Rebus Holdings, Inc. - Quarter Report: 2010 March (Form 10-Q)

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

 

(Mark one)

 

x	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended March 31, 2010

Or

 

¨	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number 333-153829

 

GENSPERA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		20-0438951
State or other jurisdiction of  incorporation or organization		(I.R.S. Employer  Identification No.)
2511 N. Loop 1604 W, Suite 204 San Antonio, TX		78258
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (210) 479-8112 

 

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.  x Yes  ¨     No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨  Yes    ¨  No 

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

Large accelerated filer ¨	Accelerated filer  ¨
Non-accelerated filer  ¨  (Do not check if a small reporting company)	Smaller reporting company  x

 

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

 

The number of shares outstanding of Registrant’s common stock, $0.0001 par value at May 10, 2010 was 16,033,187. 

 

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GenSpera, Inc.

 

			Page
PART I -		FINANCIAL INFORMATION	4
Item 1.		Financial Statements	4
		Balance Sheets as of March 31, 2010 (Unaudited) and December 31, 2009	4
		Statements of Operations (Unaudited)
		Three months ended March 31, 2010 and 2009 and for the period from November 21, 2003 (inception) to March 31, 2010	5
		Statements of Changes in Stockholders' Equity (Unaudited)
		For the period from November 21, 2003 (inception) to March 31, 2010	6
		Statements of Cash Flows (Unaudited)
		Three months ended March 31, 2010 and 2009 and for the period from November 21, 2003 (inception) to March 31, 2010	7
		Notes to Financial Statements (Unaudited)	8
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	18
Item 4.		Controls and Procedures	18
PART II -		OTHER INFORMATION	19
Item 1.		Legal Proceedings	19
Item 1A.		Risk Factors	19
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.		Defaults Upon Senior Securities	25
Item 4.		(Removed and Reserved)	25
Item 5.		Other Information	25
Item 6.		Exhibits	26

 

 

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ADVISEMENT

We urge you to read this entire Quarterly Report on Form 10-Q, including the” Risk Factors” section, the financial statements, and related notes included herein.  As used in this Quarterly Report, unless the context otherwise requires, the words “we,” “us,”“our,” “the Company,” “GenSpera” and “Registrant” refer to GenSpera, Inc.  Also, any reference to “common shares,” or “common stock,” refers to our $.0001 par value common stock.   The information contained herein is current as of the date of this Quarterly Report (March 31, 2010), unless another date is specified.  

We prepare our interim financial statements in accordance with United States generally accepted accounting principles.  Our financials and results of operation for the three month period ended March 31, 2010 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2010. The interim financial statements presented in this Quarterly Report as well as other information relating to our company contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with the United States Securities and Exchange Commission (“SEC”).

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements included in this Report, including those related to our cash, liquidity, resources and our anticipated cash expenditures, as well as any statements other than statements of historical fact, regarding our strategy, future operations, financial position, projected costs, prospects, plans and objectives are forward-looking statements.  These forward-looking statements are derived, in part, from various assumptions and analyses we have made in the context of our current business plan and information currently available to us and in light of our experience and perceptions of historical trends, current conditions and expected future developments and other factors we believe are appropriate in the circumstances. You can generally identify forward looking statements through words and phrases such as  “believe”, “expect”, “seek”, “estimate”, “anticipate”, “intend”, “plan”, “budget”, “project”, “may likely result”, “may be”, “may continue”   and other similar expressions, although not all forward-looking statements contain these identifying words. We cannot guarantee future results, levels of activity, performance or achievements, and you should not place undue reliance on our forward-looking statements.

Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including the risks described in Part II, Item 1A, “Risk Factors” and elsewhere in this Report. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or strategic investments. In addition, any forward-looking statements represent our expectation only as of the day this Report was first filed with the Securities and Exchange Commission (“SEC”) and should not be relied on as representing our expectations as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our expectations change.

