UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C.  20549





FORM
10-Q





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


EXCHANGE
ACT OF 1934


For the
quarterly period ended March 31, 2010


OR


 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
  SECURITIES


EXCHANGE
ACT OF 1934


For the
transition period from _________to_________





Commission
File No. 0-17119





QUANTRX BIOMEDICAL
CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)





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





100 S. Main Street, Suite
300, Doylestown, PA 18901


(Address
of Principal Executive Offices) (Zip Code)





(267)
880-1595


(Registrant’s
Telephone Number, Including Area Code)




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. x 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 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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.:





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




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




The
number of shares outstanding of the issuer’s common stock as of May 10, 2010 was
44,427,630.











PART I -FINANCIAL INFORMATIONITEM
      1.
                  Financial
      Statements
                  4Consolidated
      Balance Sheets as of March 31, 2010 (Unaudited) and December 31,
      2009
                  4Consolidated
      Statements of Operations (Unaudited) for the three months ended March 31,
      2010 and 2009
                  5Consolidated
      Statements of Cash Flows (Unaudited) for the three months ended March 31,
      2010 and 2009
                  6Condensed
      Notes to (Unaudited) Consolidated Financial Statements
                  8ITEM
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  18ITEM
      4.
                  Controls
      and Procedures
                  24PART
      II - OTHER INFORMATIONITEM
      1.
                  Legal
      Proceedings
                  25ITEM
      2.
                  Unregistered
      Sales of Equity Securities; and Use of Proceeds
                  25ITEM
      3.
                  Defaults
      Upon Senior Securities
                  25ITEM
      4.
                  Reserved
                  25ITEM
      5.
                  Other
      Information
                  25ITEM
      6.
                  Exhibits
                  25Signatures
                  26


2


PART
I – FINANCIAL INFORMATION




CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION




THIS
QUARTERLY REPORT ON FORM 10-Q, INCLUDING EXHIBITS HERETO, CONTAINS
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED.  THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED
BY THE WORDS “ANTICIPATES,” “BELIEVES,” “EXPECTS,” “INTENDS,” “FORECASTS,”
“PLANS,” “ESTIMATES,” “MAY,” “FUTURE,” “STRATEGY,” OR WORDS OF SIMILAR
MEANING.  VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS; INCLUDING
THOSE DESCRIBED IN “RISK FACTORS” IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2009.  WE ASSUME NO OBLIGATIONS TO UPDATE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, ACTUAL RESULTS, CHANGES
IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.


3


ITEM
1.          Financial
Statements




QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
BALANCE SHEETS


March 31,
                    2010
                  
                  
                  December 31,
                    2009(unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  202,528
                  
                  
                  $
                  376,211Accounts
      receivable
                  
                  
                  83,817
                  
                  
                  
                  41,128Accounts
      receivable – related party
                  
                  
                  -
                  
                  
                  
                  31,500Interest
      receivable – related party
                  
                  
                  51,689
                  
                  
                  
                  47,689Inventories
                  
                  
                  4,675
                  
                  
                  
                  4,681Prepaid
      expenses
                  
                  
                  71,420
                  
                  
                  
                  128,228Note
      receivable – related party
                  
                  
                  200,000
                  
                  
                  
                  200,000Total
      Current Assets
                  
                  
                  614,129
                  
                  
                  
                  829,437Investments
                  
                  
                  200,000
                  
                  
                  
                  200,000Investment
      in joint venture
                  
                  
                  -
                  
                  
                  
                  63,601Property
      and equipment, net
                  
                  
                  160,255
                  
                  
                  
                  179,590Intangible
      assets, net
                  
                  
                  55,476
                  
                  
                  
                  59,780Security
      deposits
                  
                  
                  11,093
                  
                  
                  
                  11,093Total
      Assets
                  
                  $
                  1,040,953
                  
                  
                  $
                  1,343,501LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
                  
                  $
                  794,583
                  
                  
                  $
                  749,225Accrued
      expenses
                  
                  
                  285,500
                  
                  
                  
                  233,000Deferred
      revenue – related party
                  
                  
                  240,960
                  
                  
                  
                  337,160Security
      deposits
                  
                  
                  2,000
                  
                  
                  
                  2,000Total
      Current Liabilities
                  
                  
                  1,323,043
                  
                  
                  
                  1,321,385Notes
      payable, long-term
                  
                  
                  44,000
                  
                  
                  
                  44,000Total
      Liabilities
                  
                  
                  1,367,043
                  
                  
                  
                  1,365,385Commitments
      and Contingencies
                  
                  
                  -
                  
                  
                  
                  -Stockholders’
      Equity (Deficit):Preferred
      stock; $0.01 par value, 25,000,000 authorized shares; Series A-1
      convertible preferred shares: 4,060,397 shares issued and
      outstanding
                  
                  
                  40,604
                  
                  
                  
                  40,604Common
      stock; $0.01 par value; 150,000,000 authorized; 44,427,630 shares issued
      and outstanding
                  
                  
                  444,276
                  
                  
                  
                  444,276Additional
      paid-in capital
                  
                  
                  47,778,397
                  
                  
                  
                  47,756,355Accumulated
      deficit
                  
                  
                  (48,589,367
                  )
                  
                  
                  (48,263,119
                  )Total
      Stockholders’ Equity (Deficit)
                  
                  
                  (326,090
                  )
                  
                  
                  (21,884
                  )Total
      Liabilities and Stockholders’ Equity (Deficit)
                  
                  $
                  1,040,953
                  
                  
                  $
                  1,343,501





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


4


QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three Months Ended March 31,2010
              
              
              2009(unaudited)
              
              
              (unaudited)Revenues:Revenues
              
              $
              10,010
              
              
              $
              159,488Revenues
      – related party
              
              
              649,281
              
              
              
              -Total
      Revenues
              
              
              659,291
              
              
              
              159,488Costs
      and Operating Expenses:Cost
      of goods sold (excluding depreciation and amortization)
              
              
              32
              
              
              
              1,351Sales
      and marketing
              
              
              753
              
              
              
              159General
      and administrative
              
              
              302,824
              
              
              
              534,732Professional
      fees
              
              
              249,551
              
              
              
              49,027Research
      and development
              
              
              604,346
              
              
              
              157,812Amortization
              
              
              4,304
              
              
              
              5,852Depreciation
              
              
              16,906
              
              
              
              17,827Total
      Costs and Operating Expenses
              
              
              1,178,716
              
              
              
              766,760Loss
      from Operations
              
              
              (519,425
              )
              
