Inspyr Therapeutics, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Inspyr Therapeutics, Inc.	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - Inspyr Therapeutics, Inc.	v231422_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Inspyr Therapeutics, Inc.	v231422_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Inspyr Therapeutics, Inc.	v231422_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Inspyr Therapeutics, Inc.	v231422_ex31-1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

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 June 30, 2011

¨	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). x 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 xNo

As of August 5, 2011, Registrant had 21,443,735 common shares, $0.0001 par value, issued and outstanding.

Table of Contents

		Page
PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Balance Sheets as of June 30, 2011(Unaudited) and December 31, 2010	4

	Statements of Operations (Unaudited)
	Three and six months ended June 30, 2011 and 2010 and for the period from November 21, 2003 (inception) to June 30, 2011	5

	Statements of Changes in Stockholders' Equity (Unaudited)
	For the period from November 21, 2003 (inception) to June 30, 2011	6

	Statements of Cash Flows (Unaudited)
	Six months ended June 30, 2011 and 2010 and for the period from November 21, 2003 (inception) to June 30, 2011	7

	Notes to Financial Statements (Unaudited)	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21

Item 4.	Controls and Procedures	22

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31

Item 3.	Defaults Upon Senior Securities	33

Item 4.	(Removed and Reserved)	33

Item 5.	Other Information	33

Item 6.	Exhibits	33

ADVISEMENT

We urge you to read this entire Quarterly Report, 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 (June 30, 2011), 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 and six month periods ended June 30, 2011 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2011. 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”).

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Any statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These forward-looking statements include, but are not limited to, statements about:

the development of our drug candidates, including when we expect to undertake, initiate and complete clinical trials of our product candidates;

the regulatory approval of our drug candidates;

our use of clinical research centers and other contractors;

our ability to sell, license or market any of our products if an when developed;

our ability to compete against other companies;

our ability to secure adequate protection for our intellectual property;

our ability to attract and retain key personnel;

our ability to obtain adequate financing; and

the volatility of our stock price.

These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend” and similar words or phrases. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Discussions containing these forward-looking statements may be found throughout this Form 10-Q, including Part I, the section entitled “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These forward-looking statements involve risks and uncertainties, including the risks discussed in Part II, Item 1A of this Report, under the caption “Risk Factors” that could cause our actual results to differ materially from those in the forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this document. The risks discussed in this report should be considered in evaluating our prospects and future financial performance.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENSPERA INC.

(A Development Stage Company)

CONDENSED BALANCE SHEETS

	June 30,			December 31,
	2011			2010
	(Unaudited)
Assets
Current assets:
Cash	$	7,913,548		$	3,671,151

Total current assets		7,913,548			3,671,151

Fixed assets, net of accumulated depreciation of $5,458 and $3,874		10,375			11,959

Prepaid fees		126,354			3,500
Intangible assets, net of accumulated amortization of $51,526 and $43,029		160,642			169,139

Total assets	$	8,210,919		$	3,855,749

Liabilities and stockholders' equity

Current liabilities:

Accounts payable and accrued expenses	$	683,771		$	139,169
Accrued interest - stockholder		14,704			12,517
Convertible note payable - stockholder, current portion		105,000			105,000

Total current liabilities		803,475			256,686

Warrant derivative liabilities		1,870,074			2,314,033

Total liabilities		2,673,549			2,570,719

Commitments and contingencies

Stockholders' equity:

Preferred stock, par value $.0001 per share; 10,000,000 shares authorized, none issued and outstanding		-			-
Common stock, par value $.0001 per share; 80,000,000 shares authorized, 21,443,735 and 17,604,465 shares issued and outstanding, respectively		2,144			1,760
Common stock subscribed		-			611,846
Additional paid-in capital		22,029,558			15,120,792
Deficit accumulated during the development stage		(16,494,332	)		(14,449,368	)

Total stockholders' equity		5,537,370			1,285,030

Total liabilities and stockholders' equity	$	8,210,919		$	3,855,749

See accompanying notes to unaudited condensed financial statements.

