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 June 30, 2009




OR




o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from _________to_________





Commission
File No. 0-17119





QUANTRX BIOMEDICAL
CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)





Nevada
            33-0202574(State
      or Other Jurisdiction of
            (I.R.S.
      EmployerIncorporation
      or Organization)
            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. oYes  o
 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).  oYes oNo




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 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).  o Yes x No




The
number of shares outstanding of the issuer’s common stock as of August 10, 2009
was 44,277,630.




2




PART I - FINANCIAL
      INFORMATIONITEM
      1.
              Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2009 (Unaudited) and December 31,
      2008
              5Consolidated
      Statements of Operations (Unaudited) for the three and six months ended
      June 30, 2009 and 2008
              6Consolidated
      Statements of Cash Flows (Unaudited) for the three and six months ended
      June 30, 2009 and 2008
              7Condensed
      Notes to (Unaudited) Consolidated Financial Statements
              9ITEM
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              36ITEM
      4T.
              Controls
      and Procedures
              43PART
      II - OTHER INFORMATIONITEM
      1.
              Legal
      Proceedings
              44ITEM
      2.
              Unregistered
      Sales of Equity Securities; and Use of Proceeds
              44ITEM
      3.
              Defaults
      Upon Senior Securities
              45ITEM
      4.
              Submission
      of Matters to a Vote of Security Holders
              45ITEM
      5.
              Other
      Information
              45ITEM
      6.
              Exhibits
              45Signatures
              
              46




3




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-KSB FOR THE
YEAR ENDED DECEMBER 31, 2007.  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.




4




ITEM
1. Financial Statements




QUANTRX
BIOMEDICAL CORPORATION




CONSOLIDATED
BALANCE SHEETS


June
      30,
              2009
            
            
            December
      31,
              2008(unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            285,374
            
            
            $
            66,226Accounts
      receivable
            
            
            106,808
            
            
            
            45,760Interest
      receivable, net of allowance for bad debt of $14,000
            
            
            -
            
            
            
            -Interest
      receivable – related party
            
            
            39,689
            
            
            
            31,689Inventories
            
            
            38,544
            
            
            
            40,138Prepaid
      expenses
            
            
            65,832
            
            
            
            189,049Note
      receivable, net of allowance for bad debt of $200,000
            
            
            -
            
            
            
            -Note
      receivable – related party
            
            
            200,000
            
            
            
            200,000Deferred
      finance costs, net
            
            
            -
            
            
            
            8,693Deposits
            
            
            250,000
            
            
            
            104,146Total
      Current Assets
            
            
            986,247
            
            
            
            685,701Investments
            
            
            200,000
            
            
            
            200,000Property
      and equipment, net
            
            
            189,658
            
            
            
            496,206Intangible
      assets, net
            
            
            93,200
            
            
            
            2,012,097Security
      deposits
            
            
            11,093
            
            
            
            10,667Total
      Assets
            
            $
            1,480,198
            
            
            $
            3,404,671LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
            
            $
            1,044,048
            
            
            $
            2,205,661Accrued
      expenses
            
            
            127,863
            
            
            
            298,692Deferred
      revenue
            
            
            31,004
            
            
            
            58,781Short-term
      convertible notes payable, net of discount
            
            
            3,870,535
            
            
            
            2,510,054Short-term
      secured promissory notes payable
            
            
            550,000
            
            
            
            350,000Short-term
      promissory notes payable, net of discount
            
            
            715,071
            
            
            
            1,061,278Security
      deposits
            
            
            2,000
            
            
            
            2,000Loans
      payable
            
            
            -
            
            
            
            5,731Total
      Current Liabilities
            
            
            6,340,521
            
            
            
            6,492,197Notes
      payable, long-term portion
            
            
            44,000
            
            
            
            44,000Total
      Liabilities
            
            
            6,384,521
            
            
            
            6,536,197Commitments
      and ContingenciesStockholders’
      Equity (Deficit):Preferred
      stock; $0.01 par value, 25,000,000 authorized shares; no shares issued and
      outstanding
            
            
            -
            
            
            
            -Common
      stock; $0.01 par value; 75,000,000 authorized;43,067,630
      and 42,886,380 shares issued and outstanding
            
            
            434,976
            
            
            
            428,863Additional
      paid-in capital
            
            
            41,661,356
            
            
            
            41,549,234Accumulated
      deficit
            
            
            (47,000,655
            )
            
            
            (45,109,623
            )Total
      Stockholders’ Equity (Deficit)
            
            
            (4,904,323
            )
            
            
            (3,131,526
            )Total
      Liabilities and Stockholders’ Equity (Deficit)
            
            $
            1,480,198
            
            
            $
            3,404,671The
      accompanying condensed notes are an integral part of these interim
      financial statements.




5




QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three
      Months Ended June 30,
            
            
            Six
      Months Ended June 30,2009
            
            
            2008
            
            
            2009
            
            
            2008(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)
            
            
            (unaudited)Revenues
            
            $
            172,415
            
            
            $
            161,088
            
            
            $
            331,902
            
            
            $
            253,260Costs
      and Operating Expenses:Cost
      of goods sold (excluding depreciation and amortization)
            
            
            112
            
            
            
            19,550
            
            
            
            1,463
            
            
            
            23,482Sales
      and marketing
            
            
            398
            
            
            
            39,949
            
            
            
            556
            
            
            
            92,576General
      and administrative
            
            
            326,347
            
            
            
            801,685
            
            
            
            861,079
            
            
            
            1,485,329Professional
      fees
            
            
            40,141
            
            
            
            235,658
            
            
            
            89,168
            
            
            
            558,726Research
      and development
            
            
            126,465
            
            
            
            752,477
            
            
            
            284,277
            
            
            
            1,229,489Amortization
            
            
            5,852
            
            
            
            44,901
            
            
            
            11,704
            
            
            
            89,643Depreciation
            
            
            17,318
            
            
            
            26,604
            
            
            
            35,144
            
            
            
            53,389Total
      Costs and Operating Expenses
            
            
            516,633
            
            
            
            1,920,824
            
            
            
            1,283,391
            
            
            
            3,532,634Loss
      from Operations
            
            
            (344,218
            )
            
            
            (1,759,736
            )
            
            
            (951,489
            )
            
            
            (3,279,374
            )Other
      Income (Expense):Interest
      and dividend income
            
            
            6,086
            
            
            
            5,653
            
            
            
            29,219
            
            
            
            12,298Interest
      expense
            
            
            (205,517
            )
            
            
            (56,432
            )
            
            
            (383,593
            )
            
            
            (99,549
            )Rental
      income
            
            
            5,665
            
            
            
            5,640
            
            
            
            11,535
            
            
            
            11,960Amortization
      of debt discount to interest expense
            
            
            (128,102
            )
            
            
            (312,603
            )
            
            
            (272,146
            )
            
            
            (346,541
            )Amortization
      of deferred financing costs to interest expense
            
            
            -
            
            
            
            (50,647
            )
            
            
            (8,693
            )
            
            
            (79,369
            )Loss
      from deconsolidation of subsidiary
            
            
            (43,286
            )
            
            
            -
            
            
            
            (43,286
            )
            
            
            -Net
      loss from deconsolidated subsidiary
            
            
            (41,533
            )
            
            
            -
            
            
            
            (272,579
            )
            
            
            -Loss
      on extinguishment of debt
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (439,445
            )Loss
      on disposition of fixed assets
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,787
            )Total
      Other Income (Expense), net
            
            
            (406,687
            )
            
            
            (408,389
            )
            
            
            (939,543
            )
            
            
            (942,433
            )Loss
      Before Taxes
            
            
            (750,905
            )
            
            
            (2,168,125
            )
            
            
            (1,891,032
            )
            
            
            (4,221,807
            )Provision
      for Income Taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      Loss
            
            
            (750,905
            )
            
            
            (2,168,125
            )
            
            
            (1,891,032
            )
            
            
            (4,221,807
            )Net
      Loss Attributable to Noncontrolling Interest in Subsidiary
            
            
            -
            
            
            
            26,638
            
            
            
            -
            
            
            
            63,079Net
      Loss Attributable to QuantRx
            
            $
            (750,905
            )
            
            $
            (2,141,487
            )
            
            $
            (1,891,032
            )
            
            $
            (4,158,728
            )Basic
      and Diluted Net Loss per Common Share
            
            $
            (0.02
            )
            
            $
            (0.05
            )
            
            $
            (0.04
            )
            
            $
            (0.10
            )Basic
      and Diluted Weighted Average Shares Used in per Share
      Calculation
            
            
            43,221,312
            
            
            
            41,929,326
            
            
            
            43,109,536
            
            
            
            41,814,503The
      accompanying condensed notes are an integral part of these interim
      financial statements.




6




QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS




Six
      Months Ended June 30,2009
              
              
              2008(unaudited)
              
              
              (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (1,891,032
              )
              
              $
              (4,158,728
              )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
              
              
              46,848
              
              
              
              143,032Interest
      expense related to amortization of non-cash discount, non-cash beneficial
      conversion feature and deferred financing costs
              
              
              280,839
              
              
              
              425,910Expenses
      related to employee stock based compensation
              
              
              241,604
              
              
              
              486,167Expenses
      related to non-employee stock based compensation
              
              
              5,666
              
              
              
              36,604Non-cash
      fair value of warrants and options issued for consulting
              
              
              -
              
              
              
              109,657Non-cash
      incremental fair value of modified warrants issued for
      interest
              
              
              6,250
              
              
              
              -Non-cash
      fair value of warrants issued for interest
              
              
              72,075
              
              
              
              -Non-cash
      fair value of common stock issued for interest
              
              
              78,000
              
              
              
              -Loss
      from deconsolidation of subsidiary
              
              
              43,286
              
              
              
              -Net
      loss from deconsolidated subsidiary
              
              
              272,579
              
              
              
              -Interest
      income settled in common stock of former subsidiary
              
              
              (18,000
              )
              
              
              -Loss
      on extinguishment of debt
              
              
              -
              
              
              
              439,445Loss
      on disposition of fixed assets
              
              
              -
              
              
              
              1,787Issuance
      of convertible notes for accrued interest
              
              
              175,895
              
              
              
              53,851Noncontrolling
      interest
              
              
              -
              
              
              
              (63,079
              )(Increase)
      decrease in:Accounts
      receivable
              
              
              (61,048
              )
              
              
              17,787Interest
      receivable
              
              
              (8,000
              )
              
              
              (8,038
              )Inventories
              
              
              1,594
              
              
              
              (10,851
              )Prepaid
      expenses
              
              
              18,711
              
              
              
              73,193Deposits
              
              
              581
              
              
              
              (38,876
              )Security
      deposits
              
              
              (426
              )
              
              
              -Increase
      (decrease) in:Accounts
      payable
              
              
              122,226
              
              
              
              816,769Accrued
      expenses
              
              
              44,221
              
              
              
              18,267Deferred
      revenue
              
              
              (27,777
              )
              
              
              92,115Net
      Cash Used by Operating Activities
              
              
              (595,908
              )
              
              
              (1,564,988
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      paid for purchases of fixed assets
              
              
              -
              
              
              
              (4,394
              )Cash
      paid for deposit on asset acquisition
              
              
              (125,000
              
              
              
              -Cash
      advances to subsidiary prior to deconsolidation
              
              
              (13,800
              )
              
              
              -Cash
      paid for licensing agreement
              
              
              -
              
              
              
              (20,000
              )Cash
      paid for capitalized website development costs
              
              
              -
              
              
              
              (600
              )Net
      Cash Used by Investing Activities
              
              
              (138,800
              )
              