              
              (607,272
              )Other
      Income (Expense):Interest
      and dividend income
              
              
              6,260
              
              
              
              23,134Interest
      expense
              
              
              (1,178
              )
              
              
              (178,076
              )Rental
      income
              
              
              4,125
              
              
              
              5,870Amortization
      of debt discount to interest expense
              
              
              -
              
              
              
              (144,044
              )Amortization
      of deferred finance costs to interest expense
              
              
              -
              
              
              
              (8,693
              )Loss
      from deconsolidated subsidiary
              
              
              -
              
              
              
              (231,046
              )Loss
      from joint venture
              
              
              (63,601
              )
              
              
              -Gain
      on disposition of assets
              
              
              247,571
              
              
              
              -Total
      Other Income (Expense), net
              
              
              193,177
              
              
              
              (532,855
              )Loss
      Before Taxes
              
              
              (326,248
              )
              
              
              (1,140,127
              )Provision
      for Income Taxes
              
              
              -
              
              
              
              -Net
      Loss
              
              $
              (326,248
              )
              
              $
              (1,140,127
              )Basic
      and Diluted Net Loss per Common Share
              
              $
              (0.01
              )
              
              $
              (0.03
              )Basic
      and Diluted Weighted Average Shares Used in per Share
      Calculation
              
              
              44,427,630
              
              
              
              42,936,519





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


5


QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Three Months Ended March 31,2010
                  
                  
                  2009(unaudited)
                  
                  
                  (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (326,248
                  )
                  
                  $
                  (1,140,127
                  )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
                  
                  
                  21,210
                  
                  
                  
                  23,679Interest
      expense related to amortization of non-cash discount, non-cash beneficial
      conversion feature and deferred financing costs
                  
                  
                  -
                  
                  
                  
                  152,737Expenses
      related to employee stock based compensation
                  
                  
                  23,042
                  
                  
                  
                  227,479Remeasurement
      adjustment related to options issued to non-employees
                  
                  
                  -
                  
                  
                  
                  (1,667
                  )Expenses
      (remeasurement adjustment) related to common stock warrants issued for
      consulting
                  
                  
                  (1,000
                  )
                  
                  
                  416Non-cash
      incremental fair value of modified warrants issued for
      interest
                  
                  
                  -
                  
                  
                  
                  6,250Non-cash
      fair value of warrants issued for interest
                  
                  
                  -
                  
                  
                  
                  39,000Non-cash
      fair value of common stock issued for interest
                  
                  
                  -
                  
                  
                  
                  39,000Loss
      from deconsolidated subsidiary
                  
                  
                  -
                  
                  
                  
                  231,046Loss
      from joint venture
                  
                  
                  63,601
                  
                  
                  
                  -Gain
      on disposition of assets
                  
                  
                  (247,571
                  )
                  
                  
                  -Issuance
      of convertible notes for accrued interest
                  
                  
                  -
                  
                  
                  
                  66,416(Increase)
      decrease in:Accounts
      receivable
                  
                  
                  (11,189
                  )
                  
                  
                  (20,310
                  )Interest
      receivable
                  
                  
                  (4,000
                  )
                  
                  
                  (22,000
                  )Inventories
                  
                  
                  6
                  
                  
                  
                  1,436Prepaid
      expenses
                  
                  
                  56,808
                  
                  
                  
                  (9,628
                  )Deposits
                  
                  
                  -
                  
                  
                  
                  581Security
      deposits
                  
                  
                  -
                  
                  
                  
                  (426
                  )Increase
      (decrease) in:Accounts
      payable
                  
                  
                  45,358
                  
                  
                  
                  32,391Accrued
      expenses
                  
                  
                  52,500
                  
                  
                  
                  39,427Deferred
      revenue
                  
                  
                  (96,200
                  )
                  
                  
                  (16,666
                  )Net
      Cash Used by Operating Activities
                  
                  
                  (423,683
                  )
                  
                  
                  (350,966
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      from sale of stock
                  
                  
                  250,000
                  
                  
                  
                  -Cash
      paid for asset acquisition deposit
                  
                  
                  -
                  
                  
                  
                  (75,000
                  )Cash
      advances to subsidiary prior to deconsolidation
                  
                  
                  -
                  
                  
                  
                  (13,800
                  )Net
      Cash Provided (Used) by Investing Activities
                  
                  
                  250,000
                  
                  
                  
                  (88,800
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of promissory notes
                  
                  
                  -
                  
                  
                  
                  115,000Proceeds
      from issuance of senior secured convertible notes
                  
                  
                  -
                  
                  
                  
                  325,000Repayment
      of short-term debt
                  
                  
                  -
                  
                  
                  
                  (45,000
                  )Payments
      on loan payable used to finance equipment purchase
                  
                  
                  -
                  
                  
                  
                  (2,840
                  )Net
      Cash Provided by Financing Activities
                  
                  
                  -
                  
                  
                  
                  392,160Net
      Increase (Decrease) in Cash and Cash Equivalents
                  
                  
                  (173,683
                  )
                  
                  
                  (47,606
                  )Net
      Cash of Deconsolidated Subsidiary
                  
                  
                  -
                  
                  
                  
                  (413
                  )Cash
      and Cash Equivalents, Beginning of Period
                  
                  
                  376,211
                  
                  
                  
                  66,226Cash
      and Cash Equivalents, End of Period
                  
                  $
                  202,528
                  
                  
                  $
                  18,207


Supplemental
      Cash Flow Disclosures:Interest
      expense paid in cash
                      
                      $
                      1,178
                      
                      
                      $
                      8,250Income
      tax paid
                      
                      $
                      -
                      
                      
                      $
                      -Supplemental
      Disclosure of Non-Cash Activities:Fair
      value of common stock issued with convertible notes
                      
                      $
                      -
                      
                      
                      $
                      29,105Fair
      value of warrants issued with convertible notes
                      
                      $
                      -
                      
                      
                      $
                      15,649Fair
      value of beneficial conversion feature embedded in convertible
      notes
                      
                      $
                      -
                      
                      
                      $
                      6,325Fair
      value of warrants issued with promissory notes
                      
                      $
                      -
                      
                      
                      $
                      23,054





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


6


QUANTRX
BIOMEDICAL CORPORATION


CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2010


Description of Business and
Basis of Presentation




QuantRx
Biomedical Corporation was incorporated on December 5, 1986, in the State of
Nevada. The Company’s principal business office is located at 100 South Main
Street, Suite 300, Doylestown, Pennsylvania. QuantRx also has a research and
development facility in Portland, Oregon.




