QUANTRX BIOMEDICAL CORP - FORM 10-K/A

Attached files

file	filename
EX-31.2 - EXHIBIT 31.2 - QUANTRX BIOMEDICAL CORP	ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - QUANTRX BIOMEDICAL CORP	ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - QUANTRX BIOMEDICAL CORP	ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - QUANTRX BIOMEDICAL CORP	ex32-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K /A

(Amendment No. 1)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2010

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

EXCHANGE ACT OF 1934

For the transition period from __________ to ___________

Commission file number: 000-17119

QUANTRX BIOMEDICAL CORPORATION

(Exact name of registrant as specified in its charter)

Nevada		33-0202574
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

P.O. Box 4690, Portland, Oregon 97062

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (503) 575-9385

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No x

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

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 of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

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

Yes o No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer	o	Accelerated filer o
Non-accelerated filer	o	Smaller reporting company x
(Do not check if smaller reporting company) reporting company)

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

Yes o No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2010): $8,938,869

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 31, 2011: 46,077,630 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART II		PAGE
Item 9A.	Controls and Procedures	2
PART III
Item 15.	Exhibits and Financial Statement Schedules	3
SIGNATURES

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EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K of QuantRx Biomedical Corporation for the year ended December 31, 2010, originally filed with the Securities and Exchange Commission on April 14, 2011. This Amendment is being filed in response to comments from the Securities and Exchange Commission, and amends Item 8, Financial Statements and Supplementary Data, Item 9, Controls and Procedures, and Item 15, Exhibits and Financial Statement Schedules. No other changes have been made in this Amendment to the Form 10-K. This Amendment speaks as of the original date of the Form 10-K, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the original Form 10-K. In addition, as required by Rule 12b-15 under the Securities and Exchange Act of 1934, as amended, new certifications of our principal executive officer and principal accounting officer are filed as Exhibits to this Amendment.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

THIS ANNUAL REPORT ON FORM 10-K, INCLUDING EXHIBITS THERETO, 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”, “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” ON PAGE THIRTEEN HEREOF. THE COMPANY ASSUMES NO OBLIGATIONS TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REQUIRED BY LAW.

As used in this annual report on Form 10-K, “we,” “us,” “our,” “QuantRx” and “Company” refer to QuantRx Biomedical Corporation, unless the context otherwise requires.

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ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of December 31, 2011. Based on this evaluation, and in light of the material weaknesses in internal controls over financial reporting described below, the Company’s Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective.

Management's Annual Report on Internal Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

The Company's management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. As a result of the material weakness in internal controls over financial reporting described below, the Company's management has concluded that, as of December 31, 2010, the Company's internal controls over financial reporting were not effective. In making the assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or quarterly financial statements will not be prevented or detected on a timely basis.

Our Chief Financial Officer resigned effective August 24, 2010. In addition, following the suspension of active development of our PAD based products on December 31, 2010, the Company terminated substantially all of its accounting personnel. These factors have contributed to a material weakness in our entity level control environment. While the Company has retained competent accounting and finance professionals necessary to ensure timely and accurate reporting with the Securities and Exchange Commission, the weaknesses in our entity level control environment arguably persist.

All internal control systems have inherent limitations, including the possibility of circumvention and overriding the control. Accordingly, even effective internal control can provide only reasonable assurance as to the reliability of financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

Changes in Internal Controls Over Financial Reporting

As discussed above, as a result of the suspension of active development of our PAD based products on December 31, 2010, we terminated the employment of a substantial portion of our accounting staff. This factor, together with the resignation of our Chief Financial Officer, resulted in a substantial change in our internal controls over our financial reporting, and resulted in a material weakness in our entity level control environment.

Our management has discussed the material weakness described above with our Audit Committee. In an effort to remediate the identified material weakness, we have initiated and/or undertaken the following actions:

Management has retained, and will continue to retain, additional personnel with technical knowledge, experience, and training in the application of generally accepted accounting principles commensurate with our financial reporting and U.S. GAAP requirements.

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

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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following exhibits are filed as part of this annual report:

Exhibit No.

Description

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of Principal Executive Officer pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of Principal Financial Officer pursuant to 18 USC Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Certain exhibits and schedules are omitted but will be furnished to the Commission supplementally upon request.

** The certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report on Form 10-K 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.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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 Corporation

Date: December 2 , 2011	By:	/s/ Shalom Hirschman
	Principal Executive and Principal Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

	QuantRx Biomedical Corporation

Date: December 2 , 2011	By:	/s/ William H. Fleming
	William H. Fleming, Director

Date: December 2 , 2011	By:	/s/ Shalom Hirschman
	Shalom Hirschman, Director

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QUANTRX BIOMEDICAL CORPORATION

FINANCIAL STATEMENTS

Table of Contents

Report of Independent Registered Public Accounting Firm		F-2

Balance Sheets as of December 31, 2010 and 2009		F-3

Statements of Operations for the Years Ended December 31, 2010 and 2009		F-4

Statements of Cash Flows for the Years Ended December 31, 2010 and 2009		F-5

Statement of Stockholders’ Equity for the Years Ended December 31, 2010 and 2009		F-6

Notes to Financial Statements		F-7

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To the Board of Directors and Shareholders

QuantRx Biomedical Corporation

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying balance sheets of QuantRx Biomedical Corporation as of December 31, 2010 and 2009 and the related statements of operations, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2010. QuantRx Biomedical Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of QuantRx Biomedical Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s accumulated deficit and lack of revenues raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding the resolution of this issue are also discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

BehlerMick PS

Spokane, Washington

April 12, 2011

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QUANTRX BIOMEDICAL CORPORATION

BALANCE SHEETS
	December 31,			December 31,
	2010			2009
ASSETS
Current Assets:
Cash and cash equivalents	$	229,944		$	376,211
Accounts receivable		4,457			41,128
Accounts receivable – related party		414,179			31,500
Interest receivable – related party		63,689			47,689
Inventories		3,770			4,681
Prepaid expenses		23,409			128,228
Note receivable – related party		200,000			200,000
Total Current Assets		939,448			829,437

Investments		200,000			200,000
Investment in joint venture		-			63,601
Property and equipment, net		109,479			179,590
Intangible assets, net		46,805			59,780
Security deposits		11,093			11,093
Total Assets	$	1,301,825		$	1,343,501

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable	$	437,587		$	749,225
Accounts payable – related party		193,987			-
Accrued expenses		168,000			233,000
Deferred revenue – related party		-			337,160
Security deposit		2,000			2,000
Total Current Liabilities		801,574			1,321,385
Notes payable, long-term		44,000			44,000
Total Liabilities		845,574			1,365,385

Commitments and Contingencies		-			-

Stockholders’ Equity (Deficit):
Preferred stock; $0.01 par value, 0 and 25,000,000, authorized shares, respectively; Series A-1 convertible preferred shares: 0 and 4,060,397 shares issued and outstanding, respectively		-			40,604
Preferred stock; $0.01 par value, 20,500,000 and 0 authorized shares, respectively; Series B convertible preferred shares: 17,916,228 and 0 shares issued and outstanding, respectively		179,162			-
Common stock; $0.01 par value; 150,000,000 authorized; 44,427,630 shares issued and outstanding		444,276			444,276
Common stock to be issued		128,000			-
Additional paid-in capital		47,524,761			47,756,355
Accumulated deficit		(47,819,948	)		(48,263,119
Total Stockholders’ Equity (Deficit)		456,251			(21,884

Total Liabilities and Stockholders’ Equity (Deficit)	$	1,301,825		$	1,343,501

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

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QUANTRX BIOMEDICAL CORPORATION

