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

(I.R.S. EmployerIncorporation or Organization)

Identification Number)





5920 NE 112thAvenue, Portland, OR 97220


(Address of Principal Executive Offices) (Zip Code)





(503) 252-9565


(Registrant’s Telephone Number, Including Area Code)





Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  xNo  o





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  oNo  o





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





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





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  oNo  x





The number of shares outstanding of the issuer’s common stock as of May 16, 2011 was 46,077,630.








PARTI - FINANCIAL INFORMATIONPAGEITEM 1.
Financial Statements

2Balance Sheets as of March 31, 2011 (Unaudited) and December 31, 2010

2Statements of Operations (Unaudited) for the three months ended March 31, 2011 and 2010

3Statements of Cash Flows (Unaudited) for the three months ended March 31, 2011 and 2010

4Condensed Notes to (Unaudited) Financial Statements

5ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

12ITEM 4.
Controls and Procedures

17PART II - OTHER INFORMATIONITEM 1.
Legal Proceedings

18ITEM 2.
Unregistered Sales of Equity Securities; and Use of Proceeds

18ITEM 3.
Defaults Upon Senior Securities

18ITEM 4.
Reserved

18ITEM 5.
Other Information

18ITEM 6.
Exhibits

18Signatures




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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, 2010.  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.


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ITEM 1.
Financial Statements


QUANTRX BIOMEDICAL CORPORATION BALANCE SHEETS





March 31,

December 31,2011
2010ASSETS

UnauditedCurrent Assets:Cash and cash equivalents

$
12,223

$
229,944Accounts receivable


9,064


4,457Accounts receivable – related party


-


414,179Interest receivable – related party


67,689


63,689Inventories


3,139


3,770Prepaid expenses


20,686


23,409Note receivable – related party


200,000


200,000Total Current Assets


312,801


939,448Investments


200,000


200,000Property and equipment, net


97,327


109,479Intangible assets, net


44,739


46,805Security deposits


6,093


6,093Total Assets

$
660,960

$
1,301,825LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)Current Liabilities:Accounts payable

$
384,133

$
437,587Accounts payable – related party


-


193,987Accrued expenses


97,750


168,000Deferred rent


3,900


-Security deposit


2,000


2,000Total Current Liabilities


487,783


801,574Notes payable, long-term


44,000


44,000Total Liabilities


531,783


845,574Commitments and Contingencies


-


-Stockholders’ Equity (Deficit):Series B Convertible Preferred stock; $0.01 par value, 20,500,000 authorized shares, 17,916,228 shares issued and outstanding


179,162


179,162Common stock; $0.01 par value; 150,000,000 authorized; 46,077,630 and 44,427,630 shares issued and outstanding, respectively


460,776


444,276Common Stock to be issued


-


128,000Additional paid-in capital


47,644,211


47,524,761Accumulated deficit


(48,154,972)


(47,819,948)Total Stockholders’ Equity (Deficit)


129,177


456,251Total Liabilities and Stockholders’ Equity (Deficit)

$
660,960

$
1,301,825





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


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QUANTRX BIOMEDICAL CORPORATION


STATEMENTS OF OPERATIONS





Three Months Ended March 312011


2010(Unaudited)


(Unaudited)Revenues:Revenues

$
8,900


$
10,010Revenues – related party


-



649,281Total Revenues


8,900



659,291Costs and Operating Expenses:Cost of goods sold (excluding depreciation andamortization)


181



32Sales, general and administrative


18,367



303,577Professional fees


67,798



249,551Research and development


26,832



604,346Amortization


2,066



4,304Depreciation


12,151



16,906Total Costs and Operating Expenses


127,395



1,178,716Loss from Operations


(118,495)



(519,425)Other Income (Expense):Interest and dividend income


4,000



6,260Interest expense


(574)



(1,178)Rental income


-



4,125Gain (loss) on sale of investments


-



250,000Net gain (loss) on disposition of assets


(1,320)



(2,429)Loss from joint venture


(220,192)



(63,601)Gain on settlement of accounts payable


1,557



-Total Other Income (Expense), net


(216,529)



193,172Income (Loss) Before Taxes

$
(335,024)