QuantRx
is a diagnostics company focused on the development and commercialization of
innovative diagnostic products for the Point-of-Care (POC) markets based on its
patented technology platforms for the worldwide healthcare industry. These
platforms include: RapidSense® and Q-ReaderTM point-of-care testing products
based on QuantRx’s core intellectual property related to lateral flow techniques
for the consumer and healthcare professional markets and PAD technology for the
consumer markets for the treatment of hemorrhoids, minor vaginal infection,
urinary incontinence, and other medical needs. Additionally, the Company has
made significant investments in a company developing Single Nucleotide
Polymorphism (SNP) chips, genome-based diagnostic chips for the next generation
of genomic and proteomic diagnostic markets and in its formerly majority-owned
subsidiary, FluoroPharma, Inc., a company developing molecular imaging agents
for Positron Emission Tomography (PET) and fluorescence imaging with initial
application in cardiovascular disease, to provide clinical support for the
Company’s POC cardiac diagnostics.




The
Company’s overall growth strategy is to: (i) leverage its broad-based
intellectual property (IP) and patent portfolio to develop new and innovative
diagnostic products; (ii) commercialize products through corporate partners and
distributors; and (iii) contract manufacturing to third parties while
maintaining control over the manufacturing process.




The
interim consolidated financial statements are unaudited; however, in the opinion
of management, they include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of financial position and results of
operations for the periods reported.  The interim financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although QuantRx
believes that the disclosures included herein are adequate to make the
information presented not misleading. Operating results for the periods
presented are not necessarily indicative of future results. These interim
financial statements should be read in conjunction with the financial statements
and notes to financial statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2009, which was filed with the SEC on
March 31, 2010.




On July
30, 2009, QuantRx and NuRx Pharmaceuticals, Inc. jointly formed QN Diagnostics,
LLC, a Delaware limited liability company, with each company owning 50% of the
joint venture. The purpose of the joint venture is to develop and commercialize
products incorporating our lateral flow strip technology and related lateral
flow strip readers. See Note 3.


7




These
consolidated financial statements include the accounts of the Company and its
formerly majority-owned subsidiary, FluoroPharma.  Effective May 5,
2009, QuantRx and FluoroPharma executed transactions that resulted in QuantRx no
longer having a controlling ownership interest, resulting in the deconsolidation
of FluoroPharma. QuantRx has restated its financial statements as of January 1,
2009, to reflect the results of its former subsidiary as a one-line item, and
beginning May 5, 2009, our financial statements reflect our investment in
FluoroPharma under the equity method of accounting. See Note 5 for additional
information. When used in these notes, the terms “Company,” “we,” “our,” “ours,”
or “us” mean QuantRx Biomedical Corporation, a Nevada corporation.




1.
            Management Statement
      Regarding Going Concern




The Company has not generated
sufficient revenues from operations to meet its operating expenses. For this
reason, the Company has historically financed its operations primarily through
issuances of equity securities and the proceeds of debt instruments. In the
past, the Company has also provided for its cash needs by issuing common stock,
options and warrants for certain operating costs, including consulting and
professional fees.




The
Company has formed a strategic joint venture (See Note 3) to alleviate the
funding requirements for the development and commercialization of its lateral
flow based products; however, management believes that given the current
economic environment and the continuing need to strengthen the Company’s cash
position, there is still doubt about our ability to continue as a going concern.
We continue to actively pursue various funding options, including equity
offerings and debt financings, to obtain additional funds to continue the
development of our remaining products and bring them to commercial markets. The
Company is currently negotiating several potential transactions; however, there
can be no assurance that we will be successful in our efforts to raise
additional capital.




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




·
            finalize
      development of and commercialize
products;




·
            obtain
      adequate sources of debt or equity financing to pay unfunded operating
      expenses and fund certain long-term business operations until
      commercialization becomes
profitable;




·
            manage
      or control working capital requirements by containing operating expenses;
      and




·
            develop
      new relationships with product distributors and other points of
      distribution for the Company’s
products;




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


8




2.
            Summary of Significant
      Accounting Policies




Accounting forShare-Based
Payments




QuantRx
follows the provisions of ASC Topic 718, which establishes the accounting for
transactions in which an entity exchanges equity securities for services and
requires companies to expense the estimated fair value of these awards over the
requisite service period. QuantRx uses the Black-Scholes option pricing model in
determining fair value. Accordingly, compensation cost has been recognized using
the fair value method and expected term accrual requirements as prescribed,
which resulted in employee stock-based compensation expense for three months
ended March 31, 2010 and 2009 of $23,042 and $227,479,
respectively.




Black Scholes Option Pricing
Model




The
following assumptions were determined at the beginning of each year and have
been utilized in all Black Scholes calculations for each year:




2010
                  
                  
                  2009Risk-free
      interest rate
                  
                  
                  2.43
                  %
                  
                  
                  3.24
                  %Expected
      volatility
                  
                  
                  72
                  %
                  
                  
                  70
                  %Dividend
      yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %




Earnings per
Share




The
Company computes net income (loss) per common share in accordance with ASC Topic
260. Net income (loss) per share is based upon the weighted average number of
outstanding common shares and the dilutive effect of common share equivalents,
such as options and warrants to purchase common stock, convertible preferred
stock and convertible notes, if applicable, that are outstanding each year.
Basic and diluted earnings per share were the same at the reporting dates of the
accompanying financial statements, as including common stock equivalents in the
calculation of diluted earnings per share would have been
antidilutive.




As of
March 31, 2010, the Company had outstanding options exercisable for 2,795,500
shares of its common stock, warrants exercisable for 13,769,597 shares of its
common stock, and preferred shares convertible into 8,120,794 shares of its
common stock. The above options, warrants, and preferred shares were deemed to
be antidilutive for the three months ended March 31, 2010.




As of
March 31, 2009, the Company had common stock options of 2,280,500, common stock
warrants of 9,182,934, and convertible debt subject to conversion into 5,998,791
shares outstanding.  The above options, warrants, and convertible
securities were deemed to be antidilutive for the three months ended March 31,
2009.