GENSPERA, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF LOSSES

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010

AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO JUNE 30, 2011

(Unaudited)

													Cumulative Period
													from November 21, 2003
													(date of inception) to
	Three Months ended June 30,						Six Months ended June 30,						June 30,
	2011			2010			2011			2010			2011

Operating expenses:
General and administrative expenses	$	893,889		$	777,744		$	1,525,939		$	1,173,624		$	6,413,575
Research and development		801,237			737,106			1,222,353			1,091,171			8,977,760
Research and development grant received		-			-			(244,479	)		-			(488,958	)

Total operating expenses		1,695,126			1,514,850			2,503,813			2,264,795			14,902,377

Loss from operations		(1,695,126	)		(1,514,850	)		(2,503,813	)		(2,264,795	)		(14,902,377	)

Finance cost		-			-			-			-			(518,675	)
Change in fair value of derivative liability		(9,631	)		809,880			443,959			(613,612	)		(1,096,245	)
Interest income, net		8,512			8,886			14,890			12,259			22,965

Loss before provision for income taxes		(1,696,245	)		(696,084	)		(2,044,964	)		(2,866,148	)		(16,494,332	)

Provision for income taxes		-			-			-			-			-

Net loss	$	(1,696,245	)	$	(696,084	)	$	(2,044,964	)	$	(2,866,148	)	$	(16,494,332	)

Net loss per common share, basic and diluted	$	(0.08	)	$	(0.04	)	$	(0.10	)	$	(0.18	)

Weighted average shares outstanding		20,991,614			16,752,200			20,179,914			16,203,123

See accompanying notes to unaudited condensed financial statements.

GENSPERA, INC.

(A Development Stage Company)

CONDENSED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO JUNE 30, 2011

(Unaudited)

											Deficit
											Accumulated
					Additional			Common			During the			Stockholders'
	Common Stock				Paid-in			Stock			Development			Equity
	Shares		Amount		Capital			Subscribed			Stage			(Deficit)

Balance, November 21, 2003		-	$	-	$	-		$	-		$	-		$	-

Sale of common stock to founders at $0.0001 per share in November, 2003		6,100,000		610		(510	)		-			-			100

Contributed services		-		-		120,000			-			-			120,000

Net loss		-		-		-			-			(125,127	)		(125,127	)

Balance, December 31, 2003		6,100,000		610		119,490			-			(125,127	)		(5,027	)

Contributed services		-		-		192,000			-			-			192,000

Stock based compensation		-		-		24,102			-			-			24,102

Net loss		-		-		-			-			(253,621	)		(253,621	)

Balance, December 31, 2004		6,100,000		610		335,592			-			(378,748	)		(42,546	)

Contributed services		-		-		48,000			-			-			48,000

Stock based compensation		-		-		24,100			-			-			24,100

Net loss		-		-		-			-			(126,968	)		(126,968	)

Balance, December 31, 2005		6,100,000		610		407,692			-			(505,716	)		(97,414	)

Contributed services		-		-		144,000			-			-			144,000

Stock based compensation		-		-		42,162			-			-			42,162

Net loss		-		-		-			-			(245,070	)		(245,070	)

Balance, December 31, 2006		6,100,000		610		593,854			-			(750,786	)		(156,322	)

Shares sold for cash at $0.50 per share in November, 2007		1,300,000		130		649,870			-			-			650,000

Shares issued for services		735,000		74		367,426			-			-			367,500

Contributed services		-		-		220,000			-			-			220,000

Stock based compensation		-		-		24,082			-			-			24,082

Exercise of options for cash at $0.003 per share in March and June, 2007		900,000		90		2,610			-			-			2,700

Net loss		-		-		-			-			(691,199	)		(691,199	)

Balance, December 31, 2007		9,035,000		904		1,857,842			-			(1,441,985	)		416,761

Exercise of options for cash at $0.50 per share on March 7,2008		1,000,000		100		499,900			-			-			500,000

Sale of common stock and warrants at $1.00 per share - July and August 2008		2,320,000		232		2,319,768			-			-			2,320,000

Cost of sale of common stock and warrants		-		-		(205,600	)		-			-			(205,600	)

Shares issued for accrued interest		31,718		3		15,856			-			-			15,859

Shares issued for services		100,000		10		49,990			-			-			50,000

Stock based compensation		-		-		313,743			-			-			313,743

Contributed services		-		-		50,000			-			-			50,000

Beneficial conversion feature of convertible debt		-		-		20,675			-			-			20,675

Net loss		-		-		-			-			(3,326,261	)		(3,326,261	)

Balance, December 31, 2008		12,486,718		1,249		4,922,174			-			(4,768,246	)		155,177

Cumulative effect of change in accounting principle		-		-		(444,161	)		-			(290,456	)		(734,617	)

Warrants issued for extension of debt maturities		-		-		51,865			-			-			51,865

Stock based compensation		-		-		1,530,536			-			-			1,530,536

Common stock issued for services		86,875		10		104,109			-			-			104,119

Sale of common stock and warrants at $1.50 per share - February 2009		466,674		46		667,439			-			-			667,485

Sale of common stock and warrants at $1.50 per share - April 2009		33,334		3		49,997			-			-			50,000

