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 September 30, 2009


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, or a non-accelerated filer. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.:





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




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




The
number of shares outstanding of the issuer’s common stock as of November 10,
2009 was 44,427,630.








PART I -FINANCIAL INFORMATIONITEM
      1.
                            Financial
      StatementsConsolidated
      Balance Sheets as of September 30, 2009 (Unaudited) and December 31,
      2008
                            4Consolidated
      Statements of Operations (Unaudited) for the three and nine months ended
      September 30, 2009 and 2008
                            5Consolidated
      Statements of Cash Flows (Unaudited) for the three and nine months ended
      September 30, 2009 and 2008
                            6Condensed
      Notes to (Unaudited) Consolidated Financial Statements
                            7ITEM
      2.
                            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                            29ITEM
      4T.
                            Controls
      and Procedures
                            36PART
      II - OTHER INFORMATIONITEM
      1.
                            Legal
      Proceedings
                            37ITEM
      2.
                            Unregistered
      Sales of Equity Securities; and Use of Proceeds
                            37ITEM
      3.
                            Defaults
      Upon Senior Securities
                            37ITEM
      4.
                            Submission
      of Matters to a Vote of Security Holders
                            38ITEM
      5.
                            Other
      Information
                            38ITEM
      6.
                            Exhibits
                            38Signatures
                            
                            39


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, 2008.  WE ASSUME NO OBLIGATIONS TO UPDATE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT NEW INFORMATION, ACTUAL RESULTS, CHANGES
IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY
LAW.


3


ITEM
1.            Financial
Statements




QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
BALANCE SHEETS


September 30,
                    2009
                  
                  
                  December 31,
                    2008(unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
                  
                  $
                  551,023
                  
                  
                  $
                  66,226Accounts
      receivable
                  
                  
                  44,550
                  
                  
                  
                  45,760Accounts
      receivable – related party
                  
                  
                  174,653
                  
                  
                  
                  -Interest
      receivable – related party
                  
                  
                  43,689
                  
                  
                  
                  31,689Inventories
                  
                  
                  4,778
                  
                  
                  
                  40,138Prepaid
      expenses
                  
                  
                  41,711
                  
                  
                  
                  189,049Note
      receivable – related party
                  
                  
                  200,000
                  
                  
                  
                  200,000Deferred
      finance costs, net
                  
                  
                  -
                  
                  
                  
                  8,693Deposits
                  
                  
                  -
                  
                  
                  
                  104,146Total
      Current Assets
                  
                  
                  1,060,404
                  
                  
                  
                  685,701Investments
                  
                  
                  858,830
                  
                  
                  
                  200,000Property
      and equipment, net
                  
                  
                  197,479
                  
                  
                  
                  496,206Intangible
      assets, net
                  
                  
                  65,029
                  
                  
                  
                  2,012,097Security
      deposits
                  
                  
                  11,093
                  
                  
                  
                  10,667Total
      Assets
                  
                  $
                  2,192,835
                  
                  
                  $
                  3,404,671LIABILITIES
      AND STOCKHOLDERS’ EQUITY (DEFICIT)Current
      Liabilities:Accounts
      payable
                  
                  $
                  981,086
                  
                  
                  $
                  2,205,661Accrued
      expenses
                  
                  
                  342,100
                  
                  
                  
                  298,692Deferred
      revenue
                  
                  
                  8,781
                  
                  
                  
                  58,781Deferred
      revenue – related party
                  
                  
                  250,000
                  
                  
                  
                  -Short-term
      convertible notes payable, net of discount
                  
                  
                  -
                  
                  
                  
                  2,510,054Short-term
      secured promissory notes payable
                  
                  
                  -
                  
                  
                  
                  350,000Short-term
      promissory notes payable, net of discount
                  
                  
                  -
                  
                  
                  
                  1,061,278Security
      deposits
                  
                  
                  2,000
                  
                  
                  
                  2,000Loans
      payable
                  
                  
                  -
                  
                  
                  
                  5,731Total
      Current Liabilities
                  
                  
                  1,583,967
                  
                  
                  
                  6,492,197Notes
      payable, long-term portion
                  
                  
                  44,000
                  
                  
                  
                  44,000Total
      Liabilities
                  
                  
                  1,627,967
                  
                  
                  
                  6,536,197Commitments
      and ContingenciesStockholders’
      Equity (Deficit):Preferred
      stock; $0.01 par value, 25,000,000 authorized shares; Series A-1
      convertible preferred shares: 4,060,397 and 0 shares issued and
      outstanding
                  
                  
                  40,604
                  
                  
                  
                  -Common
      stock; $0.01 par value; 75,000,000 authorized; 44,277,630 and 42,886,380
      shares issued and outstanding
                  
                  
                  442,776
                  
                  
                  
                  428,863Additional
      paid-in capital
                  
                  
                  47,336,451
                  
                  
                  
                  41,549,234Accumulated
      deficit
                  
                  
                  (47,254,963
                  )
                  
                  
                  (45,109,623
                  )Total
      Stockholders’ Equity (Deficit)
                  
                  
                  564,868
                  
                  
                  
                  (3,131,526
                  )Total
      Liabilities and Stockholders’ Equity (Deficit)
                  
                  $
                  2,192,835
                  
                  
                  $
                  3,404,671


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


4


QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS


Three Months Ended September
      30,
              
              
              Nine Months Ended September
    30,2009
              
              
              2008
              
              
              2009
              
              
              2008(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)Revenues:Revenues
              
              $
              108,957
              
              
              $
              216,526
              
              
              $
              440,859
              
              
              $
              469,786Revenues
      – related party
              
              
              880,341
              
              
              
              -
              
              
              
              880,341
              
              
              
              -Total
      Revenues
              
              
              989,298
              
              
              
              216,526
              
              
              
              1,321,200
              
              
              
              469,786Costs
      and Operating Expenses:Cost
      of goods sold (excluding depreciation and amortization)
              
              
              26,274
              
              
              
              3,641
              
              
              
              27,737
              
              
              
              27,123Sales
      and marketing
              
              
              5,556
              
              
              
              1,818
              
              
              
              6,112
              
              
              
              94,394General
      and administrative
              
              
              834,792
              
              
              
              814,434
              
              
              
              1,695,870
              
              
              
              2,299,763Professional
      fees
              
              
              222,480
              
              
              
              260,258
              
              
              
              311,649
              
              
              
              818,984Research
      and development
              
              
              910,435
              
              
              
              508,815
              
              
              
              1,194,713
              
              
              
              1,738,304Amortization
              
              
              5,450
              
              
              
              44,901
              
              
              
              17,153
              
              
              
              134,544Depreciation
              
              
              17,049
              
              
              
              26,273
              
              
              
              52,194
              
              
              
              79,662Total
      Costs and Operating Expenses
              
              
              2,022,036
              
              
              
              1,660,140
              
              
              
              3,305,428
              
              
              
              5,192,774Loss
      from Operations
              
              
              (1,032,738
              )
              
              
              (1,443,614
              )
              
              
              (1,984,228
              )
              
              
              (4,722,988
              )Other
      Income (Expense):Interest
      and dividend income
              
              
              6,542
              
              
              
              4,211
              
              
              
              35,761
              
              
              
              16,508Interest
      expense
              
              
              (79,839
              )
              
              
              (85,913
              )
              
              
              (463,431
              )
              
              
              (185,461
              )Rental
      income
              
              
              5,138
              
              
              
              5,786
              
              
              
              16,673
              
              
              
              17,746Amortization
      of debt discount to interest expense
              
              
              (89,520
              )
              