Fair
Value




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


9




Noncontrolling
Interest




In
January 2009, we adopted an amendment to ASC Topic 810 “Consolidation”, which
required us to make certain changes to the presentation of our financial
statements. This amendment requires noncontrolling interests to be treated as a
separate component of equity, not as a liability or other item outside of
permanent equity. Upon a loss of control, the interest sold, as well as any
interest retained, is required to be measured at fair value, with any gain or
loss recognized in earnings. The statement requires that the noncontrolling
interest continue to be attributed its share of losses even if that attribution
results in a deficit noncontrolling interest balance; if this would result in a
material change to consolidated net income, pro forma financial information is
required. As of January 1, 2009, the Company presented its financial statements
in accordance with this statement. However, on May 5, 2009, QuantRx and
FluoroPharma reorganized their relationship by terminating their investment
agreement and related agreements. The termination of these investment
agreements, which were originally executed on March 10, 2006, allowed
FluoroPharma to close an equity financing with third party
investors.  In conjunction with the termination of these agreements
and the additional investment in FluoroPharma by third parties, QuantRx agreed
to convert all outstanding receivables from FluoroPharma into common stock of
FluoroPharma. As a result of these transactions and the third party investment,
QuantRx’s ownership interest in FluoroPharma’s issued and outstanding capital
stock was reduced to a noncontrolling interest, which resulted in
deconsolidation and a loss at deconsolidation in accordance with ASC
810.  See Note 5 for additional details.




Recent Accounting
Pronouncements




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




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




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




Reclassifications




Certain
reclassifications, primarily resulting from the deconsolidation of our former
subsidiary, have been made in the presentation of the financial statements for
the three months ended March 31, 2009 to conform to the presentation of the
financial statements for the three months ended March 31, 2010.


10




Use of
Estimates




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




3.
            Investment in Joint
      Venture – QN Diagnostics,
LLC




On July
30, 2009, QuantRx and NuRx Pharmaceuticals, Inc. (NuRx) jointly formed QN
Diagnostics, LLC (QND), a Delaware limited liability company. 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.  NuRx and QuantRx each own a 50% interest in
QND.  The purpose of the joint venture is to develop and commercialize
products incorporating the lateral flow strip technology and related lateral
flow strip readers.




The joint
venture is managed by a board consisting of two QuantRx designees, two NuRx
designees and an independent designee mutually selected by QuantRx and
NuRx.  Subject to certain exceptions, board decisions are made by
majority vote, provided that QuantRx and NuRx have veto rights with respect to
certain matters. Since QuantRx does not have control of the joint venture,
QuantRx accounts for the investment in QND utilizing the equity method of
accounting.




Under the
terms of the agreements, QND made a $2,000,000 cash distribution to QuantRx.
QuantRx is committed to further capital contributions aggregating $1.55 million,
comprised of: payment of milestone payments with PRIA Diagnostics (see Note 4)
in QuantRx common stock (fair value of $750,000); transfer of fixed assets with
a fair value of $100,000 at QND’s discretion; and a $700,000 sustaining capital
contribution as required by QND. Subsequent sustaining capital contributions
will be made by QuantRx and NuRx on an equal basis.




QuantRx
and QND also entered into a Development and Services Agreement, pursuant to
which QND pays a monthly fee to QuantRx in exchange for QuantRx providing all
services related to the development, regulatory approval and commercialization
of lateral flow products. The revenue recognized by QuantRx associated with the
QND Development and Services Agreement in the quarter ended March 31, 2010 was
$649,281, and the expenses related to this agreement for the same period was
$649,281. Expenses are included in each appropriate expense category in the
statement of operations. As of March 31, 2010 and December 31, 2009, deferred
revenue related to the development and services agreement with QND was $240,960
and $337,160, respectively.




Summarized
financial information of QND for the three months ended March 31, 2010, is
estimated as follows: current assets: $445,000; noncurrent assets: $5,126,000;
total assets: $5,571,000; current liabilities: $65,000; revenues and gross
profit: $75,000; net loss: $712,000.  QuantRx recorded losses from QND
under the equity method of $63,601, representing the Company’s 50% portion of
QND’s net loss, limited to the remaining asset value on QuantRx’s balance
sheet.  There were no other intercompany profits to
eliminate.


11




4.
            PRIA Asset Purchase
      Agreement




On July
30, 2009, the Company executed an asset purchase agreement with PRIA
Diagnostics, LLC, pursuant to which PRIA agreed to sell to QuantRx certain of
PRIA’s patents, trademarks, other intellectual property assets and certain fixed
assets. The aggregate purchase price for such assets was $725,000, comprised of
cash and shares of QuantRx common stock.




Under the
asset purchase agreement, QuantRx is required to make additional contingent
payments, in the form of cash and common stock, upon the occurrence of certain
milestone events.  Such cash milestone payments will be made by QN
Diagnostics (see Note 3).  In addition, QND is required to pay
royalties to PRIA on a quarterly basis upon the commercialization of a product
utilizing the acquired technologies for five years from the initial sale date of
the first such product sold.  QuantRx also agreed under the asset
purchase agreement to offer to PRIA the first opportunity to manufacture certain
products utilizing the acquired technologies before entering into any agreement
or arrangement with a third party to manufacture such products.




5.
            Investments




FluoroPharma,
Inc.




On May 5,
2009, QuantRx and FluoroPharma reorganized their relationship by terminating
their investment agreement and related agreements. The termination of these
agreements, which were originally executed on March 10, 2006, allowed
FluoroPharma to close an equity financing with third party investors.
Contemporaneously, QuantRx agreed to convert all outstanding receivables from
FluoroPharma, consisting of previously issued notes and related accrued interest
and advances in the aggregate amount of $1,568,567, into 1,148,275 shares of
common stock of FluoroPharma. As a result of these transactions and the third
party investment, QuantRx’s ownership interest in FluoroPharma’s issued and
outstanding capital stock was reduced to a noncontrolling interest, which
resulted in deconsolidation. QuantRx has no continuing obligations or
commitments to FluoroPharma.




At May 5,
2009, QuantRx’s remaining net basis of the investment in FluoroPharma, inclusive
of receivables from FluoroPharma, was $43,286, after taking into account
previously recorded losses of $5,056,304 ($231,046 in the first quarter of 2009)
related to the consolidated results of FluoroPharma. These losses have been
included in our consolidated financial statements commencing April 1, 2007, the
original date of consolidation, through May 4, 2009, and are net of losses
allocated to the then noncontrolling interests as applicable. On May 5,
subsequent to the execution of the aforementioned transactions which led to the
deconsolidation of FluoroPharma, QuantRx’s ownership of the outstanding capital
stock of FluoroPharma was reduced to a noncontrolling interest. At
deconsolidation the fair market value of QuantRx’s remaining noncontrolling
interest in FluoroPharma was $842,876, based on the third party investment;
however, FluoroPharma had a deficit equity balance, which resulted in QuantRx
writing off the remaining basis in the investment of $43,286 and recording a
loss from deconsolidation of $43,286 in accordance with ASC Topic
810.




