QUANTRX BIOMEDICAL CORP - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - QUANTRX BIOMEDICAL CORP	Financial_Report.xls
EX-31 - EXHIBIT 31 - QUANTRX BIOMEDICAL CORP	ex31.htm
EX-32 - EXHIBIT 32 - QUANTRX BIOMEDICAL CORP	ex32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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 No. 0-17119

QUANTRX BIOMEDICAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Nevada		33-0202574
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

P.O. Box 4960, Portland, Oregon 97062

(Address of Principal Executive Offices) (Zip Code)

503-575-9385

(Registrant’s Telephone Number, Including Area Code)

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 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 x No 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.:

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

The number of shares outstanding of the issuer’s common stock as of May 21, 2012 was 51,578,597.

Table of Contents

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
		PAGE

ITEM 1.	Financial Statements	1

	Balance Sheets as of March 31, 2012 (Unaudited) and December 31, 2011	2

	Statements of Operations (Unaudited) for the three months ended March 31, 2012 and 2011	3

	Statements of Cash Flows (Unaudited) for the three months ended March 31, 2012 and 2011	4

	Condensed Notes to (Unaudited) Financial Statements	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

ITEM 4.	Controls and Procedures	16

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	17

ITEM 2.	Unregistered Sales of Equity Securities; and Use of Proceeds	17

ITEM 3.	Defaults Upon Senior Securities	17

ITEM 4.	Reserved	17

ITEM 5.	Other Information	17

ITEM 6.	Exhibits	17

Signatures		18

-i-

Table of Contents

PART I – FINANCIAL INFORMATION

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

THIS QUARTERLY REPORT ON FORM 10-Q, INCLUDING EXHIBITS HERETO, 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,” “ESTIMATES,” “MAY,” “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” IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2011. WE ASSUME NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.

-1-

Table of Contents

ITEM 1. Financial Statements

QUANTRX BIOMEDICAL CORPORATION

BALANCE SHEETS

	March 31,		December 31,
	2012		2011
ASSETS	unaudited
Current Assets:
Cash and cash equivalents	$	723	$	7,565
Accounts receivable		4,103		4,121
Interest receivable – related party		83,689		79,689
Inventories		2,712		2,910
Prepaid expenses		10,734		17,123
Note receivable – related party		200,000		200,000
Total Current Assets		301,961		311,408

Investments		200,000		200,000
Property and equipment, net		34,980		35,434
Intangible assets, net		37,540		39,393
Total Assets	$	574,481	$	586,235

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	242,707	$	222,564
Accrued expenses		8,222		16,443
Notes payable, net of amortized discount		257,157		168,140
Total Current Liabilities		508,085		407,148
Notes payable, long-term		44,000		44,000
Total Liabilities		552,086		451,148

Commitments and Contingencies
Stockholders’ Equity (Deficit):
Series B Convertible preferred stock; $0.01 par value, 20,500,000 authorized shares, 20,416,228 shares issued and outstanding, respectively		204,162		204,162
Common stock; $0.01 par value; 150,000,000 authorized; 47,377,630 shares issued and outstanding, respectively		473,776		473,776
Common stock to be issued		160,357		158,107
Additional paid-in capital		47,976,779		47,902,606
Accumulated deficit		(48,792,679)		(48,603,564)
Total Stockholders’ Equity (Deficit)		22,395		135,087

Total Liabilities and Stockholders’ Equity (Deficit)	$	574,481	$	586,235

The accompanying condensed notes are an integral part of these financial statements.

-2-

Table of Contents

QUANTRX BIOMEDICAL CORPORATION

STATEMENTS OF OPERATIONS (unaudited)

	Three Months Ended March 31,
	2012		2011
Revenues:
Revenues	$	4,515	$	8,900
Total Revenues		4,515		8,900

Costs and Operating Expenses:
Cost of goods sold (excluding depreciation and amortization)		198		181
Sales, general and administrative		18,680		18,367
Professional fees		117,903		67,798
Research and development		361		26,832
Amortization		1,853		2,066
Depreciation		5,929		12,151
Total Costs and Operating Expenses		144,924		127,395

Loss from Operations		(140,409)		(118,495	)