When reading any forward-looking statement you should remain mindful that actual results or developments may vary substantially from those expected as expressed in or implied by such statement for a number of reasons or factors, including but not limited to:

 

·	the success of our research and development activities, the development of a viable commercial product, and the speed with which regulatory authorizations may be achieved;

·	whether or not a market for our products develops and, if a market develops, the rate at which it develops;

·	our ability to successfully sell or license our products if a market develops;

·	our ability to attract and retain qualified personnel;

·	the accuracy of our estimates and projections;

·	our ability to fund our short-term and long-term financing needs;

·	changes in our business plan and corporate growth strategies; and

·	other risks and uncertainties discussed in greater detail in the section captioned “Risk Factors”

 

 

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Each forward-looking statement should be read in context with and in understanding of the various other disclosures concerning our company and our business made elsewhere in this Report as well as our public filings with the SEC. You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. We are not obligated to update or revise any forward-looking statements contained in this Annual Report or any other filing to reflect new events or circumstances unless and to the extent required by applicable law. 

PART I

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

 

 

ITEM 2.

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

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

•

Overview —  Discussion of our business and plan of operations, overall analysis of financial and other highlights affecting the company in order to provide context for the remainder of MD&A.

•

Significant Accounting Policies — Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

•

Results of Operations — Analysis of our financial results comparing the first quarter of 2010 to the comparable period in 2009.

•

Liquidity and Capital Resources — An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.

 

The various sections of this MD&A contain a number of forward-looking statements. Words such as “expects,” “goals,” “plans,” “believes,” “continues,” “may,” and variations of such words and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses, and other characterizations of future events or circumstances are forward-looking statements. Such statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in the “Overview” section (see also “Risk Factors” in Part II, Item 1A of this Form 10-Q). Our actual results may differ materially.

Management's Plan of Operation

We are pursuing a business plan related to the development of targeted cancer therapeutics for the treatment of cancerous tumors, including breast, prostate, bladder, and kidney cancer.  We are considered to be in the development stage as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915 “Development Stage Entities”.

 

Business Strategy

Our business strategy is to develop a series of therapeutics based on our target-activated pro-drug technology platform and bring them through Phase I/II clinical trials. At that point, we plan to license the rights to further development of the drug candidates to major pharmaceutical companies. We believe that major pharmaceutical companies see significant value in drug candidates that have passed one or more phases of clinical trials, and these organizations have the resources and expertise to finalize drug development and market the drugs.

 

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Plan of Operation

 

On June 23, 2009, we submitted our first Investigational New Drug application (“IND”) for G-202 to the United States Food and Drug Administration (“FDA”).  On September 4, 2009, we received approval from the FDA for our IND in order to commence clinical trials.  Although we have received approval from the FDA to commence trials, the outcome of the trials is uncertain and, if we are unable to satisfactorily complete such trials, or if such trials yield unsatisfactory results, we will be unable to commercialize our proposed products. Over the next twelve months we plan to focus on clinical trials of G-202 in cancer patients.

Additionally, we will continue to protect our intellectual property position particularly with regard to the outstanding claims contained within the core PSMA-pro-drug patent application in the United States.  We will also continue to prosecute the claims contained in our other patent applications in the United States.

We anticipate that during 2010 and the first half of 2011 we will be engaged in conducting the Phase I clinical trial of G-202, and, if appropriate, extension into a Phase II clinical trial of G-202. The purpose of a Phase I study of G-202 is to evaluate safety, understand the pharmacokinetics (the process by which a compound is absorbed, distributed, metabolized, and eliminated by the body) of the drug candidate in humans, and to determine an appropriate dosing regimen for the subsequent clinical studies. We are currently conducting the Phase I study in refractory cancer patients (those who have relapsed after former treatments) with any type of solid tumors. This strategy is intended to facilitate enrollment and perhaps give us a glimpse of safety across a wider variety of patients. We expect to enroll up to 30 patients in this Phase I study at: (i) Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins (Michael Carducci, MD as Principal Investigator); and (ii) University of Wisconsin Carbone Cancer Center (George Wilding, MD as Principal Investigator).

Assuming successful completion of the Phase I clinical trial, we expect to conduct a Phase II clinical trial to determine the therapeutic efficacy of G-202 in cancer patients. Although we believe that G-202 will be useful across a wide variety of cancer types, it is usually most efficient and medically prudent to evaluate a drug candidate in a single tumor type within a single trial. It is currently too early in the pre-clinical development process to determine which tumor types will be evaluated, but our current expectation is to conduct up to four separate concurrent Phase II studies in different tumor types over a time span of 18 months.

