UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~December~~March 31, ~~2009~~2010

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

Commission file number 000-1174228

NuRx Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

NEVADA		87-0681500
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

18 Technology Drive, Suite 130

Irvine, CA 92618

(Address of principal executive offices, including zip code)

(949) 336-7111

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 ¨

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 (§232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

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

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

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

Yes ¨ No x

As of ~~February~~ May 1, 2010, there were 23,444,234 shares of common stock outstanding.

NURX PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q

~~December~~March 31, ~~2009~~2010

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Balance Sheets	1
	Condensed Statements of Operations	2
	Condensed Statement of Stockholders’ Equity	3
	Condensed Statements of Cash Flows	4
	Notes to Condensed Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2930
Item 4.	Controls and Procedures	2930
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3132
Item 1A.	Risk Factors	3132
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3233
Item 3.	Defaults Upon Senior Securities	3233
Item 4.	~~Submission of Matters to a Vote of Security Holders~~Reserved	3233
Item 5.	Other Information	3233
Item 6.	Exhibits	3233
	SIGNATURES	3334

ITEM 1.

FINANCIAL STATEMENTS

NuRx Pharmaceuticals, Inc.

(a corporation in the development stage)

Condensed Balance Sheets

~~December~~ March 31, 2010 ~~2009~~ (unaudited) and September 30, 2009

	(Unaudited)
	December 31, 2009			September 30, 2009
	March 31, 2010			September 30, 2009
ASSETS
Cash and cash equivalents	$	1,~~391~~009,~~666~~161		$	1,899,752
Prepaid expenses and other current assets		~~121~~109,~~149~~063			128,783
Other receivable		—-			100,000
Total current assets		1,~~512~~118,~~815~~224			2,128,535
Property and equipment, net of accumulated depreciation and amortization of $29,667 and $25,710, respectively		62,827			66,784
Property and equipment, net of accumulated depreciation and amortization of $33,624 and $25,710, respectively		58,870			66,784
Investment in joint venture		2,~~884~~528,~~180~~178			3,535,245
Other investments		~~618~~533,000			1,000,000
Deposits		~~27,093~~-			27,093
Total assets	$	54,~~104~~238,~~915~~272		$	6,757,657
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses	$	~~545~~992,~~932~~412		$	504,211
Commitments and contingencies
Stockholders' Equity
Series A preferred stock, $.001 par value, 1,000,000 shares		—			—
Series A preferred stock, $.001 par value, 1,000,000 shares designated, no shares issued and outstanding		-			-
designated, no shares issued and outstanding
Series B preferred stock, $.001 par value, 500,000 shares designated, no shares issued and outstanding		-			-
Series B preferred stock, $.001 par value, 500,000 shares		—			—
Series C preferred stock, $.001 par value, 300,000 shares designated, no shares issued and outstanding		-			-
designated, no shares issued and outstanding
Common stock, $.001 par value; 150,000,000 shares authorized, 23,444,234 shares issued and outstanding		23,444			23,444
Series C preferred stock, $.001 par value, 300,000 shares		—			—
Additional paid-in capital		22,082,297			21,947,475
designated, no shares issued and outstanding
Accumulated deficit during development stage		(18,896,081	)		(15,753,673	)
Common stock, $.001 par value; 150,000,000 shares authorized,
23,444,234 shares issued		23,444			23,444
Additional paid-in capital		22,017,650			21,947,475
Accumulated deficit during development stage		(17,518,311	)		(15,753,673	)
Retained earnings		36,200			36,200
Total stockholders' equity		43,~~558~~245,~~983~~860			6,253,446
Total liabilities and stockholders' equity	$	54,~~104~~238,~~915~~272		$	6,757,657

See Notes to Condensed Financial Statements

NuRx Pharmaceuticals, Inc.

(a corporation in the development stage)

Condensed Statements of Operations (unaudited)

For ~~the~~ the three and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~2009 and for the period from inception (May 1, 2007) through ~~December~~March 31, ~~2009~~2010

	Three months ended December 31, 2009			Three months ended December 31, 2008			Inception (May 1, 2007) through December 31, 2009
	Three months ended March 31,						Six months ended March 31,
Operating Expenses:
	2010			2009			2010			2009			Inception (May 1, 2007) through March 31, 2010
General and administrative (includes share based compensation of $70,175, $62,933 and $771,489, and related party consulting fees of $0, $30,000 and $572,200, respectively)	$	626,584		$	440,392		$	5,342,320
Operating Expenses:
Research and clinical development (includes share based compensation of $0, $14,197 and $140,969, related party consulting fees of $0, $52,500 and $378,910 respectively, and fair value of shares issued in connection with license amendment, license fee, and milestone payment under technology license of $0, $100,000, and $3,613,000, respectively)		105,748			877,255			11,392,961
General and administrative (includes share based compensation of $64,647, $156,998, $134,822, $219,931 and $836,136, and related party consulting fees of $0, $0, $0, $30,000 and $572,200, respectively)	$	472,171		$	497,527		$	1,098,755		$	937,919		$	5,814,491
Impairment of other investments		382,000			—			382,000
Research and clinical development (includes share based compensation of $0, $26,327, $0, $40,524 and $140,969, related party consulting fees of $0, $52,500, $0, $105,000 and $378,910 respectively, and fair value of shares issued in connection with license amendment, license fee, and milestone payment under technology license of $0, $0, $0, $100,000 and $3,613,000, respectively)		64,751			798,080			170,499			1,675,335			11,457,712
Share of net loss from joint venture		651,065			—			1,115,820
Litigation settlement		400,000			-			400,000			-			400,000
Total operating expenses		1,765,397			1,317,647			18,233,101
Impairment of other investments		85,000			-			467,000			-			467,000
Loss from operations		(1,765,397	)		(1,317,647	)		(18,233,101	)
Share of net loss from joint venture		356,002			-			1,007,067			-			1,471,822
Other income and (expense):
Total operating expenses		1,377,924			1,295,607			3,143,321			2,613,254			19,611,025
Interest income		759			23,269			727,415
Loss from operations		(1,377,924	)		(1,295,607	)		(3,143,321	)		(2,613,254	)		(19,611,025	)
Interest expense		—			—			(12,625	)
Other income and (expense):
Total other income (expense)		759			23,269			714,790
Interest income		154			13,489			913			36,758			727,569
Net Loss	$	(1,764,638	)	$	(1,294,378	)	$	(17,518,311	)
Interest expense		-			-			-			-			(12,625	)
Loss per common share - basic and diluted	$	(0.08	)	$	(0.05	)	$	(0.65	)
Total other income (expense)		154			13,489			913			36,758			714,944
Weighted average common shares - basic and diluted		23,444,234			28,394,777			27,153,878
Net Loss	$	(1,377,770	)	$	(1,282,118	)	$	(3,142,408	)	$	(2,576,496	)	$	(18,896,081	)
Loss per common share - basic and diluted	$	(0.06	)	$	(0.05	)	$	(0.13	)	$	(0.09	)	$	(0.70	)
Weighted average common shares - basic and diluted		23,444,234			28,444,234			23,444,234			28,419,234			26,840,680

See Notes to Condensed Financial Statements

NuRx Pharmaceuticals, Inc.

(a corporation in the development stage)

Condensed Statement of Stockholders' Equity

For ~~the~~ the period from inception (May 1, 2007) through ~~December~~March 31, ~~2009~~2010

	Series A Preferred Stock				Series B Preferred Stock				Series C Preferred Stock				Common Stock						Additional Paid-in			Treasury Stock						Retained			Accumulated Deficit During the Development
																															Accumulated
																															Deficit
																			Additional												During the
	Series A Preferred Stock				Series B Preferred Stock				Series C Preferred Stock				Common Stock						Paid-in			Treasury Stock						Retained			Development
	Shares		Amount		Shares		Amount		Shares		Amount		Shares			Amount			Capital			Shares			Amount			Earnings			Stage			Total
Balance at October 1, 2006		—-	$	—-		—-	$	—-		—-	$	—-		2,564,752		$	2,565		$	160,485			—-		$	—-		$	166,854		$	—-		$	329,904
Private placement April 27, 2007, 15,750,000 common shares at $0.001 per share		—-		—-		—-		—-		—-		—-		15,750,000			15,750			—-			—-			—-			—-			—-			15,750
Private placement May 16, 2007, 10,000,000 common shares at $2.00 per share		—-		—-		—-		—-		—-		—-		10,000,000			10,000			19,990,000			—-			—-			—-			—-			20,000,000
Private placement June 25, 2007, 250,000 common shares at $2.00 per share		—-		—-		—-		—-		—-		—-		250,000			250			499,750			—-			—-			—-			—-			500,000
Private placement fees, reorganization costs and related registration costs, including fair market value of warrants		—-		—-		—-		—-		—-		—-		—-			—-			(5,151,228	)		—-			—-			—-			—-			(5,151,228	)
Share-based compensation		—-		—-		—-		—-		—-		—-		12,500			12			65,817			—-			—-			—-			—-			65,829
Fair value of warrants issued in connection with private placement		—-		—-		—-		—-		—-		—-		—-			—-			2,988,064			—-			—-			—-			—-			2,988,064
Repurchase of 1,939,750 common shares, May 2007		—-		—-		—-		—-		—-		—-		—-			—-			—-			(1,939,750	)		(750,000	)		—-			—-			(750,000	)
Net loss		—-		—-		—-		—-		—-		—-		—-			—-			—-			—-			—-			(130,654	)		(2,954,723	)		(3,085,377	)
Balance September 30, 2007		—-		—-		—-		—-		—-		—-		28,577,252			28,577			18,552,888			(1,939,750	)		(750,000	)		36,200			(2,954,723	)		14,912,942
Share based compensation		—-		—-		—-		—-		—-		—-		—-			—-			324,105			—-			—-			—-			—-			324,105
Fair value of shares issued in connection with milestone payments under technology license (shares valued at $2.00 per share)		—-		—-		—-		—-		—-		—-		1,756,732			1,757			3,511,243			—-			—-			—-			—-			3,513,000
Cancellation of treasury stock		—-		—-		—-		—-		—-		—-		(1,939,750	)		(1,940	)		(748,060	)		1,939,750			750,000			—-			—-			—-
Net loss		—-		—-		—-		—-		—-		—-		—-			—-			—-			—-			—-			—-			(7,338,825	)		(7,338,825	)
Balance September 30, 2008		—-		—-		—-		—-		—-		—-		28,394,234			28,394			21,640,176			—-			—-			36,200			(10,293,548	)		11,411,222
Share based compensation		—-		—-		—-		—-		—-		—-		—-			—-			452,349			—-			—-			—-			—-			452,349
Fair value of shares issued in connection with amended technology license (shares valued at $2.00 per share)		—-		—-		—-		—-		—-		—-		50,000			50			99,950			—-			—-			—-			—-			100,000
Shares redeemed and cancelled		—-		—-		—-		—-		—-		—-		(5,000,000	)		(5,000	)		(245,000	)		—-			—-			—-			—-			(250,000	)
Net loss		—-		—-		—-		—-		—-		—-		—-			—-			—-			—-			—-			—-			(5,460,125	)		(5,460,125	)
Balance September 30, 2009		—-		—-		—-		—-		—-		—-		23,444,234			23,444			21,947,475			—-			—-			36,200			(15,753,673	)		6,253,446
Share based compensation (unaudited)		—-		—-		—-		—-		—-		—-		—-			—-			70134,~~175~~822			—-			—-			—-			—-			70134,~~175~~822
Net loss (unaudited)		—-		—-		—-		—-		—-		—-		—-			—-			—-			—-			—-			—-			(13,~~764~~142,~~638~~408	)		(13,~~764~~142,~~638~~408	)
Balance December 31, 2009 (unaudited)		—	$	—		—	$	—		—	$	—		23,444,234		$	23,444		$	22,017,650			—		$	—		$	36,200		$	(17,518,311	)	$	4,558,983
Balance March 31, 2010 (unaudited)		-	$	-		-	$	-		-	$	-		23,444,234		$	23,444		$	22,082,297			-		$	-		$	36,200		$	(18,896,081	)	$	3,245,860

See Notes to Condensed Financial Statements

NuRx Pharmaceuticals, Inc.

