QUANTRX BIOMEDICAL CORP - FORM 10-K/A

Attached files

file	filename
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-K/A

(Amendment No. 1)

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

ACT OF 1934

For the fiscal year ended December 31, 2011

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.)

10190 SW 90th Avenue, Tualatin, Oregon 97123

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (503) 575-9385

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. o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o

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. x

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). x

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 (Do not check if smaller reporting company)	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). o

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, 2011): $1,547,357

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of April 10, 2012: 51,578,597 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K of QuantRx Biomedical Corporation (the "Company") for the year ended December 31, 2011, originally filed with the Securities and Exchange Commission on April 17, 2012 (the "2011 Form 10-K"). This Amendment is being filed to amend, and correct presentations in, (i) Part I, Item 1A, Risk Factors, to add an additional risk factor; (ii) Part II, Item 8, Financial Statements and Supplementary Data, to add a legend to the report of the Company's predecessor auditor, dated April 12, 2011; (iii) Part II, Item 9A(T), Controls and Procedures; and (iv) Part III, Item 15, Exhibits and Financial Statement Schedules. This Amendment does not amend, restate or otherwise change the Company's results of operations or financial condition as reported in the 2011 Form 10-K.

No other changes have been made in this Amendment to the 2011 Form 10-K. This Amendment speaks as of the original date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the 2011 Form 10-K. In addition, as required by Rule 12b-15 under the Securities and Exchange Act of 1934, as amended, new certifications of our principal executive officer and principal accounting officer are filed as exhibits to this Amendment.

PART I

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.

At March 31, 2012, we have certain promissory notes that will become due and payable. In the event we are not able to raise sufficient capital to pay such notes, or otherwise restructure the same, and payment of principal and accrued interest thereon is demanded by the holders thereof, we will be in default, and may not be able to continue as a going concern.

During the year ended December 31, 2011, we issued promissory notes with a principal amount aggregating $205,000, bearing interest at 6.0% per annum. Such notes become due and payable on March 31, 2012. In the event we are unable to pay such notes, or otherwise extend the maturity date thereof, or restructure the notes, and payment of principal and accrued interest thereon is demanded by the holders thereof, we will be in default, and the Company may not be able to continue as a going concern. In the event of a default, among other remedies, the interest rate paid in connection with the notes increases to 12% per annun.

Commercialization of our products is contingent on the development of a financing and operating plan, and we might not successfully develop a plan to develop our technology or products, or otherwise commercialize the same.

While management is continuing the development of its innovative PAD based products though genomic testing, commercialization efforts are conditioned on securing adequate financing, or entering into an alternative relationship necessary to allow the Company to commercialize its products and technology. Although no assurances can be given, in the event the Company is unable to successfully raise additional capital, develop a plan or otherwise enter into an alternative relationship to allow the Company to capitalize on its products and technology, 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, attract or retain necessary and qualified personnel, or otherwise enter into an alternative relationship necessary to allow the Company to commercialize its products and technology, we may be unable to continue as a going concern.

Our ability to operate as a going concern is dependent upon raising adequate financing.

While management is continuing the development of its innovative PAD based products though genomic testing, commercialization efforts are conditioned on securing adequate financing. Although we are pursuing various funding and related options, to obtain additional funding to continue the development of our products and bring them to commercial markets, management has been unsuccessful to date in securing financing other than bridge financing. There can be no assurance that we will be successful in our efforts to obtain adequate financing. Should we be unable to raise adequate financing or generate revenue in the future, the Company’s business prospects 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.

As of the year ended December 31, 2011, the Company had an accumulated deficit of $48,658,457. 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 2012. 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.

-8-

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.

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.

Efforts to commercialize our products are conditioned on 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.

-9-

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.

-10-

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 among 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 may not be able to efficiently develop manufacturing capabilities or contract for such services from third parties on commercially acceptable terms.

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 direct, 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.

-11-

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.

Our former independent public accountant, BehlerMick PS, has ceased operations, therefore limiting potential remedies.

BehlerMick, PS (“BehlerMick”) was our independent auditor for the years ended December 31, 2009 and 2010. On October 31, 2011, BehlerMick ceased operations, including practicing before the Securities and Exchange Commission. As a result, substantially all of its personnel left the firm, including the individuals responsible for auditing our financial statements for the year ended December 31, 2010 that are included in this Annual Report on Form 10-K. As a result of the cessation of BehlerMick’s operations, the Company appointed MartinelliMick PLLC as our independent registered public accounting firm.

BehlerMick has not reissued its audit report included in this Annual Report on Form 10-K. Furthermore, BehlerMick has not consented to the inclusion or incorporation by reference of its audit report in any other filings we may make with the Securities and Exchange Commission. As a result, you may not have an effective remedy against BehlerMick in connection with a material misstatement or omission with respect to our audited financial statements that are included in this Annual Report on Form 10-K, or any other filing we may make with the Securities and Exchange Commission, including any claim under Sections 11 and 12 of the Securities Act of 1933, as amended. Even if you were able to assert such a claim, due to the cessation of operations, BehlerMick may fail or otherwise have insufficient assets to satisfy claims made by investors or by us that might arise under federal securities laws or otherwise relate to any alleged material misstatement or omission with respect to our audited financial statements. In addition, in connection with any future capital markets transaction in which we are required to include financial statements that were audited by BehlerMick, as a result of the foregoing, investors may elect not to participate in any such offering or, in the alternate, may require us to obtain a new audit with respect to previously audited financial statements. Consequently, our financing costs may increase or we may miss attractive capital market opportunities.