We have identified 4 pro-drug candidates: G-202, G-114, G-115 and Ac-GKAFRR-L12ADT. At this time, we are engaged solely in the development of G-202. It is anticipated that the development of the remaining candidates will not commence until we have sufficient resources to devote to their development.

From inception through March 31, 2010 the vast majority of costs incurred have been devoted to G-202. We estimate that we have incurred costs of approximately $235,000 related to G-114, G-115 and Ac-GKAFRR-L12ADT. All of these costs were incurred prior to December 2007, at which time we began focusing solely on G-202. The balance of our costs, aggregating approximately $5,586,000, was incurred in the development of G-202. For the years ended December 31, 2009 and 2008, approximately $2,087,000 and $2,433,000, respectively, was incurred in the development of G-202.  For the three months ended March 31, 2010 and 2009, we incurred costs of approximately $354,000 and $310,000, respectively, in the development of G-202.

It is estimated that the development of G-202 will occur as follows:

It is estimated that the ongoing Phase I clinical trial will cost an additional approximately $1,500,000 and will be completed in the second quarter of 2011.

Phase II clinical studies will cost an additional $7,000,000 and will be completed in the fourth quarter of 2012.  The increase in estimated Phase II costs from previous disclosures is due to the addition of extra Phase II studies into the G-202 clinical development plan.

We anticipate that we will license G-202 to a third party during Phase II clinical studies.  In the event we are not able to license G-202, we will proceed with Phase III Clinical trials.  We estimate that Phase III Clinical trials will cost approximately $25,000,000 and will be completed in the fourth quarter of 2015. If all goes as planned, we may expect marketing approval in the first half of 2017 with an additional $3,000,000 spent to get the NDA approved. We do not expect material net cash inflows from our own marketing efforts before early 2017.  The Phase III estimated costs are subject to major revision simply because we have not yet obtained any efficacy data for our drug in patients and therefore cannot accurately predict what may be the optimal Phase III patient population. The estimates will become more refined as we obtain more clinical data.

At this time, we have suspended the development of our other drug candidates, G-114, G-115 and Ac-GKAFRR-L12ADT. As a result we are unable to reasonably estimate the nature, timing and estimated costs and completion dates of those projects at this time.

We currently have budgeted $2,227,000 in cash expenditures for the twelve month period following the date of this report, including (1) $1,064,000 to cover our projected general and administrative expense during this period; and (2) $1,163,000 for research and development activities. Our cash on hand as of March 31, 2010 is sufficient to fund our operations for the next 15 months through June, 2011 after which time we will need to undertake additional financings.

 

The amounts and timing of our actual expenditures may vary significantly from our expectations depending upon numerous factors, including our results of operation, financial condition and capital requirements. Accordingly, we will retain the discretion to allocate the available funds among the identified uses described above, and we reserve the right to change the allocation of available funds among the uses described above.

 

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Significant Accounting Policies

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of the Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. We do not believe that there have been significant changes to our accounting policies during the year ended December 31, 2009, as compared to those policies disclosed in the December 31, 2008 financial statements except as disclosed in the notes to financial statements or through the three month period ended March 31, 2010.

A critical accounting policy is defined as one that is both material to the presentation of our financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: 1) we are required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

 

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the financial statements as soon as they became known. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our financial statements are fairly stated in accordance with accounting principles generally accepted in the United States, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements:

Use of Estimates — These financial statements have been prepared in accordance with accounting principles generally accepted in the United States and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Specifically, our management has estimated the expected economic life and value of our licensed technology, our net operating loss for tax purposes and our stock, option and warrant expenses related to compensation to employees and directors and consultants. Actual results could differ from those estimates.

Cash and Equivalents — Cash equivalents are comprised of certain highly liquid investments with maturity of three months or less when purchased. We maintain our cash in bank deposit accounts, which at times, may exceed federally insured limits. We have not experienced any losses in such accounts.

 

Intangible and Long-Lived Assets — We follow Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360, "Property, Plant and Equipment ", which established a "primary asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long lived asset to be held and used. Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. We have not recognized any impairment losses.

Research and Development Costs — Research and development costs include expenses incurred by the Company for research and development of therapeutic agents for the treatment of cancer and are charged to operations as incurred.

Stock Based Compensation — We account for our share-based compensation under the provisions of ASC Topic 718 “Compensation – Stock Compensation”.