(a corporation in the development stage)

Condensed Statements of Cash Flows (unaudited)

For the six ~~three~~ months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~2009, and for the period ~~from~~ from inception (May 1, 2007) through ~~December~~March 31, ~~2009~~2010

	Three months ended December 31, 2009			Three months ended December 31, 2008			Inception (May 1, 2007) through December 31, 2009
	Six months ended March 31, 2010			Six Months ended March 31, 2009			Inception (May 1, 2007) through March 31, 2010
Cash flows from operating activities:
Net loss	$	(13,~~764~~142,~~638~~408	)	$	(12,~~294~~576,~~378~~496	)	$	(1718,~~518~~896,~~311~~081	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		37,~~957~~914			49,~~801~~602			2933,~~667~~624
Share-based compensation		70134,~~175~~822			77260,~~130~~455			~~912~~977,~~458~~105
Fair value of shares issued in connection with license amendment, license fee, and milestone payments under technology license		—-			100,000			3,613,000
Write off of uncollectible other receivable		100,000			—-			100,000
Impairment of other investments		~~382~~467,000			—-			~~382~~467,000
Share of net loss from operations of joint venture		~~651~~1,~~065~~007,067			—-			1,~~115~~471,~~820~~822
Changes in operating assets and liabilities:
Deposits		—27,093			15,~~001~~000			~~(27,093~~-	)
Prepaid expenses and other current assets		719,~~634~~720			(327,~~417~~133	)		(~~121~~109,~~149~~063	)
Other receivable		—-			—-			(100,000	)
Accounts payable and accrued expenses		41488,~~721~~201			~~169~~63,~~266~~092			~~582~~1,~~022~~028,502
Due to related parties		—-			(30,000	)		(36,090	)
Net cash used in continuing operating activities		(~~508~~890,~~086~~591	)		(~~961~~2,~~597~~131,214	)		(11,~~067~~450,~~676~~181	)
Net cash provided by discontinued operating activities		—-			—-			41,146
Net cash used in operating activities		(~~508~~890,~~086~~591	)		(~~961~~2,~~597~~131,214	)		(11,~~026~~409,~~530~~035	)
Cash flows from investing activities:
Purchase of property and equipment		—-			(2728,~~337~~718	)		(92,494	)
Investment in joint venture		—-			—-			(4,000,000	)
Investment in warrants		—-			—-			(1,000,000	)
Issuance of note receivable		—-			—-			(250,000	)
Collection of note receivable		—-			—-			250,000
Net cash used in investing activities		—-			(2728,~~337~~718	)		(5,092,494	)
Cash flows from financing activities:
Private placements of common shares		—-			—-			20,563,000
Private placement offering costs		—-			—-			(2,163,164	)
Proceeds of note receivable		—-			—-			125,000
Repayment of note receivable		—-			—-			(125,000	)
Redemption of treasury stock		—-			—-			(1,000,000	)
Net cash provided by financing activities		—-			—-			17,399,836
Net increase (decrease) in cash and cash equivalents		(~~508~~890,~~086~~591	)		(~~988~~2,~~934~~159,932	)		1898,~~280,812~~307
Cash transferred to discontinued operations		—-			—-			(166,463	)
Cash and cash equivalents, beginning of period		1,899,752			11,365,646			277,317
Cash and cash equivalents, end of period	$	1,~~391~~009,~~666~~161		$	109,~~376~~205,~~712~~714		$	1,~~391~~009,~~666~~161
Supplemental disclosure of cash flow information
Cash paid for -
Income taxes	$	—-		$	—-		$	1,600
Interest	$	—-		$	—-		$	12,625

Non-cash financing activities:

In 2007, the Company incurred $5,151,228 in private placement fees, reorganization costs and related registration costs, which included the issuance of warrants with a fair value of $2,988,064.

See Notes to Condensed Financial Statements

NuRx Pharmaceuticals, Inc.

(a corporation in the development stage)

Notes to Condensed Financial Statements

~~December~~ March 31, ~~2009~~ 2010

Note 1 - The Company and its Significant Accounting Policies

General Business:

From the Company’s inception in 2001 to May 2007, it was in the business of selling nutritional products under the name Quest Group International, Inc. In May 2007, the Company spun off this nutritional products business and began to pursue a new business plan in the pharmaceuticals industry. On May 11, 2007, the Company entered into a license agreement with Vitae Pharmaceuticals, Inc. (“Vitae”), pursuant to which it acquired an exclusive, worldwide sublicense, with the right to grant further sublicenses, to certain compounds and nuclear receptor technology for all human and veterinary use. The principal therapeutic indications for the lead compounds are acute promyelocytic leukemia, solid cancers (lung and breast) and chemotherapy-induced neutropenia (low white cell count). On October 23, 2007, the Company changed its name to NuRx Pharmaceuticals, Inc. (“NuRx”). While NuRx was initially established to explore the broad application of second and third generation retinoid and rexinoid compounds, it has evolved into a more broad Life Sciences company with research and development (“R&D”) interests in additional novel cancer therapeutics and, more recently, a novel delivery of point of care diagnostics. (See Note 5). In January, 2010, the Company formally ~~decided~~terminated ~~to terminate~~ its cancer ~~therapeutic~~ therapeutic clinical trials and drug development activities, terminate the ~~underlying~~ underlying licenses with Vitae Pharmaceuticals, Inc. (“Vitae”) and Allergan Pharmaceuticals, Inc. (“Allergan”), and terminate the co-development agreement with Piramal Life Sciences, Ltd. (“Piramal”) (See Notes 4, 12,16 and 1617).

On March 3, 2010, the Company entered into an agreement with Io Therapeutics, LLC (a company wholly owned by a shareholder and former Chief Scientific Officer of the Company) to assume the record keeping and regulatory reporting requirements for all clinical trials formerly conducted by the Company and to transfer its clinical trial data, materials, compounds and records in exchange for the assumption by the transferee of certain de minimus liabilities with third party vendors. (See Note 17).

On January 29, 2010, the Company, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with QuantRx Biomedical Corporation, a Nevada corporation (“QuantRx”), and NP Acquisition Corporation, a Nevada corporation and a wholly-owned subsidiary of QuantRx (“Merger Sub”). The Merger Agreement provides that Merger Sub will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly-owned subsidiary of QuantRx. The Merger Agreement terminates on June 30, 2009, if not extended by mutual agreement of the parties. (See Note 16).

Interim Financial Information:

The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring and other adjustments) considered necessary for a fair presentation have been included. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC), which includes audited financial statements at September 30, 2009 and 2008 and for each of the years then ended and the development stage from inception (May 1, 2007) through September 30, 2009. The results of the Company’s operations for any interim period are not necessarily indicative of the results of operations for any other interim period or full year.

Development Stage Enterprise:

The Company is a development stage company as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915 “Development Stage Entities”. Since September 30, 2009, the Company has been devoting substantially all of its present efforts to development of the point-of-care lateral flow diagnostic products for human and veterinary applications through its QN Diagnostics, LLC joint venture (“QND”) with QuantRx Biomedical Corporation (“QuantRx”) (See Note 5), and its planned principal operations have not yet commenced. The Company has not generated any revenues from operations and has no assurance of any future revenues. All losses accumulated since May 1, 2007 have been considered as part of the Company's development stage activities. The Company held approximately $1.30 million in cash and cash equivalents at ~~December~~March 31, ~~2009~~2010.

Liquidity and Going Concern:

Until July 2009, the Company was an early stage R&D biopharmaceutical company with a focus solely on oncology products (leukemia and lung cancer). Because of (1) the current suboptimal conditions for new financing of a pure early-stage, oncology-focused research and development biotech company and (2) the slower than expected recruitment in its U.S. clinical trials with its resultant delays in delivery of Phase II data, the Company concluded that there was an immediate need to expand its interests to broader areas of life sciences with products that offer a near term revenue stream to support the R&D programs. After examining a number of options in the medical diagnostics arena, the Company ultimately focused on point-of-care diagnostics in human and veterinary medicine through QND (See Note 5). The Company terminated further patient accruals under its U.S. clinical trials, eliminated its U.S. clinical development team, undertook significant cost reductions and through December 31, 2009, limited its focus in drug development to winding down the U.S. clinical trials and supporting the clinical development activities in India in collaboration with Piramal (See Note 12). In January 2010, the Company formally decided to terminate its drug developments activities including the Piramal Agreement (See Note 1617).

As an early stage clinical development company, the Company has not generated any revenues from operations to meet its operating expenses, and has historically financed its operations primarily through issuances of equity securities. The QN Diagnostics business is also in its early stage and may require additional funding to complete the development and launch of its initial products, which both venture partners are mutually obligated to provide.

On October 29, 2009, the Company called for the redemption of certain shares representing 46.2% of the issued and outstanding shares of the Company at a cost of approximately $1,231,000. On November 13, 2009, the holder of such shares filed a complaint in U.S. District Court in Nevada for declaratory and injunctive relief from such redemption (See Note 15). On IfApril ~~completed~~9, 2010, the litigation was settled for an amount of $400,000 payable to the ~~redemption~~plaintiffs ~~would~~and ~~significantly~~withdrawal ~~reduce~~of the ~~cash~~redemption ~~available~~demand ~~for operations~~(See Note 18).

As a result, management believes that given the current economic environment and the continuing need to strengthen the Company’s cash position, there is substantial doubt about its ability to continue as a going concern. The Company continues to actively pursue various funding options, including mergers, equity offerings and debt financing, however, there can be no assurance that it will be successful in its efforts to raise additional capital on a timely basis and on acceptable terms. On January 29, 2010, the Company announced a proposed merger with QuantRx. (See Note 16).

The Company has sufficient capital to continue operations only through July 2010. Management believes that given the current economic environment and the continuing need to strengthen the Company’s cash position, there is substantial doubt about its ability to continue as a going concern regardless of the outcome of the proposed merger. The Company continues to actively pursue various funding options, including the merger with QuantRx, equity offerings and debt financing; however, there can be no assurance that it will be successful in its efforts to successfully complete the merger or raise additional capital on a timely basis and on acceptable terms.