              
              (462,096
              )
              
              
              (361,666
              )
              
              
              (808,637
              )Amortization
      of deferred financing costs to interest expense
              
              
              -
              
              
              
              (170,264
              )
              
              
              (8,693
              )
              
              
              (249,633
              )Loss
      from deconsolidation of subsidiary
              
              
              -
              
              
              
              -
              
              
              
              (43,286
              )
              
              
              -Deconsolidated
      subsidiary loss
              
              
              -
              
              
              
              -
              
              
              
              (272,579
              )
              
              
              -Loss
      from equity method investment
              
              
              (427,531
              )
              
              
              -
              
              
              
              (427,531
              )
              
              
              -Loss
      on extinguishment of debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (439,445
              )Gain
      (loss) on disposition of assets
              
              
              1,363,640
              
              
              
              -
              
              
              
              1,363,640
              
              
              
              (1,787
              )Total
      Other Income (Expense), net
              
              
              778,430
              
              
              
              (708,276
              )
              
              
              (161,112
              )
              
              
              (1,650,709
              )Loss
      Before Taxes
              
              
              (254,308
              )
              
              
              (2,151,890
              )
              
              
              (2,145,340
              )
              
              
              (6,373,697
              )Provision
      for Income Taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      Loss
              
              
              (254,308
              )
              
              
              (2,151,890
              )
              
              
              (2,145,340
              )
              
              
              (6,373,697
              )Net
      Loss Attributable to Noncontrolling Interest in Subsidiary
              
              
              -
              
              
              
              84,559
              
              
              
              -
              
              
              
              147,638Net
      Loss Attributable to QuantRx
              
              $
              (254,308
              )
              
              $
              (2,067,331
              )
              
              $
              (2,145,340
              )
              
              $
              (6,226,059
              )Basic
      and Diluted Net Loss per Common Share
              
              $
              (0.01
              )
              
              $
              (0.05
              )
              
              $
              (0.05
              )
              
              $
              (0.15
              )Basic
      and Diluted Weighted Average Shares Used in per Share
      Calculation
              
              
              44,054,152
              
              
              
              42,183,242
              
              
              
              43,427,869
              
              
              
              41,938,312


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


5


QUANTRX
BIOMEDICAL CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Nine Months Ended September
    30,2009
                
                
                2008(unaudited)
                
                
                (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (2,145,340
                )
                
                $
                (6,226,059
                )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
      and amortization
                
                
                69,347
                
                
                
                214,206Interest
      expense related to amortization of non-cash discount, non-cash beneficial
      conversion feature and deferred financing costs
                
                
                370,359
                
                
                
                1,058,270Expenses
      related to employee stock based compensation
                
                
                531,354
                
                
                
                809,145Expenses
      related to non-employee stock based compensation
                
                
                5,666
                
                
                
                48,187Non-cash
      fair value of warrants and options issued for consulting
                
                
                -
                
                
                
                140,221Non-cash
      incremental fair value of modified warrants issued for
      interest
                
                
                6,250
                
                
                
                -Non-cash
      fair value of warrants issued for interest
                
                
                72,075
                
                
                
                9,001Non-cash
      fair value of common stock issued for interest
                
                
                78,000
                
                
                
                11,475Loss
      from deconsolidation of subsidiary
                
                
                43,286
                
                
                
                -Loss
      from deconsolidated subsidiary
                
                
                272,579
                
                
                
                -Loss
      from joint venture
                
                
                427,531
                
                
                
                -Interest
      income settled in common stock of former subsidiary
                
                
                (18,000
                )
                
                
                -Loss
      on extinguishment of debt
                
                
                -
                
                
                
                439,445(Gain)
      loss on disposition of assets
                
                
                (1,363,640
                )
                
                
                1,787Issuance
      of convertible notes for accrued interest
                
                
                175,895
                
                
                
                103,123Issuance
      of preferred stock for accrued interest
                
                
                60,823
                
                
                
                -Noncontrolling
      interest
                
                
                -
                
                
                
                (147,638
                )(Increase)
      decrease in:Accounts
      receivable
                
                
                (173,443
                )
                
                
                45,223Interest
      receivable
                
                
                (12,000
                )
                
                
                (12,040
                )Inventories
                
                
                35,360
                
                
                
                (32,084
                )Prepaid
      expenses
                
                
                42,832
                
                
                
                85,750Deposits
                
                
                581
                
                
                
                3,028Security
      deposits
                
                
                (426
                )
                
                
                -Increase
      (decrease) in:Accounts
      payable
                
                
                121,067
                
                
                
                893,369Accrued
      expenses
                
                
                258,457
                
                
                
                43,082Deferred
      revenue
                
                
                200,000
                
                
                
                75,448Net
      Cash Used by Operating Activities
                
                
                (941,387
                )
                
                
                (2,437,061
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      paid for purchases of fixed assets
                
                
                (27,870
                )
                
                
                (9,734
                )Cash
      paid for intangible assets
                
                
                (250,000
                )
                
                
                (25,000
                )Cash
      advances to subsidiary prior to deconsolidation
                
                
                (13,800
                )
                
                
                -Cash
      paid for licensing agreement
                
                
                -
                
                
                
                (20,000
                )Cash
      paid for capitalized website development costs
                
                
                -
                
                
                
                (600
                )Net
      Cash Used by Investing Activities
                
                
                (291,670
                )
                
                
                (55,334
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of promissory notes, net of issuance costs of $0 and
      $57,500
                
                
                430,000
                
                
                
                942,500Proceeds
      from issuance of senior secured convertible notes, net of legal fees of $0
      and $7,500
                
                
                425,000
                
                
                
                992,500Proceeds
      from issuance of senior secured promissory notes
                
                
                250,000
                
                
                
                550,000Repayment
      of short-term debt
                
                
                (1,347,199
                )
                
                
                (100,000
                )Distribution
      from joint venture
                
                
                2,000,000
                
                
                
                -Payments
      on loan payable used to finance equipment purchase
                
                
                (5,731
                )
                
                
                (8,090
                )Proceeds
      from exercise of common stock warrants
                
                
                -
                
                
                
                169,189Payment
      of payables related to asset acquisition deposit
                
                
                (25,000
                )
                
                
                -Payment
      of payables related to fixed asset purchases
                
                
                (8,803
                )
                
                
                (13,298
                )Net
      Cash Provided by Financing Activities
                
                
                1,718,267
                
                
                
                2,532,801Net
      Increase (Decrease) in Cash and Cash Equivalents
                
                
                485,210
                
                
                
                40,406Net
      Cash of Deconsolidated Subsidiary
                
                
                (413
                )
                
                
                -Cash
      and Cash Equivalents, Beginning of Period
                
                
                66,226
                
                
                
                213,332Cash
      and Cash Equivalents, End of Period
                
                $
                551,023
                
                
                $
                253,738Supplemental
      Cash Flow Disclosures:Interest
      expense paid in cash
                
                $
                70,193
                
                
                $
                46,885Income
      tax paid
                
                $
                -
                
                
                $
                -Supplemental
      Disclosure of Non-Cash Activities Financing and Investing
      Activities:Fair
      value of warrants issued to placement agents for debt financing
      costs
                
                $
                -
                
                
                $
                119,750Fair
      value of common stock issued with convertible notes
                
                
                85,803
                
                
                
                -Fair
      value of warrants issued with convertible notes
                
                
                33,487
                
                
                
                122,036Fair
      value of beneficial conversion feature embedded in convertible
      notes
                
                
                6,325
                
                
                
                647,760Fair
      value of common stock issued with senior secured promissory
      notes
                