              
              (24,994
              )




7






CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of promissory notes
              
              
              350,000
              
              
              
              -Proceeds
      from issuance of senior secured convertible notes, net of legal fees of $0
      and $7,500
              
              
              425,000
              
              
              
              992,500Proceeds
      from issuance of senior secured promissory notes
              
              
              250,000
              
              
              
              410,000Payments
      of senior secured promissory notes
              
              
              (50,000
              )
              
              
              -Payments
      of promissory notes
              
              
              (15,000
              )
              
              
              -Payments
      on loan payable used to finance equipment purchase
              
              
              (5,731
              )
              
              
              (5,346
              )Proceeds
      from exercise of common stock warrants
              
              
              
              
              
              
              169,189Payment
      of payables related to fixed asset purchases
              
              
              -
              
              
              
              (10,798
              )Net
      Cash Provided by Financing Activities
              
              
              954,269
              
              
              
              1,555,545Net
      Increase (Decrease) in Cash and Cash Equivalents
              
              
              219,561
              
              
              
              (34,437
              )Net
      cash of deconsolidated subsidiary
              
              
              (413
              )
              
              
              -Cash
      and Cash Equivalents, Beginning of Period
              
              
              66,226
              
              
              
              213,332Cash
      and Cash Equivalents, End of Period
              
              $
              285,374
              
              
              $
              178,895Supplemental
      Cash Flow Disclosures:Interest
      expense paid in cash
              
              $
              16,510
              
              
              $
              38,397Income
      tax paid
              
              $
              -
              
              
              $Supplemental
      Disclosure of Non-Cash Activities Financing and Investing
      Activities:Fair
      value of warrants issued to placement agents for debt financing
      costs
              
              $
              -
              
              
              $
              119,750Fair
      value of common stock issued with senior secured convertible
      notes
              
              
              85,803
              
              
              
              -Fair
      value of warrants issued with senior secured convertible
    notes
              
              
              33,487
              
              
              
              122,036Fair
      value of beneficial conversion feature embedded in senior secured
      convertible notes
              
              
              6,325
              
              
              
              647,760Fair
      value of common stock issued with promissory notes
              
              
              28,488
              
              
              
              59,768Fair
      value of warrants issued with promissory notes
              
              
              39,666
              
              
              
              41,528Increase
      in payables related to purchase of fixed assets
              
              
              3,000
              
              
              
              11,703Increase
      in payables related to license acquisition
              
              
              -
              
              
              
              8,715Increase
      in payables for debt financing costs
              
              
              -
              
              
              
              111,000Exchange
      of promissory notes for senior secured convertible note
              
              
              707,890
              
              
              
              -Elimination
      of deconsolidated subsidiary accounts:Prepaid
      expenses
              
              
              104,506
              
              
              
              -Property
      and equipment, net
              
              
              274,404
              
              
              
              -Intangible
      assets, net
              
              
              1,907,193
              
              
              
              -Deposits
              
              
              3,565
              
              
              
              -Accounts
      payable
              
              
              1,311,839
              
              
              
              -Accrued
      expenses
              
              
              215,050
              
              
              
              -Additional
      paid-in-capital
              
              
              479,129
              
              
              
              -




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




8




QUANTRX
BIOMEDICAL CORPORATION


CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


June
30, 2009


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® 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 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, 2008, which was filed with the SEC on
April 15, 2009.




These
consolidated financial statements include the accounts of the Company and its
formerly majority-owned subsidiary, FluoroPharma, through December 31,
2008.  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 effective May 5, 2009 our financial
statements reflect our investment in FluoroPharma under the equity method of
accounting.




9




QuantRx
reorganized its relationship with FluoroPharma by terminating the investment
agreement and related agreements with FluoroPharma, which were originally
executed on March 10, 2006. The termination of these agreements 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 into shares of FluoroPharma common
stock. 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. See Notes 2 and 3 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.




While the
Company has formed a strategic joint venture (See Note 15, Subsequent Events) to
alleviate the funding requirements for the development and commercialization of
its lateral flow based products and has settled its outstanding short-term
promissory notes in full, 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:




·
            obtain
      adequate sources of debt or equity financing to pay unfunded operating
      expenses and fund certain 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 in the long-term as a going
concern.




10




2.
            Summary of Significant
      Accounting Policies




Accounting forShare-Based
Payments




QuantRx
follows the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123(R), “Share-Based Payments.”  SFAS No. 123(R) 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 method in determining fair value.  Accordingly,
compensation cost has been recognized using the fair value method and expected
term accrual requirements as prescribed in SFAS No. 123(R), which resulted in
employee stock-based compensation expense for the three and six months ended
June 30, 2009 of $14,125 and $241,604, respectively, and $327,620 and $486,167
for the three and six months ended June 30, 2008 (including $120,159 and
$127,055 relating to subsidiary options), respectively.




In the
case of modifications, the Black-Scholes model is used to value the warrant on
the modification date by applying the revised assumptions. The difference
between the fair value of the warrants prior to the modification and after the
modification on the date of modification determines the incremental value. In
2009 and 2008, QuantRx modified warrants in connection with the issuance of
certain notes and note extensions. These modified warrants were originally
issued in connection with previous private placement investments. In the case of
equity issuances, these warrants were originally accounted for as additional
paid-in-capital. In the case of debt issuances, the warrants were accounted for
as original issuance discount based on their relative fair values.




When
modified in connection with a note issuance, QuantRx recognizes the incremental
value as a part of the debt discount calculation, using its relative fair value
in accordance with EITF 00-27, “Application of Issue 98-5 to Certain Convertible
Instruments.” When modified in connection with note extensions, the Company
recognized the incremental value as prepaid interest, which is expensed over the
term of the extension.




The fair
value of each share based payment is estimated on the measurement date using the
Black-Scholes model with the following assumptions, which are determined at the
beginning of each year and utilized in all calculations for that
year:




2009
            
            2008Risk-free
      interest rate
            
            3.24%
            
            5.35%Expected
      volatility
            
            70%
            
            117%Dividend
      yield
            
            0%
            
            0%Expected
      term
            
            Actual
      term
            
            Actual
      term




Earnings per
Share




The
Company computes net income (loss) per common share in accordance with SFAS
No. 128, “Earnings per Share.” Net income (loss) per share is based upon
the weighted average number of outstanding common shares and the dilutive effect
of common stock equivalents, such as options and warrants to purchase common
stock, convertible preferred stock and convertible notes, if applicable, that
are outstanding. 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.




11




As of
June 30, 2009, the Company had outstanding options exercisable for 2,280,500
shares of its common stock, warrants exercisable for 9,643,434 shares of its
common stock, and debt securities convertible into 7,833,531 shares of its
common stock.  The above options, warrants, and convertible debt
securities were deemed to be antidilutive for the three and six months ended
June 30, 2008.




As of
June 30, 2008, the Company had outstanding options exercisable for 2,344,750
shares of its common stock, warrants exercisable for 7,649,184 shares of its
common stock, and debt securities convertible into 4,409,594 shares of its
common stock.  The above options, warrants, and convertible debt
securities were deemed to be antidilutive for the three and six months ended
June 30, 2008.




Fair
Value




Effective
January 1, 2009, the Company adopted SFAS No. 157, “Fair Value
Measurements” for nonfinancial assets and liabilities. The adoption of SFAS No.
157 had no impact on the Company’s consolidated results of operations or
financial condition.




The
Company’s financial instruments primarily consist of cash and cash equivalents,
prepaid expenses and other deferred charges, short-term accounts and notes
receivable, accounts payable, accrued expenses and other current liabilities.
All instruments are accounted for on an historical cost basis, which, due to the
short maturity of these financial instruments, approximates the fair value at
the reporting dates of these financial statements.




In
determining fair value of our cost method investment, QuantRx estimated fair
value based on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of this investment that are
not readily apparent from other sources. QuantRx has determined that the
carrying value for its cost method investment approximates fair
value.




Noncontrolling
Interest




In
December 2007, FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51”. SFAS No. 160
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. SFAS No. 160 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.SFAS No. 160 is effective
for QuantRx beginning in the first quarter of 2009. As of January 1, 2009, the
Company presented its financial statements in accordance with this
statement.




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 SFAS No.
160.  See Note 3 for additional details.




12




Recent Accounting
Pronouncements




In June
2009, the Financial Accounting Standards Board (“FASB”) approved the FASB
Accounting Standards Codification (“the Codification”) as the single source of
authoritative nongovernmental GAAP. All existing accounting standard documents,
such as FASB, American Institute of Certified Public Accountants, Emerging
Issues Task Force and other related literature, excluding guidance from the
Securities and Exchange Commission (“SEC”), will be superseded by the
Codification. All other non-grandfathered, non-SEC accounting literature not
included in the Codification will become nonauthoritative. The Codification does
not change GAAP, but instead introduces a new structure that will combine all
authoritative standards into a comprehensive, topically organized online
database. The Codification will be effective for interim or annual periods
ending after September 15, 2009, and will impact the Company’s financial
statement disclosures beginning with the quarter ending September 30, 2009 as
all future references to authoritative accounting literature will be referenced
in accordance with the Codification. There will be no changes to the content of
the Company’s financial statements or disclosures as a result of implementing
the Codification.
  In May
2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”), which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date, but before the financial statements are
issued or available to be issued (“subsequent events”). SFAS 165 requires disclosure of the date through which the entity has
evaluated subsequent events and the basis for that date. For public entities,
this is the date the financial statements are issued. SFAS 165 does not apply to
subsequent events or transactions that are within the scope of other GAAP and
will not result in significant changes in the subsequent events reported by the
Company.SFAS165 is effective for interim
or annual periods ending after June 15, 2009. The Company adopted the provisions
ofSFAS165 during the quarter ended June
30, 2009. The adoption of these provisions did not have a material effect on our
consolidated financial statements.




In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments (FSP 107-1 and APB 28-1),” which
require disclosure in the body or in the accompanying notes of the Company’s
summarized financial information for interim reporting periods and in its
financial statements for annual reporting periods the fair value of all
financial instruments for which it is practicable to estimate that value,
whether recognized or not in the statement of financial position, as required by
Statement 107. FSP FAS 107-1 and APB 28-1 will be effective for interim
reporting periods ending after June 15, 2009. The Company is currently
evaluating the future impact FSP FAS 107-1 and APB 28-1 will have on its
financial statements.




In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments (FSP 115-2 and FAS 124-2),”
which clarifies the interaction of the factors that should be considered when
determining whether a debt security is other than temporarily impaired. FSP
115-2 and FAS 124-2 will be effective for interim and annual reporting periods
ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. The Company is currently evaluating the future
impact FSP 115-2 and FAS 124-2 will have on its financial
statements.




In April
2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly (FSP 157-4),” which
clarifies the interaction of the factors that should be considered when
evaluating whether there has been a significant decrease in the volume and level
of activity for an asset or liability when compared with normal market activity
for the asset or liability (or similar assets or liabilities). If there has been
a significant decrease in the volume and level of activity for the asset or
liability, further analysis of the transactions or quoted prices is required,
and a significant adjustment to the transactions or quoted prices may be
necessary to estimate fair value. FSP 157-4 will be effective for QuantRx in the
second quarter of 2009. The Company is currently evaluating the future impact
FSP 157-4 will have on its financial statements.




In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles”. SFAS 162 is intended to improve financial
reporting by identifying a consistent framework, or hierarchy, for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. GAAP for nongovernmental entities. SFAS No.
162 is effective November 15, 2008. The adoption of this statement did not have
a material effect on QuantRx’s consolidated financial statements.