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

· wind down the ~~U.S.~~cancer therapeutic clinical trials and ~~adequately~~drug ~~support its clinical~~ development ~~partner in India~~activities; ~~and~~ · fund its share of future additional development costs of the QND joint venture; and · manage or control working capital requirements by further reducing operating expenses.

~~· manage or control working capital requirements by further reducing operating expenses.~~6

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.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and settlement of obligations in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. The report from the Company’s independent registered public accounting firm states that there is substantial doubt about the Company’s ability to continue as a going concern.

Research and Development Costs:

The Company expenses all research and development costs as incurred. Research and development expenses consist of salaries, share based compensation, preclinical activities, pharmacology, stability testing and other drug development costs, clinical trial expenses including patient and data management, outside manufacturing, and consulting costs for regulatory affairs and other activities. Also included in these costs are in-process research and development costs incurred from a licensing agreement as more fully described in Note 4.

6The Company has adopted the requirements in FASB ASC 730 “Research and Development” on accounting for nonrefundable advance payments for goods or services received for use in future research and development activities. The requirements provide that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed. At March 31, 2010 and September 30, 2009, there were no advance payments for drug development manufacturing costs capitalized as prepaid expenses in the accompanying condensed balance sheet.

Effective October 1, 2008, the Company adopted the requirements in FASB ASC 730 “Research and Development” on accounting for nonrefundable advance payments for goods or services received for use in future research and development activities. The requirements are effective for financial statements issued for fiscal years beginning after December 15, 2007, and provide that nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered or the related services are performed. At December 31, 2009 and September 30, 2009, there were no advance payments for drug development manufacturing costs capitalized as prepaid expenses in the accompanying balance sheet.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Cash and Cash Equivalents:

Cash equivalents are certificates of deposit, U.S. government securities or other highly liquid investments with original maturities of three months or less when purchased. There are no cash equivalents at ~~December~~March 31, ~~2009~~2010, and at September 30, 2009 cash equivalents consisted of certificates of deposit.

Property and Equipment:

Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets, which range from 3 to 5 years. Leasehold improvements are amortized over the shorter of the life of the lease or their useful lives.

Income Taxes:

Deferred income taxes are provided in amounts sufficient to give effect to temporary differences between financial and tax reporting, principally related to accruals, in-process research and development costs, and share-based consideration for license milestones.

Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or noncurrent, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or noncurrent depending on the periods in which the temporary differences are expected to reverse. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Effective October 1, 2007, the Company adopted changes issued by the FASB under ASC 740 “Income Taxes” that requires the recognition in the financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The adoption of the standard had no effect on the Company’s financial position or results of operations.

The Company has adopted FASB ASC 740 “Income Taxes” that requires the recognition in the financial statements the impact of a tax position if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The adoption of the standard had no effect on the Company’s financial position or results of operations.

Earnings Per Common Share:

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed similarly to basic earnings per share except that the denominator is increased to include additional common shares available upon exercise of stock options and warrants using the treasury stock method, except for periods of operating loss for which no common share equivalents are included because their effect would be anti-dilutive. These potentially dilutive securities were not included in the calculation of loss per share for the three and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~2009, and the period ~~from~~ from inception (May 1, 2007) through ~~December~~March 31, ~~2009~~2010, because the Company ~~incurred~~ incurred a loss during such periods and thus their effect would have been anti-dilutive. Accordingly, basic and diluted loss per share are the same for these periods. At ~~December~~ March 31, ~~2009~~2010 and September 30, 2009 potentially dilutive ~~securities~~ securities consisted of outstanding warrants and stock options to acquire an aggregate of 5,125,560 and 4,925,560 shares, respectively.

Fair Value of Financial Instruments:

The Company’s financial instruments consist of cash and warrants to purchase common stock of QuantRx. The carrying amount of these financial instruments approximates fair value. (See Note 6).

Variable Interest Entities/Equity Method of Accounting

The Company has evaluated its material contractual relationships and has concluded that the entities involved in these relationships are not Variable Interest Entities ("VIEs") or, in the case of QND, a 50% joint venture , that the Company is not the primary beneficiary of the VIE. As such, the Company accounts for the activities of QND utilizing the equity method of accounting. The Company recorded a loss from QND representing the Company’s 50% portion of the activities of QND under the equity method of $~~651~~356,~~065~~002, $1,007,067 and $1,471,822 for the three and six months ended ~~December~~ March 31, ~~2009~~ 2010, and ~~$1,115,820~~ from QND’s inception (July 30, 2009) through ~~December~~ March 31, ~~2009~~2010, respectively (See Note 5).

Concentrations of Credit Risk:

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents in interest and non-interest bearing transaction accounts at a Standard & Poor’s AAA rated domestic bank. ~~Under~~Accounts ~~the~~at ~~current~~the ~~Temporary~~institution ~~Liquidity~~are ~~Guarantee~~insured ~~Program~~by of the Federal Deposit Insurance Corporation ~~(“FDIC”), interest bearing transaction accounts are insured~~ up to $250,000 ~~and non-interest bearing transaction accounts are insured without limit~~. As of ~~December~~March 31, ~~2009 and September 30~~2010, ~~2009,~~ the Company had no$759,000 cash ~~balances~~ balance in excess of ~~these~~this ~~limits~~limit. ~~Effective January 1, 2010, interest and non-interest bearing transaction accounts are insured in aggregate only up to $250,000.~~ The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Impairment of Long-Lived Assets:

Long-lived assets, such as property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company’s management assesses the recoverability of long-lived assets by determining whether the depreciation and amortization of long-lived assets over their remaining lives can be recovered through projected undiscounted future cash flows. The amount of long-lived asset impairment, if any, is measured based on fair value and is charged to operations in the period in which long-lived asset impairment is determined by management. At December 31, 2009 and September 30, 2009, the Company’s management believes there is no impairment of its long-lived assets. There can be no assurance, however, that market conditions will not change which could result in impairment of long-lived assets in the future.

Recently Adopted Accounting Pronouncements:

On September 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (ASC) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the financial statements.

OnImpairment ~~October 1, 2008, the Company adopted the fair value measurement and disclosure requirements~~ of ~~ASC~~Long-Lived 820 “Fair Value Measurements and Disclosures”. ASC 820 sets forth a definition of fair value and establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. FASB ASC 820 is generally required to be applied on a prospective basis, except to certain financial instruments accounted for under FASB ASC 815 “Derivatives and Hedging” regarding accounting for derivative instruments and hedging activities, for which the provisions of FASB ASC 820 should be applied retrospectively. On October 10, 2008, the FASB issued further clarification of the application fair value measurements in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of FASB ASC 820 did not have a material effect on the financial statements.Assets:

~~Effective~~Long-lived ~~October 1~~assets, ~~2008,~~such ~~the~~as ~~Company~~property ~~adopted~~and ~~the~~equipment, ~~requirements~~are ofreviewed ~~FASB~~for ~~ASC~~impairment ~~825 “Financial~~whenever ~~Instruments”~~events ~~issued~~or bychanges ~~the FASB~~ in ~~February~~circumstances ~~2007.~~indicate ~~This~~that ~~statement~~the ~~permits entities~~carrying toamount ~~choose~~of toan ~~measure~~asset may ~~many~~not ~~financial~~be ~~instruments~~recoverable. ~~and~~The ~~certain~~Company’s ~~other~~management ~~items at~~assesses ~~fair~~the ~~value.~~recoverability ~~The~~of long-lived ~~objective~~assets isby todetermining ~~improve~~whether ~~financial~~the ~~reporting~~depreciation byand ~~providing~~amortization of ~~entities~~long-lived ~~with~~assets ~~the~~over ~~opportunity~~their toremaining ~~mitigate~~lives ~~volatility~~can inbe ~~reported~~recovered ~~earnings~~through ~~caused~~projected byundiscounted ~~measuring~~future ~~related~~cash ~~assets~~flows. ~~and~~The ~~liabilities~~amount ~~differently~~of ~~without~~long-lived ~~having~~asset toimpairment, ~~apply~~if ~~complex~~any, ~~hedge~~is ~~accounting~~measured ~~provisions.~~based ~~This~~on ~~Statement~~fair value and is ~~expected~~charged to ~~expand~~operations in the period ~~use~~in ofwhich ~~fair~~long-lived ~~value~~asset ~~measurement~~impairment is determined by management. At March 31, 2010 ~~which~~and isSeptember ~~consistent~~30, ~~with~~2009, the Company’s ~~Board~~management ofbelieves there is no ~~Directors~~impairment of its long-~~term~~lived ~~measurement~~assets. ~~objectives~~There ~~for~~can ~~accounting~~be ~~for~~no ~~financial~~assurance, however, that ~~instruments.~~market ~~Adoption~~conditions ofwill ~~the~~not ~~standard~~change ~~had~~which nocould ~~effect~~result onin ~~the~~impairment ~~Company’s~~of ~~financial~~long-lived ~~position~~assets orin ~~results~~the ~~of operation~~future.

In March 2008, the FASB issued amended and expanded disclosure requirements relating to accounting for derivative instruments and hedging activities under ASC 815. The objective of the amended and expanded requirements is to provide users of financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under FASB ASC 815 and its related interpretations, and how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. FASB ASC 815 now requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FASB ASC 815 applies to all derivative financial instruments, including bifurcated derivative instruments (including non-derivative instruments that are designed and qualify as hedging instruments) and related hedged items. The amended and expanded requirements are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. FASB ASC 815 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company adopted the amended and expanded requirements of FASB ASC 815 on January 1, 2009, which did not have any impact on the Company’s financial statement presentation or disclosures.

Effective June 30, 2009, the Company adopted the requirements of FASB ASC 855 “Subsequent Events” which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date, but before financial statements are issued. ASC 855 also sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should provide about events or transactions that occurred after the balance sheet date. FASB ASC 855 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. Subsequent events have been evaluated by the Company through February 16, 2009. See Note 16.

In April 2009, the FASB issued requirements under ASC 825 to disclose the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. It further requires such disclosures in the summarized financial information at interim reporting. On June 15, 2009, the Company adopted these interim disclosure requirements, which did not have any impact on the Company’s financial statement presentation or disclosures.

Recent Accounting Pronouncements:

In June 2009, the FASB amended the requirements relating to the accounting for variable interest entities under ASC 810. The amendments require an enterprise to qualitatively assess the determination of the primary beneficiary (or “consolidator”) of a variable interest entity, (“VIE”), based on whether the entity (1) has the power to direct matters that most significantly impact the activities of the VIE, and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The amendments change the consideration of kick-out rights in determining if an entity is a VIE and requires an ongoing reconsideration of the primary beneficiary. They further amend the events that trigger a reassessment of whether an entity is a VIE. The amendments are effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier adoption is prohibited. The Company does not expect that the adoption of these amendments will have a material impact on its results of operations or financial condition.

Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.

Note 2 - Property and Equipment

Property and equipment consisted of the following at ~~December~~March 31, ~~2009~~2010 and September 30, 2009:

	December 31, 2009 (unaudited)			September 30, 2009
	March 31, 2010 (unaudited)			September 30, 2009
Office equipment	$	33,264		$	33,264
Computer equipment		11,564			11,564
Lab equipment		46,466			46,466
Leasehold Improvements		1,200			1,200
		92,494			92,494
Accumulated depreciation and amortization		(2933,~~667~~624	)		(25,710	)
	$	6258,~~827~~870		$	66,784

Depreciation and amortization expense for the three and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~ 2009 amounted to $3,957, ~~and~~ $4,801, $7,914 and $9,602, respectively.

Note 3 – Reverse Stock Split

On May 9, 2008, the Company completed a one-for-four reverse stock split for common shareholders of record on that same date. As a result of the reverse stock split, the number of common shares outstanding was reduced to 28,394,234 from 113,576,927 shares outstanding immediately prior to the effective date. Common shares authorized were unchanged, resulting in an increase in the number of authorized but unissued shares of common stock to 121,605,766 from 36,423,073. The per unit exercise price of all outstanding options and warrants were increased proportionately and shares issuable under such instruments were decreased proportionately.

109

The reverse stock split did not affect the par value of the Company’s common stock. As a result, the stated capital on the Company’s balance sheet attributable to the outstanding common stock was reduced by $91,002 to $30,334 (one-fourth of its amount immediately preceding the reverse stock split), and the additional paid-in capital account was increased by $91,002. The per share net income or loss and net book value of the outstanding common stock increased because there are fewer shares of the Company’s common stock outstanding.

The Company’s financial statements and footnotes give retroactive effect to this stock split.

Note 4 – Vitae License and Amendment

On May 11, 2007, the Company entered into a license agreement with Vitae Pharmaceuticals, Inc. (“Vitae”), pursuant to which the Company acquired an exclusive, worldwide sublicense (with the right to grant further sublicenses) to certain compounds and technology for all human and veterinary use, in order to research, develop and commercialize the compounds. The indications for the lead compounds are acute myeloid, solid cancers (lung and breast) and chemotherapy-induced neutropenia. The Company paid Vitae an aggregate of $2.15 million, comprised of an upfront license fee of $2.1 million and $50,000 for its inventory of the licensed compounds. As a milestone payment required under the license, the Company also issued to Vitae 1,756,732 shares of common stock, or such number representing 5.66% of the Company’s fully diluted shares, on October 17, 2007, the date it received acceptance of an Investigational New Drug Application (“IND”) by the United States Food and Drug Administration for a licensed compound that had not previously received an IND. The Company will also be required to pay, on Vitae’s behalf, the existing licensors additional milestone payments if it reaches FDA marketing approval for a product containing a licensed compound.

In addition to the aforementioned fees and milestone payments, the Company agreed to pay the original licensor of the compounds and Vitae specified revenue percentages of the Company’s net sales of products based on the licensed technology. The percentages vary from product to product, but when combined may total as much as 12% of the Company’s net sales. The Company must meet certain development milestones under the original license agreements with the existing licensors in order to maintain the rights to the licensed products, including, among others, filing at least one New Drug Application (“NDA”) in the U.S. or another major market for a product by May 10, 2011. The Company also agreed to pay Vitae a specified percentage of any sublicense revenues received from any sublicense of the licensed technology.

On December 31, 2008, the Vitae license was amended to include certain additional intellectual property and compounds potentially useful in dermatological therapeutic applications, and a novation agreement was executed transferring Vitae’s rights and obligations under its license with Allergan to the Company. In consideration of the amendment, the Company paid Vitae $125,000 in cash and issued 50,000 shares of common stock, valued at $2.00 per share.

The acquired assets, which consist of intellectual property and inventory of compounds at the date of acquisition and date of amendment, were determined to be in the research and development stage (the pre-clinical discovery stage). The primary compounds underlying the patents and licenses are to be used in ongoing research and development activities and are not determined to have any alternative future uses. Accordingly, pursuant to the provisions of FASB ASC 730, the Company has charged the costs of the acquired assets to expense.

InDuring ~~January~~the three months ended March 31, 2010, the Company ~~decided~~terminated ~~to terminate~~ all drug development activities, ~~cancel~~ cancelled the Vitae and Allergan licenses, and ~~return~~ returned the licensed intellectual property rights granted thereunder. (See Note 1617).

Note 5 – Joint Venture with QuantRx Biomedical Corporation

On July 30, 2009, the Company and QuantRx Biomedical Corporation (“QuantRx”) entered into agreements to form QN Diagnostics, LLC, a Delaware limited liability company (“QND”). Pursuant to the agreements, QuantRx contributed certain intellectual property and other assets related to its lateral flow strip technology and related lateral flow strip reader technology with a fair value of $5,450,000, and NuRx contributed $5,000,000 in cash to QND. Following the respective contributions by NuRx and QuantRx to the joint venture, NuRx and QuantRx each own a 50% interest in QND. QND is managed by a Board of Managers consisting of members from both NuRx and QuantRx and an independent member mutually agreed by the members. The purpose of the joint venture is to develop and commercialize products incorporating the lateral flow strip technology and related lateral flow strip readers.

Under the terms of the agreements, QND made a $2,000,000 cash distribution to QuantRx. QuantRx is committed to further capital contributions aggregating $1.55 million, comprised of certain milestone payments under a technology purchase agreement in QuantRx common stock (fair value of $750,000); transfer of fixed assets with a fair value of $100,000 to QND at time requested by the QND Board of Managers; and a $700,000 sustaining capital contribution as required to sustain QND operations. If necessary, subsequent sustaining capital contributions will be made by QuantRx and NuRx on an equal basis.

QuantRx and QND also entered into a one year Development and Services Agreement, pursuant to which QND shall pay a monthly fee consisting of a base of $250,000 plus approved overages, not to exceed $3.7 million to QuantRx in exchange for QuantRx providing all services related to the development, regulatory approval and commercialization of lateral flow products. For the ~~periods~~three ~~October~~and 1,six ~~2009~~months ~~through~~ended ~~December~~March 31, ~~2009~~2010, and for the period July 30, 2009 (inception) through ~~December~~March 31, ~~2009~~ 2010, an aggregate of $575,000, $1,~~343~~911,~~834~~936 and $2,~~027~~595,~~822~~924, respectively, was paid by QND to QuantRx pursuant to this agreement.

In connection with ~~these~~the ~~transactions~~formation of the Joint Venture on July 30, 2009, NuRx received two warrants to purchase 2,000,000 shares of QuantRx common stock each, for an aggregate of 4,000,000 shares of QuantRx common stock. The warrants are separately stated as “Other Investments” (see Note 6).

Summarized unaudited financial information of QND for the three months ~~ended~~and ~~December~~six month ended March 31, 2010, and for the period July 30, 2009 (inception) through March 31, 2010 is as follows:

· revenues and gross profit: $75,216; net loss: $1,302,130. The Company recorded a loss from QND under the equity method of $651,065, representing the Company’s 50% portion of QND’s net loss. There were no intercompany profits to eliminate.

	Three months Ended March 31, 2010			Six months Ended March 31, 2010			July 30, 2009 (inception) through March 31, 2010
Revenue and gross profit	$	75,000		$	150,216		$	200,216
Operating expenses		787,525			2,166,876			3,149,518
50% of net loss under the equity method	$	(356,002	)	$	(1,007,067	)	$	(1,471,822	)

·There were ~~total~~no ~~assets~~intercompany ofprofits ~~approximately~~to $6,315,077 consisting of $701,662 in cash, $25,000 in contract receivables, $337,160 in prepaid expenses, $8,024 of fixed assets (net of $699 in accumulated depreciation) and $5,243,105 in intangible assets (net of $206,985 in accumulated amortization)eliminate. ~~Total payables approximated $96,717 at December 31, 2009.~~

~~The~~Summarized ~~"Investment~~balance insheets ~~Joint~~at ~~Venture”~~March ~~presented~~31, on2010 ~~the~~and ~~balance~~September ~~sheet at December 31~~30, 2009 ~~reflects~~are ~~the following~~as follows:

Cash investment	$	5,000,000
	March 31, 2010 (unaudited)			September 30, 2009
Fair value of warrants in QuantRx received in connection with formation of QND		(1,000,000	)
Cash	$	127,123		$	2,061,060
Equity method losses:
Related party receivable, QuantRx		240,960			250,000
July 30, 2009 (inception) through September 30, 2009		(464,755	)
Intangible assets, net of amortization		5,118,824			5,367,206
October 1, 2009 through December 31, 2009		(651,065	)
Total assets		5,571,573			7,710,768
	$	2,884,180
Accounts payable – related party		52,717			190,278
Total liabilities	$	65,217		$	190,278

~~As of~~The ~~December~~"Investment ~~31, 2009, $52,717 included~~ in ~~prepaid~~Joint ~~expenses~~Venture” ~~and~~presented other current assets was due from QND for reimbursement of consulting fees paid to a former director and compensation and related payroll costs related to the employment of a QND executive for which the Company acted as nominal employer on ~~behalf of QND under~~ the ~~employment~~balance ~~agreement~~sheet ~~with~~at ~~the~~March ~~executive. Under this agreement~~31, ~~the Company~~2010 isreflects ~~obligated to advance compensation and related payroll costs for~~ the executive through December 31, 2009, and QND is obligated to reimburse the Company for these advances upon receipt by QND of first cash flow from product sales. The executive resigned on November 6, 2009.following:

Cash investment	$	5,000,000
Fair value of warrants in QuantRx received in connection with formation of QND		(1,000,000	)
Equity method losses:
July 30, 2009 (inception) through September 30, 2009		(464,755	)
October 1, 2009 through December 31, 2009		(651,065	)
January 1, 2010 through March 31, 2010		(356,002	)
	$	2,528,178

Pursuant to the LLC Operating Agreement, NuRx has the right, prior to the achievement of two specified milestones by QND and subject in certain circumstances to prior approval by QuantRx, to withdraw up to $1,500,000 of its capital contribution from the joint venture. If withdrawn, the funds must be returned to the joint venture within thirty days of the achievement of the respective milestone. The first milestone was achieved in November, 2009 and $1,000,000 was released into the QND operating account. As a result, NuRx may request withdrawal of up to $500,000 prior to achievement of the second milestone. No withdrawals have been requested by NuRx. The second milestone date was March 31, 2010 which was not achieved. QuantRx is now in the sixty day cure period provided under the LLC Agreement. Failure by QuantRx to achieve the milestone within the cure period will be a breach of the LLC Agreement and results in the loss of a Manager with voting control of the Joint Venture Board of Managers shifting to NuRx.

As of March 31, 2010, $52,717 is included in prepaid expenses and other current assets, and was due from QND for reimbursement of consulting fees paid to a former director and compensation and related payroll costs related to the employment of a QND executive for which the Company acted as nominal employer on behalf of QND under the employment agreement with the executive. Under this agreement, the Company is obligated to advance compensation and related payroll costs for the executive through December 31, 2009, and QND is obligated to reimburse the Company for these advances upon receipt by QND of first cash flow from product sales. The executive resigned on November 6, 2009.