PART II

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Audited balance sheets for the years ended December 31, 2011 and 2010 and audited statements of operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2011 and 2010 are included immediately following the signature page to this Annual Report, beginning on page F-1.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of December 31, 2011. Based on this evaluation, and in light of the material weaknesses in internal controls over financial reporting described below, the Company’s Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.

Management's Annual Report on Internal Control over Financial Reporting

Our Chief Executive Officer/Principal Accounting Officer is responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rule 13a-15(f) and 15d-(f) under the Exchange Act. Our internal control over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting include those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our consolidated financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

Our Chief Executive Officer/Principal Accounting Officer assessed the effectiveness of our internal control over financial reporting presented in conformity with accounting principles generally accepted in the U.S. as of December 31, 2011. In conducting its assessment, our Chief Executive Officer/Principal Accounting Officer used the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework. Based on this assessment, our Chief Executive Officer/Principal Accounting Officer concluded that, as of December 31, 2011, our internal control over financial reporting was not effective based on those criteria due to the material weakness in our entity level control environment described in the 2010 Annual Report on Form 10-K.

In an effort to remediate the identified material weaknesses in our entity level control environment, 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.

While the Company has retained competent accounting and finance professionals necessary to ensure timely and accurate reporting with the SEC, the weaknesses in our entity level control environment arguably persist, and will continue to persist pending financing necessary to allow the Company to recruit additional accounting and/or finance professionals to address the material weakness in our entity level control environment.

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 year 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.

PART III

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following exhibits are filed as part of this annual report:

Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 filed with Form 10-KSB filed on April 16, 2001)
3.2		Certificate of Amendment to the Articles of Incorporation of the Company, dated November 30, 2005 (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 (incorporated by reference to Exhibit 3.6 filed with Form 10-K on April 14, 2011)
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		2007 Incentive and Non-Qualified Stock Option Plan (incorporated by reference to Exhibit C filed with Schedule 14A on June 5, 2007)
10.4		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)
10.5		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)
10.6		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)
10.7		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)
10.8		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)
10.9		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)
10.10		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)
31		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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***

* Certain exhibits and schedules are omitted but will be furnished to the Commission supplementally upon request.

** The certification attached as Exhibit 32 accompanies this Annual Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 shall not be deemed "filed" by QuantRx Biomedical Corporation for purposes of Section 18 of the Exchange Act.

*** Previously furnished.

-26-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	QuantRx Biomedical Corporation

Date: November 16, 2012	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: November 16, 2012	By:	/s/ William H. Fleming
	William H. Fleming, Director

Date: November 16, 2012	By:	/s/ Shalom Hirschman
	Shalom Hirschman, Director

Date: November 16, 2012	By:	/s/ Michael Abrams
	Michael Abrams, Director

-27-

QUANTRX BIOMEDICAL CORPORATION

FINANCIAL STATEMENTS

Table of Contents

Reports of Independent Registered Public Accounting Firms		F-2

Balance Sheets as of December 31, 2011 and 2010		F-4

Statements of Operations for the Years Ended December 31, 2011 and 2010		F-5

Statements of Cash Flows for the Years Ended December 31, 2011 and 2010		F-6

Statement of Stockholders’ Equity for the Years Ended December 31, 2011 and 2010		F-7

Notes to Financial Statements		F-8

F-1

To the Board of Directors and Stockholders

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 the Company will continue as a going concern. As discussed in Note 2, the Company has a history of operating losses, has limited cash resources, and its viability is dependent upon its ability to meet its future financing requirements, and the success of future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/BehlerMick PS

Spokane, Washington

April 12, 2011

THE REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K ISSUED BY BEHLERMICK PS (“BEHLERMICK”) IS A COPY OF THE REPORT ISSUED ON APRIL 12, 2011. BEHLERMICK CEASED OPERATIONS IN OCTOBER 2011 AND HAS THEREFORE NOT REISSUED THE REPORT.

F-2

To the Board of Directors and

Stockholders of QuantRx Biomedical Corporation

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheet of QuantRX Biomedical Corporation as of December 31, 2011, and the related statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2011. 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 audit. The financial statements for the year ended December 31, 2010, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated April 12, 2011.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of QuantRX Biomedical Corporation as of December 31, 2011, and the results of its operations and its cash flows for the year ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2, the Company has a history of operating losses, has limited cash resources, and its viability is dependent upon its ability to meet its future financing requirements. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

MartinelliMick PLLC

Spokane, Washington

April 16, 2012

F-3

QUANTRX BIOMEDICAL CORPORATION

BALANCE SHEETS
	December 31,			December 31,
	2011			2010
ASSETS
Current Assets:
Cash and cash equivalents	$	7,565		$	229,944
Accounts receivable		4,121			4,457
Interest receivable – related party		79,689			63,689
Inventories		2,910			3,770
Prepaid expenses		17,123			23,409
Note receivable – related party		200,000			200,000
Total Current Assets		311,408			525,269

