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, 2010


OR


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


EXCHANGE
ACT OF 1934


For the
transition period from _________to_________





Commission
File No. 0-17119





QUANTRX BIOMEDICAL
CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)





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





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


(Address
of Principal Executive Offices) (Zip Code)





(267)
880-1595


(Registrant’s
Telephone Number, Including Area Code)




Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. x Yes
 ̈
No




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).   ̈ Yes
 ̈
No




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





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




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




The
number of shares outstanding of the issuer’s common stock as of August 6, 2010
was 44,427,630.








PART I -FINANCIAL INFORMATIONITEM
      1.
                  Financial
      StatementsConsolidated
      Balance Sheets as of June 30, 2010 (Unaudited) and December 31,
      2009
                  4Consolidated
      Statements of Operations (Unaudited) for the three and six months ended
      June 30, 2010 and 2009
                  5Consolidated
      Statements of Cash Flows (Unaudited) for the six months ended June 30,
      2010 and 2009
                  6Condensed
      Notes to (Unaudited) Consolidated Financial Statements
                  7ITEM
      2.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  18ITEM
      4.
                  Controls
      and Procedures
                  25PART
      II - OTHER INFORMATIONITEM
      1.
                  Legal
      Proceedings
                  25ITEM
      2.
                  Unregistered
      Sales of Equity Securities; and Use of Proceeds
                  26ITEM
      3.
                  Defaults
      Upon Senior Securities
                  26ITEM
      4.
                  Reserved
                  26ITEM
      5.
                  Other
      Information
                  26ITEM
      6.
                  Exhibits
                  26Signatures
                  
                  27


2


PART
I – FINANCIAL INFORMATION




CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING INFORMATION




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




3


ITEM
      1.
            Financial
      Statements




QUANTRX
      BIOMEDICAL CORPORATIONCONSOLIDATED BALANCE
  SHEETS





June 30,
                    2010
                  
                  
                  December 31,
                    2009(unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  128,101
                  
                  
                  $
                  376,211Accounts
      receivable
                  
                  
                  160,315
                  
                  
                  
                  41,128Accounts
      receivable – related party
                  
                  
                  380,652
                  
                  
                  
                  31,500Interest
      receivable – related party
                  
                  
                  55,689
                  
                  
                  
                  47,689Other
      receivable
                  
                  
                  63,000
                  
                  
                  
                  -Inventories
                  
                  
                  4,578
                  
                  
                  
                  4,681Prepaid
      expenses
                  
                  
                  31,328
                  
                  
                  
                  128,228Note
      receivable – related party
                  
                  
                  200,000
                  
                  
                  
                  200,000Total
      Current Assets
                  
                  
                  1,023,663
                  
                  
                  
                  829,437Investments
                  
                  
                  200,000
                  
                  
                  
                  200,000Investment
      in joint venture
                  
                  
                  -
                  
                  
                  
                  63,601Property
      and equipment, net
                  
                  
                  144,346
                  
                  
                  
                  179,590Intangible
      assets, net
                  
                  
                  50,936
                  
                  
                  
                  59,780Security
      deposits
                  
                  
                  11,093
                  
                  
                  
                  11,093Total
      Assets
                  
                  $
                  1,430,038
                  
                  
                  $
                  1,343,501LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
                  
                  $
                  1,001,613
                  
                  
                  $
                  749,225Accounts
      payable – related party
                  
                  
                  143,987
                  
                  
                  
                  -Accrued
      expenses
                  
                  
                  385,000
                  
                  
                  
                  233,000Deferred
      revenue
                  
                  
                  8,172
                  
                  
                  
                  -Deferred
      revenue – related party
                  
                  
                  -
                  
                  
                  
                  337,160Security
      deposits
                  
                  
                  2,000
                  
                  
                  
                  2,000Total
      Current Liabilities
                  
                  
                  1,540,772
                  
                  
                  
                  1,321,385Notes
      payable, long-term
                  
                  
                  44,000
                  
                  
                  
                  44,000Total
      Liabilities
                  
                  
                  1,584,772
                  
                  
                  
                  1,365,385Commitments
      and Contingencies
                  
                  
                  -
                  
                  
                  
                  -Stockholders’
      Equity (Deficit):Preferred
      stock; $0.01 par value, 25,000,000 authorized shares; Series A-1
      convertible preferred shares: 4,060,397 shares issued and
      outstanding
                  
                  
                  40,604
                  
                  
                  
                  40,604Common
      stock; $0.01 par value; 150,000,000 authorized; 44,427,630 shares issued
      and outstanding
                  
                  
                  444,276
                  
                  
                  
                  444,276Additional
      paid-in capital
                  
                  
                  47,787,597
                  
                  
                  
                  47,756,355Accumulated
      deficit
                  
                  
                  (48,427,211
                  )
                  
                  
                  (48,263,119
                  )Total
      Stockholders’ Equity (Deficit)
                  
                  
                  (154,734
                  )
                  
                  
                  (21,884
                  )Total
      Liabilities and Stockholders’ Equity (Deficit)
                  
                  $
                  1,430,038
                  
                  
                  $
                  1,343,501





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


4





QUANTRX
      BIOMEDICAL CORPORATIONCONSOLIDATED STATEMENTS OF
      OPERATIONS





Three Months Ended June 30,
                        
                        
                        Six Months Ended June 30,2010
                        
                        
                        2009
                        
                        
                        2010
                        
                        
                        2009(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)Revenues:Revenues
                        
                        $
                        19,428
                        
                        
                        $
                        172,415
                        
                        
                        $
                        29,438
                        
                        
                        $
                        331,902Revenues
      – related party
                        
                        
                        621,612
                        
                        
                        
                        -
                        
                        
                        
                        1,270,893
                        
                        
                        
                        -Total
      Revenues
                        
                        
                        641,040
                        
                        
                        
                        172,415
                        
                        
                        
                        1,300,331
                        
                        
                        
                        331,902Costs
      and Operating Expenses:Cost
      of goods sold (excluding depreciation and amortization)
                        
                        
                        97
                        
                        
                        
                        112
                        
                        
                        
                        129
                        
                        
                        
                        1,463Sales,
      general and administrative
                        
                        
                        279,526
                        
                        
                        
                        326,745
                        
                        
                        
                        583,103
                        
                        
                        
                        861,635Professional
      fees
                        
                        
                        178,879
                        
                        
                        
                        40,141
                        
                        
                        
                        428,430
                        
                        
                        
                        89,168Research
      and development
                        
                        
                        529,087
                        
                        
                        