Note 6– Other Investments

The following table summarizes the Company’s long-term investments classified as available-for-sale at ~~December~~March 31, ~~2009~~2010 and September 30, 2009:

Warrants to purchase QuantRx Biomedical Corporation common shares	~~December~~March 31, ~~2009~~2010 (unaudited)			September 30, 2009
Cost	$	1,000,000		$	1,000,000
Gross unrealized gains		—			—
Unrealized losses		(382,000	)		—
Impairment loss		(467,000	)		—
Fair value	$	~~618~~533,000		$	1,000,000

The investments consist of two warrants to purchase 2,000,000 shares of QuantRx common stock each, for an aggregate of 4,000,000 shares of QuantRx common stock, received in connection with the formation of QND on July 30, 2009. (See Note 5). The warrants expire on July 30, 2014 and have exercise prices of $0.50 and $1.25, respectively.

The fair value of the warrants at December 31, 2009 and September 30, 2009 using the Black-Sholes pricing model was $618,000 and $1,000,000 using current stock price of $0.38 and $0.50 per share, respectively, and the following assumptions:12

	December 31, 2009		September 30, 2009
Expected Volatility	70	%	70	%
Expected Dividends	—		—
Expected term, in years	4.58		5.0
Risk-free rate	2.48	%	3.24	%

The fair value of the warrants at March 31, 2010 and September 30, 2009 using the Black-Sholes pricing model was $533,000 and $1,000,000 using a stock price of $0.36 and $0.50 per share, respectively, and the following assumptions:

	March 31, 2010			September 30, 2009
Expected Volatility		70	%		70	%
Expected Dividends		—			—
Expected term, in years		4.33			5.0
Risk-free rate		2.23	%		3.24	%

FASB ASC 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 (unadjusted) in active markets for an identical asset of liability that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active-exchange traded securities and exchange-based derivatives.

Level 2: Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange based derivatives, mutual funds, and fair-value hedges.

Level 3: Unobservable inputs for the assets or liability are only used when there is little, if any, market activity for the asset or liability at the measurement date. Financials assets and liabilities utilizing level 3 inputs include infrequently traded, non-exchange-based derivatives and commingled investment funds and are measured using present value pricing models.

13The warrants to purchase shares of QuantRx common stock are measured and recorded at fair value on the Company’s balance sheets using Level 2. As a result of fair value measurement, the Company determined that the fair value of the QuantRx warrants no longer approximated the original valuation and recorded an impairment loss on investment in warrants of $85,000 and $467,000, respectively during the three and six months ended March 31, 2010. Subsequent to March 31, 2010, there has been a further decline in the fair value of the QuantRx warrants resulting in an additional impairment loss of approximately $170,000.

The warrants to purchase shares of QuantRx common stock are measured and recorded at fair value on the Company’s balance sheets using Level 2. As a result of fair value measurement, the Company determined that the fair value of the QND warrants no longer approximated the original valuation and recorded an impairment loss on investment in warrants of $382,000 during the three months ended December 31, 2009.

If the proposed merger with QuantRx is consummated the warrants will be cancelled (See Note 16).

Note 7 - Related Party Transactions

On May 1, 2007, the Company entered into a consulting agreement with an affiliate to provide consulting services relating to strategic planning, investor relations and corporate governance for a monthly fee of $30,000, plus reimbursement of expenses, for a six-month period ended on October 31, 2007. The consulting agreement provided for automatic extensions at the end of each six-month term, unless terminated by either party at least 30 days prior to the end of such term. The agreement was terminated on October 30, 2008. For the three ~~months~~and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~2009, and from inception (May 1, 2007) through ~~December~~March 31, ~~2009~~2010, the Company incurred costs of $0, $0, $0, $30,000, and $540,000, respectively, pursuant to this consulting agreement.

On November 5, 2007, the Company entered into a five year consulting agreement effective May 31, 2007 with a company wholly owned by an affiliate to provide the technical services of that affiliate along with other employees and resources of the consulting company. This contract was changed to “at-will” as discussed in Note 13. The consulting agreement superseded an existing five year employment agreement with that affiliate. For the three months ended December 31, 2009 and 2008, and from inception (May 1, 2007) through December 31, 2009, the Company incurred costs of $0, $52,500, and $378,910, respectively under the consulting agreement (See Notes 13 and 15).

~~For~~On November 5, 2007, the Company entered into a five year consulting agreement effective May 31, 2007 with a company wholly owned by an affiliate to provide the technical services of that affiliate along with other employees and resources of the consulting company. This contract was changed to “at-will” as discussed in Note 13. The consulting agreement superseded an existing five year employment agreement with that affiliate. For the three months and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~2009, and ~~for the period~~ from inception (May 1, 2007) through ~~December~~ March 31, ~~2009~~2010, the Company incurred ~~and~~costs ~~paid an aggregate~~ of $0, $052,500, ~~and~~ $320,~~200~~ ~~respectively~~$105,000 ~~for advisory~~ and ~~corporate board meeting management~~$378, ~~website and graphics design services provided by a company~~910, ~~100%~~respectively ~~owned~~under by the ~~spouse~~consulting ofagreement a(See ~~stockholder~~Note 13).

For the three and six months ended March 31, 2010 and 2009, and for the period from inception (May 1, 2007) through March 31, 2010, the Company incurred and paid an aggregate of $0, $0, $0, $0 and $32,200 respectively, for advisory and corporate board meeting management, website and graphics design services provided by a company 100% owned by the chief executive officer.

Note 8 - Stock Options and Warrants

Options

In 2007, the Company adopted a stock compensation plan, the 2007 Stock Compensation Plan (the “Plan”), pursuant to which it is authorized to grant options, restricted stock and stock appreciation rights to purchase up to 3,750,000 shares of common stock to the Company’s employees, officers, directors, consultants and advisors.

The 2007 Stock Plan is administered by the Company’s Board of Directors or a committee appointed by the Board, which determines the persons to whom awards will be granted, the type of award to be granted, the number of awards to be granted and the specific terms of each grant, including the vesting thereof, subject to the provisions of the Plan.

All options issued pursuant to the Plan have an exercise price that is greater than or equal to the fair market value of the Company’s common stock on the date of grant.

On March 6, 2009, in order to provide continued economic incentive to option holders, most of whose options were issued at prices that were “out of the money”, the Board of Directors authorized a re-pricing of all 1,406,000 shares under stock option grants previously issued through that date to an exercise price of $0.45 per share from the post reverse-split adjusted $4.00 exercise price at date of grant. The incremental compensation cost computed using the Black-Scholes option pricing model was $242,000. The amount of the incremental compensation cost attributable to options vested as of the date of re-pricing was $100,000 which was charged to expense at that date. The amount of incremental compensation cost attributable to option grants vesting after the date of re-pricing was $142,000 which was adjusted to $121,000 during the ~~three~~six months ended ~~December~~March 31, ~~2009~~ 2010 due to termination of employees. An amount of $1018,000 was charged to ~~expense~~ expense during the ~~three~~six months ended ~~December~~March 31, ~~2009~~ 2010. Approximately $7667,000 remains ~~remain~~ to be recognized over the remaining vesting period of the underlying grants. There were no other changes to the terms of any stock option grants (See Note 9).

Restricted shares of 12,500 have been issued under the Plan.

A summary of option activity under the Plan for the ~~three~~six months ended ~~December~~March 31, ~~2009 as~~2010 is as follows:

	Shares			Weighted Average Exercise Price
Stock options outstanding, October 1, 2009		1,838,060		$	0.45
Granted		500,000		$	0.45
Exercised		—		$	—
Forfeited		(300,000	)	$	0.45
Total options outstanding, December 31, 2009		2,038,060		$	0.45
Total options outstanding, March 31, 2010		2,038,060		$	0.45
Options exercisable at December 31, 2009		921,171		$	0.45
Options exercisable at March 31, 2010		1,006,263		$	0.45
Shares available for future grant under Plan		1,699,440

~~The weighted average remaining life of outstanding options at December 31, 2009 was 36 months. The intrinsic value is not greater than the grant price.~~14

The weighted average remaining life of outstanding options at March 31, 2010 was 33 months. The intrinsic value is not greater than the grant price.

Warrants

A summary of ~~warrants~~warrant ~~issued~~activity ~~during~~for the ~~years~~six months ended ~~September~~March 3031, ~~2009~~2010 ~~and 2008~~ is as follows:

	Shares		Weighted Average Exercise Price
Warrants outstanding, October 1, 2009		3,087,500	$	4.01
Granted		—	$	—
Exercised		—	$	—
Forfeited		—	$	—
Warrants outstanding, December 31, 2009		3,087,500	$	4.01
Warrants outstanding, March 31, 2010		3,087,500	$	4.01
Warrants exercisable at December 31, 2009		3,087,500	$	4.01
Warrants exercisable at March 31, 2010		3,087,500	$	4.01

The weighted average remaining life at ~~December~~March 31, ~~2009~~2010 was 4138 months. The ~~intrinsic~~ intrinsic value is not greater than the grant price.

Note 9 - Share Based Payments

Pursuant to the provisions of FASB ASC 718 “Compensation – Stock Compensation”, the cost resulting from all share-based payment transactions (including, but not limited to grants of employee options, and warrants to purchase the Company’s common stock) shall be recognized in the statement of operations based on their fair values, unless related to capital financing.

On October 29, 2009, the Company granted options to purchase 500,000 shares of common stock to the Chief Executive Officer at an exercise price of $0.45 per share. The options vest ratably over the 36 months following the date of grant. The options have a five year term. The fair value of the option awards estimated on the date of grant using the Black-Scholes option pricing model was $101,000 using the following assumptions:

	Assumptions
Expected Volatility		75	%
Expected Dividends		—
Expected term, in years		3.5
Risk-free rate		1.75	%

The option value is amortized to expense ratably over the 36 month period following the grant date. Of the total, $58,~~611~~417 and $14,028 was expensed during the three and six months ended ~~December~~March 31, ~~2009~~2010.

Note 10 - Lease Commitments

The Company entered into a three year lease of approximately 2,960 sq. ft. for premises located in Irvine, California in which it conducts its operations. The lease commenced July 15, 2007 and ends on July 31, 2010. The base rent is $4,096 per month through July 31, 2008, $4,243 per month through July 31, 2009, and $4,389 per month thereafter. In addition, the Company entered into a one year lease of approximately 100 sq. ft. in Nevada for sales and recruiting activities in connection with the QN Diagnostics point-of-care diagnostic devices directed to the law enforcement and hospitality market segments. The annual lease of $2,500 was prepaid in full in September 2009. Rent expense for the three ~~months~~and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~2009 was $1718,~~727~~350, 16,555, $36,076 and $1935,~~335~~891, respectively. Minimum ~~annual~~ payments remaining under operating leases are approximately $4618,~~100~~600 through July 31, 2010.