$
(326,248)Provision for Income Taxes


-



-Net Income (Loss) Available to Common Shareholders

$
(335,024)


$
(326,248)Basic and Diluted Net Income (Loss) per Common Share

$
(0.01)


$
(0.01)Basic and Diluted Weighted Average Shares Used in per

Share Calculation


46,077,630



42,936,519





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


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QUANTRX BIOMEDICAL CORPORATIONSTATEMENTS OF CASH FLOWSMarch 31,



March 31,2011


2010(Unaudited)


(Unaudited)CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(335,024)


$
(326,248)Adjustments to reconcile net loss to net cash used by operating activities:Depreciation and amortization


14,218



21,210Expenses related to employee stock based compensation


7,950



23,042Expenses related to common stock warrants issued for consulting


-



(1,000)Net Gain on settlement of accounts payable


1,557



-Loss from joint venture


220,192



63,601Gain(loss) on disposition of assets


-



(247,571)(Increase) decrease in:Accounts receivable


(4,607)



(11,189)Interest receivable


4,000



(4,000)Inventories


631



6Prepaid expenses


2,723



56,808Increase (decrease) in:Accounts payable


(55,011)



45,358Accrued expenses


(70,250)



52,500Deferred revenue


3,900



(96,200)Net Cash Used by Operating Activities


(217,721)



(423,683)CASH FLOWS FROM INVESTING ACTIVITIES:Cash proceeds from sale of investment securities


-



250,000Net Cash Provided (Used) by Investing Activities


-



250,000CASH FLOWS FROM FINANCING ACTIVITIES


-



-Net Increase (Decrease) in Cash and Cash Equivalents


(217,721)



(173,683)Net Cash of Deconsolidated Subsidiary


-Cash and Cash Equivalents, Beginning of Period


229,944



376,211Cash and Cash Equivalents, End of Period

$
12,223


$
202,528Supplemental Cash Flow Disclosures:Interest expense paid in cash

$
574


$
1,178Income tax paid

$
-


$NON CASH INVESTING & FINANCING ACTIVITIES:Shares issued for:Accounts payable

$
128,000


$
-





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


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QUANTRX BIOMEDICAL CORPORATIONCONDENSED NOTES TO FINANCIAL STATEMENTS





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 5920 NE 112th Avenue, Portland, Oregon.  When used in this Quarterly Report on Form 10-Q, the terms “Company,” “we,” “our,” “ours,” or “us” mean QuantRx Corporation, a Nevada corporation.
 
 The Company is a diagnostics company focused on the development and commercialization of innovative diagnostic products for both the human and veterinary laboratory and Point-of-Care (“POC”) markets based on its patented technology platforms for the worldwide healthcare industry. These platforms include: RapidSense® and Q-ReaderTM POC testing products, which are currently being developed through QN Diagnostics, LLC, a Delaware limited liability company (“QND”) jointly owned by the Company and NuRx Pharmaceuticals, Inc. (“NuRx”).  These products are based on the Company’s core intellectual property related to lateral flow technology.  Additionally, the Company’s PAD technology is intended for uses in the consumer markets for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, and other medical needs.  The Company is currently exploring the PAD technology’s potential diagnostic uses as well.
 
 Since July 2009, the Company had focused on, among other development initiatives, the development of its POC lateral flow diagnostics products through QND.  QND was formed to develop and commercialize products incorporating the Company’s lateral flow strip technology and related lateral flow strip readers. The Company and NuRx are currently involved in a dispute regarding the achievement of certain milestones, the requirement to make certain sustaining capital contributions, as well as certain governance matters related to QND.  See Note 3.
 
 During the quarter ended March 31, 2011, the Company also had minority investments in Genomics USA (“GUSA”), which is developing Single Nucleotide Polymorphism (“SNP”) chips, genome-based diagnostic chips for the next generation of genomic and proteomic diagnostic markets, and FluoraPharma, Inc. (“FluoraPharma”), which is developing molecular imaging agents for Positron Emission Tomography (“PET”) and fluorescence imaging with initial application in cardiovascular disease, to provide clinical support for the Company’s POC cardiac diagnostics.  The Company has a minority equity interest in FluoraPharma. See Note 4.
  The Company is currently evaluating GUSA and its remaining interest in FlouraPharma with the objective of extracting the value of such investments for the benefit of the Company and its shareholders.
  The Company’s current strategy is to seek a resolution of its litigation with NuRx relating to QND, and to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products through corporate partners and distributors; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GUSA.   As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on maintaining the Company as a going concern and seeking a resolution of the litigation with NuRx.  No assurances can be given that any the terms of any resolution with NuRx will be favorable, or that the Company will successfully retain its current interest in QND.
  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 (“SEC”). 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 the Company 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, 2010, which was filed with the SEC on April 14, 2011.
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1.
Management Statement Regarding Going Concern





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





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





The Company believes that its ability to recommence operations and therefore continue as a going concern is dependent upon its ability to do the following:





·
resolve the litigation with NuRx relating to the Company’s interest in QND;·
consummate a strategic transaction with its joint venture partner;





·
obtain adequate sources of funding to pay unfunded operating expenses and fund long-term business operations;





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





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





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


2.
Summary of Significant Accounting Policies
 
 Accounting for Share-Based Payments
 
 The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed, which resulted in employee stock-based compensation expense of $7,950 and $23,042, for three months ended March 31, 2011 and 2010, respectively.
 
 Black Scholes Option Pricing Model
 
 For the year ended December 31, 2010, the Company adopted a Risk-free interest rate of 2.43%, expected volatility of 72% and Dividend Yield of 0% to use for all Black Scholes calculations for 2010.  The Company will adopt its 2011 assumptions when it has options or warrants that require a Black Scholes calculation.
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Earnings per Share





The Company computes net income (loss) per common share in accordance with ASC Topic 260. Net income (loss) per share is based upon the weighted average number of outstanding common shares and the dilutive effect of common share equivalents, such as options and warrants to purchase common stock, convertible preferred stock and convertible notes, if applicable, that are outstanding each year. Basic and diluted earnings per share were the same at the reporting dates of the accompanying financial statements, as all common stock equivalents outstanding for the three months ended March 31, 2011 were deemed to be anti-dilutive; moreover, including common stock equivalents in the calculation of diluted earnings per share would have been anti-dilutive for the three months ended March 31, 2011 and the three months ended March 31, 2011. As of March 31, 2011, the Company had outstanding options exercisable for 570,500 shares of its common stock, warrants exercisable for 11,716,346 shares of its common stock, and preferred shares convertible into 17,916,228 shares of its common stock.





As of March 31, 2010, the Company had outstanding options exercisable for 2,780,500 shares of its common stock, warrants exercisable for 14,193,434 shares of its common stock, and debt securities convertible into 8,120,794 shares of its common stock.  The above options, warrants, and convertible debt securities were deemed to be anti-dilutive for the three months ended March 31, 2010.





Fair Value





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





Reclassifications





Certain reclassifications have been made in the presentation of the financial statements for the three months ended March 31, 2010 to conform to the presentation of the financial statements for the three months ended March 31, 2011.




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 QN Diagnostics, LLC
 
 On July 30, 2009, the Company and NuRx jointly formed QND, a Delaware limited liability company. The Company contributed certain intellectual property and other assets related to its lateral flow strip technology and related lateral flow strip reader technology, including the Thyroid Stimulating Hormone Test System, which includes the Company’s Q-ReaderTM POC testing product.  The fair market value of the contributed assets is approximately $5,450,000, and NuRx contributed $5,000,000 in cash to QND.  NuRx and the Company each own a 50% interest in QND.  The purpose of QND is to develop and commercialize products incorporating the lateral flow strip technology and related lateral flow strip readers.
 
 QND is currently managed by a board consisting of two Company designees and two NuRx designees. Subject to certain exceptions, board decisions are made by majority vote, provided that the Company and NuRx have veto rights with respect to certain matters. Since the Company does not have control of QND, the Company accounts for the investment in QND utilizing the equity method of accounting.


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Under the terms of certain agreements related to QND, QND made a $2.0 million cash distribution to the Company.  The Company is committed to further capital contributions to QND, consisting of the transfer of certain fixed assets with a fair value of $100,000 at QND’s discretion, and a $700,000 sustaining capital contribution as required by QND.  The Company believes, however, that it has unreimbursed costs and expenses in excess of $800,000 for services provided to or on behalf of QND.  As a result, the Company believes it has substantially satisfied its initial sustaining capital contribution requirement. The Company was also required to make certain milestone payments to PRIA Diagnostics, LLC ("PRIA"). Subsequent to March 31, 2011, however, the Company settled its obligations to PRIA in consideration for the payment to PRIA of $5,000 and the issuance to PRIA of 500,000





The Company and QND also entered into the Development Agreement, pursuant to which QND shall pay a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products.  On July 20, 2010, the Company notified NuRx that NuRx was in material breach of the Development Agreement, and had 60 days from the date of the notification to cure such breach. The notification is related to nonpayment of fees in accordance with the Development Agreement between the Company and QND. Should the breach remain uncured, the Company reserved the right to terminate the Development Agreement.





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




4.
Investments
 
 FluoraPharma, Inc.
 
 As of March 31, 2011, the Company had 185,000 options and 249,278 warrants to purchase common stock of FluoraPharma with exercise prices of $0.75 and $1.50, respectively and expiring at various dates in 2014.  The Company has estimated the fair value of the options and warrants at $88,514 and $108,008, respectively.  The Company deems the value of the options and warrants to be fully impaired at March 31, 2011.
 
 Genomics USA, Inc.
 
 In May 2006, the Company purchased 144,024 shares of GUSA common stock for $200,000. As of March 31, 2011 and 2010, the Company owned 12% of the issued and outstanding capital stock of GUSA.
 
 The Company uses the cost method to account for this investment since the Company does not control nor have the ability to exercise significant influence over operating and financial policies. In accordance with the cost method, the investment is recorded at cost and impairment is considered in accordance with the Company’s impairment policy. No impairment was recognized for the periods ended March 31, 2011 and March 31, 2010.


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5.
Intangible Assets





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





March 31,

2011


December 31,

2010Licensed patents and patent rights

$
50,000


$
50,000Patents


41,004



41,004Less: accumulated amortization


(46,265)



(44,199
)Intangibles, net

$
44,739


$
46,085





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 $2,066 and $4,304 for the three months ended March 31, 2011 and 2010, 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, 2011.





6.
Other Balance Sheet Information





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





March 31,


December 31,2011


2010Prepaid expenses:Prepaid insurance

$
14,789


$
17,386Other


5,897



6,023Prepaid expenses

$
20,686


$
23,409Property and equipment:Computers and office furniture, fixtures and equipment

$
90,660


$
90,660Machinery and equipment


173,295



173,295Leasehold improvements


92,233



92,233Less: accumulated depreciation


(258,861)



(246,709)Property and equipment, net

$
97,328


$
109,479Accrued expenses:Payroll and related

$
15,750


$
86,000Professional fees


82,000



82,000Accrued expenses

$
97,750


$
168,000




7.
Preferred Stock
 
 The Company has authorized 25,000,000 shares of preferred stock, of which 20,500,000 is designated as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of approximately $177,000 (“Series B Preferred”).  The remaining 4,500,000 authorized preferred shares have not been designated by the Company as of December 31, 2010.
 
 On November 19, 2010, the Company filed a Certificate of Withdrawal of the Certificates of Designations of the Series A Preferred Stock (“Series A Preferred”) with the Nevada Secretary of State, as there were no shares of Series A Preferred issued and outstanding after the exchange transaction discussed below.




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Series B Convertible Preferred Stock





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





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





8.
Common Stock, Options and Warrants





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





In the first three months of 2011, no common stock, or options purchase common stock were issued or granted.





2007 Incentive and Non-Qualified Stock Option Plan





The fair value of options granted under the Company’s 2007 Incentive and Non-Qualified Stock Option Plan is recorded as compensation expense over the vesting period, or, for performance based awards, the expected service term.  Total compensation cost related to the Company’s employee options was $7,950 and $23,042 for the three months ended March 31, 2011.