STATEMENTS OF OPERATIONS
	Year Ended December 31,
	2010		2009
Revenues:
Revenues	$	63,717	$	486,005
Revenues – related party		1,429,960		2,065,264
Total Revenues		1,493,677		2,551,269

Costs and Operating Expenses:
Cost of goods sold (excluding depreciation and amortization)		375		27,853
Sales, general and administrative		1,120,338		2,013,082
Professional fees		768,664		497,582
Research and development		1,536,057		2,324,286
Amortization		12,976		22,402
Depreciation		60,035		70,082
Total Costs and Operating Expenses		3,498,445		4,955,287

Loss from Operations		(2,004,768)		(2,404,018)

Other Income (Expense):
Interest and dividend income		22,016		40,095
Interest expense		(7,641)		(465,027)
Rental income		2,750		20,798
Amortization of debt discount to interest expense		-		(361,666)
Amortization of deferred finance costs to interest expense		-		(8,693)
Loss from deconsolidation of subsidiary		-		(43,286)
Loss from deconsolidated subsidiary		-		(272,579)
Loss from joint venture		(63,601)		(1,022,760)
Gain on sale of investments		2,254,374		-
Net gain (loss) on disposition of assets		9,028		1,363,640
Gain on settlement of accrued payroll		252,440		-
Gain on settlement of accounts payable		366,590		-
Total Other Income (Expense), net		2,835,956		(749,478)

Income (Loss) Before Taxes		831,188		(3,153,496)

Provision for Income Taxes		-		-

Net Income (Loss)	$	831,188	$	(3,153,496)

Series A Preferred Dividend		388,017		-
Net Income (Loss) Available to Common Shareholders		443,171		(3,153,496)

Basic and Diluted Net Income (Loss) per Common Share	$	0.01	$	(0.07)

Basic and Diluted Weighted Average Shares Used in per Share Calculation		44,427,630		43,676,575

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

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QUANTRX BIOMEDICAL CORPORATION

STATEMENTS OF CASH FLOWS
	Year Ended December 31,
	2010		2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	831,188	$	(3,153,496)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		60,613		92,484
Interest expense related to amortization of non-cash discount, non-cash beneficial conversion feature and deferred financing costs		-		370,359
Expenses related to employee stock based compensation		74,891		582,792
Expenses related to options issued to non-employees		-		4,083
Expenses related to common stock warrants issued for consulting		250		7,499
Expenses related to common stock issued for consulting		-		69,000
Non-cash fair value of warrants issued for interest		-		78,325
Non-cash fair value of warrants issued as compensation		-		100,050
Non-cash fair value of common stock issued as settlement of accrued expenses		128,000		-
Non-cash gain on preferred stock exchanged		(330,360)		-
Non-cash fair value of common stock issued for interest		-		78,000
Loss from deconsolidation of subsidiary		-		315,865
Loss from joint venture		63,601		1,022,760
Net gain on disposition of assets and investments		(1,890,816)		-
Net gain on settlement of accounts payable		(366,590)		-
Net gain on settlement of accrued compensation		(252,440)		-
Gain(loss) on disposition of assets				(1,363,640)
Issuance of convertible notes for accrued interest		-		175,895
Issuance of preferred stock for accrued interest		-		60,823
Interest income settled in common stock of former subsidiary		-		(18,000)
(Increase) decrease in:
Accounts receivable		(346,008)		(26,868)
Interest receivable		(16,000)		(16,000)
Inventories		911		35,457
Prepaid expenses		104,819		(43,685)
Deposits		-		581
Security deposits		5,000		(426)
Increase (decrease) in:
Accounts payable		248,939		84,206
Accrued expenses		187,440		149,358
Deferred revenue		(337,160)		278,379

Net Cash Used by Operating Activities		(1,833,722)		(1,116,199)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from the sale of investments		1,655,954		-
Cash paid for purchases of fixed assets		-		(27,870)
Cash paid for intangible assets		-		(250,000)
Cash proceeds from sale of equipment		31,501
Cash advances to subsidiary prior to deconsolidation		-		(13,800)

Net Cash Provided (Used) by Investing Activities		1,687,455		(291,670)

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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of bridge notes		-		430,000
Proceeds from issuance of promissory notes		-		250,000
Proceeds from issuance of senior secured convertible notes		-		425,000
Repayment of short-term debt		-		(1,347,199)
Distribution from a joint venture		-		2,000,000
Payments on loan payable used to finance equipment purchase		-		(5,731)
Payment of payables related to asset acquisition deposit		-		(25,000)
Payment of payables related to fixed asset purchase		-		(8,803)

Net Cash Provided by Financing Activities		-		1,718,267

Net Increase (Decrease) in Cash and Cash Equivalents		(146,267)		310,398
Net Cash of Deconsolidated Subsidiary		-		(413)
Cash and Cash Equivalents, Beginning of Period		376,211		66,226

Cash and Cash Equivalents, End of Period	$	229,944	$	376,211

Supplemental Cash Flow Disclosures:
Interest expense paid in cash	$	7,449	$	71,634
Income tax paid	$	-	$	-

Supplemental Disclosure of Non-Cash Activities:
Elimination of deconsolidate 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 notes are an integral part of these financial statements.

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QUANTRX BIOMEDICAL CORPORATION

STATEMENT OF STOCKHOLDERS’ EQUITY

	Preferred Stock			Common Stock
	Number of Shares	Amount		Number	Amount		Additional			Stock			Total
	Number of Shares	Amount		of Shares	Amount		Paid-in Capital			to be Issued	Accumulated Deficit		Stockholders’ Equity

BALANCE, DECEMBER 31, 2008	-	$	-	42,886,380	$	428,863		41,549,234	$	-		(45,109,623)		(3,131,526)
	-
Fair value of employee stock based compensation for options issued	-		-	-		-		263,892				-		263,892
Fair value of employee stock based compensation for common stock warrants issued	-		-	-		-		318,900				-		318,900
Fair value of options issued to non-employees	-		-	-		-		4,083				-		4,083
Fair value of common stock issued for consulting	-		-	150,000		1,500		67,500				-		69,000
Fair value of common stock warrants issued to non-employees for consulting	-		-	-		-		107,549				-		107,549
Fair value of common stock warrants issued to settle accounts payable	-		-	-		-		195,000				-		195,000
Incremental fair value of modified warrants for interest	-		-	-		-		6,250				-		6,250
Fair value of warrants issued for interest	-		-	-		-		72,075				-		72,075
Fair value of common stock issued for interest	-		-	200,000		2,000		76,000				-		78,000
Fair value of common stock issued with senior secured convertible notes	-		-	306,250		3,063		82,740				-		85,803
Fair value of warrants issued with senior secured convertible notes	-		-	-		-		33,487				-		33,487
Fair value of embedded beneficial conversion feature of convertible notes	-		-	-		-		6,325				-		6,325
Fair value of common stock issued with promissory notes	-		-	185,000		1,850		49,998				-		51,848
Fair value of warrants issued with promissory notes	-		-	-		-		39,666				-		39,666
Issuance of preferred stock to settle short-term debt and accrued interest	4,060,397		40,604	-		-		4,019,785				-		4,060,389
Issuance of common stock for asset acquisition - PRIA	-		-	700,000		7,000		343,000				-		350,000
Fair value of warrants issued in conjunction with joint venture formation	-		-	-		-		1,000,000				-		1,000,000
Elimination of deconsolidated subsidiary additional paid in capital	-		-	-		-		(479,129)				-		(479,129)
Net loss for the year ended December 31, 2009	-		-	-		-		-				(3,153,496)		(3,153,496)

F-7

BALANCE, DECEMBER 31, 2009	4,060,397	$	40,604	44,427,630	$	444,276	$	47,756,355	$	-	$	(48,263,119)	$	(21,884)


