UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




Annual
Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of
1934




For
the fiscal year ended September 30, 2009




Commission
File Number: 000-1174228




NURX
PHARMACEUTICALS, INC.


(Exact
name of registrant as specified in its charter)




NEVADA
                    87-0681500(State or other jurisdiction of incorporation
                    (I.R.S. Employer Identification No.)or organization)18 Technology, Suite 130
                      Irvine, CA
                    92618(Address of principal executive offices)
                    (Zip code)




Registrant’s
telephone number: 949-336-7111




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




Securities
registered under Section 12(g) of the Act:  Common Stock, par value
$0.001 per share




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


 ̈  Yes þ  No




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


 ̈  Yes þ  No




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.þ  Yes ̈  No





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 (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  ̈  Yes ̈  No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of the 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. ̈




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 ̈
            
            Accelerated filer ̈
            
            Non-accelerated filer ̈
              (Do not check if a smallerreporting company)
            
            Smaller reportingcompany     
      þ




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). ̈ Yesþ No




The
aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by using the closing price of the aggregate market value of
the voting stock held by non-affiliates of the registrant, computed by using the
closing price of registrant’s common stock of $0.49 per share, at March 31,
2009, was approximately $7,700,000.  For this purpose, the 7,743,172 shares
of directors, executive officers and certain other shareholders have been
excluded. This
calculation does not reflect the impact of the Registrant’s amendment of its
Bylaws, effective September 22, 2009, to adopt Sections 78.378 to 78.3793 of the
Nevada Revised Statutes which impose voting restrictions on stockholders
acquiring more than 20% of the Registrant’s voting
stock.




As of
December 18, 2009, 23,444,234 shares of common stock were
outstanding.




Documents
incorporated by reference





Document Description
              
              10-K Part IIIPortions
      of the Registrant’s proxy statement to be filed pursuant to Regulation 14A
      within 120 days after Registrant’s fiscal year end of September 30,
      2009 are incorporated by reference into Part III of this
      report.
              
              Items 10, 11, 12,
                13,
      14





TABLE
OF CONTENTS





PagePART
      I
                                                                                                          1ITEM
      1
                                                                                                          DESCRIPTION
      OF BUSINESS
                                                                                                          1ITEM
      1A.
                                                                                                          RISK
      FACTORS
                                                                                                          10ITEM
      1B
                                                                                                          UNRESOLVED
      STAFF COMMENTS
                                                                                                          26ITEM
      2
                                                                                                          PROPERTIES
                                                                                                          26ITEM
      3
                                                                                                          LEGAL
      PROCEEDINGS
                                                                                                          26ITEM
      4
                                                                                                          SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                                                                                          26PART
      II
                                                                                                          27ITEM
      5
                                                                                                          MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
                                                                                                          27ITEM
      6.
                                                                                                          SELECTED
      FINANCIAL DATA
                                                                                                          28ITEM
      7.
                                                                                                          MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION
                                                                                                          28ITEM
      7A.
                                                                                                          QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                                                                                          35ITEM
      8
                                                                                                          FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                                                                                                          35ITEM
      9.
                                                                                                          CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                                                                                                          35ITEM
      9A.
                                                                                                          CONTROLS
      AND PROCEDURES
                                                                                                          35ITEM
      9B.
                                                                                                          OTHER
      INFORMATION
                                                                                                          36PART
      III
                                                                                                          36ITEM
      10.
                                                                                                          DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                                                                                                          36ITEM
      11.
                                                                                                          EXECUTIVE
      COMPENSATION
                                                                                                          36ITEM
      12.
                                                                                                          SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS
                                                                                                          35ITEM
      13.
                                                                                                          CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
                                                                                                          35ITEM
      14.
                                                                                                          PRINCIPAL
      ACCOUNTING FEES AND SERVICES
                                                                                                          35PART
      IV
                                                                                                          35ITEM
      15.
                                                                                                          EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES
                                                                                                          35


-i-


PART
I





Introductory
Comment




Throughout
this Annual Report on Form 10-K, the terms “we,” “us,” “our,” “our company,”
“Company” and “NuRx” refer to NuRx Pharmaceuticals, Inc., a Nevada corporation
formerly known as Quest Group International, Inc.




Forward
Looking and Cautionary Statements




This
Form 10-K contains certain forward-looking statements. For example, statements
regarding our financial position, business strategy and other plans and
objectives for future operations, and assumptions and predictions about future
product demand, supply, manufacturing, costs, marketing and pricing factors are
all forward-looking statements. These statements are generally accompanied by
words such as “intend,” “anticipate,” “believe,” “estimate,” “potential(ly),”
“continue,” “forecast,” “predict,” “plan,” “may,” “will,” “could,” “would,”
“should,” “expect” or the negative of such terms or other comparable
terminology.  We believe that the assumptions and expectations
reflected in such forward-looking statements are reasonable, based on
information available to us on the date hereof, but we cannot assure you that
these assumptions and expectations will prove to have been correct or that we
will take any action that we may presently be planning.  However,
these forward-looking statements are inherently subject to known and unknown
risks and uncertainties.  Actual results or experience may differ
materially from those expected or anticipated in the forward-looking
statements.  Factors that could cause or contribute to such
differences include, but are not limited to, regulatory policies, competition
from other similar businesses, and market and general policies, competition from
other similar businesses, and market and general economic
factors.  This discussion should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in this
Annual Report.




If
one or more of these or other risks or uncertainties materialize, or if our
underlying assumptions prove to be incorrect, actual results may vary materially
from what we project.  Any forward-looking statement you read in this
Annual Report reflects our current views with respect to future events and is
subject to these and other risks, uncertainties and assumptions relating to our
operations, results of operations, growth strategy, and
liquidity.  All subsequent forward-looking statements attributable to
us or individuals acting on our behalf are expressly qualified in their entirety
by this paragraph.  You should specifically consider the factors
identified in this Annual Report, which would cause actual results to differ
before making an investment decision.  We are under no duty to update
any of these forward-looking statements after the date of this Annual Report or
to conform these statements to actual results.




ITEM
      1
            DESCRIPTION
      OF BUSINESS





Company
Overview





NuRx
Pharmaceuticals Inc. (“NuRx”) has historically been an early stage research
and development biopharmaceutical company with a focus on oncology products
(leukemia and lung cancer). The combination of (1) the current suboptimal
conditions for new financing of a pure early stage, oncology-focused research
and development biotech company and (2) the slower than expected recruitment in
our U.S. clinical trials with its resultant delays in delivery of Phase II data
has recently caused us to carefully re-evaluate our options.  On
August 6, 2009, we suspended patient accruals under all four of our active U.S.
clinical trials in order to reserve cash for other diversification
opportunities, and to await preliminary data from patients already accrued and
planned clinical trials in India.  Implementation for the Mexico
clinical trials was also suspended.  As of September 30, 2009, we had
a single active clinical trial for our lead compound, NRX 5183 (the “Lead
Compound”) Phase II for Relapsed Acute Promyelocytic Leukemia (“APL”) being
conducted in collaboration with Piramal Life Sciences, Limited (“Piramal”) at
five sites in India with one patient enrolled.  The patient
subsequently withdrew consent and exited the study.





In
addition, we determined that we needed to expand our interests to broader areas
of life sciences with products that offer a near term revenue stream to support
the research and development programs. We examined a number of options in the
medical diagnostics arena and ultimately focused on Point-of-Care diagnostics in
human and veterinary medicine. On July 30, 2009, we invested $5,000,000 into a
newly formed 50/50 joint venture with QuantRx Biomedical Corporation
(“QuantRx”). The joint venture, called QN Diagnostics, LLC, a Delaware
limited liability company (“QN Diagnostics”, “QND” or the “Joint Venture”), was
formed to commercialize Point-of-Care diagnostic tests. The joint venture
products will be focused on QuantRx’s proprietary lateral flow and optics
technologies (whereby a sample of saliva, urine, or whole blood moves across a
solid platform to interact with a reagent to produce colorimetric or other
changes that can be measured qualitatively or quantitatively) and Point-of-Care
delivery of data through novel and inexpensive readers.  We believe
that the combination of QuantRx intellectual property with the capital,
management and management expertise of NuRx will enable a rapid acceleration of
product delivery and the near term generation of revenues.  As we
continue to evolve and broaden our life sciences focus, we expect the QN
Diagnostics joint venture to become a critical part of our health care
portfolio.


1





Company
History





We were
formed as a Nevada corporation on August 14, 2001 as Quest Group International,
Inc. We became a reporting company in March 2003. From our inception in 2001
until May, 2007, we were in the business of selling nutritional products to
independent distributors and consumers in the United States and Japan. As a
result of our entering into of a licensing agreement with Vitae Pharmaceuticals,
Inc. (“Vitae”) in May 2007, we spun off our nutritional products business line
and operate as a development stage pharmaceutical company with a focus on
nuclear receptor target therapeutics. In connection with this change in business
focus, we have changed our name to NuRx Pharmaceuticals, Inc.





QN
Diagnostics Joint Venture





Joint
Venture Agreement





On July
30, 2009, we entered into a Contribution Agreement (the “Contribution
Agreement”) with QuantRx.  Pursuant to the Contribution Agreement, QuantRx
contributed intellectual property and other assets related to its lateral flow
strip technology and related lateral flow strip readers into the Joint
Venture.





NuRx and
QuantRx have also entered into a Limited Liability Company Agreement which
governs the Joint Venture (the “LLC Agreement”).  Under the terms of
the LLC Agreement, NuRx contributed $5,000,000 in cash to the Joint
Venture.  Following the respective contributions by NuRx and QuantRx
to the Joint Venture, NuRx and QuantRx each held a 50% interest in the Joint
Venture.  The purpose of the Joint Venture is to research, develop and
commercialize products incorporating the lateral flow strip technology and
related lateral flow strip readers (the “Lateral Flow
Products”).





Under the
terms of the LLC Agreement, upon the consummation of the transactions
contemplated by the Contribution Agreement, the Joint Venture made a $2,000,000
cash distribution to QuantRx.  In addition, subject to certain
exceptions, NuRx, at its sole election, will be entitled to a distribution of up
to $1,500,000 from the Joint Venture (the “NuRx Distribution”) which must be
repaid by NuRx within thirty days after the Joint Venture meets certain
milestone events.





The Joint
Venture is managed by a board of directors (the “JV Board”) consisting of two
NuRx designees, two QuantRx designees and an independent designee mutually
selected by QuantRx and NuRx.  Subject to certain exceptions, JV Board
decisions are made by majority vote, provided that NuRx and QuantRx have veto
rights with respect to certain matters.





Pursuant
to the LLC Agreement, each member is required to make sustaining capital
contributions from time to time as the JV Board determines is
necessary.  Sustaining capital contributions will be made by NuRx and
QuantRx on an equal basis, provided however that QuantRx solely is responsible
for making a sustaining capital contribution with respect to the first $700,000
determined to be required by the JV Board, and thereafter, NuRx solely will be
responsible for making a sustaining capital contribution to the extent of any
unpaid amount of the NuRx Distribution.





QuantRx
and the Joint Venture have also entered into a Development and Services
Agreement, pursuant to which the Joint Venture has agreed to pay a monthly fee
to QuantRx in exchange for QuantRx providing all services, equipment and
facilities related to the research, development, regulatory approval and
commercialization of the Lateral Flow Products.  The current monthly
fee being paid to QuantRx is $250,000. If the Joint Venture fails to reach
certain milestone events, the Joint Venture will no longer be obligated to make
the monthly payments.  All work product performed under the
Development and Services Agreement is the sole property of the Joint
Venture.





Each of
NuRx and QuantRx have agreed not to compete with the Joint Venture with respect
to the research, development and commercialization of Lateral Flow Products
until (i) the earlier of the expiration of the LLC Agreement or (ii) the date on
which the Joint Venture ceases to carry on the research, development and
commercialization of Lateral Flow Products.





In
connection with the entering into of the Joint Venture, NuRx received two
warrants to purchase 2,000,000 shares of QuantRx common stock, or an aggregate
of 4,000,000 shares of QuantRx common stock.  The warrants have a net
issuance feature and expire on July 30, 2014.  The warrants have an
exercise price of $0.50 and $1.25, respectively.


2


Lateral
Flow Strip Technology





As part
of the Contribution Agreement, the Joint Venture acquired a patented RapidSense
technology developed by QuantRx – a one-step lateral flow test with unique
features such as: positive read indication for drugs-of-abuse, improved
sensitivity, and the ability to read both large and small molecules. The rapid,
disposable, and Point-of-Care diagnostic technology is ideal for collection of
either urine or oral fluids. The Joint Venture also acquired a patent to an
innovative oral fluid collection device specifically designed for its RapidSense
technology. This distinctive collection device has applications in the growing
market of oral sample collections for issues ranging from drug-abuse testing,
gathering biological evidence for criminal investigation, and screening for
numerous communicable diseases including HIV/AIDS and other STDs.




The
device incorporates a removable barrier that prevents test chemicals from
washing into the oral cavity during the collection process, and allows the
controlled start of the test or tests within the device. Because the device is
designed for either single or multiple tests using the same sample, it is ideal
for emerging drugs-of-abuse analyses and testing for a range of communicable
diseases. The patented technology has a feature that provides a more secure
"chain of custody" system, helping to ensure the identity and integrity of a
specimen from collection through the reporting of test results.




The Joint
Venture also acquired intellectual property related to a unique, quantitative,
Point-of-Care optical reader to be used with its RapidSense technology. This
technology, when coupled with RapidSense, would allow for the transfer of key
laboratory tests to be performed at the Point-of-Care and would provide
economical and efficient laboratory quality results.




In
October 2007, the United States Food and Drug Administration (FDA) granted
510(k) clearance to QuantRx on its Follicle Stimulating Hormone (FSH) lateral
flow immunoassay test for FSH at 10ng/ml. This female fertility test is a
one-step lateral flow device that determines ovarian reserve indirectly by
measuring FSH in first morning urine.  The Joint Venture will explore
the feasibility of developing a male fertility test.




In
2008, QuantRx filed four 510(k) applications with the FDA for the RapidSense
urine based drugs-of-abuse test product line and to date, the FDA has granted
clearance on three of
these applications. The Joint Venture has numerous additional RapidSense-based
products in its 510(k) development pipeline, and anticipates additional 510(k)
applications as funding provides. With the validation of the technology, the
Joint Venture is exploring the economic viability of developing additional tests
for drugs-of-abuse, as well as tests for infectious disease and cardiac
markers.  The clearance on urine-based tests also sets the stage for
development of saliva based tests.





Competition





The
Point-of-Care diagnostics industry is highly competitive and characterized
by rapid and significant technological change. Significant competitive factors
in this industry include, among others, product efficacy and safety; the
timing and scope of regulatory approvals; the government reimbursement rates for
and the average selling price of products; the availability of raw materials and
qualified manufacturing capacity; manufacturing costs; intellectual property and
patent rights and their protection; and sales, marketing and distribution
capabilities.




The Joint
Venture faces, and will continue to face, competition from organizations such as
pharmaceutical and biotechnology companies, as well as academic and research
institutions. Some of these organizations, including Inverness Medical
Innovations, Inc. and Quidel Corporation, are pursuing products based on
technologies similar to the lateral flow strip technology. These organizations
have developed and are currently marketing products, and are pursuing other
technological approaches designed to produce products that compete with the
JointVenture’s product candidates.




Any
product candidates that the Joint Venture successfully develops, which
are cleared for sale by the FDA or similar international regulatory
authorities in other countries, may compete with competitive products currently
being used or that may become available in the future. Many of the Joint
Venture’s competitors have substantially greater capital resources than the
Joint Venture has, and greater capabilities and resources for research,
conducting preclinical studies and clinical trials, regulatory affairs,
manufacturing, marketing and sales. As a result, the Joint Venture may face
competitive disadvantages relative to these organizations should they develop or
commercialize a competitive product.




Manufacturing




All
manufactured products are produced under the Development and Services Agreement
with QuantRx.




3


Intellectual
Property Rights and Patents


The Joint Venture’s technology
portfolio includes RapidSense Point-of-Care diagnostic products based on core
intellectual property related to lateral flow techniques for the consumer and
healthcare professional markets.  The Joint Venture currently has 12
patents related to Point-of-Care diagnostic technology.  The Joint
Venture also holds numerous trademarks.




Patents
and other proprietary rights are an integral part of the Joint Venture’s
business. It is the Joint Venture’s policy to seek patent protection for its
inventions and also to rely upon trade secrets and continuing technological
innovations and licensing opportunities to develop and maintain its competitive
position.




However,
the patent positions of the Joint Venture involve complex legal and factual
questions and, therefore, their enforceability cannot be predicted with any
certainty. The Joint Venture’s issued patents, those licensed to the Joint
Venture, and those that may be issued to the Joint Venture in the future may be
challenged, invalidated or circumvented, and the rights granted thereunder may
not provide the Joint Venture with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, the Joint
Venture’s competitors may independently develop similar technologies or
duplicate any technology developed by the Joint Venture. Because of the
extensive time required for development, testing and regulatory review of a
potential product, it is possible that, before any of the Joint Venture’s
product candidates can be approved for sale and commercialized, the Joint
Venture’s relevant patent rights may expire or remain in force for only a short
period following commercialization. Expiration of patents the Joint Venture owns
or licenses could adversely affect our ability to protect future product
development and, consequently, our operating results and financial
position.




Regulatory
Requirements




The Joint
Venture’s product candidates and manufacturing activities are subject to
regulation by the FDA, and by other federal, state, local and foreign regulatory
authorities. Pursuant to the Food, Drug, and Cosmetic Act of 1938, commonly
known as the FD&C Act, and the regulations promulgated under it, the FDA
regulates the research, development, clinical testing, manufacture, packaging,
labeling, storage, distribution, promotion, advertising and sampling of medical
devices and medical imaging products. Before a new device or pharmaceutical
product can be introduced to the market, the manufacturer must generally obtain
marketing clearance through a section 510(k) notification, through a Premarket
Approval (PMA), or NDA.




In the
United States, medical devices intended for human use are classified into three
categories, Class I, II or III, on the basis of the controls deemed reasonably
necessary by the FDA to assure their safety and effectiveness with Class I
requiring the fewest controls and Class III the most controls. Class I, unless
exempted, and Class II devices are marketed following FDA clearance of a Section
510(k) premarket notification. Since Class III devices (e.g., a device whose
failure could cause significant human harm or death) tend to carry the greatest
risks, the manufacturer must demonstrate that such a device is safe and
effective for its intended use by submitting a PMA application. PMA approval by
the FDA is required before a Class III device can be lawfully marketed in the
United States. Usually, the PMA process is significantly more time consuming and
costly than the 510(k) process.




The
U.S. regulatory scheme for the development and commercialization of new
pharmaceutical products can be divided into three distinct phases: an
investigational phase including both preclinical and clinical investigations
leading up to the submission of an NDA; a period of FDA review culminating in
the approval or refusal to approve the NDA; and the post-marketing
period.




In
addition, the FD&C Act requires device manufacturers to obtain a new FDA
510(k) clearance when there is a substantial change or modification in the
intended use of a legally marketed device, or a change or modification,
including product enhancements, changes to packaging or advertising text and, in
some cases, manufacturing changes, to a legally marketed device that could
significantly affect its safety or effectiveness. Supplements for approved PMA
devices are required for device changes, including some manufacturing changes
that affect safety or effectiveness, or disclosure to the consumer, such as
labeling. For devices marketed pursuant to 510(k) determinations of substantial
equivalence, the manufacturer must obtain FDA clearance of a new 510(k)
notification prior to marketing the modified device. For devices marketed with
PMA, the manufacturer must obtain FDA approval of a supplement to the PMA prior
to marketing the modified device. Such regulatory requirements may require the
Joint Venture to retain records for up to seven years, and be subject to
periodic regulatory review and inspection of all facilities and documents by the
FDA.




The
FD&C Act requires device manufacturers to comply with Good Manufacturing
Practices regulations. The regulations require that medical device manufacturers
comply with various quality control requirements pertaining to design controls,
purchasing contracts, organization and personnel, including device and
manufacturing process design, buildings, environmental control, cleaning and
sanitation; equipment and calibration of equipment; medical device components;
manufacturing specifications and processes; reprocessing of devices; labeling
and packaging; in-process and finished device inspection and acceptance; device
failure investigations; and record keeping requirements including complaint
files and device tracking. Joint Venture personnel and non-affiliated contract
auditors periodically inspect the contract manufacturers to assure they remain
in compliance.




The Joint
Venture’s Portland, Oregon, facility is in compliance with current FDA
requirements.


4





Drug
Development Activities





Vitae
License Agreement





On May
11, 2007, we entered into a license agreement with Vitae, a privately held
company, under which we have acquired an exclusive, worldwide sublicense, with
the right to grant further sublicenses, to certain compounds and technology for
all human and veterinary use, including three clinical or pre-clinical stage
therapeutic compounds.  Such technologies represent nearly 20 years of
research and development work in the fields of retinoids, rexinoids, cancer
biology, medicinal chemistry, manufacturing, pre-clinical and clinical drug
development.  The opportunities are four-fold: (1) a leukemia therapy
that is based on established mechanisms of action that is a more selective
entrant into an established class of cancer therapy, (2) an early candidate for
solid tumors (particularly lung and breast cancer), (3) a novel therapeutic
approach to addressing the impact of chemotherapy associated neutropenia (a
large, well established therapeutic need) and (4) a large library of other
retinoid and rexinoid compounds that represent an internal
pipeline.





Vitae
originally licensed these compounds in May 2004 from Allergan, Inc., an Allergan
affiliate, and Ligand Pharmaceuticals Incorporated.  These compounds
and technology are covered by a number of issued U.S. and foreign patents and
patent applications, and the term of our sublicense will extend in each country
until the later of the last to expire of any patents that are issued covering
this technology or ten years from the first commercial sale of a product
agreement.  Vitae will retain its exclusive license from the existing
licensors for certain excluded licensed compounds.




In
connection with the license agreement, we paid Vitae out of the net proceeds of
our private placement offering an upfront licensing fee of $2,100,000, and an
additional $50,000 on August 15, 2007.  We also agreed to issue Vitae
5.66% of our fully diluted common stock, as of the date of the agreement, upon
receiving investigational new drug application (“IND”) approval for clinical
trials of any of the transferred compounds that had not already received IND
approval.  This milestone was met on October 31, 2007 and the Company
issued Vitae 1,756,732 shares (representing 5.66% after issuance of these
shares).  We will be required on Vitae’s behalf to pay the existing
licensors additional specified milestone payments if we receive marketing
approval from the U.S. Food and Drug Administration (“FDA”) for a product
containing a licensed compound.




In
addition to the foregoing fees and milestone payments, we have agreed to pay
Allergan (as well as its cross-licensee) and Vitae specified percentages of our
net sales of products based on the licensed technology, which vary from product
to product but which combined may total as much as 12% of our net sales. We have
also agreed to pay Vitae a specified percentage of any sublicense revenues that
we receive from our sublicensees. To maintain our rights to the licensed
technology, we must meet certain development milestones under the original
license agreements with the existing licensors. These milestones include, among
others, filing at least one new drug application (“NDA”) in the U.S. or another
major market for a product by May 10, 2011.





On
December 31, 2008, we entered into an amendment of our May 11, 2007 license with
Vitae for the license of additional compounds directed at dermatological
therapeutic applications. We agreed to make a cash payment of $125,000 and to
issue 50,000 shares of common stock valued at $2.00 per share upon execution of
the license amendment. These costs have been charged to expense as in-process
research and development for the year ended September 30, 2009.





Lead
Compound





We
have been focusing our drug development efforts on our Lead Compound NRX 5183
which will be developed for the treatment of leukemia.  On March 6,
2009, we entered into a development and commercialization agreement (the
“Piramal Agreement”) with Piramal with respect to our Lead
Compound.





Piramal
is a pharmaceutical company listed on the Indian National Stock Exchange and the
Bombay Stock Exchange and which was recently demerged from Piramal Healthcare
Limited. Pursuant to the Piramal Agreement, Piramal has the exclusive right to
develop, manufacture and exploit the technology related to our Lead Compound
within India at its sole expense. We obtain the clinical data developed by
Piramal for use in registration in countries outside of India. Piramal will also
reimburse us for development expenses incurred with regard to clinical trials in
India up to $100,000.  Until manufacturing is undertaken by Piramal,
we will provide clinical grade drug product for use in clinical
trials.





Except
with respect to the clinical trials in India conducted in collaboration with
Piramal, we have suspended patient enrollment in all other clinical
trials.  We will, however, maintain our intellectual property with
respect to our key compounds.


5


The
following activities with respect to NRX195183 have been
completed:





•
            Received
      approval from Drug Controller General (India) to conduct the Phase II
      trial, and





•
            Received
      Ethics Committee approval and opened five sites in
  India.





Based on patent protection, which
specifically covers the Lead Compund as a new chemical entity (“NCE”), we
believe that this compound has a generic competition-free product life until
2020.





Other
Key Compounds





•
            NRX194204
      – we had previously been testing NRX194204 for safety in cancer patients
      in a Phase I/IIa clinical trial and in Phase II trials for non small cell
      lung cancer and mesothelioma.  We suspended our clinical trials
      with respect to this compound on August 6,
2009.





•
            NRX194310
      –  this compound is derived from a discovery program directed
      towards treatments for chemotherapy-induced neutropenia (low white cell
      count).   Further development of this compound is not currently
      budgeted.





Government
Regulation





The
United States and other developed countries extensively regulate the preclinical
and clinical testing, manufacturing, labeling, storage, record-keeping,
advertising, promotion, export, marketing and distribution of drugs and biologic
products.  The FDA under the Federal Food, Drug, and Cosmetic Act, the
Public Health Service Act and other federal statutes and regulations, regulates
pharmaceutical and biologic products.




To obtain
approval of our product candidates from the FDA, we must, among other
requirements, submit data supporting safety and efficacy for the intended
indication as well as detailed information on the manufacture and composition of
the product candidate.  In most cases, this will require extensive
laboratory tests and preclinical and clinical trials.  The collection
of this data, as well as the preparation of applications for review by the FDA
involve significant time and expense.  The FDA also may require
post-marketing testing to monitor the safety and efficacy of approved products
or place conditions on any approvals that could restrict the therapeutic claims
and commercial applications of these products.  Regulatory authorities
may withdraw product approvals if we fail to comply with regulatory standards or
if we encounter problems at any time following initial marketing of our
products.





The first
stage of the FDA approval process for a new biologic or drug involves completion
of preclinical studies and the submission of the results of these studies to the
FDA. This data, together with proposed clinical protocols, manufacturing
information, analytical data and other information must be submitted to the FDA
in an IND.  The IND must become effective before human clinical trials
may commence.  Preclinical studies generally involve FDA regulated
laboratory evaluation of product characteristics and animal studies to assess
the efficacy and safety of the product candidate.




After the
IND becomes effective, a company may commence human clinical
trials.  These are typically conducted in three sequential phases, but
the phases may overlap.  Phase I trials consist of testing of the
product candidate in a small number of patients or healthy volunteers, primarily
for safety at one or more doses.  Phase I trials in cancer are often
conducted with patients who are not healthy and who have end-stage or metastatic
cancer. Phase II trials usually involve studies in a limited patient population
to: (1) assess the efficacy of the drug in specific, targeted indications;
(2) assess dosage tolerance and optimal dosage; and (3) identify
possible adverse effects and safety risks.  If a compound is found to
be potentially effective and to have an acceptable safety profile in Phase II
evaluations, Phase III clinical trials, also called pivotal studies, major
studies or advanced clinical trials, are undertaken to further demonstrate
clinical efficacy and to further test for safety within an expanded patient
population at geographically dispersed clinical trial sites.  In
general, the FDA requires that at least two adequate and well-controlled Phase
III clinical trials be conducted. A company must submit to the FDA a clinical
protocol, accompanied by the approval of the Institutional Review Boards at the
institutions participating in the trials, prior to commencement of each clinical
trial.


6




To obtain
FDA marketing authorization, a company must submit to the FDA the results of the
preclinical and clinical testing, together with, among other things, detailed
information on the manufacture and composition of the product candidate, in the
form of a NDA. The FDA may request additional information before accepting an
NDA for filing, in which case the application must be resubmitted with the
additional information.  Once the submission has been accepted for
filing, the FDA has 180 days to review the application and respond to the
applicant.  The review process is often significantly extended by FDA
requests for additional information or clarification.  The FDA may
refer the NDA to an appropriate advisory committee for review, evaluation and
recommendation as to scientific issues relevant to whether the application
should be approved, but the FDA is not bound by the recommendation of an
advisory committee.




The
amount of time taken by the FDA for approval of an NDA will depend upon a number
of factors, including whether the product candidate has received priority
review, the quality of the submission and studies presented, the potential
contribution that the compound will make in improving the treatment of the
disease in question, and the workload at the FDA.





The FDA
may, during its review of an NDA, ask for additional test data that may require
the conduct of additional clinical trials. If the FDA does ultimately approve
the product candidate for marketing, it may require post-marketing testing to
monitor the safety and effectiveness of the product. The FDA also may in some
circumstances impose restrictions on the use of the product, which may be
difficult and expensive to administer and may require prior approval of
promotional materials.




If FDA
evaluations of the NDA and associated support, such as manufacturing and
clinical sites, are favorable, the FDA may grant us either an approval letter or
an approvable letter.  An approvable letter will usually contain a
number of conditions that must be met, which may include additional testing, in
order to secure final approval of the NDA and authorization of commercial
marketing of the drug for particular indications; however, the receipt of an
approvable letter does not guarantee the final approval of a
product.  The FDA may refuse to approve the NDA or grant us a
non-approvable letter, outlining the deficiencies in the
submission.  If regulatory approval of a product is granted, it will
be limited to particular disease states and conditions of use, which are
described in the product label.





After
approval, adverse experiences with the product must be reported to the
FDA.  In addition, the FDA may impose restrictions on the use of the
drug that may be difficult and expensive to administer.  Product
approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems occur or are discovered after the product reaches the
market.  Finally, the FDA requires reporting of certain safety and
other information, often referred to as “adverse events” that become known to a
manufacturer of an approved drug.  Safety information collected
through this process can result in changes to a product’s labeling or withdrawal
of a product from the market.  If an active ingredient of a drug
product has been previously approved, drug applications can be filed that may be
less time-consuming and costly.




The FDA
may, in some cases, confer upon an investigational product the status of a Fast
Track product. A Fast Track product is defined as a new drug or biologic
intended for the treatment of a serious or life-threatening condition that
demonstrates the potential to address unmet medical needs for this condition.
The FDA can base approval of an NDA for a Fast Track product on an effect on a
surrogate endpoint, or on another endpoint that is reasonably likely to predict
clinical benefit. If a preliminary review of clinical data suggests that a Fast
Track product may be effective, the FDA may initiate review of entire sections
of a marketing application for a Fast Track product before the sponsor completes
the application.




We will
also be subject to a variety of regulations governing clinical trials and sales
of our products outside the United States. Whether or not FDA approval has been
obtained, approval of a product candidate by the comparable regulatory
authorities of foreign countries and regions must be obtained prior to the
commencement of marketing the product in those countries. The approval process
varies from one regulatory authority to another and the time may be longer or
shorter than that required for FDA approval. In the European Union, Canada and
Australia, regulatory requirements and approval processes are similar, in
principle, to those in the United States.




We also
will be subject to federal regulation by the Occupational Safety and Health
Administration and the Environmental Protection Agency as well as regulation
under the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and other federal and state regulatory statutes, and may, in the future, be
subject to other federal, state or local regulations.


7





Commercial
Markets





Because
we are a development stage company, it is unclear what commercial markets may be
available for the products we develop, if any. We plan to make progress towards
individualized medicine in collaboration with Piramal allowing development of
designer drugs for precise disease causation and to produce drugs that are cost
effective thus allowing population at large to gain their benefits. Our research
programs may initially show promise in identifying potential product candidates,
yet fail to yield product candidates for clinical development due to harmful
side effects or other characteristics that indicate they are unlikely to be
effective drugs. While our research may lead to marketable products, we are
unable to measure such marketability in commercial terms at this
time.




Intellectual
Property





We have
acquired exclusive worldwide rights from Vitae to the compounds described
herein. Our lead licensed compounds are covered by issued patents in the United
States and certain foreign countries. In November 2007, we entered into an
Annuity Payment Service Agreement with Computer Packages Inc. in order to help
maintain and service our patent library.





Competition





The
pharmaceutical and biopharmaceutical industry is characterized by intense
competition and rapid and significant technological changes and advancements.
Many companies, research institutions and universities are doing research and
development work in a number of areas similar to those that we focus on that
could lead to the development of new products which could compete with and be
superior to our product candidates.




Most of
the companies with which we compete have substantially greater financial,
technical, manufacturing, marketing, distribution and other resources than those
of ours. A number of these companies may have or may develop technologies for
developing products for treating various diseases that could prove to be
superior to ours. We expect technological developments in the pharmaceutical and
biopharmaceutical and related fields to occur at a rapid rate, and we believe
competition will intensify as advances in these fields are made. Accordingly, we
will be required to continue to devote substantial resources and efforts to
research and development activities in order to potentially achieve and maintain
a competitive position in this field. Products that we develop may become
obsolete before we are able to market them or to recover all or any portion of
our research and development expenses. We will be competing with respect to our
products with companies that have significantly more experience in undertaking
preclinical testing and human clinical trials with new or improved therapeutic
products and obtaining regulatory approvals of such products. A number of these
companies already market and may be in advanced phases of clinical testing of
various drugs that may compete with our lead product candidate or any future
product candidates. Our competitors may develop or commercialize products more
rapidly than we do or with significant advantages over any products we develop.
Our competitors may therefore be more successful in commercializing their
products than we are, which could adversely affect our competitive position and
business.





Colleges,
universities, governmental agencies and other public and private research
organizations are becoming more active in seeking patent protection and
licensing arrangements to collect royalties for use of technologies that they
have developed, some of which may be directly competitive with our lead product
candidate or any future product candidates.




Our
competitive position will be significantly impacted by the following factors,
among others:




·
            our
      ability to obtain FDA marketing approval for our product candidates on a
      timely basis;





·
            the
      level of acceptance of our products by physicians, compared to those of
      competing products or therapies;





·
            our
      ability to have our products manufactured on a commercial
      scale;





·
            the
      effectiveness of sales and marketing efforts on behalf of our
      products;





·
            our
      ability to meet demand for our
products;





·
            our
      ability to secure insurance reimbursement for our products
      candidates;





·
            the
      price of our products relative to competing products or
      therapies;





·
            our
      ability to recruit and retain appropriate management and scientific
      personnel; and


8





·
            our
      ability to develop a commercial scale research and development,
      manufacturing and marketing infrastructure either on our own or with one
      or more future strategic partners.


Employees





During
the year ended September 30, 2009, we terminated our clinical and pre-clinical
development staff.  As of September 30, 2009, we had three full time
employees, our chief executive officer, our chief scientific officer and our
chief financial officer, and one part-time employee.  On October 3,
2009, our chief scientific officer’s employment was terminated and substituted
with an hourly consulting agreement.  We do not expect significant
changes in the number of our employees over the next year.





The
Corporation





Our
principal executive offices are located at 18 Technology, Suite 130, Irvine,
California 92618, and our telephone number at that address is (949)
336-7111.




Private
Placements





In May
through June 2007, the Company raised approximately $20,500,000 from a small
group of accredited investors from the sale of 41,000,000 shares of common stock
at a price of $.50 per share in a private placement offering.  As
adjusted for the 1-for-4 reverse stock split that took place in May 2008, this
represents the sale of 10,250,000 shares of common stock at a price of $2.00 per
share.  Pursuant to the terms of the private placement, these
investors had certain anti-dilutive price protections until July 18,
2008.




Hunter
World Markets, Inc. acted as the exclusive placement agent in the private
placement offering, and received a fee of $2,012,500 (approximately 10% of the
gross proceeds) and two six-year warrants 3,075,000 shares of the Company’s
common stock at an exercise price of $4.00 per share on a post-split basis.
These warrants expire in 2013. Hunter World Markets, Inc. also loaned us
$125,000 at an interest rate of 6% per annum. This loan together with accrued
interest and a loan fee of $12,500 was repaid from the proceeds of the private
placement.




In
connection with the private offering, stockholders who had acquired our common
stock prior to April 27, 2007 canceled an aggregate 1,939,750 shares of common
stock on a post-split basis in consideration for an aggregate amount of
$750,000.





During
the period between May 30, 2007 and June 27, 2007, we sold an aggregate 250,000
shares of our common stock at a price of $2.00 per share on a post-split basis
and received aggregate proceeds of $500,000. In connection with the
aforementioned sales, Hunter World Markets received a commission of 5% on half
the gross proceeds and received a six-year warrant to purchase common stock
equal to 75,000 shares at an exercise price of $4.00 per share on a post-split
basis.





We do not
currently anticipate that we will derive any revenues from either product sales
or licensing with respect to out drug development in the near
future.  We do not have any bank credit lines and have financed all of
our prior operations through the sale of securities.  The estimated
cost of completing the development of our current products and of obtaining all
required regulatory approvals to market those products is substantially greater
than the amount of funds we currently have available.   We will seek
to obtain additional funds through various financing sources, including possible
sales of our securities, and through strategic alliances or business
combinations with other pharmaceutical or biopharmaceutical companies, but there
is no assurance that we will be able to obtain any additional funding from any
potential financing sources, or create any such alliances or combinations, or
that the terms under which we would obtain any funding will be sufficient to
fund our operations.




SEC
FILINGS; INTERNET ADDRESS
 
 We
file our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K and amendments to those reports with the SEC.  Our
filings are available through the SEC Web-site, www.sec.gov, and at the SEC
Public Reference Room at 100 F Street, NE Washington DC 20549. For more
information about the SEC Public Reference Room, you can call the SEC at
1-800-SEC-0330.
 
 MANAGEMENT
 
 OUR
EXECUTIVE OFFICERS
 
 The
following table sets forth the name, age and position held by each of our
executive officers.
  Name
              
              Age
              
              PositionDr.
      Harin Padma-Nathan
              
              53
              
              Director,
      President and Chief Executive OfficerSteven
      Gershick
              
              54
              
              Chief
      Financial Officer
  The
following summarizes the backgrounds of our current executive
officers.
  Harin
Padma-Nathan, MD has been the president and Chief Executive Officer of
the Company since May 2007 and has served as a director since June 2007. He also
has been Chief Scientific Officer at Insyght Interactive, a medical
communications company, since 2004. Dr. Padma-Nathan has been a Clinical
Professor of Urology at the Keck School of Medicine of the University of
Southern California since 1995, and has also been involved in numerous clinical
research studies from 1994 to 2006, including erectile dysfunction (Principal
Investigator for Viagra as well as other compounds listed in CV), Hypertension,
BPH, Incontinence, Coronary Artery Disease, Female Sexual Dysfunction, and
Prostate Cancer. His publications include two in the New England Journal of
Medicine.
 
 Steven Gershick,
CPA was appointed as the Chief Financial Officer of the Company by the
Board of Directors in September 2007. Mr. Gershick has served as a consultant to
the Company since June 2007. Mr. Gershick is also the Chief Financial
Officer of Santa Monica Capital Partners and a financial and securities
regulation consultant to Santa Monica Media Corporation. Prior to such
positions, he served as Chief Financial Officer of PrimeGen Biotech, LLC, a stem
cell research company, since 2004, and as a financial and securities regulation
consultant for St. Cloud Capital Partners, LP, an SBIC providing mezzanine
financing to middle market companies, since 2006. From 2002 until 2005, Mr.
Gershick served as a financial and securities regulations consultant
for Amazing Global Technologies, Ltd. and as Chief Financial Officer
of Case Financial, Inc. Prior to such engagements, Mr. Gershick served as
President and Chief Executive Officer of Spatializer Audio Laboratories, Inc.
and its operating subsidiaries from 1992 to 1998. Mr. Gershick has been a
certified public accountant since 1979.


9




ITEM
      1A.
            RISK
      FACTORS





An
investment in our securities involves a high degree of risk.  You
should carefully consider the risks described below before deciding to invest in
or maintain your investment in our Company.  The risks described below
are not intended to be an all-inclusive list of all of the potential risks
relating to an investment in our securities.  If any of the following
or other risks actually occur, our business, financial condition or operating
results and the trading price or value of our securities could be materially
adversely affected.




Our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including the risks
faced by us described below and elsewhere in this Annual Report.




RISKS
RELATED TO OUR BUSINESS




Because
we have incurred significant losses to date and have limited funds to support
our operations, our management has raised substantial doubt about our ability to
continue our business.
  We have limited funds to support our
operations, and neither we nor our Joint Venture have generated revenues from
operations.  We have historically financed our operations primarily
through issuances of equity securities.  If we are to continue our
pharmaceutical development activities, we will need to raise additional
funds.  In addition, the Joint Venture will require additional funding
to complete the development and launch of its initial products, which both
venture partners are mutually obligated to provide. 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.
 
 Management believes that the
successful growth and operation of our business is dependent upon our ability to
obtain adequate sources of debt or equity financing to (i) wind down the U.S.
clinical trials and adequately support our clinical development partner in
India; (ii) fund our share of future additional development costs of the Joint
Venture; and (iii) manage or control working capital requirements by further
reducing operating expenses. There can be no assurance that we will be
successful in achieving our long-term plans as set forth above, or that such
plans, if consummated, will enable us to obtain profitable operations or
continue in the long term as a going concern.
 
 We will be required to pursue
sources of additional capital to fund our operations through various means,
including equity or debt financing, funding from a corporate partnership or
licensing arrangement or any similar financing.
 
 Our
future capital requirements will depend on many factors,
including:
 
 ·
              the
      capital requirements of the Joint
Venture;
 
 ·
              the
      timing of product introductions by the Joint
  Venture;
 
 ·
              the
      magnitude of the Joint Venture’s and our research and development
      programs;
 
 ·
              progress
      with clinical trials;
 
 ·
              the
      time and costs involved in obtaining regulatory
    approvals;
 
 ·
              the
      costs involved in filing and pursuing patent applications and enforcing
      patent claims;
 
 ·
              competing
      technological and market
developments;
  10
  ·
              the
      establishment of additional strategic
  alliances;
 
 ·
              the
      cost of commercialization activities and arrangements, including
      manufacturing of our product candidates;
and
 
 ·
              the
      cost of product in-licensing and any possible
      acquisitions.
  Future financings through equity
investments are likely to be dilutive to existing stockholders. Also, the terms
of securities we may issue in future capital transactions may be more favorable
for our new investors. Newly issued securities may include preferences, superior
voting rights and the issuance of warrants or other derivative securities, which
may have additional dilutive effects. In addition, if we raise additional funds
through collaboration and licensing arrangements, we may be required to
relinquish potentially valuable rights to our product candidates or proprietary
technologies, or grant licenses on terms that are not favorable to us. Further,
we may incur substantial costs in pursuing future capital and/or financing,
including investment banking fees, legal fees, accounting fees, printing and
distribution expenses and other costs. We may also be required to recognize
non-cash expenses in connection with certain securities we may issue, such as
convertible notes and warrants, which will adversely impact our financial
results. The significant downturn in the overall economy and the ongoing
disruption in the capital markets has reduced investor confidence and negatively
affected investments. As a result, there can be no assurance that additional
funds will be available when needed from any source or, if available, will be
available on terms that are acceptable to us. If we are unable to raise funds to
satisfy our capital needs on a timely basis, we may be required to cease
operations and we may be unable to meet our obligations to fund the Joint
Venture.
 
 Neither
we nor the Joint Venture may be successful in our respective efforts to develop
commercially viable products.
  Our
ability to generate revenue and achieve profitability depends upon our ability,
alone or with others, to complete the development of our proposed products,
obtain the required regulatory approvals and manufacture, market and sell our
proposed products. Development is costly and requires significant
investment. We are seeking to develop Lateral Flow Products through the
Joint Venture, as well as develop products for the treatment of acute myeloid
leukemia through our clinical trials in collaboration with
Piramal.
  Although
we have identified potential product candidates in the areas of Point-of-Care
diagnostics through the Joint Venture and products for treatment of acute
myeloid leukemia, the work needed to demonstrate their commercial viability is
at a very early stage.  The follow-up research needed to demonstrate
the viability of the product is costly and time-consuming, and may reveal that
the product does not function as expected or that it is otherwise not
commercially viable. It may take longer than current anticipated to develop
potential product candidates.  During this time, a superior or
equivalent products could emerge.
  If
either we or the Joint Venture are unable to confirm efficacy and safety of our
product candidates through internal research programs, license suitable products
or deliver technologies on acceptable business terms, our business prospects
will suffer.  We cannot predict how long the development of
investigational stage products will take or whether they will be medically
effective.
  Our
Joint Venture with QuantRx  involves numerous risks.
 
 We
have entered into a joint venture agreement with QuantRx focused on the
commercialization of medical diagnostic products.  The Joint Venture
is subject to various risks that could adversely affect our results of
operations.  These risks include the following:
 
 ·
              our
      interests could diverge from QuantRx in the future or we may not be able
      to agree with QuantRx on ongoing manufacturing and operational activities,
      or on the amount, timing or nature of further investments in the Joint
      Venture;
  11
  ·
              due
      to financial constraints, QuantRx may be unable to meet their commitments
      to our Joint Venture and may pose credit risks for our transactions with
      them;
 
 ·
              the
      terms of our Joint Venture arrangements may turn out to be
      unfavorable;
 
 ·
              cash
      flows may be inadequate to fund increased capital
      requirements;
 
 ·
              we
      may experience delays in obtaining any necessary regulatory approvals to
      market the medical diagnostic products produced by the Joint
      Venture;
 
 ·
              we
      may experience difficulties and delays in ramping production of Joint
      Venture’s products; and
 
 ·
              If
      our Joint Venture is unsuccessful, our business, results of operations or
      financial condition will be adversely
  affected.
  Our
efforts to redeem the shares held by DYVA Management Ltd. may not be
successful.
 
 On October 29, 2009, pursuant to the
authority provided in the Bylaws and pursuant to Nevada Control Share Act ((the
“Nevada Act”), we called for redemption of the entire 10,832,876 common share
holding of DYVA Management Ltd. and its affiliates (“DYVA”), which such shares
represent 46.2% of our total issued and outstanding shares.  Under the
Nevada Act, we are entitled to call for redemption of DYVA’s shares at the
average price paid by DYVA for its shares, which has been reported by DYVA to be
for 833,298 Euros (approximately $1,231,000). On November 13, 2009, DYVA filed a
complaint in the United States District Court, District of Nevada for
declaratory and injunctive relief to halt the proposed redemption, In addition,
the complaint seeks attorneys fees and costs to the extent permitted by law and
any further and other relief the Court may deem proper.  We cannot
assure you that we will be successful in our attempt to redeem the shares held
by DYVA, or that our Board of Directors may elect to cease pursuing the
redemption for business reasons.  In addition, regardless of merit or
eventual outcome, the lawsuit filed by DYVA may cause a diversion of the
Company’s management’s time and attention and the expenditure of legal fees and
expenses.




Because
the results of preclinical studies are not necessarily predictive of future
results, we can provide no assurances that, even if our product candidates are
successful in preclinical studies, such product candidates will have favorable
results in clinical trials or receive regulatory approval.




Positive
results from preclinical studies should not be relied upon as evidence that
clinical trials will succeed.  Even if our product candidates achieve
positive results in clinical studies, we will be required to demonstrate through
clinical trials that these product candidates are safe and effective for use in
a diverse population before we can seek regulatory approvals for their
commercial sale.  There is typically an extremely high rate of
attrition from the failure of drug candidates proceeding through clinical
trials.  If any product candidate fails to demonstrate sufficient
safety and efficacy in any clinical trial, then we would experience potentially
significant delays in, or be required to abandon, development of that product
candidate.  If we delay or abandon our development efforts of any of
our product candidates, then we may not be able to generate sufficient revenues
to become profitable, and our reputation in the industry and in the investment
community would likely be significantly damaged, each of which would cause our
stock price to decrease significantly.





Our
clinical trials may fail to demonstrate the safety and efficacy of our product
candidates, which could prevent or significantly delay their regulatory
approval.




We have
limited experience conducting clinical trials.  Before obtaining
regulatory approval for the sale of any of our potential products, we must
subject these product candidates to extensive preclinical and clinical testing
to demonstrate their safety and efficacy for humans.  Our Lead
Compound has just entered Phase II clinical testing.  Clinical trials
are expensive, time-consuming and may take years to complete.





In
connection with the clinical trials of our product candidates, we face the risks
that:





•
            the
      product candidate may not prove to be
effective;





•
            we
      may not be able to manufacture the necessary quantity of our product
      candidates necessary for clinical
testing;





•
            the
      results may not replicate the results of earlier trials or clinical
      testing;





•
            we
      or the FDA or similar foreign regulatory authorities may suspend the
      trials;


12





•
            the
      results may not be statistically
significant;





•
            the
      product candidate may have undesirable or unintended side effects or
      toxicities that may prevent
commercialization;





•
            institutional
      review boards, ethics committees or the FDA could suspend or terminate our
      clinical trials;





•
            the
      third parties conducting or overseeing the operation of our clinical
      trials to perform their contractual or regulatory obligations in a timely
      fashion;





•
            patient
      recruitment may be slower than expected;
and





•
            patients
      may drop out of the trials or die during the
  trials.





Phase I
trials in cancer are often conducted with patients who are not healthy and who
have end-stage or metastatic cancer.  During the course of treatment,
these patients can die or suffer other adverse medical effects for reasons that
may not be related to the pharmaceutical agent being tested but which can
nevertheless adversely affect clinical trial results.  Any failure or
substantial delay in completing clinical trials for our product candidates may
severely harm our business.




The
results of our clinical trials are based on a small number of patients over a
short period of time, and our progress may not be indicative of results in a
large number of patients or of long-term efficacy.





Our
clinical testing is based upon limited numbers of patients and a limited
follow-up period.  Our Phase II clinical trial for our Lead
Compound has opened in only five sites in India and enrolled only one patient
who later withdrew consent and exited the study.  Results of later clinical
trials that include more patients and more data points may not confirm favorable
results from these early stage trials.  A number of companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in late stage clinical trials even after achieving promising results in earlier
stage clinical trials.  If a larger population of patients does not
experience positive results, or if these results are reproducible, our products
may not receive approval from the FDA.  Failure to demonstrate the
safety and effectiveness of our products in larger patient populations could
have a material adverse effect on our business that would cause our stock price
to decline significantly.




If
we are unable to secure licenses to technologies or materials vital to our
business, or if the rights to technologies that we have licensed terminate, our
commercialization efforts could fail or be delayed.




Since our
Lead Compound has been licensed to us, the failure to secure and maintain these
licenses may cause the delay or termination of our development
plans.  While we do not anticipate any challenges, unforeseen events
can occur.  Intellectual property allowing for the exclusive
development of therapies has a finite lifespan.  Prolonged delays in
the successful development of therapies can lead to loss of exclusive, or even
non-exclusive, marketing.  The development of our current clinical
products is not subject to the need for additional licenses, however unforeseen
blockades can occur. For instance, it may be necessary in the future for us to
obtain additional licenses to avoid infringement of third-party
patents.




If
we were to materially breach our present license agreement or any future license
or collaboration agreements, we could lose our ability to commercialize the
related technologies, and our business could be materially and adversely
affected.




We are
party to intellectual property licenses and agreements which will be integral to
our business.  Even once we have all necessary agreements and patent
licenses in place to develop the compounds, subsequent unforeseen events may
cause a deviation from our current business plan.  These licenses
and agreements impose various research, development, due diligence,
commercialization, sublicensing, royalty, indemnification, insurance and other
obligations on us.  If we or our collaborators fail to perform under
these agreements or otherwise breach obligations imposed by them, we could lose
intellectual property rights that are important to our business.




We
may not be successful in establishing additional strategic collaborations, which
could adversely affect our ability to develop and commercialize
products.




We may
seek opportunities to establish new collaborations, joint ventures and strategic
collaborations for the development and commercialization of products we discover
and/or develop. We face significant competition in seeking appropriate
collaborators and the negotiation process is time-consuming and
complex.  We may not be successful in our efforts to establish
additional strategic collaborations or other alternative
arrangements.  Even if we are successful in our efforts to establish a
collaboration or agreement, the terms that we establish may not be favorable to
us. Disputes may arise in the future over the ownership of rights to any
technology developed with collaborators.  These and other possible
disagreements between us and our collaborators could lead to delays in the
collaborative development or commercialization of therapeutic or diagnostic
products.  Such disagreements could also result in litigation or
require arbitration to resolve. We will also be dependent on several contractual
services, the loss of which could result in delays in product
development.  Finally, such strategic alliances or other arrangements
may not result in successful products and associated revenue.


13


The
biotechnology and pharmaceutical industry is highly competitive and subject to
rapid technological change.




The
biotechnology and pharmaceutical industry is highly competitive and subject to
rapid and profound technological changes.  Our present and potential
competitors, and the Joint Venture’s competitors, include major pharmaceutical
companies, as well as specialized biotechnology and life sciences firms in the
United States and in other countries.  Most of these companies have
considerably greater financial, technical and marketing resources than
us.  Additional mergers and acquisitions in the pharmaceutical and
biotechnology industries may result in even more resources being concentrated in
our competitors.  Our existing or prospective competitors may develop
processes or products that are more effective than ours or may be more effective
at implementing their technologies to develop commercial products
faster.  Our competitors may succeed in obtaining patent protection
and/or receiving regulatory approval for commercializing products before
us.  Developments by our competitors may render our product candidates
obsolete or noncompetitive.




We also
experience competition from universities and other research institutions, and we
are likely to compete with others in acquiring technology from those
sources.  There can be no assurance that others will not develop
technologies with significant advantages over those that we are seeking to
develop, which could harm our business.




We
may be unable to compete successfully with our competitors.




Through
our activities in the Joint Venture we face competition from other companies
seeking to identify and commercialize Point-of-Care diagnostics, and from our
drug development activities, we face competition from companies seeking to
develop products for the treatment of leukemia. We also compete with
universities and other research institutions engaged in research in these
areas.  Many of our competitors have greater technical and financial
resources than us.





Our
ability to compete successfully is based on numerous factors, including, the
cost effectiveness of and levels of reimbursement for any product we ultimately
commercialize relative to competing products; the ease of use and ready
availability of any product we bring to market; the side effects of our
product and the relative speed with which we are able to bring any product
resulting from our research to market in our target markets.




If we are
unable to distinguish our products from competing products, or if competing
products reach the market first, we may be unable to compete successfully with
current or future competitors.  This would cause our revenues to
decline and affect our ability to achieve profitability.




We
depend on certain key scientific personnel for our success.  The loss
of any such personnel could adversely affect our business, financial condition
and results of operations.




The
scientific team is composed of individuals who have been involved in the
development of the patents upon which the three initial target therapies are
based.  The skill sets required to execute the development of
therapies is dependent upon the unique skills, knowledge in the field, and
knowledge around the specific technologies that represent the core of this
business.  Skilled individuals who headed the discovery and
development of many of our core programs, in particular Dr. Chandraratna, a
consultant,is
acrucial part of
our drug development business.  In addition, Dr. William Fleming,
Ph.D., Dr. Anthony Burgess-Cassler and Dr. Huiying Wang are a crucial part of
the lateral flow business conducted by the Joint Venture.  The loss of
any of these individuals, especially early in the life of our businesses can
slow the progress.  Loss of one or more of these individuals may have
a detrimental effect on our abilities to continue the development programs in a
timely fashion.




Our
dependence on collaborative relationships may lead to delays in product
development, lost revenues and disputes over rights to technology.




Our
business strategy depends to some extent upon the formation of research
collaborations, development and services arrangements, and licensing and/or
marketing arrangements.  Our current or any future collaborations or
licensing arrangements ultimately may not be successful.  We currently
have a license agreement with Vitae Pharmaceuticals, Inc. , as well as an
agreement with Piramal to help us conduct our clinical trials in
India.  The Joint Venture also has a Development and Services
Agreement with QuantRx pursuant to which QuantRx provides research and
development services related to the Lateral Flow Products. The termination of
any collaboration or development agreement will result in the loss of any unmet
development or commercial milestone payments, may lead to delays in product
development and disputes over technology rights, and may reduce our ability to
enter into collaborations with other potential partners.  In the event
we breach any of these agreements, the third party may be entitled to terminate
our agreement with them in the event we do not cure the breach within a
specified period of time.  Any future collaborations, development or
licensing arrangements may not be on terms favorable to us.


14


It may be
necessary in the future for us to obtain additional licenses to avoid
infringement of third-party patents.  Additionally, we may enter into
license arrangements with other third parties as we build our product
portfolio.  We do not know the terms on which such licenses may be
available, if at all.




We depend
on Piramal to support our clinical trials in India.  The investigators
are not our employees, and we cannot control the amount or timing of resources
that they devote to our programs.  If independent investigators fail
to devote sufficient time and resources to our drug development programs, or if
their performance is substandard, it may delay or prevent the approval of our
FDA (U.S.) and DGCI (India) applications and our introduction of new
drugs.  Piramal may play a significant role in the conduct of the
trials and the subsequent collection and analysis of data.  Failure of
Piramal to meet its obligations could adversely affect clinical development of
our products.  Moreover, Piramal may also have relationships with
other commercial entities, some of which may compete with us.  If
Piramal assists our competitors at our expense, it could harm our competitive
position.




Disputes
may arise in the future over the ownership of rights to any technology developed
with collaborators.  These and other possible disagreements between us
and our collaborators could lead to delays in the collaborative development or
commercialization of products. Such disagreements could also result in
litigation or require arbitration to resolve.





We
may be subject to product liability and other claims that could have a material
negative effect on our operations and on our financial condition.




The
development and sale of medical products in general expose us to the risk of
significant damages from product liability and other claims.  Product
liability claims could delay or prevent completion of our clinical development
programs.  If we succeed in marketing our proposed lead product
candidate or any future product candidates, such claims could result in an FDA
investigation of the safety and effectiveness of our products or our marketing
programs, and potentially a recall of our products or more serious enforcement
action, or limitations on the indications for which they may be used, or
suspension or withdrawal of approval.  We plan to obtain and maintain
product liability insurance for coverage of our clinical trial
activities.  There is no assurance that we will be able to secure such
insurance in the amounts we are seeking, or at all, for any of the trials for
our proposed lead product candidate or any future product
candidates.  We intend to obtain coverage for our products when they
enter the marketplace (as well as requiring the manufacturers of our products to
maintain insurance), but we do not know if insurance will be available to us at
all or at acceptable costs.  The costs for many forms of liability
insurance have risen substantially in recent years, and such costs may continue
to increase in the future, which could materially impact our costs for clinical
or product liability insurance.  If the cost is too high, we will have
to self-insure, and we may have inadequate financial resources to pay the costs
of any claims.  A successful claim in excess of our product liability
coverage could have a material adverse effect on our business, financial
condition and results of operations.





Before
we can market our lead product candidate or any future product candidates, and
before the Joint Venture can market the Lateral Flow Products, governmental
approval or market clearance must be obtained  for each product
candidate, the application and receipt of which is time-consuming, costly and
uncertain.




Our lead product candidate and any
future product candidates that we will be developing, including Lateral Flow
Products developed by the Joint Venture for human use, will require approval or
market clearance of the FDA before they can be marketed in the United
States. Although our focus at this time is primarily on the U.S. market, in the
future similar approvals will need to be obtained from foreign regulatory
agencies before we can market our current or proposed product candidates in
other countries. We cannot predict whether we will obtain approval for any of
our product candidates.





The process for filing and obtaining
FDA approval to market therapeutic products is both time-consuming and costly,
with no certainty of a successful outcome.  The historical failure
rate for companies seeking to obtain FDA approval of therapeutic products is
high.  This process includes conducting extensive preclinical research
and clinical testing, which may take longer and cost more than we initially
anticipate due to numerous factors, including without limitation, difficulty in
securing appropriate centers to conduct trials, difficulty in enrolling patients
in conformity with required protocols in a timely manner, unexpected adverse
reactions to our proposed product candidates by patients in the trials and
changes in the FDA’s requirements for our testing during the course of that
testing. The FDA may require additional preclinical which could necessitate
significant expenditures that we have not budgeted and which could significantly
delay the commencement of clinical trials.  The formulation of our
product have not been previously tested in patients, and we may encounter
unexpected and adverse immune responses or other side effects in the patients
whom we test our products.


15





The time
required to obtain FDA and other approvals is unpredictable but often can exceed
five years following the commencement of clinical trials, depending upon the
complexity of the product.  Any analysis we perform of data from
preclinical and clinical activities is subject to confirmation and
interpretation by regulatory authorities, which could delay, limit or prevent
regulatory approval.  We may also encounter unexpected delays or
increased costs due to a variety of reasons, including new government
regulations from future legislation or administrative action, or from changes in
FDA policy during the period of product development, clinical trials and FDA
regulatory review.




Any delay
or failure in our clinical trial program and in obtaining required approvals
would have a material adverse effect on our ability to generate revenues from
the particular product.  Furthermore, any regulatory approval to
market a product may be subject to limitations on the indicated uses for which
we may market the product.  These limitations may limit the size of
the market for the product.





The
Fast Track designation for development of our lead product candidate or any
other potential product candidate may not lead to a faster development,
regulatory review or approval process, and it does not increase the likelihood
that our product candidate will receive marketing approval.




If a drug
is intended for the treatment of a serious or life threatening condition and the
drug demonstrates the potential to address unmet medical needs for this
condition, the drug sponsor may apply for FDA Fast Track designation for a
particular indication.  Marketing applications filed by sponsors of
products in Fast Track development may qualify for priority review under the
policies and procedures offered by the FDA, but the Fast Track designation does
not assure any such qualification or ultimate marketing approval by the
FDA.  Receipt of Fast Track designation may not result in a faster
development process, review or approval compared to drugs considered for
approval under conventional FDA procedures.  In addition, the FDA may
withdraw any Fast Track designation at any time. We may seek Fast Track
designation for our lead product candidate or any future product candidates, but
there is no assurance that the FDA will grant this status to any of our proposed
product candidates.




Because
our lead product candidate represents and our other future potential product
candidates will represent novel approaches to the treatment of disease, there
are many uncertainties regarding the development, the market acceptance, third
party reimbursement coverage and the commercial potential of our product
candidates.




There is
no assurance that the approaches offered by our lead product candidate or any
future product candidates will gain broad acceptance among doctors or patients
or that governmental agencies or third party medical insurers will be willing to
provide reimbursement coverage for our proposed product
candidates.  Moreover, we do not have internal marketing data research
resources and are not certain of and have not attempted to independently verify
the potential size of the commercial markets for our lead product candidates or
any future product candidates.  Since our lead product candidates and
any future product candidates will represent new approaches to treating various
conditions, it may be difficult, in any event, to accurately estimate the
potential revenues from these product candidates.  We may spend large
amounts of money trying to obtain approval for these product candidates, and
never succeed in doing so. In addition, these product candidates may not
demonstrate in large sets of patients the pharmacological properties ascribed to
them in the laboratory studies or smaller groups of patients, and they may
interact with human biological systems in unforeseen, ineffective or even
harmful ways either before or after they are approved to be
marketed.  We do not yet have sufficient information to reliably
estimate what it will cost to commercially manufacture our lead product
candidate or any future product candidates, and the actual cost to manufacture
these products could materially and adversely affect the commercial viability of
these products.  As a result, we may never succeed in developing a
marketable product.  If we do not successfully develop and
commercialize products based upon our approach, we will not become profitable,
which would materially, adversely affect the value of our common
stock.




Other
factors that are presently unknown to us that we believe will materially affect
market acceptance of our lead product candidate or any future product candidates
include:





•
            the
      timing of our receipt of any marketing approvals, the terms of any
      approvals and the countries in which approvals are
    obtained;





•
            the
      safety, efficacy and ease of
administration;





•
            the
      availability of government and third-party payor
      reimbursement;





•
            the
      pricing of our product candidates, particularly as compared to alternative
      treatments;





•
            the
      availability of alternative effective forms of treatments, at that time,
      for the diseases that the product candidates we are developing are
      intended to treat;


16





•
            acceptance
      by patients and physicians;





•
            effectiveness
      of our sales and marketing efforts;





•
            marketing
      and sales activities of
competitors;





•
            market
      satisfaction with existing alternative
  therapies;





•
            regulatory
      approval in other jurisdictions;





•
            successful
      building and sustaining of manufacturing capability;
  and





•
            our
      ability to enter into managed care and governmental agreements on
      favorable terms.





Since
our lead product candidate and the Lateral Flow Products  utilize new
or different mechanisms of action and in some cases there may be no regulatory
precedents, conducting clinical trials and obtaining regulatory approval may be
difficult, expensive and prolonged, which would delay any commercialization of
our products.




To
complete successful clinical trials, our product candidates must demonstrate
safety and provide substantial evidence of efficacy.  The FDA
generally evaluates efficacy based on the statistical significance of a product
candidate meeting predetermined clinical endpoints.  The design of
clinical trials to establish meaningful endpoints is done in collaboration with
the FDA prior to the commencement of clinical trials.  These endpoints
are established based on guidance from the FDA, including FDA guidance documents
applicable to establishing the efficacy, safety and tolerability measures
required for approval of products.  However, since some of our product
candidates utilize new or different mechanisms of action, the FDA may not have
established guidelines for the design of our clinical trials and may take longer
than average to consider our product candidates for approval.  The FDA
could change its view on clinical trial design and establishment of appropriate
standards for efficacy, safety and tolerability and require a change in clinical
trial design, additional data or even further clinical trials before granting
approval of our product candidates.  We could encounter delays and
increased expenses in our clinical trials if the FDA concludes that the
endpoints established for a clinical trial do not adequately predict a clinical
benefit.





If
we or our collaborators, manufacturers or service providers fail to comply with
regulatory laws and regulations, we or they could be subject to enforcement
actions, which could affect our ability to market and sell our lead product
candidate and any future product candidates and may harm our
reputation.




If we or
our collaborators, manufacturers or service providers fail to comply with
applicable federal, state or foreign laws or regulations, we could be subject to
enforcement actions, which could affect our ability to develop, market and sell
our lead product candidate or any future product candidates under development
successfully and could harm our reputation and lead to reduced or non−acceptance
of our proposed product candidates by the market.  Even technical
recommendations or evidence by the FDA through letters, site visits, and overall
recommendations to academia or biotechnology companies may make the
manufacturing of a clinical product extremely labor intensive or expensive,
making the product candidate no longer viable to manufacture in a cost efficient
manner.  The very nature of the product may make the product candidate
not commercially viable.  The required testing of the product
candidate may make that candidate no longer commercially viable.  The
conduct of clinical trials may be critiqued by the FDA, Institutional Review
Board, or the Institutional Biosafety Committee, which may delay or make
impossible clinical testing of a product candidate.  The Data Safety
Monitoring Committee may stop a trial or deem a product unsafe to continue
testing.  This may have significant negative repercussions on the
value of the product and may have negative repercussions on the Company and on
the shareholders. Clinical investigator misconduct could also result in delays
or rejection of our applications for approval of our product
candidates.  Clinical investigator misconduct that raises questions
about the integrity of data in one or more applications (e.g., fraud, bribery,
omission of a material fact, gross negligence) could be used by the FDA as
grounds to suspend substantive scientific review of all pending marketing
applications until the data in question have successfully undergone a validity
assessment.  Product candidates that fail validity assessments must be
withdrawn from FDA review or, if the drug is an approved, marketed product, such
product must be removed from the market.




17




Failure
to comply with all applicable regulations, including those that require us to
obtain and maintain governmental approvals for our product candidates, may
result in fines, corrective actions, administrative sanctions and restrictions,
including the withdrawal of a product from the market.





Pharmaceutical
companies are subject to significant regulation by a number of national, state
and local agencies, including the FDA.  Such regulations and their
authorizing statutes are amended from time to time.  Failure to comply
with applicable regulatory requirements could, among other things, result in
fines, corrective actions, administrative sanctions, suspensions or delays of
product manufacture or distribution or both, product recalls, delays in
marketing activities and sales, withdrawal of marketing approvals, and civil or
criminal sanctions including possible exclusion from eligibility for federal
government contracts payment of our products by Medicare, Medicaid, and other
third-party payors.




After
initial regulatory approval, the manufacturing and marketing of drugs, including
our products, are subject to continuing FDA and foreign regulatory
review.  Additionally, the FDA encourages health professionals to
report significant adverse events associated with products.  The FDA
may require additional clinical studies, known as Phase IV studies, to evaluate
product safety effects.  In addition to studies required by the FDA
after approval, we may conduct our own Phase IV studies to explore the use of
the approved drug product for treatment of new indications or to broaden our
knowledge of the product.  The subsequent discovery of previously
unknown problems with a product’s safety or efficacy as a result of these
studies or as reported in their prescribed use may result in restrictions
through labeling changes or withdrawal of the product from the
market.




The FDA
periodically inspects drug manufacturing facilities to ensure compliance with
applicable good manufacturing practice regulations. Failure to comply with
statutory and regulatory requirements subject the manufacturer to possible legal
or regulatory action, such as suspension of manufacturing, seizure of product or
voluntary recall of a product.




Additional
authority to take post-approval actions was given to the FDA under the FDA
Amendments Act of 2007, which went into effect on October 1,
2007.  The FDA is authorized to revisit and change its prior
determinations if new information raises questions about our product’s safety
profile.  The FDA is authorized to impose additional post-marketing
requirements such as:




•
            testing
      and surveillance to monitor the product and its continued compliance with
      regulatory requirements;





•
            submitting
      products for inspection and, if any inspection reveals that the product is
      not in compliance, the prohibition of the sale of all products from the
      same lot;





•
            requiring
      us or our partners to conduct long-term safety studies if new information
      raises questions about our product’s safety
  profile;





•
            requiring
      labeling changes to help ensure the safe and effective use of
      products;





•
            requiring
      development and implementation of a Risk Evaluation and Mitigation
      Strategies plan if the FDA determines that it is necessary to help ensure
      that the drug’s benefits continue to outweigh the risks of a serious
      adverse drug experience;





•
            requiring
      corrective and preventive actions and/or suspending
      manufacturing;





•
            withdrawing
      marketing approval;





•
            seizing
      adulterated, misbranded or otherwise violative
  products;





•
            seeking
      to enjoin the manufacture or distribution, or both, of an approved
      product, or seeking an order to recall an approved product, that is found
      to be adulterated or misbranded;
and





•
            seeking
      monetary fines and penalties, including disgorgement of profits, if a
      court finds that we are in violation of applicable
  law.





Even before any formal regulatory
action, we could voluntarily decide to cease distribution and sale, or recall,
any of our products if concerns about safety or effectiveness develop, if
certain good manufacturing practice deviations are found, or if economic
conditions support such action.





In its
regulation of advertising, the FDA may issue correspondence to pharmaceutical
companies alleging that its advertising or promotional materials are false,
misleading or deceptive.  The FDA has the power to impose a wide array
of sanctions on companies for such advertising practices and if we were to
receive correspondence from the FDA alleging these practices it may be necessary
for us to:





•
                        incur
      substantial expenses, including fines, penalties, legal fees and costs to
      conform to the FDA’s limits on such promotion;


18





•
                          change
      our methods of marketing, promoting and selling
  products;





•
            take
      corrective action, which could include placing advertisements or sending
      letters to physicians correcting statements
      made in previous advertisements or promotions;
  or





•
            disrupt
      the distribution of products and stop sales until we are in compliance
      with the FDA’s interpretation of applicable
      laws and regulations.





In
addition, in recent years some alleged violations of FDA requirements regarding
off-label promotion of products by manufacturers have been used to support
whistleblower and/or government actions under the federal civil False Claims
Act, resulting in substantial monetary settlements.  Also, various
legislative proposals have been offered in Congress and in some state
legislatures that include major changes in the health care
system.  These proposals have included price or patient reimbursement
constraints on medicines and restrictions on access to certain
products.  We cannot predict the outcome of such initiatives and it is
difficult to predict the future impact of the broad and expanding legislative
and regulatory requirements affecting us.




We
are subject to “fraud and abuse” and similar government laws and regulations,
and a failure to comply with such laws and regulations, or an investigation into
our compliance with such laws and regulations, or a failure to prevail in any
litigation related to noncompliance, could harm our business.




We are
subject to multiple state and federal laws pertaining to health care fraud and
abuse.  Pharmaceutical pricing, sales, and marketing programs and
arrangements, and related business practices in the health care industry
generally are under increasing scrutiny from federal and state regulatory,
investigative, prosecutorial, and administrative entities.  Many
health care laws, including the federal and state anti-kickback laws and federal
and state statutory and common law false claims laws, have been construed
broadly by the courts and permit government entities to exercise considerable
discretion.  In the event that any of these government entities
believed that wrongdoing had occurred, one or more of them could institute civil
administrative or criminal proceedings which, if instituted and resolved
unfavorably, could subject us to substantial fines, penalties, and injunctive
and administrative remedies, including exclusion from government reimbursement
programs.  Any such result could have a material adverse impact on our
results of operations, cash flows, financial condition, and our
business.  Such investigations could be costly, divert management’s
attention from our business, and result in damage to our
reputation.  We cannot guarantee that measures that we have taken to
prevent violations  will protect us from future violations, lawsuits
or investigations.  If any such actions are instituted against us, and
we are not successful in defending ourselves or asserting our rights, those
actions could have a significant negative impact on our business, including
the imposition of significant fines or other sanctions.




Failure
to adequately control compliance with all applicable laws and regulations may
adversely affect our business, and we may become subject to investigative or
enforcement actions.




There are
extensive state, federal and foreign laws and regulations applicable to
pharmaceutical companies engaged in the discovery, development and
commercialization of medicinal products and for medical diagnostics products
intended for human use.  There are laws and regulations that govern
areas including financial controls, clinical trials, testing, manufacturing,
labeling, safety, packaging, shipping, distribution and promotion of
pharmaceuticals, including those governing interactions with prescribers and
healthcare professionals in a position to prescribe, recommend, or arrange for
the provision of our products.




In recent
years, pharmaceutical companies have been the targets of extensive whistleblower
actions in which the person bringing an action alleges a variety of violations
of the civil False Claims Act or its state equivalent, in such areas as pricing
practices, off-label product promotion, sales and marketing practices, improper
relationships with physicians and other healthcare professionals, among
others.  The potential ramifications are far-reaching if there are
areas identified as out of compliance by regulatory agencies including, but not
limited to, significant financial penalties, manufacturing and clinical trial
consent decrees, commercialization restrictions, exclusion from government
programs, product recalls or seizures, or other restrictions and
litigation.  Furthermore, there can be no assurance that we will not
be subject to a whistleblower or other investigative or enforcement action at
some time in the future.




Failure
to obtain regulatory approval in foreign jurisdictions will prevent us from
marketing our products abroad.




We intend
to market our products in international markets.  In order to market
our products in the European Union and many other foreign jurisdictions, we must
obtain separate regulatory approvals.  The approval procedure varies
among countries and can involve additional testing, and the time required to
obtain approval may differ from that required to obtain FDA
approval.  The foreign regulatory approval process may include all of
the risks associated with obtaining FDA approval.  We may not obtain
foreign regulatory approvals on a timely basis, if at all. Approval by the FDA
does not ensure approval by regulatory authorities in other countries, and
approval by one foreign regulatory authority does not ensure approval by
regulatory authorities in other foreign countries or by the FDA.  We
may not be able to file for regulatory approvals and may not receive necessary
approvals to commercialize our products in any market.


19





We
are subject to uncertainty relating to health care reform measures and
reimbursement policies which, if not favorable to our product candidates, could
hinder or prevent our product candidates’ commercial success.




The
continuing efforts of the government, insurance companies, managed care
organizations and other payors of health care costs to contain or reduce costs
of health care may adversely affect:  (1) our ability to generate
revenues and achieve profitability; (2) the future revenues and profitability of
our potential customers, suppliers and collaborators; and (3) the availability
of capital.




In
certain foreign markets, the pricing of prescription pharmaceuticals is subject
to government control.  In the United States, given recent federal and
state government initiatives directed at lowering the total cost of health care,
the U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of prescription pharmaceuticals and on the reform of the
Medicare and Medicaid systems.  While we cannot predict the full
effects of the implementation of this new legislation or whether any legislative
or regulatory proposals affecting our business will be adopted, the
implementation of this legislation or announcement or adoption of these
proposals could have a material and adverse effect on our business, financial
condition and results of operations.




