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EX-31.2 - EXHIBIT 31.2 - QUANTRX BIOMEDICAL CORPex31-2.htm
EX-31.1 - EXHIBIT 31.1 - QUANTRX BIOMEDICAL CORPex31-1.htm
EX-3.6 - CERT OF DESIGNATION FOR SERIES B CONVERT PREF STOCK - QUANTRX BIOMEDICAL CORPex3-6.htm
EX-32.1 - EXHIBIT 32.1 - QUANTRX BIOMEDICAL CORPex32-1.htm
EX-32.2 - EXHIBIT 32.2 - QUANTRX BIOMEDICAL CORPex32-2.htm
EX-23.1 - EXHIBIT 23.1 - QUANTRX BIOMEDICAL CORPex23-1.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 2010

OR

o TRANSITION REPORT PURSUANT TO 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
(Exact name of registrant as specified in its charter)

Nevada
 
33-0202574
(State or other jurisdiction of incorporation or
organization)
 
(IRS Employer Identification No.)

5920 NE 112th Avenue, Portland, Oregon 97220
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (503) 252-9565

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
Yes o     No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  
Yes o     No x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.
 
 
 

 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.
Yes x     No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  
Yes o     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
 o
Accelerated filer                                o
 Non-accelerated filer
 o
Smaller reporting company              x
 (Do not check if smaller reporting company)
reporting company)
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o     No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2010): $8,938,869

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 31, 2011: 46,077,630 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None
 
 
 



 
 
TABLE OF CONTENTS

PART I
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PART II
       
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PART III
       
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

THIS ANNUAL REPORT ON FORM 10-K, 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 THIRTEEN 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-K, “we,” “us,” “our,” “QuantRx” and “Company” refer to QuantRx Biomedical Corporation, unless the context otherwise requires.
 
ITEM 1.  Business
 
QuantRx Biomedical Corporation was incorporated on December 5, 1986, in the State of Nevada. The Company’s principal business office is located at 5920 NE 112th Avenue, Portland, Oregon.  When used in this Quarterly Report on Form 10-K, the terms “Company,” “we,” “our,” “ours,” or “us” mean QuantRx Corporation, a Nevada corporation.

Recent Developments

During 2010, the Company’s activities were principally focused on the development of QN Diagnostics, LLC, a Delaware limited liability company (“QND”) jointly owned by the Company and NuRx Pharmaceuticals, Inc. (“NuRx”), and, to a lesser degree, the development of the Company’s PAD based products for the Over-the-Counter (“OTC”) and Point-of-Care (“POC”) markets based on its patented technology platforms.  Due to the pending litigation with QND, discussed below, and the Company’s financial condition, the Company has currently suspended development of its innovative PAD based products pending the resolution of its litigation with NuRx, and the development of a financing and operating plan necessary to allow the Company to capitalize on its PAD technology.  In the interim, management of the Company has substantially reduced operating and other expenses, has negotiated settlements of liabilities totaling in excess of $1.10 million, in consideration for the issuance of 1,250,000 shares of the Company’s common stock, $223,832 in cash, and $86,000 of accrued liabilities that were paid in January 2011.  Additionally, the Company settled certain of its accrued obligations with its executive officers with an exchange of shares, options and warrants of a related party valued at $88,223.  These settlements were necessary for the Company to continue as a going concern.  Management is also currently negotiating a settlement with NuRx relating to QND.  The discussion below assumes the Company continues as a going concern consistent with the Company’s historical and proposed business plan.

 
Overview
 
The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and POC markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PadKit® technology for the worldwide healthcare industry. These platforms include: inSync®, Unique™, PadKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.  These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.  The Company’s efforts to commercialize its products, however, are currently contingent on the development of a financing and operating plan focused on the commercialization of the Company’s PAD technology.  In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities.  This plan was necessary in order for the Company to continue as a going concern.
 
The Company’s POC lateral flow diagnostics technology has been fully transferred to QND and all product development is currently conducted through QND, which has ownership and full rights to the Company’s lateral flow technology.  QND was formed to develop and commercialize products incorporating the Company’s lateral flow strip technology and related lateral flow strip readers for both the human and veterinary laboratory POC markets. The Company and NuRx, which originally formed a joint venture for the express purpose of this development, are currently involved in litigation regarding the achievement of certain milestones, the requirement to make certain sustaining capital contributions, as well as certain governance matters related to the joint venture. 
 
During the year ended December 31, 2010, the Company had minority investments in Genomics USA, Inc. (“GUSA”), which is developing Single Nucleotide Polymorphism (“SNP”) chips, genome-based diagnostic chips for the next generation of genomic and proteomic diagnostic markets, and FlouroPharma, Inc. (“FlouraPharma”), which is developing molecular imaging agents for Positron Emission Tomography (“PET”) and fluorescence imaging with initial application in cardiovascular disease, to provide clinical support for the Company’s POC cardiac diagnostics.   As a result of certain financing transactions, the Company has divested all but a nominal equity interest in FluoraPharma. 
 
The Company is currently evaluating its minority equity interest in GUSA with the objective of extracting the value of such investment for the benefit of the Company and its shareholders.  The Company currently does not realize any material value in its investment in GUSA.
 
The Company’s current strategy is to settle its litigation with NuRx relating to QND, and to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products through corporate partners and distributors; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GUSA.   As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on the settlement of its litigation with NuRx relating to QND and maintaining the Company as a going concern.

 
Our Business
 
The Company has currently suspended development of its innovative PAD based products pending the development of a financing and operating plan to commercialize its technologies and investments, which target significant market opportunities through the following platforms:

Lateral Flow Diagnostics (through QN Diagnostics)
 
 
RapidSense® point-of-care testing products are based on the Company’s core intellectual property related to lateral flow methods, devices, and processes for the consumer and healthcare professional markets, all of which have been transferred to QND. The Company, under a Development and Services Agreement (“Development Agreement”) with QND, has developed prototype tests and the Q-Reader™, a unique, quantitative, point-of-care optical reader for use with RapidSense to provide economical and efficient quantitative results.

The Company and NuRx are currently involved in litigation involving QND based on allegations that QND management is deadlocked over the Company’s rejection of a required capital call, and NuRx’s allegation that the Company has not met a certain “milestone” requirement, therefore giving NuRx the right to appoint a member to QND’s board of directors, replacing a Company designee.

 PAD/Health and Wellness
 
 
PAD products are based on the Company’s non-woven disposable absorbent pad technology, with products for aiding the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, the OTC catamenial markets, and other medical needs, including diagnostic sampling products which enable self collection and worldwide transport for indications such as various cancers, premature delivery, and genomic testing.
 
Genomic Testing (through Genomics USA)
 
 
Single Nucleotide Polymorphism (SNP) chips; genome-based diagnostic chips for the laboratory and healthcare professional markets.
 
Diagnostic products constitute the core of the Company’s historical product development focus. Genomic testing constitutes long-term opportunities either through commercialization or through investment by a strategic partner.   The Company’s healthcare technologies are currently in different stages of development ranging from commercialization to proof of concept. The Company ultimately plans to bring all products to commercialization; however, commercialization of these technologies is currently contingent on the development of a financing and operating plan that permits the Company to successfully capitalize on its development efforts to date.  Such plan may include seeking a strategic or other partner to economically commercialize or finance the Company’s technologies. The Company’s objective in the interim is to maintain strict cost control measures, as well as the Company’s technologies, in order to continue as a going concern.  The discussion below assumes the Company continues with the development and commercialization of its technologies, although no assurances can be given.
 
Product and Product Candidates
 
The Company has historically operated under a two-fold product development strategy: (1) the maximization of the value of internally developed products that are market-ready for near-term distribution, and (2) the aggressive development of technology platforms for products that the Company believes will address medical diagnostic and treatment issues into the future.

 
In introducing its lateral flow diagnostic devices, PAD product lines and other products, the Company sought to align itself with experienced marketing partners that have established distribution channels. The Company teamed with a manufacturing partner in Asia, as well as niche United States manufacturers, in order to bring products to market in an efficient manner while controlling product quality.  While these relationships are currently in effect, most have been suspended pending the development of a financing and operating plan to commercialize the Company’s PAD technology.
 
GUSA, a private company in which the Company has invested, is working toward completion of its HLA – human leukocyte antigen – chip technology for vaccine validity testing. It anticipates the initiation of field tests with the United States Department of Homeland Security, prior to market launch.
 
 Lateral Flow Diagnostics (through QND)
 
The Company developed and patented the RapidSense technology - a one-step lateral flow test with unique features such as a positive indication for a positive test – which when combined with the Q-Reader platform allows the Company to target quantified point-of-care (POC) diagnostics previously limited to the diagnostic laboratory. These applications include, but are not limited to, thyroid disease, therapeutic drug monitoring, cancer diagnostics, diagnosis of cardiac disease, and other critical tests. This rapid POC diagnostic technology is ideal for testing any body fluid, including whole blood, serum, oral fluids and urine. The Company also patented innovative oral fluid collection devices specifically designed for its RapidSense technology. These distinctive collection devices coupled with RapidSense and the reader platform is intended to ultimately enable us to target the large and growing markets for diagnostics using oral sample collections which have previously been limited to blood or urine testing. All of these technologies have been fully transferred to QND, to which the Company retains partial ownership, pursuant to the Joint Venture agreement.
 
RapidSense products target the POC healthcare professional human and veterinary diagnostic markets. QND has explored parallel opportunities in the veterinary markets, and management believes an opportunity exists to market its POC technologies in those markets. To access the unique capabilities of RapidSense and provide meaningful data to healthcare professionals, the Company has been developing a cost efficient portable device called the Q-Reader for use with RapidSense.  The Company has successfully advanced our Q-Reader initiative with the formation of QND.  Q-Reader enables the translation of lateral flow results beyond a qualitative “positive” or “negative” and produces a test-specific quantified result so that changes in body chemistry can be measured in the primary care practitioner’s office.  This has the potential to shift outside lab work to the physician’s office, thus reducing time and expense while creating a revenue source for the healthcare professional. Among the initial products being developed is a line of extremely sensitive Clinical Laboratory Improvement Amendments (CLIA) waived quantitative POC lateral flow diagnostic tests, with reliable and repeatable sensitivity at the level needed to provide laboratory level results to the human medical POC market, as well as developing quantified POC diagnostic tests for the underserved veterinary market utilizing these platforms.
 
In 2009, commercialization of the Follicle Stimulating Hormone (FSH) lateral flow immunoassay test for FSH began. The Company jointly developed this female fertility test with Church & Dwight. The Company licensed this technology to Church & Dwight for the OTC market, following the completion of development, and royalties commenced in the second quarter of 2009.  This relationship, and resulting royalties, were expressly excluded from the QND joint venture agreement, and remains wholly owned by the Company.
 
The Company has received clearance on four 510(k) applications from the FDA for its RapidSense urine based qualitative drugs-of-abuse test product line, as well as the licensed FSH test. The clearance of its urine-based tests also set the stage for development of saliva based tests to complement its urine drugs-of-abuse tests, all of which were transferred to QND.  In 2009, as a function of the Company’s Q-Reader development and strategic focus on the quantitative POC healthcare market, the Company discontinued sales of its qualitative drugs-of-abuse product line, QuikSense®. The Company was also developing rapid test POC products in oral care the Development Agreement, which was discontinued during the quarter ended December 31, 2010. The Development Agreement granted certain rights related to manufacturing upon successful development and commercialization of the products, which remain in effect.
 
   
    During the quarter ended June 30, 2010, the Company submitted an application for 510(k) clearance to the FDA for the Q-Reader™ thyroid testing system following the completion of clinical testing. This regulatory stage follows the completion of studies showing that the innovative Q-Reader thyroid testing system is capable of providing healthcare practitioners with laboratory level quantitative results within minutes, rather than waiting for results to be returned from a commercial laboratory. The 510(k) submission, together with the completion of a pre-production sample of the Q-Reader, satisfied the final two milestones contained in QND’s operating agreements.  Subsequently, the FDA indicated that it could not determine whether the Company’s submission was substantially equivalent to a legally marketed device based solely on the information provided to it by the Company, and requested certain additional information by December 20, 2010.  Based on this feedback and the Company's financial resources, management determined not to respond to the FDA’s request and decided to explore the introduction of the Q-Reader thyroid testing system into the veterinary market.  The Company intended to coordinate with NuRx, in pursuing the veterinary market, which does not require FDA clearance. 

PADs for Diagnosis and Treatment
 
The miniform PAD is a Company patented technology that provides the basis for a line of products that address an array of consumer health issues including: temporary relief of hemorrhoid and minor vaginal infection itch and discomfort, feminine urinary incontinence, catamenial needs, drug delivery, and medical sample collection and transport for diagnostic testing.
 
The Company’s PAD products for the consumer markets are FDA Class I OTC devices, and are easy to use, non-invasive, fully biodegradable, highly absorbent pads. Additionally, the unique non-woven technology utilized for the PADs allows for a PAD to be used as a sample collection device, providing a sample for diagnostic purposes, or to provide local or systemic therapy.
 
PADKit®
 
The PADKit integrates the miniform technology with the Company’s diagnostic expertise. The PADKit contains a miniform used as a collection device to collect a sample for diagnostic evaluation. Vaginally, the miniform collects blood along with numerous cells, vaginal mucous and discharge flushed out by the menstrual flow or during normal daily exfoliation.  The PADKit is designed to provide the preferred sample collection system population scale testing for indications such as HPV, Human Immunodeficiency Virus (HIV), and general health screening, where healthcare professionals are not readily accessible.
 
Although significant improvements have been made in the area of Pap test sample reading and sample preparation, clinical indications support broad testing for HPV will have a greater impact in lowering the incidence of cervical cancer.  The Company believes the PADKit will provide a superior and more consistent sample, as well as a simpler, more comfortable and convenient procedure for HPV testing.  The Company further hopes to demonstrate viability of the PADKit as the basis of various other diagnostic and screening tests.  
 
The Company holds several patents for the method and apparatus for collecting vaginal fluid and exfoliated vaginal cells for diagnostic purposes, collection of a sample for general diagnostic screening, and the collection of an anal sample for prostate and other diagnostic purposes.  Several clinical studies have been conducted on the PADKit, which have provided data needed to show the degree to which the sample collected can be used to replace other accepted samples, as well as its safety and ease of use.
 
Unique® Miniforms
 
Miniform is a safe, convenient, and flushable technology for the underserved OTC hemorrhoid and feminine hygiene and urinary incontinence markets.  The disposable miniform pads contain no adhesives and require no insertion, and are small enough to fit in the palm of a hand.

 
The Unique miniform is available as a treated pad for the temporary relief of the itch and discomfort associated with hemorrhoids and minor vaginal infection, and as an untreated pad, for the daily protection of light urinary, vaginal or anal leakage.
 
While the Company initiated a limited web-based domestic roll-out of the Unique miniform, it is in search of a strategic partnership(s) to expand the retail availability of the product across the United States and internationally.
 
The Company has significant experience manufacturing its miniform and a clear understanding of its costs.  The miniform technology is protected by numerous patents covering various applications, the manufacturing process, and certain materials. The Company currently has contracted with a firm based in Taiwan to manufacture its pads, although the manufacturing relationship is currently suspended due to the Company’s financial condition, and pending the development of a financing and operations plan that allows the Company to recommence operations.
 