Investments		200,000			200,000
Property and equipment, net		35,434			109,479
Intangible assets, net		39,393			46,805
Security deposits		-			6,093
Net assets of discontinued operations		-			220,192
Total Assets	$	586,235		$	1,107,838

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	222,564		$	437,587
Accrued expenses		16,443			168,000
Notes payable, net of discount		168,140			-
Security deposit		-			2,000
Total Current Liabilities		407,148			607,587
Notes payable, long-term		44,000			44,000
Total Liabilities		451,148			631,587

Commitments and Contingencies					-

Stockholders’ Equity (Deficit):
Preferred stock; $0.01 par value, 20,500,000 and 0 authorized shares, respectively; Series B convertible preferred shares: 20,416,228 and 17,916,228 issued and outstanding, respectively		204,162			179,162
Common stock; $0.01 par value; 150,000,000 authorized; 47,377,630 and 44,427,630 shares issued and outstanding, respectively		473,776			444,276
Common stock to be issued		158,107			128,000
Additional paid-in capital		47,902,606			47,524,761
Accumulated deficit		(48,603,564	)		(47,819,948	)
Total Stockholders’ Equity (Deficit)		135,087			456,251

Total Liabilities and Stockholders’ Equity (Deficit)	$	586,235		$	1,107,838

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

F-4

QUANTRX BIOMEDICAL CORPORATION

STATEMENTS OF OPERATIONS
	Year Ended December 31,
	2011			2010
Revenues:
Revenues	$	19,085		$	63,717
Total Revenues		19,085			63,717

Costs and Operating Expenses:
Cost of goods sold (excluding depreciation and amortization)		409			375
Sales, general and administrative		123,559			945,779
Professional fees		610,129			768,664
Research and development		47,868			281,963
Amortization		7,412			12,976
Depreciation		26,473			60,035
Total Costs and Operating Expenses		815,850			2,069,792

Loss from Operations		(796,765	)		(2,006,075	)

Other Income (Expense):
Interest and dividend income		16,000			22,016
Interest expense		(6,501	)		(7,349	)
Rental income		-			2,750
Net gain on disposal of assets		-			9,028
Amortization of debt discount to interest expense		(26,175	)		-
Gain on sale of investments		-			2,254,374
Gain on settlement of accrued payroll		-			252,440
Gain on settlement of accounts payable		259,123			366,590
Total Other Income (Expense), net		(242,447	)		2,899,849

Income (Loss) Before Taxes		(554,318	)		893,774

Provision for Income Taxes		-			-

Net Income (Loss) before discontinued operations	$	(554,318	)	$	893,774
Net Income (Loss) from discontinued operations, net of taxes	$	(229,298	)	$	(62,586	)

Net Income (Loss)	$	(783,616	)	$	831,188

Series A Preferred Dividend		-			388,017
Net Income (Loss) Available to Common Shareholders		(783,616	)		443,171

Basic and Diluted Net Income (Loss) per Common Share	$	(0.02	)	$	0.01

Basic and Diluted Weighted Average Shares Used in per Share Calculation		49,047,665			44,427,630

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

F-5

QUANTRX BIOMEDICAL CORPORATION

STATEMENTS OF CASH FLOWS	Year Ended December 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(783,616	)	$	831,188
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		33,885			60,613
Interest expense related to amortization of non-cash discount, non-cash beneficial conversion feature and deferred financing costs		26,175			-
Expenses related to employee stock based compensation		7,950			74,891
Expenses related to common stock warrants issued for consulting		119,094			250
Non-cash fair value of common stock issued as settlement of accounts payable		43,000			128,000
Non-cash fair value of common stock issued as compensation		45,000			-
Non-cash fair value of preferred stock issued as compensation		37,500			-
Non-cash fair value of common stock in exchange for warrants		62,070			-
Non-cash gain on preferred stock exchanged		-			(330,360	)
Non-cash fair value of common stock issued in connection with notes payable		81,037			-
Net gain on disposition of assets and investments		-			(1,890,816	)
Net gain on settlement of accounts payable		220,329			(366,590	)
Net gain on settlement of accrued compensation payable					(252,440	)
(Increase) decrease in:
Accounts receivable		336			68,171
Interest receivable		(16,000	)		(16,000	)
Inventories		860			911
Prepaid expenses		6286			104,819
Deposits					-
Security deposits		(2,000	)		5,000
Increase (decrease) in:
Accounts payable					54,952
Accrued expenses		(344,011	)		187,440
Deferred revenue		(147,792	)		(337,160	)

Net Cash Used by Operating Activities before Discontinued Operations		(609,897	)		(1,677,131	)
Net Cash Provided (Used) by Discontinued Operations		182,518			(156,591	)
Net Cash Used by Operating Activities		(427,379	)		(1,833,722	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from the sale of investments		-			1,655,954
Cash proceeds from sale of equipment		-			31,501

Net Cash Provided (Used) by Investing Activities		-			1,687,455

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible promissory notes		205,000			-

Net Cash Provided by Financing Activities		205,000			-

Net Increase (Decrease) in Cash and Cash Equivalents		(223,379	)		(146,267	)
Net Cash of Deconsolidated Subsidiary					-
Cash and Cash Equivalents, Beginning of Period		229,944			376,211

Cash and Cash Equivalents, End of Period	$	7,565		$	229,944

Supplemental Cash Flow Disclosures:
Interest expense paid in cash	$	-		$	7,449
Income tax paid	$	-		$	-

Supplemental Disclosure of Non-Cash Activities:
Issuance of common stock for settlement of accounts payable	$	43,000		$	-

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

F-6

QUANTRX BIOMEDICAL CORPORATION

STATEMENT OF STOCKHOLDERS’ EQUITY

	Preferred Stock					Common Stock
	Number of Shares			Amount		Number of Shares		Amount		Additional Paid-in Capital			Stock to be Issued		Accumulated Deficit			Total Stockholders’ Equity
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

BALANCE, DECEMBER 31, 2010	17,916,228		$	179,162		44,427,630	$	444,276	$	47,524,761		$	128,000	$	(47,819,948	)	$	456,251


Issuance of Series B Convertible Preferred Stock for services rendered	2,500,000			25,000						12,500								37,500
Common stock to be issued in connection with settlement agreements						1,650,000		16,500		145,500			(119,000)					43,000
Fair value of common stock issueds for services						1,300,000		13,000		26,000			6,000					45,000
Fair value of common stock issued to consultant						-		-		-			62,070					62,070
Issuance of common stock related to notes payable						-		-		-			81,037					81,037
Warrants issued with Notes Payable										66,801								66,801
Fair value of warrants issued to consultant										119,094								119,094
Fair value of stock options										7,950								7,950
Net loss for the year ended December 31, 2011															(783,616	)		(783,616	)

BALANCE, DECEMBER 31, 2011	20,416,228		$	204,162		47,377,630	$	473,776	$	47,902,606		$	158,107	$	(48,603,564	)	$	135,087

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

F-7

QUANTRX BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1.	DESCRIPTION OF BUSINESS

Recent Developments

During the six months ended December 31, 2011, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $105,000 (the “Notes”). The Notes accrue interest at the rate of 6% annually, and are due and payable on or before March 31, 2012. In addition to the Notes issued during the six months ended December 31, 2011, the Company issued additional Notes during the quarter ended June 30, 2011 in the principal amount of $100,000. 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 a total of 1,031,967 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, 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.

On July 7, 2011, the Company and NuRx Pharmaceuticals, Inc. (“NuRx”) settled all disputes between the parties relating to a complaint brought against the Company by NuRx relating to QN Diagnostics, LLC, a joint venture between the Company and NuRx (“QND”). Since July 2009, the Company had focused on, among other development initiatives, the development of its POC lateral flow diagnostics products through QND. QND was formed to develop and commercialize products incorporating the Company’s lateral flow strip technology and related lateral flow strip readers. Under the terms of the settlement with NuRx, the Company transferred its entire membership interest in QND to NuRx, including all assets held by the Company relating to QND, for and in consideration for the issuance to the Company of 12.0 million shares of common stock of NuRx (the "Settlement Shares"). As a result of the issuance of the Settlement Shares, the Company holds an approximate 25% equity interest in NuRx, and the Company has no further contractual obligations or liabilities associated with its former interest in QND.

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.

F-8

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.

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 or similar relationships 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 sufficient to meet its operating expenses. 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, 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, 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 and fund long-term business operations;

	·	enter into a licensing or other relationship that allows the Company to commercialize its products;

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.

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.

F-9

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 years ended December 31, 2011 and 2010 of $45,000 and $49,892, 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:

During 2011, the fair value of each share based payment is estimated on the measurement date using the Black-Scholes model using an average risk free interest rate of 3.22%, expected volatility of 3.0%, and a dividend yield of zero. During 2010, the fair value of each share based payment is estimated on the measurement date using the Black-Scholes model using a risk free interest rate of 2.43%, expected volatility of 72%, and a dividend yield of zero.

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.

F-10

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, 2011, 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, 2011.

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, 2011 and 2010.

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, 2011 and 2010, our cash was not in excess of these limits.

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, 2011, the Company had outstanding options exercisable for 304,750 shares of its common stock, warrants exercisable for 5,632,971 shares of its common stock, and preferred shares convertible into 20,416,228 shares of its common stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the year ended December 31, 2011.

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.

F-11

Fair Value of Financial Instruments

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.

			At December 31, 2011 Fair Measurements Using
Description	Year Ended 12/31/2010		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)		Total Gains (Losses)

Investment and Note Receivable from GMS	$	400,000		$	400,000		-

Recognized in earnings						$	-

In determining fair value of our investment and note receivable from GMS, 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, 2011, the Company had 277,500 options and 249,278 warrants to purchase common stock of FluoraPharma with exercise prices of $0.50 and $1.50, respectively and expiring at various dates in 2014. The Company has estimated the fair value of the options and warrants at $129,692 and $76,582, respectively, in accordance with ASC Topic 820, Level 3. At December 31, 2011, the Company deems the options and warrants to be fully impaired.

Impairments

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.

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, 2011 or 2010, and have not recognized interest and/or penalties in the statement of operations for the years ended December 31, 2011 or 2010. See Note 13, Income Taxes.

F-12

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, 2011 and 2010, totaled $7,412 and $12,976, respectively. 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, 2011 and 2010 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 $26,473 and $47,638 for the years ended December 31, 2011 and 2010. Expenditures for repairs and maintenance are expensed as incurred. See Note 6.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

In May 2011, the FASB issued further additional authoritative guidance related to fair value measurements and disclosures. The new guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between accounting principles generally accepted in the United States (U.S. GAAP) and International Financial Reporting Standards (IFRS). The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2011. We are currently assessing the impact of the guidance.

In June 2011, the FASB issued authoritative guidance requiring entities to present net income and other comprehensive income (OCI) in one continuous statement or two separate, but consecutive, statements of net income and comprehensive income. The option to present items of OCI in the statement of changes in equity has been eliminated. The new requirements are effective for annual reporting periods beginning after December 15, 2011 and for interim reporting periods within those years. We do not expect the adoption to have a material impact on our financial statements.

F-13

Reclassifications

Certain reclassifications have been made in the presentation of the financial statements for the year ended December 31, 2010 to conform to the presentation of the financial statements for the year ended December 31, 2011. 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 was $1,429,960. The expenses related to the Development Agreement for 2010 was $1,429,960. Expenses are included in each appropriate expense category. As a result of the divestiture of the Company's interest in QND on July 7, 2011, the date the Company settled all disputes between the parties relating to a complaint brought against the Company by NuRx Pharmaceuticals, Inc. (“NuRx”) related to QND, no revenue was recorded in the year ended December 31, 2011 relating to the Company’s interest in QND.

F-14

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. The Company recognized revenue of $36,000 in the year ended December 31, 2010 related to this agreement,

Development Agreements and Royalties

In 2007, the Company entered into a development agreement to develop rapid test POC products in oral care for ALT BioScience (“ALT”). 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.

In 2007, jointly with its agreement with ALT, the Company entered into a development agreement for an at-home diagnostic test with Church & Dwight Co., Inc. (“C&D”). The C&D 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 C&D. Under the terms of the agreement, C&D acquired exclusive worldwide 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 $19,085 and $26,815 in 2011 and 2010, 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 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 owned a 50% interest in QND. The purpose of the joint venture was to develop and commercialize products incorporating the lateral flow strip technology and related lateral flow strip readers.

Under the terms of the agreements, QND made a $2,000,000 cash distribution to the Company. The Company was 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 were required to 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 was required to 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.

On July 20, 2010, the Company notified NuRx that NuRx was in material breach of the Development Agreement, and on August 24, 2010, NuRx filed suit against the Company and one of its directors.On July 7, 2011, the Company and NuRx settled all disputes between the parties relating to a complaint brought against the Company by NuRx relating to QND. Under the terms of the settlement with NuRx, the Company transferred its entire membership interest in QND to NuRx, including all assets held by the Company relating to QND, for and in consideration for the issuance to the Company of 12.0 million shares of common stock of NuRx (the "Settlement Shares"). As a result of the issuance of the Settlement Shares, the Company holds an approximate 25% equity interest in NuRx, and the Company has no further contractual obligations or liabilities associated with its former interest in QND. While no assurances can be given, the Company currently does not expect to receive any value for its holdings in NuRx.

During the years ended December 31, 2011 and 2010, the Company recorded net losses from the discontinuation of its interest in QND of $229,298 and $62,586, respectively.

F-15

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 was 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 were to be made by QND (see Note 4). In addition, QND was 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.

During the year ended December 31, 2011, in connection with the settlement of litigation related to QND, the Company settled its obligations to PRIA in consideration for the payment to PRIA of $5,000, and the issuance of 500,000 shares of the Company's common stock with a deemed value of $15,000.

6.	OTHER BALANCE SHEET INFORMATION

Components of selected captions in the accompanying balance sheets as of December 31, 2011 and 2010 consist of:

	2011			2010
Prepaid expenses:
Prepaid insurance		16,707			17,386
Other		416			6,023
Prepaid expenses	$	17,123		$	23,409


Property and equipment:
Computers and office furniture, fixtures and equipment	$	87,370		$	90,660
Machinery and equipment		99,015			173,295
Leasehold improvements		8,902			92,233
Less: accumulated depreciation		(159,853	)		(246,709	)
Property and equipment, net	$	35,434		$	109,479

Accrued expenses:
Payroll and related	$	-		$	86,000
Professional fees		16,443			82,000
Other					-
Accrued expenses	$	16,443		$	168,000

7.	NOTES RECEIVABLE

Genomics USA, Inc.

In January 2007, the Company advanced $200,000 to GMS through an 8% promissory note due April 8, 2007. The note is currently convertible at the Company’s discretion into 10% of GMS’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, 2011 and 2010. At December 31, 2011 and 2010, the Company had interest receivable on this note of 79,689 and $63,689, respectively.

F-16

8.	INVESTMENTS

FluoroPharma, 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 December 31, 2011, the Company held 277,500 options exercisable at $.50 and 249,278 warrants exercisable at $1.00.

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 FPMI 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 FPMI 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 FPMI for issuance to an executive to settle amounts due that executive.

As of December 31, 2011, the Company had 277,500 options and 249,278 warrants to purchase common stock of FPMI with exercise prices of $0.50 and $1.50, respectively and expiring at various dates in 2014. The Company has estimated the fair value of the options and warrants at $129,692 and $76,582, respectively, in accordance with ASC Topic 820, Level 3. At December 31, 2011, the Company deems the options and warrants to be fully impaired.

Genomics USA, Inc.

In May 2006, the Company purchased 144,024 shares of GMS common stock for $200,000. As of December 31, 2010 and 2009, the Company owned 12% of the issued and outstanding capital stock of GMS.

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, 2011 and December 31, 2010.

9.	INTANGIBLE ASSETS

Intangible assets as of December 31, 2011 and 2010 consisted of the following:

	2011			2010
Licensed patents and patent rights	$	50,000		$	50,000
Patents		41,004			41,004
Website development		-			-
Less: accumulated amortization		(51,611	)		(44,199	)
Intangibles, net	$	39,393		$	46,085

F-17

Patent under Licensing

In 2006, the Company entered into a patent license agreement with The Procter & Gamble Company, effective July 1, 2006. The agreement licenses patent rights and know-how for certain hemorrhoid treatment pads and related coatings. The term of the agreement is five years with a five year automatic renewal option. In consideration of this agreement, the Company paid a one-time, non-refundable engagement fee, and pays royalties based on net sales of such licensed products.

The Company has capitalized this engagement fee and amortizes the capitalized cost over the expected term of the patent license agreement. Amortization of $5,000 and $5,000 in connection with this licensed patent was recognized in the years ended December 31, 2009 and 2008. All royalties due pursuant to the terms of the agreement are expensed as incurred. Impairment is considered in accordance with the Company’s impairment policy. No impairment was recognized as of December 31, 2009 or 2008.

10.	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 “Q2 Notes”). The Q2 Notes accrue interest at the rate of 3% annually, and are due and payable on or before November 19, 2011. On November 19, 2011 these notes were reissued in principal plus $1,373 of accrued interest under the terms of the 2011 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.

Between June 2011 and December 2011, the Company issued promissory notes to certain investors resulting in gross proceeds to the Company of $205,000 (the “2011 Notes”). The 2011 Notes accrue interest at a rate of 6% annually, and are due and payable on or before March 31, 2012. In the event of a default on the 2011 Notes, the interest rate increases to 12% annually. Pursuant to the terms of the 2011 Notes, the Company will issue will issue shares 50,000 shares of its common stock for $10,000 loaned to the Company. As of December 31, 2011, the Company has issued 1,031,967 shares of its common stock valued at $119,094.

In connection with the 2011 Notes, the Company has recorded debt discount and expenses of the beneficial conversion feature of $56,373 and $10,749, respectively. The Company will amortize these expenses over the life of the 2011 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.

11.	LONG-TERM NOTES PAYABLE

The Company received a $44,000 loan from the Portland Development Commission in 2007. The loan matures in 20 years and was interest free through February 2010. The terms of the note stipulate monthly interest only payments from April 2010 through December 2014, at a 5% annual rate. The Company recorded interest expense on this loan of $2,028 for the year ended December 31, 2011.

12.	COMMITMENTS AND CONTINGENCIES

Operating Leases

At December 31, 2011, 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.

F-18

The Company terminated its lease and has settled the $3,900 remaining portion and deferred rent obligation of $15,600 for a net payment of $3,900. The Company has no further obligation under this lease agreement, and currently is planning to transfer operations to a new facility pending obtaining financing to recommence operations and has surrendered its security deposit of $6,093.

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 $20,832 and $94,730 for the years ended December 31, 2011 and 2010, respectively.

During 2010, the Company had a subtenant leasing research and development lab space. Sublease income relating to our operating leases was $ $4,125 for the year ending December 31, 2010, and is recorded in other income.

Executive Employment Agreements

We entered into employment contracts with key executives that provide 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 various times from July 2010 to December, 2010, all of these agreements were terminated. In December 2010, the Company entered into payoff agreements with certain key executives, which have been paid in full. At December 31, 2011, there were no agreements with management.

Legal Contingencies

We may occasionally become subject to legal proceedings and claims that arise in the ordinary course of our business. It is impossible for us to predict with any certainty the outcome of any disputes that may arise, and we cannot predict whether any liability arising from claims and litigation will be material in relation to our financial position or results of operations.

13.	INCOME TAXES

Pursuant to ASC 740, income taxes are provided for based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences on future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end.

We are subject to taxation in the U.S. and the state of Oregon. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2006.

At December 31, 2011 and 2010, the Company had gross deferred tax assets calculated at an expected blended rate of 38% of approximately $9,892,800 and $11,758,294, respectively, principally arising from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of $9,892,800 and $11,758,294 has been established at December 31, 2011 and 2010, respectively.

Topic 740 in the Accounting Standards Codification (ASC 740) prescribes recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. At December 30, 2011, the Company had taken no tax positions that would require disclosure under ASC 740.

The Company has analysed its filing positions in all jurisdictions where it is required to file income tax returns and found no positions that would require a liability for unrecognized income tax benefits to be recognized. We are subject to possible tax examinations for the years 2008 through 2011. We deduct interest and penalties as interest expense on the financial statements.

Additionally, the future utilization of our net operating loss and R&D credit carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to IRC Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future.

There is no unrecognized tax benefit included in the balance sheet that would, if recognized, affect the effective tax rate.