On March
26, 2010, QuantRx entered into a Security Purchase Agreement with a qualified
institutional buyer in which QuantRx sold 333,333 shares of FluoroPharma, Inc.
class A common stock at a price of $0.75 per share for an aggregate amount of
$250,000, resulting in a gain on disposition of $250,000.


12




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. As of March 31, 2010 and December 31,
2009, QuantRx owned approximately 35.87% and 39.81%, respectively, of the issued
and outstanding capital stock of FluoroPharma. However, at March 31, 2010, due
to FluoroPharma’s issuance of a separate class of common stock in 2009, QuantRx
held 15.79% of the voting rights of FluoroPharma.




At March
31, 2010, FluoroPharma’s condensed financial information was estimated as
follows: expenses and net losses for the three months ended March 31, 2010 were
estimated at $155,000. QuantRx’s estimated allocation of the net loss of $59,000
for this period was not recorded, since the remaining investment in FluoroPharma
had a carrying value of $0.




6.
            Intangible
      Assets




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




March 31, 2010
                
                
                December 31, 2009Licensed
      patents and patent rights
                
                $
                50,000
                
                
                $
                50,000Patents
                
                
                41,004
                
                
                
                41,004Website
      development
                
                
                40,750
                
                
                
                40,750Less:
      accumulated amortization
                
                
                (76,278
                )
                
                
                (71,974
                )Intangibles,
      net
                
                $
                55,476
                
                
                $
                59,780




The
Company’s intangible assets are carried at the legal cost to obtain them.
Intangible assets are amortized using the straight line method over the
estimated useful life. Useful lives are as follows: licensed patents and patent
rights, eight to 15 years; patents, 17 years; technology license, five years;
and website development costs, three years. Amortization expense totaled $4,304
and $5,852 for the three months ended March 31, 2010 and 2009,
respectively.  Impairment will be considered in accordance with the
Company’s impairment policy which requires at least an annual analysis. No
impairment was recognized as of March 31, 2010.




13




7.
              Other Balance Sheet
      Information




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




March 31,
                        2010
                      
                      
                      December 31,
                        2009Prepaid expenses:Prepaid
      consulting – related party
                      
                      $
                      33,350
                      
                      
                      $
                      83,375Prepaid
      insurance
                      
                      
                      29,025
                      
                      
                      
                      22,960Prepaid
      rent
                      
                      
                      5,310
                      
                      
                      
                      16,533Other
                      
                      
                      3,735
                      
                      
                      
                      5,360Prepaid
      expenses
                      
                      $
                      71,420
                      
                      
                      $
                      128,228Property and equipment:Computers
      and office furniture, fixtures and equipment
                      
                      $
                      122,007
                      
                      
                      $
                      124,877Machinery
      and equipment
                      
                      
                      181,347
                      
                      
                      
                      181,347Leasehold
      improvements
                      
                      
                      92,233
                      
                      
                      
                      92,233Less:
      accumulated depreciation
                      
                      
                      (235,332
                      )
                      
                      
                      (218,867
                      )Property
      and equipment, net
                      
                      $
                      160,255
                      
                      
                      $
                      179,590Accrued expenses:Payroll
      and related
                      
                      $
                      228,000
                      
                      
                      $
                      175,000Professional
      fees
                      
                      
                      41,000
                      
                      
                      
                      41,500Other
                      
                      
                      16,500
                      
                      
                      
                      16,500Accrued
      expenses
                      
                      $
                      285,500
                      
                      
                      $
                      233,000




8.
            Deferred
      Revenue




On May
19, 2008, QuantRx and CytoCore, Inc. entered into a worldwide distribution and
supply agreement for specified PAD technology of QuantRx. The agreement
specified monthly license fees during CytoCore’s expected development period and
additional milestone payments based upon CytoCore’s achievement of certain
development and sales milestones.  QuantRx received an up-front,
non-refundable payment of $100,000 upon execution of this agreement, which was
recorded as deferred revenue and was amortized into revenue over the expected
development period of the agreement, estimated as 18 months. QuantRx recognized
revenue related to this agreement of $0 and $33,335 in the three months ended
March 31, 2010 and 2009, respectively.




9.
            Short-term Notes
      Payable




In July
2009, QuantRx made full settlement with all holders of QuantRx convertible and
promissory notes, and obtained the release of all security interests in QuantRx
assets granted to those note holders.  In connection with the full
settlement of these notes and the release of all liens in favor of such note
holders, each note holder received either cash in an amount equal to the
outstanding principal and accrued interest, shares of the newly created Series
A-1 convertible preferred stock (see Note 10), or a combination of both. In the
aggregate, $1,335,156 was paid and 4,060,397 shares of Series A-1 convertible
preferred stock with a fair value of $4,060,397 were issued to the note holders
to settle the outstanding $5,281,765 in convertible and promissory notes and
$113,778 in related accrued interest.  In the first quarter of 2009,
$176,686 in interest expense, $144,044 in amortization of debt discount and
$8,693 in amortization of deferred finance costs was recorded.


14




10.
            Preferred
      Stock




The
Company has authorized 25,000,000 shares of preferred stock, of which 9,750,000
are designated Series A convertible preferred stock, $0.01 par value, and
10,000,000 are designated Series A-1 convertible preferred stock, $0.01 par
value. The remaining 5,250,000 authorized preferred shares have not been
designated by the Company. At March 31, 2010 and December 31, 2009, 4,060,397
shares of Series A-1 preferred stock were outstanding.




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




11.
            Common Stock, Options
      and Warrants




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




In the
first quarter of 2010, no common stock, or options or warrants to purchase
common stock were issued.




2007 Incentive and
Non-Qualified Stock Option Plan




The fair
value of options granted under the Company’s 2007 Incentive and Non-Qualified
Stock Option Plan is recorded as compensation expense over the vesting period,
or, for performance based awards, the expected service term.  Total
compensation cost related to QuantRx’s employee options was $23,042 and $73,579
for the three months ended March 31, 2010 and 2009, respectively. Compensation
cost related to QuantRx’s non-employee options was a reduction of $1,667 based
on a remeasurement adjustment in the three months ended March 31,
2009.




12.
            Related Party
      Transactions




In the
fourth quarter of 2009, warrants to purchase 1,750,000 shares of common stock
were granted in settlement of $195,000 in outstanding accounts payable and a six
month financial advisory services contract with Burnham Hill Partners, of which
a beneficial owner of more than 5% of QuantRx common stock is a managing member.
The warrants have an exercise price of $0.55 and a term of five years. Of the
$100,050 allocated to the financial advisory services contract, $50,025 was
expensed as consulting expense in the first quarter of 2010 and $33,350 and
$83,375 was recorded as prepaid consulting as of March 31, 2010 and December 31,
2009, respectively.