9.
Commitments and Contingencies
 
 QN Diagnostics
  The Company is committed to further capital contributions to QND consisting of 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. The Company believes, however, that it has unreimbursed costs and expenses in excess of $800,000 for services provided to or on behalf of QND.  As a result, the Company believes it has substantially satisfied its initial sustaining capital contribution requirement.  The Company was also required to make certain milestone payments to PRIA.  Subsequent to March 31, 2011, however, the Company settled it obligations to PRIA in consideration for the payment to PRIA of $5,000 and the issuance to PRIA of 500,000 shares of the Company's Common Stock.  See Note 10.  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.
  Operating Leases
 
 The Company currently leases its office and research and development lab space under an operating lease that expires September 30, 2011.  In December 2010, the Company canceled its Doylestown, PA operating lease for a payment of approximately $11,000 and forfeiture of its security deposit of approximately $10,000.  In connection with its existing facility lease, the Company has made a security deposit of $5,000 which is included in long-term assets on the balance sheet.  In December 2010, the existing operating lease was amended to reduce the rent payments for February 2011 to September 2010 from $3,950 per month to $2,000 per month, accruing deferred rent that will be due immediately in the case of default on the lease, or to be negotiated in the lease renewal for a minimum of three years.  This lease contains a termination option subject to a fee equal to the deferred rent of $15,600.  Deferred rent at March 31, 2011 was $3,900.
 
 Rent expense is recognized on a straight-line basis over the initial lease term. Leasehold improvements have been included in fixed assets.  Rent expense relating to the operating leases was $12,308 and $33,672 for the quarter ended March 31, 2011 and 2010, respectively.
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Legal Contingencies





On August 24, 2010, NuRx filed an expedited action in the Delaware Court of Chancery relating to QND, naming as a defendant one of the Company’s board members, Dr. William Fleming.  On October 20, 2010, on its own motion to intervene, the Company was added as a defendant.  The action is captioned NuRx v. Fleming/QuantRx and QN Diagnostics (nominally), C.A. No. 5755 (Del. Chancery Ct.).  NuRx seeks declaratory and injunctive relief based on the following:  (i) the alleged necessity of additional capital contributions; (ii) the Company’s appointee to the board of QND rejected the capital call, resulting in a deadlock; and (iii) the allegation that Company has not met a “milestone” payment required by the Development Agreement, which would give NuRx the right to have a Company appointed board member removed and replaced with a member designated by NuRx.  The Company and Dr. Fleming maintain that the capital contribution was agreed to subject to the Company receiving credit toward the contribution for hundreds of thousands of dollars worth of services that have not been paid for by QND, and that all milestones have been met.  The Company seeks declaration of its right to maintain its share of seats on QND’s management board.  The action is currently stayed by mutual agreement of the parties to allow the parties to explore an amicable resolution of the proceedings.  Negotiations to settle the litigation are currently at an impasse; however, management continues to pursue avenues of mutual interest to resolve the litigation.





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




10.
Subsequent Events




Management Stock Awards








Professional Advisory Services








Incurrence of Indebtedness












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Settlement with PRIA Diagnostics


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





The Company has developed and ultimately intends to commercialize its innovative PAD based products for the OTC and POC markets based on its patented technology platforms, and its genomic diagnostics, based on its patented PADKit® technology for the worldwide healthcare industry. These platforms include: inSync®, UniqueTM, PADKit®, and OEM branded OTC and laboratory testing products based on the Company’s core intellectual property related to its PAD technology.  These products are intended for the treatment of hemorrhoids, minor vaginal infection, urinary incontinence, general catamenial uses and other medical needs.  The Company’s efforts to commercialize its products, however, are currently contingent on the development of a financing and operating plan focused on the commercialization of the Company’s PAD technology.  In the interim, the Company has executed a plan to substantially reduce expenses, including headcount, and to restructure and/or eliminate many of its outstanding liabilities, while continuing its efforts to develop a financing and operating plan.  This plan was necessary in order for the Company to continue as a going concern.