In May
2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, “Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)”. FSP APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity
(conversion option) components of the instrument in a manner that reflects the
issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective
beginning with the first quarter of 2009. Implementation of this standard has
not had a material impact on QuantRx’s consolidated financial
statements.




13




In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets”. FSP 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under SFAS No. 142. FSP 142-3 is effective for
fiscal years beginning after December 15, 2008. The implementation of this
standard did not have a material impact on our consolidated financial position,
results of operations or cash flows.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133”.This
statement changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No.
133 and its related interpretations, and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows.SFASNo. 161 is effective for QuantRx beginning in 2009.
Implementation of this standard has not had a material impact on QuantRx’s
consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations.” SFAS
No. 141(R) changes the accounting for business combinations. Under SFAS No.
141(R), an acquiring entity is required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date at fair value with
limited exceptions. SFAS No. 141(R) changes the accounting treatment and
disclosure for certain specific items in a business combination. For QuantRx,
SFAS No. 141(R) applies prospectively to business combinations with acquisition
dates on or after January 1, 2009. Adoption of this statement did not have a
material impact on QuantRx’s consolidated financial statements.




In
November 2007, EITF No. 07-01, “Accounting for Collaborative
Arrangements” was issued. EITF No. 07-01 requires collaborators to present
the results of activities for which they act as the principal on a gross basis
and report any payments received from (made to) other collaborators based on
other applicable GAAP or, in the absence of other applicable GAAP, based on
analogy to authoritative accounting literature or a reasonable, rational, and
consistently applied accounting policy election. Further, EITF 07-01 clarified
that transactions within a collaborative arrangement that are part of a
vendor-customer (or analogous) relationship are subject to Issue 01-9,
“Accounting for Consideration Given by a Vendor to a Customer.” EITF 07-01 is
effective for fiscal years beginning after December 15, 2008. Adoption of
this standard did not have a material impact on the Company’s consolidated
results of operations or financial position.




Reclassifications




Certain
reclassifications have been made in the presentation of the financial statements
for the three and six months ended June 30, 2008 to conform to the presentation
of the financial statements for the three and six months ended June 30, 2009.
The reclassifications were to reflect the retrospective adoption of SFAS No. 160
and the permissible “one-line” restatement of its former subsidiary’s results as
of January 1, 2009.




14




Revenue
Recognition




The
Company recognizes revenue in accordance with the Securities and Exchange
Commission’s (SEC) Staff Accounting Bulletin Topic 13, “Revenue
Recognition”(Topic 13) and EITF
No. 00-21, “Revenue Arrangements with Multiple Deliverables.” Revenue is
recognized when all of the following criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred or services
have been rendered; (3) the seller’s price to the buyer is fixed and
determinable; and (4) collectibility is reasonably assured.




Revenue
from licensing agreements is recognized based on the performance requirements of
the agreement. Revenue is deferred for fees received before earned.
Nonrefundable upfront fees that are not contingent on any future performance by
us are recognized as revenue when revenue recognition criteria under Topic 13
and EITF 00-21 are met and the license term commences. Nonrefundable upfront
fees, where we have an ongoing involvement or performance obligations, are
recorded as deferred revenue and recognized as revenue over the life of the
contract, the period of the performance obligation or the development period,
whichever is appropriate in light of the circumstances.




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 agreements when they represent the culmination of the earnings
process. Royalty revenue from licensed products will be recognized when earned
in accordance with the terms of the license agreements.




Use of
Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the use of estimates
and assumptions regarding certain types of assets, liabilities, revenues, and
expenses.  Such estimates primarily relate to unsettled transactions
and events as of the date of the financial statements and fair valuations of
share-based payments.  Actual results may differ from estimated
amounts.




3.
            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 deconsolidation.




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 ($272,579 in 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 (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 approximately
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 in accordance with SFAS No.
160.




15




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. QuantRx’s estimated allocation of the net
loss of $106,496 from the equity method investment in FluoroPharma for the
period commencing May 5, 2009 through June 30, 2009 was not recorded, since the
remaining investment in FluoroPharma had a carrying value of $0 as of the
deconsolidation of FluoroPharma at May 5, 2009.




As of
June 30, 2009 and December 31, 2008, QuantRx owned approximately 40.77% and
57.78%, respectively, of the issued and outstanding capital stock of
FluoroPharma. At June 30, 2009, QuantRx had warrants and options to purchase an
additional 544,278 shares of FluoroPharma common stock at exercise prices
ranging from $0.75 to $1.50, which, if exercised together with FluoroPharma’s
other outstanding options and warrants, would reduce the QuantRx’s ownership
percentage to approximately 34.82% on a fully diluted and as converted basis as
of June 30, 2009.




Subsequent
to the termination of the agreements between QuantRx and FluoroPharma, QuantRx
has no continuing obligations or commitments to FluoroPharma. FluoroPharma, Inc.
is a privately held molecular imaging company based in Boston, Massachusetts,
engaged in the discovery, development, and commercialization of proprietary
products for positron emission tomography. The investment in FluoroPharma is
intended to strategically expand QuantRx’s diagnostic platforms.




4.
            Other Balance Sheet
      Information




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




June
      30,
              2009
            
            
            December
      31, 2008Prepaid
      expenses:Prepaid
      consulting
            
            $
            -
            
            
            $
            92,649Prepaid
      consulting – related party
            
            
            -
            
            
            
            4,674Prepaid
      insurance
            
            
            21,312
            
            
            
            37,473Prepaid
      interest
            
            
            35,167
            
            
            
            44,426Prepaid
      rent
            
            
            5,310
            
            
            
            5,310Other
            
            
            4,043
            
            
            
            4,517Prepaid
      expenses
            
            $
            65,832
            
            
            $
            189,049Deferred financing
      costs:Deferred
      financing costs
            
            $
            -
            
            
            $
            133,250Less:
      accumulated amortization
            
            
            -
            
            
            
            (124,557
            )Deferred
      financing costs, net
            
            $
            -
            
            
            $
            8,693Property and
      equipment:Computers
      and office furniture, fixtures and equipment
            
            $
            122,007
            
            
            $
            136,690Machinery
      and equipment
            
            
            159,347
            
            
            
            466,338Leasehold
      improvements
            
            
            92,233
            
            
            
            92,233Less:
      accumulated depreciation
            
            
            (183,929
            )
            
            
            (199,055
            )Property
      and equipment, net
            
            $
            189,658
            
            
            $
            496,206Accrued
      expenses:Payroll
      and related
            
            $
            23,850
            
            
            $
            156,750Professional
      fees
            
            
            12,500
            
            
            
            43,800Accrued
      interest
            
            
            70,513
            
            
            
            41,142Other
            
            
            21,000
            
            
            
            57,000Accrued
      expenses
            
            $
            127,863
            
            
            $
            298,692




16




5.
            Notes
      Receivable




Genomics USA,
Inc.




In
January 2007, QuantRx advanced $200,000 to Genomics USA, Inc. (GUSA) through an
8% promissory note due April 8, 2007. The note is currently convertible at
QuantRx’s discretion into 10% of GUSA’s outstanding capital stock on a fully
diluted and as converted basis. QuantRx continues to explore the possibility of
further investment, and has postponed settlement of the note during this
exploratory period, during which the note shall continue to accrue interest.
QuantRx accrued interest of $4,000 and $8,000 on this note for the three and six
months ended June 30, 2009, respectively, and $16,040 for the year ended
December 31, 2008. GUSA, a privately held Illinois corporation, is a technology
company focused on the development of Micro-Array Detection for DNA. This
technology may strategically expand QuantRx’s diagnostic platforms. See Note 6
for additional information on GUSA.




Rockland Technimed,
Ltd.




In April
2006, QuantRx advanced $200,000 to Rockland Technimed, Ltd. through a one-year
7% convertible promissory note.  Rockland, a privately held Delaware
corporation, is a development stage company focused on the research and
development of tissue viability imaging diagnostics using magnetic resonance
imaging (MRI) scanners.  The note is convertible at QuantRx’s
discretion into 20% of Rockland’s outstanding capital stock on a fully diluted
and as converted basis to satisfy the note and accrued interest. QuantRx ceased
accruing interest as of the maturity date and established an allowance for bad
debt in the amount equal to the principal balance and accrued interest,
$214,000, as the Company attempts to resolve this matter.




17





6.
            Investments




Genomics USA,
Inc.




In May
2006, QuantRx purchased 144,024 shares of GUSA common stock for $200,000. As of
June 30, 2009, QuantRx owned approximately 10% of the issued and outstanding
capital stock of GUSA and approximately 20% on a fully diluted and as converted
basis.




QuantRx
uses the cost method to account for this investment since QuantRx 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 as of
June 30, 2009.




FluoroPharma,
Inc.




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. QuantRx’s estimated allocation of the net
loss of $106,496 from the equity method investment in FluoroPharma for the
period commencing May 5, 2009 through June 30, 2009 was not recorded, since the
remaining investment in FluoroPharma had a carrying value of $0 as of the
deconsolidation of FluoroPharma at May 5, 2009. See Note 3 for additional
details on the deconsolidation of FluoroPharma, Inc. at May 5,
2009.




At June
30, 2009, FluoroPharma’s condensed financial information was estimated as
follows: total assets of $388,764; total liabilities of $1,034,403; and
stockholders’ deficit of $645,639. Expenses and net losses for the period of May
5, 2009 through June 30, 2009 were estimated at $261,211.




As of
June 30, 2009, QuantRx owned approximately 40.77% of the issued and outstanding
capital stock of FluoroPharma, and approximately 34.82% on a fully diluted and
as converted basis.  The investment in FluoroPharma is intended to
strategically expand QuantRx’s diagnostic platforms.




7.
            Intangible
      Assets




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




June
      30,
              2009
            
            
            December
      31,
              2008Licensed
      patents and patent rights
            
            $
            50,000
            
            
            $
            2,197,020Patents
            
            
            82,008
            
            
            
            82,008Technology
      license
            
            
            -
            
            
            
            22,517Website
      development
            
            
            40,750
            
            
            
            49,711Less:
      accumulated amortization
            
            
            (79,558
            )
            
            
            (339,159
            )Intangibles,
      net
            
            $
            93,200
            
            
            $
            2,012,097




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 $5,852
and $11,704 for the three and six months ended June 30, 2009, and $44,901 and
$89,643 for the three and six months ended June 30, 2008,
respectively.  Impairment will be considered in accordance with the
Company’s impairment policy. No impairment was recognized as of June 30,
2009.




18




At
December 31, 2008, the Company’s consolidated financial statements included the
accounts of its formerly majority-owned subsidiary. Effective May 5, 2009 the
Company no longer held a controlling interest, which resulted in the
deconsolidation and the elimination of the former subsidiary’s accounts; which
included the elimination of intangible assets with a net carrying amount of
$1,907,193. See Note 3 for additional details.




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
specifies 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 is being amortized into revenue over the
expected development period of the agreement, which is estimated as 18 months.
QuantRx recognized revenue of $33,335 and $66,670 in the three and six months
ended June 30, 2009 related to this agreement.




9.
            Portland Development
      Commission




In
February 2007, QuantRx received a $44,000 loan from the Portland Development
Commission.  The loan matures in 20 years and is interest free through
March 1, 2010 and no payments are due until April 1, 2010.  The terms
of the promissory note stipulate that the interest rate will accrue beginning in
March 1, 2010 at an annual rate between 1% and 8.5% based upon the level of
compliance with certain employment milestones beginning in 2008.