The
Medicare Prescription Drug, Improvement and Modernization Act of 2003
established a voluntary outpatient prescription drug benefit under Part D of the
Social Security Act.   The program, which went into effect
January 1, 2006, is administered by the Centers for Medicare &
Medicaid Services within the Department of Health and Human Services and is
implemented and operated by private sector Part D plan sponsors.  The
federal government can be expected to continue to issue guidance and regulations
regarding the obligations of Part D sponsors and their
subcontractors.




Each
participating drug plan is permitted by regulation to develop and establish its
own unique drug formulary that may exclude certain drugs from coverage, impose
prior authorization and other coverage restrictions, and negotiate payment
levels for drugs which may be lower than reimbursement levels available through
private health plans or other payers. Moreover, beneficiary co-insurance
requirements could influence which products are recommended by physicians and
selected by patients. There is no assurance that any drug that we develop
or sell will be covered by drug plans participating under the Medicare Part D
program or, if covered, what the terms of any such coverage will be, or that the
drugs will be reimbursed at amounts sufficient to make the drug cost effective.
 To the extent that private insurers or managed care programs follow
Medicare coverage and payment developments, the adverse effects of lower
Medicare payment may be magnified by private insurers adopting similar lower
payment.  New federal or state drug payment changes or healthcare reforms
in the United States and in foreign countries may be enacted or adopted in the
future that could further lower payment for our products.





Our
ability to commercialize our product candidates successfully will depend in part
on the extent to which governmental authorities, private health insurers and
other organizations establish appropriate reimbursement levels for the cost of
our products and related treatments Third-party payors are increasingly
challenging the prices charged for medical products and
services.  Also, the trend toward managed health care in the United
States, which could significantly influence the purchase of health care services
and products, as well as legislative proposals to reform health care or reduce
government insurance programs, may result in lower prices for our product
candidates or exclusion of our product candidates from reimbursement
programs.  The cost containment measures that health care payors and
providers are instituting and the effect of any health care reform could
materially and adversely affect our results of operations.




Another
development that may affect the pricing of drugs is regulatory action regarding
drug reimportation into the United States.  The Medicare Prescription
Drug, Improvement and Modernization Act of 2003, which became law in December
2003, requires the Secretary of the U.S. Department of Health and Human Services
(the “Secretary”) to promulgate regulations allowing drug reimportation from
Canada into the United States under certain circumstances.  These
provisions will become effective only if the Secretary certifies that such
imports will pose no additional risk to the public’s health and safety and will
result in significant cost savings to consumers.  To date, the
Secretary has made no such finding, but he could do so in the
future.  Proponents of drug reimportation may also attempt to pass
legislation that would remove the requirement for the Secretary’s certification
or allow reimportation under circumstances beyond those anticipated under
current law.  If legislation is enacted, or regulations issued,
allowing the reimportation of drugs, it could decrease the reimbursement we
would receive for any products that we may commercialize, negatively affecting
our anticipated revenues and prospects for profitability.


20


If
physicians, patients and customers do not accept the products that we may
develop, our ability to generate product revenue in the future will be adversely
affected.





The
product candidates that we may develop may not gain market acceptance among
physicians, healthcare payors, patients, customers and the medical
community.  This will adversely affect our ability to generate
revenue.  Market acceptance of and demand for any product that we may
develop will depend on many factors, including: our ability to provide
acceptable evidence of safety and efficacy; convenience and ease of
administration; prevalence and severity of adverse side effects; cost
effectiveness; effectiveness of our marketing strategy and the pricing of any
product that we may develop; our competitors’ sales and marketing activities;
publicity concerning our products or competitive products; and our ability to
obtain third-party coverage or reimbursement.





The
cost of defending against product liability claims brought against us can be
costly and time consuming, and may harm our business.




Product
liability claims brought against the Company could prevent or interfere with our
product commercialization efforts.  Interference can be filed by other
inventors/licensees if they believe they have intellectual property covering any
part of the discovery and development of our therapeutic
product.  Such interference can delay the product
development.  We currently have no obvious interference and do not
anticipate any, but unforeseen events can occur, leading to delays, or even
block of developing a product.  Defending a suit, regardless of merit,
could be costly, could divert management attention and might result in adverse
publicity or reduced acceptance of our products in the market.




If
we are not able to protect and control our unpatented trade secrets, know-how
and other technological innovation, we may suffer competitive harm.




We also
rely on proprietary trade secrets and unpatented know-how to protect our
research and development activities, particularly when we do not believe that
patent protection is appropriate or available.  However, trade secrets
are difficult to protect.  We will attempt to protect our trade
secrets and unpatented know-how by requiring our employees, consultants and
advisors to execute a confidentiality and nonuse agreement.  We cannot
guarantee that these agreements will provide meaningful protection, that these
agreements will not be breached, that we will have an adequate remedy for any
such breach, or that our trade secrets will not otherwise become known or
independently developed by a third party.  Our trade secrets, those of
our Joint Venture and those of our present or future collaborators that we
utilize by agreement, may become known or may be independently discovered by
others, which could adversely affect the competitive position of our product
candidates.




We
may incur substantial costs as a result of litigation or other proceedings to
enforce our patents, defend against third-party patents, invalidate third-party
patents or license third-party intellectual property.




We may
not have rights under some patents or patent applications that may cover
technologies that we use in our research, drug targets that we select, or
product candidates that we seek to develop and commercialize.  Third
parties may own or control these patents and patent applications in the United
States and abroad.  These third parties could bring claims against us
or our collaborators that would cause us to incur substantial expenses and, if
successful against us, could cause us to pay substantial
damages.  Further, if a patent infringement suit were brought against
us or our collaborators, we or they could be forced to stop or delay research,
development, manufacturing or sales of the product or product candidate that is
the subject of the suit.  We or our collaborators therefore may choose
to seek, or be required to seek, a license from the third-party and would most
likely be required to pay license fees or royalties or both.  These
licenses may not be available on acceptable terms, or at all.  Even if
we or our collaborators were able to obtain a license, the rights may be
nonexclusive, which would give our competitors access to the same intellectual
property.  Ultimately, we could be prevented from commercializing a
product or forced to cease some aspect of our business operations as a result of
patent infringement claims, which could harm our business.




There has
been substantial litigation and other proceedings regarding patent and other
intellectual property rights in the pharmaceutical and biotechnology
industries.  Although we are not currently a party to any patent
litigation or any other adversarial proceeding, including any interference
proceeding declared before the United States Patent and Trademark Office,
regarding intellectual property rights with respect to our products and
technology, we may become so in the future.  We are not currently
aware of any actual or potential third party infringement claim involving our
products.  The cost to us of any patent litigation or other
proceeding, even if resolved in our favor, could be substantial.  The
outcome of patent litigation is subject to uncertainties that cannot be
adequately quantified in advance, including the demeanor and credibility of
witnesses and the identity of the adverse party, especially in biotechnology
related patent cases that may turn on the testimony of experts as to technical
facts upon which experts may reasonably disagree.  Some of our
competitors may be able to sustain the costs of such litigation or proceedings
more effectively than we can because of their substantially greater financial
resources.  If a patent or other proceeding is resolved against us, we
may be enjoined from researching, developing, manufacturing or commercializing
our products without a license from the other party and we may be held liable
for significant damages.  We may not be able to obtain any required
license on commercially acceptable terms or at all.




Uncertainties
resulting from the initiation and continuation of patent litigation or other
proceedings could harm our ability to compete in the marketplace. Patent
litigation and other proceedings may also absorb significant time from
management.


21


If
we are unable to protect our intellectual property rights, our competitors may
develop and market products with similar features that may reduce demand for our
potential products.




The
following factors are important to our success: receiving patent protection for
our product candidates; preventing others from infringing on our intellectual
property rights; and maintaining our patent rights and trade
secrets.




We will
be able to protect our intellectual property rights in patents and trade secrets
from unauthorized use by third parties only to the extent that such intellectual
property rights are covered by valid and enforceable patents or are effectively
maintained as trade secrets.





Because
issues of patentability involve complex legal and factual questions, the
issuance, scope and enforceability of patents cannot be predicted with
certainty.  Patents, if issued, may be challenged, invalidated or
circumvented. U.S. patents and patent applications may also be subject to
interference or reexamination proceedings in the U.S. Patent and Trademark
Office.  Foreign patents may be subject to opposition or comparable
proceedings in corresponding foreign patent offices, and such proceedings could
result in either loss of the patent or denial of the patent application, or loss
or reduction in the scope of one or more of the claims of the patent or patent
application.  In addition, such interference, reexamination and
opposition proceedings may be costly.  Thus, any patents that we own
or license from others may not provide any protection against competitors.
Furthermore, an adverse decision in an interference proceeding can result in a
third-party receiving the patent rights sought by us, which in turn could affect
our ability to market a potential product to which that patent filing was
directed.  Our pending patent applications, those that we may file in
the future, or those that we may license from third parties may not result in
patents being issued.  If issued, they may not provide us with
proprietary protection or competitive advantages against competitors with
similar technology.  Furthermore, others may independently develop
similar technologies or duplicate any technology that we have
developed.  Many countries, including certain countries in Europe,
have compulsory licensing laws under which a patent owner may be compelled to
grant licenses to third parties.  For example, compulsory licenses may
be required in cases where the patent owner has failed to “work” the invention
in that country, or the third-party has patented improvements.  In
addition, many countries limit the enforceability of patents against government
agencies or government contractors.  In these countries, the patent
owner may have limited remedies, which could materially diminish the value of
the patent.  Moreover, the legal systems of certain countries,
particularly certain developing countries, do not favor the aggressive
enforcement of patent and other intellectual property protection, which makes it
difficult to stop infringement.




In
addition, our ability to enforce our patent rights depends on our ability to
detect infringement. It is difficult to detect infringers who do not advertise
the compounds that are used in their products. Any litigation to enforce or
defend our patent rights, even if we prevail, could be costly and time-consuming
and would divert the attention of management and key personnel from business
operations.




We will
also rely on trade secrets, know-how and technology, which are not protected by
patents, to maintain our competitive position.  We will seek to
protect this information by entering into confidentiality agreements with
parties that have access to it, such as strategic partners, collaborators,
employees and consultants.  Any of these parties may breach these
agreements and disclose our confidential information or our competitors might
learn of the information in some other way.  If any trade secret,
know-how or other technology not protected by a patent were disclosed to or
independently developed by a competitor, our business, financial condition and
results of operations could be materially adversely affected.




The
patent process is exceedingly time consuming and the loss of patent protection
may cause a reduction or loss of future revenue stream.




The
patent process is exceedingly time consuming.  The time consumed by
development, regulatory review, and creation of a market for a drug may
significantly intrude into the finite patent life of the particular drug. Loss
of patent protection ultimately enables generic versions of the drug to enter
the market, which will significantly adversely impact future revenue streams of
the Company.  An initially profitable drug may thus become
significantly less profitable.


22


If
we are unable to contract with third parties for the synthesis of active
pharmaceutical ingredients required for preclinical testing or for the necessary
components for our Lateral Flow Products, we may be unable to develop or
commercialize our products.





The
manufacturing of sufficient quantities of new product candidates is a
time-consuming and complex process.  We have no experience or
capabilities to conduct the manufacture of any of our product
candidates.  In order to successfully develop our product candidates,
we need to contract or otherwise arrange for the necessary
manufacturing.  There are a limited number of manufacturers that
operate under the FDA’s good manufacturing practices capable of manufacturing
for us. We depend upon third parties for the manufacture of products and this
dependence may adversely affect our ability to develop and deliver such products
on a timely and competitive basis.  If we are unable to engage or
retain third-party manufacturers on a long-term basis or on commercially
acceptable terms, our product candidates may not be developed as planned, and
the development of our product candidates could be delayed.  Our
reliance on contract manufacturers also exposes us to the following
risks:





·
            contract
      manufacturers may encounter difficulties in achieving volume production,
      quality control and quality assurance, and also may experience shortages
      in qualified personnel.  As a result, our contract manufacturers
      might not be able to meet our clinical schedules or adequately manufacture
      our products in commercial quantities when
  required;





·
            switching
      manufacturers may be difficult because the number of potential
      manufacturers is limited.  It may be difficult or impossible for
      us to find a replacement manufacturer quickly on acceptable terms, or at
      all;





·
            our
      contract manufacturers may not perform as agreed or may not remain in the
      contract manufacturing business for the time required to successfully
      produce, store or distribute our
  products; and





·
            drug
      manufacturers are subject to ongoing periodic unannounced inspection by
      the FDA and corresponding state agencies to ensure strict compliance with
      good manufacturing practices and other government regulations and
      corresponding foreign standards.  We do not have control over
      third-party manufacturers’ compliance with these regulations and
      standards.




Our
current dependence upon third parties for the manufacture of our products may
harm our profit margin, if any, on the sale of our future products and our
ability to develop and deliver products on a timely and competitive
basis.




The
manufacturing processes for our product candidates have not been validated at
the scale required for commercial sales.  Delays in scale-up to
commercial quantities and any change at the site of manufacture could delay
clinical trials, regulatory submissions and ultimately the commercialization of
our products.





If
our third-party manufacturers’ facilities do not follow current good
manufacturing practices, our product development and commercialization efforts
may be harmed.




There are
a limited number of manufacturers that operate under the FDA’s and European
Union’s good manufacturing practices regulations and are capable of
manufacturing products. Third-party manufacturers may encounter difficulties in
achieving quality control and quality assurance and may experience shortages of
qualified personnel.  A failure of third-party manufacturers to follow
current good manufacturing practices or other regulatory requirements, or to
document their adherence to such practices, may lead to significant delays in
the availability of products for commercial use or clinical study, the
termination of, or hold on, a clinical study, or the delay or prevention of
filing or approval of marketing applications for our products.  In
addition, we could be subject to sanctions, including fines, injunctions and
civil penalties.  Changing manufacturers may require FDA approval or
additional clinical trials and the revalidation of the manufacturing process and
procedures in accordance with FDA mandated current good manufacturing
practices.  This revalidation may be costly and time
consuming.  If we are unable to arrange for third-party manufacturing
of our products on commercially reasonable terms, we may not be able to complete
development or marketing of our products.


23




RISKS
RELATED TO CAPITAL STRUCTURE




There
is no established public trading market for our common stock, and the failure to
establish one will adversely affect the ability of our investors to sell their
securities in the public market.




At
present, there is no active trading market for our securities, and there
can be no assurance that a trading market will develop. Our common stock,
however, is traded on the OTC Bulletin Board.  The National
Association of Securities Dealers (the “NASD”) has enacted changes that limit
quotations on the OTC Bulletin Board to securities of issuers that are current
in their reports filed with the SEC. The OTC Bulletin Board is an inter−dealer,
over-the-counter market that provides significantly less liquidity than the
NASD’s automated quotation system (the “NASDAQ Stock Market”).  Unlike
quotes for the NASDAQ Stock Market, quotes for stocks included on the OTC
Bulletin Board are not listed in the financial sections of
newspapers.  Therefore, prices for securities traded solely on the OTC
Bulletin Board may be difficult to obtain and holders of common stock may be
unable to resell their securities at or near their original offering price, or
at all.





Factors
which may adversely affect market prices of our common stock.




Market
prices for our common stock will be influenced by a number of factors,
including:




·
            the
      issuance of new equity securities pursuant to a future offering or
      acquisition;





·
            data
      from clinical trials;





·
            developments
      related to the FDA approval
process;





·
            sales
      of our stock by our current
stockholders;





·
            developments
      in our patent rights;





·
            departures
      of key personnel;





·
            the
      addition or termination of research or development
    programs;





·
            the
      entry into collaborative
agreements;




·
            changes
      in interest rates;




·
            competitive
      developments, including announcements by competitors of new products or
      services or significant contracts, acquisitions, strategic partnerships,
      joint ventures or capital
commitments;




·
            variations
      in quarterly operating results;





·
            changes
      in financial estimates by securities
analysts;




·
            the
      depth and liquidity of the market for our common
  stock;




·
            investor
      perceptions of our company and the medical device industry generally;
      and




·
            general
      economic and other national
conditions.


24


Shares
eligible for future sale may adversely affect the market price of our common
stock.




During
the fiscal year ended September 30, 2007, we issued 104,000,000 shares of our
common stock and 12,300,000 warrants to purchase our common stock (or 26,000,000
shares and 3,075,000 warrants on a post-split basis) to investors through
private placement transactions exempt from registration under the Securities Act
of 1933, as amended (the “Securities Act”).  The sale, or availability
for sale, of substantial amounts of this stock could adversely affect the future
market price of our common stock and could impair our ability to raise
additional capital through the sale of our equity securities or debt financing.
Additionally, such sales may make it more difficult for us to sell equity
securities or equity-related securities in the future at a time and price that
our management deems acceptable, or at all.




Our
common stock is considered a “penny stock” and may be difficult to
sell.




Our
common stock is considered to be a “penny stock” since it meets one or more of
the definitions in Rules 15g−2 through 15g−6 promulgated under Section 15(g) of
the Securities Exchange Act of 1934. The characteristics that define a “penny
stock” include but are not limited to the following:  (i) the stock
trades at a price less than $5.00 per share; (ii) the stock is NOT traded on a
“recognized” national exchange; (iii) the stock is NOT quoted on the NASDAQ
Stock Market, or even if so, has a price less than $5.00 per share; or (iv) the
stock is issued by a company with net tangible assets less than $2.0 million, if
in business more than a continuous three years, or with average revenues of less
than $6.0 million for the past three years.  The principal result or
effect of being designated a “penny stock” is that securities broker-dealers
cannot recommend the stock but must trade in it on an unsolicited
basis.




Additionally,
Section 15(g) of the Exchange Act and Rule 15g−2 promulgated thereunder by the
SEC require broker-dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor’s account.




Potential
investors in our common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be “penny
stock.”  Moreover, Rule 15g−9 requires broker-dealers in penny stocks
to approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor.  This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment
objectives.  Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to
third-parties or to otherwise dispose of them in the market or
otherwise.




If
we fail to maintain effective internal controls over financial reporting, the
price of our common stock may be adversely affected.




We are
required and have established and maintain appropriate internal controls over
financial reporting which management has asked to be effective as of our fiscal
year ended September 30, 2008. Any failure of those controls once established,
could adversely impact our public disclosures regarding our business, financial
condition or results of operations.





Standards
for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
and if we fail to comply in a timely manner, our business could be harmed and
our stock price could decline.




Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require annual assessment of our internal controls over financial reporting, and
attestation of our assessment by our independent registered public
accountants.  On December 15, 2006, the SEC extended the compliance
date for non-accelerated filers, as defined by the SEC, to provide management’s
report on internal controls until the company files an annual report for its
fiscal year ending on or after December 15, 2007.  On October 2, 2009,
the SEC announced that it intended to further extend the compliance date for
non-accelerated filers to file the auditor’s attestation report on internal
control over financial reporting until it files an annual report for its first
fiscal year ending on or after June 15, 2010.  Accordingly, management
has made the required review and assessed the system of internal control over
financial reporting to be effective as of our fiscal year end. We may not be
able to conclude on an ongoing basis that we have effective internal controls
over financial reporting in accordance with Section 404.  Failure
to achieve and maintain an effective internal control environment could harm our
operating results and could cause us to fail to meet our reporting
obligations.  Inferior internal controls could also cause investors to
lose confidence in our reported financial information, which could have a
negative effect on the trading price of our stock. Our auditor’s review of
our system and subsequent attestation report will not be performed until the
fiscal year ending September 30, 2010. The attestation process by our
independent registered public accountants is new and we may encounter problems
or delays in completing the implementation of any requested improvements and
receiving an attestation of our assessment by our independent registered public
accountants.  If our independent registered public accountants are
unable to provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.


25


We
do not foresee paying cash dividends in the foreseeable future.




We have
not paid cash dividends on our stock and do not plan to pay cash dividends on
our common stock in the foreseeable future.





Provisions
of our certificate of incorporation, bylaws, rights agreement and Nevada law
could deter takeover attempts.





Some
provisions in our certificate of incorporation and bylaws, as well as the
provisions of our rights plan could delay, prevent or make more difficult a
merger, tender offer, proxy contest or change of control. Our stockholders might
view any transaction of this type as being in their best interest since the
transaction could result in a higher stock price than the current market price
for our common stock. Any delay or prevention of a merger, tender offer, proxy
contest or change of control could cause the market price of our common stock to
decline.





Among
other things, our certificate of incorporation and bylaws:





·
            authorize
      our Board of Directors to issue preferred stock with the terms of each
      series to be fixed by our Board of
Directors;





·
            permit
      directors to be removed only for cause;
and





·
            specify
      advance notice requirements for stockholder proposals and director
      nominations.





In
addition, on September 22, 2009, our Board of Directors approved and adopted an
amendment to our Bylaws to adopt Sections 78.378 to 78.3793 of the Nevada
Revised Statutes which impose voting restrictions on stockholders acquiring more
than 20% of the Registrant’s voting stock (such shares are defined in the Nevada
Revised Statutes as “control shares”).  These provisions also
authorize our company, at the discretion of our Board of Directors, to call for
redemption of the “control shares” at the average price the holder paid for such
shares.
 
 Effective
June 1, 2009, our board of directors adopted a stockholders’ rights plan, which
could result in the significant dilution of the proportionate ownership of any
person that engages in an unsolicited attempt to take over our company and,
accordingly, could discourage potential acquirers.    On
June 22, 2009, Dyva Holding Ltd. filed a Form 13D indicating that it had
acquired more than 20% of our outstanding common stock.  This
acquisition crossed the stock ownership threshold required to trigger our rights
plan. Pursuant to the rights plan, our Board of Directors declared a dividend
distribution of one right for each share of common stock. Each right entitles
the holder to purchase one one-hundredth of a share of our Series C
Preferred Stock at an initial exercise price of $5 per share. The Rights Plan is
intended to assure that all of our stockholders receive fair and equal treatment
in the event of any proposed takeover of the company and to protect
stockholders’ interests in the event the company is confronted with partial
tender offers or other coercive or unfair takeover tactics.  Rights
become exercisable upon the earlier of (i) ten days following the acquisition by
a person or group of 20% or more of our outstanding common stock, and (ii) ten
business days after the announcement of a tender offer or exchange offer to
acquire 20% or more of the outstanding common stock. The continuing directors
(defined as the directors who are not affiliated or associated with an acquiring
person) may vote to extend these timeframes in their discretion. If such a
person or group acquires 20% or more of the common stock, each right (other than
such person’s or group’s rights, which will become void) will entitle the holder
to purchase, at an exercise price equal to 50% of the then current trading price
of the our common stock.   In the alternative, our Board of
Directors may authorize issuance of one share of fully paid common stock for
each right. If not redeemed, the rights will expire on June 1,
2014.  Pursuant to the Rights Plan, our Board of Directors voted to
extend the distribution date.





ITEM
      1B
            UNRESOLVED
      STAFF COMMENTS





Not
applicable.





ITEM
      2
            PROPERTIES





We
currently maintain our corporate office in 18 Technology, Suite 130, Irvine, CA
92618, under a lease through July 31, 2010 at a base monthly rental rate of
$4,389.  We lease office space in Nevada under a one year lease for
$2,500 paid in advance. We do not own or lease any other property and we do not
have a real estate investment policy.




ITEM
      3
            LEGAL
      PROCEEDINGS





On October 29, 2009, pursuant to the
authority provided in the Bylaws and pursuant to Nevada Control Share Act ((the
“Nevada Act”), we called for redemption of the entire 10,832,876 common share
holding of DYVA Management Ltd. and its affiliates (“DYVA”), which such shares
represent 46.2% of our total issued and outstanding shares.  Under the
Nevada Act, we are entitled to call for redemption of DYVA’s shares at the
average price paid by DYVA for its shares, which has been reported by DYVA to be
for 833,298 Euros (approximately $1,231,000). On November 13, 2009, DYVA filed a
complaint in the United States District Court, District of Nevada for
declaratory and injunctive relief to halt the proposed redemption. In addition,
the complaint seeks attorneys fees and costs to the extent permitted by law and
any further and other relief the Court may deem proper.




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.




ITEM
      4
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended September 30, 2009.


26





PART
II




ITEM
      5
            MARKET
      FOR REGISTRANT’S COMMON EQUITY RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




Market
Information




Our
common stock has been traded on the OTC Bulletin Board over-the-counter market
since November 10, 2006. Effective October 30, 2007, the Company changed its
symbol from “QSTG” to “NURX” in connection with the Company’s change in name to
NuRx Pharmaceuticals, Inc.  Effective on or about May 9, 2008, the
Company changed its symbol from “NURX” to “NUXP” in connection with the
one-for-four reverse stock split.





There is
little or no trading in our common stock. The following price information
reflects inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions:




Quarter Ending(1)
                          
                          High
                          
                          
                          LowOctober
      1, 2007 – December 31, 2007
                          
                          $
                          4.04
                          
                          
                          $
                          2.00January
      1, 2008 – March 31, 2008
                          
                          $
                          4.04
                          
                          
                          $
                          2.20April
      1, 2008 – June 30, 2008
                          
                          $
                          4.05
                          
                          
                          $
                          2.10July
      1, 2008 – September 30, 2008
                          
                          $
                          2.50
                          
                          
                          $
                          0.30October
      1, 2008 - December 31, 2008
                          
                          $
                          1.90
                          
                          
                          $
                          0.25Jan.
      1, 2009 – March 31, 2009
                          
                          $
                          1.90
                          
                          
                          $
                          0.05April
      1, 2009 - June 30, 2009
                          
                          $
                          0.49
                          
                          
                          $
                          0.10July
      1, 2009 – September 30, 2009
                          
                          $
                          0.58
                          
                          
                          $
                          0.10





(1) All
per share information is adjusted to reflect the one-for-four reverse stock
split which occurred on May 9, 2008.




Holders





As of
December 18, 2009, there were approximately 460 holders of record of our
common stock.




Dividends





We have
not paid any dividends on our common stock to date and do not anticipate that we
will be paying dividends in the foreseeable future.




Any
payment of cash dividends on our common stock in the future will be dependent
upon the amount of funds legally available, our earnings, if any, our financial
condition, our anticipated capital requirements and other factors that the Board
of Directors may think are relevant.  However, we currently intend for
the foreseeable future to follow a policy of retaining all of our earnings, if
any, to finance the development and expansion of our business and, therefore, do
not expect to pay any dividends on our common stock in the foreseeable
future.





Equity
Compensation Plan Information





The only
equity compensation plan approved by our security holders is the 2007 Stock
Compensation Plan (the “2007 Plan”).  The Company has also issued
equity compensation outside of the 2007 Plan in connection with the services
provided by Hunter World Markets for the Company’s private placement of its
common stock.





Recent
Sales of Unregistered Securities





On
October 31, 2007, we issued to Vitae Pharmaceuticals, Inc. 1,756,732 shares of
our common stock (on a post-split basis) as a milestone payment in connection
with the license agreement that we executed on May 11, 2007, under which we
acquired an exclusive, worldwide sublicense to certain compounds and technology
for human and veterinary use.





On
December 31, 2008 we issued to Vitae Pharmaceuticals, Inc. 50,000 shares of our
common stock as a payment in connection with the amendment and restatement of
the May 11, 2007 license to cover certain dermatological applications of the
compounds.


27





ITEM
      6.
            SELECTED
      FINANCIAL DATA.





Not
applicable.




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATION





Management’s
Discussion and Analysis or Plan of Operation.




You should read the information in
this Item 7 together with our financial statements and notes thereto that
appear elsewhere in this Report. This Report contains forward-looking statements
that involve risks, uncertainties, and assumptions. Actual results may differ
materially from those anticipated in these forward-looking
statements. This
discussion and analysis may contain forward-looking statements that involve
risks and uncertainties. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
such as those set forth under heading “Risk Factors,” and elsewhere in this
report.





Overview





NuRx
Pharmaceuticals Inc. (“NuRx”) has historically been an early stage R&D
biopharmaceutical company with a focus on oncology products (leukemia and lung
cancer). The combination of (1) the current suboptimal conditions for new
financing of a pure early stage, oncology-focused research and
development  biotech company and (2)  the slower than
expected  recruitment in our U.S. clinical trials with its resultant
delays in delivery of Phase II data has recently caused the company to carefully
evaluate options to its current singular focus. We concluded in May 2009 that
there was an immediate need to expand our R&D focus to novel oncology
targets in collaboration with academic centers as well as re-examine the value
of our oncology supportive care neutropenia product. More significantly we
determined that we needed to expand our interests to broader areas of life
sciences with products that offer a near term revenue stream to support the
R&D programs. We examined a number of options in the medical diagnostics
arena and ultimately focused on Point-of-Care diagnostics in human and
veterinary medicine.





Patient
enrollment in clinical trials in the U.S. has been placed on hold while we focus
on those clinical trials that are being initiated in India in collaboration with
Piramal. The trials which were opened in Mexico were closed and our U.S.
clinical trials support team was terminated.




On July
30, 2009, we invested $5,000,000 into a newly formed 50/50 joint venture with
QuantRx Biomedical Corporation (“QuantRx”).  The joint venture, called
QN Diagnostics, LLC (“QN Diagnostics” or “QND”), was formed to bring to fruition
a decade of R&D at QuantRx by accelerating the commercialization of
innovative Point-of-Care diagnostic tests. The joint venture products will be
focused on QuantRx’s proprietary lateral flow and optics technologies (whereby a
sample of saliva, urine, or whole blood moves across a solid platform to
interact with a reagent to produce colorimetric or other changes that can be
measured qualitatively or quantitatively) and Point-of-Care delivery of data
through novel and inexpensive readers.  We believe that the
combination of QuantRx intellectual property with the capital and management
expertise of NuRx will enable a rapid acceleration of product delivery and the
near term generation of revenues.  As we continue to evolve and
broaden our life sciences focus, the QN Diagnostics joint venture will become a
critical part of our health care portfolio.





From our
inception in 2001 to May 2007, we were in the business of selling nutritional
products. In May 2007, we spun off this nutritional products business and began
to pursue a new business plan in the pharmaceuticals
industry.   On May 11, 2007, we entered into a license agreement
with Vitae Pharmaceuticals, Inc. (“Vitae”), pursuant to which we acquired an
exclusive, worldwide sublicense, with the right to grant further sublicenses, to
certain compounds and nuclear receptor technology for all human and veterinary
use. The principal therapeutic indications for the lead compounds are acute
promyelocytic leukemia, acute myeloid leukemia, solid cancers (lung,
mesothelioma, adenoid cystic carcinoma, and breast) and chemotherapy-induced
neutropenia (low white cell count. The Company paid Vitae an upfront licensing
fee of $2,100,000 and $50,000 for its inventory of the licensed compounds. The
Company also agreed to issue Vitae 1,756,732 shares of common stock (on a
post-split basis), representing 5.66% of our outstanding common stock (after the
issuance of these shares) as of the effective date of the license, upon reaching
a certain milestone. These shares were issued to Vitae on October 31, 2007, when
the Company met this milestone by receiving approval from the Food and Drug
Administration (“FDA”) to begin Phase I clinical trials for one of the lead
compounds.





We will
also be required to pay the existing licensors, on Vitae’s behalf, additional
milestone payments if we reach other milestones, including Phase III clinical
trials, and upon obtaining FDA marketing approval for a product containing a
licensed compound. In addition to the aforementioned fees and milestone
payments, we agreed to pay the original licensor of the compounds and Vitae
specified revenue percentages of our net sales of products based on the licensed
technology. The percentages vary from product to product, but when combined may
total as much as 12% of our net sales. We must meet certain development
milestones under the original license agreements with the existing licensors in
order to maintain the rights to the licensed products.


28


On
December 31, 2008, we entered into an amendment of our May 11, 2007 license with
Vitae for the license of additional compounds directed at dermatological
therapeutic applications. We agreed to make a cash payment of $125,000 and to
issue 50,000 shares of common stock valued at $2.00 per share upon execution of
the license amendment. These costs have been charged to expense as in-process
research and development for the year ended September 30, 2009.





On March
6, 2009, we entered into a development and commercialization agreement with
Piramal Life Sciences, Limited (“Piramal”) with respect to NRX 5183 in India
(the “Piramal Agreement”). Piramal is a pharmaceutical company listed on the
Indian National Stock Exchange and the Bombay Stock Exchange and which was
recently demerged from Piramal Healthcare Limited. Pursuant to the Piramal
Agreement, Piramal has the exclusive right to develop, manufacture and exploit
the NRX 5183 technology within India at its sole expense. We obtain the clinical
data generated by Piramal for use in registration in countries outside of India.
Piramal will also reimburse us for development expenses incurred with regard to
clinical trials in India prior to March 6, 2009 up to $100,000. This
reimbursement has been recorded as a receivable with a corresponding reduction
of research & development expenses at September 30, 2009.  Until
manufacturing is undertaken by Piramal, we will provide clinical grade drug
product to Piramal for use in clinical trials.  We are obligated as
sponsor of the initial clinical trial in India for continuing costs which
Piramal is obligated to reimburse.  It is anticipated that further
trials sponsored by Piramal will be initiated at later dates.





We
currently have no source of revenue and have incurred significant losses to
date. We have incurred net losses of approximately $15,754,000 for the
cumulative period from inception (May 1, 2007) through September 30, 2009. Our
losses have resulted principally from costs associated with inbound technology
licensing, clinical development expenses, 50% share of loss for our QND joint
venture, general and administrative activities and costs related to our
financing in May 2007. As a result of planned expenditures for costs related to
the maintenance of our intellectual property, support of the clinical trials
activities conducted by our development partner Piramal in India, general and
administrative costs, and development and commercialization activities of the
lateral flow products through QND, we expect to incur additional operating
losses for the foreseeable future.




Going
Concern
 
 Our
management believes that the successful growth and operation of the Company’s
business is dependent upon its ability to obtain adequate sources of debt or
equity financing to:
 
 ·
              wind
      down the U.S. clinical trials and adequately support its clinical
      development partner in India;
and
 ·
              fund
      its share of future additional development costs of the QND joint venture;
      and
 ·
              manage
      or control working capital requirements by further reducing operating
      expenses.
 
 There
can be no assurance that we will be successful in achieving the 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.
Our continuation as a going concern is dependent on its ability to obtain
additional financing to fund operations, implement its business model, and
ultimately, to attain profitable operations.  We intend to raise
additional financing to fund its operations through various means, including
equity or debt financing, funding from a corporate partnership or licensing
arrangement or any similar financing. However, there is no assurance that
sufficient financing will be available or, if available, on terms that would be
acceptable to the Company.
 
 The
financial statements accompanying this Annual Report on Form 10-K have been
prepared assuming the Company will continue as a going concern, which
contemplates the realization of assets and settlement of obligations in the
normal course of business. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.  The report from
our independent registered public accounting firm states that there is
substantial doubt about the Company’s ability to continue as a going
concern.




Private
Placements




In May
through June 2007, the Company raised approximately $20,500,000 from a small
group of accredited investors from the sale of 41,000,000 shares of common stock
at a price of $.50 per share in a private placement offering.  As
adjusted for the 1-for-4 reverse stock split that took place in May 2008, this
represents the sale of 10,250,000 shares of common stock at a price of $2.00 per
share.  Pursuant to the terms of the private placement, these
investors had certain anti-dilutive price protections until July 18,
2008.




Hunter
World Markets, Inc. acted as the exclusive placement agent in the private
placement offering, and received a fee of $2,012,500 (approximately 10% of the
gross proceeds) and two six-year warrants 3,075,000 shares of the Company’s
common stock at an exercise price of $4.00 per share on a post-split basis.
These warrants expire in 2013. Hunter World Markets, Inc. also loaned us
$125,000 at an interest rate of 6% per annum. This loan together with accrued
interest and a loan fee of $12,500 was repaid from the proceeds of the private
placement.




In
connection with the private offering, stockholders who had acquired our common
stock prior to April 27, 2007 canceled an aggregate 1,939,750 shares of common
stock on a post-split basis in consideration for an aggregate amount of
$750,000.





During
the period between May 30, 2007 and June 27, 2007, we sold an aggregate 250,000
shares of our common stock at a price of $2.00 per share on a post-split basis
and received aggregate proceeds of $500,000. In connection with the
aforementioned sales, Hunter World Markets received a commission of 5% on half
the gross proceeds and received a six-year warrant to purchase common stock
equal to 75,000 shares at an exercise price of $4.00 per share on a post-split
basis.





Critical
Accounting Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Such estimates are described in Note 1, Basis of Presentation
and Summary of Significant Accounting Policies to the Notes to Financial
Statements. We base our estimates on historical experience and on various other
assumptions that we believe to be reasonable under the circumstances, the
results of which form our basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources, and
evaluate our estimates on an ongoing basis. These estimates are reviewed by
other members of financial management before being recorded into the accounting
records.  Actual results could differ from those estimates under
different assumptions or conditions.


29





Development
Stage Enterprise




We are a
development stage enterprise and are devoting substantially all of our present
efforts to research and development activities in drug development activities
and in prototype development for our lateral flow technologies through our QN
Diagnostics joint venture. All losses accumulated are considered as part of our
development stage activities.




Research
and Development Costs




Although
we believe that our research and development activities and underlying
technologies have continuing value, the amount of future benefits to be derived
from them is uncertain. Furthermore, our development activities are principally
in the early clinical stage. Research and development costs are therefore
expensed as incurred.





Share-Based
Compensation




Share-based
payments to employees, directors and consultants, including grants of employee
stock options, are recognized in the statement of operations based on their fair
values.  Fair values are determined at the date of each option grant
using the Black-Scholes method.  Because our common shares trade so
infrequently and the quoted price of the shares is not indicative of fair value,
through December, 2008, the stock price used for purposes of these computations
was based upon a value of $2.00 per share on a post-split basis, the share price
paid by the purchasers in the April and May 2007 private
placements.   Beginning in March 2009 with the option re-pricing,
a 90 day average price share has been used.  It is the policy of the
Board of Directors to grant stock options at not less than their fair
value.




In-Process
Research and Development




Share-based
milestone payments made pursuant to the license Agreement with Vitae
Pharmaceuticals, Inc. during the fiscal years ended September 30, 2009 and 2008
have been expensed in the Statement of Operations as in-process research and
development costs consistent with the treatment of the cash payments to Vitae
upon initiation of the license during the fiscal year ended September 30, 2007.
The fair value of the stock-based payments was based upon a value of $2.00 per
share on a post-split basis, the share price paid by the purchasers in the April
and May 2007 private placements.





Results
of Operations





On
August 6, 2009, we suspended patient accruals under all four active U.S.
clinical trials for both lead compounds in order to reserve cash for other
diversification opportunities, and to await preliminary data from patients
already accrued and planned clinical trials in India.  Accrual for the
Mexico clinical trials was also suspended and the single open site in Mexico was
closed.  Aggregate U.S. Patients accrued and active sites at September
30, 2009 were as follows:





·
            NRX 4204 Phase I/II for solid
      tumor indications, at one site in the U.S. with 19 patients
      enrolled


·
            NRX 4204 Phase II for
      Mesothelioma at two sites in the U.S. with six patients
      enrolled


·
            NRX 4204 Phase II for Non-Small
      Cell Lung Cancer (“NSCLC”) at four sites in the U.S. with 13 patients
      enrolled





As of
September 30, 2009, we had a single active clinical trial for one lead compound
for NRX 5183 Phase II for Relapsed Acute Promyelocytic Leukemia (“APL”) at five
sites in India with one patient enrolled.





As
additional cost cutting measures  implemented since August 6, 2009, we
terminated our U.S. clinical trials support staff on September 30, 2009 and
undertook further reductions in the number of  patent cases in our
intellectual property portfolio we are actively prosecuting and maintaining,
limiting legal and patent annuity expenditures to the most promising lead
compounds.





Both the
time required and costs we may incur in order to commercialize a drug candidate
that would result in material net cash inflow are subject to numerous variables,
and hence, we are unable at this stage of our development to forecast useful
estimates. Variables that make estimates difficult include the number of
clinical trials we may undertake, the number of patients needed to participate
in the clinical trials, patient recruitment uncertainties, trial results as to
the safety and efficacy of our product, and uncertainties as to the regulatory
agency response to our trial data prior to receipt of marketing approval.
Moreover, the FDA or other regulatory agencies may suspend clinical trials if we
or an agency believes patients in the trial are subject to unacceptable risks,
or find deficiencies in the conduct of the clinical trial. Delays or rejections
may also occur if governmental regulation or policy changes during our clinical
trials or in the course of review of our clinical data. Due to these
uncertainties, it is not possible to give accurate and meaningful estimates of
the ultimate cost to bring our products to market, the timing of costs,
completion of our program and the period during which material net cash inflows
will commence.


30




Year Ended September 30,
2009 Compared to Year Ended September 30, 2008





General
and Administrative Expenses.





General
and administrative (“G&A”) expenses were approximately $2,147,000 during the
year ended September 30, 2009, as compared to approximately $1,934,000 incurred
during the year ended September 30, 2008 or an increase of approximately
$213,000. General and administrative expenses consist primarily of employee
compensation and legal costs involved in our regulatory filings and legal costs
incurred in connection with general corporate matters, adoption of a Stockholder
Rights Plan and other contracting matters. G&A costs also include insurance,
payroll costs and benefits for all employees, costs related to Board meetings
and share-based compensation expense related to option issuances to Board
members and general and administrative employees and consultants. The
approximately $213,000 net increase in total G&A expenses, resulted from an
aggregate of approximately $671,000 cost increases, offset by approximately
$458,000 in cost reductions. The approximately $671,000 in cost increases
consisted primarily of approximately $271,000 in legal fees related to formation
of the QND joint venture, adoption of the Stockholder Rights Plan, contracting
and related regulatory filings, $192,000 in compensation to independent
directors based on a compensation plan adopted in the second quarter of 2008
including (independent director compensation was terminated effective October 1,
2009 other than hourly consulting fees to the Executive Chairman), $119,000 in
share-based compensation including the effect of newly issued options during the
year and the options re-pricing in March 2009, and $89,000 in G&A
salaries.  These cost increases were offset by approximately $458,000
in expense reductions consisting of reductions of approximately $330,000 from
the termination of the consulting contract with an affiliate in October, 2008,
$125,000 from the termination of our investor relations firm in the fourth
quarter of 2008, and $3,000 in other net cost reductions.





Research
and Clinical Development Expenses.





Research
and clinical development (“R&D”) expenses were approximately $2,899,000
during the year ended September 30, 2009, as compared to approximately
$5,816,000 incurred during the year ended September 30, 2008 or a decrease of
approximately $2,917,000.





R&D
expenses for the years ended September 30, 2009 and 2008 consist primarily of
costs involved in the following activities:




·
            Manufacture
      of the intermediates, API and clinical grade drug product for the
      Company’s two lead compounds for use in clinical
  trials;





·
            Regulatory
      affairs activities including:





o
            regulatory
      filings including protocol submissions to governmental bodies in and
      outside of the United States with respect to clinical
    trials,





o
            regulatory
      filings including protocol submissions to governing ethics committees for
      proposed clinical trial sites in and outside of the United States
      including negotiation of related
contracts;





·
            Continuation
      of the Phase I clinical trial for NRX 4204 in the United
      States;





·
            Costs
      of readying and initiating the Phase II clinical trials for NRX 5183 in
      India, Mexico, and the U.S;





·
            Patient
      and data management activities for active clinical trials;
    and





·
            Costs
      of readying and initiating Phase II clinical trials in NSCLC and
      Mesothelioma for NRX 4204 in the United
States.




R&D
costs also include payroll costs of R&D employees, costs of third party
consultants, legal costs related to maintenance of the patent portfolio,
including patent annuity payments, in-process R&D costs related to the
share-based license amendment payment under the Vitae license and share-based
compensation costs.


31





During
the year ended September 30, 2009, we recognized a $100,000 receivable and an
offsetting reduction in clinical trials related research and development
expenses for the reimbursement to us under the Piramal
Agreement.





Our
R&D expenses for the year ended September 30, 2009 as compared to the year
ended September 30, 2008 were related to the following activities:





Year Ended
                    September 30,
                    (in thousands)2009
                  
                  
                  2008Direct
      clinical trials costs, net of reimbursement receivable
    (2009)
                  
                  $
                  671
                  
                  
                  $
                  454Drug
      development and manufacturing
                  
                  
                  758
                  
                  
                  
                  682R&D
      compensation, including share based compensation
                  
                  
                  779
                  
                  
                  
                  522In-process
      R&D costs
                  
                  
                  225
                  
                  
                  
                  3,513Other
      R&D costs
                  
                  
                  466
                  
                  
                  
                  645Total
                  
                  $
                  2,899
                  
                  
                  $
                  5,816





Direct
clinical trial costs increased by approximately $217,000 compared to the year
ended September 30, 2008. The increase is due principally to the initiation of
the U.S. clinical trials for NRX 5183, net of a $100,000 reimbursement
receivable for India clinical trials costs by Piramal.  Drug
development and manufacturing costs increased approximately $76,000, primarily
attributable to readying sufficient quantities of GMP drug product for NRX 4204
and NRX 5183 for clinical trials.  R&D compensation costs
increased approximately $257,000 as a result of an increase in staff and
share-based compensation (primarily attributable to the options re-pricing in
March 2009). In-process R&D costs decreased $3,288,000 as a result of a
one-time share-based payment upon achievement of an investigational new drug
milestone in the year ended September 30, 2008. Other R&D costs decreased by
$179,000, related primarily to the continuing reduction in legal costs and
annuity payments on the licensed technology portfolio as a result of eliminating
non-critical cases from the portfolio.





Loss
from QN Diagnostics, LLC Joint Venture





We reported $464,755 on the equity
method for our 50% share of the net loss incurred by QND for the period from
July 30, 2009 (its inception) through September 30, 2009.





Interest
Income.





Interest
income of $51,600 for the year ended September 30, 2009 consisted primarily of
income from certificates of deposits and savings, and $411,000 for the year
ended September 30, 2008 from savings and treasury bills.   The
decrease was due to lower cash balances and lower interest rate yields in the
year ended September 30, 2009.





Cancer
Therapeutics





We had no
revenues and we do not anticipate that we will derive any revenues from either
product sales or licensing from clinical development of our cancer therapeutic
lead compounds during the foreseeable future. We agreed to pay Allergan (and any
cross licensors), the original licensor of the compounds discussed above under
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations  Overview”, and Vitae specified revenue percentages of the Company’s
net sales of products based on the licensed technology. The percentages vary
from product to product, but when combined may total as much as 12% of the
Company’s net sales. The Company must meet certain development milestones under
the original license agreements with the existing licensors in order to maintain
the rights to the licensed products.




Point-of-Care
Diagnostics





Our QN
Diagnostics joint venture with QuantRx is expected to begin generating revenues
during our next fiscal year ending September 30, 2010, although we expect to
incur overall losses for this period.  Revenues are expected to be
generated from manufacturing of lateral flow products for third parties,
manufacturing and sale of proprietary lateral flow products, and from
licensing.  QN Diagnostics is obligated under a license for certain
optics technology to pay royalties to the licensor of two percent (2%) of net
sales on lateral flow products incorporating that technology.


32





Year
Ended September 30, 2008 Compared to Year Ended September 30, 2007





A
comparative analysis of fiscal 2008 with fiscal 2007 is not presented here since
the 2007 year included seven months where we had no operations and five months
of primarily organizational activities.





General
and Administrative





Our
G&A expenses for the fiscal year ended September 30, 2008, totaling $1.9
million, consisted primarily of costs involved in building and establishing our
system of internal control over financial reporting, budgeting, quarterly and
annual regulatory filings and related review, audit and legal costs, including
the implementation of the one-for-four reverse stock split in May
2008.  G&A costs also include payroll costs of general and
administrative employees, benefits costs for all employees, costs related to
Board meetings and share-based compensation expense related to option issuances
to Board members and general and administrative employees and
consultants.





During
the year ended September 30, 2008, we added three new independent directors to
our Board of Directors.





Research
& Development





Research
and development (“R&D”) activities for the year ended September 30, 2008
consisted primarily of costs involved in the following activities:




·
            Identifying,
      negotiating and consummating relationships for the manufacture of the
      clinical grade drug product for the Company’s two lead compounds for use
      in clinical trials;





·
            Regulatory
      affairs activities including:o
            grant
      by the FDA of the IND and initiation of a Phase I clinical trial for NRX
      194204,o
            re-activation
      by the FDA for the IND and initiation of Phase II clinical trial for NRX
      195183,o
            regulatory
      filings including protocol submissions with governmental bodies in India
      and Mexico with respect to clinical trials,o
            regulatory
      filings including protocol submissions with governing ethics committees
      for proposed clinical trial sites in India and Mexico, including
      negotiation of related contracts;
and





·
            Patient
      and data management activities for clinical
  trials.





R&D
costs also included payroll costs of R&D employees, costs of third party
consultants, legal costs related to maintenance of the patent portfolio,
including patent annuity payments, in-process R&D costs related to the share
based milestone payment under the Vitae license and share-based compensation
costs related to stock and option grants to R&D employees and
consultants.





Our
R&D expenses for the years ended September 30, 2008 and 2007 are summarized
as follows:





Year Ended
                  September 30,
                  (In thousands)2008
                
                
                2007Direct
      clinical trials costs
                
                $
                454
                
                
                $
                18Drug
      development and manufacturing
                
                
                682
                
                
                
                30R&D
      compensation, including share based compensation
                
                
                522
                
                
                
                186In-process
      R&D costs
                
                
                3,513
                
                
                
                2,150Other
      R&D costs
                
                
                645
                
                
                
                187Total
                
                $
                5,816
                
                
                $
                2,571





Fiscal year ended September
30, 2007





There
were no substantial operations during our fiscal year ended September 30, 2007,
as activities consisted primarily of disposition of the previous nutritional
products business and completion of a plan of reorganization in May 2007,
including a series of private placements, a change in directors and management
and redemption of common shares of controlling shareholders prior to May
2007.


33





Our
pharmaceutical products development activities for the fiscal year ended
September 30, 2007 consisted primarily of consummating the license agreement
with Vitae and completing the acquisition and transfer of the patents, patent
applications, compounds and related materials, securing leased premises in which
to conduct our research and development activities, and submission of an
application for an IND with the FDA for our compound for the treatment of solid
cancers (NRX194204), which was granted on October 31, 2007.  The
initial Scientific Advisory Board was also established.





Revenues




We have
had no revenues related to our new pharmaceuticals business and we do not
anticipate that we will derive any revenues from either product sales or
licensing during the foreseeable future.  We have no research and
development co-development or other agreements, which provide for future revenue
or obligations to transfer rights to any of our intellectual property to third
parties.  We have agreed to pay Allergan (and any cross licensors),
the company that originally licensed the compounds to Vitae, and Vitae up to an
aggregate of 12% of future net sales of products based on the licensed
technology, such specific percentage to be determined according to the specific
compound generating the revenue, the geographic region of exploitation, and
certain other factors.





Liquidity





As an
early stage clinical development company, we have not generated any revenues
from operations to meet operating expenses, and have historically financed
operations through issuances of equity securities.





We held
approximately $1.9 million in cash and cash equivalents at September 30, 2009 in
comparison to $11.3 million in cash and cash equivalents at September 30,
2008.  The decrease in cash and cash equivalents for the year ended
September 30, 2009 of approximately $9.4 million was primarily caused by the
investment in QND and the cash loss from operations. There were no significant
cash flows from financing or other investing activities during the
year.





Subsequent
to September 30, 2009, we have called for the redemption of certain shares
representing 46.2% of the issued and outstanding common shares of the Company at
a cost of approximately $1.2 million.  (On November 13, 2009, the
holder of such shares filed a complaint in U.S. District Court in Nevada for
declaratory and injunctive relief from such redemption.  See “Risk
Factors”).  If completed, the redemption would significantly deplete
the cash available for operations.





The QN
Diagnostics business is also in its early stage and may require additional
funding to complete the development and launch of its initial products, which
both we and our venture partner are mutually obligated to provide.





As a
result, management believes that given the current economic environment, the
expected $1.2 million for share redemption, and the continuing need to
strengthen the Company’s cash position, there is substantial doubt about its
ability to continue as a going concern.  The Company continues to
actively pursue various funding options, including equity offerings, debt
financings and business combinations.  There can be no assurance that
we will be successful in its efforts to raise additional capital.




Management
believes that the successful growth and operation of the Company’s business is
dependent upon its ability to do any or all of the following:





·
            obtain
      adequate sources of debt or equity financing to (i) wind down the U.S.
      clinical trials and adequately support its clinical development partner in
      India; and (ii) fund its share of future additional development costs of
      the QND joint venture; and





·
            manage
      or control working capital requirements by further reducing operating
      expenses.





There can
be no assurance that the Company will be successful in achieving its long-term
plans as set forth above, or that such plans, if consummated, will enable the
Company to obtain profitable operations or continue in the long-term as a going
concern.





Capital
Resources





The
Company has no significant planned capital expenditures for the fiscal year
ending September 30, 2010.


34





Off-Balance
Sheet Arrangements





We do not
engage in trading activities involving non-exchange traded contracts. In
addition, we have no financial guarantees, debt or lease agreements or other
arrangements that could trigger a requirement for an early payment or that could
change the value of our assets.




Joint
Venture




On July
30, 2009, we formed a 50/50 joint venture with QuantRx Biomedical Corporation
called QN Diagnostics, LLC where we invested $5.0 million cash and QuantRx
contributed its lateral flow and optics intellectual property for the joint
development of point of care diagnostic products for human, forensic and
veterinary use valued at approximately $5.5 million.  It is
anticipated that this initial capital investment will be sufficient to fund the
planned operations of QN Diagnostics through cash flow; however, there can be no
assurance that additional funds will not be required.  Both we and
QuantRx share jointly in the obligation to raise additional capital if needed,
although QuantRx is obligated to provide the first $700,000 of any such
funds.





ITEM 7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.




ITEM
      8
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





The
financial statements required to be filed pursuant to this Item 8 are
appended to this Annual Report on Form 10-K.




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





None.




ITEM
      9A.
            CONTROLS
      AND PROCEDURES





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms and that such information is accumulated and
communicated to the Company’s management, including our Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow for timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls
and procedures. Limitations are inherent in all control systems, so no
evaluation of controls can provide absolute assurance that all control issues
and any fraud within the company have been detected.




As
required by Securities and Exchange Commission Rule 13a-15(b), we carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the year covered by this Report. Based on this
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures were effective as of that
date.




As
required by Securities and Exchange Commission Rule 13a-15(c), we carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our system of internal
control over financial reporting as of the end of the year covered by this
Report.  The Company utilizes the framework established by the
Committee on Sponsoring Organizations (COSO) as the framework for its system of
internal controls.  Management has assessed the system of internal
control over financial reporting to be effective.





There was
no change in our internal control over financial reporting identified in
connection with the evaluation required by paragraph (d) of Rule 13a-15(d) under
the Securities Exchange Act of 1934 that occurred during our most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.




Our
management, including our Chief Executive Officer and our Chief Financial
Officer, do not expect that our disclosure controls or our internal control over
financial reporting will prevent or detect all error and all fraud. A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. The
design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to
error or fraud will not occur or that all control issues and instances of fraud,
if any, have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple error or mistake. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is
based in part on certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its stated
goals under all potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks. Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with policies or
procedures.


35




ITEM
      9B.
            OTHER
      INFORMATION





Not
applicable.




PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.





The
information required by this item is incorporated by reference to the material
responsive to this item contained in our 2010 Proxy Statement.





ITEM
      11.
            EXECUTIVE
      COMPENSATION





The
information required by this item is incorporated by reference to the material
responsive to this item contained in our 2010 Proxy Statement.




ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS





The
information required by this item is incorporated by reference to the material
responsive to this item contained in our 2010 Proxy Statement.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE





The
information required by this item is incorporated by reference to the material
responsive to this item contained in our 2010 Proxy.




ITEM
      14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES





The
information required by this item is incorporated by reference to the material
responsive to this item contained in our 2010 Proxy Statement.




PART
IV




ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES





(a) The
following documents are included as part of this Annual Report on Form
10-K:




Financial
Statements:





PageReport
      of Independent Registered Public Accounting Firm
                
                F-2Balance
      Sheets
                
                F-3Statements
      of Operations
                
                F-4Statement
      of Stockholders' Equity
                
                F-5Statements
      of Cash Flows
                
                F-6Notes
      to Financial Statements
                
                F-7




36





Exhibit Number
                  
                  Description2.1
                  
                  Contribution
      Agreement, by and between the Company and QuantRx Biomedical, Inc., dated
      July 30, 2009.(1)3.1
                  
                  Amended
      and Restated Articles of Incorporation.(2)3.2
                  
                  Certificate
      of Designation.(2)3.3
                  
                  Certificate
      of Amendment to the Certificate of Designation.(2)3.4
                  
                  Certificate
      of Amendment to the Amended and Restated Articles of Incorporation, dated
      April 27, 2007.(3)3.5
                  
                  Certificate
      of Amendment to the Amended and Restated Articles of Incorporation, dated
      October 23, 2007.(4)3.6
                  
                  Amended
      and Restated Bylaws.(5)4.1
                  
                  Registration
      Rights Agreement as of May 16, 2007 between the Company and the Purchasers
      named therein.(6)4.2
                  
                  Placement
      Agent Warrant issued to Hunter World Markets, Inc. on May 16,
      2007.(6)4.3
                  
                  Lock-up
      Agreement dated as of May 16, 2007, by and among the Company and the
      shareholders, Santa Monica Capital Partners II, LLC, Dr. Parkash Gill, Dr.
      Parkash Gill, custodian for Dhillon Gill, Dr. Parkash Gill, custodian for
      Noorean Gill, Harin Padma−Nathan, Marc Ezralow, David Ficksman, Roshantha
      Chandraratna.(7)4.4
                  
                  Warrant
      issued to Investor Media Group, Inc., dated July 20, 2007.
    (8)4.5
                  
                  Placement
      Agent Warrant issued to Hunter World Markets, Inc. on June 29, 2007.
      (9)4.6
                  
                  Stockholder
      Rights Agreement, dated as of June 1, 2009, between NuRx Pharmaceuticals,
      Inc. and Continental Stock Transfer & Trust Company, as Rights
      Agent.(10)4.7
                  
                  Certificate
      of Designation of Series C Preferred Stock, as filed with the Secretary of
      State for the State of Nevada.(10)10.1
                  
                  Asset
      Purchase Agreement, dated May 31, 2007, by and between Quest Group
      International, Inc. and Quest Group, LLC. (11)10.2
                  
                  Form
      of Subscription Agreement, dated April 27, 2007, by and between the
      Company and the Purchasers named therein.(3)10.3
                  
                  Form
      of Subscription Agreement dated as of May 16, 2007, by and among the
      Company and the Purchasers named therein.(6)10.4
                  
                  Form
      of Subscription Agreement dated as of May 30, 2007, by and among the
      Company and the Baradaran Revocable Trust.(7)10.5
                  
                  Securities
      Purchase Agreement dated as of June 25, 2007, by and among the Company and
      City National Bank, Trustee FBO Harin Padma−Nathan IRA.
  (9)10.6
                  
                  License
      Agreement between the Company and Vitae Pharmaceuticals, Inc., dated May
      11, 2007.(7) Portions of this exhibit have been deleted and filed
      separately with the Securities and Exchange Commission pursuant to a
      request for a confidential treatment.10.7
                  
                  Employment
      Agreement between the Company and Rosh Chandraratna, dated May 25,
      2007.(7)*10.8
                  
                  Employment
      Agreement between the Company and Harin Padma−Nathan, dated May 31,
      2007.(7) *10.9
                  
                  Employment
      Agreement between the Company and Steven Gershick, dated September 21,
      2007.(12)
*


37





10.10
                  
                  Consulting
      Agreement between the Company and Parkash Gill, dated May 31,
      2007.(13)10.11
                  
                  2007
      Stock Compensation Plan of Company.(7) *10.12
                  
                  Termination
      Agreement dated July 20, 2007, by and between Quest Group International,
      Inc. and Bateman Dynasty, LC.(8)10.13
                  
                  Amendment
      to Consulting Agreement by and between the Company and SOQ Inc., dated
      April 15, 2009. (14)10.14
                  
                  Amendment
      to Employment Agreement by and between the Company and Dr. Harin
      Padma-Nathan, dated April 15, 2009.(14) *10.15
                  
                  Amendment
      to Employment Agreement by and between the Company and Dr. Rosh
      Chandraratna, dated April 15, 2009.(14) *10.16
                  
                  Development
      and Services Agreement, dated July 30, 2009, by and between QuantRx
      Biomedical, Inc. and QN Diangnostics, LLC, dated July 30, 2009.
      (1)10.17
                  
                  Limited
      Liability Company Agreement of QN Diangnostics, LLC, to which the Company
      is a party. (1)14.1
                  
                  Code
      of Ethics. (15)31.1
                  
                  Certification
      of the Chief Executive Officer pursuant to Section 302 of the Sarbanes
      Oxley Act31.2
                  
                  Certification
      of the Chief Financial Officer pursuant to Section 302 of the Sarbanes
      Oxley Act.32.1
                  
                  Certification
      of the Chief Executive Officer Pursuant to Section 906, Sarbanes-Oxley Act
      of 200232.2
                  
                  Certification
      of the Chief Financial Officer Pursuant to Section 906, Sarbanes-Oxley Act
      of 2002





*
            Management
      contract or compensation plan.





(1)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated August 3,
      2009.





(2)
            Incorporated
      by reference to the Company’s Registration Statement on Form SB-2 filed
      June 3, 2002, File No. 333−89628.





(3)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated April 30,
      2007.





(4)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated October
      29, 2007.





(5)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated September
      28, 2009.





(6)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated May 22,
      2007.





(7)
            Incorporated
      by reference to the Company’s Registration Statement on Form SB-2, dated
      July 3, 2007.





(8)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated July 26,
      2007.





(9)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated June 29,
      2007.





(10)
              Incorporated
      by reference to the Company’s Current Report on Form 8−A, dated June 5,
      2009.


(11)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated June 8,
      2007.





(12)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated September
      21, 2007.





(13)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated November
      9, 2007.








(14)
            Incorporated
      by reference to the Company’s Current Report on Form 8−K, dated April 21,
      2009.





(15)
            Incorporated
      by reference to the Company’s Annual Report on Form 10-KSB filed December
      28, 2007.


38


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.




NURX
      PHARMACEUTICALS, INC.Date:
      December 29, 2009By:
      /s/ Harin Padma−NathanHarin
      Padma−NathanPresident
      and Chief Executive 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.




Signature
                                          
                                          Title
                                          
                                          Date/s/ Harin Padma−Nathan
                                          
                                          Director,
      President and Chief Executive Officer
                                          
                                          December
      29, 2009Harin
      Padma−Nathan
                                          
                                          (Principal
      Executive Officer)/s/ Steven Gershick
                                          
                                          Chief
      Financial Officer
                                          
                                          December
      29, 2009Steven
      Gershick
                                          
                                          (Principal Financial
      and Accounting Officer)/s/ Kurt Brendlinger
                                          
                                          Director
                                          
                                          December
      29, 2009Kurt
      Brendlinger/s/ Sharyar Baradaran
                                          
                                          Director
      and Secretary
                                          
                                          December
      29, 2009Sharyar
      Baradaran/s/ Rosh Chandraratna
                                          
                                          Director
                                          
                                          December
      29, 2009Rosh
      Chandraratna/s/ Marvin Rosenthale
                                          
                                          Director
                                          
                                          December
      29, 2009Marvin
      Rosenthale/s/ Carl Lebel
                                          
                                          Director
                                          
                                          December
      29, 2009Carl
      Lebel/s/ Evan Levine
                                          
                                          Director
                                          
                                          December
      29, 2009Evan
      Levine


39


FINANCIAL
STATEMENTS




PageReport
      of Independent Registered Public Accounting Firm
                
                F-2Balance
      Sheets
                
                F-3Statements
      of Operations
                
                F-4Statement
      of Stockholders' Equity
                
                F-5Statements
      of Cash Flows
                
                F-6Notes
      to Financial Statements
                
                F-7


F-1




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
 of NuRx
Pharmaceuticals, Inc.
  We have audited the accompanying balance sheets of NuRx
Pharmaceuticals, Inc. (a corporation in the development stage) (the “Company”)
as of September 30, 2009 and 2008, and the related statements of operations,
stockholders' equity and cash flows for the years ended September 30, 2009 and
2008, and for the period from May 1, 2007 (inception) through September 30,
2009. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 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 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 NuRx Pharmaceuticals, Inc. as of
September 30, 2009 and 2008, and the results of its operations and its cash
flows for the years ended September 30, 2009 and 2008, and the period from May
1, 2007 (inception) through September 30, 2009, in conformity with accounting
principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As more fully discussed in Note 1
to the financial statements, the Company may not have sufficient working capital
or outside financing available to meet its planned operating activities over the
next twelve months.  These conditions raise substantial doubt about
the Company’s ability to continue as a going concern.  Management’s
plans regarding these matters are described in Note 1.  The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 /s/
      Gumbiner Savett Inc,GUMBINER
      SAVETT INC.December
      28, 2009Santa
      Monica, California




F-2




NuRx Pharmaceuticals, Inc.
 (a
corporation in the development stage)
 Balance
Sheets
 
 September
      30, 2009
                                        
                                        
                                        September
      30, 2008ASSETSCash
      and cash equivalents
                                        
                                        $
                                        1,899,752
                                        
                                        
                                        $
                                        11,365,646Prepaid
      expenses and other current assets
                                        
                                        
                                        128,783
                                        
                                        
                                        
                                        169,882Other
      receivable
                                        
                                        
                                        100,000
                                        
                                        
                                        
                                        -Total
      current assets
                                        
                                        
                                        2,128,535
                                        
                                        
                                        
                                        11,535,528Property
      and equipment, net of accumulated depreciation and amortization of $25,710
      and $11,336, respectively
                                        
                                        
                                        66,784
                                        
                                        
                                        
                                        45,098Investment
      in joint venture
                                        
                                        
                                        3,535,245
                                        
                                        
                                        
                                        -Other
      investments
                                        
                                        
                                        1,000,000
                                        
                                        
                                        
                                        -Deposits
                                        
                                        
                                        27,093
                                        
                                        
                                        
                                        42,093Total
      assets
                                        
                                        $
                                        6,757,657
                                        
                                        
                                        $
                                        11,622,719LIABILITIES AND STOCKHOLDERS'
      EQUITYAccounts
      payable and accrued expenses
                                        
                                        $
                                        504,211
                                        
                                        
                                        $
                                        181,497Due
      to related party
                                        
                                        
                                        -
                                        
                                        
                                        
                                        30,000Total
      current liabilities
                                        
                                        
                                        504,211
                                        
                                        
                                        
                                        211,497Commitments
      and contingenciesStockholders'
      EquitySeries
      A preferred stock, $.001 par value, 1,000,000 shares designated, no shares
      issued and outstanding
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      B preferred stock, $.001 par value, 500,000 shares designated, no shares
      issued and outstanding
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      C preferred stock, $.001 par value, 300,000 shares designated, no shares
      issued and outstanding
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock, $.001 par value; 150,000,000 shares authorized, 23,444,234 and
      28,394,234 shares issued, respectively
                                        
                                        
                                        23,444
                                        
                                        
                                        
                                        28,394Additional
      paid-in capital
                                        
                                        
                                        21,947,475
                                        
                                        
                                        
                                        21,640,176Accumulated
      deficit during development stage
                                        
                                        
                                        (15,753,673
                                        )
                                        
                                        
                                        (10,293,548
                                        )Retained
      earnings
                                        
                                        
                                        36,200
                                        
                                        
                                        
                                        36,200Total
      stockholders' equity
                                        
                                        
                                        6,253,446
                                        
                                        
                                        
                                        11,411,222Total
      liabilities and stockholders' equity
                                        
                                        $
                                        6,757,657
                                        
                                        
                                        $
                                        11,622,719
 
 See Notes
to Financial Statements
  F-3
 
 NuRx Pharmaceuticals, Inc.
 (a
corporation in the development stage)
 Statements
of Operations
 For the
years ended September 30, 2009 and 2008 and for the period from inception (May
1, 2007) through September 30, 2009
 
 2009
                                
                                
                                2008
                                
                                
                                Inception (May 1, 2007)
                                  through
      September 30,
                                  2009Operating
      Expenses:General
      and administrative (includes share based compensation of $377,243,
      $258,242 and $701,314,  and related party consulting fees of
      $30,000, $377,500  and $572,200 respectively)
                                
                                $
                                2,147,439
                                
                                
                                $
                                1,934,001
                                
                                
                                $
                                4,715,736Research
      and clinical development (includes share based compensation of $75,106,
      $65,863 and $140,969, related party consulting fees of $140,000, $238,910
      and $378,910 respectively, and fair value of shares issued in connection
      with license amendment, license fee, and milestone payment under
      technology license of  $100,000, $3,513,000, and $3,613,000,
      respectively)
                                
                                
                                2,899,505
                                
                                
                                
                                5,816,259
                                
                                
                                
                                11,287,213Share
      of net loss from joint venture
                                
                                
                                464,755
                                
                                
                                
                                -
                                
                                
                                
                                464,755Total
      operating expenses
                                
                                
                                5,511,699
                                
                                
                                
                                7,750,260
                                
                                
                                
                                16,467,704Loss
      from operations
                                
                                
                                (5,511,699
                                )
                                
                                
                                (7,750,260
                                )
                                
                                
                                (16,467,704
                                )Interest
      income (expense):Interest
      income
                                
                                
                                51,574
                                
                                
                                
                                411,435
                                
                                
                                
                                726,656Interest
      expense
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (12,625
                                )Total
      interest income, net
                                
                                
                                51,574
                                
                                
                                
                                411,435
                                
                                
                                
                                714,031Net
      Loss
                                
                                $
                                (5,460,125
                                )
                                
                                $
                                (7,338,825
                                )
                                
                                $
                                (15,753,673
                                )Loss
      per common share - basic and diluted
                                
                                $
                                (0.20
                                )
                                
                                $
                                (0.26
                                )
                                
                                $
                                (0.57
                                )Weighted
      average common shares - basic and diluted
                                
                                
                                27,568,754
                                
                                
                                
                                28,250,237
                                
                                
                                
                                27,539,949
 
 See Notes
to Financial Statements
  F-4
 
 NuRx Pharmaceuticals, Inc.
 (a
corporation in the development stage)
 Statement
of Stockholders' Equity
 For the
period from inception (May 1, 2007) through September 30, 2009
 
 AccumulatedDeficitAdditional
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                During
      theSeries
      A Preferred Stock
                                                
                                                
                                                Series
      B Preferred Stock
                                                
                                                
                                                Series
      C Preferred Stock
                                                
                                                
                                                Common
      Stock
                                                
                                                
                                                Paid-in
                                                
                                                
                                                Treasury
      Stock
                                                
                                                
                                                Retained
                                                
                                                
                                                DevelopmentShares
                                                
                                                
                                                Amount
                                                
                                                
                                                Shares
                                                
                                                
                                                Amount
                                                
                                                
                                                Shares
                                                
                                                
                                                Amount
                                                
                                                
                                                Shares
                                                
                                                
                                                Amount
                                                
                                                
                                                Capital
                                                
                                                
                                                Shares
                                                
                                                
                                                Amount
                                                
                                                
                                                Earnings
                                                
                                                
                                                Stage
                                                
                                                
                                                TotalBalance
      at October 1, 2006
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                2,564,752
                                                
                                                
                                                $
                                                2,565
                                                
                                                
                                                $
                                                160,485
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                166,854
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                329,904Private
      placement April 27,  2007, 15,750,000 common shares at $0.001
      per share
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                15,750,000
                                                
                                                
                                                
                                                15,750
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                15,750Private
      placement May 16, 2007, 10,000,000 common shares at $2.00 per
      share
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                10,000,000
                                                
                                                
                                                
                                                10,000
                                                
                                                
                                                
                                                19,990,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                20,000,000Private
      placement June 25, 2007, 250,000 common shares at $2.00 per
      share
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                250,000
                                                
                                                
                                                
                                                250
                                                
                                                
                                                
                                                499,750
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                500,000Private
      placement fees, reorganization costs and related registration costs,
      including fair market value of warrants
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (5,151,228
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (5,151,228
                                                )Share-based
      compensation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                12,500
                                                
                                                
                                                
                                                12
                                                
                                                
                                                
                                                65,817
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                65,829Fair
      value of warrants issued in connection with private
    placement
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,988,064
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                2,988,064Repurchase
      of 1,939,750 common shares, May 2007
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,939,750
                                                )
                                                
                                                
                                                (750,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (750,000
                                                )Net
      loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (130,654
                                                )
                                                
                                                
                                                (2,954,723
                                                )
                                                
                                                
                                                (3,085,377
                                                )Balance
      September 30, 2007
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                28,577,252
                                                
                                                
                                                
                                                28,577
                                                
                                                
                                                
                                                18,552,888
                                                
                                                
                                                
                                                (1,939,750
                                                )
                                                
                                                
                                                (750,000
                                                )
                                                
                                                
                                                36,200
                                                
                                                
                                                
                                                (2,954,723
                                                )
                                                
                                                
                                                14,912,942Share
      based compensation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                324,105
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                324,105Fair
      value of shares issued in connection with milestone payments under
      technology license (shares valued at  $2.00 per
      share)
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                1,756,732
                                                
                                                
                                                
                                                1,757
                                                
                                                
                                                
                                                3,511,243
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                3,513,000Cancellation
      of treasury stock
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,939,750
                                                )
                                                
                                                
                                                (1,940
                                                )
                                                
                                                
                                                (748,060
                                                )
                                                
                                                
                                                1,939,750
                                                
                                                
                                                
                                                750,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Net
      loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (7,338,825
                                                )
                                                
                                                
                                                (7,338,825
                                                )Balance
      September 30, 2008
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                28,394,234
                                                
                                                
                                                
                                                28,394
                                                
                                                
                                                
                                                21,640,176
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                36,200
                                                
                                                
                                                
                                                (10,293,548
                                                )
                                                
                                                
                                                11,411,222Share
      based compensation
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                452,349
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                452,349Fair
      value of shares issued in connection with amended technology license
      (shares valued at  $2.00 per share)
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                50,000
                                                
                                                
                                                
                                                50
                                                
                                                
                                                
                                                99,950
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                100,000Shares
      redeemed and cancelled
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (5,000,000
                                                )
                                                
                                                
                                                (5,000
                                                )
                                                
                                                
                                                (245,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (250,000
                                                )Net
      loss
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (5,460,125
                                                )
                                                
                                                
                                                (5,460,125
                                                )Balance
      September 30, 2009
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                
                                                23,444,234
                                                
                                                
                                                $
                                                23,444
                                                
                                                
                                                $
                                                21,947,475
                                                
                                                
                                                
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                36,200
                                                
                                                
                                                $
                                                (15,753,673
                                                )
                                                
                                                $
                                                6,253,446
 
 See Notes
to Financial Statements
  F-5
 
 NuRx Pharmaceuticals, Inc.
 (a
corporation in the development stage)
 Statements
of Cash Flows
 For the
years ended September 30, 2009 and 2008, and for the period from inception (May
1, 2007) through September 30, 2009
 
 September 30, 2009
                                                
                                                
                                                September 30, 2008
                                                
                                                
                                                Inception (May 1, 2007)
                                                  through September 30,
                                                  2009Cash flows from operating
      activities:Net
      loss
                                                
                                                $
                                                (5,460,125
                                                )
                                                
                                                $
                                                (7,338,825
                                                )
                                                
                                                $
                                                (15,753,673
                                                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                                
                                                
                                                14,374
                                                
                                                
                                                
                                                9,954
                                                
                                                
                                                
                                                25,710Share-based
      compensation
                                                
                                                
                                                452,349
                                                
                                                
                                                
                                                324,105
                                                
                                                
                                                
                                                842,283Fair
      value of shares issued in connection with license amendment, license fee,
      and milestone payments under technology license
                                                
                                                
                                                100,000
                                                
                                                
                                                
                                                3,513,000
                                                
                                                
                                                
                                                3,613,000Share
      of  loss from operations of joint venture
                                                
                                                
                                                464,755
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                464,755Changes
      in operating assets and liabilities:Deposits
                                                
                                                
                                                15,000
                                                
                                                
                                                
                                                (15,000
                                                )
                                                
                                                
                                                (27,093
                                                )Prepaid
      expenses and other current assets
                                                
                                                
                                                41,099
                                                
                                                
                                                
                                                (114,050
                                                )
                                                
                                                
                                                (128,783
                                                )Other
      receivable
                                                
                                                
                                                (100,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (100,000
                                                )Accounts
      payable and accrued expenses
                                                
                                                
                                                322,714
                                                
                                                
                                                
                                                78,056
                                                
                                                
                                                
                                                540,301Due
      to related parties
                                                
                                                
                                                (30,000
                                                )
                                                
                                                
                                                (6,090
                                                )
                                                
                                                
                                                (36,090
                                                )Net
      cash used in continuing operating activities
                                                
                                                
                                                (4,179,834
                                                )
                                                
                                                
                                                (3,548,850
                                                )
                                                
                                                
                                                (10,559,590
                                                )Net
      cash provided by discontinued operating activities
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                41,146Net
      cash used in operating activities
                                                
                                                
                                                (4,179,834
                                                )
                                                
                                                
                                                (3,548,850
                                                )
                                                
                                                
                                                (10,518,444
                                                )Cash flows from investing
      activities:Purchase
      of property and equipment
                                                
                                                
                                                (36,060
                                                )
                                                
                                                
                                                (27,227
                                                )
                                                
                                                
                                                (92,494
                                                )Investment
      in joint venture
                                                
                                                
                                                (4,000,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (4,000,000
                                                )Investment
      in warrants
                                                
                                                
                                                (1,000,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,000,000
                                                )Issuance
      of note receivable
                                                
                                                
                                                (250,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (250,000
                                                )Collection
      of note receivable
                                                
                                                
                                                250,000
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                250,000Net
      cash used in investing activities
                                                
                                                
                                                (5,036,060
                                                )
                                                
                                                
                                                (27,227
                                                )
                                                
                                                
                                                (5,092,494
                                                )Cash flows from financing
      activities:Private
      placements of common shares
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                20,563,000Private
      placement offering costs
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (2,163,164
                                                )Proceeds
      of note receivable
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                125,000Repayment
      of note receivable
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (125,000
                                                )Redemption
      of treasury stock
                                                
                                                
                                                (250,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (1,000,000
                                                )Net
      cash (used in) provided by financing activities
                                                
                                                
                                                (250,000
                                                )
                                                
                                                
                                                -
                                                
                                                
                                                
                                                17,399,836Net
      increase (decrease) in cash and cash equivalents
                                                
                                                
                                                (9,465,894
                                                )
                                                
                                                
                                                (3,576,077
                                                )
                                                
                                                
                                                1,788,898Cash
      transferred to discontinued operations
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                (166,463
                                                )Cash
      and cash equivalents, beginning of period
                                                
                                                
                                                11,365,646
                                                
                                                
                                                
                                                14,941,723
                                                
                                                
                                                
                                                277,317Cash
      and cash equivalents, end of period
                                                
                                                $
                                                1,899,752
                                                
                                                
                                                $
                                                11,365,646
                                                
                                                
                                                $
                                                1,899,752Supplemental
      disclosure of cash flow informationCash
      paid for -Income
      taxes
                                                
                                                $
                                                800
                                                
                                                
                                                $
                                                800
                                                
                                                
                                                $
                                                1,600Interest
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                -
                                                
                                                
                                                $
                                                12,625
 
 Non-cash
financing activities:
 
 In 2007,
the Company incurred $5,151,228 in private placement fees, reorganization costs
and related registration costs, which included the issuance of warrants with a
fair value of $2,988,064.
 
 See Notes
to Financial Statements
  F-6




NuRx Pharmaceuticals,
Inc.
 (a
corporation in the development stage)
 Notes to
Financial Statements
 September
30, 2009
 
 Note 1 - The Company and its
Significant Accounting Policies
 
 General
Business:
 
 From the
Company’s inception in 2001 to May 2007, it was in the business of selling
nutritional products under the name Quest Group International, Inc. In May 2007,
the Company spun off this nutritional products business and began to pursue a
new business plan in the pharmaceuticals industry. On May 11, 2007, the Company
entered into a license agreement with Vitae Pharmaceuticals, Inc. (“Vitae”),
pursuant to which it acquired an exclusive, worldwide sublicense, with the right
to grant further sublicenses, to certain compounds and nuclear receptor
technology for all human and veterinary use. The principal therapeutic
indications for the lead compounds are acute promyelocytic leukemia, solid
cancers (lung and breast) and chemotherapy-induced neutropenia (low white cell
count). On October 23, 2007, the Company changed its name to NuRx
Pharmaceuticals, Inc. (“NuRx”). While NuRx was initially established to explore
the broad application of second and third generation retinoid and rexinoid
compounds, it has evolved into a more broad Life Sciences company with research
and development (“R&D”) interests in additional novel cancer therapeutics
and, more recently, a novel delivery of point of care diagnostics. (See Note
5).
 
 Development
Stage Enterprise:
 
 The
Company is a development stage company as defined in Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) 915 “Development
Stage Entities”. The Company is devoting substantially all of its present
efforts to establish a new pharmaceutical business, and its planned principal
operations have not yet commenced. The Company has not generated any revenues
from operations and has no assurance of any future revenues. All losses
accumulated since May 1, 2007 have been considered as part of the Company's
development stage activities. The Company held approximately $1.9 million in
cash and cash equivalents at September 30, 2009.
 
 Liquidity
and Going Concern:
  Until
July 2009, the Company was an early stage R&D biopharmaceutical company with
a focus on oncology products (leukemia and lung cancer). The combination of (1)
the current suboptimal conditions for new financing of a pure early stage,
oncology-focused research and development biotech company and (2) the slower
than expected recruitment in its U.S. clinical trials with its resultant delays
in delivery of Phase II data, the Company concluded that there was an immediate
need to expand its interests to broader areas of life sciences with products
that offer a near term revenue stream to support the R&D programs. After
examining a number of options in the medical diagnostics arena the Company
ultimately focused on point-of-care diagnostics in human and veterinary medicine
through QN Diagnostics, LLC (“QND”), a joint venture with QuantRx Biomedical
Corporation (“QuantRx”) (See Note 5). At that time, the Company terminated
further patient accruals under its U.S. clinical trials, eliminated its U.S.
clinical development team, undertook significant cost reductions and limited its
focus in drug development to winding down the U.S. clinical trials and
supporting the clinical development activities in India in collaboration
with Piramal Life Sciences, LTD. (“Piramal”), the Company’s development
partner in that region (See Note 12).
 
 As an
early stage clinical development company, the Company has not generated any
revenues from operations to meet its operating expenses, and has historically
financed its operations primarily through issuances of equity
securities.
  F-7
  Subsequent
to September 30, 2009, the Company has called for the redemption of certain
shares representing 46.2% of the issued and outstanding shares of the Company at
a cost of approximately $1,231,000. On November 13, 2009, the holder of such
shares filed a complaint in U.S. District Court in Nevada for declaratory and
injunctive relief from such redemption (See Note 16). If completed, the
redemption would significantly reduce the cash available for
operations.
 
 The QN
Diagnostics business is also in its early stage and may require additional
funding to complete the development and launch of its initial products, which
both venture partners are mutually obligated to provide.
 
 As a
result, management believes that given the current economic environment and the
continuing need to strengthen the Company’s cash position, there is substantial
doubt about its ability to continue as a going concern. The Company continues to
actively pursue various funding options, including equity offerings and debt
financing, however, there can be no assurance that it will be successful in its
efforts to raise additional capital on a timely basis and on acceptable
terms.
  Management
believes that the successful growth and operation of the Company’s business is
dependent upon its ability to obtain
adequate sources of debt or equity financing to:
  ·
              wind
      down the U.S. clinical trials and adequately support its clinical
      development partner in India;
and
 ·
              fund
      its share of future additional development costs of the QND joint venture;
      and
 ·
              manage
      or control working capital requirements by further reducing operating
      expenses.
  There can
be no assurance that the Company will be successful in achieving its long-term
plans as set forth above, or that such plans, if consummated, will enable the
Company to obtain profitable operations or continue in the long-term as a going
concern.
  The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern, which contemplates the realization of assets and
settlement of obligations in the normal course of business. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern. The report from the Company’s independent registered public
accounting firm states that there is substantial doubt about the Company’s
ability to continue as a going concern.
 
 Research
and Development Costs:
 
 The
Company expenses all research and development costs as incurred. Research and
development expenses consist of salaries, share based compensation, preclinical
activities, pharmacology, stability testing and other drug development costs,
clinical trial expenses including patient and data management, outside
manufacturing, and consulting costs for regulatory affairs and other activities.
Also included in these costs are in-process research and development costs
incurred from a licensing agreement as more fully described in Note
4.
  Effective
October 1, 2008, the Company adopted the requirements in FASB ASC 730 “Research
and Development” on accounting for nonrefundable advance payments for goods or
services received for use in future research and development activities. The
requirements are effective for financial statements issued for fiscal years
beginning after December 15, 2007, and provide that nonrefundable advance
payments for goods or services that will be used or rendered for future research
and development activities should be deferred and capitalized. Such amounts
should be recognized as an expense as the related goods are delivered or the
related services are performed. At September 30, 2009, there were no advance
payments for drug development manufacturing costs capitalized as prepaid
expenses in the accompanying balance sheet.
  F-8
  Use
of Estimates:
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ materially from those estimates.
 
 Cash
and Cash Equivalents:
 
 Cash
equivalents are certificates of deposit, U.S. government securities or other
highly liquid investments with original maturities of three months or less when
purchased. Cash equivalents at September 30, 2009 consist of certificates of
deposit, and at September 30, 2008 consist of investments in United States
Treasury Bills.
 
 Property
and Equipment:
 
 Property
and equipment are stated at cost. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the related
assets, which range from 3 to 5 years. Leasehold improvements are amortized over
the shorter of the life of the lease or their useful lives.
  Income
Taxes:
 
 Deferred
income taxes are provided in amounts sufficient to give effect to temporary
differences between financial and tax reporting, principally related to
accruals, in-process research and development costs, and share-based
consideration for license milestones.
 
 Deferred
income taxes arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse. A valuation allowance
is established, when necessary, to reduce deferred tax assets to the amount
expected to be realized.
  Effective
October 1, 2007, the Company adopted changes issued by the FASB under ASC 740
“Income Taxes” that requires the recognition in the financial statements the
impact of a tax position if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The adoption
of the standard had no effect on the Company’s financial position or results of
operations.
  Earnings
Per Common Share:
 
 Basic
earnings per share are computed by dividing earnings available to common
stockholders by the weighted-average number of common shares outstanding.
Diluted earnings per share is computed similarly to basic earnings per share
except that the denominator is increased to include additional common shares
available upon exercise of stock options and warrants using the treasury stock
method, except for periods of operating loss for which no common share
equivalents are included because their effect would be anti-dilutive. These
potentially dilutive securities were not included in the calculation of loss per
share for the fiscal years ended September 30, 2009 and 2008, and the period
from inception (May 1, 2007) through September 30, 2009, because the Company
incurred a loss during such periods and thus their effect would have been
anti-dilutive. Accordingly, basic and diluted loss per share are the same for
these periods. At September 30, 2009 and 2008, potentially dilutive securities
consisted of outstanding warrants and stock options to acquire an aggregate of
4,925,560 and 4,393,500 shares, respectively.
  F-9
  Fair
Value of Financial Instruments:
 
 The
Company’s financial instruments consist of cash, certificates of deposit, note
receivable from Piramal and warrants to purchase common stock of QuantRx. The
carrying amount of these financial instruments approximates fair
value.
 
 Variable
Interest Entities/Equity Method of Accounting
  The
Company has evaluated its material contractual relationships and has concluded
that the entities involved in these relationships are not Variable Interest
Entities ("VIEs") or, in the case of QND, a 50% joint venture , that the Company
is not the primary beneficiary of the VIE. As such, the Company accounts for the
activities of QND utilizing the equity method of accounting The Company recorded
a loss from QND under the equity method of $464,755, representing the Company’s
50% portion of the activities of QND from inception (July 30, 2009) through
September 30, 2009 (See Note 5).
  Concentrations
of Credit Risk:
 
 Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of cash and cash equivalents. The Company maintains its
cash and cash equivalents in interest and non-interest bearing transaction
accounts at a Standard & Poor’s AAA rated domestic bank. Under the current
Temporary Liquidity Guarantee Program of the Federal Deposit Insurance
Corporation (“FDIC”), interest bearing transaction accounts are insured up to
$250,000 and non-interest bearing transaction accounts are insured without
limit. As of September 30, 2009 and 2008, the Company had approximately $0 and
$3,009,000, respectively, of cash in excess of these limits. The Company has not
experienced any losses in such accounts and believes it is not exposed to any
significant credit risk on cash and cash equivalents.
 
 Impairment
of Long-Lived Assets:
 
 Long-lived
assets, such as property and equipment, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company’s management assesses the recoverability of
long-lived assets by determining whether the depreciation and amortization of
long-lived assets over their remaining lives can be recovered through projected
undiscounted future cash flows. The amount of long-lived asset impairment, if
any, is measured based on fair value and is charged to operations in the period
in which long-lived asset impairment is determined by management. At September
30, 2009 and 2008, the Company’s management believes there is no impairment of
its long-lived assets. There can be no assurance, however, that market
conditions will not change which could result in impairment of long-lived assets
in the future.
 
 Recently
Adopted Accounting Pronouncements:
  On
September 30, 2009, the Company adopted changes issued by the Financial
Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These
changes establish the FASB Accounting Standards Codification (ASC) as the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with GAAP. Rules and interpretive releases of the Securities and
Exchange Commission (SEC) under authority of federal securities laws are also
sources of authoritative GAAP for SEC registrants. The FASB will no longer issue
new standards in the form of Statements, FASB Staff Positions, or Emerging
Issues Task Force Abstracts; instead the FASB will issue Accounting Standards
Updates. Accounting Standards Updates will not be authoritative in their own
right as they will only serve to update the Codification. These changes and the
Codification itself do not change GAAP. Other than the manner in which new
accounting guidance is referenced, the adoption of these changes had no impact
on the financial statements.
  F-10
  On
October 1, 2008, the Company adopted the fair value measurement and disclosure
requirements of ASC 820 “Fair Value Measurements and Disclosures”. ASC 820 sets
forth a definition of fair value and establishes a hierarchy prioritizing the
inputs to valuation techniques, giving the highest priority to quoted prices in
active markets for identical assets and liabilities and the lowest priority to
unobservable inputs. FASB ASC 820 is generally required to be applied on a
prospective basis, except to certain financial instruments accounted for under
FASB ASC 815 “Derivatives and Hedging” regarding accounting for derivative
instruments and hedging activities, for which the provisions of FASB ASC 820
should be applied retrospectively.  On October 10, 2008, the FASB issued
further clarification of the application fair value measurements in a market
that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active.  The adoption of FASB ASC 820 did not have a
material effect on the financial statements for the fiscal year ended September
30, 2009.
  Effective
October 1, 2008, the Company adopted the requirements of FASB ASC 825 “Financial
Instruments” issued by the FASB in February 2007. This statement permits
entities to choose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. This Statement is expected to expand the
use of fair value measurement, which is consistent with the Company’s Board of
Directors long-term measurement objectives for accounting for financial
instruments. Adoption of the standard had no effect on the Company’s financial
position or results of operation.
  In March
2008, the FASB issued amended and expanded disclosure requirements relating to
accounting for derivative instruments and hedging activities under ASC 815. The
objective of the amended and expanded requirements is to provide users of
financial statements with an enhanced understanding of how and why an entity
uses derivative instruments, how derivative instruments and related hedged items
are accounted for under FASB ASC 815 and its related interpretations, and how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows. FASB ASC 815 now requires
qualitative disclosures about objectives and strategies for using derivatives,
quantitative disclosures about fair value amounts of and gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements. FASB ASC 815 applies to all derivative
financial instruments, including bifurcated derivative instruments (including
non-derivative instruments that are designed and qualify as hedging instruments)
and related hedged items. The amended and expanded requirements are effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, with early application encouraged. FASB ASC 815
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption. The Company adopted the amended and expanded requirements of
FASB ASC 815 on January 1, 2009, which did not have any impact on the Company’s
financial statement presentation or disclosures.
 
 Effective
June 30, 2009, the Company adopted the requirements of FASB ASC 855 “Subsequent
Events” which establishes the general standards of accounting for and disclosure
of events that occur after the balance sheet date, but before financial
statements are issued.  ASC 855 also sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should provide about
events or transactions that occurred after the balance sheet date. FASB ASC 855
is effective for interim or annual financial periods ending after June 15, 2009,
and shall be applied prospectively.  Subsequent events have been evaluated
by the Company through December 28, 2009.
  In April
2009, the FASB issued requirements under ASC 825 to disclose the fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. It further requires such disclosures
in the summarized financial information at interim reporting. On June 15, 2009,
the Company adopted these interim disclosure requirements, which did not have
any impact on the Company’s financial statement presentation or
disclosures.
  F-11
  Recent
Accounting Pronouncements:
 
 In June
2009, the FASB amended the requirements relating to the accounting for variable
interest entities under ASC 810.  The amendments require an enterprise to
qualitatively assess the determination of the primary beneficiary (or
“consolidator”) of a variable interest entity, (“VIE”), based on whether the
entity (1) has the power to direct matters that most significantly impact the
activities of the VIE, and (2) has the obligation to absorb losses or the right
to receive benefits of the VIE that could potentially be significant to the VIE.
The amendments change the consideration of kick-out rights in determining if an
entity is a VIE and requires an ongoing reconsideration of the primary
beneficiary. They further amend the events that trigger a reassessment of
whether an entity is a VIE. The amendments are effective as of the beginning of
each reporting entity’s first annual reporting period that begins after November
15, 2009, interim periods within that first annual reporting period, and for
interim and annual reporting periods thereafter. Earlier adoption is prohibited.
The Company does not expect that the adoption of these amendments will have a
material impact on its results of operations or financial
condition.
 
 Management
does not believe that any other recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
 
 Note 2 - Property and
Equipment
 
 Property
and equipment consisted of the following at September 30, 2009 and
2008:
 
 2009
                        
                        
                        2008Office
      equipment
                        
                        $
                        33,264
                        
                        
                        $
                        24,541Computer
      equipment
                        
                        
                        11,564
                        
                        
                        
                        11,564Lab
      equipment
                        
                        
                        46,466
                        
                        
                        
                        19,129Leasehold
      Improvements
                        
                        
                        1,200
                        
                        
                        
                        1,20092,494
                        
                        
                        
                        56,434Accumulated
      depreciation and amortization
                        
                        
                        (25,710
                        )
                        
                        
                        (11,336
                        )$
                        66,784
                        
                        
                        $
                        45,098
 
 Depreciation
and amortization expense for the years ended September 30, 2009 and 2008
amounted to $14,374, and $9,954, respectively.
 
 Note 3 – Reverse Stock
Split
 
 On May 9,
2008, the Company completed a one-for-four reverse stock split for common
shareholders of record on that same date. As a result of the reverse stock
split, the number of common shares outstanding was reduced to 28,394,234 from
113,576,927 shares outstanding immediately prior to the effective date. Common
shares authorized were unchanged, resulting in an increase in the number of
authorized but unissued shares of common stock to 121,605,766 from 36,423,073.
The per unit exercise price of all outstanding options and warrants were
increased proportionately and shares issuable under such instruments were
decreased proportionately.
 
 The
reverse stock split did not affect the par value of the Company’s common stock.
As a result, the stated capital on the Company’s balance sheet attributable to
the outstanding common stock was reduced by $91,002 to $30,334 (one-fourth of
its amount immediately preceding the reverse stock split), and the additional
paid-in capital account was increased by $91,002. The per share net income or
loss and net book value of the outstanding common stock increased because there
are fewer shares of the Company’s common stock outstanding.
  The
Company’s financial statements and footnotes give retroactive effect to this
stock split.
  F-12
  Note 4 – Vitae License and
Amendment
 
 On May
11, 2007, the Company entered into a license agreement with Vitae
Pharmaceuticals, Inc. (“Vitae”), pursuant to which the Company acquired an
exclusive, worldwide sublicense (with the right to grant further sublicenses) to
certain compounds and technology for all human and veterinary use, in order to
research, develop and commercialize the compounds. The indications for the lead
compounds are acute myeloid, solid cancers (lung and breast) and
chemotherapy-induced neutropenia. The Company paid Vitae an aggregate of $2.15
million, comprised of an upfront license fee of $2.1 million and $50,000 for its
inventory of the licensed compounds. As a milestone payment required under the
license, the Company also issued to Vitae 1,756,732 shares of common stock, or
such number representing 5.66% of the Company’s fully diluted shares, on October
17, 2007, the date it received acceptance of an Investigational New Drug
Application (“IND”) by the United States Food and Drug Administration for a
licensed compound that had not previously received an IND. The Company will also
be required to pay, on Vitae’s behalf, the existing licensors additional
milestone payments if it reaches FDA marketing approval for a product containing
a licensed compound.
 
 In
addition to the aforementioned fees and milestone payments, the Company agreed
to pay the original licensor of the compounds and Vitae specified revenue
percentages of the Company’s net sales of products based on the licensed
technology. The percentages vary from product to product, but when combined may
total as much as 12% of the Company’s net sales. The Company must meet certain
development milestones under the original license agreements with the existing
licensors in order to maintain the rights to the licensed products, including,
among others, filing at least one New Drug Application (“NDA”) in the U.S. or
another major market for a product by May 10, 2011. The Company also agreed to
pay Vitae a specified percentage of any sublicense revenues received from any
sublicense of the licensed technology.
 
 On
December 31, 2008, the Vitae license was amended to include certain additional
intellectual property and compounds potentially useful in dermatological
therapeutic applications. In consideration of the amendment, the Company paid
Vitae $125,000 in cash and issued 50,000 shares of common stock, valued at $2.00
per share.
 
 The
acquired assets, which consist of intellectual property and inventory of
compounds at the date of acquisition and date of amendment, were determined to
be in the research and development stage (the pre-clinical discovery stage). The
primary compounds underlying the patents and licenses are to be used in ongoing
research and development activities and are not determined to have any
alternative future uses. Accordingly, pursuant to the provisions of FASB ASC
730, the Company has charged the costs of the acquired assets to
expense.
  Note 5 – Joint Venture with
QuantRx Biomedical Corporation
 
 On July
30, 2009, the Company and QuantRx Biomedical Corporation (“QuantRx”) entered
into agreements to form QN Diagnostics, LLC, a Delaware limited liability
company (“QND”). Pursuant to the agreements, QuantRx 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 QuantRx to the joint venture, NuRx and
QuantRx each own a 50% interest in QND. QND is managed by a Board of Managers
consisting of members from both NuRx and QuantRx and an independent member
mutually agreed by the members. The purpose of the joint venture is 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 QuantRx.
QuantRx is committed to further capital contributions aggregating $1.55 million,
comprised of certain milestone payments under a technology purchase agreement in
QuantRx common stock (fair value of $750,000); transfer of fixed assets with a
fair value of $100,000 to QND at time requested by the QND Board of Managers;
and a $700,000 sustaining capital contribution as required to sustain QND
operations. If necessary, subsequent sustaining capital contributions will be
made by QuantRx and NuRx on an equal basis.
 
 QuantRx
and QND also entered into a one year Development and Services Agreement,
pursuant to which QND shall pay a monthly fee consisting of a base of $250,000
plus approved overages, not to exceed $3.7 million to QuantRx in exchange for
QuantRx providing all services related to the development, regulatory approval
and commercialization of lateral flow products.  For the period July 30,
2009 (inception) through September 30, 2009 an aggregate of $683,987 was paid by
QND to QuantRx pursuant to this agreement with an additional $171,354 was
accrued at September 30, 2009.
  F-13
  In
connection with these transactions on July 30, 2009, NuRx received two warrants
to purchase 2,000,000 shares of QuantRx common stock each, for an aggregate of
4,000,000 shares of QuantRx common stock. The warrants are separately stated as
“Other Investments” (see Note 6).
 
 Summarized
financial information of QND for the period July 30, 2009 (inception) through
the period ended September 30, 2009, is as follows:
  ·
              revenues
      and gross profit: $50,000; net loss: $929,510. The Company recorded a loss
      from QND under the equity method of $464,755, representing the Company’s
      50% portion of QND’s net loss. There were no intercompany profits to
      eliminate.
 
 ·
              total
      assets of approximately $7,711,000 consisting of $2,061,000 in cash,
      $25,000 in contract receivables, $253,000 in prepaid expenses, $5,000 of
      fixed assets (net of $120 in accumulated depreciation) and $5,367,000 in
      intangible assets (net of $82,800 in accumulated amortization). Total
      payables approximated $190,000 at September 30,
  2009.
  The
"Investment in Joint Venture” presented on the balance sheet at September 30,
2009 reflects the cash investment of $5,000,000, less the equity method loss for
the period July 30, 2009 (inception) through September 30, 2009 of $464,755,
less the $1,000,000 fair value of warrants in QuantRx received in connection
with the formation of QND.
 
 Pursuant
to the LLC Operating Agreement, NuRx has the right, prior to the achievement of
two specified milestones by QND and subject in certain circumstances to prior
approval by QuantRx, to withdraw up to $1,500,000 of its capital contribution
from the joint venture. If withdrawn, the funds must be returned to the joint
venture within thirty days of the achievement of the respective milestone. The
first milestone was achieved in November, 2009 and $1,000,000 was released into
the QND operating account. As a result, NuRx may request withdrawal of up to
$500,000 prior to achievement of the second milestone.
 
 As of
September 30, 2009, $15,625 included in other receivables was due from QND for
reimbursement of compensation and related payroll costs related to the
employment of a QND executive for which the Company acted as nominal employer on
behalf of QND under the employment agreement with the executive. Under this
agreement, the Company is obligated to advance compensation and related payroll
costs for the executive through December 31, 2009, and QND is obligated to
reimburse the Company for these advances upon receipt by QND of first cash flow
from product sales.
  Note 6– Other
Investments
 
 The following table summarizes the
Company’s long-term investments classified as available-for-sale at September
30, 2009:
  Cost
                    
                    
                    Gross
                      unrealized
                      gains
                    
                    
                    Unrealized
                      losses
                    
                    
                    Fair
                      valueWarrants
      to purchase QuantRx Biomedical Corporation common shares
                    
                    $
                    1,000,000
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    1,000,000
  The investments consist of two warrants to purchase 2,000,000
shares of QuantRx common stock each, for an aggregate of 4,000,000 shares of
QuantRx common stock, received in connection with the formation of QN
Diagnostics, LLC, on July 30, 2009. (See Note 5). The warrants expire on July
30, 2014 and have exercise prices of $0.50 and $1.25,
respectively.
  F-14
  The fair
value of the warrants at the date of issuance using the Black-Sholes pricing
model was $1,000,000 using the following assumptions:
 
 AssumptionsExpected
      Volatility
                      
                      
                      70
                      %Expected
      Dividends
                      
                      
                      -Expected
      term, in years
                      
                      
                      5.0Risk-free
      rate
                      
                      
                      3.24
                      %
 
 There was
no change in fair value of the warrants for the period ended September 30,
2009.
 
 FASB ASC
820 establishes a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value into three levels as follows:
 
 Level 1:
Quoted prices (unadjusted) in active markets for an identical asset of liability
that the Company has the ability to access as of the measurement date. Financial
assets and liabilities utilizing Level 1 inputs include active-exchange traded
securities and exchange-based derivatives.
 
 Level 2:
Inputs other than quoted prices included within Level 1 that are directly
observable for the asset or liability or indirectly observable through
corroboration with observable market data. Financial assets and liabilities
utilizing Level 2 inputs include fixed income securities, non-exchange based
derivatives, mutual funds, and fair-value hedges.
 
 Level 3:
Unobservable inputs for the assets or liability are only used when there is
little, if any, market activity for the asset or liability at the measurement
date. Financials assets and liabilities utilizing level 3 inputs include
infrequently traded, non-exchange-based derivatives and commingled investment
funds and are measured using present value pricing models.
 
 The
warrants to purchase shares of QuantRx common stock are measured and recorded at
fair value on the Company’s balance sheets using Level 2.
 
 Note 7 - Related Party
Transactions
 
 On May 1,
2007, the Company entered into a consulting agreement with an affiliate to
provide consulting services relating to strategic planning, investor relations
and corporate governance for a monthly fee of $30,000, plus reimbursement of
expenses, for a six-month period ended on October 31, 2007. The consulting
agreement provided for automatic extensions at the end of each six-month term,
unless terminated by either party at least 30 days prior to the end of such
term. The agreement was terminated on October 30, 2008. For the years ended
September 30, 2009 and 2008, and from inception (May 1, 2007) through September
30, 2009, the Company incurred costs of $30,000, $360,000, and $540,000,
respectively, pursuant to this consulting agreement.
 
 On
November 5, 2007, the Company entered into a five year consulting agreement
effective May 31, 2007 with a company wholly owned by an affiliate to provide
the technical services of that affiliate along with other employees and
resources of the consulting company. This contract was changed to “at-will” as
discussed in Note 13. The consulting agreement superseded an existing five year
employment agreement with that affiliate. For the years ended September 30, 2009
and 2008, and from inception (May 1, 2007) through September 30, 2009, the
Company incurred costs of $140,000, $238,910, and $378,910, respectively under
the consulting agreement (See Notes 13 and 15).
 
 For the
years ended September 30, 2009 and 2008, and for the period from inception (May
1, 2007) through September 30, 2009, the Company incurred and paid an aggregate
of $0, $17,500, and $32,000 respectively, for advisory and corporate board
meeting management, website and graphics design services provided by a company
100% owned by the spouse of a stockholder.
  F-15
  Note 8 - Stock Options and
Warrants
 
 Options
 
 In 2007,
the Company adopted a stock compensation plan, the 2007 Stock Compensation Plan
(the “Plan”), pursuant to which it is authorized to grant options, restricted
stock and stock appreciation rights to purchase up to 3,750,000 shares of common
stock to the Company’s employees, officers, directors, consultants and
advisors.
  The 2007
Stock Plan is administered by the Company’s Board of Directors or a committee
appointed by the Board, which determines the persons to whom awards will be
granted, the type of award to be granted, the number of awards to be granted and
the specific terms of each grant, including the vesting thereof, subject to the
provisions of the Plan.
 
 All
options issued pursuant to the Plan have an exercise price that is greater than
or equal to the fair market value of the Company’s common stock on the date of
grant.
 
 On March
6, 2009, in order to provide continued economic incentive to option holders,
most of whose options were issued at prices that were “out of the money”, the
Board of Directors authorized a re-pricing of all 1,406,000 shares under stock
option grants previously issued through that date to an exercise price of $0.45
per share from the post reverse-split adjusted $4.00 exercise price at date of
grant. The incremental compensation cost computed using the Black-Scholes option
pricing model was $242,000. The amount of the incremental compensation cost
attributable to options vested as of the date of re-pricing was $100,000 which
was charged to expense at that date. The amount of incremental compensation cost
attributable to option grants vesting after the date of re-pricing was $142,000,
of which $36,000 was charged to expense during the year ended September 30,
2009, and the remaining $106,000 will be recognized over the remaining vesting
period of the underlying grants. There were no other changes to the terms of any
stock option grants (See Note 9).
 
 Restricted
shares of 12,500 have been issued under the Plan.
  A summary
of option activity under the Plan for the years ended September 30, 2009 and
2008 is as follows (shares and share prices reflect the 4:1 reverse
split):
 
 For the year ended September 30,2009
                            
                            
                            2008Weighted
                            
                            
                            
                            
                            
                            WeightedAverage
                            
                            
                            
                            
                            
                            AverageShares
                            
                            
                            Exercise
                              Price
                            
                            
                            Shares
                            
                            
                            Exercise
                              PriceStock
      options at beginning of year
                            
                            
                            1,306,000
                            
                            
                            $
                            0.45
                            
                            
                            
                            931,000
                            
                            
                            $
                            0.45Stock
      options granted
                            
                            
                            650,000
                            
                            
                            $
                            0.45
                            
                            
                            
                            375,000
                            
                            
                            $
                            0.45Stock
      options forfeited
                            
                            
                            (117,940
                            )
                            
                            $
                            0.45
                            
                            
                            
                            -
                            
                            
                            $
                            -Stock
      options at end of year
                            
                            
                            1,838,060
                            
                            
                            $
                            0.45
                            
                            
                            
                            1,306,000
                            
                            
                            $
                            0.45Stock
      options exercisable at end of year
                            
                            
                            874,968
                            
                            
                            $
                            0.45
                            
                            
                            
                            422,102
                            
                            
                            $
                            0.45Shares
      available for future grant under Plan
                            
                            
                            1,899,440
                            
                            
                            
                            
                            
                            
                            
                            2,431,500
  F-16
  The
weighted average remaining life of outstanding options at September 30, 2009 was
42 months. The intrinsic value is not greater than the grant price.
 
 Warrants
 
 A summary of warrants issued during the
years ended September 30, 2009 and 2008 is as follows:
 
 For the year ended September 30,2009
                        
                        
                        2008Weighted
                        
                        
                        
                        
                        
                        WeightedAverage
                          Exercise
                        
                        
                        
                        
                        
                        Average
                          ExerciseShares
                        
                        
                        Price
                        
                        
                        Shares
                        
                        
                        PriceWarrants
      at beginning of year
                        
                        
                        3,087,500
                        
                        
                        $
                        4.01
                        
                        
                        
                        3,100,000
                        
                        
                        $
                        4.02Warrants
      issued
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        -
                        
                        
                        $
                        -Warrants
      forfeited
                        
                        
                        -
                        
                        
                        $
                        -
                        
                        
                        
                        (12,500
                        )
                        
                        $
                        8.00Warrants
      at end of year
                        
                        
                        3,087,500
                        
                        
                        $
                        4.01
                        
                        
                        
                        3,087,500
                        
                        
                        $
                        4.01
 
 All
warrants were exercisable at September 30, 2008 and 2009.
 
 The
weighted average remaining life at September 30, 2009 was 44 months. The
intrinsic value is not greater than the grant price.
 
 Note 9 - Share Based
Payments
 
 Pursuant
to the provisions of FASB ASC 718 “Compensation – Stock Compensation”, the cost
resulting from all share-based payment transactions (including, but not limited
to grants of employee options, and warrants to purchase the Company’s common
stock) shall be recognized in the statement of operations based on their fair
values, unless related to capital financing.
 
 The fair
value of each option award and warrant grant for the years ended September 30,
2009 and 2008 is estimated on the date of grant using the Black-Scholes option
pricing model using the following assumptions:
  Options
                          
                          
                          WarrantsExpected
      Volatility
                          
                          
                          75
                          %
                          
                          75
                          %Expected
      Dividends
                          
                          
                          -
                          
                          
                          -Expected
      term, in years
                          
                          
                          3.5-4.0
                          
                          
                          4.75-6.0Risk-free
      rate
                          
                          
                          1.4-4.9
                          %
                          
                          4.64-5.01
                          %
 
 On
October 31, 2007, the Company received approval for an Investigational New Drug
(“IND”) with respect to one of its drug candidates. This approval triggered a
milestone payment under the Company’s license agreement with Vitae of 1,756,732
common shares, representing 5.66% of the Company’s fully diluted common stock on
the effective date of the license agreement. The fair market value of these
shares at October 31, 2007 was $2.00 per share, which resulted in a charge of
$3,513,000 to in-process research and development expenses on that date and an
increase in stockholders’ equity.
  F-17
  On
November 28, 2007, the Company awarded options to purchase 50,000 shares of
common stock to a new director at an exercise price of $4.00 per share (prior to
re-pricing to $0.45 per share on March 6, 2009). The options vest 100% upon
grant, and have a five year term. The fair value of the option award, estimated
on the date of grant using the Black-Scholes option pricing model was $41,800
(prior to re-pricing to $0.45 per share on March 6, 2009). The option value of
$41,800 was amortized to expense over the director’s initial 12 month board
term; $7,600 and $34,200 for the years ended September 30, 2009 and 2008,
respectively.
  On May
15, 2008, the Company awarded options to purchase 250,000 shares of common stock
to four employees at an exercise price of $4.00 per share (prior to re-pricing
to $0.45 per share on March 6, 2009). The options vest one-third upon grant, the
balance ratably over a period of 36 months so long as the employees continue in
the employment of the Company. The options have a five year term which shall be
extended to six months following termination if the employee continues to be
employed on the fifth anniversary of the grant, but not beyond ten years from
the date of grant. The fair value of these option awards, estimated on the date
of grant using the Black-Scholes option pricing model was $187,000 (prior to
re-pricing to $0.45 per share on March 6, 2009). The option value is amortized
to expense over three years from the date of grant consistent with the vesting
terms; $41,566 and $76,185 for the years ended September 30, 2009 and 2008,
respectively.
 
 On August
1, 2008, the Company awarded options to purchase 75,000 shares of common stock
to an employee at an exercise price of $4.00 per share (prior to re-pricing to
$0.45 per share on March 6, 2009). The options vest ratably over a period of
four years so long as the employee continues in the employment of the Company.
The option has a five year term which shall be extended to six months following
termination if the employee continues to be employed on the fifth anniversary of
the grant, but not beyond ten years from the date of grant. The fair value of
these option awards, estimated on the date of grant using the Black-Scholes
option pricing model, was $56,000 (prior to re-pricing to $0.45 per share on
March 6, 2009); $14,000 and $2,333 for the years ended September 30, 2009 and
2008, respectively.
 
 On
October 28, 2008, the Company awarded options to purchase an aggregate of
100,000 shares of common stock to two new directors at an exercise price of
$4.00 per share. The options vest 100% upon grant, and have a five year term.
The fair value of the option awards estimated on the date of grant using the
Black-Scholes option pricing model was $82,000 (prior to re-pricing to $0.45 per
share on March 6, 2009). The option value was amortized to expense over the
directors’ initial 12 month board term; $75,167 for the year ended September 30,
2009.
 
 On December 31, 2008, the
Company entered into an amended and restated license with Vitae which provided
for the issuance of 50,000 shares of common stock effective on that date. The
fair market value of these shares on December 31, 2008 was $2.00 per share,
which resulted in a charge of $100,000 to in-process research and development
expenses on that date and an increase in stockholders’ equity.
 
 On March 6, 2009, the Company awarded
options to purchase an aggregate of 250,000 shares of common stock to an
executive at an exercise price of $0.45 per share, the fair market value at that
time. The options vest ratably over the 36 month period following the date of
grant. The options have a five year term which shall be extended to six months
following termination if the employee continues to be employed on the fifth
anniversary of the grant, but not beyond ten years from the date of grant. The
fair value of the option awards estimated on the date of grant using the
Black-Scholes option pricing model was $54,000. The option value is amortized to
expense over the 36 month vesting period; $10,500 for the year ended September
30, 2009.
  On June
8, 2009, the Company awarded options to purchase an aggregate of 50,000 shares
of common stock to a member of the Board of Directors at an exercise price of
$0.45 per share. The options vest fully on the date of grant. The options have a
five year term which shall be extended to six months following termination if
the member continues to be employed on the fifth anniversary of the grant, but
not beyond ten years from the date of grant. The fair value of the option awards
estimated on the date of grant using the Black-Scholes option pricing model was
$12,000.  The option value is amortized to expense ratably over the 12
month period following grant; $4,000 for the year ended September 30,
2009.
  F-18
  On
September 18, 2009, the Company issued options to purchase 250,000 shares of the
Company’s common stock to an executive of QND (See Note 5) at an exercise price
of $0.45 per share. The options vest 25% upon the first anniversary of the
grant, then 1/36th of the
remaining balance on a monthly basis thereafter. The options have a five year
life. The fair value of the option awards estimated on the date of grant using
the Black-Scholes option pricing model was $49,000.  On November 6, 2009,
the executive resigned from QND, none of the issued options vested, and no
expense resulting from the issuance has been or will be recognized.
 
 Note 10 - Lease
Commitments
 
 The
Company entered into a three year lease of approximately 2,960 sq. ft. for
premises located in Irvine, California in which it conducts its operations. The
lease commenced July 15, 2007 and ends on July 31, 2010. The base rent is $4,096
per month through July 31, 2008, $4,243 per month through July 31, 2009, and
$4,389 per month thereafter. In addition, the Company entered into a one year
lease of approximately 100 sq. ft. in Nevada for sales and recruiting activities
in connection with the QN Diagnostics point-of-care diagnostic devices directed
to the law enforcement and hospitality market segments. The annual lease of
$2,500 was prepaid in full at September 30, 2009. Rent expense for the years
ended September 30, 2009 and 2008 was $69,610 and $61,329, respectively. Minimum
payments under operating leases are approximately $48,400 through July 31,
2010.
  Note 11 - Income
Taxes
 
 Deferred
income taxes are provided for the differences between the basis of assets and
liabilities for financial reporting and income tax purposes. A valuation
allowance is established when necessary to reduce deferred tax assets to the
amount expected to be realized. The Company recorded a deferred income tax asset
for the tax effect of net operating loss carry-forwards, in-process research and
development, share-based milestone payments and other temporary differences,
aggregating approximately $6,274,000 and $4,153,000 at September 30, 2009 and
2008. In recognition of the uncertainty regarding the ultimate amount of income
tax benefits to be realized, the Company has recorded a full valuation allowance
at September 30, 2009 and 2008.
  The
Company has net Federal and California losses for tax purposes totaling
approximately $9,685,000 and $9,610,000, respectively, which may be applied
against future taxable income and will expire in 2028 and 2018. The California
net operating loss carry-forward has been suspended for two years. Accordingly,
there is no tax expense for the years ended September 30, 2009 and 2008, and the
period inception (May 1, 2007) through September 30, 2009. The potential tax
benefits arising from these losses have not been recorded in the financial
statements. The Company evaluates its valuation allowance requirements on an
annual basis based on projected future operations. When circumstances change and
cause a change in management’s judgment about the realizability of deferred tax
assets, the impact of the change on the valuation allowance is reflected in
current operations.
  Significant
components of the Company’s net deferred tax assets at September 30, 2009 and
2008 are as follows:
  Year ended
                                  September 30,
                                  2009
                                
                                
                                Year ended
                                  September 30,
                                  2008Tax
      loss carryforwards
                                
                                $
                                3,692,000
                                
                                
                                $
                                1,717,000Share
      based compensation
                                
                                
                                361,000
                                
                                
                                
                                167,000In-Process
      R&D/share based milestone payments
                                
                                
                                2,177,000
                                
                                
                                
                                2,251,000Depreciation/Amortization/Gain/Loss
                                
                                
                                17,000
                                
                                
                                
                                (1,000
                                )Vacation
      accrual
                                
                                
                                27,000
                                
                                
                                
                                19,000Valuation
      allowance
                                
                                
                                (6,274,000
                                )
                                
                                
                                (4,153,000
                                )$
                                —
                                
                                
                                $
                                —
  F-19
  The
provision for income taxes differs from the amount computed at federal statutory
rates as follows:
  Year ended
                          September 30,
                          2009
                        
                        
                        Year ended
                          September 30,
                          2008
                        
                        
                        May 1, 2007
                          (inception)
                          through
                          September 30,
                          2009Provision
      for income taxes at 34% statutory rate
                        
                        $
                        (1,856,000
                        )
                        
                        $
                        (2,495,000
                        )
                        
                        
                        (5,400,000
                        )State
      taxes, net of federal benefit
                        
                        
                        (319,000
                        )
                        
                        
                        (429,000
                        )
                        
                        
                        (928,000
                        )Change
      in valuation allowance
                        
                        
                        2,121,000
                        
                        
                        
                        2,424,000
                        
                        
                        
                        6,274,000Other
                        
                        
                        54,000
                        
                        
                        
                        —
                        
                        
                        
                        54,000$
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
 
 The
Company has not recorded any uncertain tax positions under FASB ASC 740 as of
September 30, 2009 or 2008.
 
 The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. As of September 30, 2009 and 2008,
the Company has no accrued interest and penalties related to uncertain tax
positions.
 
 Effective
October 1, 2007, the Company adopted changes issued by the FASB under ASC 740
that requires the recognition in the financial statements, the impact of a tax
position, if that position is more likely than not of being sustained on audit,
based on the technical merits of the position. The adoption of the standard had
no effect on the Company’s financial position or results of
operations.
 
 The
Company is subject to taxation in the U.S. and California. The tax years 2006 to
2008 remain open to examination by the major taxing jurisdictions to which the
Company is subject. The Company currently is not under examination by any tax
authority.
  Note 12 – Piramal
Agreement
 
 On March
6, 2009, the Company entered into a development and commercialization agreement
with Piramal Life Sciences, Limited (“Piramal”) with respect to compound NRX
5183 in India (the “Piramal Agreement”). Pursuant to the Piramal Agreement,
Piramal has the exclusive right to develop, manufacture and exploit the NRX 5183
technology within India at its sole expense. The Company obtains the clinical
data for use in registration in countries outside of India. Piramal will also
reimburse the Company for development expenses incurred with regard to clinical
trials in India up to $100,000. This reimbursement has been recorded as a
receivable with a corresponding reduction of research & development expenses
at September 30, 2009.
  Note 13 – Executive
Compensation
 
 On April
15, 2009, the Company entered into amendments to the Consulting Agreement with
SOQ, Inc. (a company owned by Dr. Parkash Gill, a Director of the Company and
Chairman of the Scientific Advisory Board) and the Employment Agreements with
each of Dr. Harin Padma-Nathan, the Company’s Chief Executive Officer, and Dr.
Rosh Chandraratna, the Company’s Chief Scientific Officer, to change the term of
each agreement from five years to “at-will”, allowing either party to terminate
the agreements immediately upon written notice to the other party, with or
without “Cause” or “Good Reason”. The agreements were also amended to eliminate
the automatic renewal of the agreement each year for additional one-year periods
(See Note 16).
 
 On
October 3, 2009, the Company terminated the at-will employment contract of Dr.
Chandraratna and simultaneously entered into a consulting agreement with him to
continue to provide the services of Chief Scientific Officer on an hourly basis
terminable upon ten days written notice.
  F-20
  Note 14 – Stockholder Rights
Plan
 
 Effective
June 1, 2009, the Company’s Board of Directors adopted a stockholder rights plan
(the “Rights Plan”). Pursuant to the Rights Plan, the Board of Directors
declared a dividend distribution of one right for each share of common stock.
Each right entitles the holder to purchase from the Company one one-hundreth of
a share of Series C Preferred Stock at an initial exercise price of $5 per
share. The Rights Plan is intended to assure that all of the Company’s
stockholders receive fair and equal treatment in the event of any proposed
takeover of the Company and to protect stockholders’ interests in the event the
Company is confronted with partial tender offers or other coercive or unfair
takeover tactics.  Rights become exercisable upon the earlier of (i) ten
days following the acquisition by a person or group of 20% or more of the
Company’s outstanding common stock, and (ii) ten business days after the
announcement of a tender offer or exchange offer to acquire 20% or more of the
outstanding common stock. The continuing directors (defined as the directors who
are not affiliated or associated with an acquiring person) may vote to extend
these timeframes in their discretion. If such a person or group acquires 20% or
more of the common stock, each right (other than such person’s or group’s
rights, which will become void) will entitle the holder to purchase at an
exercise price equal to 50% of the then current trading price of the Company’s
common stock.  In the alternative, the Board of Directors may authorize
issuance of one share of fully paid common stock for each right. If not
redeemed, the rights will expire on June 1, 2014. These rights have become
exercisable at September 30, 2009, but the exercise (distribution date) has been
extended.
  Note 15 – Settlement
Agreement and Share Buy Back
 
 On July
30, 2009, the Company completed the repurchase of 5,000,000 shares of its common
stock, representing approximately 17.6% of its issued and outstanding shares of
common stock. The shares were repurchased from former director Parkash Gill,
M.D. pursuant to a Stock Purchase and Standstill Agreement dated July 27, 2009
(the “Purchase Agreement”). Dr. Gill resigned from the Board of Directors of the
Company effective June 13, 2009. The Company cancelled the 5,000,000 shares of
common stock.
 
 Under the
Purchase Agreement, the Company agreed to repurchase the 5,000,000 shares for a
cash payment of $250,000 to Dr. Gill, and Dr. Gill agreed to standstill
provisions under which he would refrain for a period of three years from
acquiring beneficial ownership of additional shares of the Company’s common
stock, seeking to influence the management or policies of the Company or
proposing any business combination or other extraordinary transaction involving
the Company. Dr. Gill also agreed to refrain from disposing of any of the
remaining 1,000,000 shares that he beneficially owns for a period of three
years, except beginning February 1, 2010 and for a period of 20 months
thereafter, transactions of up to 50,000 shares per calendar month. In addition,
the Company’s Board of Directors was granted a proxy to vote the remaining
1,000,000 shares that Dr. Gill beneficially owns.
 
 The
Purchase Agreement was executed in connection with a Mutual General Release and
Waiver Agreement dated July 27, 2009, under which Dr. Gill and the Company
provided each other with mutual general releases of all claims.
 
 Note 16 – Subsequent
Events
 
 Redemption
of Control Shares under Nevada Control Shares Act
  On
October 29, 2009, pursuant to the authority provided in the Bylaws and pursuant
to Nevada Control Share Act ((the “Nevada Act”), the Company called for
redemption of the entire 10,832,876 common share holding of DYVA Management Ltd.
and its affiliates (“DYVA”), which such shares represent 46.2% of the total
issued and outstanding shares of the Company. Under the Nevada Act, the Company
is entitled to call for redemption of DYVA’s shares at the average price paid by
DYVA for its shares, which has been reported by DYVA to be for 833,298 Euros
($1,231,000).
  F-21
  On
November 13, 2009, DYVA filed a complaint in the United States District Court,
District of Nevada seeking declaratory and injunctive relief to halt the
proposed redemption. In addition, the complaint seeks attorneys fees and costs
to the extent permitted by law and any further and other relief the Court may
deem proper.
 
 Executive
Compensation
  On
October 29, 2009, the Company granted options to purchase 500,000 shares of
common stock to the Chief Executive Officer at an exercise price of $0.45 per
share. The options vest ratably over the 36 months following the date of grant.
The options have a five year term. The fair value of the option awards estimated
on the date of grant using the Black-Scholes option pricing model was $101,000
using the following assumptions:
  AssumptionsExpected
      Volatility
                    
                    
                    75
                    %Expected
      Dividends
                    
                    
                    -Expected
      term, in years
                    
                    
                    3.5Risk-free
      rate
                    
                    
                    1.75
                    %
 
 The
option value is amortized to expense ratably over the 36 month period following
the grant date.
 
 In
addition, on October 29, 2009, the CEO’s annual compensation was increased to
$325,000 retroactive to September 24, 2009. No other changes were made to his
“at will” employment agreement. An accrual for $2,010 has been included in
accrued expenses at September 30, 2009.
  F-22