ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Management’s Discussion and Analysis or Plan of Operation. 

 

Throughout this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” “our company,” “Company” and “NuRx” refer to NuRx Pharmaceuticals, Inc., a Nevada corporation formerly known as Quest Group International, Inc.

 

Forward Looking and Cautionary Statements

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements. For example, statements regarding our financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future product demand, supply, manufacturing, costs, marketing and pricing factors are all forward-looking statements. These statements are generally accompanied by words such as “intend,” “anticipate,” “believe,” “estimate,” “potential(ly),” “continue,” “forecast,” “predict,” “plan,” “may,” “will,” “could,” “would,” “should,” “expect” or the negative of such terms or other comparable terminology. We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based on information available to us on the date hereof, but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning. However, these forward-looking statements are inherently subject to known and unknown risks and uncertainties. Actual results or experience may differ materially from those expected or anticipated in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, regulatory policies, competition from other similar businesses, market and general economic factors, as well as the additional factors which are listed under the section “Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2009. This discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report.

 

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we project. Any forward-looking statement you read in this Quarterly Report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy, and liquidity. All subsequent forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this Quarterly Report, which would cause actual results to differ before making an investment decision. We are under no duty to update any of these forward-looking statements after the date of this Quarterly Report or to conform these statements to actual results.

Overview

NuRx Pharmaceuticals Inc. (“NuRx”) has historically been an early stage R&D biopharmaceutical company with a focus on oncology products (leukemia and lung cancer). The combination of (1) the current suboptimal conditions for new financing of a pure early stage, oncology-focused research and development biotech company and (2)  the slower than expected  recruitment in our U.S. clinical trials with its resultant delays in delivery of Phase II data has recently caused the company to carefully evaluate options to its current singular focus. We concluded in May 2009 that there was an immediate need to expand our R&D focus to novel oncology targets in collaboration with academic centers as well as re-examine the value of our oncology supportive care neutropenia product. More significantly we determined that we needed to expand our interests to broader areas of life sciences with products that offer a near term revenue stream to support the R&D programs. We examined a number of options in the medical diagnostics arena and ultimately focused on point-of-care diagnostics in human and veterinary medicine which resulted in the formation on July 30, 2009 of QN Diagnostics, LLC (“QND”) a 50/50 joint venture with QuantRx Biomedical Corporation (“QuantRx”).

During the quarter ended September 30, 2009, patient enrollment in clinical trials in the U.S. was placed on hold while we focused on those clinical trials that are being initiated in India in collaboration with Piramal Life Sciences, Ltd. (“Piramal”). The trials which were opened in Mexico were closed and our U.S. clinical trials support team was terminated.

 

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In January, 2010, we decided to devote all of our present efforts to development of the point-of-care lateral flow diagnostic products for human and veterinary applications through QND, and to terminate all of our cancer therapeutic clinical trials and drug development activities, terminate the underlying licenses with Vitae Pharmaceuticals, Inc. (“Vitae”) and Allergan Pharmaceuticals, Inc. (“Allergan”) returning the underlying intellectual property rights acquired thereunder, and terminate the co-development agreement with Piramal in India as described below.

From our inception in 2001 to May 2007, we were in the business of selling nutritional products. In May 2007, we spun off this nutritional products business and began to pursue a new business plan in the pharmaceuticals industry.   On May 11, 2007, we entered into a license agreement with Vitae, pursuant to which we acquired an exclusive, worldwide sublicense, with the right to grant further sublicenses, to certain compounds and nuclear receptor technology for all human and veterinary use. The principal therapeutic indications for the lead compounds are acute promyelocytic leukemia, acute myeloid leukemia, solid cancers (lung, mesothelioma, adenoid cystic carcinoma, and breast) and chemotherapy-induced neutropenia (low white cell count). The Company paid Vitae an upfront licensing fee of $2,100,000 and $50,000 for its inventory of the licensed compounds. The Company also agreed to issue Vitae 1,756,732 shares of common stock (on a post-split basis), representing 5.66% of our outstanding common stock (after the issuance of these shares) as of the effective date of the license, upon reaching a certain milestone. These shares were issued to Vitae on October 31, 2007, when the Company met this milestone by receiving approval from the Food and Drug Administration (“FDA”) to begin Phase I clinical trials for one of the lead compounds.