                        126,465
                        
                        
                        
                        1,133,433
                        
                        
                        
                        284,277Amortization
                        
                        
                        4,540
                        
                        
                        
                        5,852
                        
                        
                        
                        8,844
                        
                        
                        
                        11,704Depreciation
                        
                        
                        15,909
                        
                        
                        
                        17,318
                        
                        
                        
                        32,815
                        
                        
                        
                        35,144Total
      Costs and Operating Expenses
                        
                        
                        1,008,038
                        
                        
                        
                        516,633
                        
                        
                        
                        2,186,754
                        
                        
                        
                        1,283,391Loss
      from Operations
                        
                        
                        (366,998
                        )
                        
                        
                        (344,218
                        )
                        
                        
                        (886,423
                        )
                        
                        
                        (951,489
                        )Other
      Income (Expense):Interest
      and dividend income
                        
                        
                        5,127
                        
                        
                        
                        6,086
                        
                        
                        
                        11,387
                        
                        
                        
                        29,219Interest
      expense
                        
                        
                        (1,599
                        )
                        
                        
                        (205,517
                        )
                        
                        
                        (2,777
                        )
                        
                        
                        (383,593
                        )Rental
      income
                        
                        
                        4,125
                        
                        
                        
                        5,665
                        
                        
                        
                        8,250
                        
                        
                        
                        11,535Amortization
      of debt discount to interest expense
                        
                        
                        -
                        
                        
                        
                        (128,102
                        )
                        
                        
                        -
                        
                        
                        
                        (272,146
                        )Amortization
      of deferred finance costs to interest expense
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (8,693
                        )Loss
      from deconsolidation of subsidiary
                        
                        
                        -
                        
                        
                        
                        (43,286
                        )
                        
                        
                        -
                        
                        
                        
                        (43,286
                        )Loss
      from deconsolidated subsidiary
                        
                        
                        -
                        
                        
                        
                        (41,533
                        )
                        
                        
                        -
                        
                        
                        
                        (272,579
                        )Loss
      from joint venture
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (63,601
                        )
                        
                        
                        -Gain
      on sale of investments
                        
                        
                        501,250
                        
                        
                        
                        
                        
                        
                        
                        751,250Net
      gain on disposition of assets
                        
                        
                        20,251
                        
                        
                        
                        -
                        
                        
                        
                        17,822
                        
                        
                        
                        -Total
      Other Income (Expense), net
                        
                        
                        529,154
                        
                        
                        
                        (406,687
                        )
                        
                        
                        722,331
                        
                        
                        
                        (939,543
                        )Income
      (Loss) Before Taxes
                        
                        
                        162,156
                        
                        
                        
                        (750,905
                        )
                        
                        
                        (164,092
                        )
                        
                        
                        (1,891,032
                        )Provision
      for Income Taxes
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Net
      Income (Loss)
                        
                        $
                        162,156
                        
                        
                        $
                        (750,905
                        )
                        
                        $
                        (164,092
                        )
                        
                        $
                        (1,891,032
                        )Basic
      and Diluted Net Loss per Common Share
                        
                        $
                        nil
                        
                        
                        $
                        (0.02
                        )
                        
                        $
                        nil
                        
                        
                        $
                        (0.04
                        )Basic
      and Diluted Weighted Average Shares Used in per Share
      Calculation
                        
                        
                        44,427,630
                        
                        
                        
                        43,221,312
                        
                        
                        
                        44,427,630
                        
                        
                        
                        43,109,536





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


5





QUANTRX
      BIOMEDICAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH
      FLOWS





Six Months Ended June 30,2010
                  
                  
                  2009(unaudited)
                  
                  
                  (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (164,092
                  )
                  
                  $
                  (1,891,032
                  )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
                  
                  
                  41,659
                  
                  
                  
                  46,848Interest
      expense related to amortization of non-cash discount, non-cash beneficial
      conversion feature and deferred financing costs
                  
                  
                  -
                  
                  
                  
                  280,839Expenses
      related to employee stock based compensation
                  
                  
                  30,992
                  
                  
                  
                  241,604Expenses
      (remeasurement adjustment) related to options issued to
      non-employees
                  
                  
                  -
                  
                  
                  
                  (1,667
                  )Expenses
      (remeasurement adjustment) related to common stock warrants issued for
      consulting
                  
                  
                  250
                  
                  
                  
                  7,333Non-cash
      incremental fair value of modified warrants issued for
      interest
                  
                  
                  -
                  
                  
                  
                  6,250Non-cash
      fair value of warrants issued for interest
                  
                  
                  -
                  
                  
                  
                  72,075Non-cash
      fair value of common stock issued for interest
                  
                  
                  -
                  
                  
                  
                  78,000Loss
      from deconsolidation of subsidiary
                  
                  
                  -
                  
                  
                  
                  43,286Loss
      from deconsolidated subsidiary
                  
                  
                  -
                  
                  
                  
                  272,579Loss
      from joint venture
                  
                  
                  63,601
                  
                  
                  
                  -Net
      gain on disposition of assets and investments
                  
                  
                  (769,072
                  )
                  
                  
                  -Issuance
      of convertible notes for accrued interest
                  
                  
                  -
                  
                  
                  
                  175,895Interest
      income settled in common stock of former subsidiary
                  
                  
                  -
                  
                  
                  
                  (18,000
                  )(Increase)
      decrease in:Accounts
      receivable
                  
                  
                  (468,339
                  )
                  
                  
                  (61,048
                  )Interest
      receivable
                  
                  
                  (8,000
                  )
                  
                  
                  (8,000
                  )Other
      receivable
                  
                  
                  (63,000
                  )
                  
                  
                  -Inventories
                  
                  
                  103
                  
                  
                  
                  1,594Prepaid
      expenses
                  
                  
                  96,900
                  
                  
                  
                  18,711Deposits
                  
                  
                  -
                  
                  
                  
                  581Security
      deposits
                  
                  
                  -
                  
                  
                  
                  (426
                  )Increase
      (decrease) in:Accounts
      payable
                  
                  
                  396,375
                  
                  
                  
                  122,226Accrued
      expenses
                  
                  
                  152,000
                  
                  
                  
                  44,221Deferred
      revenue
                  
                  
                  (328,988
                  )
                  
                  
                  (27,777
                  )Net
      Cash Used by Operating Activities
                  
                  
                  (1,019,611
                  )
                  
                  
                  (595,908
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      proceeds from sale of investment securities
                  
                  
                  751,250
                  
                  
                  
                  -Cash
      paid for asset acquisition deposit
                  
                  
                  -
                  
                  
                  
                  (125,000
                  )Cash
      proceeds from sale of equipment
                  
                  
                  20,251
                  
                  
                  
                  -Cash
      advances to subsidiary prior to deconsolidation
                  
                  
                  -
                  
                  
                  
                  (13,800
                  )Net
      Cash Provided (Used) by Investing Activities
                  
                  
                  771,501
                  
                  
                  
                  (138,800
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of promissory notes
                  
                  
                  -
                  
                  
                  
                  350,000Proceeds
      from issuance of senior secured convertible notes
                  
                  
                  -
                  
                  
                  
                  425,000Proceeds
      from issuance of senior secured promissory notes
                  
                  
                  -
                  
                  
                  
                  250,000Repayment
      of short-term debt
                  
                  
                  -
                  
                  
                  
                  (65,000
                  )Payments
      on loan payable used to finance equipment purchase
                  
                  
                  -
                  
                  
                  
                  (5,731
                  )Net
      Cash Provided by Financing Activities
                  
                  
                  -
                  
                  
                  
                  954,269Net
      Increase (Decrease) in Cash and Cash Equivalents
                  
                  
                  (248,110
                  )
                  
                  
                  219,561Net
      Cash of Deconsolidated Subsidiary
                  
                  
                  
                  
                  
                  
                  (413
                  )Cash
      and Cash Equivalents, Beginning of Period
                  
                  
                  376,211
                  
                  
                  
                  66,226Cash
      and Cash Equivalents, End of Period
                  
                  $
                  128,101
                  
                  
                  $
                  285,374Supplemental
      Cash Flow Disclosures:Interest
      expense paid in cash
                  
                  $
                  2,777
                  
                  
                  $
                  16,510Income
      tax paid
                  
                  $
                  -
                  
                  
                  $
                  -Supplemental
      Disclosure of Non-Cash Activities:Fair
      value of common stock issued with convertible notes
                  
                  $
                  -
                  
                  
                  $
                  85,803Fair
      value of warrants issued with convertible notes
                  
                  $
                  -
                  
                  
                  $
                  33,487Fair
      value of beneficial conversion feature embedded in convertible
      notes
                  
                  $
                  -
                  
                  
                  $
                  6,325Fair
      value of common stock issued with promissory notes
                  
                  $
                  -
                  
                  
                  $
                  28,488Fair
      value of warrants issued with promissory notes
                  
                  $
                  -
                  
                  
                  $
                  39,666Increase
      in payables related to purchase of fixed assets
                  
                  $
                  -
                  
                  
                  $
                  3,000Exchange
      of promissory notes for senior secured convertible note
                  
                  $
                  -
                  
                  
                  $
                  707,890Elimination
      of deconsolidated subsidiary accounts:Prepaid
      expenses
                  
                  $
                  -
                  
                  
                  $
                  104,506Property
      and equipment, net
                  
                  $
                  -
                  
                  
                  $
                  274,404Intangible
      assets, net
                  
                  $
                  -
                  
                  
                  $
                  1,907,193Deposits
                  
                  $
                  -
                  
                  
                  $
                  3,565Accounts
      payable
                  
                  $
                  -
                  
                  
                  $
                  1,311,839Accrued
      expenses
                  
                  $
                  -
                  
                  
                  $
                  215,050Additional
      paid-in-capital
                  
                  $
                  -
                  
                  
                  $
                  479,129





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


6





QUANTRX
      BIOMEDICAL CORPORATIONCONDENSED
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTSJune 30,
2010





Description of Business and
Basis of Presentation




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




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




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




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




On July
30, 2009, QuantRx and NuRx Pharmaceuticals, Inc. jointly formed QN Diagnostics,
LLC, a Delaware limited liability company, with each company owning 50% of the
joint venture. The purpose of the joint venture is to develop and commercialize
products incorporating our lateral flow strip technology and related lateral
flow strip readers. See Note 3 and 14.


7




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




1.
            Management Statement
      Regarding Going Concern




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




The
Company formed a strategic joint venture (See Note 3) to fund the development
and commercialization of its lateral flow based products; however, management
believes that given the cash position of the joint venture and the current
economic environment, there is still doubt about our ability to continue as a
going concern. The Company has disposed of certain assets and investments to
fund current operations. See Note 5. Additionally, the Company is pursuing other
funding options, including equity offerings and debt financings; however, there
can be no assurance that we will be successful in our efforts to raise
additional capital or to raise funds through additional divestures.




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




·
            finalize
      development and commercialization of our
  products;




·
            achieve
      synergy and financial stability within our joint venture to allow for
      commercialization of products and continued development of products in its
      pipeline;




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




·
            manage
      or reduce operating expenses, including potential consolidation of
      operations in Portland, Oregon; and




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




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


8


2.
            Summary of Significant
      Accounting Policies




Accounting forShare-Based
Payments




QuantRx
follows the provisions of ASC Topic 718, which establishes the accounting for
transactions in which an entity exchanges equity securities for services and
requires companies to expense the estimated fair value of these awards over the
requisite service period. QuantRx uses the Black-Scholes option pricing model in
determining fair value. Accordingly, compensation cost has been recognized using
the fair value method and expected term accrual requirements as prescribed,
which resulted in employee stock-based compensation expense for three and six
months ended June 30, 2010 of $7,950 and $30,992, respectively and $14,125 and
$241,604 for the three and six months ended June 30, 2009,
respectively.




Black Scholes Option Pricing
Model




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




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




Earnings per
Share




The
Company computes net income (loss) per common share in accordance with ASC Topic
260. Net income (loss) per share is based upon the weighted average number of
outstanding common shares and the dilutive effect of common share equivalents,
such as options and warrants to purchase common stock, convertible preferred
stock and convertible notes, if applicable, that are outstanding each year.
Basic and diluted earnings per share were the same at the reporting dates of the
accompanying financial statements, as all common stock equivalents outstanding
for the three months ended June 30, 2010 were deemed to be antidilutive;
moreover, including common stock equivalents in the calculation of diluted
earnings per share would have been antidilutive for the six months ended June
30, 2010 and the three and six months ended June 30, 2009.




As of
June 30, 2010, the Company had outstanding options exercisable for 2,795,500
shares of its common stock, warrants exercisable for 12,911,466 shares of its
common stock, and preferred shares convertible into 8,120,794 shares of its
common stock. The above options, warrants, and preferred shares were deemed to
be antidilutive for the three and six months ended June 30, 2010.




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,
2009.