10.
            Notes
      Payable




Notes
payable as of June 30, 2009 and December 31, 2008 were comprised of the
following:




June
      30,
              2009
            
            
            December
      31,
              2008Short-term convertible
      notes payable, net:Senior
      secured convertible notes payable
            
            $
            3,916,766
            
            
            $
            2,607,979Less:
      discount for common stock, warrants and conversion feature,
      net
            
            
            (46,231
            )
            
            
            (97,925
            )Short-term
      convertible notes payable, net
            
            $
            3,870,535
            
            
            $
            2,510,054Short-term secured
      promissory notes payable:Secured
      promissory notes payable
            
            $
            550,000
            
            
            $
            350,000Less:
      discount for common stock and warrants, net
            
            
            -
            
            
            
            -Short-term
      secured promissory notes payable, net
            
            $
            550,000
            
            
            $
            350,000Short-term promissory
      notes payable, net:Unsecured
      promissory notes payable
            
            $
            735,000
            
            
            $
            1,107,890Less:
      discount for common stock and warrants, net
            
            
            (19,929
            )
            
            
            (46,612
            )Short-term
      promissory notes payable, net
            
            $
            715,071
            
            
            $
            1,061,278




19




2007 Convertible Promissory
Notes




On
October 16, 2007, QuantRx completed a private placement of 10% senior secured
convertible notes (the “2007 Notes”) and warrants to purchase shares of
QuantRx’s common stock. In connection with the private placement, QuantRx issued
notes in the aggregate principal amount of $1,000,000 and warrants to purchase
250,000 shares of QuantRx’s common stock at an exercise price of $1.25 (relative
fair value of $134,454). Proceeds of the financing were used for general
corporate purposes. The notes and the warrants were offered only to certain
private accredited investors.




In the
first quarter of 2008, the 2007 Notes were exchanged for 2008 Senior Secured
Convertible Notes (the “2008 Notes”) resulting in a loss on extinguishment, as
described below under “2008 Senior Secured Convertible Notes.”




The 2007
Notes were automatically convertible into shares of QuantRx common stock upon
completion of a “qualified” equity financing with aggregate gross proceeds of at
least $3,000,000. Under the terms of the 2007 Notes, holders would have been
deemed to have tendered 115% of their aggregate outstanding principal balance
and accrued interest for purchase of securities in the qualified equity
financing, entitling the holders to all rights afforded to purchasers in such
financing (“contingent embedded conversion option”). Alternatively, the 2007
Notes allowed the holders to convert their outstanding principal and accrued
interest into common stock at a price of $0.80 per common share (“embedded
conversion option”). Either conversion would have resulted in the satisfaction
of all of QuantRx’s obligations under the 2007 Notes.




In
accordance with APB Opinion No. 14, “Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants,” QuantRx allocated $134,454 of the
principal amount of the 2007 Notes to the warrants as original issue discount,
which represented the relative fair value of the warrants at the date of
issuance.




The
conversion option embedded in the 2007 Notes described above was not considered
a derivative instrument and was not required to be bifurcated pursuant to the
scope exception in paragraph 11(a) of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities,” since it was indexed to QuantRx’s stock and
was classified as stockholders’ equity. Equity classification of the embedded
conversion option was met through the requirements of EITF 00-19, “Accounting
for Derivative Financial Instruments to, and Potentially Settled in, a Company’s
Own Stock,” paragraphs 12-32. QuantRx also concluded, pursuant to EITF 00-27,
“Application of Issue 98-5 to Certain Convertible Instruments,” that while the
embedded conversion option was not required to be bifurcated, the instruments
did contain a beneficial conversion feature, as the share prices on the dates of
issuance exceeded the effective conversion price of the embedded conversion
option. QuantRx measured the intrinsic value of the embedded conversion option
($97,164) based upon the effective conversion price, which is defined by EITF
00-27, “Application of Issue 98-5 to Certain Convertible Instruments,” as the
allocated proceeds divided by the number of shares to be received on conversion.
This amount was recorded as original issue discount.




20




The
contingent conversion option embedded in the 2007 Notes qualified as an embedded
contingent conversion option in accordance with EITF 98-5 and 00-27 since
execution was contingent upon a qualified equity financing and was not within
the control of QuantRx. The intrinsic value of the contingent embedded
conversion option was not recognized because the 2007 Notes were exchanged and
satisfied in full.




In
connection with the 2007 Notes, certain warrants that were previously issued to
the holders were modified by reducing their exercise price from $1.50 to $0.75.
The incremental fair value of this modification, accounted for in accordance
with SFAS No. 123(R), was $30,000, while the relative fair value was calculated
to be $25,210 and was recorded as additional original issue discount. The
initial warrants were originally granted in connection with a private placement
of common stock and were accounted for as additional paid-in-capital. In
association with the issuance of the 2007 Notes, QuantRx issued warrants to
purchase 100,000 shares of common stock at $1.10 per share valued at $65,000 to
the placement agent, and also incurred cash commissions of $70,000 in connection
with the private placement resulting in total deferred debt offering cost of
$135,000.




The fair
value of the warrants issued to placement agents and the cash commissions have
been recorded as deferred financing costs. The total original issue discount
related to the warrants issued to the investors, the modified warrants and the
beneficial conversion feature, and the deferred financing costs were being
amortized to interest expense over the original term of the 2007 Notes in
accordance with EITF 00-27, paragraph 19. Interest expense through the date of
extinguishment, including amortization of original issue discount and deferred
financing costs, related to the 2007 Notes was $29,832 for the quarter and year
ended March 31, 2008. The remaining unamortized debt discount of $189,101 and
deferred financing costs of $99,399 were included in the loss on extinguishment
of debt in the first quarter of 2008 upon the exchange of the 2007 Notes into
the 2008 Notes; see below.




The
Black-Scholes option pricing model was used to calculate the fair values of all
of the above warrants. See Note 2, Summary of Significant Accounting Policies,
“Accounting for Share Based Payments.”




2008 Senior Secured
Convertible Notes




In
the first quarter of 2008, the Company issued 10% senior secured convertible
notes (the “2008 Notes”) to certain accredited investors. In connection with the
private placement, QuantRx issued notes in the aggregate principal amount of
$2,157,247 and warrants with a five-year term to purchase 250,000 shares of
QuantRx’s common stock at an exercise price of $1.25. The warrants provide for
full antidilution protection to the holders and allow for cashless
exercise.




The 2008
Notes are automatically convertible into shares of QuantRx common stock upon
completion of a “qualified” equity financing (or financings) with aggregate
gross proceeds of at least $5,660,000 (amount to be reduced by the 2008 Notes,
up to a maximum of $2,250,000). Under the terms of the 2008 Notes, holders will
be deemed to have tendered 115% of their aggregate outstanding principal balance
and accrued and unpaid interest for the purchase of securities in the qualified
equity financing, entitling the holders to all rights afforded to purchasers in
such financing (“contingent embedded conversion option”). Alternatively, the
2008 Notes allow the holders to convert their outstanding principal and accrued
interest into common stock at a price of $0.50 per common share (“embedded
conversion option”). Either conversion would result in the satisfaction of all
of QuantRx’s obligations under the 2008 Notes.




21




In the
event QuantRx did not complete a qualified financing and holders do not
voluntarily convert, QuantRx was to repay the outstanding principal balance and
accrued and unpaid interest on January 23, 2009. All holders have extended this
maturity date to July 31, 2009. Interest on the outstanding principal amount of
the 2008 Notes is payable quarterly in cash or, at the holders’ option, in
additional 10% senior secured convertible notes with a principal amount equal to
the calculated interest amount. QuantRx has the right to prepay the 2008 Notes
at 106% of face value and 100% of accrued interest by providing ten days notice.
In connection with the financing QuantRx entered into 1) a stock pledge
agreement, pursuant to which QuantRx granted to the holders a continuing and
perfected first priority security interest in certain equity securities owned by
QuantRx of two private companies and specified rights and interests associated
with the pledged shares, as well as 2) a patent, trademark and copyright
security agreement, pursuant to which QuantRx granted to the holders a
continuing and perfected first priority security interest in all of its owned or
acquired patents, trademarks and copyrights and specified intellectual property
and related rights and interests associated therewith. If an event of default
occurs under the 2008 Notes, the holders have agreed not to take any action with
respect to the collateral for 120 days after the holders provide QuantRx with
notice of the holders’ proposed action. The stock pledge agreement and the
patent, trademark and copyright security agreement, and the security interests
created thereby, will terminate upon QuantRx’s satisfaction in full of its
payment obligations under the 2008 Notes. In connection with the 2008 Notes,
QuantRx may not issue any new indebtedness while at least 50% of the original
principal amount of the notes remains outstanding without the consent of holders
of at least 75% of the principal amount of the then outstanding
notes.




In
connection with the financing and in accordance with the terms of the 2007
Notes, the holders representing $1,000,000 face value of QuantRx’s 2007 Notes
exchanged their notes at 115% of the outstanding principal and accrued and
unpaid interest as payment toward the purchase price of the 2008 Notes purchased
by such holders. Accordingly, the Company issued notes in the financing in the
aggregate principal balance of $1,157,247 to the former holders upon their
surrender of the 2007 Notes.  In the aggregate, the Company received
gross cash proceeds of $1,000,000 in connection with the issuance of the 2008
Notes.




QuantRx
used the net proceeds from the offering for product development, working capital
and general corporate purposes.




QuantRx
determined that the terms of the 2008 Notes were “substantially different”, as
described in EITF Issue No. 96-19, “Debtor’s Accounting for a Modification
or Exchange of Debt Instruments”, from the terms of the 2007 Notes based on the
greater than 10% change in the present value of the cash flows associated with
the 2008 Notes and the 2007 Notes. As a result, the Company recorded the 2008
Notes issued in exchange for the 2007 Notes at fair value on the date of
issuance and recorded a loss on extinguishment of $439,445, which includes
$189,101 and $99,399 representing the remaining unamortized debt discount and
deferred finance costs related to the 2007 Notes, respectively. In accordance
with EITF Issue No. 98-5, “Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”,
the Company also remeasured the intrinsic value of the beneficial conversion
feature embedded in the 2007 Notes at the time of extinguishment and determined
that it had no value as the closing stock price on the date of extinguishment
was less than the effective conversion price; therefore no allocation of the
reacquisition price for the repurchase of the beneficial conversion feature
embedded in the 2007 Notes was required. Additionally, there were no warrants
issued to the holders of the 2007 Notes related to their exchange of 2007 Notes
for 2008 Notes.




22




The
cash proceeds from the 2008 Notes issued in the first quarter of 2008 of
$1,000,000 were allocated between the notes and the warrants on a relative fair
value basis in accordance with APB Opinion No. 14, “Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants.” QuantRx allocated $122,035
of the principal amount of $1,000,000 to the warrants as original issue
discount, which represented the relative fair value of the warrants at the date
of issuance.




Like the
2007 Notes, the conversion option embedded in the 2008 Notes described above is
not considered a derivative instrument and is not required to be bifurcated
pursuant to the scope exception in paragraph 11(a) of SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities,” since it is indexed to
QuantRx’s stock and is classified as stockholders’ equity. Equity classification
of the embedded conversion option is met through the requirements of EITF 00-19,
“Accounting for Derivative Financial Instruments to, and Potentially Settled in,
a Company’s Own Stock,” paragraphs 12-32. QuantRx also concluded, pursuant to
EITF 00-27, “Application of Issue 98-5 to Certain Convertible Instruments,” that
while the embedded conversion option is not required to be bifurcated, the
instruments do contain a beneficial conversion feature, as the share prices on
the dates of issuance exceeded the effective conversion price of the embedded
conversion option. QuantRx measured the intrinsic value of the embedded
conversion option ($647,760) based upon the effective conversion price, which is
defined by EITF 00-27, “Application of Issue 98-5 to Certain Convertible
Instruments,” as the allocated proceeds divided by the number of shares to be
received on conversion. This amount was recorded as original issue
discount.