Fair Value of Financial Instruments —  Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of long term convertible notes is based on management estimates and reasonably approximates their book value after comparison to obligations with similar interest rates and maturities. The fair value of the Company’s derivative instruments is determined using option pricing models.

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements affecting the Company, refer to Note 1 of Notes to Financial Statements.

 

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Result of Operations – First Quarter of 2010 Compared to First Quarter of 2009

 

Our results of operations have varied significantly from year to year and quarter to quarter and may vary significantly in the future.

Revenue

We did not have revenue for the three months ended March 31, 2010 and 2009, respectively. We do not anticipate any revenues during 2010.

Operating Expenses

 

Operating expense totaled $749,945 and $509,219 for the three months ended March 31, 2010 and 2009, respectively.  The increase in Operating expenses is primarily the result of increased general and administrative expenses.

 

		Three Months Ended March 31,
		2010				2009
Operating expenses
General and administrative expenses		$	395,880			$	199,717
Research and development			354,065				309,502
Total expense		$	749,945			$	509,219

 

General and Administrative Expenses

 

G&A expenses totaled $395,880 and $199,717 for the three months ended March 31, 2010 and 2009, respectively.  The increase of $196,163 or 98% for the three months ended March 31, 2010 compared to the same period in 2009 was primarily attributable to the allocation of 100% of Dr. Dionne’s compensation to G&A as opposed to the 50% allocation to G&A for the first three quarters of 2009, plus an increase in Dr. Dionne’s compensation of $67,500 in 2010. Stock based compensation increased by approximately $67,000, related primarily to options granted during the third quarter of 2009, and other compensation increased by approximately $30,000 during the 2010 period. Professional fees increased by approximately $16,000.

Research and Development Expenses

 

Research and development expenses totaled $354,065 and $309,502 for the three months ended March 31, 2010 and 2009, respectively.  We had an increase of $44,563 or 14% for the three months ended March 31, 2010 compared to the same period in 2009. A decrease in third party development costs was offset by an increase in compensation expense. The increase in compensation was a result of an increase in stock based compensation of approximately $85,000 and an increase in other compensation of $45,000, partially offset by a decrease attributable to the allocation of 100% of Dr. Dionne’s compensation to G&A as opposed to the 50% allocation to R & D in 2009.

Our research and development expenses consist primarily of expenditures for toxicology and other studies, manufacturing, clinical trials and compensation and consulting costs.  Under the planning and direction of key personnel, we expect to outsource all of our GLP preclinical development activities (e.g., toxicology) and GMP manufacturing and clinical development activities to CROs and CMOs.  Manufacturing will be outsourced to organizations with approved facilities and manufacturing practices. 

Other Expenses

 

Other expenses totaled $1,420,119 and $1,048,331 for the three months ended March 31, 2010 and 2009, respectively.

		Three Months Ended March 31,
		2010				2009
Other expense:
Finance Cost		$	-			$	(472,938	)
Change in fair value of derivative liability			(1,423,492	)			(572,785	)
Interest income (expense) net			3,373				(2,608	)
Total other expenses		$	(1,420,119	)		$	(1,048,331	)

 

 

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Finance Cost

 

Finance Cost totaled $0 and $472,938 for the three months ended March 31, 2010 and 2009, respectively. During the three months ended March 31, 2009 we incurred a  $415,976 charge for the fair value of additional warrants issued when the anti-dilution provisions in our warrants issued during the July and August 2008 financing were triggered plus a $51,864 charge for the fair value of additional warrants issued as consideration for the extension of the maturity dates of notes payable. We had no comparable expense during the 2010 period.

Change in fair value of derivative liability

Change in fair value of derivative liability totaled $1,423,492 and $572,785 for the three months ended March 31, 2010 and 2009, respectively.

The change in the fair value of our warrant derivative liability resulted primarily from the changes in our stock price and the volatility of our common stock during the reported periods. Refer to Note 4 to the financial statements for further discussion on our warrant liabilities.

During the three months ended March 31, 2010, 33,334 of our warrants subject to derivative accounting were exercised into common stock. We have recorded an expense of $21,119 at the date of exercise related to the change in fair value from January 1, 2010 to the date of exercise. As a result of the exercise of the warrants, we have reclassified $58,791 of our warrant derivative liability to paid in capital.