                
                -
                
                
                
                79,806Fair
      value of warrants issued with senior secured promissory
    notes
                
                
                -
                
                
                
                58,050Fair
      value of common stock issued with promissory notes
                
                
                51,848
                
                
                
                132,827Fair
      value of warrants issued with promissory notes
                
                
                39,666
                
                
                
                108,159Fair
      value of warrants issued in conjunction with joint venture
      formation
                
                
                1,000,000
                
                
                
                -Issuance
      of preferred stock to settle short-term debt
                
                
                3,999,565
                
                
                
                -Increase
      in payables related to purchase of fixed assets
                
                
                -
                
                
                
                9,203Increase
      in payables related to license acquisition
                
                
                -
                
                
                
                8,715Increase
      in payables for debt financing costs
                
                
                -
                
                
                
                125,000Decrease
      in deposits related to intangible asset acquisition
                
                
                100,000
                
                
                
                -Issuance
      of common stock for intangible asset acquisition
                
                
                350,000
                
                
                
                -Decrease
      in intangible assets related to joint venture contribution
                
                
                722,722
                
                
                
                -Increase
      in payables related to deposit on equipment purchase
                
                
                -
                
                
                
                117,543Exchange
      of promissory notes for senior secured convertible note
                
                
                707,890
                
                
                
                -Elimination
      of deconsolidated subsidiary accounts:Prepaid
      expenses
                
                
                104,506
                
                
                
                -Property
      and equipment, net
                
                
                274,404
                
                
                
                -Intangible
      assets, net
                
                
                1,907,193
                
                
                
                -Deposits
                
                
                3,565
                
                
                
                -Accounts
      payable
                
                
                1,311,839
                
                
                
                -Accrued
      expenses
                
                
                215,050
                
                
                
                -Additional
      paid-in-capital
                
                
                479,129
                
                
                
                -





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


6


QUANTRX
BIOMEDICAL CORPORATION


CONDENSED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


September
30, 2009


Description of Business and
Basis of Presentation




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




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




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




The
interim consolidated financial statements are unaudited; however, in the opinion
of management, they include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of financial position and results of
operations for the periods reported.  The interim financial statements
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although QuantRx
believes that the disclosures included herein are adequate to make the
information presented not misleading. Operating results for the periods
presented are not necessarily indicative of future results. These interim
financial statements should be read in conjunction with the financial statements
and notes to financial statements included in the Company’s Annual Report on
Form 10-K for the year ended December 31, 2008, which was filed with the SEC on
April 15, 2009.




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


7




These
consolidated financial statements include the accounts of the Company and,
through December 31, 2008, 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 effective 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.




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




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




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




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




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




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




2.
            Summary of Significant
      Accounting Policies




Accounting forShare-Based
Payments




QuantRx
follows the provisions of Statement of Financial Accounting Standards (SFAS)
No. 123(R), “Share-Based Payments” (Accounting Standards Codification (ASC
Topic 718))   SFAS No. 123(R) establishes the accounting for
transactions in which an entity exchanges equity securities for services and
requires companies to expense the estimated fair value of these awards over the
requisite service period.  QuantRx uses the Black-Scholes method to
determine fair value on the measurement date.  Accordingly,
compensation cost has been recognized using the fair value method and expected
term accrual requirements as prescribed in SFAS No. 123(R), which resulted in
employee stock-based compensation expense for the three and nine months ended
September 30, 2009 of $289,750 and $531,354, respectively, and $322,978 and
$809,145 for the three and nine months ended September 30, 2008 (including
$121,061 and $248,116 relating to subsidiary options),
respectively.




8




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:




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




Earnings per
Share




The
Company computes net income (loss) per common share in accordance with SFAS
No. 128, “Earnings per Share” (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 stock equivalents, such as options and warrants to
purchase common stock, convertible preferred stock and convertible notes, if
applicable, that are outstanding. Basic and diluted earnings per share were the
same at the reporting dates of the accompanying financial statements, as
including common stock equivalents in the calculation of diluted earnings per
share would have been antidilutive.




As of
September 30, 2009, the Company had outstanding options exercisable for
2,780,500 shares of its common stock, warrants exercisable for 14,193,434 shares
of its common stock, and 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 nine months ended September 30,
2009.




As of
September 30, 2008, the Company had outstanding options exercisable for
2,344,750 shares of its common stock, warrants exercisable for 7,996,684 shares
of its common stock, and debt securities convertible into 4,508,137 shares of
its common stock.  The above options, warrants, and convertible debt
securities were deemed to be antidilutive for the three and nine months ended
September 30, 2008.




Fair Value




Effective
January 1, 2009, the Company adopted SFAS No. 157, “Fair Value
Measurements” (ASC Topic 820) for nonfinancial assets and liabilities. The
adoption of this statement had no impact on the Company’s consolidated results
of operations or financial condition.


9




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




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




Noncontrolling
Interest




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




On May 5,
2009, QuantRx and FluoroPharma reorganized their relationship by terminating
their investment agreement and related agreements. The termination of these
investment agreements, which were originally executed on March 10, 2006, allowed
FluoroPharma to close an equity financing with third party
investors.  In conjunction with the termination of these agreements
and the additional investment in FluoroPharma by third parties, QuantRx agreed
to convert all outstanding receivables from FluoroPharma into common stock of
FluoroPharma. As a result of these transactions and the third party investment,
QuantRx’s ownership interest in FluoroPharma’s issued and outstanding capital
stock was reduced to a noncontrolling interest, which resulted in
deconsolidation and a loss at deconsolidation in accordance with SFAS No. 160
(ASC Topic 810).  See Note 5 for additional details.




Recent Accounting
Pronouncements




In June
2009, the FASB issued the FASB Accounting Standards Codification (the
Codification or ASC) as the single source of authoritative nongovernmental GAAP.
All existing accounting standard documents, such as FASB, American Institute of
Certified Public Accountants, Emerging Issues Task Force and other related
literature, excluding guidance from the Securities and Exchange Commission
(SEC), has been superseded by the Codification. The Codification does not change
GAAP, but instead introduces a new structure that will combine all authoritative
standards into a comprehensive, topically organized online database. The
Codification is effective and will impact the Company’s financial statement
disclosures beginning with the quarter ended September 30, 2009. In order to
ease the transition to the Codification, the Company is providing the
Codification cross-reference alongside the references to the standards issued
and adopted prior to the adoption of the Codification.


10




In May
2009, the FASB issued SFAS No. 165, Subsequent Events (ASC Topic 855), which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date, but before the financial statements are
issued or available to be issued (subsequent events). The statement requires
disclosure of the date through which the entity has evaluated subsequent events
and the basis for that date. For public entities, this is the date the financial
statements are issued. It does not apply to subsequent events or transactions
that are within the scope of other GAAP. The adoption of these provisions in the
second quarter of 2009 did not have a material effect on our consolidated
financial statements.




In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments,” (ASC Topic 825) which require
disclosure in the body or in the accompanying notes of the Company’s summarized
financial information for interim reporting periods and in its financial
statements for annual reporting periods the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not in the statement of financial position, as required by SFAS
No. 107. The Company adopted these provisions in the quarter ended September 30,
2009.




In April
2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments,” (ASC Topic 320) which
clarifies the interaction of the factors that should be considered when
determining whether a debt security is other than temporarily impaired. The
implementation of these provisions in the quarter ended September 30, 2009
resulted in no material impact to the Company’s financial
statements.