Note 11 - Income Taxes

Deferred income taxes are provided for the differences between the basis of assets and liabilities for financial reporting and income tax purposes. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company recorded a deferred income tax asset for the tax effect of net operating loss carry-forwards, in-process research and development, share-based milestone payments and other temporary differences, aggregating approximately $67,~~978~~526,000 and $6,274,000, ~~respectively~~ at ~~December~~ March 31, ~~2009~~2010 and September 30, 2009, respectively. In recognition of the uncertainty regarding ~~the~~ the ultimate amount of income tax benefits to be realized, the Company has ~~recorded~~ recorded a full valuation allowance at ~~December~~March 31, ~~2009~~2010 and September 30, 2009.

The Company has net Federal and California losses for tax purposes totaling approximately $1112,~~295~~410,000 and $1112,~~220~~335,000, respectively, which may be applied against future taxable income and will expire in 2029 and 2019. The California net operating loss carry-forward has been suspended for two years. Accordingly, there is no tax expense for the three and six months ended ~~December~~March 31, ~~2009~~2010 and ~~2008~~ 2009, and the period inception (May 1, 2007) through ~~December~~March 31, ~~2009.~~ 2010. The potential tax benefits arising from these losses have not been recorded in the financial statements. The Company evaluates its valuation ~~allowance~~ allowance requirements on an annual basis based on projected future operations. ~~When~~ When circumstances change and cause a change in management’s judgment about the realizability of deferred tax assets, the impact of the change on the valuation allowance is reflected in current operations.

Significant components of the Company’s net deferred tax assets at ~~December~~March 31, ~~2009~~2010 and September 30, 2009 are as follows:

	December 31, 2009			September 30, 2009
	March 31, 2010 (unaudited)			September 30, 2009
Tax loss carryforwards	$	4,~~314~~751,000		$	3,692,000
Share based compensation		~~391~~419,000			361,000
In-Process R&D/share based milestone payments		2,~~219~~262,000			2,177,000
Depreciation/Amortization/Gain/Loss		4470,000			17,000
Vacation accrual		1024,000			27,000
Valuation allowance		(67,~~978~~526,000	)		(6,274,000	)
	$	—		$	—

The provision for income taxes differs from the amount computed at federal statutory rates as follows:

	Three months ended December 31, 2009			Three months ended December 31, 2008			May 1, 2007 (inception) through December 31, 2009
	Six months ended March 31, 2010			Six months ended March 31, 2009			May 1, 2007 (inception) through March 31, 2010
Provision for income taxes at 34% statutory rate	$	(~~600~~1,068,000	)	$	(~~440~~876,000	)		(6,~~000~~468,000	)
State taxes, net of federal benefit		(~~103~~183,000	)		(76150,000	)		(1,~~031~~112,000	)
Change in valuation allowance		~~704~~1,252,000			~~498~~991,000			67,~~978~~526,000
Other		(1,000	)		1835,000			5354,000
	$	—		$	—		$	—

The Company has not recorded any uncertain tax positions under FASB ASC 740 as of ~~December~~March 31, ~~2009~~2010 or September 30, 2009.

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of December 31, 2009 and September 30, 2009, the Company has no accrued interest and penalties related to uncertain tax positions.16

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2010 and September 30, 2009, the Company has no accrued interest and penalties related to uncertain tax positions.

The Company is subject to taxation in the U.S. and California. The tax years 2006 to 2008 remain open to examination by the major taxing jurisdictions to which the Company is subject. The Company currently is not under examination by any tax authority.

Note 12 – Piramal Agreement

On March 6, 2009, the Company entered into a development and commercialization agreement with Piramal Life Sciences, Limited (“Piramal”) with respect to compound NRX 5183 in India (the “Piramal Agreement”). Pursuant to the Piramal Agreement, Piramal has the exclusive right to develop, manufacture and exploit the NRX 5183 technology within India at its sole expense. The Company was to obtain the clinical data for use in registration in countries outside of India. Piramal was also to reimburse the Company for development expenses incurred with regard to clinical trials in India up to $100,000. This reimbursement was recorded as a receivable with a corresponding reduction of research and development expenses at September 30, 2009. At December 31, 2009, this receivable had not been paid and determined to be uncollectable. Accordingly, the Company recorded a bad debt expense equal to the full amount which has been charged to general and administrative expense during the period. Effective January 2010, the company ~~has formally decided to~~ ~~terminate~~terminated its drug development activities, and underlying licenses ~~this~~and on February 10, 2010 it terminated the co-development agreement with Piramal effective April 10, 2010. (See Note 1617).

Note 13 – Executive Compensation

On April 15, 2009, the Company entered into amendments to the Consulting Agreement with SOQ, Inc. (a company owned by Dr. Parkash Gill, then a Director of the Company and Chairman of the Scientific Advisory Board) and the Employment Agreements with each of Dr. Harin Padma-Nathan, the Company’s Chief Executive Officer, and Dr. Rosh Chandraratna, the Company’s Chief Scientific Officer, to change the term of each agreement from five years to “at-will”, allowing either party to terminate the agreements immediately upon written notice to the other party, with or without “Cause” or “Good Reason”. The agreements were also amended to eliminate the automatic renewal of the agreement each year for additional one-year periods.

Dr. Gill resigned from the Board of Directors and the Scientific Advisory Board of the Company effective June 13, 2009 and the Consulting Agreement with SOQ, Inc. was cancelled.

On October 3, 2009, the Company terminated the at-will employment contract of Dr. Chandraratna and simultaneously entered into a consulting agreement with him to continue to provide the services of Chief Scientific Officer on an hourly basis terminable upon ten days written notice.

Note 14 – Stockholder Rights Plan

Effective June 1, 2009, the Company’s Board of Directors adopted a stockholder rights plan (the “Rights Plan”). Pursuant to the Rights Plan, the Board of Directors declared a dividend distribution of one right for each share of common stock. Each right entitles the holder to purchase from the Company one one-hundreth of a share of Series C Preferred Stock at an initial exercise price of $5 per share. The Rights Plan is intended to assure that all of the Company’s stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to protect stockholders’ interests in the event the Company is confronted with partial tender offers or other coercive or unfair takeover tactics. Rights become exercisable upon the earlier of (i) ten days following the acquisition by a person or group of 20% or more of the Company’s outstanding common stock, and (ii) ten business days after the announcement of a tender offer or exchange offer to acquire 20% or more of the outstanding common stock. The continuing directors (defined as the directors who are not affiliated or associated with an acquiring person) may vote to extend these timeframes in their discretion. If such a person or group acquires 20% or more of the common stock, each right (other than such person’s or group’s rights, which will become void) will entitle the holder to purchase at an exercise price equal to 50% of the then current trading price of the Company’s common stock. In the alternative, the Board of Directors may authorize issuance of one share of fully paid common stock for each right. If not redeemed, the rights will expire on June 1, 2014. These rights ~~have~~were ~~become~~ exercisable at ~~December~~March 31, ~~2009~~2010, but the exercise (distribution date) has been extended.

On April 9, 2010, the Rights Plan was modified as a result of the settlement of shareholder litigation with DYVA Management Ltd. and its affiliates (“DYVA”) (See Note 18).

Note 15 – Redemption of Control Shares under Nevada Control Shares Act

On October 29, 2009, pursuant to the authority provided in the Bylaws and pursuant to Nevada Control Share Act (the “Nevada Act”), the Company called for redemption of the entire 10,832,876 common share holding of DYVA ~~Management Ltd. and its affiliates (“DYVA”)~~, which such shares represent 46.2% of the total issued and outstanding shares of the Company. Under the Nevada Act, the Company is entitled to call for redemption of DYVA’s shares at the average price paid by DYVA for its shares, which has been reported by DYVA to be for an aggregate of 833,298 Euros ($1,231,000).

On November 13, 2009, DYVA filed a complaint in the United States District Court, District of Nevada seeking declaratory and injunctive relief to halt the proposed redemption. In addition, the complaint seeks attorney’s fees and costs to the extent permitted by law and any further and other relief the Court may deem proper. The Company filed its response on January 22, 2010 seeking a Motion for Summary Judgment. On February 8, 2010, DYVA filed an Opposition to Motion for Summary Judgment.

~~Note~~On 16April 9, –2010, ~~Subsequent~~the shareholder litigation with DYVA was settled and the redemption ~~Events~~withdrawn. (See Note 18).

Note 16 – Proposed Merger with QuantRx Biomedical Corporation

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

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

The parties have made customary representations, warranties and covenants in the Merger Agreement, including among other things, covenants (a) to conduct their respective businesses in the ordinary course between the date of the Merger Agreement and the Effective Time; (b) that QuantRx will prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-4 (the “Registration Statement”) in which the Company’s proxy statement will be included as a prospectus; (c) that the Company will solicit proxies and cause a special meeting of the stockholders of the Company to be held to approve and adopt the Merger Agreement and the transactions contemplated thereby; (d) subject to certain exceptions which permit the Company’s board of directors (the “Board”) to withdraw its recommendation if failure to do so would be inconsistent with its fiduciary obligations, that the Board will recommend that the stockholders of the Company approve and adopt the Merger Agreement; (e) that the Company will not (i) solicit proposals relating to alternative transactions or (ii) subject to certain exceptions which permit the Board to discuss certain unsolicited proposals for alternative transactions received from third parties if failure to do so would be inconsistent with its fiduciary obligations, enter into discussions concerning, or provide information in connection with, alternative transactions; and (f) that QuantRx will honor the terms of the existing indemnification obligations of the Company. Additionally, QuantRx has agreed to take reasonable actions to (A) change its name to “QuantRx Diagnostics Corp.,” (B) qualify for listing on the NYSE Amex or the Nasdaq Global Market, (C) increase the number of shares under its equity incentive plans such that shares reserved for issuance under such plans represent 15% of the capital stock of QuantRx post-Merger on a fully diluted basis, (D) maintain a board of directors consisting of five directors, which shall consist of three directors to be designated by QuantRx and two directors to be designated by the Company, (E) designate an executive management team which shall consist of Mr. Walter Witoshkin, Harin Padma-Nathan, M.D. and Sasha Afanassiev, with the exact officer positions of such individuals to be determined prior to the Effective Time, and (F) terminate the QN Diagnostics, LLC Joint Venture, and to wind up and dissolve the affairs of the Joint Venture in a tax efficient manner.

The consummation of the Merger is subject to certain customary conditions, including, without limitation, (a) the approval of the Merger Agreement and the transactions contemplated thereunder by the Company’s stockholders; (b) the absence of any legal prohibitions on the closing of the Merger; (c) subject to certain exceptions, the continued accuracy of the Company’s and QuantRx’s representations and warranties as of the Effective Time; (d) the absence of any circumstance or event since the date of the Merger Agreement that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on either the Company (in the case of QuantRx’s obligation to close) or QuantRx (in the case of the Company’s obligation to close); (e) the effectiveness of the Registration Statement; (f) obtaining required governmental consents; and (g) evidence reasonably satisfactory to QuantRx that, immediately prior to the closing, the Company has cash or cash equivalents equal to or greater than $1 million.