F-19

The significant components of the Company’s net deferred tax assets (liabilities) at December 31, 2011 and 2010 are as follows:

	2011			2010
Gross deferred tax assets:
Net operating loss carryforwards	$	9,017,000		$	8,917,167
Difference between book and tax basis of former subsidiary stock held		-			1,937,844
Stock based expenses		101,800			46,892
Tax credit carryforwards		211,000			292,999
All others		563,000			563,392
		9,892,800			11,758,294

Deferred tax asset valuation allowance		(9,892,800	)		(11,758,294	)
Net deferred tax asset (liability)	$	-		$	-

At December 31, 2011, the Company has net operating loss carryforwards of approximately $23,700,000, which expire in the years 2011 through 2030. The net change in the allowance account was a decrease of $1,865,494 for the year ended December 31, 2011.

14.	CAPITAL STOCK

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 $204,000 (“Series B Preferred”). The remaining 4,500,000 authorized preferred shares have not been designated by the Company as of December 31, 2011.

On November 19, 2010, the Company filed a Certificate of Withdrawal of the Certificates of Designations of the Series A Preferred Stock (“Series A Preferred”) with the Nevada Secretary of State, as there were no shares of Series A Preferred issued and outstanding after the exchange transaction discussed below.

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.

In the third quarter of 2009, the Company issued 4,060,397 shares of Series A-1 Preferred to certain holders of the Company’s promissory notes in exchange for the cancellation of their respective notes and the releases of any security interests.

On August 4, 2010, the Company declared stock dividends in the amount of $324,831 to the holders of Series A-1 Preferred.

F-20

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 newly created 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 December 2010, the Company issued 17,916,228 shares of its Series B Preferred in exchange for 3,583,246 shares of Series A-1 Preferred at a per share price of $0.20.

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.

Common Stock

The Company has authorized 150,000,000 shares of its common stock, $0.01 par value. The Company had issued and outstanding 51,578,597 and 44,427,630 shares of its common stock at December 31, 2011 and 2010. In December 2009, the shareholders of the Company approved an increase to authorized common stock to 150,000,000 shares. The increase took effect in January 2010 with the filing of the amendment to the articles of incorporation with the State of Nevada.

During the year ended December 31, 2011, the Company issued 2,069,000 shares of common stock in exchange for outstanding warrants in connection with debt financing, 500,000 shares of common stock to each of its two board members, and 500,000 shares of common stock to an advisor to the board of directors, 1,031,967 shares of common stock related to the 2011 Notes and 900,000 shares of common stock pursuant to settlement of accounts payable valued at $43,000. At December 31, 2010, the Company had reserved for issuance 1,650,000 shares of common stock, valued at $128,000, as settlements of accounts payable and accrued compensation. Such shares were issued in January 2011.

15.	STOCK PURCHASE WARRANTS

Common Stock Warrants

In May 2011, the Company entered into a consulting agreement with a financial advisory firm to provide services to the Company for an initial term of eighteen (18) months at a rate of $12,000 per month. Under the terms of the agreement, the Company may defer the monthly payment, in exchange for the issuance of 200,000 common stock purchase warrants. The warrants have a five (5) year term and an exercise price of $0.20 per share or 105% on the date of issuance. As of December 31, 2011, the Company has issued 1,600,000 warrants under this agreement, valued at $119,094.

F-21

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.

In the fourth quarter of 2009, warrants to purchase 1,750,000 shares of common stock (fair value of $295,050) were granted in settlement of $195,000 in outstanding accounts payable and a six-month financial advisory services contract with the Company’s financial advisory firm, which warrants were allocated to principals of the firm (“Advisory Warrants”). The Advisory Warrants have an exercise price of $0.55 and a term of five years. Of the $100,050 allocated to the financial advisory services contract, $16,675 was expensed as consulting expense in 2009, and as of December 31, 2009, $83,375 was recorded as prepaid consulting.

In May 2011, the Company exchanged the Advisory Warrants together with warrants to purchase 319,000 shares of common stock held by principals of the Company’s financial advisory firm for 2,069,000 shares of common stock in consideration for $100,000 of debt financing.

In consideration for the management and other executive services provided by Drs. Shalom Hirschman and William Fleming, the Company issued 500,000 restricted shares of the Company's common stock to each of Drs. Hirschman and Fleming. The shares are subject to certain vesting requirements and are subject to forfeiture under certain circumstances. Drs. Hirschman and Fleming serve as the Company's Principal Executive Officer and Principal Accounting Officer, and President and Chief Science Officer, respectively.

The following is a summary of all common stock warrant activity during the two years ended December 31, 2011:

	Number of Shares Under Warrants		Exercise Price Per Share	Weighted Average Exercise Price
Warrants issued and exercisable at December 31, 2009		14,784,347	$0.31 - $ 2.00	$	0.81
Warrants granted				$
Warrants expired		3,068,001	$0.31 - $ 2.00	$	0.84
Warrants exercised		-	-		-
Warrants issued and exercisable at December 31, 2010		11,716,346	$0.31 - $ 2.00	$	0.80
Warrants granted		1,600,000	$0.20 - $0.55		0.26
Warrants expired		(8,002,375)	$0.42 - $2.00	$	0.88
Warrants exercised		-
Warrants issued and exercisable at December 31, 2011		5,632,971	$0.20 - $1.50	$	0.51