Other Income (Expense):
Interest and dividend income		4,000		4,000
Interest expense		(4,364)		(574	)
Amortization of debt discount to interest expense		(65,859)		-
Gain on settlement of accounts payable		17,515		1,557
Net gain (loss) on dispositions		-		(221,512	)
Total Other Income (Expense), net		(48,708)		(216,529	)

Income (Loss) Before Taxes		(189,117)		(335,024	)

Provision for Income Taxes		-		-

Net Income (Loss)	$	(189,117)	$	(335,024	)

Basic and Diluted Net Loss per Common Share	$	nil	$	(0.01	)

Basic and Diluted Weighted Average Shares Used in per Share Calculation		47,377,630		46,077,630

The accompanying condensed notes are an integral part of these interim financial statements.

-3-

Table of Contents

QUANTRX BIOMEDICAL CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)

	March 31,		March 31,
	2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(189,117)	$	(335,024)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		7,782		14,218
Interest expense related to amortization of non-cash discount, non-cash beneficial conversion feature and deferred financing costs		44,015		-
Non-cash expense related to common stock issued with notes payable		25,236		-
Non-cash expenses related to common stock warrants issued for consulting		51,189		-
Net Gain on settlement of accounts payable		17,515		1,557
Gain(loss) on disposition of assets		-		220,192
(Increase) decrease in:
Accounts receivable		18		(4,607)
Interest receivable		(4,000)		4,000
Inventories		198		631
Prepaid expenses		6,389		2,723
Increase (decrease) in:
Accounts payable		2,629		(55,011)
Accrued expenses		(8,221)		(70,250)
Deferred revenue		-		3,900

Net Cash Used by Operating Activities		(46,367)		(217,721)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for purchase of capital equipment		(5,475)		-

Net Cash Provided (Used) by Investing Activities		(5,475)		-

CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds from the issuance of notes payable		45,000		-

Net Cash Provided by Financing Activities		45,000		-

Net Decrease in Cash and Cash Equivalents		(6,842)		(217,721)

Cash and Cash Equivalents, Beginning of Period		7,565		229,944

Cash and Cash Equivalents, End of Period	$	723	$	12,223

Supplemental Cash Flow Disclosures:
Interest expense paid in cash	$	-	$	574
Income tax paid	$	-	$	-

NON CASH INVESTING & FINANCING ACTIVITIES:
Shares issued for accounts payable	$	51,189	$	128,000
Fair value of warrants issued as compensation	$	65,859	$	-

The accompanying condensed notes are an integral part of these interim financial statements.

-4-

Table of Contents

QUANTRX BIOMEDICAL CORPORATION

CONDENSED NOTES TO FINANCIAL STATEMENTS

1.	Description of Business and Basis of Presentation

Recent Developments

During the quarter ended March 31, 2012, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $45,000 (the “Notes”). The Notes accrue interest at the rate of 6% annually. The Notes are due and payable on or before June 30, 2012. The Company currently intends to issue additional Notes to finance its current working capital needs. There can be no assurance that the Company will be able to issue additional Notes.

The Notes are convertible at the option of the holder into shares of the Company's common stock at a conversion price equal to $0.10 per share. In addition, at the option of the holder, 110% of the face value of the Notes may be exchanged for securities issued in connection with a qualified financing (the “Qualified Financing”), which is defined as a financing resulting in gross proceeds to the Company of at least $1.0 million. Pursuant to the terms of the Notes, the Company issued 50,000 shares of its common stock for each $10,000 in principal amount received in connection with the issuance of the Notes. While the Company intends to pay the Notes using proceeds from consummation of the Qualified Financing, management does not believe that consummation of a Qualified Financing is likely prior to the date the Notes become due and payable. In the event a Qualified Financing does not occur, and the holders of the Notes demand payment thereon, the Company would be in default under the terms of the Notes, and interest thereon would increase to 12% per annum. While no assurances can be given, management currently intends to attempt to restructure the Notes, or extend the maturity date thereon, in order to allow additional time to consummate a Qualified Financing.

Overview

The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and laboratory markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PadKit® technology for the worldwide healthcare industry. These platforms include: inSync®, Unique™, PadKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology. These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.

The Company’s efforts to commercialize its products are currently contingent on additional financing to execute its business and operating plan which is currently focused on the commercialization of the Company’s PAD technology either directly or though a joint venture or other relationship intended to increase shareholder value. In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities. This plan was necessary in order for the Company to continue as a going concern. No assurances can be given that the Company will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize the Company’s PAD technology.

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

-5-

Table of Contents

The Company’s current strategy is to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products either directly or through joint ventures, spin-offs or similar transaction intended to capitalize on the Company’s PAD technology; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GMS. As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on obtaining financing necessary to maintain the Company as a going concern.

2.	Management Statement Regarding Going Concern

The Company is currently not generating revenues from operations to meet its operating expenses. The Company has historically financed its operations primarily through issuances of equity and the proceeds from the issuance of promissory notes. In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees, as well as divesting its minority equity interests and equity-linked investments.

Management believes that given the current economic environment and the continuing need to strengthen our cash position, there is still doubt about the Company's ability to continue as a going concern. Management is currently pursuing various funding options, including seeking debt or equity financing, licensing opportunities and the sale of certain investment holdings, as well as a strategic or other transaction with its joint venture partner, to obtain additional funding to continue the development of, and successfully commercialize, its products. There can be no assurance that the Company will be successful in its efforts. Should the Company be unable to obtain adequate financing or generate sufficient revenue in the future, the Company’s business, results of operations, liquidity and financial condition would be materially and adversely harmed, and the Company will be unable to continue as a going concern.

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

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

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

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

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

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.

-6-

Table of Contents

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 of $0 and $7,950, for the three months ended March 31, 2012 and 2011, respectively.

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

Earnings per Share. The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as all common stock equivalents outstanding for the three months ended March 31, 2012 were deemed to be anti-dilutive. As of March 31, 2012 the Company had (i) outstanding options exercisable for 304,500 shares of common stock with a weighted average exercise price of $0.91 per share and an average remaining term of 3.42 years; (ii) outstanding warrants exercisable into 5,594,971 shares of common stock with a weighted average exercise price of $0.50 per share and average remaining term of 2.14 years; and (iii) 20,416,228 shares of Series B Preferred Stock convertible into 20,416,228 shares of common stock.

As of March 31, 2012, the Company had outstanding options exercisable for 570,500 shares of its common stock, warrants exercisable for 11,716,346 shares of its common stock, and preferred stock convertible into 20,416,228 shares of its common stock. The above options, warrants, and convertible debt securities were deemed to be anti-dilutive for the three months ended March 31, 2012.

Fair Value. The Company has adopted ASC Topic 820, “Fair Value Measurements and Disclosures” for both financial and nonfinancial assets and liabilities. The Company has not elected the fair value option for any of its assets or liabilities.

Reclassifications. Certain reclassifications have been made in the presentation of the financial statements for the three months ended March 31, 2012 to conform to the presentation of the financial statements for the three months ended March 31, 2012.

Use of Estimates. The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, and include certain estimates and assumptions, which affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results may differ from those estimates.

4.	Investments

FluoraPharma, Inc. In May 2011, Fluoropharma, Inc. (“FPI”) entered into a reverse merger with Fluoropharma Medical, Inc. (“FPMI”). In connection with this transaction, the Company’s warrants and options in FPI were exchanged for options and warrants in FPMI. At March 31, 2012, the Company held 277,500 options exercisable at $.50 and 249,278 warrants exercisable at $1.00. The Company deems the value of the options and warrants to be fully impaired at March 31, 2012.

-7-

Table of Contents

Genomics USA, Inc. (dba GMS Biotech) In May 2006, the Company purchased 144,024 shares of GUSA common stock for $200,000. As of September 30, 2011 and 2010, 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 periods ended March 31, 2012 and March 31, 2011.

NuRx Pharmaceuticals, Inc. ("NuRx"). In July 2011, the Company settled all disputes between the parties relating to the Company's interest in QN Diagnostics, LLC, a joint venture between the Company and NuRx. Under the terms of the settlement, the Company received 12.0 million shares of common stock in NuRx. As a result of the issuance, the Company holds an approximate 25% equity interest in NuRx. The Company deems the value of the NuRx shares to be fully impaired at March 31, 2012.

5.	Intangible Assets

Intangible assets as of the balance sheet dates consisted of the following:

	March 31, 2012		December 31, 2011
Licensed patents and patent rights	$	50,000	$	50,000
Patents		41,004		41,004
Less: accumulated amortization		(53,464)		(51,611	)
Intangibles, net		37,540	$	39,393

The Company’s intangible assets are carried at the legal cost to obtain them. Intangible assets are amortized using the straight-line method over the estimated useful life. Useful lives are eight to fifteen years for licensed patents and patent rights, and seventeen years for patents. Amortization expense totaled $1,853 and $2,066 for the three months ended March 31, 2012 and 2011, respectively. Impairment will be considered in accordance with the Company’s impairment policy which requires at least an annual analysis. No impairment was recognized as of March 31, 2012.

6.	Settlements of Accounts Payable

During the three months ended March 31, 2012, the Company settled an aggregate total of $32,515 of accounts payable and accrued expenses in consideration for the payment of $15,000 cash. The Company has recorded gains on settlement of accounts payable of $17,515 during the three months ended March 31, 2012.

7.	Notes Payable

Convertible Notes Payable. During the three months ended June 30, 2011, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $105,000 (the "Notes"). The Notes accrued interest at the rate of 3% annually, and were due and payable on or before November 19, 2011. On November 19, 2011 these Notes were cancelled and reissued in the original principal amount plus $1,373 of accrued interest, under the terms of the Notes described below.

Concurrently with this debt financing commitment, the lender agreed to surrender and cancel 2,069,000 warrants held by it, and in consideration therefore the Company issued the lender 2,069,000 shares of common stock valued at $62,070.

-8-

Table of Contents

During the three months ended March 31, 2012, the Company issued additional Notes to certain investors resulting in gross proceeds of $45,000. The Notes accrue interest at the rate of 6% annually. The Notes are due and payable or before June 30, 2012. Pursuant to the terms of the Notes, the Company issued 50,000 shares of its common stock for each $10,000 loaned to the Company under the terms of the Notes.

In connection with the issuance of all Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $70,658 and $22,028, respectively. The Company will amortize these expenses over the life of the Notes. As of December 31, 2011, the Company recorded interest expense related to the debt discount of $21,905 and $3,777 related to the beneficial conversion feature. During the three months ended March 31, 2012, the Company recorded interest expense related to the debt discount of $48,753 and $18,751 related to the beneficial conversion feature.

8.	Other Balance Sheet Information

Components of selected captions in the accompanying balance sheets consist of:

	March 31,			December 31,
	2012			2011
Prepaid expenses:
Prepaid insurance	$	10,734		$	16,707
Other		-			416
Prepaid expenses	$	10,734		$	17,123


Property and equipment:
Computers and office furniture, fixtures and equipment	$	87,370		$	87,370
Machinery and equipment		99,015			99,015
Leasehold improvements		8,902			8,902
Less: accumulated depreciation		(165,782	)		(159,853	)
Property and equipment, net	$	34,980		$	35,434

9.	Preferred Stock

The Company has authorized 25,000,000 shares of preferred stock, of which 20,500,000 is designated as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of approximately $177,000 (“Series B Preferred”). The remaining 4,500,000 authorized preferred shares have not been designated by the Company as of March 31, 2012.

Series A-1 Preferred Stock. The Series A-1 Preferred Stock (“Series A-1 Preferred”) ranked prior to the common stock for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms did not rank senior to the Series A-1 Preferred. Holders of the Series A-1 Preferred shares were entitled to receive, when, as and if declared by the Board of Directors, preferential dividends at the rate of 8% per annum to be paid at the option of the Company, either in cash or by the issuance of additional shares of Series A-1 Preferred. The Company could, at its option, redeem shares of the Series A-1 Preferred, in whole or in part, out of funds legally available, by action of the Board of Directors, at any time after the issuance of such Series A-1 Preferred, at a redemption price equal to the face amount plus all accrued and unpaid dividends on such Series A-1 Preferred. At any time on or after the issuance date, the Series A-1 Preferred may be converted by the holder of any such shares subject to certain limitations into a number of fully paid and nonassessable shares of common stock at a conversion rate of two shares of common stock for each one share of Series A-1 Preferred.

-9-

Table of Contents

In 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 Series B Preferred 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”), including accrued and unpaid dividends of $63.186. 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.

Series B Convertible Preferred Stock. The Company has authorized 20,500,000 shares of Series B Preferred, $0.01 par value. The Series B Preferred ranks prior to the common stock for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms did not rank senior to the Series B Preferred (“Junior Stock”). Holders of the Series B Preferred are entitled to receive cash dividends, when, as and if declared by the Board of Directors, and they shall be entitled to receive an amount equal to the cash dividend declared on one share of Common Stock multiplied by the number of shares of Common Stock equal to the outstanding shares of Series B Preferred, on an as converted basis. The holders of Series B Preferred have voting rights to vote as a class on matters a) amending, altering or repealing the provisions of the Series B Preferred so as to adversely affect any right, preference, privilege or voting power of the Series B Preferred; or b) to effect any distribution with respect to Junior stock. At any time, the holders of Series B Preferred may, subject to limitations, elect to convert all or any portion of their Series B Preferred into fully paid nonassessable shares of Common Stock at a 1:1 conversion rate.

In May 2011, the Company issued 2,500,000 shares of its Series B Preferred to its financial advisor, with a deemed value of $37,500, for and in consideration for past professional services provided the Company, consisting of financial advisory, strategic consulting, litigation support, among other services.

10.	Common Stock, Options and Warrants

The Company has authorized 150,000,000 shares of its common stock, $0.01 par value. In December 2009, the shareholders of the Company approved an increase in the number of authorized common stock from 75,000,000 to 150,000,000 shares. The increase took effect in January 2010.

In June 2011, the Company extended the exercise period for one year on 956,873 warrants to purchase common stock in the Company that had an original termination date of July 31, 2011.

Other than the issuances to certain Note investors of an aggregate of 275,000 shares of the Company’s common stock, as described in Note 7 above, and the issuance of warrants to the Company's financial advisor to purchase 600,000 shares of common stock, as described in Note 11 below, in the three months ended March 31, 2012, no common stock, or options purchase common stock, were issued or granted.

2007 Incentive and Non-Qualified Stock Option Plan. The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance based awards, the expected service term. Total compensation cost related to the Company’s employee options was $0 and $7,950 for the three months ended March 31, 2012 and 2011, respectively.

11.	Commitments and Contingencies

Lease Commitments. At March 31, 2012, the Company had reduced its operations and does not maintain a corporate headquarters. During 2011, Company was leasing a facility in Portland Oregon for its office and research and development lab space under an operating lease that expired September 30, 2011. In December 2010, the existing operating lease was amended to reduce the rent payments for February 2011 to September 2011 from $3,950 per month to $2,000 per month, accruing deferred rent that will be due immediately in the case of default on the lease, or to be negotiated in the lease renewal for a minimum of three years.

-10-

Table of Contents

Rent expense is recognized on a straight-line basis over the initial lease term. Leasehold improvements have been included in fixed assets. Rent expense is recognized on a straight-line basis over the initial lease term. Leasehold improvements have been included in fixed assets. Rent expense relating to our operating leases was $0 and $12,308 for the three months ended March 31, 2012 and 2011, respectively.

Professional Services Agreement. On May 16, 2011, the Company entered into a consulting agreement with its financial advisor, pursuant to which it will provide certain business, corporate development, litigation support, financial and strategic consulting services to the Company for and in consideration of the payment of $12,000 per month; provided, however, such amount shall not be paid, and shall accrue, until the earlier to occur of such time as the Company's cash balance exceeds $1.5 million, or twenty-four months from the date of execution. For each month in which payment of the cash component is deferred, the Company's financial advisor shall be issued a warrant exercisable for 200,000 shares of the Company's common stock at an exercise price of the higher of $.20 per share or 105% of the closing price on the date of issuance. The term of the consulting agreement is 18 months, and the term of the warrants is five years. At March 31, 2012, the Company had issued warrants to purchase 2,200,000 shares of common stock under this agreement.