9


Fair
Value




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




Noncontrolling
Interest




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




Recent Accounting
Pronouncements




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




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




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


10


Reclassifications




Certain
reclassifications have been made in the presentation of the financial statements
for the three and six months ended June 30, 2009 to conform to the presentation
of the financial statements for the three and six months ended June 30,
2010.




Use of
Estimates




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




3.
            Investment in Joint
      Venture – QN Diagnostics,
LLC




On July
30, 2009, QuantRx and NuRx Pharmaceuticals, Inc. (NuRx) jointly formed QN
Diagnostics, LLC (QND), a Delaware limited liability company. QuantRx
contributed certain intellectual property and other assets related to its
lateral flow strip technology and related lateral flow strip reader
technology with a fair value of $5,450,000, and NuRx contributed $5,000,000
in cash to QND.  NuRx and QuantRx each own a 50% interest in QND.  The
purpose of the joint venture is to develop and commercialize products
incorporating the lateral flow strip technology and related lateral flow
strip readers.




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




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




QuantRx
and QND also entered into a one year Development and Services Agreement on July
30, 2009, pursuant to which QND pays a monthly fee to QuantRx in exchange for
QuantRx providing all services related to the development, regulatory approval
and commercialization of lateral flow products. The revenues recognized by
QuantRx associated with the QND Development and Services Agreement in the three
and six months ended June 30, 2010 were $621,612 and $1,270,893, and the
expenses related to this agreement for the same periods were $621,612 and
$1,270,893. Expenses are included in each appropriate expense category in the
statement of operations. As of June 30, 2010 and December 31, 2009, deferred
revenues related to the Development and Services Agreement with QND were $0 and
$337,160, respectively. As of June 30, 2010 and December 31, 2009, accounts
receivable from QND related to the Development and Services Agreement were
$380,652 and $31,500, respectively.   See Note 14, Subsequent
Events.


11




Summarized
financial information of QND for the three and six months ended June 30, 2010,
is estimated as follows: current assets: $280,000; noncurrent assets:
$5,001,000; total assets: $5,281,000; current liabilities: $446,000; revenues
and gross profit: $75,000 and $150,000; net loss: $671,000 and $1,383,000. 
For the three and six months ended June 30, 2010, QuantRx recorded losses from
QND under the equity method of $0 and $63,601, representing the Company’s 50%
portion of QND’s net loss, limited to the remaining asset value on QuantRx’s
balance sheet.  QuantRx is acting as an agent on behalf of QND in servicing
a development agreement; QuantRx’s balance sheet reflects the outstanding
receivable and offsetting payable to QND of $144,000 and $25,000 at June 30,
2010 and December 31, 2009, respectively. There were no other intercompany
profits to eliminate.




4.
            PRIA Asset Purchase
      Agreement




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




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




5.
            Investments




FluoroPharma,
Inc.




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


12




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




In the
three and six months ended June 30, 2010, QuantRx entered into Security Purchase
Agreements with certain qualified institutional buyers and accredited investors
in which QuantRx sold 668,333 and 1,001,666 shares of FluoroPharma, Inc. class A
common stock at a price of $0.75 per share for aggregate proceeds of $501,250
and $751,250, resulting in gains on disposition of $501,250 and $751,250,
respectively. As of June 30, 2010, $63,000 related to the agreements is
reflected as an other receivable. See Note 14, Subsequent Events.




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. As of June 30, 2010 and December 31,
2009, QuantRx owned approximately 27.98% and 39.81%, respectively, of the issued
and outstanding capital stock of FluoroPharma. However, at June 30, 2010, due to
FluoroPharma’s issuance of a separate class of common stock in 2009, QuantRx
held 12.32% of the voting rights of FluoroPharma.




At June
30, 2010, FluoroPharma’s condensed financial information was estimated as
follows: expenses and net losses for the three and six months ended June 30,
2010 were estimated at $150,000 and $305,000, respectively. QuantRx’s estimated
allocation of the net loss of $48,000 and $107,000 for these periods was not
recorded, in accordance with the equity method of accounting, since the
remaining investment in FluoroPharma has a carrying value of $0.




6.
            Intangible
      Assets




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




June 30, 2010
                  
                  
                  December 31, 2009Licensed
      patents and patent rights
                  
                  $
                  50,000
                  
                  
                  $
                  50,000Patents
                  
                  
                  41,004
                  
                  
                  
                  41,004Website
      development
                  
                  
                  40,750
                  
                  
                  
                  40,750Less:
      accumulated amortization
                  
                  
                  (80,818
                  )
                  
                  
                  (71,974
                  )Intangibles,
      net
                  
                  $
                  50,936
                  
                  
                  $
                  59,780




The
Company’s intangible assets are carried at the legal cost to obtain them.
Intangible assets are amortized using the straight line method over the
estimated useful life. Useful lives are as follows: licensed patents and patent
rights, eight to 15 years; patents, 17 years; technology license, five years;
and website development costs, three years. Amortization expense totaled $4,540
and $8,844 for the three and six months ended June 30, 2010 and $5,852 and
$11,704 for the three and six months ended June 30, 2009, respectively. 
Impairment will be considered in accordance with the Company’s impairment policy
which requires at least an annual analysis. No impairment was recognized as of
June 30, 2010.


13


7.
            Other Balance Sheet
      Information




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




June 30, 2010
                        
                        
                        December 31, 2009Prepaid expenses:Prepaid
      consulting – related party
                        
                        $
                        -
                        
                        
                        $
                        83,375Prepaid
      insurance
                        
                        
                        22,008
                        
                        
                        
                        22,960Prepaid
      rent
                        
                        
                        5,309
                        
                        
                        
                        16,533Other
                        
                        
                        4,011
                        
                        
                        
                        5,360Prepaid
      expenses
                        
                        $
                        31,328
                        
                        
                        $
                        128,228Property and equipment:Computers
      and office furniture, fixtures and equipment
                        
                        $
                        122,007
                        
                        
                        $
                        124,877Machinery
      and equipment
                        
                        
                        181,347
                        
                        
                        
                        181,347Leasehold
      improvements
                        
                        
                        92,233
                        
                        
                        
                        92,233Less:
      accumulated depreciation
                        
                        
                        (251,241
                        )
                        
                        
                        (218,867
                        )Property
      and equipment, net
                        
                        $
                        144,346
                        
                        
                        $
                        179,590Accrued expenses:Payroll
      and related
                        
                        $
                        327,000
                        
                        
                        $
                        175,000Professional
      fees
                        
                        
                        25,000
                        
                        
                        
                        41,500Other
                        
                        
                        33,000
                        
                        
                        
                        16,500Accrued
      expenses
                        
                        $
                        385,000
                        
                        
                        $
                        233,000




8.
            Deferred
      Revenue




On May
19, 2008, QuantRx and CytoCore, Inc. entered into a worldwide distribution and
supply agreement for specified PAD technology of QuantRx. The agreement
specified monthly license fees during CytoCore’s expected development period and
additional milestone payments based upon CytoCore’s achievement of certain
development and sales milestones.  QuantRx received an up-front,
non-refundable payment of $100,000 upon execution of this agreement, which was
recorded as deferred revenue and was amortized into revenue over the expected
development period of the agreement, estimated as 18 months. QuantRx recognized
revenue related to this agreement of $33,335 and $66,670 in the three and six
months ended June 30, 2009.  In the second quarter of 2010, CytoCore
advanced an additional $20,000 toward an extension of this agreement in
accordance with the original agreement. QuantRx recognized revenue of $11,828 in
the second quarter of 2010 from this extension, with the remaining $8,172
recorded as deferred revenue at June 30, 2010.




9.
            Short-term Notes
      Payable




In July
2009, QuantRx made full settlement with all holders of QuantRx convertible and
promissory notes, and obtained the release of all security interests in QuantRx
assets granted to those note holders.  In connection with the full
settlement of these notes and the release of all liens in favor of such note
holders, each note holder received either cash in an amount equal to the
outstanding principal and accrued interest, shares of the newly created Series
A-1 convertible preferred stock (see Note 10), or a combination of both. In the
aggregate, $1,335,156 was paid and 4,060,397 shares of Series A-1 convertible
preferred stock with a fair value of $4,060,397 were issued to the note holders
to settle the outstanding $5,281,765 in convertible and promissory notes and
$113,778 in related accrued interest.  In the three and six months ended
June 30, 2009, $203,698 and $380,384 in interest expense, $128,102 and $272,146
in amortization of debt discount and $0 and $8,693 in amortization of deferred
finance costs was recorded, respectively.


14


10.
            Preferred
      Stock




The
Company has authorized 25,000,000 shares of preferred stock, of which 9,750,000
are designated Series A convertible preferred stock, $0.01 par value, and
10,000,000 are designated Series A-1 convertible preferred stock, $0.01 par
value. The remaining 5,250,000 authorized preferred shares have not been
designated by the Company. At June 30, 2010 and December 31, 2009, 4,060,397
shares of Series A-1 preferred stock were outstanding.




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




11.
            Common Stock, Options
      and Warrants




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




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




2007 Incentive and
Non-Qualified Stock Option Plan




The fair
value of options granted under the Company’s 2007 Incentive and Non-Qualified
Stock Option Plan is recorded as compensation expense over the vesting period,
or, for performance based awards, the expected service term.  Total
compensation cost related to QuantRx’s employee options was $7,950 and $30,992
for the three and six months ended June 30, 2010 and $14,125 and $87,704 for the
three and six months ended June 30, 2009, respectively. Compensation cost
related to QuantRx’s non-employee options was a reduction of $1,667 based on a
remeasurement adjustment in the six months ended June 30, 2009.




12.
            Related Party
      Transactions




In the
fourth quarter of 2009, warrants to purchase 1,750,000 shares of common stock
were granted in settlement of $195,000 in outstanding accounts payable and a
financial advisory services contract with Burnham Hill Partners, of which a
beneficial owner of more than 5% of QuantRx common stock is a managing member.
The warrants have an exercise price of $0.55 and a term of five years. Of the
$100,050 allocated to the financial advisory services contract, $33,350 and
$83,375 was expensed as consulting expense in the three and six months ended
June 30, 2010 and $0 and $83,375 was recorded as prepaid consulting as of June
30, 2010 and December 31, 2009, respectively.


15




13.
            Commitments and
      Contingencies




QN Diagnostics and PRIA
Diagnostics




QuantRx
is committed to further capital contributions to QN Diagnostics aggregating
$1.55 million, comprised of: payment of milestone payments with PRIA Diagnostics
in QuantRx common stock (fair value of $750,000); transfer of fixed assets with
a fair value of $100,000 at QND’s discretion; and a $700,000 sustaining capital
contribution as required by QND. Subsequent sustaining capital contributions
will be made by QuantRx and NuRx on an equal basis. Should either party fail to
make sustaining contributions as required, such party would be subject to a
reduction in ownership interest and loss of a board seat. See Notes 3, 4 and
14.




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 include allocations for common expenses subject to
future adjustment.  Rent expense related to operatingleases was approximately $32,795 and $66,467 for the three and six
months ended June 30, 2010 and $31,857 and $65,501 for the three and six months
ended June 30, 2009, 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 for operatingleases as of June 30, 2010 are
estimated as follows:




Remainder
      of year ending December 31, 2010
                
                $
                67,600Year
      ending December 31, 2011
                
                
                89,107Total
      minimum payments
                
                $
                156,707




In
February 2007, the Company began subleasing research and development lab space
under the noncancellable operating leases. The sublease can be terminated upon
ninety days notice by either party, and a $2,000 security deposit is being held
by QuantRx pursuant to the terms of the lease. Sublease income was $4,125 and
$8,250 for the three and six months ended June 30, 2010, and $5,665 and $11,535
for the three and six months ended June 30, 2009, respectively, and is recorded
in other income.




Executive Employment
Contracts




We have
entered into employment contracts with key executives that provide for the
continuation of salary to the executives if terminated for reasons other than
cause or in connection with a change in control of QuantRx, as defined in those
agreements. At June 30, 2010, the future employment contract commitment for such
key executives based on these termination clauses was approximately $636,000, or
in the case of a change of control, $1,272,000. In addition, the agreement
states that if QuantRx were to sell all of its shares of capital stock or
assets, or perform a material acquisition of another entity, QuantRx will pay a
completion bonus.


16


Legal
Contingencies
  We may
occasionally become subject to legal proceedings and claims that arise in the
ordinary course of our business.  It is impossible for us to predict
with any certainty the outcome of any disputes that may arise, and we cannot
predict whether any liability arising from claims and litigation will be
material in relation to our financial position or results of
operations.
  14.
              Subsequent
      Events
  Limited Liability Company
Agreement with NuRx Pharmaceuticals, Inc.
  On July
20, 2010, QuantRx notified NuRx Pharmaceuticals, Inc., QuantRx’s partner in the
QND joint venture, that NuRx was in material breach of the QND operating
agreement, and had 60 days from the date of the notification to cure such
breach. The notification is related to nonpayment of fees in accordance with the
Development and Services Agreement between QuantRx and QND. Should the breach
remain uncured, QuantRx reserved the right to terminate the QND operating
agreement.
  Merger
Agreement
  On
January 29, 2010, QuantRx entered into an Agreement and Plan of Merger with NuRx
and NP Acquisition Corporation, a wholly-owned subsidiary of QuantRx. The Merger
Agreement provided that at closing, NP Acquisition Corp. would be merged with
and into NuRx, with NuRx continuing as the surviving corporation and a
wholly-owned subsidiary of QuantRx.
  On July
20, 2010, QuantRx terminated the Merger Agreement pursuant to Section 7.02(b)
thereof, which permits any party to the Merger Agreement to terminate the Merger
Agreement if the merger contemplated thereby was not consummated on or before
June 30, 2010.  QuantRx did not incur any termination penalties as a
result of such termination.
  Sale of FluoroPharma
Stock
  In the
third quarter of 2010, QuantRx entered into Security Purchase Agreement with a
qualified institutional buyer in which QuantRx sold 100,000 shares of
FluoroPharma, Inc. class A common stock at a price of $0.75 per share for an
aggregate amount of $75,000 resulting in a gain on disposition of $75,000.
Subsequent to this sale, QuantRx held 26.8% (11.8% of the voting rights) of
FluoroPharma’s issued and outstanding common stock.
  Preferred Stock
Dividend
  On July
30, 2010, the Board of Directors of QuantRx declared a stock dividend on the
Series A-1 convertible preferred stock. The certificate of designation provides
for preferential dividends of 8% per annum, therefore the Company will issue
324,831 shares of Series A-1 convertible preferred stock.
  17
  ITEM
2.              Management's
Discussion and Analysis of Financial Condition and Results of
Operations
  The
following discussion of our financial condition should be read in conjunction
with the financial statements and notes to financial statements included
elsewhere in this filing.  The following discussion (as well as
statements in Item 1 above and elsewhere) contains forward-looking statements
within the meaning of the Private Securities Litigation Act of 1995 that involve
risks and uncertainties.  Some or all of the results anticipated by
these forward-looking statements may not occur. Forward-looking statements
involve known and unknown risks and uncertainties including, but not limited to,
trends in the biotechnology, healthcare, and pharmaceutical sectors of the
economy; competitive pressures and technological developments from domestic and
foreign genetic research and development organizations which may affect the
nature and potential viability of our business strategy; and private or public
sector demand for products and services similar to what we plan to
commercialize.  We disclaim any intention or obligation to publicly
announce the results of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
  Unless
otherwise indicated or the context otherwise requires, all references in this
report to “we,” “our,” “ours,” “us,” the “Company” or similar terms refer to
QuantRx Biomedical Corporation, a Nevada corporation.
  Overview
  QuantRx
Biomedical Corporation was incorporated on December 5, 1986 in the State of
Nevada. The Company’s principal business office is located at 100 South Main
Street, Suite 300, Doylestown, Pennsylvania. QuantRx also has a research and
development facility in Portland, Oregon.
  QuantRx
is a broad-based diagnostics company focused on the development and
commercialization of innovative point-of-care diagnostic products based on its
patented technology platforms for the worldwide healthcare industry. The
Company’s overall growth strategy is to: (i) leverage its broad-based
intellectual property (IP) and patent portfolio to develop new and innovative
diagnostic products; (ii) commercialize products through corporate partners and
distributors; and (iii) contract manufacturing to third parties while
maintaining control over the manufacturing process.
  QN
Diagnostics
  On July
30, 2009, QuantRx and NuRx Pharmaceuticals, Inc. (NuRx) entered into
agreements to form QN Diagnostics, LLC (QND), a Delaware limited liability
company. Pursuant to the agreements, QuantRx contributed certain intellectual
property and other assets related to its lateral flow strip technology and
related lateral flow strip reader technology with a fair value of
$5,450,000, and NuRx contributed $5,000,000 in cash to QND.  Following
the respective contributions by NuRx and QuantRx to the joint venture, NuRx and
QuantRx each own a 50% interest in QND.  The purpose of the joint
venture is to develop and commercialize products incorporating the lateral flow
strip technology and related lateral flow strip readers.
  18
  The joint
venture is currently managed by a board consisting of two QuantRx designees and
two NuRx designees.  Subject to certain exceptions, board decisions
are made by majority vote, provided that QuantRx and NuRx have veto rights with
respect to certain matters. Since QuantRx does not have control of the joint
venture, QuantRx accounts for the investment in QND utilizing the equity method
of accounting.
  Under the
terms of the agreements, QND made a $2,000,000 cash distribution to QuantRx.
QuantRx is committed to further capital contributions aggregating $1.55 million,
comprised of: payment of milestone payments with PRIA Diagnostics (see Note 5 of
the financial statements) in QuantRx common stock (fair value of $750,000);
transfer of fixed assets with a fair value of $100,000 at QND’s discretion; and
a $700,000 sustaining capital contribution as required by QND. Subsequent
sustaining capital contributions will be made by QuantRx and NuRx on an equal
basis.
  QuantRx
and QND also entered into a one year Development and Services Agreement on July
30, 2009, pursuant to which QND pays a monthly fee to QuantRx in exchange for
QuantRx providing all services related to the development, regulatory approval
and commercialization of lateral flow products. The revenues recognized by
QuantRx associated with the QND Development and Services Agreement in the three
and six months ended June 30, 2010 were $621,612 and $1,270,893, and the
expenses related to this agreement for the same periods were $621,612 and
$1,270,893. Expenses are included in each appropriate expense category in the
statement of operations. As of June 30, 2010 and December 31, 2009, deferred
revenues related to the Development and Services Agreement with QND were $0 and
$337,160, respectively. As of June 30, 2010 and December 31, 2009, accounts
receivable from QND related to the Development and Services Agreement were
$380,652 and $31,500, respectively.
  In the
second quarter of 2010, QuantRx submitted an application for 510(k) clearance to
the FDA for the Q-ReaderTM thyroid testing system following the completion of
clinical testing. This regulatory stage follows the completion of studies
showing that the innovative Q-Reader thyroid testing system is capable of
providing healthcare practitioners with laboratory level quantitative results
within minutes, rather than waiting for results to be returned from a commercial
laboratory. The 510(k) submission, together with the completion of a
pre-production sample of the Q-Reader, satisfied the final two milestones
contained in QND’s operating agreements.
  On July
20, 2010, QuantRx notified NuRx Pharmaceuticals, Inc., QuantRx’s partner in the
QND joint venture, that NuRx was in material breach of the QND operating