The following represents additional information related to common stock warrants outstanding and exercisable at December 31, 2011:

Exercise Price		Number of Shares Under Warrants		Weighted Average Remaining Contract Life in Years		Weighted Average Exercise Price
$	0.20		1,600,000		4.92	$	0.20
$	0.31		210,000		2.30	$	0.31
$	0.40		25,000		3.14	$	0.40
$	0.50		1,306,873		1.34	$	0.50
$	0.55		1,605,848		1.82	$	0.55
$	0.61		4,000		1.13	$	0.61
$	0.75		2,000		1.01	$	0.75
$	0.85		205,000		1.86	$	0.85
$	0.87		2,000		0.93	$	0.87
$	1.00		325,750		2.33	$	1.00
$	1.10		20,000		1.20	$	1.10
$	1.15		6,000		0.67	$	1.15
$	1.20		30,000		0.58	$	1.20
$	1.25		177,500		2.42	$	1.25
$	1.35		75,000		0.55	$	1.35
$	1.50		38,000		0.44	$	1.50
			5,632,971		2.62	$	0.51

F-22

The Company used the Black-Scholes option price calculation to value the warrants granted in 2011 and 2010 using the following assumptions: an average risk-free rate of 3.22% and 2.43%; volatility of 3.0 and 0.72; actual term and exercise price of warrants granted. See Note 3, Summary of Significant Accounting Policies, “Accounting for Share-Based Payments.”

16.	COMMON STOCK OPTIONS

In 2007, the Company adopted the 2007 Incentive and Non-Qualified Stock Option Plan (hereinafter “the Plan”), which replaced the 1997 Incentive and Non-Qualified Stock Option Plan, as amended in 2001, and under which 8,000,000 shares of common stock are reserved for issuance under qualified options, nonqualified options, stock appreciation rights and other awards as set forth in the Plan.

Under the Plan, qualified options are available for issuance to employees of the Company and non-qualified options are available for issuance to consultants and advisors. The Plan provides that the exercise price of a qualified option cannot be less than the fair market value on the date of grant and the exercise price of a nonqualified option must be determined on the date of grant. Options granted under the Plan generally vest three to five years from the date of grant and generally expire ten years from the date of grant.

During the year ended December 31, 2011, no stock options were granted by the Company.

The following is a summary of all common stock option activity during the two years ended December 31, 2011:

	Shares Under Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 209		2,855,500		$	0.66
Options granted		-		$	-
Options forfeited		(2,285,500	)	$	0.65
Options exercised		-			-
Outstanding at December 31, 2010		570,500		$	0.72
Options granted		-		$	-
Options forfeited		(266,000)		$	0.50
Options exercised		-		$	-
Outstanding at December 31, 2011		304,750	$		0.91

	Options Exercisable		Weighted Average Exercise Price Per Share
Exercisable at December 31, 2010		408,000	$	0.53
Exercisable at December 31, 2011		142,000	$	0.60

The following represents additional information related to common stock options outstanding and exercisable at December 31, 2011:

		Outstanding						Exercisable
Exercise Price		Number of Shares		Weighted Average Remaining Contract Life in Years		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	0.31		15,000		3.04	$	0.31		15,000	$	0.31
$	0.38		12,500		4.00	$	0.38		12,500	$	0.38
$	0.50		125,000		3.58	$	0.50		62,500	$	0.50
$	0.80		1,000		7.17	$	0.80		1,000	$	0.80
$	0.85		51,000		6.78	$	0.85		51,000	$	0.85
$	1.60		100,000		5.26	$	1.60		-	$	1.60
			304,750		3.08	$	0.91		142,000	$	0.60

F-23

The weighted average remaining contractual term for both fully vested share options (exercisable, above) and options expected to vest (outstanding, above) is 3.0 years.

A summary of the status of the Company’s nonvested stock options as of December 31, 2010 and changes during the year ended December 31, 2011 is presented below:

Nonvested Stock Options	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2010		162,500	$	1.09
Options granted		-		-
Options vested		-	$	-
Options forfeited		-		-
Nonvested at December 31, 2011		162,500	$	1.09

As of December 31, 2011, the Company had recognized approximately $7,950 of unrecognized compensation cost related to nonvested options. Weighted average period of nonvested stock options was 3.6 years as of December 31, 2011.

The Company used the Black-Scholes option price calculation to value the options granted in 2011 and 2010 using the following assumptions: an average risk-free rate of 3.22% and 2.43%; volatility of 3.0 and 0.72; actual term and exercise price of options granted. See Note 3, Summary of Significant Accounting Policies, “Accounting for Share-Based Payments.”

17.	SUBSEQUENT EVENTS

Between January 1, 2012 and April 16, 2012, the Company issued additional promissory notes in the aggregate principal amount of $75,000 (the “2012 Notes”). The 2012 Notes accrue interest at the rate of 8% per annun, and are due and payable on June 30, 2012. In addition, for each $10,000 principal amount of 2012 Notes issued, the Company issued the holders thereof 50,000 shares of its Common stock, resulting in the issuance of 375,000 shares of Common Stock in connection with the issuance of the 2012 Notes.

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

QUANTRX BIOMEDICAL CORP - FORM 10-K/A - November 16, 2012

Attached files

QUANTRX BIOMEDICAL CORP Reports