Under the Merger Agreement, each of the Company and QuantRx has certain rights to terminate the Merger Agreement and the Merger, including (a) by either party, if the Merger has not been consummated on or prior to June 30, 2010, subject to certain exceptions; (b) by either party, if the required stockholder approval is not obtained; (c) by QuantRx, if the Board changes its recommendation regarding the Merger Agreement and the Merger; and (d) by the Company, if the Board validly accepts a superior proposal. If the Merger Agreement is terminated (i) by the Company prior to approval by its stockholders because the Board validly accepts a superior proposal, (ii) by QuantRx because the Board makes an adverse recommendation to the Company’s stockholders regarding approval of the Merger or the Merger Agreement, or (iii) by the Company or QuantRx (A) due to failure of the Company’s stockholders to approve the Merger or the Merger Agreement, (B) a competing transaction is publicly announced before the Company’s stockholders approve the Merger and (C) the Company enters into an agreement providing for its acquisition by a third party within 12 months after the date the Merger Agreement was terminated, the Company shall pay QuantRx a cash break-up fee of $260,000, minus certain expenses paid by the Company to QuantRx pursuant to the Merger Agreement.

Note 17 - Termination of all Cancer Therapeutic Clinical Trials and Drug Development Activities

Effective January 2010, the Company has focused solely on development of the point-of-care lateral flow diagnostic products for human and veterinary applications through QND and terminated all of its cancer therapeutic clinical trials and drug development activities. In February, 2010, notice of termination of the Vitae and Allergan licenses were delivered to the licensors along with termination of the co-development agreement with Piramal. There are no penalties as a result of these terminations.

In connection with these activities, on March 3, 2010 the Company entered into an agreement with Io Therapeutics, LLC (a company wholly owned by a shareholder and former Chief Scientific Officer of the Company) to assume the record keeping and regulatory reporting requirements for all clinical trials formerly conducted by the Company and to transfer its clinical trial data, materials, compounds and records in exchange for the assumption by the transferee of certain de minimus liabilities with third party vendors. The agreement is subject to certain closing conditions, including the formal closing of all U.S. clinical trial sites and written notification to the FDA.

~~Termination~~Note of18 ~~all~~– ~~Cancer~~Subsequent ~~Therapeutic Clinical Trials and Drug Development Activities~~Events

~~Effective~~Settlement ~~January 2010, the Company has focused solely on development~~ of ~~the point-of-care~~Shareholder lateral flow diagnostic products for human and veterinary applications through QND and terminated all of its cancer therapeutic clinical trials and drug development activities, including termination the underlying licenses with Vitae and Allergan and terminated the co-development agreement with Piramal. There are no penalties as a result of these terminations.Litigation

On April 9, 2010, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with DYVA, pursuant to which DYVA agreed to dismiss its lawsuit against the Company filed on November 13, 2009 in the United States District Court, District of Nevada for declaratory and injunctive relief to halt the Company’s redemption of DYVA’s shares of Company common stock (the “Action”). Under the Settlement Agreement, the parties also agreed to a mutual release relating to all claims arising from the Action. In addition, the Company agreed to (i) pay DYVA an aggregate amount of $400,000, and (ii) upon dismissal of the Action, amend the Stockholder Rights Agreement, dated as of June 1, 2009, as amended, by and between the Company and Continental Stock Transfer & Trust Company (the “Rights Agreement”), to exempt DYVA from the Rights Agreement, provided DYVA does not acquire additional shares of Company common stock prior to April 2012. See Note 14. DYVA also entered into a voting agreement to approve the proposed Merger Agreement, dated January 29, 2010, by and among the Company, QuantRx Biomedical Corporation and NP Acquisition Corporation, a wholly-owned subsidiary of QuantRx Biomedical Corporation (See Note 16). The settlement amount of $400,000 is included in accounts payable and accrued expenses at March 31, 2010.

The Company has evaluated subsequent events through May 14, 2010, the date which the condensed financial statements were issued.

ITEM 2.

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

Management’s Discussion and Analysis or Plan of Operation.

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

Forward Looking and Cautionary Statements

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

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

Overview

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

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

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

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

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

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

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

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

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

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

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

We currently have no source of revenue and have incurred significant losses to date. We have incurred net losses of approximately $1718,~~518~~896,000 for the cumulative period from inception (May 1, 2007) through ~~December~~March 31, ~~2009~~2010. Our losses have resulted principally from costs associated with inbound technology licensing, clinical development expenses, 50% share of losses for our QND joint venture, general and administrative activities, and costs related to our financing in May 2007. As a result of development and commercialization activities of the lateral flow products through QND, expenditures relating to the termination of the cancer therapeutic clinical trial and drug development activities, costs related to the proposed merger with QuantRx and continuing general and administrative costs, we expect to incur additional operating losses for the foreseeable future.

Going Concern

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

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

fund its share of future additional development costs of the QND joint venture; and

further reduce continuing operating costs and merger related expenses.

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

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

Private Placements

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

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

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

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

Critical Accounting Estimates

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

Development Stage Enterprise

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

Research and Development Costs

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

Share-Based Compensation

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

In-Process Research and Development

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

Valuation of Warrants

An impairment in the value of other investments in the amount of $~~382~~85,000 and $467,000 was expensed in the Statement of Operations during the three and six months ended ~~December~~March 31, ~~2009~~2010. This decline in fair market value was attributable to a sustained decline in the fair value of the underlying common stock in QuantRx Biomedical Corporation to $0.38 36 per share from $0.50 per share. Subsequent to March 31, 2010, there has been a further decline in the fair market value of the QuantRX warrants resulting in an additional impairment loss of approximately $170,000.

Results of Operations

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

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

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

Three Months ended ~~December~~ March 31, 2010 ~~2009~~ Compared to Three Months Ended ~~December~~March 31, ~~2008~~2009

General and Administrative Expenses.

General and administrative (“G&A”) expenses were approximately $~~626~~472,000 during the three months ended ~~December~~March 31, ~~2009~~2010, as compared to approximately $~~440~~497,000 incurred during the three months ended ~~December~~March 31, ~~2008~~2009 or ana ~~increase~~decrease of approximately $~~186~~25,000 or 5%. General and administrative expenses consist primarily of employee compensation and legal costs involved in our regulatory filings, in connection with general corporate matters, litigation, proposed merger and other contracting matters. G&A costs also include insurance, payroll costs and benefits for all employees, and share-based compensation expense related to option issuances to Board members, employees and consultants and bad debt expense. The approximately $~~186~~25,000 net ~~increase~~decrease in total G&A expenses, resulted from an aggregate of approximately $~~237~~129,000 cost increases, offset by approximately $51154,000 in cost reductions. The approximately $~~237~~129,000 in cost increases consisted primarily of ~~bad debt expense related to the write down of the other receivable for reimbursable expenses pursuant to the Piramal Agreement in the amount of $100,000,~~ approximately $4682,000 in legal fees related to ~~contracting, related~~merger ~~regulatory filings~~ and litigation matters, and $6447,000 salaries ~~reflecting~~ reflecting increased compensation to the CEO, and change in CFO’s time commitment to full-time effective April 2009~~, and $27,000 in travel expenses primarily related to activities of QN Diagnostics~~. These cost increases were offset by by approximately $51154,000 in expense reductions consisting of reductions of approximately $1892,000 in ~~director’s~~share-based compensation, ~~(independent directors’ compensation other than hourly compensation to the Executive Chairman~~$27,000 ~~and consulting fees paid to a former director for services~~ in ~~connection with QN~~director’s ~~Diagnostics~~compensation, ~~LLC activities having been eliminated effective October 1, 2009),~~ $3013,000 ~~from~~in ~~the~~accounting ~~termination of the consulting contract with an affiliate in October~~fees, ~~2008,~~ and $322,000 in other net cost reductions.

Research and Clinical Development Expenses.

Research and clinical development (“R&D”) expenses were approximately $~~106~~65,000 during the three months ended ~~December~~March 31, ~~2009~~2010, as compared to approximately $~~877~~798,000 incurred during the three months ended ~~December~~March 31, ~~2008~~2009 or a decrease of approximately $~~771~~733,000 or 92%.

R&D expenses for the three months ended ~~December~~March 31, ~~2009~~2010 consist primarily of costs related to ~~monitoring~~closing the U.S. ~~Clinical~~clinical trials for which patient accruals had ~~been~~ been suspended in the quarter ended September 30, 2009.

R&D expenses for ~~and~~ the three months ended ~~December~~March 31, ~~2008~~2009 consist primarily of ~~costs~~ costs involved in the following activities:

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

Regulatory affairs activities including:

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

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

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

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

Patient and data management activities for active clinical trials; and

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

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

Our R&D expenses for the three months ended March 31, 2010 as compared to the three months ended March 31, 2009 were related to the following activities:

	Three Months Ended March 31, (in thousands)
	2010		2009
Direct clinical trials costs	$	40	$	185
Drug development and manufacturing		2		307
R&D compensation, including share based compensation		—		203
Other R&D costs		23		103
Total	$	65	$	798

Direct clinical trial costs decreased by approximately $145,000 compared to the three months ended December 31, 2008. The decrease is due to the cessation of accruals under US clinical trials. Drug development and manufacturing costs decreased approximately $305,000 as no further manufacture was required in the absence of clinical trials. R&D compensation costs decreased approximately $203,000 as a result of the termination of our U.S. clinical development team on September 30, 2009, and the termination of the employment agreement of our Chief Scientific Officer in October 2009. Other R&D costs decreased by $80,000, related primarily to the reduction in legal costs and annuity payments on the licensed technology portfolio as a result of eliminating non-critical cases from the portfolio, and return of the intellectual property to Allergan upon termination of the license in February 2010.

Loss from QN Diagnostics, LLC Joint Venture

We reported $356,002 on the equity method for our 50% share of the net loss incurred by QND for the three months ended March 31, 2010. As the joint venture was formed on July 30, 2009, there was no comparable activity for the three months ended March 31, 2009.

Interest Income.

Interest income of $153 for the three months ended March 31, 2010 consisted primarily of income from savings accounts, and approximately $13,500 for the three months ended March 31, 2009 from savings and certificates of deposits. The decrease in interest income was due to significantly lower cash balances and lower interest rate yields in the three months ended March 31, 2010.

Six Months ended March 31, 2010 Compared to Six Months Ended March 31, 2009

General and Administrative Expenses.

General and administrative (“G&A”) expenses were approximately $1,098,000 during the six months ended March 31, 2010, as compared to approximately $938,000 incurred during the six months ended March 31, 2000 or an increase of approximately $160,000 or 17%. General and administrative expenses consist primarily of employee compensation and legal costs involved in our regulatory filings, in connection with general corporate matters, litigation, proposed merger and other contracting matters. G&A costs also include insurance, payroll costs and benefits for all employees, and share-based compensation expense related to option issuances to Board members, employees and consultants and bad debt expense. The approximately $160,000 net increase in total G&A expenses, resulted from an aggregate of approximately $375,000 cost increases, offset by approximately $215,000 in cost reductions. The approximately $375,000 in cost increases consisted primarily of bad debt expense related to the write down of the receivable for reimbursable expenses pursuant to the Piramal Agreement in the amount of $100,000, approximately $128,000 in legal fees related to contracting, related regulatory filings and litigation matters and proposed merger, $111,000 salaries reflecting increased compensation to the CEO, change in CFO’s time commitment to full-time effective April 2009, and $36,000 in travel expenses primarily related to management activities of QN Diagnostics. These cost increases were offset by approximately $215,000 in expense reductions consisting of reductions of approximately $45,000 in director’s compensation, $30,000 from the termination of the consulting contract with an affiliate in October, 2008, $85,000 in share based compensation, $21,000 in health insurance premiums, and $34,000 in other net cost reductions.