We were also required to pay the existing licensors, on Vitae’s behalf, additional milestone payments if we reached other milestones, including Phase III clinical trials, and upon obtaining FDA marketing approval for a product containing a licensed compound. In addition to the aforementioned fees and milestone payments, we agreed to pay the original licensor of the compounds and Vitae specified revenue percentages of our net sales of products based on the licensed technology. The percentages varied from product to product, but when combined may have totaled as much as 12% of our net sales. We were also obligated to meet certain development milestones under the original license agreements with the existing licensors in order to maintain the rights to the licensed products.

On December 31, 2008, we entered into an amendment of our May 11, 2007 license with Vitae for the license of additional compounds directed at dermatological therapeutic applications. We agreed to make a cash payment of $125,000 and to issue 50,000 shares of common stock valued at $2.00 per share upon execution of the license amendment. These costs were charged to expense as in-process research and development for the year ended September 30, 2009.

On February 10, 2010, we served notice of our intent to terminate the Vitae license as well as the underlying license to Allergan Pharmaceuticals, Inc.

On March 6, 2009, we entered into a development and commercialization agreement with Piramal with respect to NRX 5183 in India (the “Piramal Agreement”). Piramal is a pharmaceutical company listed on the Indian National Stock Exchange and the Bombay Stock Exchange and which was recently demerged from Piramal Healthcare Limited. Pursuant to the Piramal Agreement, Piramal was granted the exclusive right to develop, manufacture and exploit the NRX 5183 technology within India at its sole expense. We were to obtain the clinical data generated by Piramal for use in registration in countries outside of India. Until manufacturing was undertaken by Piramal, we were obligated to provide clinical grade drug product to Piramal for use in clinical trials.  We are obligated as sponsor of the initial clinical trial in India for continuing costs which Piramal was obligated to reimburse.  Piramal was also required to reimburse us for development expenses incurred with regard to clinical trials in India prior to March 6, 2009 up to $100,000. This reimbursement was recorded as a receivable with a corresponding reduction of research and development expenses at September 30, 2009.  As of the date of this Quarterly Report, this receivable remains unpaid, and as a result we have charged this off to bad debt expense during the three months ended December 31, 2009.  On February 10, 2010, we served notice of our intent to terminate the Piramal Agreement.

 

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On January 29, 2010, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with QuantRx, and NP Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of QuantRx (“Merger Sub”). The Merger Agreement provides that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly-owned subsidiary of QuantRx.

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each outstanding share of the Company’s common stock (other than shares held by the Company or any wholly-owned subsidiary of the Company or by QuantRx or Merger Sub or any of their respective subsidiaries or by stockholders of the Company who have properly demanded appraisal rights for their shares in accordance with Nevada law) will be converted into the right to receive approximately 1.54 shares of QuantRx common stock.  Upon consummation of the Merger, the pre-Merger security holders of the Company will own approximately 40% of QuantRx.  All options and warrants of the Company outstanding at the Effective Time will be assumed by QuantRx and converted into rights with respect to QuantRx common stock. Also upon consummation, the QND joint venture will be terminated.

The Board of Directors of the Company unanimously approved the Merger and the Merger Agreement at a special meeting on January 11, 2010, and resolved to recommend that the Merger Agreement be submitted to the Company’s stockholders for adoption.

 

The Merger is subject to approval of the Company’s stockholders and other customary conditions to closing and a shareholders meeting is expected to be held during the second or third quarter of 2010.