agreement, and had 60 days from the date of the notification to cure such
breach. The notification is related to nonpayment of fees in accordance with the
Development and Services Agreement between QuantRx and QND. Should the breach
remain uncured, QuantRx reserved the right to terminate the QND operating
agreement.
  FluoroPharma
  On May 5,
2009, QuantRx and FluoroPharma reorganized their relationship by terminating
their investment agreement and related agreements. The termination of these
agreements, which were originally executed on March 10, 2006, allowed
FluoroPharma to close an equity financing with third party
investors.  In conjunction with the termination of these agreements
and the additional investment in FluoroPharma, QuantRx agreed to convert all
outstanding receivables from FluoroPharma, consisting of previously issued notes
and related accrued interest and advances in the aggregate amount of $1,568,567,
into 1,148,275 shares of common stock of FluoroPharma. As a result of these
transactions and the third party investment, QuantRx’s ownership interest in
FluoroPharma’s issued and outstanding capital stock was reduced to a
noncontrolling interest, which resulted in the deconsolidation of FluoroPharma
as a subsidiary of the Company. Subsequent to the termination of the agreements
between QuantRx and FluoroPharma, QuantRx has no continuing obligations or
commitments to FluoroPharma.
  19
  At May 5,
2009, QuantRx’s remaining net basis of the investment in FluoroPharma, inclusive
of receivables from FluoroPharma, was $43,286, after taking into account
previously recorded losses of $5,056,304 ($231,046 in the first quarter of 2009;
$272,579 through deconsolidation) related to the consolidated results of
FluoroPharma. These losses have been included in our consolidated financial
statements commencing April 1, 2007, the original date of consolidation, through
May 4, 2009, and are net of losses allocated to the then noncontrolling
(formerly minority) interests as applicable. On May 5, subsequent to the
execution of the aforementioned transactions which led to the deconsolidation of
FluoroPharma, QuantRx’s ownership of the outstanding capital stock of
FluoroPharma was reduced to a noncontrolling interest of 45.55%. At
deconsolidation the fair market value of QuantRx’s remaining noncontrolling
interest in FluoroPharma was $842,876, based on the third party investment;
however, FluoroPharma had a deficit equity balance, which resulted in QuantRx
writing off the remaining basis in the investment of $43,286 and recording a
loss from deconsolidation of $43,286. QuantRx has reflected the results of its
former subsidiary as a one-line item as of January 1, 2009. QuantRx’s allocation
of FluoroPharma’s net loss for the period commencing May 5, 2009 through June
30, 2010, was not recorded ($420,000), since the remaining investment in
FluoroPharma had a carrying value of $0 as of the deconsolidation of
FluoroPharma at May 5, 2009.
  In the
three and six months ended June 30, 2010, QuantRx entered into Security Purchase
Agreements with certain qualified institutional buyers and accredited investors
in which QuantRx sold 668,333 and 1,001,666 shares of FluoroPharma, Inc. class A
common stock at a price of $0.75 per share for aggregate proceeds of $501,250
and $751,250, resulting in gains on disposition of $501,250 and $751,250,
respectively. As of June 30, 2010, $63,000 related to the agreements is
reflected as an other receivable.
  Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. As of June 30, 2010 and December 31,
2009, QuantRx owned approximately 27.98% and 39.81%, respectively, of the issued
and outstanding capital stock of FluoroPharma. However, at June 30, 2010, due to
FluoroPharma’s issuance of a separate class of common stock in 2009, QuantRx
held 12.32% of the voting rights of FluoroPharma.
  FluoroPharma
is currently seeking financing which could result in a disposition of all or a
portion of QuantRx’s investment in FluoroPharma as part of a strategic
transaction.
  Consolidated
Results of Operations
  Total
revenues for the three months ended June 30, 2010 and 2009 were $641,040 and
$172,415, respectively. Total revenues for the six months ended June 30, 2010
and 2009 were $1,300,331 and $331,902, respectively. The increase in revenues of
$468,625 and $968,429 is primarily due to $621,612 and $1,270,893 in related
party revenues from the Development and Services Agreement with
QND.
  20
  Sales,
general and administrative expense for the three months ended June 30, 2010 and
2009 was $279,526 and $326,745, respectively, and for the six months ended June
30, 2010 and 2009, was $583,103 and $861,635, respectively. The decrease of
$47,219 and $278,532 is due primarily to decreased personnel
expenses.
  Professional
fees for the three months ended June 30, 2010 and 2009, were $178,879 and
$40,141, respectively, and for the six months ended June 30, 2010 and 2009, were
$428,430 and $89,168, respectively. Professional fees include the costs of
legal, consulting and auditing services provided to us. The increase of $138,738
and $339,262 is primarily due to increased legal and financial advisory
consulting fees.
  Research
and development expense for the three months ended June 30, 2010 and 2009, were
$529,087 and $126,465, respectively, and for the six months ended June 30, 2010
and 2009, were $1,133,433 and $284,277, respectively. The increase of $402,622
and $849,156 is primarily due to increased consulting, personnel and supply and
material expenses related to the Development and Services Agreement with
QND.
  The
Company’s net income for the three months ended June 30, 2010 was $162,156 and
net loss for the three months ended June 30, 2009 was $750,905. Net loss for the
six months ended June 30, 2010 and 2009, was $164,092 and $1,891,032,
respectively. The income for the quarter is primarily due to the contract
development agreement with QND and a $501,250 gain on disposition of common
stock of our former subsidiary.  The decreased loss for the six months
is due to these factors along with the absence of interest expense and
amortization of debt discount following the July 2009 settlement of QuantRx’s
short-term notes.
  Liquidity
and Capital Resources
  As of
June 30, 2010, QuantRx had cash and cash equivalents of $128,101, as compared to
cash and cash equivalents of $376,211 as of December 31, 2009. The net decrease
in cash of $248,110 for the six months ended June 30, 2010, is primarily
attributable to net cash used for operating activities of $1,019,611 offset by
$688,250 in cash proceeds received in the six months ended June 30, 2010 related
to the sale of stock in our former subsidiary. QuantRx has used its proceeds
from dispositions as well as its revenues to fund current operating expenses and
investments intended to strategically expand our platforms and
technologies.
  QuantRx has not generated sufficient
revenues from operations to meet its operating expenses. For this reason,
QuantRx has historically financed its operations primarily through issuances of
equity and the proceeds of debt instruments. In the past, QuantRx has also
provided for its cash needs by issuing common stock, options and warrants for
certain operating costs, including consulting and professional
fees.
  QuantRx
formed a strategic joint venture (See Note 3 to the consolidated financial
statements for more information) to fund the development and commercialization
of its lateral flow based products; however, management believes that given the
cash position of the joint venture and the current economic environment, there
is still doubt about our ability to continue as a going concern. QuantRx has
disposed of certain assets and investments to fund current operations. See Note
5 to the consolidated financial statements for more information. Additionally,
QuantRx is pursuing other funding options, including equity offerings and debt
financings; however, there can be no assurance that we will be successful in our
efforts to raise additional capital or to raise funds through additional
divestures.
  21
  Management
believes that the successful growth and operation of QuantRx’s business is
dependent upon our ability to do any or all of the following:
  ·
              finalize
      development and commercialization of our
  products;