In April
2009, the FASB issued FSP No. FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly,” (ASC Topic 820)
which clarifies the interaction of the factors that should be considered when
evaluating whether there has been a significant decrease in the volume and level
of activity for an asset or liability when compared with normal market activity
for the asset or liability (or similar assets or liabilities). If there has been
a significant decrease in the volume and level of activity for the asset or
liability, further analysis of the transactions or quoted prices is required,
and a significant adjustment to the transactions or quoted prices may be
necessary to estimate fair value. The implementation of this standard in the
quarter ended September 30, 2009 did not have a material impact on QuantRx’s
consolidated financial statements.




In May
2008, the FASB issued FSP Accounting Principles Board (APB) 14-1, “Accounting
for Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement)” (ASC Topic 470). This standard requires the
issuer of certain convertible debt instruments that may be settled in cash (or
other assets) on conversion to separately account for the liability (debt) and
equity (conversion option) components of the instrument in a manner that
reflects the issuer’s non-convertible debt borrowing rate. Implementation of
this standard in the first quarter of 2009 did not have a material impact on
QuantRx’s consolidated financial statements.




In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets” (ASC Topic 350). This standard amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The implementation of this
standard in the first quarter of 2009 did not have a material impact on our
consolidated financial position, results of operations or cash
flows.


11




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement
No. 133” (ASC Topic 815). This statement enhanced the disclosure
requirements for derivative instruments and hedging activities. Implementation
of this standard in 2009 had no impact on QuantRx’s consolidated financial
statements.




In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (ASC
Topic 805). SFAS No. 141(R) changes the accounting for business combinations.
Adoption of this statement in 2009 has had no impact on QuantRx’s consolidated
financial statements.




In
November 2007, EITF No. 07-01, “Accounting for Collaborative
Arrangements” (ASC Topic 808) was issued. Adoption of this standard in 2009 did
not have a material impact on the Company’s consolidated results of operations
or financial position.




Reclassifications




Certain
reclassifications have been made in the presentation of the financial statements
for the three and nine months ended September 30, 2008 to conform to the
presentation of the financial statements for the three and nine months ended
September 30, 2009. The reclassifications were to reflect the retrospective
adoption of SFAS No. 160 (ASC Topic 810). Additionally, we have reflected the
permissible “one-line” restatement of our former subsidiary’s results as of
January 1, 2009.




Revenue
Recognition




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




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




Payments
related to substantive, performance-based milestones in an agreement are
recognized as revenue upon the achievement of the milestones as specified in the
underlying agreements when they represent the culmination of the earnings
process. Royalty revenue from licensed products will be recognized when earned
in accordance with the terms of the license agreements.


12




Use of
Estimates




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




3.
            QN Diagnostics,
      LLC




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




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




QuantRx
and QND also entered into a Development and Services Agreement, pursuant to
which QND shall pay a monthly fee to QuantRx in exchange for QuantRx providing
all services related to the development, regulatory approval and
commercialization of lateral flow products. The revenue recognized by QuantRx
associated with the QND Development and Services Agreement in the quarter ended
September 30, 2009 was $880,341, while the expenses related to this agreement
for the quarter ended September 30, 2009 were $880,341. Expenses are included in
each appropriate expense category. As of September 30, 2009, deferred revenue
included $250,000 of prepaid service fees related to its development and
services agreement with QND, which was recognized in October 2009, and accounts
receivable from QND as of that date was $174,653.




In
connection with these transactions, NuRx received two warrants to purchase
2,000,000 shares of QuantRx common stock each, for an aggregate of 4,000,000
shares of QuantRx common stock (fair value $1,000,000).  The warrants
expire on July 30, 2014 and have an exercise price of $0.50 and $1.25,
respectively.




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


13




Summarized
unaudited financial information of QND for the three months ended September 30,
2009, is as follows: revenues and gross profit: $50,000; net loss:
$930,000.  QuantRx recorded a loss from QND under the equity method of
$428,000, representing the Company’s 50% portion of QND’s net loss, adjusted for
an amortization modification based upon QuantRx’s basis in the contributed
assets.  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 sales date
of the first such product sold.  QuantRx also agreed under the asset
purchase agreement to offer to PRIA the first opportunity to manufacture certain
products utilizing the acquired technologies before entering into any agreement
or arrangement with a third party to manufacture such products.




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.  In conjunction with the termination of these agreements
and the additional investment in FluoroPharma, QuantRx agreed to convert all
outstanding receivables from FluoroPharma, consisting of previously issued notes
and related accrued interest and advances in the aggregate amount of $1,568,567,
into 1,148,275 shares of common stock of FluoroPharma. As a result of these
transactions and the third party investment, QuantRx’s ownership interest in
FluoroPharma’s issued and outstanding capital stock was reduced to a
noncontrolling interest, which resulted in deconsolidation. Subsequent to the
termination of the agreements between QuantRx and FluoroPharma, QuantRx has no
continuing obligations or commitments to FluoroPharma.




At May 5,
2009, QuantRx’s remaining net basis of the investment in FluoroPharma, inclusive
of receivables from FluoroPharma, was $43,286, after taking into account
previously recorded losses of $5,056,304 ($272,579 in 2009) related to the
consolidated results of FluoroPharma. These losses have been included in our
consolidated financial statements commencing April 1, 2007, the original date of
consolidation, through May 4, 2009, and are net of losses allocated to the then
noncontrolling (formerly minority) interests as applicable. On May 5, subsequent
to the execution of the aforementioned transactions which led to the
deconsolidation of FluoroPharma, QuantRx’s ownership of the outstanding capital
stock of FluoroPharma was reduced to a noncontrolling interest of approximately
45.55%. At deconsolidation the fair market value of QuantRx’s remaining
noncontrolling interest in FluoroPharma was $842,876, based on the third party
investment; however, FluoroPharma had a deficit equity balance, which resulted
in QuantRx writing off the remaining basis in the investment of $43,286 and
recording a loss from deconsolidation of $43,286 in accordance with SFAS No.
160.


14




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. As of September 30, 2009 and December 31,
2008, QuantRx owned approximately 40.77% and 57.78%, respectively, of the issued
and outstanding capital stock of FluoroPharma. At September 30, 2009, QuantRx
had warrants and options to purchase an additional 544,278 shares of
FluoroPharma common stock at exercise prices ranging from $0.75 to $1.50, which,
if exercised together with FluoroPharma’s other outstanding options and
warrants, would reduce the QuantRx’s ownership percentage to approximately
34.82% on a fully diluted and as converted basis as of September 30,
2009.




At
September 30, 2009, FluoroPharma’s condensed financial information was estimated
as follows: expenses and net losses for the period of May 5, 2009 through
September 30, 2009 were estimated at $570,444. QuantRx’s estimated allocation of
the net loss of $232,570 for the period commencing May 5, 2009 through September
30, 2009 was not recorded, since the remaining investment in FluoroPharma had a
carrying value of $0 as of the deconsolidation of FluoroPharma at May 5,
2009.




6.
            Intangible
      Assets




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




September 30, 2009
                  
                  
                  December 31, 2008Licensed
      patents and patent rights
                  
                  $
                  50,000
                  
                  
                  $
                  2,197,020Patents
                  
                  
                  41,004
                  
                  
                  
                  82,008Technology
      license
                  
                  
                  -
                  
                  
                  
                  22,517Website
      development
                  
                  
                  40,750
                  
                  
                  
                  49,711Less:
      accumulated amortization
                  
                  
                  (66,725
                  )
                  
                  
                  (339,159
                  )Intangibles,
      net
                  
                  $
                  65,029
                  
                  
                  $
                  2,012,097




The
Company’s intangible assets are carried at the legal cost to obtain them.
Intangible assets are amortized using the straight line method over the
estimated useful life. Useful lives are as follows: licensed patents and patent
rights, eight to 15 years; patents, 17 years; technology license, five years;
and website development costs, three years. Amortization expense totaled $5,450
and $17,153 for the three and nine months ended September 30, 2009, and $44,901
and $134,544 for the three and nine months ended September 30, 2008,
respectively.  Impairment will be considered in accordance with the
Company’s impairment policy. No impairment was recognized as of September 30,
2009.