Sale of common stock and warrants at $1.50 per share - June 2009		1,420,895		142		2,038,726			-			-			2,038,868

Sale of common stock and warrants at $1.50 per share - July 2009		604,449		60		838,024			-			-			838,084

Sale of common stock and warrants at $1.50 per share - September 2009		140,002		14		202,886			-			-			202,900

Common stock and warrants issued as payment of placement fees		53,334		5		(5	)		-			-			-

Common stock and warrants issued upon conversion of note and accrued interest		174,165		18		174,147			-			-			174,165

Net loss		-		-		-			-			(5,132,827	)		(5,132,827	)

Balance, December 31, 2009		15,466,446		1,547		10,135,737			-			(10,191,529	)		(54,245	)

Stock based compensation		-		-		1,165,450			-			-			1,165,450

Sale of common stock and warrants at $1.65 per share - February and March 2010		533,407		53		806,157			-			-			806,210

Sale of common stock and warrants at $2.00 per share - May 2010		1,347,500		135		2,655,365			-			-			2,655,500

Common stock and warrants issued as payment of placement fees		43,632		4		(4	)		-			-			-

Common stock issued as payment for patents and license		20,000		2		46,798			-			-			46,800

Common stock and warrants subscribed		-		-		-			611,846			-			611,846

Salaries paid with common stock		43,479		4		99,996			-			-			100,000

Exercise of options and warrants		150,001		15		124,986			-			-			125,001

Reclassification of derivative liability upon exercise of warrants		-		-		86,307			-			-			86,307

Net loss		-		-		-			-			(4,257,839	)		(4,257,839	)

Balance, December 31, 2010		17,604,465		1,760		15,120,792			611,846			(14,449,368	)		1,285,030

Stock based compensation		-		-		131,094			-			-			131,094

Sale of common stock and warrants at $1.80 per share - January and February 2011		2,241,605		224		4,034,659			(611,846	)		-			3,423,037

Sale of common stock and warrants at $1.65 per share - April 2011		1,363,622		136		2,249,839			-			-			2,249,975

Common stock and warrants issued as payment of placement fees		61,498		6		(6	)		-			-			-

Common stock and warrants issued as payment of accrued consulting fees		33,334		3		59,997			-			-			60,000

Common stock and warrants issued as payment of consulting fees		139,211		15		506,686			-			-			506,701

Cost of sales of common stock and warrants		-		-		(73,503	)		-			-			(73,503	)

Net loss		-		-		-			-			(2,044,964	)		(2,044,964	)

Balance, June 30, 2011		21,443,735	$	2,144	$	22,029,558		$	-		$	(16,494,332	)	$	5,537,370

See accompanying notes to unaudited condensed financial statements.

GENSPERA, INC.

(A Development Stage Company)

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO JUNE 30, 2011

(Unaudited)

							Cumulative Period
							from November 21, 2003
							(date of inception) to
	Six months ended June 30,						June 30,
	2011			2010			2011

Cash flows from operating activities:
Net loss	$	(2,044,964	)	$	(2,866,148	)	$	(16,494,332	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		10,081			9,257			56,984
Stock based compensation		511,441			826,402			4,257,235
Common stock issued for acquisition of license		-			-			28,800
Warrants issued for financing costs		-			-			467,840
Change in fair value of derivative liability		(443,959	)		613,612			1,096,245
Contributed services		-			-			774,000
Amortization of debt discount		-			-			20,675
Changes in assets and liabilities:
Increase in accounts payable and accrued expenses		606,789			73,797			784,899

Cash used in operating activities		(1,360,612	)		(1,343,080	)		(9,007,654	)

Cash flows from investing activities:
Acquisition of property and equipment		-			-			(15,833	)
Acquisition of intangibles		-			-			(194,168	)

Cash used in investing activities		-			-			(210,001	)

Cash flows from financing activities:
Proceeds from sale of common stock and warrants		5,673,012			3,461,710			16,974,705
Proceeds from exercise of warrants		-			125,001			125,001
Cost of common stock and warrants sold		(70,003	)					(73,503	)
Proceeds from convertible notes - stockholder		-			-			155,000
Repayments of convertible notes - stockholder		-			-			(50,000	)

Cash provided by financing activities		5,603,009			3,586,711			17,131,203

Net increase in cash		4,242,397			2,243,631			7,913,548
Cash, beginning of period		3,671,151			2,255,311			-
Cash, end of period	$	7,913,548		$	4,498,942		$	7,913,548

Supplemental cash flow information:
Cash paid for interest	$	-		$	-
Cash paid for income taxes	$	-		$	-

Non-cash financial activities:

Common stock units issued as payment of accrued consulting fees	$	60,000		$	-
Common stock units issued as payment of placement fees		110,695			-
Common stock and warrants issued as payment of consulting fees		498,701			-
Derivative liability reclassified to equity upon exercise of warrants		-			86,307

See accompanying notes to unaudited condensed financial statements.