Series A-1 Preferred Stock Dividend	388,017		3,880					384,137				(388,017)		-
Cancelation of Series A-1 Preferred Stock	(4,448,414)		(44,484)					(3,954,041)						(3,998,525)
Issuance of Series B Convertible Preferred Stock	17,916,228		179,162					3,291,168						3,470,330
Common stock to be issued in connection with settlement agreements										128,000		-		128,000
Fair value of common stock options	-							46,892				-		46,892
Fair value of warrants issued in conjunction with joint venture formation	-							250				-		250
Net income for the year ended December 31, 2010	-		-	-		-		-				831,188		831,188

	17,916,228	$	179,162	44,427,630	$	444,276	$	47,524,761	$	128,000	$	(47,819,948)	$	456,251

The accompanying notes are an integral part of these financial statements

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QUANTRX BIOMEDICAL CORPORATION

NOTES TO FINANCIAL STATEMENTS

1.	DESCRIPTION OF BUSINESS

Recent Developments

During 2010, the Company’s activities were principally focused on the development of QN Diagnostics, LLC, a Delaware limited liability company (“QND”) jointly owned by the Company and NuRx Pharmaceuticals, Inc. (“NuRx”), and, to a lesser degree, the development of the Company’s PAD based products for the Over-the-Counter (“OTC”) and Point-of-Care (“POC”) markets based on its patented technology platforms. Due to the pending litigation with QND, discussed below, and the Company’s financial condition, the Company has currently suspended active development of our PAD based products pending the resolution of the litigation with NuRx, and the development of a financing and operating plan necessary to allow the Company to capitalize on its innovative PAD technology. In the interim, management of the Company has substantially reduced operating and other expenses, has negotiated settlements of liabilities totaling in excess of $1.10 million, in consideration for the issuance of 1,250,000 shares of the Company’s common stock, $223,832 in cash, and $86,000 of accrued liabilities that were paid in January 2011. Additionally, the Company settled certain of its accrued obligations with its executive officers with an exchange of shares, options and warrants of a related party valued at $88,223. These settlements were necessary for the Company to continue as a going concern. Management is also currently negotiating a settlement with NuRx relating to QND.

Overview

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

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

During the year ended December 31, 2010, the Company had minority investments in Genomics USA, Inc. (“GUSA”), which is developing Single Nucleotide Polymorphism (“SNP”) chips, genome-based diagnostic chips for the next generation of genomic and proteomic diagnostic markets, and FlouroPharma, Inc. (“FlouraPharma”), 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. As a result of certain financing transactions, the Company has divested all but a nominal equity interest in FluoraPharma.

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The Company is currently evaluating its minority equity interest in GUSA with the objective of extracting the value of such investment for the benefit of the Company and its shareholders. The Company currently does not realize any material value in its investment in GUSA.

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

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 and the Company’s periodic sales of its equity interest in FluoraPharma as a means to finance its continuing operations. QuantRx has restated its financial statements as of January 1, 2009, to reflect the results of its former subsidiary as a one-line item, and effective for 2009, our financial statements reflect our investment in FluoroPharma under the equity method of accounting. In 2010, as a result of the divestiture of substantially all of our investment, our investments are reflected as an available sale investment. See Note 8 for additional information. When used in these notes, the terms “Company,” “we,” “our,” “ours,” or “us” mean QuantRx Biomedical Corporation, a Nevada corporation.

2.	MANAGEMENT STATEMENT REGARDING GOING CONCERN

The Company and QND have not generated sufficient revenues from operations to meet its operating expenses. In addition, QND will require additional funding to complete the development and launch of its initial products. 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.

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

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

		settle the litigation with NuRx relating to the Company’s interest in QND;

		consummate a strategic transaction with our joint venture partner;



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



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



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

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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.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (GAAP) and have been consistently applied in the preparation of the financial statements.

Accounting for Share-Based Payments

The Company follows the provisions of ASC Topic 718, which establishes the accounting for transactions in which an entity exchanges equity securities for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company uses the Black-Scholes option pricing model in determining fair value. Accordingly, compensation cost has been recognized using the fair value method and expected term accrual requirements as prescribed, which resulted in employee stock-based compensation expense for the year ended December 31, 2010 and 2009 of $49,892 and $582,792, respectively.

The Company accounts for share-based payments granted to non-employees in accordance with ASC Topic 505, “Equity Based Payments to Non-Employees.” The Company determines the fair value of the stock-based payment 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 (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.

In the case of modifications, the Black-Scholes model is used to value the warrant on the modification date by applying the revised assumptions. The difference between the fair value of the warrants prior to the modification and after the modification determines the incremental value. The Company has modified warrants in connection with the issuance of certain notes and note extensions. These modified warrants were originally issued in connection with previous private placement investments. In the case of debt issuances, the warrants were accounted for as original issuance discount based on their relative fair values. When modified in connection with a note issuance, the Company recognizes the incremental value as a part of the debt discount calculation, using its relative fair value in accordance with ASC Topic 470-20, “Debt with Conversion and Other Options.” When modified in connection with note extensions, the Company recognized the incremental value as prepaid interest, which is expensed over the term of the extension.

During 2010, the fair value of each share based payment is estimated on the measurement date using the Black-Scholes model using a risk free interest rate of 2.43%, expected volatility of 72%, and a dividend yield of zero. During 2009, the fair value of each share based payment was estimated on the measurement date using a risk free interest rate of 3.24%, expected volatility of 70%, and a dividend yield of zero.

Risk-Free Interest Rate. The interest rate used is based on the yield of a U.S. Treasury security as of the beginning of the year.

Expected Volatility. The Company calculates the expected volatility based on historical volatility of monthly stock prices over a period equal to the term of the option or warrant .

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Dividend Yield. The Company has never paid cash dividends, and does not currently intend to pay cash dividends, and thus has assumed a 0% dividend yield.

Expected Term. For options, the Company has no history of employee exercise patterns; therefore, uses the option term as the expected term. For warrants, the Company uses the actual term of the warrant.

Pre-Vesting Forfeitures. Estimates of pre-vesting option forfeitures are based on Company experience. The Company will adjust its estimate of forfeitures over the requisite service period based on the extent to which actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of compensation expense to be recognized in future periods.

Accounts, Notes and Interest Receivable and Allowance for Bad Debts

The Company carries its receivables at net realizable value. Interest on notes receivable is accrued based upon the terms of the note agreement. The Company provides reserves against receivables and related accrued interest for estimated losses that may result from a debtor’s inability to pay. The amount is determined by analyzing known uncollectible accounts, economic conditions, historical losses and customer credit-worthiness. Additionally, all accounts with aged balances greater than one year are fully reserved. Amounts later determined and specifically identified to be uncollectible are charged or written off against the reserve. At December 31, 2010, the Company has determined that its Accounts, Notes and Interest Receivable outstanding are deemed to be collectible, and accordingly has not recorded a reserve for the year ended December 31, 2010.

Cash and Cash Equivalents

The Company considers all highly liquid investments and short-term debt instruments with maturities of three months or less from date of purchase to be cash equivalents. Cash equivalents consisted of money market funds at December 31, 2010 and 2009.

Concentration of Risks

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company primarily maintains its cash balances with financial institutions in federally insured accounts. At times, such balances may exceed federally insured limits. The Company has not experienced any losses to date resulting from this practice. At December 31, 2010 and 2009, our cash was not in excess of these limits.

The Company has contributed substantially all of its intellectual property assets relating to lateral flow diagnostic testing to QND, a joint venture which we do not control. The operations of QND have a significant impact on the Company’s financial statements.

