UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-K
(Mark One)

x   
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 200 9 .
or

¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                      .

Commission File Number 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
 
Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act o Yes   x No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes  x No
 
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 o 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 o No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x
 
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 o
 
Accelerated filer  o
 
Non-accelerated filer  o
 (Do not check if a smaller 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 Act).   o Yes   x  No  

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $0.00 as no market existed for our common stock at such time.

The number of shares outstanding of Registrant’s common stock, $0.0001 par value at March 22, 2010 was 16,033,187.  

DOCUMENTS INCORPORATED BY REFERENCE

None

 

 
 
GENSPERA, INC
 
FORM 10-K
 
FOR THE YEAR ENDED DECEMBER 31, 2009
 
INDEX
 
       
Page
PART I
Item 1.
 
Business
 
3
Item 1A.
 
Risk Factors
 
11
Item 2.
 
Properties
 
17
Item 3.
 
Legal Proceedings
 
17
Item 4.
 
(Removed and Reserved)
 
17
 
PART II
Item 5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
17
Item 6.
 
Selected Financial Data
 
20
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
20
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
25
Item 8.
 
Financial Statements and Supplementary Data
 
25
Item 9.
 
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
26
Item 9A.
 
Controls and Procedures
 
27
Item 9B.
 
Other Items
 
28
 
PART III
Item 10.
 
Directors, Executive Officers and Corporate Governance
 
28
Item 11.
 
Executive Compensation
 
33
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
37
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
38
Item 14.
 
Principal Accounting Fees and Services
 
39
 
PART IV
Item 15.
 
Exhibits, Financial Statement Schedules
 
40
 
 
2

 
 
PART I
 
We urge you to read this entire Annual Report on Form 10-K, including the” Risk Factors” section and the financial statements and related notes included herein.  As used in this Annual Report, unless 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.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Annual Report 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 Annual 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 the section of this Annual Report entitled “Risk Factors” and elsewhere.  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 Annual 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”
 
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 Annual 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. 

ITEM 1.
BUSINESS
 
We are a pharmaceutical development stage company focused on the discovery and development of pro-drug cancer therapeutics, an emerging medical science. A pro-drug is an inactive precursor of a drug that is converted into its active form only at the site of the tumor.

 
3

 

Our History

In early 2004, the intellectual property underlying our technologies was assigned from Johns Hopkins University to the co-inventors, Dr. John Isaacs, Dr. Soren Christensen, Dr. Hans Lilja and Dr. Samuel Denmeade.  The Co-inventors granted us an option to license the intellectual property in return for our continued prosecution of the patent portfolio containing the intellectual property. This option was exercised in early 2008 by reimbursement of past patent prosecution costs previously incurred by Johns Hopkins University. Subsequently, the co-inventors assigned us the intellectual property in April of 2008. Our activities during the period of 2004-2007 were limited to the continued prosecution of the relevant patents.

Dr. John Isaacs and Dr. Sam Denmeade serve on our Scientific Advisory Board as Chief Scientific Advisor and Chief Medical Advisor, respectively.  Dr Soren Christensen and Dr. Hans Lilja also serve on the Company’s Scientific Advisory Board.  We currently have no oral or written agreements with Johns Hopkins University with regard to any other intellectual property or research activities.
 
The Potential of Our Pro-Drug Therapies

Cancer chemotherapy involves treating patients with cytotoxic drugs (compounds or agents that are toxic to cells). Chemotherapy is often combined with surgery or radiation in the treatment of early stage disease and it is the preferred, or only, treatment option for many forms of cancer in later stages of the disease. However, major drawbacks of chemotherapy include:

Side effects
Non-cancer cells in the body are also affected, often leading to serious side effects.

Incomplete tumor kill
Many of the leading chemotherapeutic agents act  during the process of cell division - they might be effective with tumors comprised of rapidly-dividing cells, but are much less effective for tumors that contain cells that are slowly dividing.

Resistance
Cancers will often develop resistance to current drugs after repeated exposure, limiting the number of times that a treatment can be effectively applied.

Pro-drug chemotherapy is a relatively new approach to cancer treatment that is being investigated as a means to get higher concentrations of cytotoxic agents at the tumor location while avoiding the toxicity of these high doses in the rest of the body. An inactive form of a cytotoxin (referred to as the “pro-drug”) is administered to the patient. The pro-drug is converted into the active cytotoxin only at the tumor site.

We believe that, if successfully developed, pro-drug therapies have the potential to provide an effective therapeutic approach to a broad range of solid tumors. We have proprietary technologies that appear, in animal models, to meet the requirements for an effective pro-drug. In addition, we believe that our cytotoxin addresses two drawbacks prevalent with current cancer drugs - it kills slowly- and non-dividing cancer cells as well as rapidly dividing cancer cells, and does not appear to trigger the development of resistance to its effects.

Our Technology

Our technology supports the creation of pro-drugs by attaching “masking/targeting agents” (agents that simultaneously mask the toxicity of the cytotoxin and help target the cytotoxin to the tumor) to the cytotoxin “12ADT”, and does so in a way that allows conversion of the pro-drug to its active form selectively at the site of tumors. We own patents that contain claims that cover 12ADT as a composition of matter.
 
Cytotoxin

12ADT is a chemically modified form of thapsigargin, a cytotoxin that kills fast-, slow- and non-dividing cells. Our two issued core patents, both entitled “ Tissue Specific Prodrug, ” contain claims which cover the composition of 12ADT.
 