We currently have no source of revenue and have incurred significant losses to date. We have incurred net losses of approximately $17,518,000 for the cumulative period from inception (May 1, 2007) through December 31, 2009. Our losses have resulted principally from costs associated with inbound technology licensing, clinical development expenses, 50% share of losses for our QND joint venture, general and administrative activities, and costs related to our financing in May 2007. As a result of development and commercialization activities of the lateral flow products through QND, expenditures relating to the termination of the cancer therapeutic clinical trial and drug development activities, costs related to the proposed merger with QuantRx and continuing general and administrative costs, we expect to incur additional operating losses for the foreseeable future.

Going Concern

Our management believes that the successful growth and operation of the Company’s business is dependent upon its ability to obtain adequate sources of debt or equity financing to:

	·	wind down the cancer therapeutic clinical trials and drug development activities;
	·	fund its share of future additional development costs of the QND joint venture; and

·

further reduce continuing operating costs and merger related expenses.

There can be no assurance that we will be successful in achieving the 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. Our continuation as a going concern is dependent on its ability to obtain additional financing to fund operations, implement its business model, and ultimately, to attain profitable operations.  We intend to raise additional financing to fund our operations through various means, including equity or debt financing, funding from a corporate partnership or licensing arrangement, business combination or any similar financing. However, there is no assurance that sufficient financing will be available or, if available, on terms that would be acceptable to the Company.

The financial statements accompanying this Quarterly Report on Form 10-Q have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.  The report from our independent registered public accounting firm in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 states that there is substantial doubt about the Company’s ability to continue as a going concern.

 

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Private Placements

 

In May through June 2007, the Company raised approximately $20,500,000 from a small group of accredited investors from the sale of 41,000,000 shares of common stock at a price of $.50 per share in a private placement offering.  As adjusted for the 1-for-4 reverse stock split that took place in May 2008, this represents the sale of 10,250,000 shares of common stock at a price of $2.00 per share.  Pursuant to the terms of the private placement, these investors had certain anti-dilutive price protections until July 18, 2008.

 

Hunter World Markets, Inc. acted as the exclusive placement agent in the private placement offering, and received a fee of $2,012,500 (approximately 10% of the gross proceeds) and two six-year warrants 3,075,000 shares of the Company’s common stock at an exercise price of $4.00 per share on a post-split basis. These warrants expire in 2013. Hunter World Markets, Inc. also loaned us $125,000 at an interest rate of 6% per annum. This loan together with accrued interest and a loan fee of $12,500 was repaid from the proceeds of the private placement.

 

In connection with the private offering, stockholders who had acquired our common stock prior to April 27, 2007 canceled an aggregate 1,939,750 shares of common stock on a post-split basis in consideration for an aggregate amount of $750,000.

During the period between May 30, 2007 and June 27, 2007, we sold an aggregate 250,000 shares of our common stock at a price of $2.00 per share on a post-split basis and received aggregate proceeds of $500,000. In connection with the aforementioned sales, Hunter World Markets received a commission of 5% on half the gross proceeds and received a six-year warrant to purchase common stock equal to 75,000 shares at an exercise price of $4.00 per share on a post-split basis.

Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates are described in Note 1, Basis of Presentation and Summary of Significant Accounting Policies to the Notes to Financial Statements. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources, and evaluate our estimates on an ongoing basis. These estimates are reviewed by other members of financial management before being recorded into the accounting records.  Actual results could differ from those estimates under different assumptions or conditions.

Development Stage Enterprise

 

We are a development stage enterprise and are devoting substantially all of our present efforts to prototype development for our lateral flow technologies through our QN Diagnostics joint venture. All losses accumulated are considered as part of our development stage activities.

 

Research and Development Costs

 

Although we believe that our research and development activities related to our lateral flow technologies through our QN Diagnostics joint venture and underlying technologies have continuing value, the amount of future benefits to be derived from them is uncertain. Furthermore, our development activities are principally in the early clinical stage. Research and development costs are therefore expensed as incurred.

 

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Share-Based Compensation

 

Share-based payments to employees, directors and consultants, including grants of employee stock options, are recognized in the statement of operations based on their fair values.  Fair values are determined at the date of each option grant using the Black-Scholes method.  Because our common shares traded so infrequently and the quoted price of the shares was not indicative of fair value, through December, 2008, the stock price used for purposes of these computations was based upon a value of $2.00 per share on a post-split basis, the share price paid by the purchasers in the April and May 2007 private placements.   Beginning in March 2009 with the option re-pricing, a 90 day average price share has been used.  It is the policy of the Board of Directors to grant stock options at not less than their fair value.

 

In-Process Research and Development

 

Share-based milestone payments made pursuant to the license Agreement with Vitae Pharmaceuticals, Inc. during the three months ended December 31, 2008 have been expensed in the Statement of Operations as in-process research and development costs consistent with the treatment of the cash payments to Vitae upon initiation of the license during the fiscal year ended September 30, 2007. The fair value of the stock-based payments was based upon a value of $2.00 per share on a post-split basis, the share price paid by the purchasers in the April and May 2007 private placements.  

Valuation of Warrants

An impairment in the value of other investments in the amount of $382,000 was expensed in the Statement of Operations during the three months ended December 31, 2009.  This decline in fair market value was attributable to a sustained decline in the fair value of the underlying common stock in QuantRx Biomedical Corporation to $0.38 per share from $0.50 per share.

Results of Operations

During the quarter ended September 30, 2009, we suspended patient accruals under all four active U.S. clinical trials for both lead compounds in order to reserve cash for other diversification opportunities, and to await preliminary data from patients already accrued and planned clinical trials in India.  Patient accruals for the Mexico clinical trials was also suspended and the single open site in Mexico was closed.  As additional cost cutting we terminated our U.S. clinical trials support staff and undertook significant reductions in the number of  patent cases in our intellectual property portfolio we were actively prosecuting and maintaining, limiting legal and patent annuity expenditures to the most promising lead compounds.

In January 2010, we decided to devote all of our present efforts to development of the point-of-care lateral flow diagnostic products for human and veterinary applications through QND, and to terminate all of our cancer therapeutic clinical trials and drug development activities, terminate the underlying licenses with Vitae and Allergan returning the underlying intellectual property rights acquired thereunder, and terminate the co-development agreement with Piramal.

Both the time required and costs we may incur in order to commercialize a lateral flow product candidate that would result in material net cash inflow are subject to numerous variables, and hence, we are unable at this stage of our development to forecast useful estimates. Due to technological and regulatory uncertainties, among others, it is not possible to give accurate and meaningful estimates of the ultimate cost to bring our products to market, the timing of costs, completion of our program and the period during which material net cash inflows will commence.

 

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Three Months ended December 31, 2009 Compared to Three Months Ended December 31, 2008

General and Administrative Expenses.

General and administrative (“G&A”) expenses were approximately $626,000 during the three months ended December 31, 2009, as compared to approximately $440,000 incurred during the three months ended December 31, 2008 or an increase of approximately $186,000. General and administrative expenses consist primarily of employee compensation and legal costs involved in our regulatory filings, in connection with general corporate matters, litigation, and other contracting matters. G&A costs also include insurance, payroll costs and benefits for all employees, and share-based compensation expense related to option issuances to Board members, employees and consultants and bad debt expense. The approximately $186,000 net increase in total G&A expenses, resulted from an aggregate of approximately $237,000 cost increases, offset by approximately $51,000 in cost reductions. The approximately $237,000 in cost increases consisted primarily of bad debt expense related to the write down of the other receivable for reimbursable expenses pursuant to the Piramal Agreement in the amount of $100,000, approximately $46,000 in legal fees related to contracting, related regulatory filings and litigation matters, $64,000 salaries reflecting increased compensation to the CEO, change in CFO’s time commitment to full-time effective April 2009, and $27,000 in travel expenses primarily related to activities of QN Diagnostics.  These cost increases were offset by approximately $51,000 in expense reductions consisting of reductions of approximately $18,000 in director’s compensation (independent directors’ compensation other than hourly compensation to the Executive Chairman, and consulting fees paid to a former director for services in connection with QN Diagnostics, LLC activities having been eliminated effective October 1, 2009), $30,000 from the termination of the consulting contract with an affiliate in October, 2008, and $3,000 in other net cost reductions.