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


15


7.
            Other Balance Sheet
      Information




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




September 30,
                              2009
                            
                            
                            December 31,
                              2008Prepaid expenses:Prepaid
      consulting
                            
                            $
                            -
                            
                            
                            $
                            92,649Prepaid
      consulting – related party
                            
                            
                            -
                            
                            
                            
                            4,674Prepaid
      insurance
                            
                            
                            30,695
                            
                            
                            
                            37,473Prepaid
      interest
                            
                            
                            -
                            
                            
                            
                            44,426Prepaid
      rent
                            
                            
                            5,310
                            
                            
                            
                            5,310Other
                            
                            
                            5,706
                            
                            
                            
                            4,517Prepaid
      expenses
                            
                            $
                            41,711
                            
                            
                            $
                            189,049Deferred financing costs:Deferred
      financing costs
                            
                            $
                            -
                            
                            
                            $
                            133,250Less:
      accumulated amortization
                            
                            
                            -
                            
                            
                            
                            (124,557
                            )Deferred
      financing costs, net
                            
                            $
                            -
                            
                            
                            $
                            8,693Property and equipment:Computers
      and office furniture, fixtures and equipment
                            
                            $
                            124,877
                            
                            
                            $
                            136,690Machinery
      and equipment
                            
                            
                            181,347
                            
                            
                            
                            466,338Leasehold
      improvements
                            
                            
                            92,233
                            
                            
                            
                            92,233Less:
      accumulated depreciation
                            
                            
                            (200,978
                            )
                            
                            
                            (199,055
                            )Property
      and equipment, net
                            
                            $
                            197,479
                            
                            
                            $
                            496,206Accrued expenses:Payroll
      and related
                            
                            $
                            273,600
                            
                            
                            $
                            156,750Professional
      fees
                            
                            
                            52,000
                            
                            
                            
                            43,800Accrued
      interest
                            
                            
                            -
                            
                            
                            
                            41,142Other
                            
                            
                            16,500
                            
                            
                            
                            57,000Accrued
      expenses
                            
                            $
                            342,100
                            
                            
                            $
                            298,692




8.
            Deferred
      Revenue




On May
19, 2008, QuantRx and CytoCore, Inc. entered into a worldwide distribution and
supply agreement for specified PAD technology of QuantRx. The agreement
specifies monthly license fees during CytoCore’s expected development period and
additional milestone payments based upon CytoCore’s achievement of certain
development and sales milestones.  QuantRx received an up-front,
non-refundable payment of $100,000 upon execution of this agreement, which was
recorded as deferred revenue and is being amortized into revenue over the
expected development period of the agreement, which is estimated as 18 months.
QuantRx recognized revenue of $33,335 and $100,004 in the three and nine months
ended September 30, 2009, and $33,335 and $55,337 in the three and nine months
ended September 30, 2008, related to this agreement.


16




As of
September 30, 2009, deferred revenue included $250,000 of prepaid service fees
related to its development and services agreement with QND, which was recognized
in October 2009.




9.
            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.




The
following describes the convertible and promissory notes. QuantRx used the net
proceeds from each offering for product development, working capital and general
corporate purposes. The Black-Scholes option pricing model was used to calculate
the fair values of all warrants issued in connection with these notes. See Note
2.




2008 Senior Secured
Convertible Notes




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




In the
event QuantRx did not complete a qualified financing and holders do not
voluntarily convert, QuantRx was to repay the outstanding principal balance and
accrued and unpaid interest on January 23, 2009. All holders had extended this
maturity date to July 31, 2009. Interest on the outstanding principal amount of
the 2008 Notes was payable quarterly in cash or, at the holders’ option, in
additional 10% senior secured convertible notes with a principal amount equal to
the calculated interest amount. In connection with the financing and in
accordance with the terms of the 2007 Notes, the holders representing $1,000,000
face value of QuantRx’s 2007 Notes exchanged their notes at 115% of the
outstanding principal and accrued and unpaid interest as payment toward the
purchase price of the 2008 Notes purchased by such holders. Accordingly, the
Company issued notes in the financing in the aggregate principal balance of
$1,157,247 to the former holders upon their surrender of the 2007
Notes.  In the aggregate, the Company received gross cash proceeds of
$1,000,000 in connection with the issuance of the 2008 Notes.




QuantRx
determined that the terms of the 2008 Notes were “substantially different” from
the terms of the 2007 Notes based on the greater than 10% change in the present
value of the cash flows associated with the 2008 Notes and the 2007 Notes. As a
result, the Company recorded the 2008 Notes issued in exchange for the 2007
Notes at fair value on the date of issuance and recorded a loss on
extinguishment of $439,445, which includes $189,101 and $99,399 representing the
remaining unamortized debt discount and deferred finance costs related to the
2007 Notes, respectively. The Company also remeasured the intrinsic value of the
beneficial conversion feature embedded in the 2007 Notes at the time of
extinguishment and determined that it had no value as the closing stock price on
the date of extinguishment was less than the effective conversion price;
therefore no allocation of the reacquisition price for the repurchase of the
beneficial conversion feature embedded in the 2007 Notes was required.
Additionally, there were no warrants issued to the holders of the 2007 Notes
related to their exchange of 2007 Notes for 2008 Notes.


17




The
cash proceeds from the 2008 Notes issued in the first quarter of 2008 of
$1,000,000 were allocated between the notes and the warrants on a relative fair
value basis. QuantRx allocated $122,035 of the principal amount of $1,000,000 to
the warrants as original issue discount, which represented the relative fair
value of the warrants at the date of issuance.




Like the
2007 Notes, the conversion option embedded in the 2008 Notes described above is
not considered a derivative instrument and is not required to be bifurcated
since it is indexed to QuantRx’s stock and is classified as stockholders’
equity. Equity classification of the embedded conversion option is met. QuantRx
also concluded that while the embedded conversion option is not required to be
bifurcated, the instruments do contain a beneficial conversion feature, as the
share prices on the dates of issuance exceeded the effective conversion price of
the embedded conversion option. QuantRx measured the intrinsic value of the
embedded conversion option ($647,760) based upon the effective conversion price
as the allocated proceeds divided by the number of shares to be received on
conversion. This amount was recorded as original issue discount.




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




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




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


18




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




In the
aggregate for all 2008 Notes, the fair value of the warrants issued to placement
agents and the cash commissions and legal fees, if any, were recorded as
deferred financing costs. The total original issue discount related to the
common stock, warrants, and modified warrants issued to the investors, the
beneficial conversion feature, and the deferred financing costs were amortized
to interest expense over the original term of each 2008 Note. Interest expense,
including amortization of original issue discount and deferred financing costs,
related to the 2008 Notes was $79,322 and $419,777 for the three and nine months
ended September 30, 2009 and $291,679 and $752,962 for the three and nine months
ended September 30, 2008. In first and second quarter of 2009, the Company
issued 10% convertible notes in the aggregate amount of $66,416 and $81,698,
respectively, for quarterly interest in the form of paid-in-kind
notes.