The
contingent conversion option embedded in the 2008 Notes qualifies as an embedded
contingent conversion option in accordance with EITF 98-5 and 00-27 since
execution is contingent upon a qualified equity financing and is not within the
control of QuantRx. The intrinsic value of the contingent embedded conversion
option will not be recognized until and unless such financing occurs (the
triggering event); which will then enable QuantRx to measure the intrinsic value
associated with the automatic conversion feature.




In
association with the issuance of the 2008 Notes, QuantRx issued warrants to
purchase 100,000 shares of common stock at $1.10 per share valued at $55,750 to
the placement agent, and also incurred cash commissions of $70,000 and legal
fees of $7,500 in connection with the private placement, resulting in total
deferred debt financing costs of $133,250.




In the
fourth quarter of 2008 and the first quarter of 2009, the Company issued
additional 2008 Notes maturing July 31, 2009 aggregating $625,000 ($325,000 in
2009 and $300,000 in 2008) with substantially the same terms as the original
2008 Notes. In connection with these note issuances, warrants with a five-year
term to purchase 156,250 shares of common stock at an exercise price of $0.55
(fair value of $41,563; relative fair value of $34,567) and 106,250 shares of
common stock (fair value of $43,063; relative fair value of $36,922) were also
issued. Certain warrants that were previously issued to the holders through
previous financing transactions were modified by reducing their exercise prices
to $0.55 (fair value of $37,900; relative fair value of
$30,131).  Additionally, there was a beneficial conversion feature on
one note issued in the fourth quarter of 2008 ($1,427) and one note issued in
the first quarter of 2009 ($6,325). No deferred finance costs were incurred on
these additional 2008 Notes.




23




In the
second quarter of 2009, QuantRx issued additional 2008 Notes maturing July 31,
2009 aggregating $835,672 with substantially the same terms as the original 2008
Notes. The notes were issued to one holder of “2008 Promissory Notes” (see
below) in full settlement of $707,890 in 2008 Promissory Notes due to mature in
the second quarter of 2009, and related accrued interest of $27,782, as well as
additional principal of $100,000. In connection with the issuance of these
notes, QuantRx granted 225,000 shares of common stock (fair value of $63,000;
relative fair value of $56,698) and warrants with a five year term to purchase
150,000 shares of common stock at an exercise price of $0.55 (fair value of
$19,500; relative fair value of $17,839). There was no beneficial conversion
feature calculated and there were no deferred finance cost for this
note.




The
accounting for the additional 2008 Notes is consistent with the original 2008
Notes. The cash proceeds from these additional 2008 Notes of $725,000 were
allocated between the notes, common stock, new and modified warrants, as
applicable, on a relative fair value basis. QuantRx allocated the relative fair
values of the common stock ($93,620), new warrants ($52,406), and modified
warrants ($30,131) at the date of issuance to original issue discount.
Additionally, the beneficial conversion feature of $7,752 associated with the
additional 2008 Notes was accounted for as original issue discount. QuantRx used
the net proceeds from these additional issuances for product development,
working capital and general corporate purposes.




In the
aggregate for all 2008 Notes, the fair value of the warrants issued to placement
agents and the cash commissions and legal fees, if any, have been recorded as
deferred financing costs. The total original issue discount related to the
common stock, warrants, and modified warrants issued to the investors, the
beneficial conversion feature, and the deferred financing costs are being
amortized to interest expense over the original term of each 2008 Note in
accordance with EITF 00-27, paragraph 19. Interest expense, including
amortization of original issue discount and deferred financing costs, related to
the 2008 Notes was $176,481 and $340,455 for the three and six months ended June
30, 2009 and $386,460 and $461,283 for the three and six months ended June 30,
2008. In first and second quarter of 2009, the Company issued 10% convertible
notes in the aggregate amount of $66,416 and $81,698, respectively, for
quarterly interest in the form of paid-in-kind notes.




The
Black-Scholes option pricing model was used to calculate the fair values of all
of the above warrants. See Note 2, Summary of Significant Accounting Policies,
“Accounting for Share Based Payments.”




All
outstanding 2008 Notes were settled in full as of July 31, 2009. See Note 15,
Subsequent Events, for additional details.




2008 Secured Promissory
Notes Payable




In the
second quarter of 2008, the Company commenced a private placement to certain
accredited investors through the issuance of 8% senior secured promissory notes
(the “2008 Secured Promissory Notes”). The private placement closed in the third
quarter of 2008.  In connection with the private placement, QuantRx
issued notes in the aggregate principal amount of $550,000, and an aggregate of
137,500 shares of common stock and warrants with a five-year term to purchase
137,500 shares of common stock warrants at a per share exercise price of
$0.85.  The warrants provide for full antidilution protection to the
holders and allow for cashless exercise. The 2008 Secured Promissory Notes were
originally due on September 15, 2008, along with all accrued and unpaid
interest. QuantRx used the net proceeds from the offering for product
development, working capital and general corporate purposes.




24




In
connection with the financing QuantRx entered into 1) a stock pledge agreement,
pursuant to which QuantRx granted to the holders a continuing and perfected
first priority security interest in certain equity securities owned by QuantRx
of two private companies and specified rights and interests associated with the
pledged shares, as well as 2) a patent, trademark and copyright security
agreement, pursuant to which QuantRx granted to the holders a continuing and
perfected first priority security interest in all of its owned or acquired
patents, trademarks and copyrights and specified intellectual property and
related rights and interests associated therewith. If an event of default occurs
under the 2008 Secured Promissory Notes, the holders have agreed not to take any
action with respect to the collateral for 120 days after the holders provide
QuantRx with notice of the holders’ proposed action. The stock pledge agreement
and the patent, trademark and copyright security agreement, and the security
interests created thereby, will terminate upon QuantRx’s satisfaction in full of
its payment obligations under the 2008 Secured Promissory Notes.




The
cash proceeds from the 2008 Secured Promissory Notes of $550,000 were allocated
between the notes, common stock and warrants on a relative fair value basis.
QuantRx allocated $79,806 and $58,050 of the principal amount of $550,000 to the
common stock and warrants as original issue discount, which represented the
relative fair values of each at the date of issuance.




In
association with the issuance of the 2008 Secured Promissory Notes, QuantRx
issued warrants to purchase 100,000 shares of common stock at $0.85 per share
valued at $64,000 to the placement agent, and also incurred cash commissions of
$55,000 in connection with the private placement resulting in total deferred
finance costs of $119,000.




The fair
value of the warrants issued to placement agents and the cash commissions were
recorded as deferred financing costs. The total original issue discount related
to the common stock and warrants issued to the investors and the deferred
financing costs were amortized to interest expense over the original term of the
2008 Secured Promissory Notes in accordance with EITF 00-27, paragraph
19.




On the
original maturity date, September 15, 2008, one note for $100,000 was settled in
full and the Company negotiated monthly extensions of one to three months on the
remaining notes. At September 15, 2008, QuantRx granted an aggregate of 22,500
shares of common stock (fair value $11,475) and warrants to purchase 22,500
shares of common stock with a five year term and an exercise price of $0.85
(fair value $9,000) which for a one-month extension. The second and third
one-month extensions were executed on October and November 15, 2008, on 2008
Secured Promissory Notes with an aggregate principal of $150,000.  In
consideration for these stages, QuantRx granted an aggregate of 15,000 shares of
common stock (fair value $5,250) and warrants to purchase 15,000 shares of
common stock (fair value $3,900) with a five year term and an exercise price of
$0.85. The consideration for the extensions was recognized as prepaid interest
and was amortized over the extension periods. On December 15, 2008, when these
Notes matured, the holders agreed to extend the maturity date to July 31, 2009.
In consideration for one of these seven and a half month extensions, QuantRx
modified the holder’s warrants to purchase 20,000 shares of common stock by
reducing the exercise price from $0.85 to $0.55. The incremental value of this
modification was $400, which was recorded as prepaid interest and is being
amortized over the term of the extension as interest expense.




25




On
October 15, 2008, QuantRx executed an eleven-month extension with a holder of a
$100,000 2008 Secured Promissory Note.  In consideration for this
extension, QuantRx granted 75,000 shares of common stock with a fair value of
$22,500, which will be expensed over the term of the extension.




QuantRx
executed an extension with a holder of a $200,000 2008 Secured Promissory Note
as of October 15, 2008, extending the maturity dates as follows: $50,000 and
related accrued interest due October 31, 2008; $50,000 and related accrued
interest due November 30, 2008; $100,000 and related accrued interest due
December 31, 2008. In consideration for this extension, QuantRx granted 20,000
shares of common stock (fair value $6,000) and warrants to purchase 20,000
shares of common stock (fair value $4,400) with a five year term and an exercise
price of $0.85; the fair values of which were expensed over the term of the
extension. As of December 31, 2008, this holder agreed to an extension of the
remaining $100,000 outstanding principal as follows: $10,000 and related accrued
interest due monthly beginning January 31, 2009, with a final payment due June
30, 2009.  In consideration for this further extension, QuantRx
granted a warrant in January 2009 to purchase 100,000 shares of common stock
(fair value $18,000) with a five year term and an exercise price of $0.50 and
modified warrants to purchase an aggregate 80,000 shares of common stock,
reducing the exercise price from $0.85 to $0.55. The fair value of the
consideration was expensed over the term of the extension.




In the
second quarter of 2009, QuantRx issued an additional $250,000 2008 Secured
Promissory with substantially the same terms as the original 2008 Secured
Promissory Notes and a maturity date of August 10, 2009. The note was issued to
NuRx Pharmaceuticals, Inc. in contemplation of a potential strategic
transaction. There were no deferred finance fees incurred and no original issue
discount. See Note 15, Subsequent Events, for additional details.




In the
aggregate, QuantRx recorded $23,528 and $46,119 in interest expense, including
amortization of original issue discount, deferred financing costs and prepaid
interest, related to the 2008 Secured Promissory Notes for the three and six
months ended June 30, 2009 and $31,642 in interest expense, including
amortization of original issue discount and deferred financing costs, related to
the 2008 Promissory Notes for the three and six months ended June 30,
2008.




The
Black-Scholes option pricing model was used to calculate the fair values of all
of the above warrants. See Note 2, Summary of Significant Accounting Policies,
“Accounting for Share Based Payments.”




All
outstanding 2008 Secured Promissory Notes were settled in full as of July 31,
2009. See Note 15, Subsequent Events, for additional details.




2008 Unsecured Promissory
Notes Payable




In August
2008, the Company completed a private placement to certain accredited investors
through the issuance of 8% promissory notes (the “2008 Promissory Notes”). In
connection with the private placement, QuantRx issued notes in the aggregate
principal amount of $1,000,000, and an aggregate of 250,000 shares of common
stock and warrants with a five-year term to purchase 250,000 shares of common
stock at an exercise price of $0.85.  The warrants provide for full
antidilution protection to the holders and allow for cashless exercise. The 2008
Promissory Notes were due on October 31, 2008, along with all accrued and unpaid
interest. QuantRx used the net proceeds from the offering for product
development, working capital and general corporate purposes.




26




The
net cash proceeds from the 2008 Promissory Notes were $942,500. QuantRx
allocated $132,827 and $108,159 of the principal amount of $1,000,000 to the
common stock and warrants as original issue discount, which represented the
relative fair values of each at the date of issuance.