GENSPERA, INC.

(A Development Stage Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010

AND FOR THE PERIOD FROM NOVEMBER 21, 2003

(INCEPTION) TO JUNE 30, 2011

(Unaudited)

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

Business and Basis of Presentation

GenSpera Inc. (“we”, “us”, “our company”, “our”, “GenSpera” or the “Company”) was formed under the laws of the State of Delaware in 2003. We are a development stage entity, as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915. GenSpera, Inc. is a pharmaceutical company focused on the development of targeted cancer therapeutics for the treatment of cancerous tumors, including breast, prostate, bladder and kidney cancer. Our operations are based in San Antonio, Texas.

To date, we have generated no sales revenues, have incurred significant expenses and have sustained losses. Consequently, our operations are subject to all the risks inherent in the establishment of a new business enterprise. For the period from inception on November 21, 2003 through June 30, 2011, we have accumulated losses of $16,494,332.

Liquidity

As of June 30, 2011, we had working capital (current assets in excess of current liabilities) of $7,110,073. Our cash flow used in operations was $1,360,612 and $1,343,080 for the six months ended June 30, 2011 and 2010, respectively. At June 30, 2011, we had cash on hand of approximately $7,914,000 and raised approximately $5,673,000 in the first six months of 2011. Based upon current cash flow projections, management believes the Company will have sufficient capital resources to meet projected cash flow requirements until July 2012.

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 amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the Company may undertake in the future, actual results may differ from those estimates.

Research and Development

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. Our research and development expenses consist primarily of expenditures for toxicology and other studies, manufacturing, clinical trials and compensation and consulting costs.

GenSpera incurred net research and development expenses of $801,237 and $737,106 for the three months ended June 30, 2011 and 2010, respectively, and $977,874 and $1,091,171 for the six months ended June 30, 2011 and 2010, respectively, and $8,488,802 from November 21, 2003 (inception) through June 30, 2011.

Loss Per Share

We use ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. We compute basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share. There were 11,496,197 common share equivalents at June 30, 2011 and 8,894,425 at June 30, 2010. For the three and six months ended June 30, 2011 and 2010, these potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.

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.

Fair value measurements

We follow the guidance established pursuant to ASC 820 which established a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3: Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

The table below summarizes the fair values of our financial liabilities as of June 30, 2011:

	Fair Value at		Fair Value Measurement Using
	June 30, 2011		Level 1		Level 2		Level 3
Warrant derivative liability	$	1,870,074	$	—	$	—	$	1,870,074

	$	1,870,074	$	—	$	—	$	1,870,074

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability) for the six months ended June 30, 2011.

	2011
Balance at beginning of year	$	2,314,033
Change in fair value of warrant liability		(443,959	)
Balance at end of period	$	1,870,074

The following is a description of the valuation methodologies used for these items:

Warrant derivative liability — these instruments consist of certain of our warrants with anti-dilution provisions. These instruments were valued using pricing models which incorporate the Company’s stock price, volatility, U.S. risk free rate, dividend rate and estimated life.

Income Taxes

We utilize ASC 740 “Income Taxes” which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income.

Stock-Based Compensation

We account for our stock based compensation under ASC 718 “Compensation – Stock Compensation” using the fair value based method. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.

We use the fair value method for equity instruments granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial statements.

NOTE 2 - CAPITAL STOCK AND STOCKHOLDER’S EQUITY

We are authorized to issue 80,000,000 shares of common stock with a par value of $.0001 per share and 10,000,000 shares of preferred stock with a par value of $.0001 per share.

On January 21, 2011, pursuant to a securities purchase agreement (the “Securities Purchase Agreement”), we sold 2,074,914 units resulting in gross proceeds to the Company of $3,734,840 (“Offering”). The price per unit was $1.80. Each unit consists of: (i) one (1) share of the Company’s common stock, par value $.0001 (“Shares”), and (ii) one half (1/2) Common Stock Purchase Warrant (“Warrant(s)”). Of these units, 339,915 were subscribed at December 31, 2010 with gross proceeds to the Company of $611,847 recorded in the December 31, 2010 financial statements as Common Stock Subscribed.