Research and Clinical Development Expenses.

Research and clinical development (“R&D”) expenses were approximately $170,000 during the six months ended March 31, 2010, as compared to approximately $1,675,000 incurred during the six months ended March 31, 2009 or a decrease of approximately $1,505,000 or 90%.

R&D expenses for the six months ended March 31, 2010 consisted primarily of costs related to closing the U.S. clinical trials for which patient accruals had been suspended in the quarter ended September 30, 2009.

R&D expenses for the six months ended March 31, 2009 consisted primarily of costs involved in the following activities:

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

Regulatory affairs activities including:

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

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

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

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

Patient and data management activities for active clinical trials; and

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

Our R&D expenses for the ~~three~~six months ended ~~December~~March 31, ~~2009~~2010 as compared to the ~~three~~ six months ended ~~December~~March 31, ~~2008~~2009 were related to the following activities:

	Three Months Ended December 31, (in thousands)
	Six Months Ended March 31, (in thousands)
	2009		2008
	2010		2009
Direct clinical trials costs	$	70110	$	~~160~~347
Drug development and manufacturing		68		~~179~~487
R&D compensation, including share based compensation		2		~~187~~389
In-process R&D costs		—		225
Other R&D costs		2850		~~126~~227
Total	$	~~106~~170	$	~~877~~1,675

Direct clinical trial costs decreased by approximately $90237,000 compared to the ~~three~~six months ended ~~December~~March 31, ~~2008~~2009. The ~~increase~~decrease is due principally to the cessation of of accruals under US clinical trials. Drug development and ~~manufacturing~~ manufacturing costs decreased approximately $~~173~~479,000, ~~primarily~~as ~~attributable~~a ~~to the~~result ~~availability~~ of ~~sufficient~~the ~~quantities~~cessation of ~~GMP drug product for NRX 4204 and NRX 5183 for~~ clinical ~~trials manufactured in previous~~ ~~periods~~trials. R&D compensation costs decreased approximately $~~185~~387,000 as a result of the termination of our U.S. clinical development team during the quarter ended September 30, 2009, and the termination of the employment agreement of our Chief Scientific Officer in October 2009. In-process R&D costs decreased $225,000 as a result of a one-time cash and stock payment upon revision of the Vitae agreement during the ~~three~~six months ended ~~December~~March 31, ~~2008~~2009. Other R&D costs decreased by $98177,000, related primarily to the ~~continuing~~ reduction in legal costs and annuity payments on the licensed technology portfolio as a result of eliminating non-critical cases from the portfolio and return of the intellectual property to Allergan upon termination of the license in February 2010.

Loss from QN Diagnostics, LLC Joint Venture

We reported $~~651~~1,~~065~~007,067 on the equity method for our 50% share of the net loss incurred by QND for the ~~three~~six months ended ~~December~~March 31, ~~2009~~2010. ~~The joint~~As the joint venture was formed on July 30, 2009, there was no comparable activity for the six months ended March 31, 2009.

Interest Income.

Interest income of $~~759~~913 for the ~~three~~six months ended ~~December~~March 31, ~~2009~~2010 consisted primarily of of income from certificates of ~~deposits~~deposit and savings, and approximately $2336,~~300 for~~800 for the ~~three~~six months ended ~~December~~March 31, ~~2008~~2009 from ~~savings~~certificates ~~and~~of ~~treasury~~deposit and ~~bills~~savings. The decrease was due to lower cash balances and lower interest rate yields in the ~~three~~six months ended ~~December~~March 31, ~~2009~~2010.

Revenues

Cancer Therapeutics

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

Point-of-Care Diagnostics

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

Liquidity

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

We held approximately $1.40 million in cash and cash equivalents at ~~December~~March 31, ~~2009~~2010 in comparison to $1.9 million in cash and cash equivalents at September 30, 2009. The decrease in cash and cash equivalents for the ~~three~~six months ended ~~December~~March 31, ~~2009~~2010 of approximately $~~500~~900,000 was primarily caused by the ~~cash~~ cash loss from operations. There were no significant cash flows from financing or or other investing activities during the year.

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

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

AsOn aApril ~~result~~9, ~~management~~2010, ~~believes~~we ~~that~~settled ~~given~~ the ~~current~~shareholder ~~economic~~litigation ~~environment,~~with ~~the cash~~DYVA ~~requirements~~Management ~~of QN Diagnostics, the expected $1~~Ltd.2 ~~million~~with ~~for share redemption, and the continuing need to strengthen the Company’s cash position, there is substantial doubt about its ability to continue as~~ a ~~going~~ ~~concern. The~~payment ~~Company~~of ~~continues to actively pursue various funding options~~$400,000 ~~including~~(the ~~equity~~“DYVA ~~offerings~~Settlement”), ~~debt~~further ~~financings~~depleting ~~and~~our ~~business~~cash ~~combinations~~reserves. ~~There can be no assurance that we will be successful in our efforts to raise additional capital.~~

Management believes that given the current economic environment, the cash requirements of QN Diagnostics, the DYVA Settlement, and the continuing need to strengthen the Company’s cash position, there is substantial doubt about its ability to continue as a going concern. We have sufficient capital to continue operations only through July 2010. The Company continues to actively pursue various funding options, including equity offerings, debt financings and the proposed merger with QuantRx. There can be no assurance that we will be successful in our efforts to raise additional capital.

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

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

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

Capital Resources

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

Off-Balance Sheet Arrangements

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

Joint Venture

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

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4.

CONTROLS AND PROCEDURES

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

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

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

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

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

Our management, including our Chief Executive Officer and our Chief Financial Officer, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

As we disclosed in our Annual Report on Form 10-K for our fiscal year ended September 30, 2009, on October 29, 2009, pursuant to the authority provided in the Bylaws and pursuant to Nevada Control Share Act ((the “Nevada Act”), we called for redemption of the entire 10,832,876 common share holding of DYVA Management Ltd. and its affiliates (“DYVA”), which such shares represent 46.2% of our total issued and outstanding shares. Under the Nevada Act, we are entitled to call for redemption of DYVA’s shares at the average price paid by DYVA for its shares, which has been reported by DYVA to be for 833,298 Euros (approximately $1,231,000). On November 13, 2009, DYVA filed a complaint in the United States District Court, District of Nevada for declaratory and injunctive relief to halt the proposed redemption (the “Action”). In addition, the complaint seeks attorneys’ fees and costs to the extent permitted by law and any further and other relief the Court may deem proper. The Company filed ~~its~~ its response on January 22, 2010 seeking a Motion for Summary Judgment. On February 8, 2010 DYVA filed an Opposition to Motion for Summary Judgment.

On April 9, 2010, the Company entered into a Settlement Agreement (the “Settlement Agreement”) with DYVA, pursuant to which DYVA agreed to dismiss the Action. Under the Settlement Agreement, the parties also agreed to a mutual release relating to all claims arising from the Action. In addition, the Company agreed to (i) pay DYVA an aggregate amount of $400,000, and (ii) upon dismissal of the Action, amend the Stockholder Rights Agreement, dated as of June 1, 2009, as amended, by and between the Company and Continental Stock Transfer & Trust Company (the “Rights Agreement”), to exempt DYVA from the Rights Agreement, provided DYVA does not acquire additional shares of Company common stock prior to April 2012. DYVA also entered into a voting agreement to approve the proposed Merger Agreement, dated January 29, 2010, by and among the Company, QuantRx Biomedical Corporation and NP Acquisition Corporation, a wholly-owned subsidiary of QuantRx Biomedical Corporation.

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.

ITEM 1A.

RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for our fiscal year ended September 30, 2009. The risks discussed in our Annual Report on Form 10-K could materially affect our business, financial condition and future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or operating results. In addition, we are also subject to the following additional risks:

Risks Related to Our Proposed Merger

On January 29, 2010, we entered into a Merger Agreement with QuantRx and Merger Sub. The Merger Agreement provides that Merger Sub will be merged with and into the Company, with the Company continuing as the surviving corporation and a wholly-owned subsidiary of QuantRx. The Board of Directors of the Company unanimously approved the Merger and the Merger Agreement at a special meeting on January 11, 2010 and resolved to recommend that the Merger Agreement be submitted to the Company’s stockholders for adoption. The Merger is subject to approval of the Company’s stockholders and other customary conditions to closing and a shareholders meeting is expected to be held during the ~~second or~~ third quarter of 2010.

If we are unable to consummate the Merger, our business, financial condition, operating results and stock price could suffer.

The completion of the Merger is subject to the satisfaction of numerous closing conditions, including the approval of the Merger by our stockholders. In addition, the occurrence of certain material events, changes or other circumstances could give rise to the termination of the Merger Agreement. As a result, no assurances can be given that the Merger will be consummated. If our stockholders choose not to approve the Merger, we otherwise fail to satisfy, or obtain a waiver of the satisfaction of, the closing conditions to the transaction and the Merger is not consummated, a material event, change or circumstance has occurred that results in the termination of the Merger Agreement, or any legal proceeding results in enjoining the Merger, we could be subject to various adverse consequences, including, but not limited to, the following:

•

we would remain liable for significant costs relating to the Merger, including, among others, legal, accounting, financial advisory and financial printing expenses;

•

we may face various disruptions to the operation of our business as a result of the substantial time and effort invested by our management in connection with the Merger;

•

an announcement that we have abandoned the Merger could trigger a decline in our stock price to the extent that the stock price reflects a market assumption that we will complete the Merger;

•

our inability to solicit competing acquisition proposals and the possibility that we could be required to pay a termination fee if the Merger Agreement is terminated under certain circumstances; and

•

we may forego alternative business opportunities or fail to respond effectively to competitive pressures.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. ~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~RESERVED

None

ITEM 5.

OTHER INFORMATION

None

ITEM 6.

EXHIBITS

See the attached exhibit index.

3233

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NURX PHARMACEUTICALS, INC.
February 16, 2010	By:	/s/ Harin Padma-Nathan
May 14, 2010	By:	/s/ Harin Padma-Nathan
		Name: Harin Padma-Nathan
		Title: Chief Executive Officer
		(Principal Executive Officer)

February 16, 2010	By:	/s/ Steven Gershick
May 14, 2010	By:	/s/ Steven Gershick
		Name: Steven Gershick
		Title: Chief Financial Officer
		(Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Form 10-Q

Three and six months ended ~~December~~March 31, ~~2009~~2010

Exhibit Number		Description

31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act.

3435

Filing Compare · NURX PHARMACEUTICALS, INC.