations. Confidential information includes all non-public information that might be of use to competitors, or harmful to QuantRx or its customers, if disclosed. It also includes information that suppliers and customers have entrusted to us. The obligation to preserve confidential information continues even after employment ends. In connection with this obligation, every employee is bound by a confidentiality agreement contained in our employee handbook when he or she began his or her employment with QuantRx.
10. PROTECTION AND PROPER USE OF QUANTRX ASSETS
All employees should endeavor to protect QuantRx's assets and ensure their efficient use. Theft, carelessness, and waste have a direct impact on QuantRx's profitability. Any suspected incident of fraud or theft should be immediately reported for investigation. QuantRx equipment should not be used for non-QuantRx business, though incidental personal use may be permitted.
The obligation of employees to protect QuantRx assets includes its proprietary information. Proprietary information includes intellectual property such as trade secrets, patents, trademarks, and copyrights, as well as business, marketing and service plans, ideas, designs, databases, records, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate QuantRx policy; it could also be illegal and result in civil or even criminal penalties.
11. PAYMENTS TO GOVERNMENT PERSONNEL
The U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. It is strictly prohibited to make illegal payments to government officials of any country. The Act also applies to the making of improper payments to obtain business from commercial customers in the United States.
In addition, the U.S. government has a number of laws and regulations regarding business gratuities which may be accepted by U.S. government personnel. The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate QuantRx policy but could also be a criminal offense. State and local governments, as well as foreign governments, may have similar rules. Our legal counsel can provide guidance to you in this area.
12. WAIVERS OF THESE ETHICAL GUIDELINES
Any waiver of these Guidelines for executive officers or directors may be made only by the Board of Directors or a Board committee and may be promptly disclosed as required by law.
13. REPORTING ANY ILLEGAL OR UNETHICAL BEHAVIOR
Employees are encouraged to talk to supervisors, managers or other appropriate personnel about observed illegal or unethical behavior and when in doubt about the best course of action in a particular situation. It is the policy of QuantRx not to allow retaliation for reports of misconduct by others made in good faith by employees. Employees are expected to cooperate fully in internal investigations of misconduct.
Any employee may submit a good faith concern regarding questionable accounting, internal accounting controls or auditing matters or other matters in confidence and without fear of dismissal or retaliation of any kind to Walter Witoshkin, who is a director. He may be reached as follows: 321 Norristown Road, Suite 230, Ambler, PA 19002. You may also submit such a concern to our legal counsel, Kenneth Williams, Esquire, Black Helterline, LLP, 1900 Fox Tower, 805 SW Broadway, Portland, OR 97205-3359, (503) 224-5560.
14. COMPLIANCE PROCEDURES
We must all work to ensure prompt and consistent action against violations of these Guidelines. However, in some situations it is difficult to know if a violation has occurred. Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind:
o Make sure you have all the facts in order to reach the right solutions; we must be as fully informed as possible.
o Ask yourself: What specifically am I being asked to do? Does it seem unethical or improper? This will enable you to focus on the specific question you are faced with, and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is.
o Clarify your responsibility and role. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem.
o Discuss the problem with your supervisor. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question, and will appreciate being brought into the decision-making process. Remember that it is your supervisor's responsibility to help solve problems.
o Seek help from other QuantRx resources. In the rare case where it may not be appropriate to discuss an issue with your supervisor or where you do not feel comfortable approaching your supervisor with your question, discuss it with your office manager or with a human resources officer.
o You may report ethical violations in confidence and without fear of retaliation. If your situation requires that your identity be kept secret, your anonymity will be protected. You may go outside of QuantRx as described in Section 13 above. QuantRx does not permit retaliation of any kind against employees for good faith reports of illegal or unethical behavior.
o Always ask first, act later. If you are unsure of what to do in any situation, seek guidance before you act.
15. SPECIAL POLICIES WITH RESPECT TO CERTAIN OFFICERS
The Chief Executive Officer ("CEO") and all senior financial officers, including the Chief Financial Officer ("CFO") and principal accounting officer, are bound by all of the provisions set forth above, including those relating to ethical conduct, conflicts of interest and compliance with law. In addition, the CEO, CFO and other senior financial officers are subject to the following additional specific policies:
1. The CEO, CFO and all senior financial officers are responsible for full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by QuantRx with the Securities and Exchange Commission. Accordingly, it is the responsibility of the CEO, CFO and each senior financial officer promptly to bring to the attention of the Board of Directors any material information of which he or she may become aware that affects the disclosures made by QuantRx in its public filings or otherwise assist the Board, in fulfilling its responsibilities.
2. The CEO, CFO and each senior financial officer shall promptly bring to the attention of the Board, any information he or she may have concerning (a) significant deficiencies in the design or operation of internal controls which could adversely affect QuantRx 's ability to record, process, summarize and report financial data or (b) any fraud, whether or not material, that involves management or other employees who have a significant role in QuantRx 's financial reporting, disclosures or internal controls.
3. The CEO, CFO and each senior financial officer shall promptly bring to the attention of our legal counsel, or the CEO, any information he or she may have concerning any violation of these Guidelines, including any actual or apparent conflicts of interest between personal and professional relationships, involving any management or other employees who have a significant role in QuantRx's financial reporting, disclosures or internal controls.
4. The CEO, CFO and each senior financial officer shall promptly bring to the attention of QuantRx's legal counsel or the CEO, any information he or she may have concerning evidence of a material violation of the securities or other laws, rules or regulations applicable to QuantRx and the operation of its business, by QuantRx or any agent thereof, or of violation of these Guidelines or of these additional special policies and procedures.
5. The Board of Directors shall determine, or designate appropriate persons to determine, appropriate actions to be taken in the event of violations of these Guidelines or these additional special procedures by the CEO, CFO and QuantRx's senior financial officers. Such actions shall be reasonably designed to deter wrongdoing and to promote accountability for adherence to these Guidelines and to these additional special procedures, and shall include written notices to the individual involved that the Board has determined that there has been a violation, censure by the Board, demotion or re-assignment of the individual involved, suspension with or without pay or benefits (as determined by the Board) and termination of the individual's employment. In determining what action is appropriate in a particular case, the Board of Directors or such designee shall take into account all relevant information, including the nature and severity of the violation, whether the violation was a single occurrence or repeated occurrences, whether the violation appears to have been intentional or inadvertent, whether the individual in question had been advised prior to the violation as to the proper course of action and whether or not the individual in question had committed other violations in the past.
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Walter W. Witoshkin, certify that:
1) I have reviewed this annual report on Form 10-KSB of QuantRx Biomedical Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5) The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: March 31, 2006
/s/ Walter W. Witoshkin
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Walter W. Witoshkin
President and Chief Executive Officer
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EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sasha Afanassiev, certify that:
1) I have reviewed this annual report on Form 10-KSB of QuantRx Biomedical Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and
5) The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.
Date: March 31, 2006
/s/ Sasha Afanassiev
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Sasha Afanassiev
Chief Financial Officer, Treasurer
& Vice President of Finance
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Walter W. Witoshkin, as President and Chief Executive Officer of QuantRx Biomedical Corporation (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. the accompanying Annual Report on Form 10-KSB report for the period ending December 31, 2005 as filed with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 31, 2006
/s/ Walter W. Witoshkin
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Walter W. Witoshkin
President and Chief Executive Officer
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EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Sasha Afanassiev, as Chief Financial Officer of QuantRx Biomedical Corporation (the "Company") certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. the accompanying Annual Report on Form 10-KSB report for the period ending December 31, 2005 as filed with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 31, 2006
/s/ Sasha Afanassiev
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Sasha Afanassiev
Chief Financial Officer, Treasurer &
Vice President of Finance
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