Research and Clinical Development Expenses.

Research and clinical development (“R&D”) expenses were approximately $106,000 during the three months ended December 31, 2009, as compared to approximately $877,000 incurred during the three months ended December 31, 2008 or a decrease of approximately $771,000.

R&D expenses for the three months ended December 31, 2009 consist primarily of costs related to monitoring the U.S. Clinical trials for which patient accruals had been suspended in the quarter ended September 30, 2009.

R&D expenses for and the three months ended December 31, 2008 consist primarily of costs involved in the following activities:

 

·

Manufacture of the intermediates, API and clinical grade drug product for the Company’s two lead compounds for use in clinical trials;

·

Regulatory affairs activities including:

o

regulatory filings including protocol submissions to governmental bodies in and outside of the United States with respect to clinical trials, and

o

regulatory filings including protocol submissions to governing ethics committees for proposed clinical trial sites in and outside of the United States including negotiation of related contracts;

·

Continuation of the Phase I clinical trial for NRX 4204 in the United States;

·

Costs of readying and initiating the Phase II clinical trials for NRX 5183 in India, Mexico, and the U.S;

·

Patient and data management activities for active clinical trials; and

·

Costs of readying and initiating Phase II clinical trials in NSCLC and Mesothelioma for NRX 4204 in the United States.

 

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R&D costs also include payroll costs of R&D employees, costs of third party consultants, legal costs related to maintenance of the patent portfolio, including patent annuity payments, in-process R&D costs related to the share-based license amendment payment under the Vitae license and share-based compensation costs.

 

Our R&D expenses for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008 were related to the following activities:

		Three Months Ended December 31, (in thousands)
		2009				2008
Direct clinical trials costs		$	70			$	160
Drug development and manufacturing			6				179
R&D compensation, including share based compensation			2				187
In-process R&D costs			—				225
Other R&D costs			28				126
Total		$	106			$	877

Direct clinical trial costs decreased by approximately $90,000 compared to the three months ended December 31, 2008. The increase is due principally to the cessation of accruals under US clinical trials.  Drug development and manufacturing costs decreased approximately $173,000, primarily attributable to the availability of sufficient quantities of GMP drug product for NRX 4204 and NRX 5183 for clinical trials manufactured in previous periods.  R&D compensation costs decreased approximately $185,000 as a result of the termination of our U.S. clinical development team during the quarter ended September 30, 2009, and the termination of the employment agreement of our Chief Scientific Officer. In-process R&D costs decreased $225,000 as a result of a one-time cash and stock payment upon revision of the Vitae agreement during the three months ended December 31, 2008. Other R&D costs decreased by $98,000, related primarily to the continuing reduction in legal costs and annuity payments on the licensed technology portfolio as a result of eliminating non-critical cases from the portfolio.

Loss from QN Diagnostics, LLC Joint Venture

We reported $651,065 on the equity method for our 50% share of the net loss incurred by QND for the three months ended December 31, 2009.  The joint venture was formed on July 30, 2009.

Interest Income.

Interest income of $759 for the three months ended December 31, 2009 consisted primarily of income from certificates of deposits and savings, and approximately $23,300 for the three months ended December 31, 2008 from savings and treasury bills.   The decrease was due to lower cash balances and lower interest rate yields in the three months ended December 31, 2009.

Revenues

Cancer Therapeutics

We had no revenues and we do not anticipate that we will derive any revenues from either product sales or licensing from clinical development of our cancer therapeutic lead compounds as a result of our decision to terminate further clinical trials and drug development activities, the underlying technology licenses and our co-development agreement with Piramal.