12.	Subsequent Events

Between April 1, 2012 and May 15, 2012, the Company issued additional Notes in the aggregate principal amount of $60,000. The Notes accrue interest at the rate of 6% per annun, and are due and payable on June 30, 2012. In addition, for each $10,000 principal amount of Notes issued, the Company issued the holders thereof 50,000 shares of its Common stock, resulting in the issuance of 300,000 shares of Common Stock in connection with the issuance of the Notes.

Certain Notes issued in 2011 are currently due and payable upon demand. The Company currently has insufficient cash resources to pay these Notes. The Company is currently negotiating a restructuring of the Notes to extend the maturity date thereof. No assurances can be given that the Company will be able to successfully restructure the Notes.

During May 2012, the Company issued 300,000, 150,000 and 50,000 shares to William H. Fleming, Dr. Shalom Hirshman and Ann C. Carter, respectively, for and in consideration of services provided by each executive to the Company.

-11-

Table of Contents

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition should be read in conjunction with the financial statements and notes to financial statements included elsewhere in this filing. The following discussion (as well as statements in Item 1 above and elsewhere) contains forward-looking statements within the meaning of the Private Securities Litigation Act of 1995 that involve risks and uncertainties. Some or all of the results anticipated by these forward-looking statements may not occur. Forward-looking statements involve known and unknown risks and uncertainties including, but not limited to, trends in the biotechnology, healthcare, and pharmaceutical sectors of the economy; competitive pressures and technological developments from domestic and foreign genetic research and development organizations which may affect the nature and potential viability of our business strategy; and private or public sector demand for products and services similar to what we plan to commercialize. We disclaim any intention or obligation to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future events or developments.

Unless otherwise indicated or the context otherwise requires, all references in this report to “we,” “our,” “ours,” “us,” the “Company” or similar terms refer to QuantRx Biomedical Corporation, a Nevada corporation.

Recent Developments

Overview

The Company’s efforts to commercialize its products are currently contingent on additional financing to execute its business and operating plan which is currently focused on the commercialization of the Company’s PAD technology either directly or through a joint venture or other relationship intended to increase shareholder value. In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities. This plan was necessary in order for the Company to continue as a going concern. No assurances can be given that the Company will obtain financing, or otherwise successfully develop a business and operating plan or enter into an alternative relationship to commercialize the Company’s PAD technology.

-12-

Table of Contents

The Company’s current strategy is to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products either directly or through joint ventures, spin-off or similar transaction intended to capitalize on the Company’s PAD technology; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GMS. As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on obtaining financing necessary to maintain the Company as a going concern.

Consolidated Results of Operations

Comparison of the Three Months Ended March 31, 2012 to the Three Months Ended March 31, 2011

Total revenues for the three months ended March 31, 2012 and 2011 were $4,515 and $8,900, respectively. The decreases in revenues in the 2012 period compared to the comparable period in 2011 are due to lower royalty revenues.

Sales, general and administrative expense for the three months ended March 31, 2012 and 2011 was $18,680 and $18,367 respectively. Professional fees for the three months ended March 31, 2012 and 2011, were $117,903 and $67,798, respectively. Professional fees include the costs of legal, consulting and auditing services provided to us. The increase in professional fees in the 2012 periods is directly related to increased costs of consulting services provided to the Company. Included in the three months period in 2012 are non-cash expenses of $51,189 related to stock and warrants issued as payment for professional services.

Research and development costs for the three months ended March 31, 2012 and 2011 were $361 and $26,832, respectively. The decrease in research and development fees in the 2012 periods is directly attributable to the reduced research and development efforts due to suspension of operations at December 31, 2010.

During the three months ended March 31, 2012 and 2011, the Company recorded interest expense of $4,354 and $574, respectively. The increase in interest expense in the 2012 periods is related to interest expense on notes payable outstanding during 2012.

During the three months ended March 31, 2012, the Company recorded non-cash interest expense related to the amortization of debt discount on notes payable of $65,859.

During the three months ended March 31, 2012 and 2011, the Company had gains on settlement of accounts payable of $17,515 and $1,557, respectively.

During the three months ended March 31, 2011, the Company recorded a net aggregate loss on dispositions of $221,512, due primarily to write downs of accounts receivable related to QN Diagnostics, the Company’s former joint venture.