The Warrants have a term of five years and entitle the holders to purchase the Company’s common shares at a price per share of $3.30. In the event the shares underlying the Warrants are not subject to a registration statement, the warrants may be exercised on a cashless basis after 12 months from the issuance date. The Warrants also contain provisions providing for an adjustment in the underlying number of shares and exercise price in the event of stock splits or dividends and fundamental transactions. The Warrants do not contain any price protection provisions. The Warrants are callable by the Company assuming the following: (i) the Common Stock trades above $5.50 for ten (10) consecutive days; (ii) the daily average minimum volume over such ten (10) days is 15,000 or greater; and (iii) there is an effective registration statement covering the underlying shares. The Securities Purchase Agreement also grants the investors certain piggy-back registration rights.

In connection with the Offering, we incurred placement agent and finder’s fees in the amount of $114,295 in cash and issued warrants to purchase a total of 63,498 shares at an average exercise price per share of $3.26. Of the fees incurred, $110,695 was reinvested in the Offering on the same terms and conditions as the investors, resulting in the issuance of 61,498 units.

On February 16, 2011, pursuant to a securities purchase agreement, we sold an additional 166,691 units resulting in gross proceeds to the Company of $300,044. The units contain the same terms as the January 21, 2011 units described above. In connection with the offering, we incurred placement agent and finder’s fees in the amount of $6,403 in cash and issued warrants to purchase a total of 3,558 shares at an exercise price per share of $2.16.

On April 29, 2011, pursuant to a securities purchase agreement, we sold an additional 1,363,622 units resulting in gross proceeds of $2,249,750. The price per unit was $1.65. Each unit consists of: (i) one (1) share of the common stock, par value $.0001, and (ii) one half (1/2) common stock purchase warrant. The warrants have a term of five years and entitle the holders to purchase the common shares at a price per share of $3.15. In the event the shares underlying the warrants are not subject to a registration statement, the warrants may be exercised on a cashless basis after 12 months from the issuance date. The warrants also contain provisions providing for an adjustment in the underlying number of shares and exercise price in the event of stock splits or dividends and fundamental transactions. The warrants do not contain any price protection provisions. The warrants are callable assuming the following: (i) our common stock trades above $6.50 for ten (10) consecutive days; (ii) the daily average minimum volume over such ten (10) days is 15,000 or greater; and (iii) there is an effective registration statement covering the underlying shares. We also granted the investors certain piggy-back registration rights. In connection with the offering, we incurred finder’s fees in the amount of $60,000 in cash and issued warrants to purchase a total of 36,364 shares at an exercise price per share of $3.15. The warrants have the same terms and conditions as the investor warrants.

As a result of the offerings, the reinvestment of fees, and the issuance of placement agent and finder’s warrants, we issued a total of 3,666,725 shares and 1,936,785 common stock purchase warrants.

During March, 2011, we issued 33,334 units as payment of accrued consulting fees in the amount of $60,000. These fees had been accrued at December 31, 2010.

During March, 2011, we issued 82,500 shares of common stock and 144,000 warrants as payment of consulting fees. The warrants have an exercise price of $3.30 per share and have the same terms as the warrants issued with the offerings described above. The common shares have been valued at $144,375 based on the market price of our common stock. The warrants have been valued at $149,249, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 2.25%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 89%; and (4) an expected life of the warrants of 5 years.

On March 1, 2011, we granted 39,000 common stock options to a director. The options have an exercise price of $1.90 per share. The options will vest quarterly over one year. The options lapse if unexercised after five years. The options have a grant date fair value of $20,416, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 0.225%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 89%; and (4) an expected life of the options of 0.625 years. During the three and six months ended June 30, 2011 we have recorded an expense of $5,104 and $6,805 related to the fair value of the options that vested or are expected to vest.

During May 2011, we issued 52,500 shares of common stock and 91,000 warrants as payment of consulting fees. The warrants have an exercise price of $3.15 per share and have the same terms as the warrants issued with the offerings described above. The common shares have been valued at $100,800 based on the market price of our common stock. The warrants have been valued at $104,277, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 1.50%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 87%; and (4) an expected life of the warrants of 5 years. Of the aggregate value of the stock and warrants of $205,077, we have recorded a prepayment of $126,354 at June 30, 2011, with the balance of $78,723 charged to expense during the three months ended June 30, 2011.

During May 2011 we issued 4,211 shares of common stock, valued at $8,000, as payment for services.

On May 18, 2011, we granted a total of 80,000 common stock options to the four members of our Advisory Board. The options have an exercise price of $1.85 per share. The options will vest 20,000 upon grant and the balance quarterly over the remainder of 2011. The options lapse if unexercised after five years. During the three and six months ended June 30, 2011 we have recorded an expense of $50,966, respectively, related to the fair value of the options that vested, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 1.5%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 87%; and (4) an expected life of the options of 4.96 years.

During January 2011, we granted a total of 25,000 common stock options for legal and consulting services. The options have an exercise price of $1.90 per share. Of these options, 5,000 vested upon grant and 20,000 vests quarterly during 2011. The options and warrants lapse if unexercised after five years. We have recorded an expense of $5,980 and $18,928 during the three and six months ended June 30, 2011, respectively, related to the fair value of the options and warrants that vested or are expected to vest, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 2.0%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 90%; and (4) an expected life of the warrants of 4.8 years.

During the three and six months ended June 30, 2011 we have recorded a credit of $37,373 and an expense of $35,769, respectively, related to the fair value of the options granted to our chief executive officer and chief operating officer that vested or are expected to vest.

During the three and six months ended June 30, 2011 we have recorded an expense of $6,995 and $18,626 related to the fair value of the options granted to directors and consultants in prior years that vested or are expected to vest.

NOTE 3 – DERIVATIVE LIABILITY

At June 30, 2011, we recalculated the fair value of our warrants subject to derivative accounting and have determined that their fair value at June 30, 2011 is $1,870,074. The value of the warrants was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.375%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 87%; and (4) an expected life of the warrants of 2 years. We have recorded an expense of $9,631 and a credit of $443,959 during the three and six months ended June 30, 2011, respectively, related to the change in fair value during those periods.

NOTE 4 – SUBSEQUENT EVENTS

On July 1, 2011, our compensation committee approved the 2011 annual base salaries and the 2010 Long Term Incentive Grants for our chief executive officer and chief operating officer. This action results in an increase in 2011 base salaries aggregating $80,000, retroactive to January 1, 2011. The 2010 Long Term Incentive Grants aggregate $510,000 and shall be paid via the issuance of common stock options in lieu of cash. For purposes of calculating the number of options to be issued as payment of the discretionary bonuses, determined using the Black-Scholes method based on the following weighted average assumptions: (1) risk free interest rate of 0.375%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 87%; and (4) an expected life of the options of 2.5 years, the grant date is July 1, 2011. The aggregate number of options granted is 559,370, with a weighted average exercise price of $1.93. We have included an accrual of $550,000 at June 30, 2011 to reflect the 2010 Long Term Incentive Grants and the retroactive increase in salaries.

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 three and six month periods ended June 30, 2011 to the comparable periods of 2010.

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.

Plan of Operation

We have identified 4 prodrug candidates: G-202, G-114, G-115 and G-301 (formerly designated as Ac-GKAFRR-L12ADT). In our technology a prodrug is defined as an inactive form of a tumor-killing agent that is converted into an active form only within the tumor, thus minimizing side effects and maximizing anti-tumor efficacy. All of our drugs are based upon a unique cytotoxin called thapsigargin, which is isolated from the Mediterranean plant, Thapsia garganica.

Management believes that the best way to increase shareholder value is to remain focused on the efficient clinical development of G-202, already in Phase I clinical trials, as our highest priority. In addition to the development of G-202, we are also engaged in the preclinical development of G-115. It is anticipated that the development of the remaining candidates will not commence until we have sufficient resources to devote to their development.

Clinical Development of G-202

On June 23, 2009, we submitted our first IND for G-202 to the 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.

For the manufacture of G-202, we have secured a stable supply of source material (Thapsia garganica seeds) from which thapsigargin is isolated, have a sole source agreement with a European supplier, Thapsibiza, SL, and have obtained the proper import permits from the USDA for these materials. We have also identified a clinically and commercially viable formulation for G-202 and have manufactured sufficient G-202 to supply our Phase I clinical needs. In anticipation of the upcoming G-202 Phase II clinical trials, we will complete manufacture of GMP grade G-202 over the next three months. The costs for manufacture of this clinical batch of drug are included in the current projected expenditures.

As of June 30, 2011, nineteen patients have been treated with G-202 in the ongoing Phase I clinical trial. We anticipate that the Phase I clinical trial of G-202 will continue through the fourth quarter of 2011. The purpose of the 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. This is accomplished by exposing successive cohorts of three patients to escalating doses of the drug until a Maximally Tolerated Dose (MTD) is identified. 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); (ii) University of Wisconsin Carbone Cancer Center (George Wilding, MD as Principal Investigator); and (iii) Cancer Therapy and Research Center at the University of Texas Health Science Center in San Antonio (Devalingam Mahalingam, MD as Principal Investigator). The Phase I clinical protocol has been modified to accommodate enrollment of up to 18 additional patients in a Phase IB component of the study to evaluate the drug’s safety and tolerability and possible efficacy in a broader patient population consisting primarily of prostate cancer patients who have previously failed treatment with chemotherapeutic agents. It is expected that the Phase IB component of the study may give us an earlier glimpse of true anti-tumor activity as well as provide information on how to best design the subsequent Phase II study in this later stage prostate cancer patient population. It is anticipated that the ongoing Phase I clinical trial will be completed in the fourth quarter of 2011 whereas the Phase IB component of the trial will continue through the fourth quarter of 2012.

Upon completion of the dose escalation component of the Phase I clinical trial, we expect to conduct several Phase II clinical trials to determine the therapeutic efficacy of G-202 in cancer patients. The Phase II studies can be started while the Phase IB trial in late stage post-chemotherapy prostate cancer patients is ongoing. 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 separate Phase II studies, each enrolling patients with a specific tumor type per individual study. We are developing a Phase II clinical protocol for the treatment of castrate-resistant chemotherapy-naïve prostate cancer patients to be conducted in the US with additional sites in the UK. This trial will have an advantage of demonstrating approval by European regulatory agencies for testing of G-202 in patients and is expected to launch in Q1 2012. We are also evaluating Phase II trial designs in other tumor types and expect to conduct up to four separate concurrent Phase II studies in different tumor types.

Development of G-115

We began development of G-115 in the fourth quarter of 2010 with an anticipated filing of an IND in the third quarter of 2011. The extra costs for preclinical development of G-115 to an IND submission may total up to $2.5 million. Because we wished to assure funding for an aggressive G-202 Phase II clinical program, we deferred full development of G-115 until we received additional monies via financings during the first four months of 2011. We now expect to file an IND in the United States or equivalent Clinical Trial Application (CTA) in Europe in the first quarter of 2012.

Anticipated Expenditures

We have budgeted $7,584,200 in cash expenditures for the twelve month period following June 30, 2011, including (1) $1,262,700 to cover our projected general and administrative expense during this period; and (2) $6,321,500 for research and development activities. Based on our cash at June 30, 2011 we believe we have sufficient cash on hand to fund our operations until July 2012, after which time we will need to undertake additional financings. These assumptions are based upon operations focused on completion of the G-202 Phase I clinical program, initiation of several G-202 Phase II clinical trials, full pre-clinical development of G-115, and initiation of a Phase I clinical trial for G-115.

We anticipate that we will license G-202 to a third party during or after Phase II clinical studies. In the event we are not able or decide not to license G-202, we will proceed with Phase III Clinical trials. We estimate that Phase III Clinical trials will cost approximately $25 million 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 2016 with an additional $3 million spent to get the NDA approved. We do not expect material net cash inflows from our own marketing efforts before the first half of 2017. The Phase III estimated costs are subject to major revision 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.

The amounts and timing of our actual expenditures and possible financings may vary significantly from our expectations depending upon numerous factors, including our results of operations and clinical trials, 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.

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 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 three and six months ended June 30, 2011, as compared to those policies disclosed in the comparable period of 2010 and December 31, 2010 financial statements, except as disclosed in the notes to those financial statements.

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 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.

Result of Operations

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 revenues for the three or six months ended June 30, 2011 and 2010. We do not anticipate any revenues during 2011.

Operating Expenses

Operating expense totaled $1,695,126 and$1,514,850 for the three months ended June 30, 2011 and 2010, respectively. The increase in operating expenses results from increases in both research and development and general and administrative expenses.

Operating expense totaled $2,503,813 and $2,264,795 for the six months ended June 30, 2011 and 2010, respectively. The increase in operating expenses is primarily the result of an increase in general and administrative expenses.

	Three Months				Six Months
	Ended June 30				Ended June 30
	2011		2010		2011			2010
Operating expenses:
General and administrative expenses	$	893,889	$	777,744	$	1,525,939		$	1,173,624
Research and development		801,237		737,106		1,222,353			1,091,171
Research and development grant received		-		-		(244,479	)		-
Total operating expenses	$	1,695,126	$	1,514,850	$	2,503,813		$	2,264,795

General and Administrative Expenses

General and Administrative Expenses (“G&A”) expenses totaled $893,889 and $777,744 for the three months ended June 30, 2011 and 2010, respectively. The increase of $116,145 or 15% for the three months ended June 30, 2011 compared to the same period in 2010 was primarily attributable to a number of factors, including an increase in compensation of approximately $238,000 (resulting mainly from bonus compensation recorded in the second quarter of 2011 as opposed to the prior year’s bonus compensation being recorded in the first quarter of 2010) partially offset by a decrease in consulting and other fees of approximately $120,000.