The Company’s POC lateral flow diagnostics technology has been fully transferred to QND and all product development is currently conducted through QND, which has ownership and full rights to the Company’s lateral flow technology.  QND was formed to develop and commercialize products incorporating the Company’s lateral flow strip technology and related lateral flow strip readers for both the human and veterinary laboratory POC markets. The Company and NuRx, which originally formed a joint venture for the express purpose of this development, are currently involved in litigation regarding the achievement of certain milestones, the requirement to make certain sustaining capital contributions, as well as certain governance matters related to the joint venture.





At December 31, 2010, the Company had accounts receivable due from, and accounts payable due to QND of $414,179 and $193,987, respectively.  The Company has determined due to the current litigation that the collectability of the accounts receivable due from QND is fully impaired.  Accordingly, during the quarter ended March 31, 2011, the Company recorded an impairment to its accounts receivable, offset by the accounts payable due to QND in the amount of $220,192, and has recorded this as a loss from joint venture.





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




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The Company’s current strategy is to resolve its litigation with NuRx relating to QND, and to develop a financing and operating plan to: (i) leverage its broad-based intellectual property (IP) and patent portfolio to develop new and innovative diagnostic products; (ii) commercialize existing products through corporate partners and distributors; (iii) contract manufacturing to third parties while maintaining control over the manufacturing process; and (iv) maximize the value of the Company’s investments in non-core assets, including GUSA.   As a result of its current financial condition, however, the Company’s efforts in the short-term will be focused on maintaining the Company as a going concern and seeking a resolution of its litigation with NuRx.  No assurances can be given that any the terms of any resolution with NuRx will be favorable, or that the Company will successfully retain its current interest in QND.





Effective May 5, 2009, QuantRx and FlouroPharma, Inc. (“FlouraPharma”) executed transactions that resulted in QuantRx no longer having a controlling ownership interest, resulting in the deconsolidation of FluoroPharma and the Company’s periodic sales of its equity interest in FluoraPharma as a means to finance its continuing operations. QuantRx has restated its financial statements as of January 1, 2009, to reflect the results of its former subsidiary as a one-line item, and effective for 2009, our financial statements reflect our investment in FluoroPharma under the equity method of accounting. In 2010, as a result of the divestiture of substantially all of our investment, our investments are reflected as an available sale investment.





Consolidated Results of Operations





Comparison of the Three Months Ended March 31, 2011 to the Three Months Ended March 31, 2010





Total revenues for the three months ended March 31, 2011 were $8,900 as compared to $659,291 for the three months ended March 31, 2010.  This $650,391 decrease in total revenues is primarily due to decreases in revenues pursuant to the terms of the Development Agreement with QND of $649,281.  Due to the ongoing litigation with NuRx relating to QND, the Company does not anticipate any further amounts to be paid to the Company under the terms of the Development Agreement.





Sales, general and administrative expense for the three months ended March 31, 2011 was $18,367 as compared to $303,577 for the three months ended March 31, 2010.  This $285,210 decrease in sales, general and administrative expense is primarily due to decreased personnel and related expenses due to the suspension of active operations at December 31, 2010.





Professional fees for the three months ended March 31, 2011 were $67,798 as compared to $249,551 for the three months ended March 31, 2010. The decrease of $181,753 in professional fees is primarily due to decreased legal and financial advisory consulting fees.  Professional fees include the costs of legal, consulting and auditing services provided to the Company.





Research and development expense for the three months ended March 31, 2011 were $26,832 as compared to $604,346 for the three months ended March 31, 2010.  The decrease of $577,514 in research and development expense is primarily due to decreased consulting, personnel and supply and material expenses related to the Development and Services Agreement with QND.





Other income and expense for the three months ended March 31, 2011 were net expenses of $216,529 as compared to net income of $193,177 for the three months ended March 31, 2010.  The decrease of $409,206 was primarily comprised of net loss in the 2011 period related to net losses of $220,192 for the impairment of QND accounts receivable offset by the Company’s accounts payable obligations due to the Company’s current litigation, offset by the 2010 activity primarily comprised of gains on the sale of investments in FlouroPharma of $250,000, interest income of $6,260, and rental income of $4,125. Partially offsetting these gains are losses of $63,601 for the Company’s equity method losses from QND for the period from January through March 2010, and losses of $2,429 from the disposition of assets.