In
association with the issuance of the 2008 Promissory Notes, QuantRx incurred
cash commissions and legal fees of $57,500, which were recorded as deferred
financing costs and expensed over the original term.




As of
October 31, 2008, QuantRx settled a $500,000 2008 Promissory Note with the
issuance of a $607,890 8% unsecured promissory note which included additional
principal of $100,000 and accrued interest of $7,890.  The maturity
date is April 30, 2009.  In connection with the issuance of this note,
QuantRx granted 200,000 shares of common stock (fair value of $80,000; relative
fair value of $70,696); the relative fair value of the common stock was recorded
as debt discount and was amortized over the original term of the new note. In
the second quarter of 2009, this 2008 Promissory Note and additional 2008
Promissory Notes issued in the second quarter of 2009 held by this note holder,
in the aggregate principal amount of $707,890, together with accrued interest of
$27,782 related to these 2008 Promissory Notes, were settled through the
issuance of a 2008 Note.




QuantRx
executed an extension with a holder of a $500,000 2008 Promissory Note as of
October 31, 2008, extending the maturity date to January 31, 2009.  In
consideration for this extension, QuantRx granted 200,000 shares of common stock
with a fair value of $80,000 and revised the interest rate on the original 8%
note to 10% effective as of the origination date, which was expensed over the
term of the extension.  After making a principal payment of $15,000,
QuantRx executed a further extension with this holder as of January 31, 2009,
extending the maturity date to May 31, 2009 for the remaining principal amount
of $485,000.  In consideration for this extension, QuantRx granted
100,000 shares of common stock (fair value $39,000) and warrants to purchase
100,000 shares of common stock with a five year term and an exercise price of
$0.55 (fair value $21,000).  Additionally, warrants to purchase
125,000 shares of common stock were modified, reducing the exercise price from
$0.85 to $0.55 (incremental fair value $3,750).  The fair value of the
consideration was expensed over the term of the extension. At May 31, 2009,
QuantRx executed an additional extension with this holder extending the maturity
date to July 31, 2009. In consideration for this additional extension, QuantRx
granted 100,000 shares of common stock (fair value $39,000) and warrants to
purchase 100,000 shares of common stock with a five year term and an exercise
price of $0.55 (fair value $21,000), which will be expensed over the term of the
additional extension.




In the
first quarter of 2009, the Company issued additional 8% Promissory Notes
originally maturing March 31, 2009, in the aggregate principal amount of
$115,000, and warrants to purchase an aggregate of 115,000 shares of common
stock with a five year term and an exercise price of $0.55 (fair value $28,850;
relative fair value of $23,054).  The relative fair value of the
warrants was recorded as debt discount and was amortized over the original term
of the notes. As of March 31, 2009, the holders agreed to extend the maturity
date to June 30, 2009. In consideration for this extension, in April 2009,
QuantRx granted warrants to purchase an aggregate of 80,500 shares of common
stock with a five year term and an exercise price of $0.55 (aggregate fair value
$12,075). The fair value of the consideration was expensed over the term of the
extension. No deferred finance costs were incurred on these additional 2008
Promissory Notes.




27




In the
second quarter of 2009, the Company issued a $50,000 8% Promissory Notes
maturing May 31, 2009 (settled prior to maturity with the issuance of a 2008
Note) and $185,000 8% Promissory Notes maturing June 30, 2009 and July 31, 2009,
respectively. In connection with these issuances, QuantRx issued 105,000 shares
of common stock (fair value $39,150; relative fair value of $28,488) and
warrants to purchase an aggregate of 130,000 shares of common stock with a five
year term and an exercise price of $0.55 (fair value $19,050; relative fair
value of $16,611).  The relative fair value of the common stock and
warrants was recorded as debt discount and was amortized over the original term
of the notes. No deferred finance costs were incurred on these additional 2008
Promissory Notes.




QuantRx
used the net proceeds from these additional 2008 Promissory Note issuances for
product development, working capital and general corporate
purposes.




The total
original issue discount related to the common stock and warrants issued to the
investors and the deferred financing costs are being amortized to interest
expense over the original terms of the 2008 Promissory Notes in accordance with
EITF 00-27, paragraph 19. In the aggregate, QuantRx recorded $141,921 and
$274,648 in interest expense, including amortization of original issue discount,
prepaid interest, and deferred financing costs, related to the 2008 Promissory
Notes for the three and six months ended June 30, 2009.




The
Black-Scholes option pricing model was used to calculate the fair values of all
of the above warrants. See Note 2, Summary of Significant Accounting Policies,
“Accounting for Share Based Payments.”




All
outstanding 2008 Promissory Notes were settled in full as of July 31, 2009. See
Note 15, Subsequent Events, for additional details.




11.
            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. The
remaining 15,250,000 authorized preferred shares have not been designated by the
Company as of June 30, 2009. The Company had no issued and outstanding preferred
stock at June 30, 2009 or December 31, 2008. See Note 15, Subsequent Events, for
additional details.




28




12.
            Common Stock, Options
      and Warrants




In the
second quarter 2009, in connection with the issuance of $835,672 10% senior
secured convertible promissory notes, the Company issued an aggregate 225,000
shares of common stock (fair value of $63,000; relative fair value of $56,698)
and warrants with a five year term to purchase 150,000 shares of common stock at
an exercise price of $0.55 (fair value of $19,500; relative fair value of
$17,839).




In the
second quarter 2009, in connection with the issuance of $235,000 8% promissory
notes, the Company issued an aggregate of 105,000 shares of common stock (fair
value of $39,150; relative fair value of $28,488) and warrants to purchase an
aggregate of 130,000 shares of common stock with a five year term and an
exercise price of $0.55 (fair value of $19,050; relative fair value of
$16,611).




In the
second quarter of 2009, in connection with extensions of certain 2008 Promissory
Notes, the Company issued warrants to purchase an aggregate of 80,500 shares of
common stock with a five year term and an exercise price of $0.55 (aggregate
fair value $12,075).




In the
second quarter of 2009, in connection with an extension of a 2008 Promissory
Note, the Company issued 100,000 shares of common stock (fair value $39,000) and
warrants to purchase 100,000 shares of common stock with a five year term and an
exercise price of $0.55 (fair value $21,000).




In the
first quarter of 2009, in connection with the issuance of $300,000 10% senior
secured convertible promissory notes, the Company issued an aggregate of 81,250
shares of common stock (fair value of $33,813; relative fair value of $29,105)
and warrants to purchase 81,250 shares of common stock with a five year term and
an exercise price of $0.55 (fair value of $18,188; relative fair value of
$15,648).




In the
first quarter of 2009, in connection with an extension of a 2008 Promissory
Note, QuantRx granted 100,000 shares of common stock with a fair value of
$39,000 and warrants to purchase 100,000 shares of common stock with a five year
term and an exercise price of $0.55 (fair value
$21,000).  Additionally, warrants to purchase 125,000 shares of common
stock were modified, reducing the exercise price from $0.85 to
$0.55.




In the
first quarter 2009, in connection with the issuance of $325,000 8% promissory
notes, the Company issued warrants to purchase an aggregate of 115,000 shares of
common stock with a five year term and an exercise price of $0.55 (fair value
$28,850; relative fair value of $23,054).




In the
first quarter of 2009, warrants to purchase an aggregate of 810,000 shares of
common stock were granted to employees and warrants to purchase an aggregate of
50,000 shares of common stock were granted to certain consultants. The warrants
were issued with an exercise price of $0.31, have a term of five years and vest
immediately, and have a fair value of $163,400.




In
January 2009, in connection with an extension of a maturity date on a 2008
Secured Promissory Note, QuantRx granted a warrant to purchase 100,000 shares of
common stock with a five year term and an exercise price of $0.50 (fair value
$18,000) and modified warrants to purchase an aggregate 80,000 shares of common
stock, reducing the exercise price from $0.85 to $0.55.




29




In the
fourth quarter of 2008, in connection with the issuance of $325,000 10% senior
secured convertible promissory notes, the Company issued 25,000 shares of common
stock (fair value $9,250; relative fair value of $7,817) and warrants to
purchase 75,000 shares of common stock (fair value of $23,375; relative fair
value of $18,919). Additionally, certain previously issued warrants were
modified, reducing their exercise prices to $0.55.  The aggregate
incremental fair value of these modifications was $37,900; the relative fair
value was $30,131.




On
December 15, 2008, QuantRx negotiated extensions on each of the then-maturing
2008 Secured Promissory Notes. In consideration for one of these seven and a
half month extensions, QuantRx modified the holder’s warrants to purchase 20,000
shares of common stock by reducing the exercise price from $0.85 to $0.55. The
incremental value of this modification was $400, which was recorded as prepaid
interest and is being amortized over the term of the extension as interest
expense.




On
September, October and November 15, 2008, QuantRx negotiated extensions on each
of the outstanding 2008 Secured Promissory Notes. In consideration for these one
to eleven month extensions, QuantRx granted an aggregate of 132,500 shares of
common stock (fair value $45,225) and warrants to purchase 57,500 shares of
common stock with a five year term and an exercise price of $0.85 (fair value
$17,300).




On
October 31, 2008, QuantRx issued 200,000 shares of common stock (fair value of
$80,000; relative fair value of $70,696) in connection with the issuance of a
$607,890 2008 Promissory Note.




On
October 31, 2008, QuantRx negotiated an extension on one of the 2008 Promissory
Notes. In consideration for this extension, QuantRx issued 200,000 shares of
common stock (fair value $80,000).




In August
2008, QuantRx completed a private placement of 8% promissory notes, common
stock, and warrants to purchase shares of QuantRx’s common stock. In connection
with the private placement, QuantRx issued 250,000 shares of common stock (with
a relative fair value of $132,827) and warrants with a five-year term to
purchase 250,000 shares of QuantRx’s common stock at an exercise price of $0.85
(with a relative fair value of $108,159). The notes, common stock and warrants
were offered only to certain private accredited investors.




On August
18, 2008, the Company issued a warrant in consideration of a three month
consulting and investor relations services agreement. The warrant has a term of
five years and represents the right to purchase 40,000 shares of common stock at
an exercise price of $1.25. The fair value of this warrant was calculated to be
$22,400 and was expensed over the term of the agreement.




In the
second and third quarters of 2008, QuantRx conducted a private placement of 8%
promissory notes, common stock and warrants to purchase shares of QuantRx’s
common stock. In connection with the private placement, QuantRx issued 137,500
shares of common stock (with a relative fair value of $79,806) along with
warrants with a five-year term to purchase 137,500 shares of QuantRx’s common
stock at an exercise price of $0.85 (with a relative fair value of $58,050). The
notes, common stock and warrants were offered only to certain private accredited
investors. At the commencement of the financing, in June 2008, QuantRx issued
warrants for services to purchase 100,000 shares of common stock at $0.85 per
share valued at $64,000.




30




In April
2008, QuantRx completed a limited warrant exercise inducement targeting large
warrant holders who have expressed an interest to participate. The inducement
was a reduction in the exercise price from $1.50 to $0.70 to a limited number of
warrant holders who acquired the warrants in conjunction with prior common stock
purchases. Warrants to purchase an aggregate of 241,699 shares of common stock
were exercised and exchanged for our common stock for total proceeds of
$169,189.




In April
2008, the Company issued common stock warrants with a five year term in
consideration of a financial advisory and investor relations consulting services
agreement. The warrant represents the right to purchase 200,000 shares of common
stock at an exercise price of $0.89 and vests ratably each month over a one year
term. The fair value of the warrant was calculated to be $148,000 on grant date,
and shall be remeasured during the vesting term as required. Consulting expense
related to the issuance of these warrants was $34,000 for the year ended
December 31, 2008.