G&A expenses totaled $1,525,939 and $1,173,624 for the six months ended June 30, 2011 and 2010, respectively. The increase of $352,315 or 30% for the six months ended June 30, 2011 compared to the same period in 2010 was primarily attributable to a number of factors, including increases in compensation expense of approximately $151,000 (resulting mainly from an increase in the current period bonus compensation compared to 2010), consulting and other fees of approximately $152,000 and travel and entertainment of approximately $36,000.

Research and Development Expenses

Research and development expenses totaled $801,237 and $737,106 for the three months ended June 30, 2011 and 2010, respectively. The increase of $64,131 or 9% for the three months ended June 30, 2011 compared to the same period in 2010 was attributable to an increase in compensation expense of approximately $220,000 (resulting mainly from bonus compensation recorded in the second quarter of 2011 as opposed to the prior year’s bonus compensation being recorded in the first quarter of 2010) offset by a decrease in development expense of approximately $156,000.

Research and development expenses totaled $1,222,353 and $1,091,171 for the six months ended June 30, 2011 and 2010, respectively. The increase of $131,182 or 12% for the six months ended June 30, 2011 compared to the same period in 2010 was attributable to an increase in compensation expense of approximately $107,000 (resulting mainly from an increase in the current period bonus compensation compared to 2010) and an increase in development expense of approximately $25,000.

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 Good Laboratory Practices (“GLP”) preclinical development activities (e.g., toxicology) and Good Manufacturing Practices (“GMP”) manufacturing and clinical development activities to contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”). Manufacturing will be outsourced to organizations with approved facilities and manufacturing practices.

Research and Development Grant

During 2010 we were awarded two Federal grants, totaling approximately $489,000, through the Patient Protection and Affordable Care Act, which supports investments in qualifying therapeutic discovery projects. Of this amount, we received $244,479 during the fourth quarter of 2010 and the balance of $244,479 during the first quarter of 2011. We will not receive any additional funding under these grants.

Other Income (Expenses)

Other income (expenses) totaled $1,119 of expense and $818,766 of income for the three months ended June 30, 2011 and 2010, respectively.

Other income (expenses) totaled $458,849 of income and 601,353 of expense for the six months ended June 30, 2011 and 2010, respectively.

	Three Months					Six Months
	Ended June 30					Ended June 30
	2011			2010		2011		2010
Other expenses:
Change in fair value of derivative liability	$	(9,631	)	$	809,880	$	443,959	$	(613,612	)
Interest income, net		8,512			8,886		14,890		12,259
Total other income (expenses)	$	(1,119	)	$	818,766	$	458,849	$	(601,353	)

Change in fair value of derivative liability

Change in fair value of derivative liability totaled $9,631 of expense during the three months ended June 30, 2011 and $809,880 of income for the three months ended June 30, 2010.

Change in fair value of derivative liability totaled $443,959 of income during the six months ended June 30, 2011 and $613,612 of expense for the six months ended June 30, 2010.

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 3 to the financial statements for further discussion on our warrant liabilities.

During the three months ended June 30, 2010, 16,667 of our warrants subject to derivative accounting were exercised into common stock. We have recorded income of $3,044 at the date of exercise related to the change in fair value from April 1, 2010 to the date of exercise. As a result of the exercise of the warrants, we have reclassified $27,516 of our warrant derivative liability to paid in capital.

At June 30, 2010, we recalculated the fair value of our remaining warrants subject to derivative accounting and have determined that their fair value at June 30, 2010 is $2,817,991. The value of the warrants was determined using the Black-Scholes method based on the following assumptions: (1) risk free interest rate of 0.625%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 98%; and (4) an expected life of the warrants of 2 years. We have recorded income of $806,836 during the three months ended June 30, 2010 related to the change in fair value during that period.

Interest expense

We had net interest income of $8,512 and $8,886 for the three months ended June 30, 2011 and 2010, respectively. We had net interest income of $14,890 and $12,259 for the six months ended June 30, 2011 and 2010, respectively. The increase in net interest income was attributable to 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 approximately $500,000. This will increase to $800,000 per month in the 4th quarter 2011 primarily due to G-115 development costs. The monthly burn rate is expected to be $600,000 during the first half of 2012 as we embark upon Phase II clinical studies with G-202 and a Phase I study for G-115. We anticipate that our available cash and expected income will be sufficient to finance most of our current activities for at least the next 12 months from June 30, 2011.

	Six Months
	Ended June 30
	2011		2010
Cash & Cash Equivalents	$	7,913,548

Inspyr Therapeutics, Inc. - FORM 10-Q - August 15, 2011

Attached files