2008 Secured Promissory
Notes Payable




In the
second quarter of 2008, the Company issued to certain accredited investors 8%
senior secured promissory notes (the “2008 Secured Promissory Notes in the
aggregate principal amount of $550,000, and an aggregate of 137,500 shares of
common stock and warrants with a five-year term to purchase 137,500 shares of
common stock warrants at a per share exercise price of $0.85.  The
warrants provide for full antidilution protection to the holders and allow for
cashless exercise. The 2008 Secured Promissory Notes were originally due on
September 15, 2008, along with all accrued and unpaid interest. The cash
proceeds from the 2008 Secured Promissory Notes of $550,000 were allocated
between the notes, common stock and warrants on a relative fair value basis.
QuantRx allocated $79,806 and $58,050 of the principal amount of $550,000 to the
common stock and warrants as original issue discount, which represented the
relative fair values of each at the date of issuance. In association with the
issuance of the 2008 Secured Promissory Notes, QuantRx issued warrants to
purchase 100,000 shares of common stock at $0.85 per share valued at $64,000 to
the placement agent, and also incurred cash commissions of $55,000 in connection
with the private placement resulting in total deferred finance costs of
$119,000.




The fair
value of the warrants issued to placement agents and the cash commissions were
recorded as deferred financing costs. The total original issue discount related
to the common stock and warrants issued to the investors and the deferred
financing costs were amortized to interest expense over the original term of the
2008 Secured Promissory Notes.


19




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




On
October 15, 2008, QuantRx executed an eleven-month extension with a holder of a
$100,000 2008 Secured Promissory Note.  In consideration for this
extension, QuantRx granted 75,000 shares of common stock with a fair value of
$22,500, which was recorded as prepaid interest and was being expensed over the
term of the extension, with the remaining balance expensed at settlement in
July, 2009.




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




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




In the
aggregate, QuantRx recorded $9,328 and $55,447 in interest expense, including
amortization of original issue discount, deferred financing costs and prepaid
interest for the three and nine months ended September 30, 2009 and $246,366 and
$278,007 for the three and nine months ended September 30,
2008.


20


2008 Unsecured Promissory
Notes Payable




In August
2008, the Company issued to certain accredited investors 8% promissory notes
(the “2008 Promissory Notes”) in the aggregate principal amount of $1,000,000,
and an aggregate of 250,000 shares of common stock and warrants with a five-year
term to purchase 250,000 shares of common stock at an exercise price of
$0.85.  The warrants provide for full antidilution protection to the
holders and allow for cashless exercise. The 2008 Promissory Notes were
originally due on October 31, 2008, along with all accrued and unpaid interest.
 The net cash proceeds from the 2008 Promissory Notes were $942,500.
QuantRx allocated $132,827 and $108,159 of the principal amount of $1,000,000 to
the common stock and warrants as original issue discount, which represented the
relative fair values of each at the date of issuance.




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




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




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




In the
first quarter of 2009, the Company issued additional 8% Promissory Notes
originally maturing March 31, 2009, in the aggregate principal amount of
$115,000, and warrants to purchase an aggregate of 115,000 shares of common
stock with a five year term and an exercise price of $0.55 (fair value $28,850;
relative fair value of $23,054).  The relative fair value of the
warrants was recorded as debt discount and was amortized over the original term
of the notes. As of March 31, 2009, the holders agreed to extend the maturity
date to June 30, 2009. In consideration for this extension, in April 2009,
QuantRx granted warrants to purchase an aggregate of 80,500 shares of common
stock with a five year term and an exercise price of $0.55 (aggregate fair value
$12,075). The fair value of the consideration was expensed over the term of the
extension.


21




In the
second quarter of 2009, the Company issued a $50,000 8% Promissory Note maturing
May 31, 2009 (settled prior to maturity with the issuance of a 2008 Note) and
$185,000 8% Promissory Notes maturing June 30, 2009 and July 31, 2009. In
connection with these issuances, QuantRx issued 105,000 shares of common stock
(fair value $39,150; relative fair value of $28,488) and warrants to purchase an
aggregate of 130,000 shares of common stock with a five year term and an
exercise price of $0.55 (fair value $19,050; relative fair value of
$16,611).  The relative fair value of the common stock and warrants
was recorded as debt discount and was amortized over the original term of the
notes.




In the
third quarter of 2009, the Company issued an aggregate of $80,000 8% Promissory
Notes maturing July 31, 2009. In connection with these issuances, QuantRx issued
80,000 shares of common stock (fair value $33,000; relative fair value of
$23,360).  The relative fair value of the common stock was recorded as
debt discount and was expensed over the original term of the notes.




The total
original issue discount related to the common stock and warrants issued to the
investors and the deferred financing costs were amortized to interest expense
over the original terms of the 2008 Promissory Notes. In the aggregate, QuantRx
recorded $79,303 and $353,951 in interest expense, including amortization of
original issue discount, prepaid interest, and deferred financing costs, related
to the 2008 Promissory Notes for the three and nine months ended September 30,
2009 and $178,957 for the three and nine months ended September 30, 2008. No
deferred finance costs were incurred on these Promissory Notes issued in
2009.




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 as of September 30, 2009. At September 30, 2009,
4,060,397 shares of Series A-1 preferred stock were outstanding. The Company had
no issued and outstanding preferred stock at December 31, 2008.




The
Series A-1 preferred stock ranks prior to the common stock for purposes of
liquidation preference, and to all other classes and series of equity securities
of the Company that by their terms do not rank senior to the Series A-1
preferred stock. Holders of the Series A-1 preferred stock shares are entitled
to receive, when, as and if declared by the Board of Directors, preferential
dividends which shall accrue at the rate of 8% per annum to be paid at the
option of the Company, either in cash or by the issuance of additional shares of
Series A-1 preferred stock. The Company may, at its option, redeem shares of the
Series A-1 preferred stock, in whole or in part, out of funds legally available,
by action of the Board of Directors, at any time after the issuance of such
Series A-1 preferred stock, at a redemption price equal to the face amount plus
all accrued and unpaid dividends on such Series A-1 preferred stock. At any time
on or after the issuance date, the Series A-1 preferred stock may be converted
into a number of fully paid and nonassessable shares of common stock at a
conversion rate of two shares of common stock for each one share of Series A-1
preferred stock.




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.


22


11.
            Common Stock, Options
      and Warrants




In the
third quarter of 2009, in connection with an asset purchase, QuantRx issued
700,000 shares of common stock (fair value of $350,000).




In the
third quarter of 2009, in connection with the establishment of a joint venture,
QuantRx issued two warrants to purchase 2,000,000 shares (4,000,000 in the
aggregate) of QuantRx common stock with a fair value of
$1,000,000.  The warrants expire on July 30, 2014 and have an exercise
price of $0.50 and $1.25, respectively.




In the
third quarter of 2009, warrants to purchase an aggregate of 550,000 shares of
common stock were granted to certain executives. The warrants were issued with
an exercise price of $0.50, have a term of five years, an aggregate fair value
of $165,000, and are vested with respect to 475,000 warrants, with the remaining
75,000 warrants vesting with the successful completion of a development
milestone. Stock based compensation expense related to the issuance of these
warrants was $153,750 for the three months ended September 30,
2009.




In the
third quarter of 2009, in connection with the issuance of $80,000 8% unsecured
promissory notes, the Company issued an aggregate of 80,000 shares of common
stock (fair value $33,000; relative fair value of $23,360).