13.
            Commitments and
      Contingencies




QN Diagnostics and PRIA
Diagnostics




QuantRx
is committed to further capital contributions to QN Diagnostics aggregating
$1.55 million, comprised of: payment of milestone payments with PRIA Diagnostics
in QuantRx common stock (fair value of $750,000); transfer of fixed assets with
a fair value of $100,000 at QND’s discretion; and a $700,000 sustaining capital
contribution as required by QND. Subsequent sustaining capital contributions
will be made by QuantRx and NuRx on an equal basis. Should either party fail to
make sustaining contributions as required, such party would be subject to a
reduction in ownership interest and loss of a board seat.  See Notes 3
and 4.


15




Operating
Leases




QuantRx
leases office space and research and development lab space under operating
leases that expire at various times through 2011.  Some of these
leases contain cancellation clauses, subject to a termination fee, and include
allocations for common expenses subject to future adjustment.  Rent
expense related to operating leases was approximately $33,672 and $31,857 for
the three months ended March 31, 2010 and 2009, respectively. In connection with
facility leases, the Company has made security deposits totaling $10,310, which
are included in long-term assets in the balance sheet. Future minimum lease
obligations, inclusive of potential termination fees, for operating leases as of
March 31, 2010 are estimated as follows:




Remainder
      of 2010
                
                $
                85,5272011
                
                
                43,875Total
      minimum payments
                
                $
                129,402




In
February 2007, the Company began subleasing research and development lab space
under the noncancellable operating leases. The sublease can be terminated upon
ninety days notice by either party, and a $2,000 security deposit is being held
by QuantRx pursuant to the terms of the lease. Sublease income was $4,125 and
$5,870 for the three months ended March 31, 2010 and 2009, respectively, and is
recorded in other income.




Executive Employment
Contracts




We have
entered into employment contracts with key executives that provide for the
continuation of salary to the executives if terminated for reasons other than
cause or in connection with a change in control of QuantRx, as defined in those
agreements. At March 31, 2010, the future employment contract commitment for
such key executives based on these termination clauses was approximately
$636,000, or in the case of a change of control, $1,272,000. In addition, the
agreement states that if QuantRx were to sell all of its shares of capital stock
or assets, or perform a material acquisition of another entity, QuantRx will pay
a completion bonus.




Legal
Contingencies




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




Merger
Agreement




On
January 29, 2010, QuantRx entered into an Agreement and Plan of Merger (the
“Merger Agreement”) with NuRx Pharmaceuticals, Inc. (NuRx) and NP Acquisition
Corporation, a wholly-owned subsidiary of QuantRx (“Merger Sub”). The Merger
Agreement provides that at the effective time (the “Effective Time”), Merger Sub
will be merged with and into NuRx, with NuRx continuing as the surviving
corporation and a wholly-owned subsidiary of QuantRx.


16




Under the
terms of the Merger Agreement, at the Effective Time, each outstanding share of
NuRx’s common stock (other than shares held by NuRx or any wholly-owned
subsidiary of NuRx or by QuantRx or Merger Sub or any of their respective
subsidiaries, or by stockholders of NuRx who have properly demanded appraisal
rights for their shares in accordance with Nevada law) will be converted into
the right to receive approximately 1.54 shares of QuantRx common
stock.  All options and warrants of NuRx outstanding at the Effective
Time will be assumed by QuantRx and converted into rights with respect to
QuantRx’s common stock.


17




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




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




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




Overview




QuantRx
Biomedical Corporation was incorporated on December 5, 1986 in the State of
Nevada. The Company’s principal business office is located at 100 South Main
Street, Suite 300, Doylestown, Pennsylvania. QuantRx also has a research and
development facility in Portland, Oregon.




QuantRx
is a broad-based diagnostics company focused on the development and
commercialization of innovative point-of-care diagnostic products based on its
patented technology platforms for the worldwide healthcare industry. The
Company’s overall growth strategy is to: (i) leverage its broad-based
intellectual property (IP) and patent portfolio to develop new and innovative
diagnostic products; (ii) commercialize products through corporate partners and
distributors; and (iii) contract manufacturing to third parties while
maintaining control over the manufacturing process.




QN
Diagnostics




On July
30, 2009, QuantRx and NuRx Pharmaceuticals, Inc. entered into agreements to
form QN Diagnostics, LLC (QND), a Delaware limited liability company. 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.  The purpose of the joint venture is to
develop and commercialize products incorporating the lateral flow strip
technology and related lateral flow strip readers.


18




The joint
venture is managed by a board consisting of two QuantRx designees, two NuRx
designees and an independent designee mutually selected by QuantRx and
NuRx.  Subject to certain exceptions, board decisions are made by
majority vote, provided that QuantRx and NuRx have veto rights with respect to
certain matters. Since QuantRx does not have control of the joint venture,
QuantRx accounts for the investment in QND utilizing the equity method of
accounting.




Under the
terms of the agreements, QND made a $2,000,000 cash distribution to QuantRx.
QuantRx is committed to further capital contributions aggregating $1.55 million,
comprised of: payment of milestone payments with PRIA Diagnostics (see Note 5 of
the financial statements) in QuantRx common stock (fair value of $750,000);
transfer of fixed assets with a fair value of $100,000 at QND’s discretion; and
a $700,000 sustaining capital contribution as required by QND. Subsequent
sustaining capital contributions will be made by QuantRx and NuRx on an equal
basis.




QuantRx
and QND also entered into a Development and Services Agreement, pursuant to
which QND shall pay a monthly fee to QuantRx in exchange for QuantRx providing
all services related to the development, regulatory approval and
commercialization of lateral flow products.




QuantRx
recognized a gain on the contribution of the intellectual property of $1.36
million, representing the net gain of $4.72 million from the disposition,
reduced by the fair value of warrants issued to NuRx ($1.0 million) and the
elimination of the portion of the intercompany gain associated with QuantRx’s
50% interest in QND ($2.36 million).