Product Candidates
 
SNPchip Genome-based Diagnostic Microarray Chips (Genomics USA)
 
GUSA, in which the Company owns approximately 10%, as well as a note convertible into an additional 10% on a fully diluted basis, has developed a proprietary, low cost and accurate microarray technology to support large-scale personalized medicine.  The first GUSA product, in late development, is “The HLA-Chip”, a low cost microarray with customized analytical software for high throughput clinical genetics and public health testing. The HLA-Chip is being developed to become the replacement for all DNA based Human Lymphocyte Antigen (HLA) testing in solid organ and stem cell transplantation.
 
Since the ability of an individual to respond to a particular drug or vaccine is essentially determined by his/her immune response - determined by the HLA type- a key application for this HLA-based technology will be related to vaccine development and personalized vaccine delivery; assuring a vaccine’s effectiveness for a particular individual. Other uses for a defined HLA type will include tissue transplantation, population scale testing for viral diseases, personalized treatment of microbial infection, and personalized treatment for autoimmune diseases such as arthritis and multiple sclerosis.
 
Follow-on products in the personalized medicine market will service chemical therapeutics, especially those applications in which personal genetic variation at a number of gene sites can cooperate to alter treatment responsiveness for conditions such as obesity, depression, cardiovascular risk, and others. Properly validated, awareness of a patient’s HLA type will be as vital to medical practice as knowledge of one’s blood type, and testing and typing of an infant’s HLA at birth will become common practice.
 
In 2009, GUSA strengthened its intellectual property on this product with the issuance of two patents covering its microarray technology.
 
Development of this critical HLA determinate test has been primarily funded by a Defense Advanced Research Projects Agency (DARPA) sponsored Small Business Innovation Research (SBIR) grant of approximately $3.0 million. In September 2009, GUSA received two multi-year SBIR grants aggregating $3,600,000 for further development of the HLA Chip and a variant of the HLA Chip, the “AIDS-Chip”.  

 
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, marketing and distribution capabilities.
 
We face, and will continue to face, competition from organizations such as pharmaceutical and biotechnology companies, as well as academic and research institutions.

Any product candidates that we successfully develop, which are cleared for sale by the FDA or similar international regulatory authorities in other countries, may compete with competitive products currently being used or that may become available in the future. Most of our competitors have substantially greater capital resources than we have, and greater capabilities and resources for research, conducting preclinical studies and clinical trials, regulatory affairs, manufacturing, marketing and sales. As a result, we may face competitive disadvantages relative to these organizations should they develop or commercialize a competitive product.  In addition, since we have currently suspended the commercialization of our PAD based products, our competitors will have the opportunity to capture market opportunities missed by the Company as a result of the suspension of further development of our products and our current financial condition.
 
Raw Materials and Manufacturing
 
The Company currently does not have manufacturing capacity for research and development projects and therefore has historically contracted for the manufacturing of its products to third-party manufacturers in and outside the United States. All manufactured products are produced under FDA mandated Good Manufacturing Practices (GMP) standard operating procedures developed and controlled by the Company’s quality system, which specifies approved raw materials, vendors, and manufacturing methodology.

Intellectual Property Rights and Patents
 
In July 2009, the Company contributed certain intellectual property related to its lateral flow strips and related reader to QND. As of December 31, 2010, the Company directly owned fifteen (15) patents, patents pending and licensed patents related to PAD technology for diagnosis and treatment of women's health concerns and other medical needs.
 
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 currently has eight (8) patents issued, five (5) patents pending, and two (2) licensed patents.  Our issued patents expire between 2014 and 2021; however, the Company may obtain continuations which would extend the rights granted under our issued patents, and additional patents to cover technology in development.  The Company also holds both United States and foreign trademarks, including QuantRx, PADkit, inSync, and Unique, and has applied for rights to several others.
 
Licensing, Distribution and Development Agreements
 
On July 30, 2009, the Company and QND entered into a Development and Services Agreement (“Development Agreement”), pursuant to which QND paid a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products.  During 2010, QND suspended payments to the Company pending the outcome of litigation between the Company and NuRx, and it is doubtful that QND will renew the now expired Development Agreement between the Company and QND.
 
On May 19, 2008, the Company and CytoCore, Inc. entered into a worldwide distribution and supply agreement for specified PAD technology of the Company. The agreement specified monthly license fees during CytoCore’s expected development period and additional milestone payments based upon CytoCore’s achievement of certain development and sales milestones.  This agreement was terminated effective August 31, 2010, due to the failure of CytoCore to maintain contractual payments, and all rights have reverted to the Company.
 
In 2007, the Company entered into two development agreements to develop POC products in human oral care for ALT BioScience (ALT), and an at-home diagnostic test jointly with Church & Dwight Co., Inc. The ALT agreement, and subsequent renewals, commenced March 2007 and stipulated an up-front fee, recognized over the initial five month term, and monthly fees. In 2009, the contract and all rights were assigned to QND, and in the quarter ended September 30, 2010, the agreement with ALT was terminated due to ALT’s default on its obligations, and the status of the joint venture. The agreement granted the Company certain manufacturing rights for the developed products, which shall be negotiated in good faith in a separate manufacturing agreement upon the completion of design and verification testing. These manufacturing rights survived the termination of the Development Agreement, and belong to QND.
 
The Church & Dwight agreement included milestone based payments, which were recognized in 2007 and 2008. On August 14, 2008, the Company entered into a ten-year Technology License Agreement with Church & Dwight Co., Inc.  Under the terms of the Agreement, Church & Dwight acquired exclusive world-wide rights to use certain Company technology related to the jointly developed test and began distributing the product in early 2009, resulting in the Company receiving royalties on net sales of the product in 2010 and 2009 of $26,815 and $81,426, respectively.
 
The Company licenses patent rights and know-how for certain hemorrhoid treatment pads and related coatings from The Procter & Gamble Company. The five year license agreement was entered into July 2006 and has a five year automatic renewal option.  This agreement remains in effect, and the Company pays quarterly royalty payments to Procter & Gamble, as stipulated in the license agreement.
 
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 research, development, clinical testing, manufacture, packaging, labeling, storage, distribution, promotion, advertising and sampling of medical devices and medical imaging products. Before a new device or pharmaceutical product can be introduced to the market, the manufacturer must generally obtain marketing clearance through a section 510(k) notification, through a Premarket Approval (PMA), or NDA.


In the United States, medical devices intended for human use are classified into three categories, Class I, II or III, on the basis of the controls deemed reasonably necessary by the FDA to assure their safety and effectiveness with Class I requiring the fewest controls and Class III the most controls. Class I, unless exempted, and Class II devices are marketed following FDA clearance of a Section 510(k) premarket notification. 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.
 
The U.S. regulatory scheme for the development and commercialization of new pharmaceutical products, which includes the targeted molecular imaging agents, can be divided into three distinct phases: an investigational phase including both preclinical and clinical investigations leading up to the submission of an NDA; a period of FDA review culminating in the approval or refusal to approve the NDA; and the post-marketing period.
 
All of our OTC products derived from the miniform technology, including Unique, are currently classified as Class I – exempt devices, requiring written notification to the FDA before marketing. RapidSense product candidates generally require validation and notification to the FDA under Section 510(k) prior to commercialization. The Company does not currently market any product that requires full clinical validation as a Class III product under FDA regulations, nor is it involved in RapidSense regulatory issues.
 
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.
 
The FD&C Act requires device manufacturers to comply with Good Manufacturing Practices regulations. The regulations require that medical device manufacturers comply with various quality control requirements pertaining to design controls, purchasing contracts, organization and personnel, including device and manufacturing process design, buildings, environmental control, cleaning and sanitation; equipment and calibration of equipment; medical device components; manufacturing specifications and processes; reprocessing of devices; labeling and packaging; in-process and finished device inspection and acceptance; device failure investigations; and record keeping requirements including complaint files and device tracking. Company personnel and non-affiliated contract auditors periodically inspect the contract manufacturers to assure they remain in compliance.
 
The Company’s Portland, Oregon, facility is in compliance with current FDA requirements.  In the quarter ended June 30, 2010, the Company was audited by the FDA, and its operations were found to be fully compliant.
 
Certain of our product candidates will require significant clinical validation prior to obtaining marketing clearance from the FDA. The Company intends to contract with appropriate and experienced CROs (contract research organizations) to prepare for and review the results from clinical field trials. The Company engages certain scientific advisors, consisting of scientific Ph.D.s and M.D.’s, who contribute to the scientific and medical validity of its clinical trials when appropriate.

 
Research and Development Activities
 
The Company spent $1,536,057 and $2,324,286 on research and development activities during the years ended December 31, 2010 and 2009, respectively.  Spending on research and development during the preceding two fiscal years was incurred principally to support QND, and such spending has decreased to nominal expenditures due to the current litigation involving QND, and the suspension of active development of our product lines pending the development of a short- and long-term financing and operating plan.
 
Employees
 
As of December 31, 2010, we had terminated all of our full-time employees; however, the Company has five part-time and full-time consultants providing services to the Company in order to maintain the Company as a going concern and to protect the Company’s intellectual property and other assets. Our employees have never been represented by a labor organization or covered by a collective bargaining agreement.
 
ITEM 1A.  RISK FACTORS
 
You should consider carefully the following risks, along with other information contained in this Form 10-K.  The risks and uncertainties described below are not the only ones that may affect us.  Additional risks and uncertainties also may adversely affect our business and operations, including those discussed in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation. If any of the following risks actually occur, our business, results of operations, and financial condition could be adversely affected.
 
We have currently suspended active development of our PAD based products pending the resolution of the Company’s pending litigation with NuRx, and the development of a financing and operating plan, and we might not successfully develop a plan to recommence active operations and therefore develop our technology or products.

We have currently suspended active development of our innovative PAD based products pending the resolution of the Company’s litigation with NuRx, and the development of a financing and operating plan necessary to allow the Company to commercialize its products and technology.  Although no assurances can be given, in the event the Company is able to successfully resolve its litigation with NuRx, or develop a plan, we may not be able to attract or retain the management or personnel necessary to execute such plan and commercialize our technology or products.  In the event we are unable to successfully develop a plan, or attract or retain necessary and qualified personnel, we may be unable to continue as a going concern.

Our ability to operate as a going concern is dependent upon raising adequate financing.
 
We have currently suspended active development of our PAD based products due to the absence of adequate capital necessary to execute our business plan.  In addition, the joint venture will require additional funding to complete the development and launch of its initial products. We are pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well as a strategic transaction with our joint venture partner, to obtain additional funding to continue the development of our products and bring them to commercial markets.  There can be no assurance that we will be successful in our efforts. Should we be unable to raise adequate financing or generate revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed. As a result, management believes that given the current economic environment and the continuing need to strengthen our cash position, there is substantial doubt about our ability to continue as a going concern.

We have a history of incurring net losses and we may never become profitable.
 
For the year ended December 31, 2010, the Company had an accumulated deficit of $49,182,416. 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, we will incur substantial and increasing losses in 2011. We cannot assure you that we will ever become profitable.
 
We will need to obtain additional funding to recommence and support our operations, and we may not be able to obtain such capital on a timely basis or under commercially reasonable terms, if at all.
 
We expect that our need for additional capital to recommence operations will be substantial and the extent of this need will depend on many factors, some of which are beyond our control, including the continued development of our product candidates; the costs associated with maintaining, protecting and expanding our patent and other intellectual property rights; future payments, if any, received or made under existing or possible future collaborative arrangements; 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.
 
Our joint venture with NuRx is currently subject to litigation and involves numerous risks.
 
We have entered into a joint venture agreement with NuRx focused on the commercialization of medical diagnostic products.  The joint venture is currently involved in litigation, the outcome of which is uncertain.  Even assuming a successful resolution of the litigation, the joint venture remains subject to various risks.  These risks include the following:
 
 
our interests could diverge from NuRx in the future or we may not be able to agree with NuRx on ongoing manufacturing and operational activities, or on the amount, timing or nature of further investments in the joint venture;
 
 
due to financial constraints, NuRx may be unable to meet their commitments to our joint venture and may pose credit risks for our transactions with them;

 
the terms of our joint venture arrangements with NuRx or the terms of any settlement agreement may turn out to be unfavorable;
 
 
cash flows may be inadequate to fund increased capital requirements;

 
should we be unable to meet sustaining capital contributions as required by the joint venture, our ownership interest will be reduced;
 
 
we may experience delays in obtaining any necessary regulatory approvals to market the medical diagnostic products produced by the joint venture;

 
we may experience difficulties and delays in ramping production of joint venture’s products; and
 
 
if our joint venture is unsuccessful, or if the terms of any settlement agreement with NuRx turn out to be unfavorable, our business, results of operations or financial condition will be adversely affected.
 
Further testing of certain of our product candidates is required and regulatory approval may be delayed or denied, which would limit or prevent us from marketing our product candidates and significantly impair our ability to generate revenues.
 
Human pharmaceutical products are subject to rigorous preclinical testing and clinical trials and other approval procedures mandated by the FDA and foreign regulatory authorities. Various federal and foreign statutes and regulations also govern or influence the manufacturing, safety, labeling, storage, record keeping and marketing of pharmaceutical products. The process of obtaining these approvals and the subsequent compliance with appropriate U.S. and foreign statutes and regulations is time-consuming and requires the expenditure of substantial resources. In addition, these requirements and processes vary widely from country to country.
 
To varying degrees based on the regulatory plan for each product candidate, the effect of government regulation and the need for FDA and other regulatory agency approval will delay commercialization of our product candidates, impose costly procedures upon our activities, and put us at a disadvantage relative to larger companies with which we compete. There can be no assurance that FDA or other regulatory approval for any products developed by us will be granted on a timely basis, or at all. If we discontinue the development of one of our product candidates, our business and stock price may suffer.
 
The Company faces intense competition.
 
The Company is engaged in a segment of the biomedical 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 also have significantly greater financial, technical and human resources and will likely be better equipped to develop, manufacture and market products. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large biotechnology companies. Furthermore, academic institutions, government agencies and other public and private research organizations are becoming increasingly aware of the commercial value of their inventions and are actively seeking to commercialize the technology they have developed. Accordingly, competitors may succeed in commercializing products more rapidly or effectively than the Company, which would have a material adverse effect on the Company.
 
Assuming the Company is able to successfully develop a financing and operating plan, and therefore recommence operations, there is no assurance that the Company’s products will gain market acceptance.
 
The Company has currently suspended active development of our PAD based products pending the development of a financing and operating plan that allows the Company to recommence operations.  Assuming the successful development of such a plan, 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 primarily dependent on third parties for the sales, marketing and distribution of our products. We may enter into various agreements providing for the commercialization of our product candidates. We intend to sell our product candidates primarily through third parties and establish relationships with other companies to commercialize them in other countries around the world. We currently have no internal sales and marketing capabilities, and only a limited infrastructure to support such activities. Therefore, our future profitability will depend in part on our ability to enter into effective marketing agreements. To the extent that we enter into sales, marketing and distribution arrangements with other companies to sell our products in the United States or abroad, our product 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 (v) maintain and obtain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur, both in the United States and in foreign countries. 
 
The patent positions of biomedical companies, including 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. United States patents carry a presumption of validity and generally can be invalidated only through clear and convincing evidence. There can be no assurance that 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 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 have substantially reduced our headcount to reduce expenses and we may be unable to attract skilled personnel and maintain key relationships at such point as we recommence operations.
 
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.  As a result of the suspension of the development of our PAD based products, we have substantially reduced our headcount and currently rely on consultants to manage the business and operations of the Company.  There can be no assurance that the Company will be able to attract and retain skilled personnel at such time as it recommences operations, and the failure to do so would have a material adverse effect on the Company.
 
The Company has limited 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 has limited manufacturing capacity. The Company has established relationships with third-party manufacturers for the commercial production of our products, which relationships have been suspended due to the suspension of active operations.  There can be no assurance that the Company will be able to reestablish or maintain 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. Additionally, the Company may rely upon foreign manufacturers. Any event which negatively impacts these manufacturing facilities, manufacturing systems or equipment, or suppliers, including, among others, wars, terrorist activities, natural disasters and outbreaks of infectious disease, could delay or suspend shipments of products or the release of new products.
 
In the future, we anticipate that we will need to obtain additional or increased product liability insurance coverage and it is uncertain that such increased or additional insurance coverage can be obtained on commercially reasonable terms.
 
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 has obtained insurance coverage; however, there can be no assurance that the Company will be able to obtain additional 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.
 
Trading of our common stock is limited, which may make it difficult for you to sell your shares at times and prices that you feel are appropriate.
 
Trading of our common stock, which is conducted on the OTC Bulletin Board, has been limited.  This adversely affects the liquidity of our common stock, not only in terms of the number of shares that can be bought and sold at a given price, but also through delays in the timing of transactions and reduction in security analysts and the media’s coverage of us.  This may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and ask prices for our common stock.  
 
The issuance of shares of our preferred stock may adversely affect 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.
 
Because we do not expect to pay dividends, you will not realize any income from an investment in our common stock unless and until you sell your shares at a profit.  
 
We have never paid dividends on our common stock and do not anticipate paying any dividends for the foreseeable future.  You should not rely on an investment in our stock if you require dividend income.  Further, you will only realize income on an investment in our shares in the event you sell or otherwise dispose of your shares at a price higher than the price you paid for your shares.  Such a gain would result only from an increase in the market price of our common stock, which is uncertain and unpredictable.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.
 
ITEM 2.  PROPERTIES
 
Our corporate headquarters are located at 5920 NE 112th Avenue, Portland, Oregon, in 6,310 square feet of space occupied under a lease that expires on September 30, 2011.  In the quarter ended December 31, 2010, the Company negotiated a deferred rent provision, allowing a 50% reduction on rent until the end of the lease, at which time the deferred amount will be paid, spread over a lease extension, or forgiven, depending on the terms, if any, of a new lease for the current facility.  This lease contains a termination option subject to a fee equal to the deferred rent of $15,600.
 
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
 
On August 24, 2010, NuRx filed an expedited action in the Delaware Court of Chancery relating to the QND, naming as a defendant one of the Company’s board members, Dr. William Fleming.  On October 20, 2010, on its own motion to intervene, the Company was added as a defendant.  The action is captioned NuRx v. Fleming/QuantRx and QN Diagnostics (nominally), C.A. No. 5755 (Del. Chancery Ct.).  NuRx seeks declaratory and injunctive relief based on the following:  (i) the alleged necessity of additional capital contributions; (ii) the Company’s appointee to the board of QND rejected the capital call, resulting in a deadlock; and (iii) the allegation that Company has not met a “milestone” payment required by the Development Agreement, which would give NuRx the right to have a Company appointed board member removed and replaced with a member designated by NuRx.  The Company and Dr. Fleming maintain that the capital contribution was agreed to subject to the Company receiving credit toward the contribution for hundreds of thousands of dollars worth of services that have not been paid for by QND, and that all milestones have been met.  The Company seeks declaration of its right to maintain its share of seats on QND’s management board.  The action is currently stayed by mutual agreement of the parties to allow the parties to explore an amicable resolution of the proceedings.  No assurances can be given that any the terms of any settlement with NuRx will be favorable, or that the Company will successfully retain its current interest in QND.
 
ITEM 4.  RESERVED
 
PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Our Common Stock
 
Our common stock trades on the OTC Markets under the symbol “QTXB.QB”. The prices below are based on high and low reported sales prices as reported by the OTC Markets 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
 
Year ended December 31, 2010
           
Fourth Quarter
 
$
0.17
   
$
0.05
 
Third Quarter
 
$
0.21
   
$
0.08
 
Second Quarter
 
$
0.36
   
$
0.18
 
First Quarter
 
$
0.44
   
$
0.22
 
                 
Year ended December 31, 2009
               
Fourth Quarter
 
$
0.50
   
$
0.25
 
Third Quarter
 
$
0.59
   
$
0.30
 
Second Quarter
 
$
0.44
   
$
0.18
 
First Quarter
 
$
0.50
   
$
0.20
 
 
Stockholders
 
As of December 31, 2010, there were approximately 295 holders of record of our common stock, one of which was Cede & Co., a nominee for the Depository Trust Company or DTC.  Shares of common stock that are held by financial institutions, as nominees for beneficial owners, are deposited into principal accounts at the DTC, and are considered to be held of record by Cede & Co. as one stockholder.

 
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.
 
Recent Sales of Unregistered Securities

We issued shares of our common and preferred stock in unregistered transactions during fiscal year 2010. All of the shares of common and preferred stock issued were issued in non-registered transactions in reliance on Section 3(a)(9) and/or Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and were reported in our Quarterly Reports on Form 10-Q and in our Current Reports on Form 8-K filed with the Commission during the fiscal year ended December 31, 2010.  Since January 1, 2011, 1,650,000 shares of Common Stock were issued to certain creditors of the Company, in consideration for the cancellation of certain claims against the Company.  Such shares were issued in non-registered transactions in reliance on Section 4(2) of the Securities Act.  The Company did not receive any proceeds from such issuances.   

ITEM 6.  SELECTED FINANCIAL DATA
 
Not required under Regulation S-K for “smaller reporting companies.”

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
Recent Developments

During 2010, the Company’s activities were principally focused on the development of QN Diagnostics, LLC, a Delaware limited liability company (“QND”) jointly owned by the Company and NuRx Pharmaceuticals, Inc. (“NuRx”), and, to a lesser degree, the development of the Company’s PAD based products for the Over-the-Counter (“OTC”) and Point-of-Care (“POC”) markets based on its patented technology platforms.  Due to the pending litigation with QND, discussed below, and the Company’s financial condition, the Company has currently suspended active development of our PAD based products pending the resolution of the Company’s litigation with NuRx, and the development of a financing and operating plan necessary to allow the Company to capitalize on its innovative PAD based products.  In the interim, management of the Company has substantially reduced operating and other expenses, has negotiated settlements of liabilities totaling in excess of  $1.10 million, in consideration for the issuance of 1,250,000 shares of the Company’s common stock, $223,832 in cash, and $86,000 of accrued liabilities that were paid in January 2011.  Additionally, the Company settled certain of its accrued obligations with its executive officers with an exchange of shares, options and warrants of a related party valued at $88,223. These settlements were necessary for the Company to continue as a going concern.  Management is also currently negotiating a settlement with NuRx relating to QND.  The discussion below assumes the Company continues as a going concern consistent with the Company’s historical and proposed business plan.

 
Overview
 
The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and POC markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PADKit® technology for the worldwide healthcare industry. These platforms include: inSync®, Unique™, PADKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.  These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.  The Company’s efforts to commercialize its products, however, are currently contingent on the development of a financing and operating plan focused on the commercialization of the Company’s PAD technology.  In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities.  This plan was necessary in order for the Company to continue as a going concern.
 
The Company’s POC lateral flow diagnostics technology has been fully transferred to QND and all product development is currently conducted through QND, which has ownership and full rights to the Company’s lateral flow technology.  QND was formed to develop and commercialize products incorporating the Company’s lateral flow strip technology and related lateral flow strip readers for both the human and veterinary laboratory POC markets. The Company and NuRx, which originally formed a joint venture for the express purpose of this development, are currently involved in litigation regarding the achievement of certain milestones, the requirement to make certain sustaining capital contributions, as well as certain governance matters related to the joint venture. 
 
During the year ended December 31, 2010, the Company had minority investments in Genomics USA, Inc. (“GUSA”), which is developing Single Nucleotide Polymorphism (“SNP”) chips, genome-based diagnostic chips for the next generation of genomic and proteomic diagnostic markets, and FlouroPharma, Inc. (“FlouraPharma”), which is developing molecular imaging agents for Positron Emission Tomography (“PET”) and fluorescence imaging with initial application in cardiovascular disease, to provide clinical support for the Company’s POC cardiac diagnostics.   As a result of certain financing transactions, the Company has divested all but a nominal equity interest in FluoraPharma. 
 
The Company is currently evaluating its minority equity interest in GUSA with the objective of extracting the value of such investment for the benefit of the Company and its shareholders.  The Company currently does not realize any material value in its investment in GUSA.
 
The Company’s current strategy is to settle its litigation with NuRx relating to QND, and to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products through corporate partners and distributors; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GUSA.   As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on the resolution of its litigation with NuRx relating to QND and maintaining the Company as a going concern.

 
QN Diagnostics
 
On July 30, 2009, the Company and NuRx entered into agreements to form QND, a Delaware limited liability company. Pursuant to the agreements, the Company contributed certain intellectual property and other assets related to its lateral flow strip technology and related lateral flow strip reader technology with a fair value of $5.45 million, and NuRx contributed $5.0 million in cash to QND.  Following the respective contributions by NuRx and the Company to QND, NuRx and the Company each own a 50% interest in QND.  The purpose of the joint venture is to develop and commercialize products incorporating the lateral flow strip technology and related lateral flow strip readers.
  
QND is currently managed by a board consisting of two Company designees and two NuRx designees.  Subject to certain exceptions, board decisions are made by majority vote, provided that the Company and NuRx have veto rights with respect to certain matters. Since the Company does not have control of QND, the Company accounts for the investment in QND utilizing the equity method of accounting.
 
Under the terms of the agreements, QND made a $2.0 million cash distribution to the Company. The Company is committed to further capital contributions aggregating $1.55 million, comprised of: payment of milestone payments with PRIA Diagnostics in Company common stock (fair value of $750,000); transfer of fixed assets with a fair value of $100,000 at QND’s discretion; and a $700,000 sustaining capital contribution as required by QND. Subsequent sustaining capital contributions will be made by the Company and NuRx on an equal basis.

The Company and QND also entered into a one year Development and Services Agreement on July 30, 2009 (“Development Agreement”), pursuant to which QND paid a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products. The revenues recognized by the Company associated with the Development Agreement in the year ended December 31, 2010 and 2009 were $1,429,960 and $2,065,264, respectively.  The expenses related thereto for the year ended December 31, 2010 and 2009 were $1,763,919 and $2,065,077, respectively.  Expenses are included in each appropriate expense category in the statement of operations. As of December 31, 2010 and December 31, 2009, deferred revenues related to the Development Agreement were $0 and $337,160, respectively. As of December 31, 2010 and December 31, 2009, accounts receivable from QND related thereto were $414,179 and $31,500, respectively.
 
On July 20, 2010, the Company notified NuRx that NuRx was in material breach of the Development Agreement, and had 60 days from the date of the notification to cure such breach. The notification is related to nonpayment of fees in accordance with the Development Agreement between the Company and QND. Should the breach remain uncured, the Company reserved the right to terminate the Development Agreement.

On August 24, 2010, NuRx filed suit naming as a defendant Dr. William Fleming, a member of the Company’s Board of Directors.  On October 20, 2010, on its own motion to intervene, the Company was added as a defendant.  The suit is based on allegations that QND is deadlocked over the Company’s rejection of a required capital call, and NuRx’s allegation that the Company has not met a “milestone” requirement in the Development Agreement, that would give NuRx the right to have a Company appointed board member removed and replaced with a member appointed by NuRx.  The suit is currently stayed by mutual agreement of the parties to allow the parties to explore an amicable resolution of the proceedings.  No assurances can be given that any the terms of any settlement with NuRx will be favorable, or that the Company will successfully retain its current interest in QND.

 
During the quarter ended June 30, 2010, the Company submitted an application for 510(k) clearance to the FDA for the Q-Reader™ thyroid testing system following the completion of clinical testing. This regulatory stage follows the completion of studies showing that the innovative Q-Reader thyroid testing system is capable of providing healthcare practitioners with laboratory level quantitative results within minutes, rather than waiting for results to be returned from a commercial laboratory. The 510(k) submission, together with the completion of a pre-production sample of the Q-Reader, satisfied the final two milestones contained in QND’s operating agreements.  Subsequently, the FDA indicated that it could not determine whether the Company’s submission was substantially equivalent to a legally marketed device based solely on the information provided to it by the Company, and has requested certain additional information by December 20, 2010.  Based on this feedback and the Company's current financial resources, management determined that it was advisable to introduce the Q-Reader thyroid testing system into the veterinary market.  The Company intends to coordinate with NuRx in pursuing the veterinary market, which does not require FDA clearance.  Further, the Company determined that responding to the FDA by the December 20, 2010 response deadline was not feasible and the initial filing with the FDA was deemed withdrawn at that time.  If the Company, in consultation with NuRx, determines that it is in the best interests of the Company and QND, the Company may elect to re-file the application with the FDA during 2011 with the additional requested information.
 
FluoroPharma
 
On May 5, 2009, the Company and FluoraPharma reorganized their relationship by terminating their investment and related agreements. The termination of these agreements, which were originally executed on March 10, 2006, allowed FluoraPharma to close an equity financing with third party investors.  In conjunction with the termination of these agreements and the additional investment in FluoraPharma, the Company agreed to convert all outstanding receivables from FluoraPharma, consisting of previously issued notes and related accrued interest and advances in the aggregate amount of $1,568,567, into 1,148,275 shares of common stock of FluoraPharma. As a result of these transactions and the third party investment, the Company’s ownership interest in FluoraPharma’s issued and outstanding capital stock was reduced to a non-controlling interest, which resulted in the deconsolidation of FluoraPharma as a subsidiary of the Company, and the Company’s periodic sales of its equity interest in FluoraPharma as a means to finance its continuing operations. Subsequent to the termination of the agreements between the Company and FluoraPharma, the Company has no continuing obligations or commitments to FluoraPharma.

At May 5, 2009, the Company’s remaining net basis of its investment in FluoraPharma, inclusive of receivables from FluoraPharma, was $43,286, after taking into account previously recorded losses of $5,056,304 ($231,046 in the first quarter of 2009; $272,579 through deconsolidation) related to the consolidated results of FluoraPharma. These losses have been included in our consolidated financial statements commencing April 1, 2007, the original date of consolidation, through May 4, 2009, and are net of losses allocated to the then non-controlling interests as applicable. On May 5, 2009, subsequent to the execution of the aforementioned transactions which led to the deconsolidation of FluoraPharma, the Company’s ownership of the outstanding capital stock of FluoraPharma was reduced to a non-controlling interest of 45.55%. At deconsolidation, the fair market value of the Company’s remaining non-controlling interest in FluoraPharma was $842,876, based on the third party investment; however, FluoraPharma had a deficit equity balance, which resulted in the Company writing off the remaining basis in the investment of $43,286 and recording a loss from deconsolidation of $43,286. The Company has reflected the results of its former subsidiary as a single line item as of January 1, 2009. The Company’s allocation of FluoraPharma’s net loss for the period commencing May 5, 2009 through December 31, 2010, was not recorded ($420,000), since the remaining investment in FluoraPharma had a carrying value of $0 as of the deconsolidation of FluoraPharma at May 5, 2009.
 
From January 2010 to August 2010, the Company entered into certain agreements with certain investors pursuant to which the Company sold 1,155,000 shares of common stock of FluoraPharma to such investors at a price of $0.75 per share, resulting in aggregate proceeds of $866,250.  In lieu of cash and warrant compensation, the Company issued 188,195 shares of common stock of FluoraPharma to its financial advisor.

 
During October 2010, the Company entered into certain agreements with certain investors, pursuant to which the Company exchanged substantially all of its equity interest in FluoraPharma and shares of newly created Series B Preferred with a stated value of approximately $177,000 for and in consideration for cash aggregating $789,704, and the termination of certain shares of Series A-1 Preferred with a stated value of approximately $4.45 million (the “Exchange”).   Contemporaneously with the consummation of the Exchange, on November 19, 2010, the Company filed a Certificate of Withdrawal of the Certificates of Designations of the Series A Preferred with the Nevada Secretary of State, as no shares or such preferred stock were issued and outstanding following the Exchange.

In December 2010, the Company reserved its remaining 20,000 shares of common stock of FluoraPharma for issuance to an executive to settle amounts due to the executive.

As of December 31, 2010, the Company had 185,000 options and 249,278 warrants to purchase common stock of FluoraPharma expiring at various dates in 2014, with exercise prices of $0.75 and $1.50, respectively.  The Company had evaluated the valuation of these options and warrants and deems the value to be fully impaired at December 31, 2010 primarily due the absence of a market for FluoraPharma’s common stock at December 31, 2010.

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-K.
 
Our Results of Operations
 
 We recognized total revenues of $1,493,677 and $2,551,269 for the years ended December 31, 2010 and 2009, respectively.  Total revenues during the year ended December 31, 2010 decreased by $1,057,592 compared to the prior year ended December 31, 2009, primarily due to decreased payments from QND under the Development Agreement.

During the year ended December 31, 2010, $1,429,960 of the Company’s revenues were attributable to payments from QND under the terms of the Development Agreement, and $26,815 was attributable to royalty payments from Church & Dwight Co., Inc. (“Church & Dwight”), which began in the second quarter of 2009, for the license of certain Company technology to Church & Dwight.  The remaining revenue is principally attributable to direct sales of PAD products by the Company.  The Company anticipates not receiving any payments from QND during the fiscal year ended December 31, 2011 due to the pending litigation with NuRx, and the current financial condition of QND.  As a result, anticipated revenue during the current fiscal year is anticipated to decrease substantially relative to prior fiscal years, and no assurances can be given that the Company’s revenues will return to levels recognized prior to the dispute with QND.

Total costs and operating expenses for the years ended December 31, 2010 and 2009 were $3,638,450 and $4,955,287, respectively. Highlights of the major components of our results of operations are detailed and discussed below:
 
   
Year Ended
December 31, 2010
   
Year Ended
December 31, 2009
 
Sales, General and Administrative
 
$
1,120,338
   
$
2,013,082
 
Professional Fees
 
$
768,664
   
$
497,582
 
Research and Development
 
$
1,536,057
   
$
2,324,286
 
Other Expense, net
 
$
73,386
   
$
749,478
 
 
Sales, general and administrative expenses include, but are not limited to, payroll and related expenses, rent, office and insurance expenses. The decrease of $892,744 in sales, general and administrative expenses from 2009 to 2010 is primarily due to the reduction of staff and overhead costs in the 2010 period.

 
Professional fees include the costs of legal, consulting and auditing services provided to us. The increase of $271,082 or 54.48% in professional fees from 2009 to 2010 is primarily attributable to the increased legal fees of $151,000 as a result of the Company’s current litigation, increased consulting and financial advisory fees of $117,000, and costs related to the Company’s FDA submission of $38,000, partially offset by decreased costs for investor and public relations of $50,000.

Research and development expense primarily reflects technical consulting and expenses incurred to support QND, and to a lesser extent, the development of our PAD and related products. The decrease of $788,229 from 2009 to 2010 is primarily due to decreased consulting, personnel and supply and material expenses related to the Development Agreement with QND.
 
Other expense for the year ended December 31, 2010 was primarily comprised of gains on the sale of investments in FlouroPharma of $2,254,374, gains from the settlements of accounts payable of $366,590, and gains on settlement of accrued compensation with executive management of $252,440, interest income of $22,016, gain on the disposition of assets of $9,028, and rental income of $2,750.  Partially offsetting these gains are losses of $63,601 for the Company’s equity method losses from QND for the period from January through March 2010, and interest expense of $7,641.  Other expense for the year ended December 31, 2009 was primarily comprised of the Company’s equity method losses from QND for the period from July through December 2009 of $1,022,760, interest expense of $465,027, and amortization of debt discount of $361,666. These expenses and losses were offset by a gain on the contribution of intellectual property to QND of $1,363,640.

The Company anticipates substantially lower costs and expenses during the year ended December 31, 2011 compared to the year ended December 31, 2010, which anticipated decreases are substantially attributable to the suspension of active development of our PAD based products during the current fiscal year.
 
Net income for 2010 was $831,188, an increase of $3,703,850 from a loss of $3,153,496 reported for 2009.  The increase in net income was primarily attributable to net gains from the sales of investments of $2,254,374 and net gains on the settlement of accounts payable and accrued compensation of $366,590 and $252,440, respectively, as well as all the factors previously discussed.
 
Liquidity and Capital Resources
 
At December 31, 2010, the Company had cash and cash equivalents of $229,944 as compared to $376,211 at December 31, 2009.
 
During the year ended December 31, 2010, we used $2,206,308 of cash for operating activities, as compared to $1,116,199 during the year ended December 31, 2009. The increase in cash used for operating activities was primarily a result of the expenses incurred in the period, as previously discussed.  The Company has also met certain operating expenses with the issuance of common stock, options or warrants, when possible.
 
Cash provided by investing activities during the year ended December 31, 2010 was $1,793,722 compared to cash used in investing activities of $291,670 during the year ended December 31, 2009. The increase in 2010 is primarily due to the sale of investments during 2010.  During 2009, cash used for investing activities was primarily due to the purchase of intellectual property in 2009 from PRIA Diagnostics.
 
Cash provided by financing activities during the year ended December 31, 2010 was $0 as compared to $1,718,267 during the year ended December 31, 2009.  During 2009, cash provided through the issuance of convertible promissory notes was $425,000. The Company also issued $680,000 in promissory notes in 2009.  In 2009, the Company repaid $1,347,199 in promissory notes. In 2009, the Company received a distribution from QND of $2,000,000. 

 
The Company has not generated sufficient revenues from operations to meet its operating expenses. In addition, the Company will require additional funding to complete the development and launch of its products. The Company has historically financed its operations primarily through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees.
 
Management believes that given the current economic environment and the continuing need to strengthen our cash position, there is substantial doubt about our ability to continue as a going concern. We are pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well as a strategic transaction with our joint venture partner, to obtain additional funding to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be successful in our efforts. Should we be unable to raise adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed.

The Company believes that the ability of the Company to recommence operations, and therefore continue as a going concern is dependent upon its ability to do any or all of the following:
 
 
Settle the litigation with NuRx relating to the Company’s interest in QND;
     
 
consummate a strategic transaction with our joint venture partner;
 
 
obtain adequate sources of funding to pay operating expenses and fund long-term business operations;
 
 
manage or control working capital requirements by reducing operating expenses; and
 
 
develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.
 
There can be no assurance that the Company will be successful in achieving its short- or long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.
 
The following table summarizes our material contractual obligations relating to operating lease obligations at December 31, 2010 and the effect such obligations are expected to have on our liquidity and cash flows in future periods. At December 31, 2010, there were no material capital expenditure commitments.
 
         
Payments due by Period
       
   
Total
   
Less than
1 year
   
Years
2 – 3
   
Years
4 – 5
   
More than
5 Years
 
Operating lease obligations
 
$
35,550
   
$
35,550
   
$
-
   
$
-
   
$
-
 
 
 
Off-Balance Sheet Arrangements
 
As described above, on July 30, 2009, the Company formed a joint venture with NuRx, whereby, pursuant to the terms of the operating agreement governing the joint venture, each member will be required to make sustaining capital contributions from time to time as the Board of the joint venture determines is necessary.  At such time that the Board of the joint venture determines that additional sustaining cash contributions are required, such sustaining cash contributions will be made by the Company and NuRx on an equal basis provided that the Company solely will be responsible for making a sustaining cash contribution with respect to the first $700,000 determined to be required by the Board of the joint venture. Should either party fail to make sustaining contributions as required, such party would be subject to a reduction in ownership interest and loss of a board seat.  As a result of the Company’s rejection of a capital call, and NuRx’s allegation that the Company has not met a “milestone” requirement in the Development Agreement, the parties are currently involved in litigation involving the joint venture.
 
Moreover, the Company is committed to further capital contributions to QND aggregating $850,000, comprised of: payment of milestone payments with PRIA Diagnostics in Company common stock (fair value of $750,000); and a transfer of fixed assets with a fair value of $100,000 at QND’s discretion.
 
We have not entered into any other 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.

Critical Accounting Policies
 
Revenue Recognition
 
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 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. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process.
 
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. Significant management judgment and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.

 
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 contractual reporting obligations. The Company is able to recognize minimum royalty payments on an accrual basis, as they are specified in the contract. However, since the Company cannot forecast product sales by licensees, royalty payments that are based on product sales by the licensees are not determinable until the licensee has completed their computation of the royalties due and/or remitted their cash payment to us. Should information on licensee product sales become available so as to enable the Company to recognize royalty revenue on an accrual basis, materially different revenues and results of operations could occur.
 
Our strategy includes entering into collaborative agreements with strategic partners for the development, commercialization and distribution of our product candidates. Such collaboration agreements may have multiple deliverables. In arrangements with multiple deliverables where we have continuing performance obligations, contract, milestone and license fees are recognized as revenue together with any up-front payments over the term of the arrangement as performance obligations are completed, unless the deliverable has stand-alone value and there is objective, reliable evidence of fair value of the undelivered element in the arrangement. In the case of an arrangement where it is determined there is a single unit of accounting, all cash flows from the arrangement are considered in the determination of all revenue to be recognized. Cash received in advance of revenue recognition is recorded as deferred revenue.
 
Use of Estimates
 
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management 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 accounting policies discussed below are considered by management to be the most important to the Company’s financial condition and results of operations, and require management to make its most difficult and subjective judgments due to the inherent uncertainty associated with these matters. All significant estimates and assumptions are developed based on the best information available to us at the time made and are regularly reviewed and adjusted 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 1 of the attached financial statements. 

Impairment of Assets
 
We assess the impairment of long-lived assets, including our other intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. Changes in our strategic plan and/or market conditions could significantly impact these judgments and could require adjustments to recorded asset balances. We hold investments in companies having operations or technologies in areas which are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. We record an investment impairment charge if we believe an investment has experienced a decline in value that is other than temporary. Future changes in our strategic direction, adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future.

 
In determining fair value of assets, the Company bases estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets that are not readily apparent from other sources. Actual fair value may differ from management estimates resulting in potential impairments causing material changes to certain assets and results of operations.
 
Share-based Payments
 
We grant options to purchase our common stock to our employees and directors under our stock option plan. We estimate the value of stock option awards on the date of grant using a Black-Scholes pricing model (Black-Scholes model). The determination of the fair value of share-based payment awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, and risk-free interest rate. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
 
We determine the fair value of the share-based compensation awards granted to non-employees as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or (2) the date at which the counterparty’s performance is complete.
 
Estimates of share-based compensation expenses are significant to our financial statements, but these expenses are based on option valuation models and will never result in the payment of cash by us.
 
The above listing is not intended to be a comprehensive list of all of our accounting policies. In most cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States.
 
Deferred Taxes
 
We recognize deferred tax assets and liabilities based on differences between the financial statement carrying amounts and tax bases of assets and liabilities, which requires management to perform estimates of future transactions and their respective valuations. We review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that the Company will not realize the benefit of the net deferred tax asset. At December 31, 2010 and 2009, a valuation allowance has been established. The likelihood of a material change in the valuation allowance depends on our ability to generate sufficient future taxable income. In the future, if management determines that the likelihood exists to utilize the Company’s deferred tax assets, a reduction of the valuation allowance could materially increase the Company’s net deferred tax asset.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
N/A
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Audited balance sheets for the years ended December 31, 2010 and 2009 and audited statements of operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2010 and 2009 are included immediately following the signature page to this Annual Report, beginning on page F-1.

 
ITEM 9.  CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A(T).  CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures

            Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company's internal control over financial reporting is designed 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 in the United States of America. The Company's management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. As a result of the material weakness in internal controls over financial reporting described below, the Company's management has concluded that, as of December 31, 2010, the Company's internal controls over financial reporting were not effective.  In making the assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework.
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or quarterly financial statements will not be prevented or detected on a timely basis.
  
Our Chief Financial Officer resigned effective August 24, 2010.  In addition, following the suspension of active development of our PAD based products on December 31, 2010, the Company terminated substantially all of its accounting personnel.   These factors have contributed to a material weakness in our entity level control environment.  While the Company has retained competent accounting and finance professionals necessary to ensure timely and accurate reporting with the Securities and Exchange Commission, the weaknesses in our entity level control environment arguably persist.
  
All internal control systems have inherent limitations, including the possibility of circumvention and overriding the control. Accordingly, even effective internal control can provide only reasonable assurance as to the reliability of financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.
  
Changes in Internal Control Over Financial Reporting
 
As discussed above, as a result of the suspension of active development of our PAD based products on December 31, 2010, we terminated the employment of a substantial portion of our accounting staff.   This factor, together with the resignation of our Chief Financial Officer, resulted in a substantial change in our internal controls over our financial reporting, and resulted in a material weakness in our entity level control environment.

Our management has discussed the material weakness described above with our Audit Committee. In an effort to remediate the identified material weakness, we have initiated and/or undertaken the following actions:
 
Management has retained, and will continue to retain, additional personnel with technical knowledge, experience, and training in the application of generally accepted accounting principles commensurate with our financial reporting and U.S. GAAP requirements.
 
Where necessary, we will supplement personnel with qualified external advisors.

 
ITEM 9B.  OTHER INFORMATION

None.
 
PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
The following table sets forth the Company’s executive officers and directors as of December 31, 2010:
 
Directors and Executive Officers
 
Age
 
Position
         
Dr. Shalom Hirschman(1)
 
75
 
Chief Executive Officer, Principal Accounting Officer and Chairman
William H. Fleming, Ph.D.(1)
 
64
 
Director, CSO & President of Diagnostics

(1)
Drs. Fleming and Hirschman have been elected to hold office until the 2011 annual meeting of stockholders, or until their successor is duly elected or appointed, unless their office is earlier vacated.
 
William H. Fleming, Ph.D., has served as President of Diagnostics since November 2008, Chief Scientific Officer of the Company since July 2005, and as a Director and Secretary of the Company since February 1994.  Prior to that, he served as Vice President of Diagnostics from August 1997 through July 2005, and as Acting CEO from 2003 until May 2005. From February 1994 through August 1997, Dr. Fleming served as President and Chief Operating Officer. In addition, he was President, Chief Operating Officer and a Director of ProFem from July 1993 until its merger with the Company 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 organization. 

Shalom Hirschman, M.D. was appointed Chief Executive Officer and Principal Accounting Officer on December 31, 2010, and has served as a Director of the Company 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 2010, no delinquent Section 16 reports were filed with the SEC.

Code of Ethics
 
The Company has adopted a code of ethics, which applies to all our directors, officers and employees. Our code of ethics is intended to comply with the requirements of Item 406 of Regulation S-K. 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, 8920 NE 112th Avenue, Portland, Oregon 97220.

 
Audit Committee
 
At December 31, 2010, the Company did not have an audit committee, as the Company’s two directors are not considered independent.  Considering the current suspension of active development of our PAD based products, together with the costs associated with procuring and providing the infrastructure to support an independent audit committee and the limited number of transactions, Management has concluded that the risks associated with the lack of an independent audit committee are justified and manageable.  Management will, however, periodically reevaluate its position with a view to establishing an audit committee in the event it is deemed to be in the best interests of the Company’s stockholders.

Compensation Committee
 
The Company does not currently have a compensation committee due to the lack of independent directors.  At such time as the Company actively recruits additional management in connection with the recommencement of active operations, the Board of Directors will establish a compensation committee to administer the Company’s stock option plans and to reestablish general policies relating to compensation.
 
Nominating Committee
 
The Company’s entire Board participates in consideration of director nominees. The Board will consider candidates who have experience as a board member or senior officer of a company or who are generally recognized in a relevant field as a well-regarded practitioner, faculty member or senior government officer.  The Board will also evaluate whether the candidate’s skills and experience are complementary to the existing Board’s skills and experience as well as the Board’s need for operational, management, financial, international, technological or other expertise. The Board will interview candidates that meet the criteria, then select nominees that the Board believes best suit the Company’s needs.
 
The Board will consider qualified candidates suggested by stockholders for director nominations.  Stockholders can suggest qualified candidates for director nominations by writing to the Company’s Corporate Secretary, William Fleming, at 5920 NE 112th Avenue, Portland, Oregon, 97220.  Submissions that are received that meet the criteria described above will be forwarded to the Board for further review and consideration.  The Board will not evaluate candidates proposed by stockholders any differently than other candidates.

 
ITEM 11.  EXECUTIVE COMPENSATION
 
Summary Compensation
 
The following Summary Compensation Table sets forth summary information as to compensation received by the Company’s Chief Executive Officer, President, former Chief Executive Officers, and former Chief Financial Officer.
Name And
Principal Position
 
Year
 
Salary
($)
 
Bonus
($)
   
Option
Awards
($)
   
All other
Compensation
($)
   
Total
($)
Dr. Shalom Hirschman
Chief Executive Officer and Principal Accounting Officer
 
2010
 
10,000
 
-
   
-
   
-
   
10,000
   
 2009
 
-
 
-
   
-
   
-
   
-
Barry J. London
Former Interim Chief Executive Officer and Director (1)
 
2010
 
52,500
 
-
   
22,277
 
(2)
 
-
   
74,777
   
2009
 
-
                     
Walter W. Witoshkin
Former Chief Executive Office(3)
 
2010
 
119,000
 
-
   
14,000
(3)
$
35,000
 
 
(4)
 
168,000
   
2009
 
260,000
 
100,000
(4)
 
318,329
(5)
       
678,329
Sasha Afanassiev,
Former Chief Financial Officer(6)
 
2010
 
 
 
82,500
 
-
   
20,245
 
 
(7
 
 
30,000
 
 
(7)
 
 
 
132,745
   
2009
 
162,500
 
50,000
(7)
 
128,500
(7)
 
-
   
341,000
Dr. William Fleming,
    CSO, President of Diagnostics
 
2010
 
 
 
157,661
 
-
   
29,701
 
 
 
21,000
 
 
(8)
 
 
 
208,362
   
2009
 
151,667
 
25,000
(8)
 
89,338
   
-
   
291,005

 
(1)
 
Mr. London’s consulting agreement was terminated on December 31, 2010.
(2)
Amount reflects settlement of terms in Mr. London’s consulting agreement, including the issuance of 200,000 shares of common stock of the Company valued at $14,000 and transfer of options and warrants to Mr. London to purchase 20,000 shares of common stock of a former subsidiary valued at $8,277.
(3)
Mr. Witoshkin’s employment was terminated on August 24, 2010.
(4)
Amount reflects bonus awarded in July 2009.  Amount was settled in January 2011, together with accrued compensation of $148,000 in consideration for the issuance of 200,000 shares of common stock valued at $14,000 and $35,000 in cash.
(5)
Includes $28,996 related to the issuance of options from a former subsidiary.
(6)
Mr. Afanassiev’s employment was terminated on August 24, 2010.
(7)
Amount reflects bonus awarded in July 2009.  Amount was settled in January 2011, together with accrued compensation of $128,168 in consideration for $30,000 paid in cash and 25,000 options and warrants to purchase common stock of the Company’s former subsidiary, valued at $20,245.
(8)
Amount includes $25,000 for bonus awarded July 2009 that was settled in January 2011, together with accrued compensation of $36,000 in consideration of $21,000 in cash to be paid monthly at $1,750 per month during 2011, 20,000 shares of commons stock of a former subsidiary valued at $12,000 and 40,000 options to purchase common stock in a former subsidiary valued at $17,701.
 
 
The amounts in the Option Awards column reflect the dollar amount recognized and expensed for financial statement reporting purposes for the years ended December 31, 2010 and 2009, in accordance with ASC Topic 718 of awards of stock options and thus do not represent aggregate fair value of grants. The Company used the Black-Scholes option price calculation to value the options granted in 2010 and 2009 using the following assumptions: risk-free rate of 2.43% and 3.24%; volatility of 0.72 and 0.70; actual term and exercise price of options granted. See Note 16 to the Financial Statements for more details on option issuances.

The Company used the Black-Scholes option price calculation to value the options and warrants transferred from its former subsidiary using the following assumptions:  risk free interest rate of 2.43; volatility ranging between 131% and 135%; actual term and exercise price of the options and warrants granted.

Employment Agreements
 
We entered into employment contracts with the above executives that provided for the continuation of salary to the executives if terminated for reasons other than cause or in connection with a change in control of the Company, as defined in those agreements. At December 31, 2010, all employment contracts with the Company had been terminated as of December 31, 2010.

Outstanding Equity Awards at Fiscal Year-End  
   
Option Awards
Name
 
Number of 
Securities
Underlying
Unexercised 
Options (#)
Exercisable
   
Number of 
Securities
Underlying
Unexercised 
Options (#)
Unexercisable
   
Equity Incentive 
Plan Awards: 
Number of
Securities 
Underlying Unexercised 
Unearned
Options (#)
   
Option 
Exercise
Price
($)
 
Option 
Expiration
Date
Dr. William Fleming,
CSO, President of Diagnostics(1)
 
 
 
    50,000 110,000 150,000 62,500              
100,000
 62,500
      1.60 0.85 0.31 0.50 0.50  
04/03/2016
10/08/2017
01/15/2014
07/24/2014
07/30/2014

(1)
Options granted 04/03/2006 vest upon meeting certain sales milestones which have not yet been met. Term of the options is ten years. Options granted 10/08/2007 which expire 10/08/2017 vested monthly over one year. Warrants granted 01/15/2009 which expire 01/15/2014 vested immediately. Warrants granted 07/24/2009 which expire 07/24/2014 half vested immediately; remaining half vested with achievement of development milestone in November 2009. Options granted 07/30/2009 which expire 07/30/2014 half vested with achievement of development milestone in November 2009; remaining half vest upon achievement of development milestone which has not yet been met.
      
    There are no outstanding stock awards as of December 31, 2010. Exercise prices of all the above option awards were equal to or exceeded the closing stock price on the date of grant.
   
    The Company used the Black-Scholes option price calculation to value the options granted in 2010 and 2009 using the following assumptions: risk-free rate of 2.43% and 3.24%; volatility of .72 and 0.70; actual term and exercise price of options granted. See Note 16 to the Financial Statements for more details on option issuances.

 
Director Compensation
 
The Company compensates independent members of the Board of Directors cash compensation of $5,000 and 6,250 stock options per Board meeting attended in person, up to a maximum of four meetings per year. All options are granted at year end and have a term of five years and an exercise price equal to the closing stock price on date of grant.

The following table summarizes Director Compensation for the year ended December 31, 2010.

Name
Fees
Earned or
Paid in
Cash ($)
 
Stock
Awards
($) (3)
 
Option
Awards
($)(3)
 
Non-Equity
Incentive Plan
Compensation
($)
 
Nonqualified
Deferred
Compensation
Earnings
($)
 
All Other
Compensation ($)
 
Total
($)
 
Walter W. Witoshkin(1)
 
-
   
-
   
-
   
-
   
-
   
-
 
-
 
Barry J. London(2)
 
-
                                   
                                         
William H. Fleming, Ph.D.
 
-
   
-
   
-
   
-
   
-
   
-
 
-
 
Dr. Shalom Hirschman
 
10,000
   
-
   
-
   
-
   
-
   
-
 
10,000
 
 
(1)
Mr. Witoshkin resigned from the Board of Directors effective August 24, 2010.
(2)
Mr. London resigned from the Board of Directors effective December 31, 2010.
(3)
During 2010, the Company did not grant stock or option awards to its directors.

 ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
The following table sets forth certain information as of December 31, 2010, 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, (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 13(d)(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.

 
Name and Address of Beneficial Owner (1)
 
Amount and Nature of
Beneficial Ownership as of
December 31, 2010
 
Percentage of Class (2)
 
           
William H. Fleming (3)
 
864,534
 
1.88
%
           
Shalom Hirschman (4)
 
518,750
 
1.13
%
Sherbrooke Partners, LLC
570 Lexington Avenue
New York, NY 10021
 
2,830,255
 
6.14
%

(1)
Unless indicated otherwise, the address of each person listed in the table is: c/o QuantRx Biomedical Corporation, 59200 NE 112th Avenue, Portland, Oregon 97220.
(2) 
The percentage of beneficial ownership of common stock is based on 46,077,630 shares of common stock outstanding as of March 31, 2011 and excludes all shares of common stock issuable upon the exercise of outstanding options or warrants to purchase common stock or conversion of any common stock equivalents, other than the shares of common stock issuable upon the exercise of options or warrants to purchase common stock held by the named person to the extent such options or warrants are exercisable within 60 days of March 31, 2011.
(3)
Ownership includes beneficial ownership of 1,000 shares of common stock held by the executive’s father, 112,500 common stock options currently exercisable, and common stock warrants currently exercisable for 260,000 common shares.
(4)
Ownership includes 18,750 common stock options currently exercisable.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Parties
 
None.
 
Director Independence
 
The Company has determined that neither of its two directors were independent at December 31, 2010, as determined under Rule 10A-3(b)(1) of the Securities Exchange Act of 1934 adopted pursuant to the Sarbanes-Oxley Act.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES
 
Audit Fees
 
The aggregate fees billed for professional services rendered by BehlerMick PS  for the audit of our annual financial statements and the reviews of financial statements included in our Forms 10-Q for years 2010 and 2009 were $17,830 and $30,849, respectively.
 
Audit-Related Fees
 
During the years ended December 31, 2010 and 2009, no assurance or related services were performed by BehlerMick PS that were reasonably related to the performance of the audit or review of our financial statements.
 
Tax Fees
 
During the years ended December 31, 2010 and 2009, $2,500 and $2,302 in fees were billed by BehlerMick PS for tax compliance, tax advice or tax planning services.
 
All Other Fees
 
During the years ended December 31, 2010 and 2009, no fees were billed by BehlerMick PS other than the fees set forth under the captions “Audit Fees” and “Tax 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. 100% of the services provided by BehlerMick PS were pre-approved by the Audit Committee.

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
The following exhibits are filed as part of this annual report:
 
Exhibit No.
 
Description
2.1
 
Contribution Agreement, dated July 30, 2009, by and among QuantRx, QN Diagnostics, LLC and NuRx* (incorporated by reference to Exhibit 2.1 filed with Form 8-K on August 5, 2009)
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 (incorporated by reference to Exhibit 3.2 filed with Form 10-KSB on March 31, 2006)
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 (incorporated by reference to Exhibit 3.4 filed with Form 10-KSB on March 31, 2006)
3.5
 
Certificate of Designation for Series A-1 Preferred Stock (incorporated by reference to Exhibit 3.1 filed with Form 8-K on August 5, 2009)
3.6   Certificate of Designation for Series B Convertible Preferred Stock
4.1
 
Form of Warrant to Purchase Shares of Common Stock among the Company and investors (incorporated by reference to Exhibit 4.2 filed with Form 10-KSB on March 31, 2006) 
4.2
 
Form of Warrant to Purchase Common Stock among the Company and investors (incorporated by reference to Exhibit 4.3 filed with Form 10-KSB on March 31, 2006)
4.3
 
Warrant to Purchase Common Stock, dated November 8, 2005, between the Company and Burnham Hill Partners (incorporated by reference to Exhibit 4.4 filed with Form 10-KSB on March 31, 2006)
4.4
 
Form of Warrant to Purchase Shares of Common Stock of QuantRx Biomedical Corporation, dated October __, 2007 (incorporated by reference to Exhibit 10.2 filed with Form 8-K on October 24, 2007)
4.5
 
Form of Warrant to Purchase Shares of Common Stock of QuantRx issued by QuantRx in favor of Investors (incorporated by reference to Exhibit 4.2 filed with Form 8-K on January 29, 2008).
4.6
 
Form of Warrant to Purchase Shares of Common Stock of QuantRx, dated June 2008, issued by QuantRx in favor of lender (incorporated by reference to Exhibit 4.2 filed with Form 8-K on July 28, 2008).
4.7
 
Form of Warrant to Purchase Shares of Common Stock of QuantRx, dated August 2008, issued by QuantRx in favor of lender. (incorporated by reference to Exhibit 4.2 filed with Form 8-K on August 27, 2008).
10.1
 
Common Stock and Warrant Purchase Agreement, dated as of December 6, 2006, among the Company and the purchasers specified therein (incorporated by reference to Exhibit 10.1 filed with Form 8-K on December 12, 2006)
10.2
 
Form of Warrant to Purchase Common Stock among the Company and investors (incorporated by reference to Exhibit 10.2 filed with Form 8-K on December 12, 2006)
10.3
 
Investment Agreement, dated as of February 17, 2006, between QuantRx Biomedical Corporation and FluoroPharma, Inc.("Investment Agreement”) (incorporated by reference to Exhibit 10.1 filed with Form 10-QSB/A on December 1, 2006)
10.4
 
Amendment No. 1, dated as of February 28, 2006, to Investment Agreement (incorporated by reference to Exhibit 10.2 filed with Form 10-QSB/A on December 1, 2006)
10.5
 
Amendment No. 2, dated as of March 10, 2006, to Investment Agreement (incorporated by reference to Exhibit 10.3 filed with Form 10-QSB/A on December 1, 2006)
10.6
 
Option Agreement, dated as of February 17, 2006, between QuantRx Biomedical Corporation and FluoroPharma, Inc. ("Option Agreement") (incorporated by reference to Exhibit 10.4 filed with Form 10-QSB/A on December 1, 2006)
10.7
 
Amendment No. 1, dated as of February 28, 2006, to Option Agreement (incorporated by reference to Exhibit 10.5 filed with Form 10-QSB/A on December 1, 2006)
10.8
 
Amended and Restated Investors Rights Agreement, dated as of February 17, 2006, by and among QuantRx Biomedical Corporation, FluoroPharma, Inc. and the stockholders of FluoroPharma, Inc. (incorporated by reference to Exhibit 10.6 filed with Form 10-QSB/A on December 1, 2006)
10.9
 
Stage 2 Investment Agreement, dated as of April 5, 2007, between QuantRx Biomedical Corporation and FluoroPharma, Inc. (incorporated by reference to Exhibit 10.1 filed with Form 8-K on April 19, 2007)
10.10
 
2007 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Exhibit C filed with Schedule 14A on June 5, 2007)
10.11
 
Asset Purchase Agreement, dated July 30, 2009, by and between QuantRx and PRIA (incorporated by reference to Exhibit 10.1 filed with Form 8-K on August 5, 2009)
10.12
 
Development and Services Agreement, dated July 30, 2009, by and between QuantRx and QN Diagnostics, LLC* (incorporated by reference to Exhibit 10.2 filed with Form 8-K on August 5, 2009)
10.13
 
LLC Agreement, dated July 30, 2009, by and between QuantRx and NuRx (incorporated by reference to Exhibit 10.3 filed with Form 8-K on August 5, 2009)
10.14
 
Warrant to Purchase 2,000,000 Shares of Common Stock of QuantRx, dated July 30, 2009, issued by QuantRx in favor of NuRx (incorporated by reference to Exhibit 10.4 filed with Form 8-K on August 5, 2009)
10.15
 
Warrant to Purchase 2,000,000 Shares of Common Stock of QuantRx, dated July 30, 2009, issued by QuantRx in favor of NuRx (incorporated by reference to Exhibit 10.5 filed with Form 8-K on August 5, 2009)
10.16
 
Employment Agreement, dated July 30, 2009, by and between QuantRx and Walter Witoshkin (incorporated by reference to Exhibit 10.6 filed with Form 8-K on August 5, 2009)
10.17
 
Employment Agreement, dated July 30, 2009, by and between QuantRx and Sasha Afanassiev (incorporated by reference to Exhibit 10.7 filed with Form 8-K on August 5, 2009)
10.18
 
Employment Agreement, dated July 30, 2009, by and between QuantRx and William Fleming (incorporated by reference to Exhibit 10.8 filed with Form 8-K on August 5, 2009)
 
14.1
 
Ethical Guidelines adopted by the Board of Directors of the Company on May 31, 2005 (incorporated by reference to Exhibit 14.1 filed with Form 10-KSB on March 31, 2006)
23.1
 
Consent of BehlerMick PS
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 USC 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 USC Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Certain exhibits and schedules are omitted but will be furnished to the Commission supplementally upon request.
** The certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report on Form 10-K 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.
 
 
 
 
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:  April 14, 2011
By:
/s/ Shalom Hirschman
 
 
Principal Executive and Principal Accounting Officer
 
 
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: April 14, 2011
By:
/s/ William H. Fleming
 
   
William H. Fleming, Director
 
   
     
Date:  April 14, 2011
By:
/s/ Shalom Hirschman
 
   
Shalom Hirschman, Director
 
 
 
QUANTRX BIOMEDICAL CORPORATION
 
FINANCIAL STATEMENTS
 
Table of Contents
 
 
 
To the Board of Directors and Shareholders
QuantRx Biomedical Corporation


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We have audited the accompanying balance sheets of QuantRx Biomedical Corporation as of December 31, 2010 and 2009 and the related statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2010. QuantRx Biomedical Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide 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, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s accumulated deficit and lack of revenues raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding the resolution of this issue are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




BehlerMick PS
Spokane, Washington
April 12, 2011

QUANTRX BIOMEDICAL CORPORATION
BALANCE SHEETS        
   
December 31,
 
December 31,
   
2010
 
2009
ASSETS
       
Current Assets:
       
Cash and cash equivalents
  $ 229,944   $ 376,211
Accounts receivable
    4,457     41,128
Accounts receivable – related party
    414,179     31,500
Interest receivable – related party
    63,689     47,689
Inventories
    3,770     4,681
Prepaid expenses
    23,409     128,228
Note receivable – related party
    200,000     200,000
Total Current Assets
    939,448     829,437
             
Investments
    200,000     200,000
Investment in joint venture
    -     63,601
Property and equipment, net
    109,479     179,590
Intangible assets, net
    46,805     59,780
Security deposits
    11,093     11,093
Total Assets
  $ 1,301,825   $ 1,343,501
             
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
           
Current Liabilities:
           
Accounts payable
  $ 437,587   $ 749,225
Accounts payable – related party
    193,987     -
Accrued expenses
    168,000     233,000
Deferred revenue – related party
    -     337,160
Security deposit
    2,000     2,000
Total Current Liabilities
    801,574     1,321,385
Notes payable, long-term
    44,000     44,000
Total Liabilities
    845,574     1,365,385
             
Commitments and Contingencies
    -     -
             
Stockholders’ Equity (Deficit):
           
Preferred stock; $0.01 par value, 0 and 25,000,000, authorized shares, respectively; Series A-1 convertible preferred shares: 0 and 4,060,397 shares issued and outstanding, respectively
      -       40,604
Preferred stock; $0.01 par value, 20,500,000 and 0 authorized shares, respectively; Series B convertible preferred shares: 17,916,228  and 0 shares issued and outstanding, respectively
    179,162     -
Common stock; $0.01 par value; 150,000,000 authorized; 44,427,630 shares issued and outstanding
    444,276     444,276
Common stock to be issued
    128,000     -
Additional paid-in capital
    47,524,761     47,756,355
Accumulated deficit
    (47,819,948 )   (48,263,119
Total Stockholders’ Equity (Deficit)
    456,251     (21,884
             
Total Liabilities and Stockholders’ Equity (Deficit)
  $ 1,301,825   $ 1,343,501
 
The accompanying notes are an integral part of these financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF OPERATIONS    
   
Year Ended December 31,
  
 
2010
 
2009
   
(unaudited)
 
(unaudited)
Revenues:
       
Revenues
 
$
        63,717
 
$
486,005
Revenues – related party
   
1,429,960
   
2,065,264
Total Revenues
   
      1,493,677
   
2,551,269
             
Costs and Operating Expenses:
           
Cost of goods sold (excluding depreciation and amortization)
   
375
   
27,853
Sales, general and administrative
   
1,120,338
   
2,013,082
Professional fees
   
768,664
   
497,582
Research and development
   
1,536,057
   
2,324,286
Amortization
   
12,976
   
22,402
Depreciation
   
60,035
   
70,082
Total Costs and Operating Expenses
   
3,498,445
   
4,955,287
             
Loss from Operations
   
 (2,004,768)
   
 (2,404,018)
             
Other Income (Expense):
           
Interest and dividend income
   
22,016
   
40,095
Interest expense
   
 (7,641)
   
 (465,027)
Rental income
   
2,750
   
20,798
Amortization of debt discount to interest expense
   
-
   
 (361,666)
Amortization of deferred finance costs to interest expense
   
-
   
 (8,693)
Loss from deconsolidation of subsidiary
   
-
   
 (43,286)
Loss from deconsolidated subsidiary
   
-
   
 (272,579)
Loss from joint venture
   
 (63,601)
   
 (1,002,760)
Gain on sale of investments
   
2,254,374
   
-
Net gain (loss) on disposition of assets
   
9,028
   
1,363,640
Gain on settlement of accrued payroll
   
252,440
   
-
Gain on settlement of accounts payable
   
366,590
   
-
Total Other Income (Expense), net
   
2,835,956
   
 (729,478)
             
Income (Loss) Before Taxes
   
 831,188
   
 (3,133,496)
             
Provision for Income Taxes
   
 -
   
 -
             
Net Income (Loss)
 
$
         831,188
 
$
       (3,133,496)
             
Series A Preferred Dividend
   
388,017
   
-
Net Income (Loss) Available to Common Shareholders
   
443,171
   
 (3,133,496)
             
Basic and Diluted Net Income (Loss) per Common Share
 
 0.01
 
$
 (0.07)
             
Basic and Diluted Weighted Average Shares Used in per Share Calculation
   
44,427,630
   
43,676,575

The accompanying notes are an integral part of these financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENTS OF CASH FLOWS    
   
Year Ended December 31,
   
2010
 
2009
   
(unaudited)
 
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
       
Net income (loss)
 
$
831,188
 
$
 (3,153,496)
Adjustments to reconcile net loss to net cash used by operating activities:
           
Depreciation and amortization
   
60,613
   
92,484
Interest expense related to amortization of non-cash discount, non-cash beneficial conversion feature and deferred financing costs
   
-
   
370,359
Expenses related to employee stock based compensation
   
74,891
   
582,792
Expenses related to options issued to non-employees
   
 -
   
4,083
Expenses related to common stock warrants issued for consulting
   
     250
   
7,499
Expenses related to common stock issued for consulting
   
-
   
69,000
Non-cash fair value of warrants issued for interest
   
 -
   
73,825
Non-cash fair value of warrants issued as compensation
   
     -
   
100,050
Non-cash fair value of common stock issued as settlement of accrued expenses
   
128,000
   
-
Non-cash gain on preferred stock exchanged
   
(330,360)
   
-
Non-cash fair value of common stock issued for interest
   
 -
   
78,000
Loss from deconsolidation of subsidiary
   
 -
   
315,865
Loss from joint venture
   
               63,601
   
1,022,760
Net gain on disposition of assets and investments
   
(1,890,816)
   
-
Net gain on settlement of accounts payable
   
(366,590)
   
-
Net gain on settlement of accrued compensation
   
(252,440)
   
-
Gain(loss) on disposition of assets
         
     (1,363,640)
Issuance of convertible notes for accrued interest
   
 -
   
175,895
Issuance of preferred stock for accrued interest
   
    -
   
60,823
Interest income settled in common stock of former subsidiary
   
 -
   
 (18,000)
(Increase) decrease in:
           
Accounts receivable
   
     (346,008)
   
 (26,868)
Interest receivable
   
 (16,000)
   
 (16,000)
Inventories
   
 911
   
35,457
Prepaid expenses
   
  104,819
   
 (43,685)
Deposits
   
-
   
581
Security deposits
   
5,000
   
 (426)
Increase (decrease) in:
           
Accounts payable
   
     248,939
   
84,206
Accrued expenses
   
392,445
   
149,358
Deferred revenue
   
     (337,160)
   
278,379
             
Net Cash Used by Operating Activities
   
(1,833,722)
   
 (1,116,199)
             
CASH FLOWS FROM INVESTING ACTIVITIES:
           
Cash proceeds from the sale of investments
   
1,655,954
   
-
Cash paid for purchases of fixed assets
   
 -
   
 (27,870)
Cash paid for intangible assets
   
   -
   
 (250,000)
Cash proceeds from sale of equipment
   
          31,501
     
Cash advances to subsidiary prior to deconsolidation
   
 -
   
 (13,800)
             
Net Cash Provided (Used) by Investing Activities
   
1,687,455
   
 (291,670)
             
CASH FLOWS FROM FINANCING ACTIVITIES:
           
Proceeds from the issuance of bridge notes
   
       -
   
         430,000
Proceeds from issuance of promissory notes
   
-
   
         250,000
Proceeds from issuance of senior secured convertible notes
   
 -
   
         425,000
Repayment of short-term debt
   
 -
   
     (1,347,199)
Distribution from a joint venture
   
  -
   
       2,000,000
Payments on loan payable used to finance equipment purchase
   
  -
   
            (5,731)
Payment of payables related to asset acquisition deposit
   
  -
   
          (25,000)
Payment of payables related to fixed asset purchase
   
 -
   
            (8,803)
             
Net Cash Provided by Financing Activities
   
         -
   
    1,718,267
             
Net Increase (Decrease) in Cash and Cash Equivalents
   
  (146,267)
   
       310,398
Net Cash of Deconsolidated Subsidiary
   
   -
   
               (413)
Cash and Cash Equivalents, Beginning of Period
   
        376,211
   
         66,226
             
Cash and Cash Equivalents, End of Period
 
$
         229,944
 
$
       376,211
             
Supplemental Cash Flow Disclosures:
           
Interest expense paid in cash
 
$
7,449
 
$
        71,634
Income tax paid
 
$
 -
 
$
-
             
Supplemental Disclosure of Non-Cash Activities:
           
Elimination of deconsolidate subsidiary accounts:
           
  Prepaid expenses
 
$
 -
 
$
           104,506
  Property and equipment, net
 
$
 -
 
$
274,404
  Intangible assets, net
 
$
 -
 
$
1,907,193
  Deposits
 
$
 -
 
$
3,565
  Accounts payable
 
$
 -
 
$
      1,311,839
  Accrued expenses
 
$
 -
 
$
215,050
  Additional paid-in-capital
 
$
 -
 
$
479,129
 
The accompanying notes are an integral part of these financial statements.
QUANTRX BIOMEDICAL CORPORATION
STATEMENT OF STOCKHOLDERS’ EQUITY

 
Preferred Stock
 
Common Stock
       
 
 
Number
of Shares
 
Amount
 
Number
Amount
Additional
 
Stock
 
Total
of
Shares
Paid-in
Capital
 
to be Issued
Accumulated
Deficit
Stockholders’
Equity
                       
BALANCE,
DECEMBER 31, 2008
-
 
$
                 -
 
42,886,380
$
 428,863
 
41,549,234
 
$
 
-
 
(45,109,623)
 
(3,131,526)
 
-
                             
Fair value of employee stock based compensation for options issued
-
   
-
 
-
 
                 -
 
263,892
     
                   -
 
263,892
Fair value of employee stock based compensation for common stock warrants issued
-
   
-
 
-
 
-
 
318,900
     
                   -
 
318,900
Fair value of options issued to non-employees
-
   
-
 
-
 
-
 
4,083
     
                   -
 
4,083
Fair value of common stock issued for consulting
-
   
-
 
150,000
 
1,500
 
67,500
     
                   -
 
69,000
Fair value of common stock warrants issued to non-employees for consulting
-
   
-
 
-
 
-
 
107,549
     
                   -
 
107,549
Fair value of common stock warrants issued to settle accounts payable
-
   
-
 
-
 
-
 
195,000
     
                   -
 
195,000
Incremental fair value of modified warrants for interest
-
   
-
 
-
 
-
 
6,250
     
                   -
 
6,250
Fair value of warrants issued for interest
-
   
-
 
-
 
-
 
72,075
     
                   -
 
72,075
Fair value of common stock issued for interest
-
   
-
 
200,000
 
2,000
 
76,000
     
                   -
 
78,000
Fair value of common stock issued with senior secured convertible notes
-
   
-
 
306,250
 
3,063
 
82,740
     
                   -
 
85,803
Fair value of warrants issued with senior secured convertible notes
-
   
-
 
-
 
-
 
33,487
     
                   -
 
33,487
Fair value of embedded beneficial conversion feature of convertible notes
-
   
-
 
-
 
-
 
6,325
     
                   -
 
6,325
Fair value of common stock issued with promissory notes
-
   
-
 
185,000
 
1,850
 
49,998
     
                   -
 
51,848
Fair value of warrants issued with promissory notes
-
   
-
 
-
 
-
 
39,666
     
                   -
 
39,666
Issuance of preferred stock to settle short-term debt and accrued interest
4,060,397
   
40,604
 
-
 
-
 
4,019,785
     
                   -
 
4,060,389
Issuance of common stock for asset acquisition - PRIA
-
   
-
 
700,000
 
          7,000
 
343,000
     
                   -
 
350,000
Fair value of warrants issued in conjunction with joint venture formation
-
   
                 -
 
-
 
-
 
1,000,000
     
                   -
 
1,000,000
Elimination of deconsolidated subsidiary additional paid in capital
-
   
-
 
                -
 
-
 
 (479,129)
     
                   -
 
 (479,129)
Net loss for the year ended December 31, 2009
-
   
-
 
-
 
-
 
                 -
     
 (3,153,496)
 
(3,153,496)
 
 

 
 
BALANCE,
DECEMBER 31, 2009
4,060,397
 
$
        40,604
 
44,427,630
$
444,276
$
47,756,355
$
-
$
(48,263,119)
$
 (21,884)
                                 
                                 
Series A-1 Preferred Stock Dividend
388,017
   
3,880
         
384,137
     
(388,017)
 
-
Cancelation of Series A-1 Preferred Stock
(4,448,414)
   
 (44,484)
         
(3,954,041)
         
(3,998,525)
Issuance of Series B Convertible Preferred Stock
17,916,228
   
179,162
         
3,291,168
         
3,470,330
Common stock to be issued in connection with settlement agreements
                     
128,000
 
-
 
128,000
Fair value of common stock options
-
               
46,892
     
-
 
46,892
Fair value of warrants issued in conjunction with joint venture formation
-
               
250
     
-
 
250
Net income for the year ended December 31, 2010
                   -
   
                -
 
               -
 
                -
 
-
     
831,188
 
831,188
                                 
 
  17,916,228
 
$
179,162
 
44,427,630
$
444,276
$
47,652,761
$
128,000
$
47,652,761
$
456,251

The accompanying notes are an integral part of these financial statements

QUANTRX BIOMEDICAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
1.
DESCRIPTION OF BUSINESS
 
Recent Developments

During 2010, the Company’s activities were principally focused on the development of QN Diagnostics, LLC, a Delaware limited liability company (“QND”) jointly owned by the Company and NuRx Pharmaceuticals, Inc. (“NuRx”), and, to a lesser degree, the development of the Company’s PAD based products for the Over-the-Counter (“OTC”) and Point-of-Care (“POC”) markets based on its patented technology platforms.  Due to the pending litigation with QND, discussed below, and the Company’s financial condition, the Company has currently suspended active development of our PAD based products pending the resolution of the litigation with NuRx, and the development of a financing and operating plan necessary to allow the Company to capitalize on its innovative PAD technology.  In the interim, management of the Company has substantially reduced operating and other expenses, has negotiated settlements of liabilities totaling in excess of $1.10 million, in consideration for the issuance of 1,250,000 shares of the Company’s common stock, $223,832 in cash, and $86,000 of accrued liabilities that were paid in January 2011.  Additionally, the Company settled certain of its accrued obligations with its executive officers with an exchange of shares, options and warrants of a related party valued at $88,223.  These settlements were necessary for the Company to continue as a going concern.  Management is also currently negotiating a settlement with NuRx relating to QND. 

Overview
 
The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and POC markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PADKit® technology for the worldwide healthcare industry. These platforms include: inSync®, Unique™, PADKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.  These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.  The Company’s efforts to commercialize its products, however, are currently contingent on the development of a financing and operating plan focused on the commercialization of the Company’s PAD technology.  In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities.  This plan was necessary in order for the Company to continue as a going concern.
 
The Company’s POC lateral flow diagnostics technology has been fully transferred to QND and all product development is currently conducted through QND, which has ownership and full rights to the Company’s lateral flow technology.  QND was formed to develop and commercialize products incorporating the Company’s lateral flow strip technology and related lateral flow strip readers for both the human and veterinary laboratory POC markets. The Company and NuRx, which originally formed a joint venture for the express purpose of this development, are currently involved in litigation regarding the achievement of certain milestones, the requirement to make certain sustaining capital contributions, as well as certain governance matters related to the joint venture. 
 
During the year ended December 31, 2010, the Company had minority investments in Genomics USA, Inc. (“GUSA”), which is developing Single Nucleotide Polymorphism (“SNP”) chips, genome-based diagnostic chips for the next generation of genomic and proteomic diagnostic markets, and FlouroPharma, Inc. (“FlouraPharma”), which is developing molecular imaging agents for Positron Emission Tomography (“PET”) and fluorescence imaging with initial application in cardiovascular disease, to provide clinical support for the Company’s POC cardiac diagnostics.   As a result of certain financing transactions, the Company has divested all but a nominal equity interest in FluoraPharma. 
 
The Company is currently evaluating its minority equity interest in GUSA with the objective of extracting the value of such investment for the benefit of the Company and its shareholders.  The Company currently does not realize any material value in its investment in GUSA.
 
The Company’s current strategy is to settle its litigation with NuRx relating to QND, and to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products through corporate partners and distributors; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GUSA.   As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on the resolution of its litigation with NuRx relating to QND and maintaining the Company as a going concern.  No assurances can be given that any the terms of any settlement with NuRx will be favorable, or that the Company will successfully retain its current interest in QND.

Effective May 5, 2009, QuantRx and FluoroPharma executed transactions that resulted in QuantRx no longer having a controlling ownership interest, resulting in the deconsolidation of FluoroPharma and the Company’s periodic sales of its equity interest in FluoraPharma as a means to finance its continuing operations. QuantRx has restated its financial statements as of January 1, 2009, to reflect the results of its former subsidiary as a one-line item, and effective for 2009, our financial statements reflect our investment in FluoroPharma under the equity method of accounting. In 2010, as a result of the divestiture of substantially all of our investment, our investments are reflected as an available sale investment.  See Note 8 for additional information. When used in these notes, the terms “Company,” “we,” “our,” “ours,” or “us” mean QuantRx Biomedical Corporation, a Nevada corporation. 

2.
MANAGEMENT STATEMENT REGARDING GOING CONCERN
 
The Company and QND have not generated sufficient revenues from operations to meet its operating expenses. In addition, QND will require additional funding to complete the development and launch of its initial products. The Company has historically financed its operations primarily through issuances of equity and the proceeds of debt instruments. In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees.
 
Management believes that given the current economic environment and the continuing need to strengthen our cash position, there is still doubt about our ability to continue as a going concern. We are currently pursuing various funding options, including licensing opportunities and the sale of investment holdings, as well as a strategic or other transaction with our joint venture partner, to obtain additional funding to continue the development of our products and bring them to commercial markets. There can be no assurance that we will be successful in our efforts. Should we be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed.
 
The Company believes that its ability to recommence operations and therefore continue as a going concern is dependent upon its ability to do any or all of the following:
 
 
settle the litigation with NuRx relating to the Company’s interest in QND;
     
 
consummate a strategic transaction with our joint venture partner;
 
 
obtain adequate sources of funding to pay unfunded operating expenses and fund long-term business operations;
 
 
manage or control working capital requirements by reducing operating expenses; and
 
 
develop new and enhance existing relationships with product distributors and other points of distribution for the Company’s products.
 
There can be no assurance that the Company will be successful in achieving its long-term plans as set forth above, or that such plans, if consummated, will enable the Company to obtain profitable operations or continue in the long-term as a going concern.
 
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (GAAP) and have been consistently applied in the preparation of the financial statements.
 
Accounting for Share-Based Payments
 
The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed, which resulted in employee stock-based compensation expense for the year ended December 31, 2010 and 2009 of $49,892 and $582,792, respectively.
 
The Company accounts for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of either (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.
 
In the case of modifications, the Black-Scholes model is used to value the warrant on the modification date by applying the revised assumptions. The difference between the fair value of the warrants prior to the modification and after the modification determines the incremental value. The Company has modified warrants in connection with the issuance of certain notes and note extensions. These modified warrants were originally issued in connection with previous private placement investments. In the case of debt issuances, the warrants were accounted for as original issuance discount based on their relative fair values. When modified in connection with a note issuance, the Company recognizes the incremental value as a part of the debt discount calculation, using its relative fair value in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options.” When modified in connection with note extensions, the Company recognized the incremental value as prepaid interest, which is expensed over the term of the extension.
 
The fair value of each share based payment is estimated on the measurement date using the Black-Scholes model with the following assumptions, which are determined at the beginning of each year and utilized in all calculations for that year:
 
   
2010
   
2009
 
Risk-free interest rate
   
2.43
%
   
3.24
%
Expected volatility
   
72
%
   
70
%
Dividend yield
   
0
%
   
0
%
 
  Risk-Free Interest Rate. The interest rate used is based on the yield of a U.S. Treasury security as of the beginning of the year.
 
Expected Volatility. The Company calculates the expected volatility based on historical volatility of monthly stock prices over a three year period.
 
Dividend Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.
 
  Expected Term. For options, the Company has no history of employee exercise patterns; therefore, uses the option term as the expected term. For warrants, the Company uses the actual term of the warrant.
 
Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.
 
Accounts, Notes and Interest Receivable and Allowance for Bad Debts
 
The Company carries its receivables at net realizable value. Interest on notes receivable is accrued based upon the terms of the note agreement. The Company provides reserves against receivables and related accrued interest for estimated losses that may result from a debtor’s inability to pay. The amount is determined by analyzing known uncollectible accounts, economic conditions, historical losses and customer credit-worthiness. Additionally, all accounts with aged balances greater than one year are fully reserved. Amounts later determined and specifically identified to be uncollectible are charged or written off against the reserve.  At December 31, 2010, the Company has determined that its Accounts, Notes and Interest Receivable outstanding are deemed to be collectible, and accordingly has not recorded a reserve for the year ended December 31, 2010.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid investments and short-term debt instruments with maturities of three months or less from date of purchase to be cash equivalents. Cash equivalents consisted of money market funds at December 31, 2010 and 2009.
 
Concentration of Risks
 
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company primarily maintains its cash balances with financial institutions in federally insured accounts. At times, such balances may exceed federally insured limits. The Company has not experienced any losses to date resulting from this practice. At December 31, 2010 and 2009, our cash was not in excess of these limits.
 
The Company has contributed substantially all of its intellectual property assets relating to lateral flow diagnostic testing to QND, a joint venture which we do not control. The operations of QND have a significant impact on the Company’s financial statements.
 
Earnings per Share
 
The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. 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, 2010, the Company had outstanding options exercisable for 570,500 shares of its common stock, warrants exercisable for 11,861,466 shares of its common stock, and preferred shares convertible into 17,916,228 shares of its common stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the year ended December 31, 2010.
 
            As of December 31, 2009, the Company had outstanding options exercisable for 2,855,500 shares of its common stock, warrants exercisable for 14,784,347 shares of its common stock, and preferred shares convertible into 8,120,794 shares of its common stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the year ended December 31, 2009. 
 
Fair Value of Financial Instruments
 
Effective January 1, 2008, the Company adopted ASC Topic 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities. On January 1, 2009, the Company adopted ASC Topic 820 for nonfinancial assets and liabilities. We have not elected the fair value option for any of our assets or liabilities.
 
The Company's financial instruments primarily consist of cash and cash equivalents, short-term accounts and notes receivable, and accounts payable. All instruments are accounted for on the 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.
 
ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
 
Level 1: Quoted prices for identical instruments in active markets accessible at the measurement date.
 
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
 
Level 3: Unobservable inputs for the instrument are only used when there is little, if any, market activity for the instrument at the measurement date. Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).
 
         
At December 31, 2010
Fair Measurements Using
       
Description
 
Year
Ended
12/31/2009
   
Significant Other
Observable Inputs
(Level 2)
   
Significant
Unobservable
Inputs (Level 3)
   
Total Gains
(Losses)
 
Investment in FluoroPharma
 
$
-
     
-
   
$
-
   
$
(43,286
)
Investment and Note Receivable from GUSA
 
$
400,000
     
-
   
$
400,000
     
-
 
                                 
Recognized in earnings
                         
$
(43,286
)
 
            At the time of FluoraPharma’s deconsolidation, the fair market value of the Company’s remaining noncontrolling interest was $842,876, based on the third party investment; however, FluoroPharma had a deficit equity balance, which resulted in the Company writing off the remaining basis in the investment of $43,286 and recording a loss from deconsolidation of $43,286 in accordance with ASC Topic 810. In determining fair value of our investment and note receivable from GUSA, the Company estimated fair value based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of this investment that are not readily apparent from other sources.
 
 
As of December 31, 2010, the Company had 185,000 options and 249,278 warrants to purchase common stock of FluoraPharma with exercise prices of $0.75 and $1.50, respectively and expiring at various dates in 2014.  The Company has estimated the fair value of the options and warrants at $88,514 and $108,008, respectively, in accordance with ASC Topic 820, Level 3.  The Company deems the value of the options and warrants to be fully impaired at December 31, 2010.

Impairments
 
The Company assesses the impairment of long-lived assets, including other intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable in accordance with ASC Topic 360-10-35, “Impairment or Disposal of Long-Lived Assets.” (“ASC Topic 360-10-35”). The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments, related primarily to the future profitability and/or future value of the assets. The Company holds investments in companies having operations or technologies in areas which are within or adjacent to our strategic focus when acquired, all of which are privately held and whose values are difficult to determine. The Company records an investment impairment charge if it believes an investment has experienced a decline in value that is other than temporary.
 
In accordance with ASC Topic 360-10-35, the Company has recorded an impairment on the fair value of the options and warrants held in FlouroPharma as of December 31, 2010.  The Company deems these options and warrants impaired due to the absence of a market for the common stock of FlouroPharma at December 31, 2010.

Management determined that no impairments were required during the year ended December 31, 2009.
 
Income Taxes
 
The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
 
Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our balance sheets at December 31, 2010 or 2009, and have not recognized interest and/or penalties in the statement of operations for the years ended December 31, 2010 or 2009. See Note 13, Income Taxes.
 
Intangible Assets
 
The Company’s intangible assets consist of patents, licensed patents and patent rights, and website development costs, and are carried at the legal cost to obtain them. Costs to renew or extend the term of intangible assets are expensed when incurred. In 2008, through our formerly majority owned subsidiary, the Company also held technology licenses and other acquired intangibles. Intangible assets are amortized using the straight line method over the estimated useful life. Useful lives are as follows: patents, 17 years; patents under licensing, 10 years; website development costs, three years, and in 2008, acquired intangibles had a weighted average life of 15 years. Amortization expense for the years ended December 31, 2010 and 2009, totaled $12,976 and $22,402. The estimated aggregate amortization expense for 2011 through 2014 is $7,412 for each year.    

 
Noncontrolling Interest
 
In January 2009, we adopted an amendment to ASC Topic 810 “Consolidation”, which required us to make certain changes to the presentation of our financial statements. This amendment required noncontrolling interests to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. Upon a loss of control, the interest sold, as well as any interest retained, is required to be measured at fair value, with any gain or loss recognized in earnings. The statement required that the noncontrolling interest continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance; if this would result in a material change to net income, pro forma financial information is required. As of January 1, 2009, the Company presented its financial statements in accordance with this statement.
 
On May 5, 2009, the Company and FluoroPharma reorganized their relationship by terminating their investment and related agreements. The termination of these agreements, which were originally executed on March 10, 2006, allowed FluoroPharma to close an equity financing with third party investors.  In conjunction with the termination of these agreements and the additional investment in FluoroPharma by third parties, the Company agreed to convert all outstanding receivables from FluoroPharma into common stock of FluoroPharma. As a result of these transactions and the third party investment, the Company’s ownership interest in FluoraPharma’s issued and outstanding capital stock was reduced to a noncontrolling interest, which resulted in deconsolidation and a loss at deconsolidation in accordance with ASC 810.  See Note 8 for additional details.
 
Property and Equipment
 
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment at December 31, 2010 and 2009 consisted of computer and office equipment, machinery and equipment and leasehold improvements with estimated useful lives of three to seven years. Estimated useful lives of leasehold improvements do not exceed the remaining lease term. Depreciation expense was $47,638 and $70,082 for the years ended December 31, 2010 and 2009. Expenditures for repairs and maintenance are expensed as incurred. See Note 6.
 
Recent Accounting Pronouncements

In April 2010, the FASB issued ASU No. 2010-17, “Revenue Recognition – Milestone Method (Topic 605).” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. This update will be effective in the second quarter of 2010. Adoption of this update is not anticipated to have a material impact on the Company’s results of operation or financial position.

 In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements.” This ASU requires additional disclosures about significant unobservable inputs and transfers within Level 1 and 2 measurements. Adoption of this update did not have any impact on the Company’s results of operation or financial position.

In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (ASC 605): Multiple-Deliverable Revenue Arrangements.”  The guidance modifies the fair value requirements of ASC 605-25 by providing principles for allocation of consideration among its multiple elements, allowing more flexibility in identifying and accounting for separate deliverables under an arrangement. This guidance will be effective for revenue arrangements entered into or materially modified during 2010.  Adoption of this update did not have any impact on the Company’s results of operation or financial position.

 
Reclassifications
 
Certain reclassifications have been made in the presentation of the financial statements for the year ended December 31, 2009 to conform to the presentation of the financial statements for the year ended December 31, 2010. The reclassifications were to reflect the retrospective adoption of ASC Topic 810.
 
Research and Development Costs
 
Research and development costs are expensed as incurred. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life of the related asset.
 
Revenue Recognition
 
The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery or performance 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. Up-front engagement fees are recorded as deferred revenue and amortized to income on a straight-line basis over the term of the agreement, although the fee is due and payable at the time the agreement is signed or upon annual renewal. Payments related to substantive, performance-based milestones in an agreement are recognized as revenue upon the achievement of the milestones as specified in the underlying agreement when they represent the culmination of the earnings process. 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.
 
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 Company’s strategy includes entering into collaborative agreements with strategic partners for the development, commercialization and distribution of its product candidates. Such collaborative agreements may have multiple deliverables. The Company evaluates multiple deliverable arrangements pursuant to ASC Topic 605-25, “Revenue Recognition: Multiple-Element Arrangements.” Pursuant to this Topic, in arrangements with multiple deliverables where the Company has continuing performance obligations, contract, milestone and license fees are recognized together with any up-front payments over the term of the arrangement as performance obligations are completed, unless the deliverable has standalone value and there is objective, reliable evidence of fair value of the undelivered element in the arrangement. In the case of an arrangement where it is determined there is a single unit of accounting, all cash flows from the arrangement are considered in the determination of all revenue to be recognized. Cash received in advance of revenue recognition is recorded as deferred revenue.

 
QN Diagnostics, LLC
 
On July 30, 2009, the Company and QND entered into a Development and Services Agreement (“Development Agreement”), pursuant to which QND pays a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products. The revenue recognized by the Company associated with the Development Agreement in 2010 and 2009 were $1,429,960 and $2,065,264, respectively.  The expenses related to the Development Agreement for 2010 and 2009 were $1,429,960 and $2,065,264, respectively. Expenses are included in each appropriate expense category. At December 31, 2009, the Company had deferred revenue of $337,160, which was recognized in the first quarter of 2010.
 
CytoCore, Inc.
 
On May 19, 2008, the Company and CytoCore, Inc. entered into a worldwide distribution and supply agreement for specified PAD technology of the Company. The agreement specified monthly license fees during CytoCore’s expected development period and additional milestone payments based upon CytoCore’s achievement of certain development and sales milestones.  The Company received an up-front, non-refundable payment of $100,000 upon execution of this agreement, which was recorded as deferred revenue and was amortized into revenue over the expected development period of the agreement.  In January, 2010, the agreement was amended for $80,000 to be paid to the Company monthly. In August 2010, the Company terminated the agreement for non-payment returning the Company’s rights under this agreement pursuant to the default clause in the agreement.  On December 31, 2010, the Company recognized revenue of $36,000 and $119,897 in the years ended December 31, 2010 and 2009 related to this agreement.
 
Development Agreements and Royalties
 
In 2007, the Company entered into two development agreements to develop rapid test POC products in oral care for ALT BioScience (ALT), and an at-home diagnostic test jointly with Church & Dwight Co., Inc. In 2010 and 2009, the Company recognized revenues of approximately $0 and $180,000 related to these development agreements in accordance with its revenue recognition policies, and costs of approximately $1,800 and $100,000.
 
The ALT agreement, and subsequent renewals, commenced March 2007 and stipulated an up-front fee, recognized over the initial five month term, and monthly fees. Currently, the agreement is on a month-to-month basis, subject to termination with 45 days notice. The agreement grants the Company certain manufacturing rights for the developed products, which shall be negotiated in good faith in a separate manufacturing agreement upon the completion of design and verification testing. These manufacturing rights will survive any potential termination of the development agreement. Effective August 1, 2009, the Company is providing the development service to ALT through QN Diagnostics, LLC under the terms of its operating agreement with QN Diagnostics, and as such, these revenues were recognized by QND.

In July 2010, ALT notified the Company that it was without operating capital, and could no longer support the Company’s efforts.  The Company curtailed all work and reduced staff accordingly.  The Company recorded Bad Debt Expense of $200,026 related to this agreement.
 
The Church & Dwight agreement included milestone based payments, which were recognized in 2007 and 2008. On August 14, 2008, the Company entered into a Technology License Agreement with Church & Dwight Co., Inc.  Under the terms of the agreement, Church & Dwight acquired exclusive world-wide rights to use certain Company technology related to the jointly developed test. Under the ten-year agreement, the Company received royalties on net sales of the product of $26,815 and $81,426 in 2010 and 2009, respectively.

Use of Estimates
 
The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.
 
4.
INVESTMENT IN JOINT VENTURE - QN DIAGNOSTICS, LLC
 
On July 30, 2009, the Company and NuRx Pharmaceuticals, Inc. (NuRx) entered into agreements to form QND, a Delaware limited liability company. Pursuant to the agreements, the Company contributed certain intellectual property and other assets related to its lateral flow strip technology and related lateral flow strip reader technology with a fair value of $5,450,000, and NuRx contributed $5,000,000 in cash to QND.  Following the respective contributions by NuRx and the Company to the joint venture, NuRx and the Company each own a 50% interest in QND.  The purpose of the joint venture is to develop and commercialize products incorporating the lateral flow strip technology and related lateral flow strip readers.
 
QND is currently managed by a board consisting of two Company designees and two NuRx designees.  Subject to certain exceptions, board decisions are made by majority vote, provided that the Company and NuRx have veto rights with respect to certain matters. Since the Company does not have control of QND, the Company accounts for the investment in QND utilizing the equity method of accounting.
 
Under the terms of the agreements, QND made a $2,000,000 cash distribution to the Company. The Company is committed to further capital contributions aggregating $1.55 million, comprised of: payment of milestone payments with PRIA Diagnostics (see Note 5) in Company common stock (fair value of $750,000); transfer of fixed assets with a fair value of $100,000 at QND’s discretion; and a $700,000 sustaining capital contribution as required by QND. Subsequent sustaining capital contributions will be made by the Company and NuRx on an equal basis.
 
The Company and QND also entered into the Development Agreement, pursuant to which QND shall pay a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products.
 
In connection with these transactions, NuRx received two warrants to purchase 2,000,000 shares of Company common stock each, for an aggregate of 4,000,000 shares of Company common stock (fair value $1,000,000).  The warrants expire on July 30, 2014 and have an exercise price of $0.50 and $1.25, respectively. 
 
The Company recognized a gain on the contribution of the intellectual property of $1.36 million, representing the net gain of $4.72 million from the disposition, reduced by the fair value of warrants issued to NuRx ($1.0 million) and the elimination of the portion of the intercompany gain associated with the Company’s 50% interest in QND ($2.36 million).
 
Summarized financial information for QND for July 30, 2009 (inception) through December 31, 2009, is as follows: current assets: $1,064,000; noncurrent assets: $5,251,000; total assets: $6,315,000; current liabilities: $97,000; revenues and gross profit: $125,000; net loss: $2,232,000.  The Company recorded losses from QND under the equity method of $1,023,000, representing the Company’s 50% portion of QND’s net loss, adjusted for an amortization modification based upon the Company’s basis in the contributed assets.  There were no other intercompany profits to eliminate.

 
5.
PRIA ASSET PURCHASE AGREEMENT
 
On July 30, 2009, the Company executed an asset purchase agreement with PRIA Diagnostics, LLC, pursuant to which PRIA agreed to sell to the Company certain of PRIA’s patents, trademarks, other intellectual property assets and certain fixed assets. The aggregate purchase price for such assets was $725,000, comprised of cash and shares of Company common stock.
 
Under the asset purchase agreement, the Company is required to make additional contingent payments, in the form of cash and common stock, upon the occurrence of certain milestone events.  Such cash milestone payments will be made by QND (see Note 4).  In addition, QND is required to pay royalties to PRIA on a quarterly basis upon the commercialization of a product utilizing the acquired technologies for five years from the initial sales date of the first such product sold.  The Company also agreed under the asset purchase agreement to offer to PRIA the first opportunity to manufacture certain products utilizing the acquired technologies before entering into any agreement or arrangement with a third party to manufacture such products. 
  
6.
OTHER BALANCE SHEET INFORMATION
 
Components of selected captions in the accompanying balance sheets as of December 31, 2010 and 2009 consist of:
 
   
2010
 
2009
Prepaid expenses:
       
Prepaid consulting – related party (See Note 17)
 
-
 
 $
83,375
Prepaid insurance
   
17,386
   
22,960
Prepaid rent
   
-
   
16,533
Other
   
6,023
   
5,360
Prepaid expenses
 
$
23,409
 
$
128,228
             
             
Property and equipment:
           
Computers and office furniture, fixtures and equipment
 
$
90,660
 
$
124,877
Machinery and equipment
   
173,295
   
181,347
Leasehold improvements
   
92,233
   
92,233
Less: accumulated depreciation
   
      (246,709)
   
(218,867
Property and equipment, net
 
$
109,479
 
$
179,590
             
Accrued expenses:
           
Payroll and related
 
$
86,000
 
$
175,000
Professional fees
   
82,000
   
41,500
Other
   
-
   
16,500
Accrued expenses
 
$
168,000
 
$
233,000
 
 
7.
NOTES RECEIVABLE
 
Genomics USA, Inc.
 
In January 2007, the Company advanced $200,000 to Genomics USA, Inc. (GUSA) through an 8% promissory note due April 8, 2007. The note is currently convertible at the Company’s discretion into 10% of GUSA’s outstanding capital stock. The Company continues to explore the possibility of further investment, and has postponed settlement of the note during this exploratory period, during which the note continued to accrue interest. The Company accrued interest of $16,000 per year on this note for the years ended December 31, 2010 and 2009.  At December 31, 2010 and 2009, the Company had interest receivable on this note of $63,689 and $47,689, respectively.

8.
INVESTMENTS
 
FluoroPharma, Inc.
 
On May 5, 2009, the Company and FluoroPharma reorganized their relationship by terminating their investment and related agreements. The termination of these agreements, which were originally executed on March 10, 2006, allowed FluoroPharma to close an equity financing with third party investors.  In conjunction with the termination of these agreements and the additional investment in FluoroPharma, the Company agreed to convert all outstanding receivables from FluoroPharma, consisting of previously issued notes and related accrued interest and advances in the aggregate amount of $1,568,567, into 1,148,275 shares of common stock of FluoroPharma. As a result of these transactions and the third party investment, the Company’s ownership interest in FluoroPharma’s issued and outstanding capital stock was reduced to a noncontrolling interest, which resulted in deconsolidation and the Company’s periodic sales of its equity interest in FluoraPharma as a means to finance its continuing operations. Subsequent to the termination of the agreements between the Company and FluoroPharma, the Company has no continuing obligations or commitments to FluoroPharma.
 
At May 5, 2009, the Company’s remaining net basis of the investment in FluoroPharma, inclusive of receivables from FluoroPharma, was $43,286, after taking into account previously recorded losses of $5,056,304 ($272,579 in 2009) related to the consolidated results of FluoroPharma. These losses have been included in our consolidated financial statements commencing April 1, 2007, the original date of consolidation, through May 4, 2009, and are net of losses allocated to the then noncontrolling (formerly minority) interests as applicable. On May 5, subsequent to the execution of the aforementioned transactions which led to the deconsolidation of FluoroPharma, the Company’s ownership of the outstanding capital stock of FluoroPharma was reduced to a noncontrolling interest of approximately 45.55%. At deconsolidation the fair market value of The Company’s remaining noncontrolling interest in FluoroPharma was $842,876, based on the third party investment; however, FluoroPharma had a deficit equity balance, which resulted in the Company writing off the remaining basis in the investment of $43,286 and recording a loss from deconsolidation of $43,286 in accordance with ASC Topic 810.
 
Effective May 5, 2009, our financial statements reflect our investment in FluoroPharma under the equity method of accounting. At December 31, 2009, the Company owned 39.81%, of the issued and outstanding capital stock of FluoroPharma. However, at December 31, 2009, due to FluoroPharma’s issuance of a separate class of common stock in 2009, the Company held 17.53% of the voting rights of FluoroPharma.
 
At December 31, 2009, FluoroPharma’s summarized financial information was estimated as follows: current assets: $62,000; noncurrent assets: $130,000; total assets: $192,000; current and total liabilities $1,255,000; expenses and net losses for the period of May 5 through December 31, 2009 were $748,000. The Company’s allocation of FluoroPharma’s net loss for the period commencing May 5 through December 31, 2009, was not recorded ($314,000), since the remaining investment in FluoroPharma had a carrying value of $0 as of the deconsolidation of FluoroPharma at May 5, 2009.

 
From January 2010 to August 2010, the Company entered into certain agreements with certain investors pursuant to which the Company sold 1,155,000 shares of common stock of FluoraPharma to such investors at a price of $0.75 per share, resulting in aggregate proceeds of $866,250.

During October 2010, the Company entered into certain agreements with certain investors, pursuant to which the Company exchanged substantially all of its equity interest in FluoraPharma and shares of newly created Series B Preferred with a stated value of approximately $177,000 for and in consideration for cash aggregating $789,704, and the termination of certain shares of Series A-1 Preferred with a stated value of approximately $4.45 million (the “Exchange”).   Contemporaneously with the consummation of the Exchange, on November 19, 2010, the Company filed a Certificate of Withdrawal of the Certificates of Designations of the Series A Preferred with the Nevada Secretary of State, as no shares or such preferred stock were issued and outstanding following the Exchange.

In December 2010, the Company reserved its remaining 20,000 shares of common stock of FluoraPharma for issuance to an executive to settle amounts due that executive.

As of December 31, 2010, the Company had 185,000 options and 249,278 warrants to purchase common stock of FluoraPharma with exercise prices of $0.75 and $1.50, respectively and expiring at various dates in 2014.  The Company has estimated the fair value of the options and warrants at $88,514 and $108,008, respectively.  The Company deems the value of the options and warrants to be fully impaired at December 31, 2010.
 
 Genomics USA, Inc.
 
In May 2006, the Company purchased 144,024 shares of GUSA common stock for $200,000. As of December 31, 2010 and 2009, the Company owned 12% of the issued and outstanding capital stock of GUSA.
 
The Company uses the cost method to account for this investment since the Company does not control nor have the ability to exercise significant influence over operating and financial policies. In accordance with the cost method, the investment is recorded at cost and impairment is considered in accordance with the Company’s impairment policy. No impairment was recognized for the years ended December 31, 2010 and December 31, 2009.
 
9.