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




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




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




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




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


23




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




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




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




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




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




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




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




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




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


24




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




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




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




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




In April
2008, the Company issued common stock warrants with a five year term in
consideration of a financial advisory and investor relations consulting services
agreement. The warrant represents the right to purchase 200,000 shares of common
stock at an exercise price of $0.89 and vests ratably each month over a one year
term. The fair value of the warrant was calculated to be $148,000 on grant date,
and shall be remeasured during the vesting term as required. Consulting expense
related to the issuance of these warrants was $10,750 and $35,750 for the three
and nine months ended September 30, 2008.




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




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


25




2007 Incentive and
Non-Qualified Stock Option Plan




Pursuant
to SFAS 123(R), the fair value of options granted under the Company’s 2007
Incentive and Non-Qualified Stock Option Plan is recorded as compensation
expense over the vesting period, or, for performance based awards, the expected
service term.  Total compensation cost related to QuantRx’s employee
options was $136,000 and $223,704 for the three and nine months ended September
30, 2009, and $201,917 and $561,029 for the three and nine months ended
September 30, 2008, respectively. Compensation cost related to QuantRx’s
non-employee options was a reduction of $1,667 based on a remeasurement
adjustment in the nine months ended September 30, 2009, and $833 and $7,000 for
the three and nine months ended September 30, 2008, respectively.




In the
third quarter of 2009, non-qualified stock options to purchase an aggregate of
500,000 shares of common stock were granted and issued from the Company’s 2007
Incentive and Non-Qualified Stock Option Plan to executives in accordance with
employment agreements executed July 30, 2009. The options were issued with an
exercise price of $0.50, have a term of five years, and are vested with respect
to 375,000 options, with the remaining 125,000 options vesting with the
successful completion of development milestones. The fair value of these options
is $150,000.




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




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




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




12.
            Related Party
      Transactions




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


26




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




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




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




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




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. See Notes 3 and
4.




Operating
Leases




QuantRx
leases office space and research and development lab space under operating
leases that expire at various times through 2011.  Some of these
leases contain cancellation clauses, subject to a termination fee, and include
allocations for common expenses subject to future adjustment.  Rent
expense related to operating leases was approximately $33,602 and $99,103 for
the three and nine months ended September 30, 2009, and $30,689 and $90,689 for
the three and nine months ended September 30, 2008, respectively. In connection
with facility leases, the Company has made security deposits totaling $10,310,
which are included in long-term assets in the balance sheet. Future minimum
lease obligations, inclusive of potential termination fees, for operating leases
as of September 30, 2009 are estimated as follows:




Remainder
      of 2009
                
                $
                37,6432010
                
                
                75,6782011
                
                
                43,875Total
      minimum payments
                
                $
                157,196


27




In
February 2007, the Company began subleasing research and development lab space
under the noncancellable operating leases. The sublease can be terminated upon
ninety days notice by either party, and a $2,000 security deposit is being held
by QuantRx pursuant to the terms of the lease. Sublease income was $5,138 and
$16,673 for the three and nine months ended September 30, 2009, and $5,786 and
$17,746 for the three and nine months ended September 30, 2008 respectively, and
is recorded in other income.




Executive Employment
Contracts




The
Company has employment contracts with key Company 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 September 30, 2009, the future employment contract
commitment for such key executives based on these termination clauses was
approximately $636,000.




14.
            Subsequent
      Events




In the
fourth quarter of 2009, 150,000 shares of common stock and warrants to purchase
an aggregate of 200,000 shares of common stock were granted in consideration of
investor relations services. Warrants to purchase 100,000 shares of common stock
were issued with an exercise price of $0.50 and have a term of five years.
Warrants to purchase 100,000 shares of common stock were issued with an exercise
price of $1.25 and have a term of five years.




The
Company evaluated subsequent events that occurred from October 1, 2009 through
November 16, 2009, the date the Company’s financial statements were issued. The
evaluation resulted in no other impact to the interim consolidated financial
statements.


28




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




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




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




Overview




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




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




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


29




RapidSense
and Q-Reader (QN Diagnostics)




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




Under the
terms of agreements, NuRx contributed $5,000,000 in cash to the joint
venture.  Following the respective contributions by NuRx and QuantRx
to the joint venture, NuRx and QuantRx will each own a 50% interest in the joint
venture.  The purpose of the joint venture will be to develop and
commercialize products incorporating the lateral flow strip technology and
related lateral flow strip readers.




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




The
patented RapidSense technology - a one-step lateral flow test with unique
features such as a positive indication for a positive test - combined with the
reader platform allows the company to target POC diagnostics previously limited
to the diagnostic laboratory. These applications include but are not limited to
therapeutic drug monitoring, cancer diagnostics, diagnosis of cardiac disease,
and other critical tests. This rapid and disposable point-of-care diagnostic
technology is ideal for testing any body fluid, including urine and oral fluids.
QuantRx has also patented innovative oral fluid collection devices specifically
designed for its RapidSense technology. These distinctive collection devices
coupled with RapidSense and the reader platform enable us to target the large
and growing markets for diagnostics using oral sample collections which have
heretofore been limited to more rudimentary blood or urine testing.




The  RapidSense
products are targeting the POC healthcare professional markets. To access the
unique capabilities of RapidSense and provide meaningful data to medical
professionals, we have been developing a cost efficient portable device called
the Q-Reader for use with RapidSense.  During the past year, we
successfully advanced our Q-Reader initiative through the acquisition of
intellectual property (IP) from PRIA Diagnostics.  PRIA’s optics IP
enables the cost effective translation of lateral flow results beyond a
“positive” or “negative” and produces a test-specific quantified result so that
changes in body chemistry can be measured in the primary care practitioner’s
office.  This has the potential to shift outside lab work to the
physician’s office, thus reducing time and expense while creating a revenue
source for the medical professional. Among the initial products being developed
is a line of extremely sensitive Clinical Laboratory Improvement Amendments
(CLIA) waived quantitative POC lateral flow diagnostic tests, with reliable and
repeatable sensitivity at the level needed to provide laboratory level results
to the POC market.




30




FluoroPharma




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




The
accounts of FluoroPharma have been included in our consolidated financial
statements commencing April 1, 2007, the original date of consolidation, through
May 4, 2009, and are net of losses allocated to the then noncontrolling
(formerly minority) interests as applicable. QuantRx has restated its financial
statements as of January 1, 2009, to reflect the results of its former
subsidiary as a one-line item, and effective May 5, 2009 our financial
statements reflect our investment in FluoroPharma under the equity method of
accounting.




On May 5,
subsequent to the execution of the aforementioned transactions which led to the
deconsolidation of FluoroPharma, QuantRx’s ownership of the outstanding capital
stock of FluoroPharma was approximately 45.55%, and at September 30, 2009, it
was approximately 40.77%. Subsequent to the termination of the investment
agreements between QuantRx and FluoroPharma, QuantRx has no continuing
obligations or commitments to FluoroPharma.




Consolidated
Results of Operations




The
consolidated results of operations include the accounts of the Company and its
formerly majority-owned subsidiary, FluoroPharma, Inc., though December 31,
2008.  Effective May 5, 2009, QuantRx and FluoroPharma executed
transactions which resulted in QuantRx no longer having a controlling ownership
interest, resulting in the deconsolidation of FluoroPharma. QuantRx has restated
its financial statements as of January 1, 2009, to reflect the results of its
former subsidiary as a one-line item, and effective May 5, 2009 our financial
statements reflect our investment in FluoroPharma under the equity method of
accounting. The loss related to FluoroPharma as a consolidated subsidiary for
January 1, 2009 through May 4, 2009 of $272,579 has been reflected as a one-line
item in our financial statements.