FluoroPharma




On May 5,
2009, QuantRx and FluoroPharma reorganized their relationship by terminating
their investment agreement and related agreements. The termination of these
agreements, which were originally executed on March 10, 2006, allowed
FluoroPharma to close an equity financing with third party
investors.  In conjunction with the termination of these agreements
and the additional investment in FluoroPharma, QuantRx agreed to convert all
outstanding receivables from FluoroPharma, consisting of previously issued notes
and related accrued interest and advances in the aggregate amount of $1,568,567,
into 1,148,275 shares of common stock of FluoroPharma. As a result of these
transactions and the third party investment, QuantRx’s ownership interest in
FluoroPharma’s issued and outstanding capital stock was reduced to a
noncontrolling interest, which resulted in the deconsolidation of FluoroPharma
as a subsidiary of the Company. Subsequent to the termination of the agreements
between QuantRx and FluoroPharma, QuantRx has no continuing obligations or
commitments to FluoroPharma.




At May 5,
2009, QuantRx’s remaining net basis of the investment in FluoroPharma, inclusive
of receivables from FluoroPharma, was $43,286, after taking into account
previously recorded losses of $5,056,304 ($231,046 in the first quarter of 2009;
$272,579 through deconsolidation) related to the consolidated results of
FluoroPharma. These losses have been included in our consolidated financial
statements commencing April 1, 2007, the original date of consolidation, through
May 4, 2009, and are net of losses allocated to the then noncontrolling
(formerly minority) interests as applicable. On May 5, subsequent to the
execution of the aforementioned transactions which led to the deconsolidation of
FluoroPharma, QuantRx’s ownership of the outstanding capital stock of
FluoroPharma was reduced to a noncontrolling interest of 45.55%. At
deconsolidation the fair market value of QuantRx’s remaining noncontrolling
interest in FluoroPharma was $842,876, based on the third party investment;
however, FluoroPharma had a deficit equity balance, which resulted in QuantRx
writing off the remaining basis in the investment of $43,286 and recording a
loss from deconsolidation of $43,286. QuantRx has reflected the results of its
former subsidiary as a one-line item as of January 1, 2009. QuantRx’s allocation
of FluoroPharma’s net loss for the period commencing May 5, 2009 through March
31, 2010, was not recorded ($373,000), since the remaining investment in
FluoroPharma had a carrying value of $0 as of the deconsolidation of
FluoroPharma at May 5, 2009.


19




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. As of March 31, 2010 and December 31,
2009, QuantRx owned 35.87% and 39.81%, respectively, of the issued and
outstanding capital stock of FluoroPharma. However, at March 31, 2010, due to
FluoroPharma’s issuance of a separate class of common stock in 2009, QuantRx
held 15.79% of the voting rights of FluoroPharma.




On March
26, 2010, QuantRx entered into a Security Purchase Agreement with a qualified
institutional buyer in which QuantRx sold 333,333 shares of FluoroPharma, Inc.
class A common stock at a price of $0.75 per share for an aggregate amount of
$250,000, resulting in a gain on disposition of $250,000.




FluoroPharma
is currently seeking financing which could result in a disposition of all or a
portion of QuantRx’s investment in FluoroPharma as part of a strategic
transaction.




Consolidated
Results of Operations




Total
revenues for the three months ended March 31, 2010 and 2009 were $659,291 and
$159,488, respectively. The increase in revenues of $499,803 is primarily due to
$649,281 in related party revenues from the QND development
agreement.




General
and administrative expense for the three months ended March 31, 2010 and 2009
was $302,824 and $534,732, respectively. The decrease of $231,908 is due
primarily to decreased personnel expenses.




Professional
fees for the three months ended March 31, 2010 and 2009, were $249,551 and
$49,027, respectively. Professional fees include the costs of legal, consulting
and auditing services provided to us. The increase of $200,524 is primarily due
to increased legal and financial advisory consulting fees.




Research
and development expense for the three months ended March 31, 2010 and 2009, was
$604,346 and $157,812, respectively. The increase of $446,534 is primarily due
to increased consulting, personnel and supply and material expenses related to
the contract development agreement with QND.




The
Company’s net loss for the three months ended March 31, 2010 and 2009 was
$326,248 and $1,140,127, respectively. The decreased net loss of $813,879 is
primarily due to the contract development agreement with QND, a $250,000 gain on
disposition of common stock of our former subsidiary, and the absence of
interest expense and amortization of debt discount following the July 2009
settlement of QuantRx’s short-term notes.


20




Liquidity
and Capital Resources




As of
March 31, 2010, QuantRx had cash and cash equivalents of $202,528, as compared
to cash and cash equivalents of $376,211 as of December 31, 2009. The net
decrease in cash of $173,683 for the three months ended March 31, 2010, is
primarily attributable to net cash used for operating activities of $423,683
offset by $250,000 in proceeds from the sale of stock in our former subsidiary.
QuantRx has used its financing proceeds as well as its revenues to fund current
operating expenses and investments intended to strategically expand our
platforms and technologies.




The Company has not generated
sufficient revenues from operations to meet its operating expenses. For this
reason, the Company has historically financed its operations primarily through
issuances of equity and the proceeds of debt instruments. In the past, the
Company has also provided for its cash needs by issuing common stock, options
and warrants for certain operating costs, including consulting and professional
fees.




The
Company has formed a strategic joint venture (See Note 3) to alleviate the
funding requirements for the development and commercialization of its lateral
flow based products; however, management believes that given the current
economic environment and the continuing need to strengthen the Company’s cash
position, there is still doubt about our ability to continue as a going concern.
We continue to actively pursue various funding options, including equity
offerings and debt financings, to obtain additional funds to continue the
development of our remaining products and bring them to commercial markets. The
Company is currently negotiating several potential transactions; however, there
can be no assurance that we will be successful in our efforts to raise
additional capital.




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




·
            finalize
      development of and commercialize
products;




·
            obtain
      adequate sources of debt or equity financing to pay unfunded operating
      expenses and fund certain long-term business operations until
      commercialization becomes
profitable;




·
            manage
      or control working capital requirements by containing operating expenses;
      and




·
            develop
      new relationships with product distributors and other points of
      distribution for the Company’s
products;




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




Off-Balance
Sheet Arrangements




As
described above, on July 30, 2009, QuantRx formed a joint venture with NuRx
Pharmaceuticals, Inc., whereby, pursuant to the terms of the LLC Agreement, each
member will be required to make sustaining capital contributions from time to
time as the Board of the joint venture determines is
necessary.  Should the Board of the joint venture determine that
additional capital contributions are required, such sustaining capital
contributions will be made by QuantRx and NuRx on an equal basis provided that
QuantRx solely will be responsible for making a sustaining capital contribution
with respect to the first $700,000 determined to be required by the Board of the
joint venture.


21




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




Critical
Accounting Policies




Revenue
Recognition




The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
Topic 13 when persuasive evidence of an arrangement exists and delivery has
occurred, provided the fee is fixed or determinable and collection is probable.
The Company assesses whether the fee is fixed and determinable based on the
payment terms associated with the transaction. If a fee is based upon a variable
such as acceptance by the customer, the Company accounts for the fee as not
being fixed and determinable. In these cases, the Company defers revenue and
recognizes it when it becomes due and payable. Up-front engagement fees are
recorded as deferred revenue and amortized to income on a straight-line basis
over the term of the agreement, although the fee is due and payable at the time
the agreement is signed or upon annual renewal. Payments related to substantive,
performance-based milestones in an agreement are recognized as revenue upon the
achievement of the milestones as specified in the underlying agreement when they
represent the culmination of the earnings process.




The
Company assesses the probability of collection based on a number of factors,
including past transaction history with the customer and the current financial
condition of the customer. If the Company determines that collection of a fee is
not reasonably assured, revenue is deferred until the time collection becomes
reasonably assured. Significant management judgment and estimates must be made
and used in connection with the revenue recognized in any accounting period.
Material differences may result in the amount and timing of our revenue for any
period if our management made different judgments or utilized different
estimates.




The
Company recognizes revenue from nonrefundable minimum royalty agreements from
distributors or resellers upon delivery of product to the distributor or
reseller, provided no significant obligations remain outstanding, the fee is
fixed and determinable, and collection is probable. Once minimum royalties have
been received, additional royalties are recognized as revenue when earned based
on the distributor’s contractual reporting obligations. QuantRx is able to
recognize minimum royalty payments on an accrual basis, as they are specified in
the contract. However, since the Company cannot forecast product sales by
licensees, royalty payments that are based on product sales by the licensees are
not determinable until the licensee has completed their computation of the
royalties due and/or remitted their cash payment to us. Should information on
licensee product sales become available so as to enable QuantRx to recognize
royalty revenue on an accrual basis, materially different revenues and results
of operations could occur.


22




Our
strategy includes entering into collaborative agreements with strategic partners
for the development, commercialization and distribution of our product
candidates. Such collaboration agreements may have multiple deliverables. In
arrangements with multiple deliverables where we have continuing performance
obligations, contract, milestone and license fees are recognized as revenue
together with any up-front payments over the term of the arrangement as
performance obligations are completed, unless the deliverable has stand-alone
value and there is objective, reliable evidence of fair value of the undelivered
element in the arrangement. In the case of an arrangement where it is determined
there is a single unit of accounting, all cash flows from the arrangement are
considered in the determination of all revenue to be recognized. Cash received
in advance of revenue recognition is recorded as deferred revenue.




Use
of Estimates




The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, revenues and expenses and related disclosures of
contingent assets and liabilities in the financial statements and accompanying
notes. The accounting policies discussed below are considered by management to
be the most important to the Company’s financial condition and results of
operations, and require management to make its most difficult and subjective
judgments due to the inherent uncertainty associated with these matters. All
significant estimates and assumptions are developed based on the best
information available to us at the time made and are regularly reviewed and
adjusted when necessary. We believe that our estimates and assumptions are
reasonable under the circumstances; however, actual results may vary from these
estimates and assumptions. Additional information on significant accounting
principles is provided in Note 1 of the attached financial
statements.




Impairment
of Assets




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




In
determining fair value of assets, QuantRx bases estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about carrying values of assets that are not readily apparent from
other sources. Actual fair value may differ from management estimates resulting
in potential impairments causing material changes to certain assets and results
of operations.


23




Share-based
Payments




We grant
options to purchase our common stock to our employees and directors under our
stock option plan. We estimate the value of stock option awards on the date of
grant using a Black-Scholes pricing model (Black-Scholes model). The
determination of the fair value of share-based payment awards on the date of
grant using the Black-Scholes model is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables. These
variables include, but are not limited to, our expected stock price volatility
over the term of the awards, actual and projected employee stock option exercise
behaviors, and risk-free interest rate. If factors change and we employ
different assumptions in future periods, the compensation expense that we record
may differ significantly from what we have recorded in the current
period.




We
determine the fair value of the share-based compensation awards granted to
non-employees as either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
If the fair value of the equity instruments issued is used, it is measured using
the stock price and other measurement assumptions as of the earlier of either of
(1) the date at which a commitment for performance by the counterparty to
earn the equity instruments is reached or (2) the date at which the
counterparty’s performance is complete.




Estimates
of share-based compensation expenses are significant to our financial
statements, but these expenses are based on option valuation models and will
never result in the payment of cash by us.




The above
listing is not intended to be a comprehensive list of all of our accounting
policies. In most cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States.




ITEM
      4.
            Controls
      and Procedures




(a)          Evaluation
of Disclosure Controls and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our SEC reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is communicated to our
management including our Chief Executive Officer and Chief Financial Officer as
appropriate. With the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined under Exchange Act Rules 13a-15(e) and 15(d)-15(e)), as of the end
of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures were effective as of March 31,
2010.




(b)          Changes
in Internal Control over Financial Reporting




During
the period covered by this Quarterly Report on Form 10-Q, there were no changes
in our internal control over financial reporting that have materially affected,
or are reasonably likely to affect, our internal control over financial
reporting.


24




Given 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, will 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. Further, the design of a control system must reflect the fact
that there are resource constraints, and that the benefits of a control system
must be considered relative to its cost. The design of any system of controls is
also based in part on certain assumptions regarding 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.




PART
II - OTHER INFORMATION




ITEM
      1.
            Legal
      Proceedings.




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




ITEM
      2.
            Unregistered
      Sales of Equity Securities, and Use of
Proceeds




As of the
date hereof, there were no additional sales of unregistered securities other
than as reported in prior reports on Forms 10-K, 10-Q or 8-K.




ITEM
3.         Defaults Upon Senior
Securities




None.




ITEM
4.         Reserved




ITEM
5.         Other
Information




None.




ITEM
6.          Exhibits




Exhibit
              
              Description31.1
              
              Certification
      of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended.31.2
              
              Certification
      of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended.32.1*
              
              Certification
      of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C.
      Section 1350.32.2*
              
              Certification
      of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C.
      Section 1350.


*The
certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly
Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and shall not be deemed “filed” by QuantRx Biomedical Corporation for purposes
of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section.


25


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




QuantRx
      Biomedical Corporation





Date:  
      May 14, 2010
              By:
              /s/ Walter WitoshkinWalter
      WitoshkinChairman
      & CEODate:  
      May 14, 2010
              By:
              /s/ Sasha AfanassievSasha
      AfanassievCFO,
      Treasurer & VP of
Finance


26