The Company’s net loss for the three months ended March 31, 2012 was $189,117 compared to net loss for the three months ended March 31, 2011 of $335,024. The decrease in net losses in the three month period ended March 31, 2012 compared to the comparable period in 2011 is due to lower losses on dispositions in the 2012 period partially offset by higher professional fees.

-13-

Table of Contents

Liquidity and Capital Resources

As of March 31, 2012, the Company had cash and cash equivalents of $723, as compared to cash and cash equivalents of $7,565 as of December 31, 2011. The net decrease in cash of $6,842 for the three months ended March 31, 2012 is attributable to net cash used for operating activities and amounts used to settle certain accrued expenses and accounts payable. Also included in net cash used during the three months ended March 31, 2012, is cash used to purchase capital assets of $5,475.

The Company has not generated sufficient revenues from operations or its investment in intellectual property to meet its operating expenses. The Company has therefore historically financed its operations primarily through issuances of equity and debt securities, and, during the second and third quarters of 2010, through the sale of certain equity interests in FluoroPharma, and in the second and third quarters of 2011, the issuance of certain debt securities. 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.

While equity and debt financing has historically provided for the Company’s working capital needs, including capital necessary to fund the development and commercialization of the Company’s lateral flow based products, no assurances can be given that such financing will continue to be available to the Company in the future. The Company has also actively reduced operating expenses, has recently consolidated its operations in Portland, Oregon, and intends to continue to aggressively control costs and seek additional financing in order to continue as a going concern. In the event the Company is unable to secure additional financing, or is otherwise unsuccessful in restructuring certain of its liabilities, the Company will be unable to continue as a going concern.

Off-Balance Sheet Arrangements

We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

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.

-14-

Table of Contents

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, at least annually or 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.

-15-

Table of Contents

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.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our management, with the participation of our Chief Executive Officer/Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer/Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on its evaluation, and in light of the previously-identified material weaknesses in internal control over financial reporting, as of December 31, 2010, described in the 2011 Annual Report on Form 10-K, our Chief Executive Officer/ Chief Financial Officer concluded that, as of March 31, 2012, our disclosure controls and procedures were not effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There has been no progress towards remediating our previously disclosed material weakness due to the lack of funding.

-16-

Table of Contents

PART II - OTHER INFORMATION

ITEM 1.

Legal Proceedings

As of the date hereof, there are no material pending legal proceedings to which we are a party to or of which any of our property is the subject.

ITEM 2.

Unregistered Sales of Equity Securities, and Use of Proceeds

During the three months ended March 31, 2012, the Company issued promissory notes to certain investors resulting in gross proceeds of $45,000, (the “Q1 Notes). The Q1 Notes accrue interest at the rate of 6% annually, and are due and payable on or before June 30, 2012. As of March 31, 2012, 225,000 shares of its common stock were reserved for issuance in connection with the Q1 Notes (the “Note Shares”).

Proceeds from the sale of the Q1 Notes were used for general working capital purposes. The offer and sale of the Q1 Notes and Note Shares were effected in reliance on the exemptions for sales of securities not involving a public offering, as set forth in Rule 506 promulgated under the Securities Act of 1933, as amended, and in Section 4(2) of the Securities Act. A legend will be placed on the certificates representing each such security stating that it was restricted and could only be transferred if subsequent registered under the Securities Act or transferred in a transaction exempt from registration under the Securities Act.

ITEM 3.

Defaults Upon Senior Securities

None.

ITEM 4.

Mine Safety Disclosures

N/A

ITEM 5.

Other Information

None.

ITEM 6.

Exhibits

Exhibit		Description
31		Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.
32*		Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350.

101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase
101.DEF**		XBRL Taxonomy Extension Definition Linkbase
101.LAB**		XBRL Taxonomy Extension Label Linkbase
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase

*The certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly Report on Form 10-Q 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, or otherwise subject to the liability of that section.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

-17-

Table of Contents

SIGNATURES

Pursuant to the requirements 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.

Date: May 21, 2012	/s/ Shalom Hirschman
	Shalom Hirschman Principal Executive, Financial and Accounting Officer

QUANTRX BIOMEDICAL CORP - FORM 10-Q - May 21, 2012

Attached files

QUANTRX BIOMEDICAL CORP Reports