  ·
              achieve
      synergy and financial stability within our joint venture to allow for
      commercialization of products and continued development of products in its
      pipeline
  ·
              obtain
      adequate sources of debt or equity financing to pay unfunded operating
      expenses and fund certain long-term business operations until
      commercialization becomes
profitable;
  ·
              manage
      or reduce operating expenses, including potential consolidation of
      operations in Portland, Oregon; and
  ·
              develop
      new relationships with product distributors and other points of
      distribution for the Company’s
products;
  There can
be no assurance that we will be successful in achieving our long-term plans as
set forth above, or that such plans, if consummated, will enable us to obtain
profitable operations or continue in the long-term as a going
concern.
  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 operating
agreements, each member will be required to make sustaining capital
contributions from time to time as the Board of the joint venture determines is
necessary.  Should the Board of the joint venture determine that
additional capital contributions are required, such sustaining capital
contributions will be made by 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.
  22
  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. 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.
  23
  Impairment
of Assets
  We assess
the impairment of long-lived assets, including our other intangible assets,
whenever events or changes in circumstances indicate that their carrying value
may not be recoverable. The determination of related estimated useful lives and
whether or not these assets are impaired involves significant judgments, related
primarily to the future profitability and/or future value of the assets. Changes
in our strategic plan and/or market conditions could significantly impact these
judgments and could require adjustments to recorded asset balances. We hold
investments in companies having operations or technologies in areas which are
within or adjacent to our strategic focus when acquired, all of which are
privately held and whose values are difficult to determine. We record an
investment impairment charge if we believe an investment has experienced a
decline in value that is other than temporary. Future changes in our strategic
direction, adverse changes in market conditions or poor operating results of
underlying investments could result in losses or an inability to recover the
carrying value of the investments that may not be reflected in an investment’s
current carrying value, thereby possibly requiring an impairment charge in the
future.
  In
determining fair value of assets, QuantRx bases estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about carrying values of assets that are not readily apparent from
other sources. Actual fair value may differ from management estimates resulting
in potential impairments causing material changes to certain assets and results
of operations.
  Share-based
Payments
  We grant
options to purchase our common stock to our employees and directors under our
stock option plan. We estimate the value of stock option awards on the date of
grant using a Black-Scholes pricing model (Black-Scholes model). The
determination of the fair value of share-based payment awards on the date of
grant using the Black-Scholes model is affected by our stock price as well as
assumptions regarding a number of complex and subjective variables. These
variables include, but are not limited to, our expected stock price volatility
over the term of the awards, actual and projected employee stock option exercise
behaviors, and risk-free interest rate. If factors change and we employ
different assumptions in future periods, the compensation expense that we record
may differ significantly from what we have recorded in the current
period.
  We
determine the fair value of the share-based compensation awards granted to
non-employees as either the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
If the fair value of the equity instruments issued is used, it is measured using
the stock price and other measurement assumptions as of the earlier of either of
(1) the date at which a commitment for performance by the counterparty to
earn the equity instruments is reached or (2) the date at which the
counterparty’s performance is complete.
  24
  Estimates
of share-based compensation expenses are significant to our financial
statements, but these expenses are based on option valuation models and will
never result in the payment of cash by us.
  The above
listing is not intended to be a comprehensive list of all of our accounting
policies. In most cases, the accounting treatment of a particular transaction is
specifically dictated by accounting principles generally accepted in the United
States.
  ITEM
      4.
              Controls
      and Procedures
  (a)
              Evaluation
      of Disclosure Controls and
Procedures
  The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our SEC reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is communicated to our
management including our Chief Executive Officer and Chief Financial Officer as
appropriate. With the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined under Exchange Act Rules 13a-15(e) and 15(d)-15(e)), as of the end
of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures were effective as of June 30,
2010.
  (b)
              Changes
      in Internal Control over Financial
Reporting
  During
the period covered by this quarterly report on Form 10-Q, there were no changes
in our internal control over financial reporting that have materially affected,
or are reasonably likely to affect, our internal control over financial
reporting.
  Given the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, will have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Further, the design of a control system must reflect the fact
that there are resource constraints, and that the benefits of a control system
must be considered relative to its cost. The design of any system of controls is
also based in part on certain assumptions regarding the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.
  PART
II - OTHER INFORMATION
  ITEM
      1.
              Legal
      Proceedings.
  As of the
date hereof, there are no material pending legal proceedings to which we are a
party to or of which any of our property is the subject.
  25
  ITEM
      2.
              Unregistered
      Sales of Equity Securities, and Use of
Proceeds
  As of the
date hereof, there were no additional sales of unregistered securities other
than as reported in prior reports on Forms 10-K, 10-Q or 8-K.
  ITEM
      3.
                Defaults
      Upon Senior Securities
  None.
  ITEM
      4.
                Reserved
  ITEM
      5.
                Other
      Information
  None.
  ITEM
      6.
                Exhibits
  Exhibit
              
              Description31.1
              
              Certification
      of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended.31.2
              
              Certification
      of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended.32.1*
              
              Certification
      of Chief Executive Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C.
      Section 1350.32.2*
              
              Certification
      of Chief Financial Officer required under Rule 13a-14(a) or Rule 15d-14(a)
      of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C.
      Section 1350.
 *The
certifications attached as Exhibits 32.1 and 32.2 accompany this Quarterly
Report on Form 10-Q pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and shall not be deemed “filed” by QuantRx Biomedical Corporation for purposes
of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section.
  26
  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 6, 2010
                    By:
                    /s/
      Walter WitoshkinWalter
      WitoshkinChairman
      & CEODate:  
      August 6, 2010
                    By:
                    /s/
      Sasha AfanassievSasha
      AfanassievCFO,
      Treasurer & VP of
Finance
  27