Earnings per Share

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

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As of December 31, 2010, the Company had outstanding options exercisable for 570,500 shares of its common stock, warrants exercisable for 11,861,466 shares of its common stock, and preferred shares convertible into 17,916,228 shares of its common stock. The above options, warrants, and preferred shares were deemed to be antidilutive for the year ended December 31, 2010.

As of December 31, 2009, the Company had outstanding options exercisable for 2,855,500 shares of its common stock, warrants exercisable for 14,784,347 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 year ended December 31, 2009.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted ASC Topic 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities. On January 1, 2009, the Company adopted ASC Topic 820 for nonfinancial assets and liabilities. We have not elected the fair value option for any of our assets or liabilities.

The Company's financial instruments primarily consist of cash and cash equivalents, short-term accounts and notes receivable, and accounts payable. All instruments are accounted for on the 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.

ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1: Quoted prices for identical instruments in active markets accessible at the measurement date.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3: Unobservable inputs for the instrument are only used when there is little, if any, market activity for the instrument at the measurement date. Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

			At December 31, 2010 Fair Measurements Using
Description	Year Ended 12/31/2009		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Investment in FluoroPharma	$	-		-	$	-	$	(43,286	)
Investment and Note Receivable from GUSA	$	400,000		-	$	400,000		-

Recognized in earnings							$	(43,286	)

At the time of FluoraPharma’s deconsolidation, the fair market value of the Company’s remaining noncontrolling interest was $842,876, based on the third party investment; however, FluoroPharma had a deficit equity balance, which resulted in the Company writing off the remaining basis in the investment of $43,286 and recording a loss from deconsolidation of $43,286 in accordance with ASC Topic 810. In determining fair value of our investment and note receivable from GUSA, the Company 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.

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As of December 31, 2010, the Company had 185,000 options and 249,278 warrants to purchase common stock of FluoraPharma with exercise prices of $0.75 and $1.50, respectively and expiring at various dates in 2014. The Company has estimated the fair value of the options and warrants at $88,514 and $108,008, respectively, in accordance with ASC Topic 820, Level 3. The Company deems the value of the options and warrants to be fully impaired at December 31, 2010.

Impairments

The Company assesses the impairment of long-lived assets, including other intangible assets, whenever events or changes in circumstances indicate that their carrying value may not be recoverable in accordance with ASC Topic 360-10-35, “Impairment or Disposal of Long-Lived Assets.” (“ASC Topic 360-10-35”). 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. The Company holds 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. The Company records an investment impairment charge if it believes an investment has experienced a decline in value that is other than temporary.

In accordance with ASC Topic 360-10-35, the Company has recorded an impairment on the fair value of the options and warrants held in FlouroPharma as of December 31, 2010. The Company deems these options and warrants impaired due to the absence of a market for the common stock of FlouroPharma at December 31, 2010.

Management determined that no impairments were required during the year ended December 31, 2009.

Income Taxes

The Company accounts for income taxes and the related accounts under the liability method. Deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the income tax bases of assets and liabilities. A valuation allowance is applied against any net deferred tax asset if, based on available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Our policy is to recognize interest and/or penalties related to income tax matters in income tax expense. We had no accrual for interest or penalties on our balance sheets at December 31, 2010 or 2009, and have not recognized interest and/or penalties in the statement of operations for the years ended December 31, 2010 or 2009. See Note 13, Income Taxes.

Intangible Assets

The Company’s intangible assets consist of patents, licensed patents and patent rights, and website development costs, and are carried at the legal cost to obtain them. Costs to renew or extend the term of intangible assets are expensed when incurred. In 2008, through our formerly majority owned subsidiary, the Company also held technology licenses and other acquired intangibles. Intangible assets are amortized using the straight line method over the estimated useful life. Useful lives are as follows: patents, 17 years; patents under licensing, 10 years; website development costs, three years, and in 2008, acquired intangibles had a weighted average life of 15 years. Amortization expense for the years ended December 31, 2010 and 2009, totaled $12,976 and $22,402. The estimated aggregate amortization expense for 2011 through 2014 is $7,412 for each year.

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Noncontrolling Interest

In January 2009, we adopted an amendment to ASC Topic 810 “Consolidation”, which required us to make certain changes to the presentation of our financial statements. This amendment required 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 required 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 net income, pro forma financial information is required. As of January 1, 2009, the Company presented its financial statements in accordance with this statement.

On May 5, 2009, the Company and FluoroPharma reorganized their relationship by terminating their investment 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 by third parties, the Company agreed to convert all outstanding receivables from FluoroPharma into common stock of FluoroPharma. As a result of these transactions and the third party investment, the Company’s ownership interest in FluoraPharma’s issued and outstanding capital stock was reduced to a noncontrolling interest, which resulted in deconsolidation and a loss at deconsolidation in accordance with ASC 810. See Note 8 for additional details.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The Company’s property and equipment at December 31, 2010 and 2009 consisted of computer and office equipment, machinery and equipment and leasehold improvements with estimated useful lives of three to seven years. Estimated useful lives of leasehold improvements do not exceed the remaining lease term. Depreciation expense was $47,638 and $70,082 for the years ended December 31, 2010 and 2009. Expenditures for repairs and maintenance are expensed as incurred. See Note 6.

Recent Accounting Pronouncements

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

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

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

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Reclassifications

Certain reclassifications have been made in the presentation of the financial statements for the year ended December 31, 2009 to conform to the presentation of the financial statements for the year ended December 31, 2010. The reclassifications were to reflect the retrospective adoption of ASC Topic 810.

Research and Development Costs

Research and development costs are expensed as incurred. The cost of intellectual property purchased from others that is immediately marketable or that has an alternative future use is capitalized and amortized as intangible assets. Capitalized costs are amortized using the straight-line method over the estimated economic life of the related asset.

Revenue Recognition

The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin Topic 13 when persuasive evidence of an arrangement exists and delivery or performance 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.

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 or reseller’s contractual reporting obligations.

The Company’s strategy includes entering into collaborative agreements with strategic partners for the development, commercialization and distribution of its product candidates. Such collaborative agreements may have multiple deliverables. The Company evaluates multiple deliverable arrangements pursuant to ASC Topic 605-25, “Revenue Recognition: Multiple-Element Arrangements.” Pursuant to this Topic, in arrangements with multiple deliverables where the Company has continuing performance obligations, contract, milestone and license fees are recognized together with any up-front payments over the term of the arrangement as performance obligations are completed, unless the deliverable has standalone 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.

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QN Diagnostics, LLC

On July 30, 2009, the Company and QND entered into a Development and Services Agreement (“Development Agreement”), pursuant to which QND pays a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products. The revenue recognized by the Company associated with the Development Agreement in 2010 and 2009 were $1,429,960 and $2,065,264, respectively. The expenses related to the Development Agreement for 2010 and 2009 were $1,429,960 and $2,065,264, respectively. Expenses are included in each appropriate expense category. At December 31, 2009, the Company had deferred revenue of $337,160, which was recognized in the first quarter of 2010.

CytoCore, Inc.

On May 19, 2008, the Company and CytoCore, Inc. entered into a worldwide distribution and supply agreement for specified PAD technology of the Company. The agreement specified monthly license fees during CytoCore’s expected development period and additional milestone payments based upon CytoCore’s achievement of certain development and sales milestones. The Company received an up-front, non-refundable payment of $100,000 upon execution of this agreement, which was recorded as deferred revenue and was amortized into revenue over the expected development period of the agreement. In January, 2010, the agreement was amended for $80,000 to be paid to the Company monthly. In August 2010, the Company terminated the agreement for non-payment returning the Company’s rights under this agreement pursuant to the default clause in the agreement. On December 31, 2010, the Company recognized revenue of $36,000 and $119,897 in the years ended December 31, 2010 and 2009 related to this agreement.

Development Agreements and Royalties

In 2007, the Company entered into two development agreements to develop rapid test POC products in oral care for ALT BioScience (ALT), and an at-home diagnostic test jointly with Church & Dwight Co., Inc. In 2010 and 2009, the Company recognized revenues of approximately $0 and $180,000 related to these development agreements in accordance with its revenue recognition policies, and costs of approximately $1,800 and $100,000.

The ALT agreement, and subsequent renewals, commenced March 2007 and stipulated an up-front fee, recognized over the initial five month term, and monthly fees. Currently, the agreement is on a month-to-month basis, subject to termination with 45 days notice. The agreement grants the Company certain manufacturing rights for the developed products, which shall be negotiated in good faith in a separate manufacturing agreement upon the completion of design and verification testing. These manufacturing rights will survive any potential termination of the development agreement. Effective August 1, 2009, the Company is providing the development service to ALT through QN Diagnostics, LLC under the terms of its operating agreement with QN Diagnostics, and as such, these revenues were recognized by QND.

In July 2010, ALT notified the Company that it was without operating capital, and could no longer support the Company’s efforts. The Company curtailed all work and reduced staff accordingly. The Company recorded Bad Debt Expense of $200,026 related to this agreement.

The Church & Dwight agreement included milestone based payments, which were recognized in 2007 and 2008. On August 14, 2008, the Company entered into a Technology License Agreement with Church & Dwight Co., Inc. Under the terms of the agreement, Church & Dwight acquired exclusive world-wide rights to use certain Company technology related to the jointly developed test. Under the ten-year agreement, the Company received royalties on net sales of the product of $26,815 and $81,426 in 2010 and 2009, respectively.

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Use of Estimates

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

4.	INVESTMENT IN JOINT VENTURE - QN DIAGNOSTICS, LLC

On July 30, 2009, the Company and NuRx Pharmaceuticals, Inc. (NuRx) entered into agreements to form QND, a Delaware limited liability company. Pursuant to the agreements, the Company 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 the Company to the joint venture, NuRx and the Company 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.

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

Under the terms of the agreements, QND made a $2,000,000 cash distribution to the Company. The Company is committed to further capital contributions aggregating $1.55 million, comprised of: payment of milestone payments with PRIA Diagnostics (see Note 5) in Company 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 the Company and NuRx on an equal basis.

The Company and QND also entered into the Development Agreement, pursuant to which QND shall pay a monthly fee to the Company in exchange for the Company providing all services related to the development, regulatory approval and commercialization of lateral flow products.

In connection with these transactions, NuRx received two warrants to purchase 2,000,000 shares of Company common stock each, for an aggregate of 4,000,000 shares of Company 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.

The Company 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 ($1.0 million) and the elimination of the portion of the intercompany gain associated with the Company’s 50% interest in QND ($2.36 million).

Summarized financial information for QND for July 30, 2009 (inception) through December 31, 2009, is as follows: current assets: $1,064,000; noncurrent assets: $5,251,000; total assets: $6,315,000; current liabilities: $97,000; revenues and gross profit: $125,000; net loss: $2,232,000. The Company recorded losses from QND under the equity method of $1,023,000, representing the Company’s 50% portion of QND’s net loss, adjusted for an amortization modification based upon the Company’s basis in the contributed assets. There were no other intercompany profits to eliminate.

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5.	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 the Company 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 Company common stock.

Under the asset purchase agreement, the Company 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 QND (see Note 4). 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. The Company 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.

6.	OTHER BALANCE SHEET INFORMATION

Components of selected captions in the accompanying balance sheets as of December 31, 2010 and 2009 consist of:

	2010		2009
Prepaid expenses:
Prepaid consulting – related party (See Note 17)	$	-	$	83,375
Prepaid insurance		17,386		22,960
Prepaid rent		-		16,533
Other		6,023		5,360
Prepaid expenses	$	23,409	$	128,228


Property and equipment:
Computers and office furniture, fixtures and equipment	$	90,660	$	124,877
Machinery and equipment		173,295		181,347
Leasehold improvements		92,233		92,233
Less: accumulated depreciation		(246,709)		(218,867
Property and equipment, net	$	109,479	$	179,590

Accrued expenses:
Payroll and related	$	86,000	$	175,000
Professional fees		82,000		41,500
Other		-		16,500
Accrued expenses	$	168,000	$	233,000

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7.	NOTES RECEIVABLE

Genomics USA, Inc.

In January 2007, the Company advanced $200,000 to Genomics USA, Inc. (GUSA) through an 8% promissory note due April 8, 2007. The note is currently convertible at the Company’s discretion into 10% of GUSA’s outstanding capital stock. The Company continues to explore the possibility of further investment, and has postponed settlement of the note during this exploratory period, during which the note continued to accrue interest. The Company accrued interest of $16,000 per year on this note for the years ended December 31, 2010 and 2009. At December 31, 2010 and 2009, the Company had interest receivable on this note of $63,689 and $47,689, respectively.

8.	INVESTMENTS

FluoroPharma, Inc.

On May 5, 2009, the Company and FluoroPharma reorganized their relationship by terminating their investment 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, the Company 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, the Company’s ownership interest in FluoroPharma’s issued and outstanding capital stock was reduced to a noncontrolling interest, which resulted in deconsolidation and the Company’s periodic sales of its equity interest in FluoraPharma as a means to finance its continuing operations. Subsequent to the termination of the agreements between the Company and FluoroPharma, the Company has no continuing obligations or commitments to FluoroPharma.

At May 5, 2009, the Company’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, the Company’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 The Company’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 the Company writing off the remaining basis in the investment of $43,286 and recording a loss from deconsolidation of $43,286 in accordance with ASC Topic 810.

Effective May 5, 2009, our financial statements reflect our investment in FluoroPharma under the equity method of accounting. At December 31, 2009, the Company owned 39.81%, of the issued and outstanding capital stock of FluoroPharma. However, at December 31, 2009, due to FluoroPharma’s issuance of a separate class of common stock in 2009, the Company held 17.53% of the voting rights of FluoroPharma.

At December 31, 2009, FluoroPharma’s summarized financial information was estimated as follows: current assets: $62,000; noncurrent assets: $130,000; total assets: $192,000; current and total liabilities $1,255,000; expenses and net losses for the period of May 5 through December 31, 2009 were $748,000. The Company’s allocation of FluoroPharma’s net loss for the period commencing May 5 through December 31, 2009, was not recorded ($314,000), since the remaining investment in FluoroPharma had a carrying value of $0 as of the deconsolidation of FluoroPharma at May 5, 2009.

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From January 2010 to August 2010, the Company entered into certain agreements with certain investors pursuant to which the Company sold 1,155,000 shares of common stock of FluoraPharma to such investors at a price of $0.75 per share, resulting in aggregate proceeds of $866,250.

In October 2010, the Company sold 1,316,173 shares of FluoroPharma Common Stock available for sale to certain of its investors for $0.60 per share resulting in cash proceeds of $789,704. These proceeds have been recorded as a Gain on Sale of Investments during the period ended December 31, 2010, as the basis in the FluoroPharma Common Stock was now determined to be zero.

In December 2010, the Company reserved its remaining 20,000 shares of common stock of FluoraPharma for issuance to an executive to settle amounts due that executive.

As of December 31, 2010, the Company had 185,000 options and 249,278 warrants to purchase common stock of FluoraPharma with exercise prices of $0.75 and $1.50, respectively and expiring at various dates in 2014. The Company has estimated the fair value of the options and warrants at $88,514 and $108,008, respectively. The Company deems the value of the options and warrants to be fully impaired at December 31, 2010.