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The Company anticipates substantially lower costs and expenses during the year ended December 31, 2011 compared to the year ended December 31, 2010, which anticipated decreases are substantially attributable to the suspension of active operations during the current fiscal year.





The Company’s net loss for the three months ended March 31, 2011 was $335,024, as compared to $346,248 in net loss for the three months ended March 31, 2010.  The $8,776 decrease in net loss for the three months ended March 31, 2011 is primarily due to substantially lower general and administrative costs, offset by lower revenues of $649,281 related to the Development Services Agreement with QND.





Liquidity and Capital Resources





As of March 31, 2011, the Company had cash and cash equivalents of $12,223, as compared to cash and cash equivalents of $229,944 as of December 31, 2010. The net decrease in cash of $217,721 for the three months ended March 31, 2011, is attributable to net cash used for operating activities.





The Company has not generated sufficient revenues from operations or its investment in IP to meet its operating expenses. The Company has therefore historically financed its operations primarily through issuances of equity and debt securities, and, during the second and third quarters of 2010, through the sale of certain equity interests in FluoraPharma.  In the past, the Company has also provided for its cash needs by issuing common stock, options and warrants for certain operating costs, including consulting and professional fees.





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





Off-Balance Sheet Arrangements





As described above, on July 30, 2009, the Company formed a joint venture with NuRx Pharmaceuticals, Inc., whereby, pursuant to the terms of the operating agreements, 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 the Company and NuRx on an equal basis provided that the Company 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.  The Company, however, believes it has incurred unreimbursed costs and expenses in excess of $800,000 for services provided to or on behalf of the joint venture.  As a result, management believes it has substantially satisfied its initial sustaining capital contribution requirement.





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.


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Critical Accounting Policies





Revenue Recognition





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





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





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





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





Use of Estimates





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


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Impairment of Assets





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





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





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.


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ITEM 4.
Controls and Procedures





Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Prior to the filing of this report, the Company's management assessed the effectiveness of our internal control over financial reporting. Based upon this assessment, management concluded that the Company’s controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports filed by it under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer of the Company, as appropriate to allow timely decisions regarding required disclosure.
 
 There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected or is reasonably likely to materially affect its internal control over financial reporting.
 
 Changes in Internal Control Over Financial Reporting
 
 The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes in the Company’s internal control over financial reporting during the period covered by this Report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.





Where necessary, we will supplement personnel with qualified external advisors.


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PART II - OTHER INFORMATION





ITEM 1.
Legal Proceedings.





On August 24, 2010, NuRx filed an expedited action in the Delaware Court of Chancery relating to QND, naming as a defendant one of the Company’s board members, Dr. William Fleming.  On October 20, 2010, on its own motion to intervene, the Company was added as a defendant.  The action is captioned NuRx v. Fleming/QuantRx and QN Diagnostics (nominally), C.A. No. 5755 (Del. Chancery Ct.).  NuRx seeks declaratory and injunctive relief based on the following:  (i) the alleged necessity of additional capital contributions; (ii) the Company’s appointee to the board of QND rejected the capital call, resulting in a deadlock; and (iii) the allegation that Company has not met a “milestone” payment required by the Development Agreement, which would give NuRx the right to have a Company appointed board member removed and replaced with a member designated by NuRx.  The Company and Dr. Fleming maintain that the capital contribution was agreed to subject to the Company receiving credit toward the contribution for hundreds of thousands of dollars worth of services that have not been paid for by QND, and that all milestones have been met.  The Company seeks declaration of its right to maintain its share of seats on QND’s management board.  The action is currently stayed by mutual agreement of the parties to allow the parties to explore an amicable resolution of the proceedings.  Negotiations to settle the litigation are currently at an impasse; however, management continues to pursue avenues of mutual interest to resolve the litigation.





As of the date hereof, there are no other 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

Certification of Chief Executive Officer and Principal Financial and Accounting Officer required under Rule 13a-14(a) or Rule 15d-14(a) of the Securities and Exchange Act of 1934, as amended.32*

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





*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.




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SIGNATURES





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








Date: May 20, 2011
/s/ Shalom HirschmanShalom Hirschman

Principal Executive, Financial and Accounting Officer