In April
2008, the Company issued warrants with a five year term to purchase 25,000
shares of common stock at an exercise price of $1.35. The warrants were issued
as payment for technical advisory services related to medical diagnostics. The
fair value of these warrants was calculated to be $16,250, and will be expensed
over a one year term. Consulting expense related to the issuance of these
warrants was $11,576 for the year ended December 31, 2008.




In the
first quarter of 2008, QuantRx completed a private placement of 10% senior
secured convertible notes and warrants to purchase shares of QuantRx’s common
stock. In connection with the private placement, QuantRx issued warrants with a
five-year term to purchase 250,000 shares of QuantRx’s common stock at an
exercise price of $1.25. The notes and the warrants were offered only to certain
private accredited investors. In association with the issuance of these
convertible notes, QuantRx issued warrants for services to purchase 100,000
shares of common stock at $1.10 per share valued at $55,750.




2007 Incentive and
Non-Qualified Stock Option Plan




Pursuant
to SFAS 123(R), 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 $14,125 and $87,704 for the three and six months ended June 30,
2009, and $207,461 and $359,112 for the three and six months ended June 30,
2008, respectively. Compensation cost related to QuantRx’s non-employee options
was a reduction of $1,667 based on a remeasurement adjustment for the three and
six months ended June 30, 2009, and $4,292 and $6,167 for the three and six
months ended June 30, 2008, respectively.




In the
first quarter of 2009, an aggregate of 130,000 qualified common stock options
were granted to employees and issued from the Company’s 2007 Incentive and
Non-Qualified Stock Option Plan. The options were issued with an exercise price
of $0.31, and have a term of five years. The options vest monthly over one year.
The fair value of these options is $24,700.




31




In the
fourth quarter of 2008, 6,250 non-qualified common stock options were granted to
a member of the board of directors and issued from the Company’s 2007 Incentive
and Non-Qualified Stock Option Plan. The options were issued with an exercise
price of $0.35, have a term of five years and vested immediately. The fair value
of these options is $1,813.




In the
first quarter of 2008, an aggregate of 528,000 qualified common stock options
were granted to employees and 25,000 non-qualified stock options were granted to
certain consultants and issued from the Company’s 2007 Incentive and
Non-Qualified Stock Option Plan. The options were issued with an exercise price
of $0.80, and have a term of ten years. The options vest monthly over one year.
The fair value of these options is $420,280.




13.
            Related Party
      Transactions




In August
2008, in connection with a debt financing, QuantRx incurred cash commissions of
$50,000 to Burnham Hill Partners, of which a beneficial owner of more than 5% of
QuantRx common stock is a managing member. Burnham Hill Partners was the
placement agent for the debt financing. These commissions are outstanding as of
June 30, 2009.




On June
16, 2008, in connection with a debt financing, QuantRx issued warrants with a
five-year term valued at $64,000 to purchase an aggregate of 100,000 shares of
common stock at an exercise price of $0.85 to Burnham Hill Partners. Burnham
Hill Partners was the placement agent for the debt financing. Additionally, cash
commissions of $55,000 are due to Burnham Hill Partners for its role as
placement agent in the transaction as of June 30, 2009.




In the
first quarter of 2008, in connection with a debt financing, QuantRx issued
warrants with a five-year term valued at $55,750 to purchase an aggregate of
100,000 shares of common stock at an exercise price of $1.10 to Burnham Hill
Partners, of which a beneficial owner of more than 5% of QuantRx common stock is
a managing member. Burnham Hill Partners was the placement agent for the debt
financing. Additionally, cash commissions of $70,000 are due to Burnham Hill
Partners for its role as placement agent in the transaction.




At June
30, 2009, cash commissions of $20,000 were due to Burnham Hill Partners for its
role as placement agent in a debt financing transaction in October
2007.




A member
of the Company’s board of directors served as a consultant to the Company on
various business, strategic, and technical issues. His contract expired May 31,
2008. Fees paid and expensed for these services by the Company during the three
and six months ended June 30, 2008 were $8,000 and $20,000,
respectively.




14.
            Commitments and
      Contingencies




Operating
Leases




QuantRx
leases office space and research and development lab space under operating leases that expire at various times through 2011.  Some of
theseleases contain cancellation clauses, subject to a
termination fee, and include allocations for common expenses subject to future
adjustment.  Rent expense related to operatingleases
was approximately $31,857 and $65,501 for the three and six months ended June
30, 2009, and $30,117 and $60,234 for the three and six months ended June 30,
2008, respectively. In connection with facilityleases, 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 operatingleases
as of June 30, 2009 are estimated as follows:




32




Remainder
      of 2009
            
            $
            75,7312010
            
            
            57,2402011
            
            
            43,875Total
      minimum payments
            
            $
            176,846




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 $5,665 and
$11,535 for the three and six months ended June 30, 2009, and $5,640 and $11,960
for the three and six months ended June 30, 2008 respectively, and is recorded
in other income.




Executive Employment
Contracts




The
Company has an employment contract with a key Company executive that provides
for the continuation of salary to the executive if terminated for reasons other
than cause, as defined in those agreements. At June 30, 2009, the future
employment contract commitment for such key executive based on this termination
clause was approximately $240,000.




15.
            Subsequent
      Events








Settlement of 2008 Notes,
2008 Secured Promissory Notes, and 2008 Promissory Notes




As of
July 31, 2009, QuantRx made full settlement with all holders of Notes described
in Note 10 above, and obtained the release of all security interests granted to
the note holders in QuantRx assets.  In connection with the note
holders’ cancellation of their notes and the release of the liens in favor of
such note holders on QuantRx intellectual property being contributed to the
joint venture described below, such note holders received either cash in an
amount equal to the outstanding principal and interest accrued thereunder,
shares of the newly created Series A-1 Convertible Preferred Stock (see below),
or a combination of both.




See the
Current Report on Form 8-K filed by QuantRx with the Securities and Exchange
Commission on August 5, 2009 for additional details.




PRIA Asset Purchase
Agreement




On July
30, 2009, the Company entered into and closed 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 is equal
to $725,000, comprised of cash and shares of QuantRx common stock.




33






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, LLC, a newly formed Delaware limited liability company that was
formed as a joint venture between QuantRx and NuRx Pharmaceuticals, Inc., which
is described in more detail below.  In addition, QN Diagnostics 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 sales 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.




See the
Current Report on Form 8-K filed by QuantRx with the Securities and Exchange
Commission on August 5, 2009 for additional details.




QN Diagnostics, LLC Limited
Liability Company Agreement




On July
30, 2009, QuantRx entered into a Contribution Agreement with NuRx
Pharmaceuticals, Inc.  Pursuant to the Contribution Agreement, QuantRx
contributed certain intellectual property, including the assets purchased from
PRIA under the Asset Purchase Agreement, and other assets related to its lateral
flow strip technology and related lateral flow strip readers into QN
Diagnostics, a newly formed Delaware limited liability company that was formed
as a joint venture between NuRx and QuantRx.




QuantRx
and NuRx also entered into a Limited Liability Company Agreement to govern the
Joint Venture, dated July 30, 2009. Under the terms of the LLC Agreement, NuRx
contributed $5,000,000 in cash to the Joint Venture.  Following the
respective contributions by NuRx and QuantRx to the Joint Venture, NuRx and
QuantRx will each own a 50% interest in the Joint Venture.  The
purpose of the Joint Venture will be to research, develop and commercialize
products incorporating the lateral flow strip technology and related lateral
flow strip readers.




QuantRx
and the Joint Venture also entered into a Development and Services Agreement on
July 30, 2009, pursuant to which the Joint Venture has agreed to pay a monthly
fee to QuantRx in exchange for QuantRx providing all services, equipment and
facilities related to the research, development, regulatory approval and
commercialization of lateral flow products.




In
connection with the transactions described herein, NuRx received two warrants to
purchase 2,000,000 shares of QuantRx common stock, or an aggregate of 4,000,000
shares of QuantRx common stock.  The warrants expire on July 30, 2014
and have an exercise price of $0.50 and $1.25, respectively.




See the
Current Report on Form 8-K filed by QuantRx with the Securities and Exchange
Commission on August 5, 2009 for additional details.




Series A-1 Convertible
Preferred Stock




Effective
August 3, 2009, QuantRx filed a Certificate of Designation of the Relative
Rights and Preferences of the newly designated Series A-1 Convertible Preferred
Stock of the Company with the Secretary of State of the State of
Nevada.  The Company’s Board of Directors approved the Certificate of
Designation and authorized its filing at a meeting held on July 24,
2009.




34




The
Certificate of Designation provides for the issuance of up to 10,000,000 shares
of Series A-1 Convertible Preferred Stock.  The Series A-1 Preferred
Stock shall rank 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 do not rank senior to the Series A-1 preferred
stock. Holders of the Series A-1 Preferred Stock shares shall be entitled to
receive, when, as and if declared by the Board of Directors, preferential
dividends which shall accrue at the rate of 8% per annum to be paid at the
option of the Company, either in cash or by the issuance of additional shares of
Series A-1 Preferred Stock.




The
Company may, at its option, redeem shares of the Series A-1 Preferred Stock, in
whole or in part, out of funds legally available, by action of the Board of
Directors, at any time after the issuance of such Series A-1 Preferred Stock, at
a redemption price equal to the Face Amount plus all accrued and unpaid
dividends on such Series A-1 Preferred Stock. At any time on or after the
Issuance Date, the Series A-1 Preferred Stock may be converted into a number of
fully paid and nonassessable shares of Common Stock at a conversion rate of
two-to-one (2:1); two shares of Common Stock for each one share of Series A-1
Preferred Stock.




On August
4, 2009, the Company issued 4,060,397 shares of Series A-1 convertible preferred
stock, par value $0.01 per share, 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.




See the
Current Report on Form 8-K filed by QuantRx with the Securities and Exchange
Commission on August 5, 2009 for additional details.




Other




In the
third quarter of 2009, the Company issued $80,000 8% Promissory Notes maturing
July 31, 2009. In connection with these issuances, QuantRx issued 80,000 shares
of common stock.  See Note 10, under the heading “2008 Unsecured
Promissory Notes Payable” for details on these notes and common stock and their
accounting. These notes were settled in full as of July 31, 2009.




In the
third quarter of 2009, warrants to purchase an aggregate of 550,000 shares of
common stock were granted to certain executives. The warrants were issued with
an exercise price of $0.50, have a term of five years and are vested with
respect to 475,000 warrants, with the remaining 75,000 warrants vesting with the
successful completion of a development milestone.




In the
third quarter of 2009, an aggregate of 500,000 non-qualified common stock
options were granted and issued from the Company’s 2007 Incentive and
Non-Qualified Stock Option Plan to executives in accordance with employment
agreements executed July 30, 2009. The options were issued with an exercise
price of $0.50, have a term of five years, and are vested with respect to
375,000 options, with the remaining 125,000 options vesting with the successful
completion of development milestones.




35




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 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® point-of-care testing products based on QuantRx
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., 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’s overall growth strategy is to: (i) leverage its broad-based 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.




36




QuantRx
is developing a hand-held optical imaging device which, when coupled with our
RapidSense technology, will enable highly sensitive, quantitative, positive
read, diagnostic testing to be performed economically at the point of
care.