 

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Point-of-Care Diagnostics

Our QN Diagnostics joint venture with QuantRx is expected to begin generating revenues during our current fiscal year ending September 30, 2010, although we expect to incur overall losses for this period.  Revenues are expected to be generated from manufacturing of lateral flow products for third parties, manufacturing and sale of proprietary lateral flow products, and from licensing.  QN Diagnostics is obligated under a license for certain optics technology to pay royalties to the licensor of two percent (2%) of net sales on lateral flow products incorporating that technology.

Liquidity

As an early stage clinical development company, we have not generated any revenues from operations to meet operating expenses, and have historically financed operations through issuances of equity securities.

We held approximately $1.4 million in cash and cash equivalents at December 31, 2009 in comparison to $1.9 million in cash and cash equivalents at September 30, 2009.  The decrease in cash and cash equivalents for the three months ended December 31, 2009 of approximately $500,000 was primarily caused by the cash loss from operations. There were no significant cash flows from financing or other investing activities during the year.

On October 29, 2009, we have called for the redemption of certain shares representing 46.2% of the issued and outstanding common shares of the Company at a cost of approximately $1.2 million.  (On November 13, 2009, the holder of such shares filed a complaint in U.S. District Court in Nevada for declaratory and injunctive relief from such redemption.).  If completed, the redemption would significantly deplete the cash available for operations.

The QN Diagnostics business is also in its early stage and will require additional funding to complete the development and launch of its initial products, which we and our venture partner are mutually obligated to provide.

As a result, management believes that given the current economic environment, the cash requirements of QN Diagnostics, the expected $1.2 million for share redemption, and the continuing need to strengthen the Company’s cash position, there is substantial doubt about its ability to continue as a going concern.  The Company continues to actively pursue various funding options, including equity offerings, debt financings and business combinations.  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 its ability to do any or all of the following:

·

obtain adequate sources of debt or equity financing to (i) wind down the cancer therapeutics clinical trials and drug development activities; and (ii) fund its share of future additional development costs of the QND joint venture; and

·

manage or control working capital requirements by further reducing operating expenses.

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.

Capital Resources

The Company has no significant planned capital expenditures for the fiscal year ending September 30, 2010.

 

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Off-Balance Sheet Arrangements

We do not engage in trading activities involving non-exchange traded contracts. In addition, we have no financial guarantees, debt or lease agreements or other arrangements that could trigger a requirement for an early payment or that could change the value of our assets.

 

Joint Venture

 

On July 30, 2009, we formed a 50/50 joint venture with QuantRx Biomedical Corporation called QN Diagnostics, LLC where we invested $5.0 million cash and QuantRx contributed its lateral flow and optics intellectual property for the joint development of point of care diagnostic products for human, forensic and veterinary use valued at approximately $5.5 million.  It is anticipated that this initial capital investment will not be sufficient to fund the planned operations of QN Diagnostics through cash flow; and there can be no assurance that additional funds will be available at all, or at a cost which is economically viable to the joint venture.  Both we and QuantRx share jointly in the obligation to raise additional capital if needed, although QuantRx is obligated to provide the first $700,000 of any such funds.

On January 29, 2010, we entered into the Merger Agreement with QuantRx and Merger Sub. The Merger Agreement provides that Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of QuantRx.  The Merger Agreement provides, among other things, that subsequent to the Effective Time, the Joint Venture will be terminated.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.

CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Limitations are inherent in all control systems, so no evaluation of controls can provide absolute assurance that all control issues and any fraud within the company have been detected.

 

As required by Securities and Exchange Commission Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of that date.

 

As required by Securities and Exchange Commission Rule 13a-15(c), we carried out an evaluation, under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our system of internal control over financial reporting as of the end of the period covered by this Report.  The Company utilizes the framework established by the Committee on Sponsoring Organizations (COSO) as the framework for its system of internal controls.  Management has assessed the system of internal control over financial reporting to be effective.

There was no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15(d) under the Securities Exchange Act of 1934 that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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This quarterly report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this quarterly report.

 

Our management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of 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, 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. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about 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. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

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