Genomics USA, Inc.

In May 2006, the Company purchased 144,024 shares of GUSA common stock for $200,000. As of December 31, 2010 and 2009, the Company owned 12% of the issued and outstanding capital stock of GUSA.

The Company uses the cost method to account for this investment since the Company does not control nor have the ability to exercise significant influence over operating and financial policies. In accordance with the cost method, the investment is recorded at cost and impairment is considered in accordance with the Company’s impairment policy. No impairment was recognized for the years ended December 31, 2010 and December 31, 2009.

9.	INTANGIBLE ASSETS

Intangible assets as of December 31, 2010 and 2009 consisted of the following:

	2010			2009
Licensed patents and patent rights	$	50,000		$	50,000
Patents		41,004			41,004
Website development		-			40,750
Less: accumulated amortization		(44,199	)		(71,974	)
Intangibles, net	$	46,085		$	59,780

Patent under Licensing

In 2006, the Company entered into a patent license agreement with The Procter & Gamble Company, effective July 1, 2006. The agreement licenses patent rights and know-how for certain hemorrhoid treatment pads and related coatings. The term of the agreement is five years with a five year automatic renewal option. In consideration of this agreement, the Company paid a one-time, non-refundable engagement fee, and pays royalties based on net sales of such licensed products.

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The Company has capitalized this engagement fee and amortizes the capitalized cost over the expected term of the patent license agreement. Amortization of $5,000 and $5,000 in connection with this licensed patent was recognized in the years ended December 31, 2009 and 2008. All royalties due pursuant to the terms of the agreement are expensed as incurred. Impairment is considered in accordance with the Company’s impairment policy. No impairment was recognized as of December 31, 2009 or 2008.

Website

During 2010, the Company discontinued its website. At December 31, 2010, the website costs were fully amortized.

10.	SHORT-TERM NOTES PAYABLE

At December 31, 2010, the Company had no short-term notes payable. In July 2009, the Company made full settlement with all holders of the Company’s convertible and promissory notes, and obtained the release of all security interests in the Company 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 14), 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. The Company 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 or modified in connection with these notes. See Note 3.

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, the Company issued notes in the aggregate principal amount of $2,157,247 and warrants with a five-year term to purchase 250,000 shares of the Company’s common stock at an exercise price of $1.25. The warrants provide for full anti-dilution protection to the holders and allow for cashless exercise.

In the event the Company did not complete a qualified financing and holders did not voluntarily convert, The Company was to repay the outstanding principal balance and accrued and unpaid interest on January 23, 2009. All holders 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 convertible promissory notes issued in 2007 (2007 Notes), the holders representing $1,000,000 face value of the Company’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.

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The Company 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.

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. The Company 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.

The conversion option embedded in the 2008 Notes described above was not considered a derivative instrument and was not required to be bifurcated since it is indexed to the Company’s stock and is classified as stockholders’ equity. Equity classification of the embedded conversion option is met. The Company 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. The Company 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, the Company 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, the Company 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, the Company 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 notes.

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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. The Company 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 $419,777 and $ 1,060,435 for the years ended December 31, 2009 and 2008. The Company issued 10% convertible notes in the aggregate amount of $148,114 for quarterly interest in the form of paid-in-kind notes in the first half of 2009, and $150,733 in 2008.

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 anti-dilution 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. The Company 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, the Company 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.

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, the Company 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, the Company 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, the Company 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.

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On October 15, 2008, the Company executed an eleven-month extension with a holder of a $100,000 2008 Secured Promissory Note. In consideration for this extension, The Company 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.

The Company 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, the Company 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 for $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, the Company granted a warrant in January 2009 to purchase 100,000 shares of common stock (fair value $18,000) with a five year term for $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, the Company 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, the Company recorded $55,447 and $321,001 in interest expense, including amortization of original issue discount, deferred financing costs and prepaid interest, for the years ended December 31, 2009 and 2008.

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 anti-dilution 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. The Company 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, the Company 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, the Company 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, the Company 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.

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The Company 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, the Company 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, the Company 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, the Company 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, the Company executed an additional extension with this holder extending the maturity date to July 31, 2009. In consideration for this additional extension, the Company 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, the Company 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.

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, The Company 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, the Company 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, the Company recorded $353,951 and $410,274 in interest expense, including amortization of original issue discount, prepaid interest, and deferred financing costs, related to the 2008 Promissory Notes for the years ended December 31, 2009 and 2008. No deferred finance costs were incurred on these Promissory Notes issued in 2009.

11.	LONG-TERM NOTES PAYABLE

The Company received a $44,000 loan from the Portland Development Commission in 2007. The loan matures in 20 years and was interest free through February 2010. The terms of the note stipulate monthly interest only payments from April 2010 through December 2014, at a 5% annual rate. The Company recorded interest expense on this loan of $1,808 for the year ended December 31, 2010.

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12.	COMMITMENTS AND CONTINGENCIES

QN Diagnostics and PRIA Diagnostics

The Company is committed to further capital contributions to QND aggregating $1.55 million, comprised of: payment of milestone payments with PRIA Diagnostics in the Company 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 The Company and NuRx on an equal basis. Should either party fail to make sustaining contributions as required, such party would be subject to a reduction in ownership interest and loss of a board seat. See Notes 4 and 5.

Operating Leases

During 2010, the Company had two operating leases. In December 2010, one operating lease was canceled and the Company currently leases its office and research and development lab space under an operating lease that expires September 30, 2011. In December 2010, the Company canceled its Doylestown PA operating lease for a payment of approximately $11,000 and forfeiture of its security deposit of approximately $10,000. In connection with its existing facility lease, the Company has made a security deposit of $5,000 which is included in long-term assets on the balance sheet. In December 2010, the existing operating lease was amended to reduce the rent payments for February 2011 to September 2010 from $3,950 per month to $2,000 per month, accruing deferred rent that will be due immediately in the case of default on the lease, or to be negotiated in the lease renewal for a minimum of three years.

Rent expense is recognized on a straight-line basis over the initial lease term. Leasehold improvements have been included in fixed assets. Rent expense relating to our operating leases was $94,730 and $132,775 for the years ended December 31, 2010 and 2009, respectively. For 2011, the Minimum lease payment is $35,500.

During 2010 and 2009, the Company had a subtenant leasing research and development lab space. During 2010, this sublease was cancelled. Sublease income relating to our operating leases was $4,125 and $20,798 for the years ending December 31, 2010 and 2009, and is recorded in other income.

Executive Employment Agreements

We entered into employment contracts with key executives that provide for the continuation of salary to the executives if terminated for reasons other than cause or in connection with a change in control of the Company, as defined in those agreements. At various times from July 2010 to December, 2010, all of these agreements were terminated. In December 2010, the Company entered into payoff agreements with certain key executives. At December 31, 2010 the Company had accrued compensation of $86,000 and had reserved 400,000 shares of common stock related to these payoff agreements.

Legal Contingencies

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

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13.	INCOME TAXES

We are subject to taxation in the U.S., the state of Oregon, and the Commonwealths of Pennsylvania and Massachusetts. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for years before 2004.

At December 31, 2010 and 2009, the Company had gross deferred tax assets calculated at an expected blended rate of 38% of approximately $11,758,294 and $15,540,955, respectively, principally arising from net operating loss carryforwards for income tax purposes. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the deferred tax asset, a valuation allowance of $11,758,294 and $15,367,408 has been established at December 31, 2010 and 2009, respectively.

Additionally, the future utilization of our net operating loss and R&D credit carryforwards to offset future taxable income may be subject to an annual limitation, pursuant to IRC Sections 382 and 383, as a result of ownership changes that may have occurred previously or that could occur in the future.