At March 31, 2010, we recalculated the fair value of our remaining warrants subject to derivative accounting and have determined that their fair value at March 31, 2010 is $3,655,387. The value of the warrants was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 99%; and (4) an expected life of the warrants of 2 years. We have recorded an expense of $1,402,373 during the three months ended March 31, 2010 related to the change in fair value during that period. 

At March 31, 2009 we recalculated the fair value of our warrants subject to derivative accounting and have determined that their fair value at March 31, 2009 is $1,723,377. The fair value of the warrants was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 156%; and (4) an expected life of the warrants of 2 years. We have recorded an expense of $572,785 during the three months ended March 31, 2009 related to the change in fair value during that period.

Interest expense

We had net interest income of $3,373 for the three months ended March 31, 2010 and net interest expense of $2,608 for the three months ended March 31, 2009. The increase in net interest income of $5,981 for the three months ended March 31, 2010 compared to the same period in 2009 was attributable to a decrease in debt outstanding in 2010 and an increase in interest earned on deposits.

Liquidity and Capital Resources

 

Since our inception, we have financed our operations primarily through the private placement of our securities. Our current monthly cash burn rate is $185,000.We expect this average monthly cash burn rate to remain constant during the remainder of the year. We anticipate that our available cash and expected income will be sufficient to finance most of our current activities for at least the next 15 months from March 31, 2010, although certain activities and related personnel may need to be reduced.

 

		Three Months Ended March 31,
		2010				2009
Cash & Cash Equivalents		$	2,711,281			$	661,360
Net cash used in operating activities		$	(400,241	)		$	(572,915	)
Net cash provided by financing activities			856,211				699,985

 

Total cash was $2,711,281 and $661,360 at March 31, 2010 and 2009, respectively.  The increase of $2,049,921 at March 31, 2010 compared to the same period in 2009 was attributable to capital raised through equity sales in 2009 and 2010.

 

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Net Cash Used in Operating Activities

 

In our operating activities we used cash of $400,241 and $572,915 for the three months ended March 31, 2010 and 2009, respectively. The decrease of $172,674 in cash used for the three months ended March 31, 2010 compared to the same period in 2009 was attributable to a decrease in cash expended on accounts payable of $249,439, offset by an increase in loss of $76,765 (after adjusting for non cash items).

 

Net Cash Provided by Financing Activities

 

Cash provided by financing activities was $856,211 and $699,985 for the three months ended March 31, 2010 and 2009, respectively.

Listed below are key financing transactions we have entered into.  

 

·

During November of 2007, we sold an aggregate of 1,300,000 common shares resulting in gross proceeds of $650,000.

·

During March of 2008, we issued 1,000,000 common shares upon the exercise of outstanding warrants which resulted in gross proceeds to us of $500,000.

·

During July and August of 2008, we sold an aggregate of 2,320,000 units resulting in gross proceeds of $2,320,000.

·

In February and April of 2009, we sold 500,000 units resulting in gross proceeds of approximately $750,000.

·

In June and July of 2009, we sold 2,025,344 units resulting in gross proceeds of approximately $3,038,000.

·

In September of 2009, we sold 140,002 units resulting in gross proceeds of approximately $210,000.

·

In January and March of 2010, we sold 553,407 units resulting in gross proceeds of approximately $880,000.

·

During March, 2010, we issued 33,334 shares of common stock upon exercise of an equivalent number of warrants and received cash proceeds of $50,001.

We have incurred significant operating losses and negative cash flows since inception. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. We have limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for general and administrative expenses and other working capital requirements. We rely on cash balances and the proceeds from the offering of our securities, exercise of outstanding warrants and grants to fund our operations.

The source, timing and availability of any future financing will depend principally upon market conditions, interest rates and, more specifically, on our progress in our exploratory, preclinical and future clinical development programs. Funding may not be available when needed — at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and/or our capital expenditures or to license our potential products or technologies to third parties.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are not required to provide the information required by this items as we are considered a smaller reporting company, as defined by Rule 229.10(f)(1).

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the Quarterly Reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  

 

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Based on management’s evaluation (with the participation of our CEO and Chief Financial Officer (CFO)), as of the end of the period covered by this report, our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), are effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS