NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Founded in April 1997, Quick-Med Technologies Inc. (the ”Company”) is a life sciences company focused on developing proprietary, broad-based technologies in medical and consumer healthcare markets. The Company’s three core technologies are: (1) Novel Intrinsically Micro-Bonded Utility Substrate (NIMBUS
®
), a family of advanced polymers bio-engineered to have antimicrobial, hemostatic, and other properties that can be used in a wide range of applications; (2)
Stay Fresh
®
is a unique chemical formulation for textiles with a durable antimicrobial agent effective against an array of bacteria even after numerous laundering cycles; and (3) MultiStat, a family of advanced patented methods and compounds shown to be effective in skin therapy applications. Currently, NIMBUS technology has been commercialized in an advanced wound care product by our licensee in the institutional market in June 2009. The Company targets NIMBUS technology for additional advanced wound care products, catheters, incontinence products, and other medical devices. Stay Fresh is currently being commercialized with a broad range of potential applications including consumer textile market. MultiStat has been commercialized in a cosmetic product line with the anti-aging products. In each instance, the Company intends to form joint ventures or joint development partnerships with leading firms in the respective industry to co-develop and commercialize its products.
The Company specializes in the research and development of biomedical products and devices for antibacterial applications. The Company conducts research efforts or collaborates with third parties as necessary to develop products and administer the patent process. The Company does not expect to produce nor directly market its products. Instead, the Company intends to partner with clients for those activities
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has continuing losses from operations, negative working capital and an accumulated deficit that raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
All highly liquid investments purchased with maturity of three months or less from the time of purchase are considered to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Intangible Assets
The costs of obtaining license agreements along with the costs to defend the patents underlying the license agreements are capitalized and amortized using the straight-line method over the estimated useful lives of the underlying license agreements. The costs of obtaining and maintaining new patents are capitalized and amortized using the straight-line method over the estimated useful lives of the patents. The cost of patents in process is not amortized until the patent is issued.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and equipment is computed using the straight-line method over the expected useful lives of the assets.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable as of June 30, 2013 represents amounts due from its customers and is reported on the balance sheet reduced by writing off receivables not considered to be collectible. The allowance for doubtful accounts at June 30, 2013 and June 30, 2012 was $0 and $200,000 respectively.
Research and Development Costs
Research and development costs are expensed as incurred.
Earnings Per Share
Basic net loss per common share is computed by dividing net loss applicable to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. For the periods ended June 30, 2013 and 2012, 16,697,440 and 15,874,774 diluted common stock equivalents, respectively, have been excluded from the calculation of diluted earnings per share, as their inclusion would have been anti-dilutive.
Fair Value Measurements
The Company adopted FASB ASC 820,
Fair Value Measurements and Disclosures
,
which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. This new accounting standard does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various other accounting pronouncements.
This accounting standard establishes a hierarchy for information and valuations used in measuring fair value, which is broken down into three levels. Level 1 valuations are based on quoted prices in active markets for identical assets or liabilities. Level 2 valuations are based on inputs, other than quoted prices included within Level 1 that are observable, either directly or indirectly. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.
The Company also adopted FASB ASC 825,
Financial Instruments,
which allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. The Company has not elected the fair value option for any eligible financial instruments.
Revenue Recognition
Under the agreement for product development, manufacturing and distribution (the “Agreement”) with BASF, the Company shares proportionately on the net sales and related expenses in accordance with the terms of the Agreement. The Company recognizes revenue of its royalties from the sale of products by BASF when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable.
The Company recognizes royalty fee income based on the net sales of products by our licensees in accordance with the terms of the license agreements.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
The Company recognizes revenue of its research and development service including the small business innovation research program and the US Army medical research program based on the research work performed in accordance with the program requirements or statements of work for the joint development agreements.
The Company also recognizes revenue from the non-refundable exclusivity license fee derived from its licensees on a pro rata basis over the term of the related exclusive license agreements. Further, the Company recognizes the exclusive option fee as revenue on a pro rata basis over the term of the related exclusive option agreement
Unearned Revenue
The amount of unearned revenue represents the exclusive option fee, the license fee, and advance royalty fee yet to be earned on a pro rata basis over the exclusive option period of the related option and license agreements.
Share-Based Compensation
The Company records share-based payment awards at fair value on the grant date of the awards, based on the estimated number of awards that are expected to vest. The fair value of stock options was determined using the Black-Scholes option-pricing model. The fair value of the restricted stock awards was based on the closing price of the Company's common stock on the date of grant.
Concentration of credit risk of financial instruments
Financial instruments that potentially subject the Company to credit risk consist of cash equivalents and accounts receivable. As of June 30, 2013 and 2012, the Company’s cash levels did not exceed the federally insured limit. Beginning December 31, 2010 through December 31, 2012, the Company's bank accounts were fully insured, regardless of the balance of the account at the FDIC-insured institutions as the noninterest-bearing transaction accounts as provided by the section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The credit risk of the accounts receivable is considered limited given the customers’ credit rating.
Income Taxes
The provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Reclassifications
Certain reclassifications have made to the prior year financial statements in order for them to be in conformity with the current year’s presentation.
Recently Issued Accounting Pronouncements
In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This standard, which amends the guidance on testing
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
indefinite-lived intangible assets, other than goodwill, for impairment, provides companies with the option to first perform a qualitative assessment before performing the two-step quantitative impairment test. If the company determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more likely than not to exceed its carrying amount, then the company would not need to perform the two-step quantitative impairment test. This standard does not revise the requirement to test indefinite-lived intangible assets annually for impairment. This standard becomes effective for annual and interim impairment tests performance for fiscal years beginning after September 15, 2012, with early adoption allowed.
When impairment of assets exists, the carrying amount of the long-lived asset is reduced to its estimated fair value, less any costs associated with the final settlement.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and equipment consist of the following at June 30, 2013 and 2012:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
30,935
|
|
|
$
|
28,990
|
|
Equipment
|
|
|
34,209
|
|
|
|
32,942
|
|
Less: accumulated depreciation
|
|
|
(61,962
|
)
|
|
|
(60,848
|
)
|
Net property and equipment
|
|
$
|
3,182
|
|
|
$
|
1,084
|
|
Depreciation expense for the years ended June 30, 2013 and 2012 was $1,114 and $2,308, respectively.
NOTE 4 – INTANGIBLE ASSETS
License Agreement
The Company has a license agreement with two inventors (“Licensors”) for the worldwide rights to the MMP inhibitors and uses thereof. The license agreement transfers to the Company the technology that is the subject of issued patents as well as pending patent applications, which were filed by the original Inventors. The licenses are amortized on a straight-line basis over the estimated useful lives of the underlying patents or the license agreement. The U.S. patents expire beginning November 2007 through December 2019 and the international patents expire beginning on November 21, 2011 through December 8, 2019.
In November 2002, the Company and the University of Florida Research Foundation (the “University”) entered into an agreement whereby the University gave the Company exclusive sub-license rights to the use of its patents and patent applications from the effective date of the agreement until the earlier of the date that no licensed patents remain enforceable patents or the payment of earned royalties ceases more than three calendar quarters. The royalty rate is 3% of the first $10 million of cumulative realized revenues and 1.8% of all subsequent realized revenues.
In June 2007, the Company and the Regents of the University of Michigan (“Michigan”) entered into an agreement whereby Michigan gave the Company worldwide exclusive rights including sub-license rights to the use of its patents and patent applications of the uses of MMP inhibitors from the effective date of the agreement until the earlier of the date that no licensed patents remain enforceable patents or the default event. In addition to the initial license fee of $80,000, the Company will pay a 4% royalty rate of the net sales, 20% of the sublicense income, the annual fee of $50,000 for 2008 and 2009, $75,000 for 2010 and $100,000 in 2011 and in each year thereafter during the term of the agreement.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 4 – INTANGIBLE ASSETS, continued
During the fiscal year 2006, the Company was issued both US and international patents for its NIMBUS technology on “
Intrinsically Bactericidal Absorbent Dressing And Method Of Fabrication”.
These patents expire on December 8, 2019. The total capitalized costs for this issued patent were $35,470 and are being amortized over the life of the patents.
During the fiscal years 2013 and 2012, the Company was granted certain US and international patents and filed a number of US and international patent applications for its NIMBUS,
Stay Fresh
, and NimbuDerm technologies and applied for certain trademarks.
As of June 30, 2013, there was an impairment of the Company's intangible assets in the amount of $58,460 which was recognized as impairment expense on the Company’s statement of operations. The impairment loss resulted from the write-off an in-process patent cost for a country that the Company decided to no longer pursue.
|
June 30, 2013
|
|
June 30, 2012
|
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
Amortized Intangible Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License agreements
|
|
|
619,675
|
|
|
|
(525,282
|
)
|
|
|
648,123
|
|
|
|
(604,811
|
)
|
Patents
|
|
|
462,365
|
|
|
|
(173,900
|
)
|
|
|
373,357
|
|
|
|
-
|
|
Total
|
|
|
1,082,040
|
|
|
|
(699,182
|
)
|
|
|
1,021,480
|
|
|
|
(604,811
|
)
|
Amortization of patents in process commences when the patents are issued.
At June 30, 2013, total unamortized capitalized intangible assets costs are approximately $152,000, which are expected to be amortized and recognized over a weighted-average period of ten years.
Aggregate Amortization Expense
|
|
|
35,910
|
|
|
|
699,182
|
|
|
|
61,890
|
|
|
|
604,811
|
|
NOTE 5 - COMMITMENTS
The Company has leased a laboratory facility in Gainesville, Florida which was renewed on March 11, 2013. Rent expense for the years ended June 30, 2013 and 2012 was $27,348 and $27,380, respectively.
The following is a schedule of minimum future payments on the operating lease as of June 30, 2013:
For the years Ending June 30:
|
|
|
|
|
|
|
|
2014
|
|
|
25,800
|
|
2015
|
|
|
15,050
|
|
Thereafter
|
|
|
-
|
|
|
|
$
|
40,850
|
|
NOTE 6 – STOCK OPTIONS AND WARRANTS
The Company adopted a qualified equity incentive plan (the “Plan”) on March 4, 2001. Under the Plan the Company is authorized to grant up to 3,000,000 shares of common stock. On December 13, 2004, the shareholders approved the Plan and ratified the amendment to increase the total number of shares to be granted under the Plan from 3,000,000 to 4,000,000 effective November 1, 2004. On November 13, 2007 the shareholders ratified the amendment to increase the total number of shares to be granted under the Plan from 4,000,000 to 6,000,000. This plan expired in March 2011.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 – STOCK OPTIONS AND WARRANTS (continued)
On November 17, 2009, the Board of Directors (the "Board') granted 681,785
stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2009. In addition, the Board granted 248,564 warrants payments to consultants for payments of their services and incentive performance awards. Of 681,785 stock options grant, approximately 115,428 were awarded to the board members for their services and were vested on the date of grant. Of 248,564 warrants issued, 99,977 warrants were vested immediately on the grant date. The remainder 566,357 stock options and 148,587 warrants were vested one-third immediately, one-third were vested on November 17, 2010 and the remaining one-third were vested on November 17, 2011, assuming the person receiving the equity awards is employed or being utilized by the Company at the time of vesting. The exercise price of those stock options and warrants is $0.77 per share. The weighted average grant date fair value of options and warrants was $0.48 per share based on the Black-Scholes option-pricing model. The options and warrants expire five years from the date of grant. During the year ended June 30, 2013, 325,215 options were forfeited.
On October 27, 2008, the Board of Directors (the “Board”) granted 1,335,102 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2008. In addition, the Board granted 705,302 warrants payments to consultants for payments of their services and incentive performance awards. Further, 60,000 shares of restricted common stock were issued to a consultant as payment for services. Of 1,335,102 stock options grant, approximately 464,102 were awarded to the board members for their services and were vested on the date of grant. Of 705,302 warrants issued, 240,302 warrants were vested immediately on the grant date. The remainder 871,000 stock options and 465,000 warrants were vested one-third immediately, one-third were vested on October 27, 2009 and the remaining one-third were vested on October 27, 2010, assuming the person receiving the equity awards is employed or being utilized by the Company at the time of vesting. The exercise price of those stock options and warrants is $0.20 per share, which was the closing price of the common stock on the date of grant. The weighted average grant date fair value of options and warrants was $0.19 per share based on the Black-Scholes option-pricing model. The options and warrants expire five years from the date of grant. During the year ended June 30, 2013, 475,938 options were forfeited.
On April 18, 2008, the Board of Directors (the “Board”) granted 148,571 shares of restricted common stock as payment for the services rendered by the board members for the year ended June 30, 2007 for those elected to receive common stocks and all shares were immediately vested. In addition, the Board granted 1,074,666 stock options to the board members, employees, consultants as payments for their services and in recognition of individual performance for the year ended June 30, 2007. The stock options were vested one-third immediately, one-third was vested on April 17, 2009 and the remaining one-third was vested on April 17, 2010, assuming the person receiving the equity awards is employed by the Company at the time of vesting. The exercise price of those stock options is $0.42 per share, which was the closing price of the common stock on the date of grant. The weighted average grant date fair value of options was $0.32 per share based on the Black-Scholes option-pricing model. The options and warrants expire five years from the date of grant. During the year ended June 30, 2013, 110,000 options were forfeited and 503,080 options expired.
On August 6, 2007, the Board of Directors (the “Board”) granted 484,056 non-qualified stock options to the Chief Executive Officer (“CEO”) at an exercise price of $0.75 per share. These options were fully vested and immediately exercisable at the date of grant. In addition, the Board granted 1,452,167 non-qualified stock options at an exercise price of $0.74 per share on September 25, 2007, as part of the CEO’s employment agreement. The second stock options are vested and become exercisable 1/16
th
of the total 1,452,167 options on each three-month anniversary beginning on June 11, 2007. The average grant date fair value of the options was $0.46 per share based on the Black-Scholes option-pricing model. These options expire in August and September 2013, five years from the date of grant.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 – STOCK OPTIONS AND WARRANTS (continued)
The weighted average grant date fair value of options and warrants granted during the fiscal years ended June 30, 2013 and 2012 were estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions used; risk-free interest rate of 3%; dividend yield of 0%; expected volatility of 91%; and estimated life of 5 years. Expected volatility is based on historical volatility of common stock. The expected term of the options and warrants represents the period of time that options and warrants granted are expected to be outstanding and is derived from historical terms.
A summary of options for the years ended June 30, 2013 and 2012 is shown below:
|
|
June 30 2013
|
|
|
June 30 2012
|
|
|
|
Number of Shares
|
|
|
Weighted-Average Exercise
Price
|
|
|
Number of Shares
|
|
|
Weighted-Average Exercise
Price
|
|
Outstanding at beginning of year
|
|
|
4,083,970
|
|
|
$
|
0.58
|
|
|
|
4,794,270
|
|
|
$
|
0.57
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(911,153
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(503,080
|
)
|
|
|
-
|
|
|
|
(710,300
|
)
|
|
|
0.82
|
|
Outstanding at end of year
|
|
|
2,669,737
|
|
|
$
|
0.60
|
|
|
|
4,083,970
|
|
|
$
|
0.58
|
|
Exercisable at end of year
|
|
|
-
|
|
|
|
|
|
|
|
4,083,970
|
|
|
|
|
|
Available for issuance at end of year
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Note: Some options expired and some options were forfeited during the year ended June 30, 2013. The following is a summary of warrants granted, exercised, canceled and outstanding involving the grants in the periods ended June 30, 2013 and 2012.
|
|
June 30 2013
|
|
|
|
|
|
June 30 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted-Average Exercise
Price
|
|
|
Number of Shares
|
|
|
Weighted-Average Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
947,994
|
|
|
$
|
0.48
|
|
|
|
974,920
|
|
|
$
|
0.47
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
10,714
|
|
|
|
0.02
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(13,410
|
)
|
|
|
0.67
|
|
|
|
(37,640
|
)
|
|
|
0.96
|
|
Outstanding at end of year
|
|
|
934,584
|
|
|
$
|
0.36
|
|
|
|
947,994
|
|
|
$
|
0.48
|
|
Exercisable at end of year
|
|
|
934,584
|
|
|
|
|
|
|
|
947,994
|
|
|
|
|
|
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES
For federal income tax purposes, the Company elected to capitalize start-up costs incurred during 1999 and 2000 totaling $357,989. The start-up costs were amortized over sixty (60) months beginning in 2001. An analysis of the components of the (loss) before income taxes and the related income tax (benefit) is presented in the following tables. The tax amounts have been calculated using the 34% federal and 5.5% state income tax rates.
The Company adopted the provisions of ASC 740: Income Taxes. The Company records a liability for uncertain tax positions when it is probable that a loss has been incurred and the amount can be reasonably estimated. As of June 30, 2013 and 2012, the Company has no liabilities for uncertain tax positions. The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. In general, the Company is no longer subject to examinations by taxing authorities for tax years prior to 2008.
The (provision) benefit for income taxes consists of the following:
|
|
2013
|
|
|
2012
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred tax assets for June 30, 2013 and 2012 consist of the following:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Deferred tax asset (liability):
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
(50,538
|
)
|
|
$
|
7,985
|
|
Stock based compensation
|
|
|
2,980,409
|
|
|
|
3,134,667
|
|
Net operating loss carry forward
|
|
|
6,037,629
|
|
|
|
5,709,372
|
|
Interest accrual
|
|
|
500,288
|
|
|
|
339,934
|
|
Research tax credit
|
|
|
7,203
|
|
|
|
7,203
|
|
Less: valuation allowance
|
|
|
(9,474,991
|
)
|
|
|
(9,199,161
|
)
|
Deferred tax asset:
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of income tax at the statutory rate to the Company’s effective tax rates for the periods ended June 30, 2013 and 2012 is as follows:
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
Federal Income tax at statutory rate of 34%
|
|
$
|
(242,445
|
)
|
|
$
|
(573,547.00
|
)
|
State tax, net of federal benefit
|
|
|
(25,775
|
)
|
|
|
(52,636
|
)
|
Other
|
|
|
(7,609
|
)
|
|
|
33,349
|
|
Valuation allowance
|
|
|
275,829
|
|
|
|
592,834
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
As of June 30, 2013, the Company had a net operating loss carry forward of approximately $16,000,000 which will begin to expire in 2017.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 – NOTES PAYABLE
|
|
Maturity
|
|
|
Interest
Rate
|
|
|
Conversion Price
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Convertible Note
|
|
|
2013
|
|
|
|
8
|
%
|
|
$
|
0.60
|
|
|
$
|
1,053,000
|
|
|
$
|
1,053,000
|
|
Accrued Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
274,078
|
|
|
|
189,834
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,327,078
|
|
|
|
1,242,834
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,327,078
|
|
|
|
-
|
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
1,242,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Convertible Note
|
|
|
2014
|
|
|
|
8
|
%
|
|
$
|
0.50
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Senior Convertible Note
|
|
|
2014
|
|
|
|
8
|
%
|
|
$
|
0.50
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Acrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,891
|
|
|
|
4,986
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,891
|
|
|
|
254,986
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,891
|
|
|
|
-
|
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
254,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note Payable
|
|
|
2013
|
|
|
|
8
|
%
|
|
|
|
|
|
|
59,155
|
|
|
|
89,155
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,776
|
|
|
|
12,870
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,931
|
|
|
|
102,025
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,931
|
|
|
|
30,000
|
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
72,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Convertible Note
|
|
|
2013
|
|
|
|
6-8
|
%
|
|
$
|
.18-.74
|
|
|
|
3,547,580
|
|
|
|
3,547,580
|
|
Senior Convertible Note 2
|
|
|
|
|
|
|
8
|
%
|
|
$
|
.42-.63
|
|
|
|
375,000
|
|
|
|
375,000
|
|
Senior Convertible Note 3
|
|
|
|
|
|
|
8
|
%
|
|
$
|
0.60
|
|
|
|
600,000
|
|
|
|
600,000
|
|
Accrued interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,727,236
|
|
|
|
1,391,157
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,249,816
|
|
|
|
5,913,737
|
|
Less current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,249,816
|
|
|
|
-
|
|
Total long-term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
5,913,737
|
|
On March 31, 2013, the Company combined several of its outstanding and previously issued notes payable to the largest shareholder into a single senior convertible promissory note in the amount of $3,547,580. The original notes were issued on September 30, 2003, June 14, 2007, October 30, 2007, February 11, 2008, May 17, 2008, September 12, 2008, February 26, 2009, May 12, 2009 and March 15, 2010 in the principal amounts of $1,268,625, $208,955, $300,000, $370,000, $485,000, $150,000, $175,000, $375,000 and $215,000, respectively. This senior convertible note is secured by the Company’s revenues and assets and is subordinate to the additional senior convertible notes issued to the various parties listed below. Interest rates for these convertible notes range from 6% to 8% and conversion rates range from $0.18 to $0.74.
On March 31, 2010, the Company issued a senior convertible promissory note to a major shareholder for the principal amount of $1,053,000, which consisted of $600,164 in cash, $375,000 principal balance of a prior senior convertible note together with unpaid accrued interest thereon of $77,836. This senior convertible note is secured by the Company’s revenues and assets with the same priority as the Notes 2 and 3 to the Shareholder and the senior convertible notes totaling $250,000. This note has an annual interest rate of 8%, a maturity date of December 31, 2013. This note has the conversion price of $0.60
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8 – NOTES PAYABLE, continued
per share of common stock. The Company has recorded approximately $859,950 as an interest expense as a result of the beneficial conversion feature.
On March 31, 2010, the Company issued two senior convertible promissory notes totaling $250,000 to third parties. These senior convertible notes are secured by the Company’s revenues and assets with priority below Notes 2 and 3 to the Shareholder and the March 31, 2010 senior convertible note to a major shareholder. These notes have an annual interest rate of 8% with a maturity date of June 30, 2014. These notes have the convertible price of $1.00 per share of common stock. The Company has recorded approximately $22,500 as an interest expense as a result of the beneficial conversion feature. During the year ended June 30, 2011, the conversion price of the $150,000 senior convertible promissory note was reduced to $0.50 per share of common stock as part of the arrangement of the additional investment in the Company's restricted common stock by the note holder. In addition, the conversion price on the $100,000 senior convertible promissory note was also reduced to $0.50 per share of common stock as a result of the additional investment in the Company's restricted common stock.
On December 16, 2010, the Company issued a promissory note to an officer for the principal amount of $113,155, which consisted of a total 100,000 principal balance of four prior convertible notes together with unpaid accrued interest thereon of $13,155. This note has an annual interest rate of 8%, a maturity date of December 31, 2013. The outstanding principal amount will be paid at a rate of $1,000, $2,000 and $3,000 each month for the first 12 months, the second 12 months and the third 12 months, respectively. As of June 30 2013, and June 30, 2012, the Company paid an aggregate principal amount of approximately $30,000 and $18,000 respectively, to the officer. The remaining outstanding principal balance and accrued interest will be paid on the maturity date.
In November 2009, the Company finalized and issued a $600,000 2009 senior convertible note payable (“Note 3”) to the Shareholder. The Company received the borrowings (the "Advances") in a series of $45,000 on September 8, 2009, $25,000 on September 11, 2009, $125,000 on September 23, 2009, $100,000 on October 14, 2009, $50,000 on October 28, 2009, $175,000 on November 12, 2009, $50,000 on December 14, 2009, and $30,000 on February 26, 2010 totaling $600,000. This senior convertible note is secured by the Company’s revenues and assets with the same priority as the March 31, 2010 senior convertible notes, it has a 8% annual interest rate and has a maturity date of December 31, 2013. This note has the conversion price of $0.60 per share of common stock. The Company has recorded approximately $215,500 as an interest expense to date for the Advances received as a result of the beneficial conversion feature. As part of the terms of this note, the maturity dates of all other outstanding senior convertible notes owed to the Shareholder were extended to December 31, 2013. During the year ended June 30, 2011, the conversion price on a $135,000 portion of the Note 3 was also reduced to $0.50 per share of common stock as a result of the additional investment in the Company's restricted common stock.
Effective May 12, 2009, the Company issued a 2009 senior convertible note payable (“Note 2”) to the Shareholder to combine the borrowings (the “Advances”) in a series of $35,000 each from May 12, 2009 through August 12, 2009, $50,000 and $45,000 on August 14 and 27, 2009, respectively totaling $375,000. This senior convertible note is secured by the Company’s revenues and assets with the same priority as the March 31, 2010 senior convertible notes and has a maturity date of December 31, 2013. This note has the conversion prices determined by the closing trading prices of the Company’s common stock on the dates the Advances were received.
At June 30, 2013, the Company accrued interest of $1,727,236, $274,078, $4,891, and $18,776 on the convertible notes and the note payable with the Shareholder, the convertible notes with related parties, the convertible note with a third party, and the note payable to a related party, respectively.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 – FAIR VALUE MEASUREMENTS
The Company adopted ASC 820,
Fair Value Measurements and Disclosures
,
for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. FASB ASC 820 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.
FASB ASC 820 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. FASB ASC 820 establishes and prioritizes three levels of inputs that may be used to measure fair value:
Level 1
- Quoted prices in active markets for identical assets or liabilities.
Level 2
- Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3
- Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of June 30, 2013
|
|
|
|
|
2013
|
|
|
|
|
|
|
|
|
2012
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
Financial Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable (2)
|
|
$
|
7,831,785
|
|
|
|
-
|
|
|
$
|
7,757,621
|
|
|
$
|
7,155,493
|
|
|
|
-
|
|
|
$
|
6,985,595
|
|
Total financial liabilities
|
|
$
|
7,831,785
|
|
|
|
-
|
|
|
$
|
7,757,621
|
|
|
$
|
7,155,493
|
|
|
|
-
|
|
|
$
|
6,985,595
|
|
(1) Cash Equivalents
The Company's cash equivalents include short-term investments, which are money market funds. Since these are short-term highly liquid investments with original maturities of three months or less at the date of purchase, they present negligible risk of changes in value due to changes in interest rates. These short-term investments are recorded at fair value on the Company's balance sheet based on quoted market prices and observable market inputs.
QUICK-MED TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 – FAIR VALUE MEASUREMENTS, continued
(2) Convertible Notes Payable
As fully described in Note 8, the Company’s convertible notes payable are long-term debts with fixed interest rates and the conversion rates at market at the time the funds were received. In addition, most of these notes are collateralized by the Company’s assets and revenues. Further, the debt holders are major shareholders and an officer. The Company estimates the fair value of the convertible notes for disclosure purposes by discounting the future cash flows using rates of debts that management believes are similar in terms and maturity. The Company's short-term convertible note payable is approximate market value.
NOTE 10 – RELATED PARTY TRANSACTIONS
As fully described in Note 9, the Company has several senior convertible note payables with the largest shareholder, a major stockholder, third parties and a promissory note with a related party during the periods ended June 30, 2013 and 2012.
The Company had a consulting agreement with a director to provide services on scientific matters at a monthly fee of $2,500. The agreement was terminated in October 2012. At June 30, 2013 and 2012, the Company owed $82,500 and $75,000, respectively, to the director.
NOTE 11 – EXTINGUISHMENT OF LICENSE PAYABLE
During the year ended June 30, 2013, the Company reached a mutual agreement with a counter party under which $160,000, previously reported as a license payable, was not longer due. Accordingly, the Company has removed this amount from its balance sheet and recorded the related gain on the extinguishment of the license payable.
NOTE 12 – SUBSEQUENT EVENTS
On August 27, 2013 we announced that Polartec, LLC, a premium producer of textile solutions, has been granted a license to utilize our proprietary STAYFRESH® technology for a range of products and fields of use.
In August 2013 the US Patent Office approved patent number 12/830,062 “Polyelectrolyte Complex for Imparting Antimicrobial Properties to a Substrate”. This patent will provide protection for an improved method of preparing the Company’s NIMBUS antimicrobial products. The method utilizes a Poly-Electrolyte Complex, or PEC in which a negatively-charged (anionic) polymer is used to stabilize the active antimicrobial agent - a positively-charged (cationic) polymer. This complex allows the NIMBUS polymer to be bonded to a wider variety of substrates.
18