On May 5,
2009, QuantRx and FluoroPharma reorganized their relationship by terminating
their investment agreement and related agreements, originally executed on March
10, 2006, which allowed FluoroPharma to close an equity financing with third
party investors. In conjunction with the termination of these agreements and the
additional third party investment in FluoroPharma, QuantRx agreed to convert all
outstanding receivables from FluoroPharma, consisting of previously issued notes
and related accrued interest and advances into shares of FluoroPharma common
stock. As a result of these transactions and the third party investment, the
Company’s ownership interest in FluoroPharma was reduced to a noncontrolling
interest, which resulted in deconsolidation.




The
accounts of FluoroPharma 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. 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 May 5, 2009 our financial
statements reflect our investment in FluoroPharma under the equity method of
accounting.




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 approximately 45.55%, and at June 30, 2009 it was
approximately 40.77%. Subsequent to the termination of the investment agreements
between QuantRx and FluoroPharma, QuantRx has no continuing obligations or
commitments to FluoroPharma.




On July
30, 2009, the Company entered into and closed 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 acquired intellectual property is primarily
intended to complement the Company’s development of a hand held optical imaging
device to be used in conjunction with the RapidSense technology.




On July
30, 2009, QuantRx entered into a Contribution Agreement with NuRx
Pharmaceuticals, Inc.  Pursuant to the Contribution Agreement, QuantRx
contributed certain intellectual property, including the assets purchased from
PRIA under the Asset Purchase Agreement, and other assets related to its lateral
flow strip technology and related lateral flow strip readers into QN
Diagnostics, a newly formed Delaware limited liability company that was formed
as a joint venture between NuRx and QuantRx.




QuantRx
and NuRx also entered into a Limited Liability Company Agreement to govern the
joint venture, dated July 30, 2009. Under the terms of the LLC Agreement, NuRx
contributed $5,000,000 in cash to the joint venture.  Following the
respective contributions by NuRx and QuantRx to the joint venture, NuRx and
QuantRx will each own a 50% interest in the joint venture.  The
purpose of the joint venture will be to research, develop and commercialize
products incorporating the lateral flow strip technology and related lateral
flow strip readers.




QuantRx
and the QN Diagnostics also entered into a Development and Services Agreement on
July 30, 2009, pursuant to which the QN Diagnostics has agreed to pay a monthly
fee to QuantRx in exchange for QuantRx providing all services, equipment and
facilities related to the research, development, regulatory approval and
commercialization of lateral flow products.




37




Consolidated
Results of Operations




The
consolidated results of operations include the accounts of the Company and its
formerly majority-owned subsidiary, FluoroPharma, Inc., though December 31,
2008.  Effective May 5, 2009, QuantRx and FluoroPharma executed
transactions which 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 effective May 5, 2009 our financial
statements reflect our investment in FluoroPharma under the equity method of
accounting. The loss related to FluoroPharma as a consolidated subsidiary for
January 1, 2009 through May 4, 2009 of $272,579 has been reflected as a one-line
item in our financial statements.




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 ($272,579 in 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 (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 approximately
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 in accordance with SFAS No.
160.




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. QuantRx’s estimated allocation of the net
loss of $106,496 from the equity method investment in FluoroPharma for the
period commencing May 5, 2009 through June 30, 2009 was not recorded, since the
remaining investment in FluoroPharma had a carrying value of $0 as of the
deconsolidation of FluoroPharma at May 5, 2009.




Net
operating revenues for the three months ended June 30, 2009 and 2008 were
$172,415 and $$161,088, respectively. Net operating revenues for the six months
ended June 30, 2009 and 2008 were $331,902 and $253,260, respectively. The
increase in revenues of $11,327 and 78,642 is due primarily to an increase in
licensing income, offset by a decrease in development revenue.




General
and administrative expense for the three months ended June 30, 2009 and 2008
were $326,347 and $801,685, respectively, and for the six months ended June 30,
2009 and 2008, was $861,079 and $1,485,329, respectively The decrease of
$475,338 ($245,349 related to QuantRx) and $624,250 ($254,606 related to
QuantRx) is due primarily to a decrease in personnel related expenses of
$194,618 and $113,599, cost containment efforts, particularly in travel and
related expenses, and the absence of our former subsidiary’s results in our 2009
accounts (see above).




38




Professional
fees for the three months ended June 30, 2009 and 2008, were $40,141 and
$235,658, respectively, and for the six months ended June 30, 2009 and 2008,
were $89,168 and $558,726, respectively.  Professional fees include
the costs of legal, consulting and auditing services provided to us. The
decrease of $195,517 ($105,636 related to QuantRx) and $469,558 ($330,339
related to QuantRx) is primarily due to decreased legal fees, decreased FDA
regulatory consulting, decreased investor and public relation consulting, as
part of QuantRx’s overall cost containment efforts; as well as the absence of
our former subsidiary’s results in our 2009 accounts (see above).




Research
and development expense for the three months ended June 30, 2009 and 2008, was
$126,465 and $752,477, respectively, and for the six months ended June 30, 2009
and 2008, was $284,277 and $1,229,489, respectively. The decrease of $626,012
($139,104 related to QuantRx) and $945,212 ($237,057 related to QuantRx) is due
primarily to a decrease in contract development fees, decreased personnel and
related expenses, and decreased materials and supplies
expenses,   as part of QuantRx’s overall cost containment
efforts; as well as the absence of our former subsidiary’s results in our 2009
accounts (see above).




The
Company’s net loss for the three months ended June 30, 2009 and 2008 was
$750,905 and $2,141,487, respectively, and for the six months ended June 30,
2009 and 2008, was $1,891,032 and $4,158,728, respectively. The decreased net
loss of $1,390,582 ($544,955 related to QuantRx) for the three months ended June
30, 2009 and 2008, is primarily due to the implementation of the cost
containment efforts described above; as well as the deconsolidation of our
former subsidiary (see above).  The decreased net loss of $2,267,696
($985,137 related to QuantRx) for the six months ended June 30, 2009 and 2008,
is primarily due to the $439,445 loss on extinguishment of convertible notes in
the first quarter of 2008 and the implementation of the cost containment efforts
described above; as well as the deconsolidation of our former subsidiary (see
above).




Liquidity
and Capital Resources




As of
June 30, 2009, QuantRx had cash and cash equivalents of $285,374, as compared to
cash and cash equivalents of $66,226 as of December 31, 2008. The net increase
in cash of $219,148 for the six months ended June 30, 2009, is primarily
attributed to $1,025,000 in net proceeds from the issuance
of  promissory notes in the six months ended June 30, 2009 (see Note
10 to the financial statements), offset by net cash used for operating
activities of $595,908. In addition, QuantRx has invested $125,000 in deposits
for an asset acquisition in the six months ended June 30, 2009. 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.




While the
Company has formed a strategic joint venture to alleviate the funding
requirements for the development and commercialization of its lateral flow based
products and has settled its outstanding short-term promissory notes in full,
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 financing, 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.




39




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:




·
            obtain
      adequate sources of debt or equity financing to pay unfunded operating
      expenses and fund certain 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 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.  The
Company anticipates that the initial capital contribution to the joint venture
will be sufficient to fund the planned operations of the joint venture through
positive cash flow; however, 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.




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.




40




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.




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. We
evaluate multiple deliverable arrangements pursuant to Emerging Issues Task
Force (EITF) 00-21, “Revenue Arrangements with Multiple Deliverables.” Pursuant
to EITF 00-21, 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.




41




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 in accordance with Statement of Financial Accounting
Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets.” 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.




We
performed annual impairment tests of our equity method goodwill in accordance
with SFAS No. 142, “Goodwill and Other Intangible Assets.” Under SFAS
No. 142, equity method goodwill is not amortized but is subject to
impairment tests in accordance with Accounting Principles Board Opinion No. 18,
“The Equity Method of Accounting for Investments in Common Stock,” under which
QuantRx would have recognized an impairment loss had there been a loss in the
value of the equity method goodwill which was deemed to be other than a
temporary decline.




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.




Share-based
Payments




We grant
options to purchase our common stock to our employees and directors under our
stock option plan subject to the provisions of SFAS No. 123(R), “Share-Based
Payments.”




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 the
application of SFAS No. 123(R) in future periods, the compensation expense
that we record under SFAS No. 123(R) may differ significantly from what we
have recorded in the current period.




42




We
account for share-based compensation awards granted to non-employees in
accordance with EITF No. 96-18, “Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services.” Under EITF 96-18, we determine the fair value of the
share-based compensation awards granted 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
U.S.




ITEM
4T. 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 June 30,
2009.




(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.




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.




43




PART
II - OTHER INFORMATION




ITEM
1. Legal
Proceedings.




As of the
date hereof, the Company has no pending or threatened litigation.




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




In the
second quarter 2009, in connection with the issuance of $835,672 10% senior
secured convertible promissory notes, the Company issued an aggregate 225,000
shares of common stock and warrants with a five year term to purchase 150,000
shares of common stock at an exercise price of $0.55. The notes were convertible
into 1,671,344 shares of common stock, but have since been settled in full. See
Note 15 to the Financial Statements, Subsequent Events, for additional
details.




In the
second quarter 2009, in connection with the issuance of $235,000 8% promissory
notes, the Company issued an aggregate of 105,000 shares of common stock and
warrants to purchase an aggregate of 130,000 shares of common stock with a five
year term and an exercise price of $0.55.




In the
second quarter of 2009, in connection with extensions of certain 2008 Promissory
Notes, the Company issued warrants to purchase an aggregate of 80,500 shares of
common stock with a five year term and an exercise price of $0.55.




In the
second quarter of 2009, in connection with an extension of a 2008 Promissory
Note, the Company issued 100,000 shares of common stock and warrants to purchase
100,000 shares of common stock with a five year term and an exercise price of
$0.55.




At March
31, 2009 and June 30, 2009, the Company issued 10% senior secured convertible
notes in the amount of $66,416 and $81,698, respectively, pursuant to certain
holders’ elections to receive quarterly interest in the form of paid-in-kind
notes. The notes were convertible into 296,228 shares of common stock, but have
since been settled in full. See Note 15 to the Financial Statements, Subsequent
Events, for additional details.




In the
third quarter of 2009, the Company issued $80,000 8% Promissory Notes maturing
July 31, 2009. In connection with these issuances, QuantRx issued 80,000 shares
of common stock.




In the
third quarter of 2009, warrants to purchase an aggregate of 550,000 shares of
common stock were granted to certain executives. The warrants were issued with
an exercise price of $0.50, have a term of five years and are vested with
respect to 475,000 warrants, with the remaining 75,000 warrants vesting with the
successful completion of a development milestone.




In the
third quarter of 2009, an aggregate of 500,000 non-qualified common stock
options were granted and issued from the Company’s 2007 Incentive and
Non-Qualified Stock Option Plan to executives in accordance with employment
agreements executed July 30, 2009. The options were issued with an exercise
price of $0.50, have a term of five years, and are vested with respect to
375,000 options, with the remaining 125,000 options vesting with the successful
completion of development milestones.




44




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




The
issuances of the above securities were deemed to be exempt from registration
under the Securities Act of 1933, as amended (the “Securities Act”), in reliance
on Section 4(2) of the Securities Act or Regulation D promulgated under the
Securities Act, as transactions by an issuer not involving a public
offering.




ITEM
3. Defaults Upon Senior Securities




None.




ITEM
4. Submission of Matters to a Vote of Security Holders




None.




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.




45





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 CorporationDate:  
      August 14, 2009
              By:
              /s/
      Walter WitoshkinWalter
      WitoshkinChairman
      & CEO






Date:  
      August 14, 2009
              By:
              /s/
      Sasha AfanassievSasha
      AfanassievCFO,
      Treasurer & VP of Finance




46