There is no unrecognized tax benefit included in the balance sheet that would, if recognized, affect the effective tax rate.

The significant components of the Company’s net deferred tax assets (liabilities) at December 31, 2010 and 2009 are as follows:

	2010		2009
Gross deferred tax assets:
Net operating loss carryforwards	$	8,917,167	$	11,638,561
Difference between book and tax basis of former subsidiary stock held		1,937,844		1,937,844
Stock based expenses		46,892		1,108,159
Tax credit carryforwards		292,999		292,999
All others		563,392		563,392
		11,758,294		15,540,955
Gross deferred tax liabilities:
Difference between book and tax bases of tangible and intangible assets		-		(3,704	)
Deferred tax asset valuation allowance		(11,758,294)		(15,537,251	)
Net deferred tax asset (liability)	$	-	$	-

At December 31, 2010, the Company has net operating loss carryforwards of approximately $26,848,834, which expire in the years 2011 through 2030. The net change in the allowance account was a decrease of $3,778,957 for the year ended December 31, 2010.

14.	CAPITAL STOCK

Preferred Stock

The Company has authorized 25,000,000 shares of preferred stock, of which 20,500,000 is designated as Series B Convertible Preferred Stock, $0.01 par value, with a stated value of approximately $177,000 (“Series B Preferred”). The remaining 4,500,000 authorized preferred shares have not been designated by the Company as of December 31, 2010.

On November 19, 2010, the Company filed a Certificate of Withdrawal of the Certificates of Designations of the Series A Preferred Stock (“Series A Preferred”) with the Nevada Secretary of State, as there were no shares of Series A Preferred issued and outstanding after the exchange transaction discussed below.

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Series A-1 Preferred Stock

The Series A-1Ppreferred Stock (“Series A-1 Preferred”) ranked prior to the common stock for purposes of liquidation preference, and to all other classes and series of equity securities of the Company that by their terms did not rank senior to the Series A-1 Preferred. Holders of the Series A-1 Preferred shares were entitled to receive, when, as and if declared by the Board of Directors, preferential dividends 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. The Company could, at its option, redeem shares of the Series A-1 Preferred, 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, at a redemption price equal to the face amount plus all accrued and unpaid dividends on such Series A-1 Preferred. At any time on or after the issuance date, the Series A-1 Preferred may be converted by the holder of any such shares subject to certain limitations 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.

In the third quarter of 2009, the Company issued 4,060,397 shares of Series A-1 Preferred 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.

On August 4, 2010, the Company declared stock dividends in the amount of $324,831 to the holders of Series A-1 Preferred.

In October 2010, the Company completed an exchange of its Series A-1 Preferred Stock (“Series A Preferred”) into shares of its Series B Preferred Stock (“Series B Preferred”) and shares of FluoroPharma common stock (the “Exchange”). Prior to the Exchange, the Company had 4,448,414 shares of Series A Preferred issued and outstanding with a face value of $4,448,414. In exchange for all the issued and outstanding Series A Preferred, the Company issued 17,916,228 Series B Preferred with a value of $3,583,246, representing 80% of the face value of the Series A Preferred exchanged. The remaining 20% of the face value of the Series A Preferred of $865,169 was exchanged for 692,135 shares of FluoroPharma common stock using the preferred exchange rate of $1.25 (the “FluoroPharma Shares”), which rate was negotiated by certain substantial holders of the Series A Preferred and the Company.

The Company recorded the Series A Preferred issued in connection with the Exchange pursuant to ASC 470-20-40-4, as there was no gain or loss to be recognized on the exchange of the Series A Preferred for Series B Preferred. The value of the Series B Preferred issued in connection with the Exchange was recorded net of financial advisory fees.

The Company had previously recorded its investment in FluoroPharma using the equity method. In October 2010, prior to the Exchange, the Company determined that, as a result of its loss of control of FluoroPharma through the prior sales of FluoroPharma Shares in cash transactions, a change in the classification of the FluoroPharma Shares to marketable securities was required, and therefore recorded an unrealized gain of $415,280 pursuant to ASC 320-10, using $0.60 per share as the market value for the mark to market adjustment. Upon completion of the Exchange, and issuance of the FluoroPharma Shares to its holders of Series A Preferred, the gain became a realized gain of $415,280. The difference between the fair market value of the Series A Preferred exchanged ($865,169) and the fair market value of the FluoroPharma Shares ($415,280) was $449,889, and was recorded as an increase to Additional Paid-in Capital.

Series B Convertible Preferred Stock

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

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

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Common Stock

The Company has authorized 150,000,000 shares of its common stock, $0.01 par value. The Company had issued and outstanding 44,427,630 shares of its common stock at December 31, 2010 and 2009. In December 2009, the shareholders of the Company approved an increase to authorized common stock to 150,000,000 shares. The increase took effect in January 2010 with the filing of the amendment to the articles of incorporation with the State of Nevada.

During the year ended December 31, 2010, no shares of Common Stock were issued. At December 31, 2010, the Company had reserved for issuance 1,650,000 shares of Common Stock, valued at $128,000, as settlements of accounts payable and accrued compensation. Such shares were issued in January 2011.

In the fourth quarter of 2009, 150,000 shares of common stock were granted in consideration of investor relations services. The fair value of $69,000 was expensed in the year ended December 31, 2009.

In the third quarter of 2009, in connection with an asset purchase, the Company issued 700,000 shares of common stock (fair value of $350,000). See Note 5.

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

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

In the first quarter of 2009, in connection with an extension of a 2008 Promissory Note, the Company 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.

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15.	STOCK PURCHASE WARRANTS

Common Stock Warrants

During the year ended December 31, 2010, no stock purchase warrants were granted by the Company.

In the fourth quarter of 2009, warrants to purchase 1,750,000 shares of common stock (fair value of $295,050) were granted in settlement of $195,000 in outstanding accounts payable and a six month financial advisory services contract. The warrants have an exercise price of $0.55 and a term of five years. $16,675 was expensed as consulting expense in 2009 for this contract.

In the fourth quarter of 2009, a warrant to purchase 25,000 shares of common stock (fair value of $6,000) was granted to a consultant in connection with the successful completion of a development milestone. The warrants have a five year term and an exercise price of $0.40 and were expensed on the grant date.

In the fourth quarter of 2009, warrants to purchase an aggregate of 200,000 shares of common stock (fair value of $29,000) 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 warrants vest over one year, and will be remeasured during the vesting term as required. $8,000 was expensed in 2009 related to these issuances.

In the third quarter of 2009, in connection with the establishment of a joint venture, the Company issued two warrants to purchase 2,000,000 shares (4,000,000 in the aggregate) of The Company 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. See Note 4.

In the third quarter of 2009, warrants to purchase an aggregate of 550,000 shares of common stock were granted to certain executives. The warrants were issued with an exercise price of $0.50, have a term of five years and were fully vested at December 31, 2009. The aggregate fair value of $165,000 was recognized as stock based compensation expense in 2009.

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). The fair value of these issuances was recognized as interest expense in 2009.

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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, The Company 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. The fair value of these issuances and modifications was recognized as interest expense in 2009.