At May 5,
2009, QuantRx’s remaining net basis of the investment in FluoroPharma, inclusive
of receivables from FluoroPharma, was $43,286, after taking into account
previously recorded losses of $5,056,304 ($272,579 in 2009) related to the
consolidated results of FluoroPharma. These losses have been included in our
consolidated financial statements commencing April 1, 2007, the original date of
consolidation, through May 4, 2009, and are net of losses allocated to the then
noncontrolling (formerly minority) interests as applicable. On May 5, subsequent
to the execution of the aforementioned transactions which led to the
deconsolidation of FluoroPharma, QuantRx’s ownership of the outstanding capital
stock of FluoroPharma was reduced to a noncontrolling interest of approximately
45.55%. At deconsolidation, the fair market value of QuantRx’s remaining
noncontrolling interest in FluoroPharma was $842,876, based on the third party
investment; however, FluoroPharma had a deficit equity balance, which resulted
in QuantRx writing off the remaining basis in the investment of $43,286 and
recording a loss from deconsolidation of $43,286.




Effective
May 5, 2009, our financial statements reflect our investment in FluoroPharma
under the equity method of accounting. QuantRx’s estimated allocation of the net
loss of $232,570 from the equity method investment in FluoroPharma for the
period commencing May 5, 2009 through September 30, 2009 was not recorded, since
the remaining investment in FluoroPharma had a carrying value of $0 as of the
deconsolidation of FluoroPharma at May 5, 2009.


31




Net
operating revenues for the three months ended September 30, 2009 and 2008 were
$989,298 and $216,526, respectively. Net operating revenues for the nine months
ended September 30, 2009 and 2008 were $1,321,200 and $469,786, respectively.
The increase in revenues of $772,772 and $851,414 is due primarily to an
increase in contract development primarily due to the QND joint venture; royalty
income beginning in 2009 from a licensing agreement with Church & Dwight;
and, on a full year basis, increased licensing income from
Cytocore.




General
and administrative expense for the three months ended September 30, 2009 and
2008 was $834,792 and $814,434, respectively, and for the nine months ended
September 30, 2009 and 2008, was $1,695,870 and $2,299,763, respectively The
increase of $20,358 ($248,708 related to QuantRx) for the quarter is due
primarily to increased personnel expenses related to the joint venture with QND,
offset by the absence of our former subsidiary’s results in our 2009 accounts
(see above). The decrease of $603,893 ($5,899 related to QuantRx) for the nine
months is due primarily to the absence of our former subsidiary’s results in our
2009 accounts (see above) and cost containment efforts, including decreased
travel expenses, offset by increased personnel costs related to the joint
venture with QND.




Professional
fees for the three months ended September 30, 2009 and 2008, were $222,480 and
$260,258, respectively, and for the nine months ended September 30, 2009 and
2008, were $311,649 and $818,984, respectively.  Professional fees
include the costs of legal, consulting and auditing services provided to us. The
decreases of $37,778 (including an increase of $57,421 related to QuantRx)
and $507,335 ($272,918 related to QuantRx) are primarily due to the absence of
our former subsidiary’s results in our 2009 accounts (see above), and decreased
investor and public relation and FDA regulatory consulting as part of
QuantRx’s overall cost containment efforts, substantially offset by
increased legal fees in the third quarter.




Research
and development expense for the three months ended September 30, 2009 and 2008,
was $910,435 and $508,815, respectively, and for the nine months ended September
30, 2009 and 2008, was $1,194,713 and $1,738,304, respectively. The increase of
$401,620 (including an increase of $725,304 related to QuantRx) in the quarter
is primarily due to increased consulting expenses and personnel expenses related
to the contract development agreement with QND, offset by the absence of our
former subsidiary’s results in our 2009 accounts. The decrease of $543,591
(including an increase of $488,247 related to QuantRx) is due primarily to the
absence of our former subsidiary’s results in our 2009 accounts and QuantRx’s
overall cost containment efforts, offset by increased consulting costs and
personnel and related expenses associated with the contract development
agreement with QND.




The
Company’s net loss for the three months ended September 30, 2009 and 2008 was
$254,308 and $2,067,331, respectively, and for the nine months ended September
30, 2009 and 2008, was $2,145,340 and $6,226,059, respectively. The decreased
net loss of $1,813,023 ($1,185,276 related to QuantRx) for the three months
ended September 30, 2009 and 2008, is primarily due to the contract development
agreement with QND, implementation of the cost containment efforts described
above; as well as the deconsolidation of our former subsidiary (see
above).  The decreased net loss of $4,080,719 ($2,170,413 related to
QuantRx) for the nine months ended September 30, 2009 and 2008, is primarily due
to the deconsolidation of our former subsidiary, the contract development
agreement with QND, the $439,445 loss on extinguishment of convertible notes in
the first quarter of 2008 and the implementation of the cost containment efforts
described above.


32




Liquidity
and Capital Resources




As of
September 30, 2009, QuantRx had cash and cash equivalents of $551,023, as
compared to cash and cash equivalents of $66,226 as of December 31, 2008. The
net increase in cash of $484,797 for the nine months ended September 30, 2009,
is primarily attributable to a $2 million distribution from our joint venture,
QND, $1,105,000 in net proceeds from the issuance of promissory notes, offset by
the subsequent payoff of $1,347,199 in those and other notes and accrued
interest (see Note 9 to the financial statements) and net cash used for
operating activities of $941,387. In addition, QuantRx invested $275,000 for an
asset acquisition in the nine months ended September 30, 2009. QuantRx has used
its financing proceeds as well as its revenues to fund current operating
expenses and investments intended to strategically expand our platforms and
technologies.




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




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




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




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




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




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




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


33




Off-Balance
Sheet Arrangements




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




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




Critical
Accounting Policies




Revenue
Recognition




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




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.


34




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




Use
of Estimates




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




Impairment
of Assets




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


35




We
performed annual impairment tests of our equity method goodwill. Equity method
goodwill is not amortized but is subject to impairment tests through which
QuantRx would have recognized an impairment loss had there been a loss in the
value of the equity method goodwill which was deemed to be other than a
temporary decline.




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




Share-based
Payments




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




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




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




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




ITEM
      4T.
            Controls
      and Procedures




(a)           Evaluation
of Disclosure Controls and Procedures




The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our SEC reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is communicated to our
management including our Chief Executive Officer and Chief Financial Officer as
appropriate. With the supervision and with the participation of our management,
including the Chief Executive Officer and Chief Financial Officer, we have
evaluated the effectiveness of our disclosure controls and procedures (as
defined under Exchange Act Rules 13a-15(e) and 15(d)-15(e)), as of the end
of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures were effective as of September 30,
2009.


36




(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, the Company has no pending or threatened litigation.




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




In the
fourth quarter of 2009, 150,000 shares of common stock and warrants to purchase
an aggregate of 200,000 shares of common stock were granted in consideration of
investor relations services. Warrants to purchase 100,000 shares of common stock
were issued with an exercise price of $0.50 and have a term of five years.
Warrants to purchase 100,000 shares of common stock were issued with an exercise
price of $1.25 and have a term of five years.




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




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




ITEM
      3.
            Defaults
      Upon Senior Securities




None.


37




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




None.




ITEM
      5.
            Other
      Information




None.




ITEM
      6.
            Exhibits




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





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


38


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:  
      November 16, 2009
            By:
            /s/
      Walter WitoshkinWalter
      WitoshkinChairman
      & CEODate:  
      November 16, 2009
            By:
            /s/
      Sasha AfanassievSasha
      AfanassievCFO,
      Treasurer & VP of Finance


39