The following is a summary of all common stock warrant activity during the two years ended December 31, 2010:

	Number of Shares Under Warrants			Exercise Price Per Share	Weighted Average Exercise Price
Warrants issued and exercisable at December 31, 2008		7,926,684		$0.50 - $ 2.00	$	1.07
Warrants granted		8,241,750		$0.31 - $ 1.25	$	0.68
Warrants expired		(1,384,087	)	$1.50	$	1.50
Warrants exercised		-		-		-
Warrants issued and exercisable at December 31, 2009		14,784,347		$0.31 - $ 2.00	$	0.81
Warrants granted
Warrants expired		3,068,001		$0.31 - $ 2.00	$	0.84
Warrants exercised		-		-		-
Warrants issued and exercisable at December 31, 2010		11,716,346		$0.31 - $ 2.00	$	0.80

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The following represents additional information related to common stock warrants outstanding and exercisable at December 31, 2010:

Exercise Price		Number of Shares Under Warrants		Weighted Average Remaining Contract Life in Years		Weighted Average Exercise Price
$	0.31		210,000		3.04	$	0.31
$	0.40		25,000		3.88	$	0.40
$	0.42		182,065		0.40	$	0.42
$	0.50		3,306,873		2.70	$	0.50
$	0.55		3,473,348		3.26	$	0.55
$	0.61		4,000		1.88	$	0.61
$	0.75		2,000		1.75	$	0.75
$	0.85		295,000		2.56	$	0.85
$	0.87		2,000		1.68	$	0.87
$	0.89		200,000		2.29	$	0.89
$	0.95		150,000		2.29	$	0.95
$	1.00		325,750		3.07	$	1.00
$	1.10		200,000		1.95	$	1.10
$	1.15		6,000		1.42	$	1.15
$	1.20		30,000		1.33	$	1.20
$	1.25		2,177,500		3.55	$	1.25
$	1.35		75,000		1.29	$	1.35
$	1.50		833,310		0.35	$	1.50
$	2.00		218,500		0.39	$	2.00
			11,716,346		2.74	$	0.80

The Company used the Black-Scholes option price calculation to value the warrants granted in 2010 and 2009 using the following assumptions: risk-free rate of 2.43% and 3.24%; volatility of 0.72 and 0.70; actual term and exercise price of warrants granted. See Note 3, Summary of Significant Accounting Policies, “Accounting for Share-Based Payments.”

16.	COMMON STOCK OPTIONS

In 2007, the Company adopted the 2007 Incentive and Non-Qualified Stock Option Plan (hereinafter “the Plan”), which replaced the 1997 Incentive and Non-Qualified Stock Option Plan, as amended in 2001, and under which 8,000,000 shares of common stock are reserved for issuance under qualified options, nonqualified options, stock appreciation rights and other awards as set forth in the Plan.

Under the Plan, qualified options are available for issuance to employees of the Company and non-qualified options are available for issuance to consultants and advisors. The Plan provides that the exercise price of a qualified option cannot be less than the fair market value on the date of grant and the exercise price of a nonqualified option must be determined on the date of grant. Options granted under the Plan generally vest three to five years from the date of grant and generally expire ten years from the date of grant.

During the year ended December 31, 2010, no stock options were granted by the Company.

In the fourth quarter of 2009, 25,000 non-qualified common stock options were granted to members of the board of directors and issued from the Company’s Incentive and Non-Qualified Stock Option Plan. The options were issued with an exercise price of $0.38, have a term of five years and vested immediately. The fair value of these options is $5,750.

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In the fourth quarter of 2009, qualified stock options to purchase an aggregate of 50,000 shares of common stock were granted and issued from the Company’s 2007 Incentive and Non-Qualified Stock Option Plan to employees in accordance with employment agreements and the successful completion of development milestones. The options were fully vested, have a five year term and an exercise price of $0.40. The fair value of these options is $12,000.

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 at December 31, 2009, options to purchase 437,500 shares of common stock are vested, with the remainder 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 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.

The following is a summary of all common stock option activity during the two years ended December 31, 2010:

	Shares Under Options Outstanding			Weighted Average Exercise Price
Outstanding at December 31, 2008		2,238,000		$	0.74
Options granted		705,000		$	0.45
Options forfeited		(87,500	)	$	0.83
Options exercised		-			-
Outstanding at December 31, 2009		2,855,500		$	0.66
Options granted		-		$	-
Options forfeited		(2,285,500	)	$	0.65
Options exercised		-		$	-
Outstanding at December 31, 2010		570,500	$		0.72

	Options Exercisable		Weighted Average Exercise Price Per Share
Exercisable at December 31, 2009		2,687,583	$	0.63
Exercisable at December 31, 2010		408,000	$	0.53

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The following represents additional information related to common stock options outstanding and exercisable at December 31, 2010:

		Outstanding						Exercisable
Exercise Price		Number of Shares		Weighted Average Remaining Contract Life in Years		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	0.31		130,000		3.04	$	0.31		130,000	$	0.31
$	0.35		6,250		3.00	$	0.35		6,250	$	0.35
$	0.38		25,000		4.00	$	0.38		25,000	$	0.38
$	0.40		50,000		3.88	$	0.40		50,000	$	0.40
$	0.50		125,000		3.58	$	0.50		62,500	$	0.50
$	0.69		6,250		2.00	$	0.69		6,250	$	0.69
$	0.80		52,500		7.17	$	0.80		52,500	$	0.80
$	0.85		63,000		6.78	$	0.85		63,000	$	0.85
$	1.17		12,500		.99	$	1.17		12,500	$	1.17
$	1.60		100,000		5.26	$	1.60		-	$	1.60
			570,500		3.97	$	0.72		408,000	$	0.53

The weighted average remaining contractual term for both fully vested share options (exercisable, above) and options expected to vest (outstanding, above) is 5.9 years. The aggregate intrinsic value of all of the Company’s options is $9,288.

The weighted-average grant-date fair value of options granted during 2009 was $0.27 and $0.75, respectively. There were no options exercised during 2010 and 2009; therefore there was no intrinsic value of options exercised and no related tax benefits were realized. The total fair value of shares vested during 2010 and 2009 was $236,321.

A summary of the status of the Company’s nonvested stock options as of December 31, 2009 and changes during the year ended December 31, 2010 is presented below:

Nonvested Stock Options	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2009		167,917	$	1.06
Options granted
Options vested		5,417	$	0.19
Options forfeited
Nonvested at December 31, 2010		162,500	$	1.09

As of December 31, 2010, the Company had recognized approximately $7,950 of unrecognized compensation cost related to nonvested options. Weighted average period of nonvested stock options was 4.4 years as of December 31, 2010.

The Company used the Black-Scholes option price calculation to value the options granted in 2010 and 2009 using the following assumptions: risk-free rate of 2.43% and 3.24%; volatility of 0.72 and 0.70; actual term and exercise price of options granted. See Note 3, Summary of Significant Accounting Policies, “Accounting for Share-Based Payments.”

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17.	RELATED PARTY TRANSACTIONS

In the fourth quarter of 2009, warrants to purchase 1,750,000 shares of common stock (fair value of $295,050) were granted in settlement of $195,000 in outstanding accounts payable and a six month financial advisory services contract with Burnham Hill Partners. The warrants have an exercise price of $0.55 and a term of five years. Of the $100,050 allocated to the financial advisory services contract, $16,675 was expensed as consulting expense in 2009, and as of December 31, 2009, $83,375 was recorded as prepaid consulting.

An executive officer of our former majority-owned subsidiary, who is also a beneficial owner of approximately 25% of the former majority-owned subsidiary’s outstanding shares, was due $40,000 for licensing fees related to patent license agreements, $120,191 for advances to fund general operating expenses and $142,500 for accrued payroll as of December 31, 2008, of which $160,191 was included in accounts payable and $142,500 was included in accrued expenses.

18.	SUBSEQUENT EVENTS

In January 2011, the Company issued 1,650,000 shares of common stock as settlement of $100,000 of accounts payable and $28,000 of accrued compensation related to settlement agreements entered into in December 2010.

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QUANTRX BIOMEDICAL CORP Reports

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