Masking/Targeting Agent  

We use peptides as our masking/targeting agents. Peptides are short strings of amino-acids, the building blocks of many components found in cells. When attached to 12ADT, they can make the cytotoxin inactive - once removed, the cytotoxin is active again. Our technology takes advantage of the fact that the masking peptides can be removed by chemical reactors in the body called enzymes, and that the recognition of particular peptides by particular enzymes can be very specific. The peptides also make 12ADT soluble in blood. When it is removed, 12ADT returns to its natural insoluble state and precipitates directly into nearby cells.

 
4

 
 
How we make our pro-drugs
 
 
How our pro-drugs work

Our Approach

Our approach is to identify specific enzymes that are found at high levels in tumors relative to other tissues in the body. Upon identifying these enzymes, we create peptides that are recognized predominantly by those enzymes in the tumor and not by enzymes in normal tissues. This double layer of recognition adds to the tumor-targeting found in our pro-drugs. Because the exact nature of our masking/targeting peptides is so refined and specific, they form the basis for another set of our patents and patent applications on the combination of the peptides and 12ADT.

 
5

 

Our Pro-Drug Development Candidates

We currently have four pro-drug candidates identified based on this technology, as summarized in the table below (at this time we are only developing G-202):

Pro-Drug Candidate
 
Activating enzyme
 
Target location of activation
enzyme
 
Status
             
G-202
 
Prostate Specific Membrane Antigen (PSMA)
 
The blood vessels of all solid tumors
 
·
Phase I Clinical Trial is underway
               
G-114
 
Prostate Specific Antigen (PSA)
 
Prostate cancers
 
·
Validated efficacy in pre-clinical animal models (Johns Hopkins University)
               
G-115
 
Prostate Specific Antigen (PSA)
 
Prostate cancers
 
·
Validated efficacy in pre-clinical animal models (Johns Hopkins University)
               
Ac-GKAFRR-L12ADT
 
Human glandular kallikrein 2 (hK2)
 
Prostate cancers
 
·
Validated efficacy in pre-clinical animal models (Johns Hopkins University)
 
Strategy

Business Strategy

We plan to develop a series of therapies based on our pro-drug technology platform and bring them through Phase I/II clinical trials.

Manufacturing and Development Strategy

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 also be outsourced to organizations with approved facilities and manufacturing practices. 

Commercialization Strategy

We intend to license our drug compounds to third parties after Phase I/II clinical trials. It is expected that such third parties would then continue to develop, market, sell, and distribute the resulting products.
 
Market and Competitive Considerations
 
G-202

Our primary focus is the opportunity offered by our lead pro-drug candidate, G-202. We believe that we have validated G-202 as a drug candidate to treat various forms of solid tumors; including breast, urinary bladder, kidney and prostate cancer based on the ability of G-202 to cause tumor regression in animal models.  On January 19, 2010, we commenced our first Phase I Clinical Trial on G-202 at University of Wisconsin, Carbone Cancer Center in Madison, Wisconsin.  The second clinical site for the G-202 Phase I study, the Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins University, enrolled its first patient on March 3, 2010. Although we have commenced the 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 G-202.   Notwithstanding, we hope to eventually demonstrate that G-202 is more efficacious than current commercial products that treat solid tumors by disrupting their blood supply.

Potential Markets for G-202

We believe that if successfully developed, G-202 has the potential to treat a range of solid tumors by disrupting their blood supply. It is too early in the development process to determine target indications. The table below summarizes a number of the potential United States patient populations which we believe may be amenable to this therapy and represent potential target markets.

 
6

 

   
Estimated Number of
 
Probability of
Developing
(birth to death)
 
Cancer
 
New Cases (2006)
 
Male
 
Female
 
Prostate
 
192,280
 
1 in 6
   
-
 
Breast
 
194,280
 
n/a
   
1 in 8
 
Urinary Bladder
 
70,980
 
1 in 27
   
1 in 84
 
Kidney Cancer
 
57,760
 
n/a
   
n/a
 
  

Source: CA Cancer J. Clin 2009; 59; 225-249

The clinical opportunity for G-202

We believe that current anti-angiogenesis drugs (drugs that disrupt the blood supply to tumors) validate the clinical approach and market potential of G-202.  Angiogenesis is the physiological process involving the growth of new blood vessels from pre-existing vessels and is a normal process in growth and development, as well as in wound healing.  Angiogenesis is also a fundamental step in the development of tumors from a clinically insignificant size to a malignant state because no tumor can grow beyond a few millimeters in size without the nutrition and oxygenation that comes from an associated blood supply. Interrupting this process has been targeted as a point of intervention for slowing or reversing tumor growth. A well known example of a successful anti-angiogenic approach is the recently approved drug, Avastin TM , a monoclonal antibody that inhibits the activity of Vascular Endothelial Growth Factor, which is important for the growth and survival of endothelial cells.

These types of anti-angiogenic drugs have only a limited therapeutic effect with increased median patient survival times of only a few months. Our approach is designed to destroy both the existing and newly growing tumor vasculature, rather than just block new blood vessel formation. We anticipate that this approach will lead to a more immediate collapse of the tumors nutrient supply and consequently an enhanced rate of tumor destruction.

G-202 destroys new and existing blood vessels in tumors
 
 
Competition

The pharmaceutical, biopharmaceutical and biotechnology industries are very competitive, fast moving and intense, and expected to be increasingly so in the future.  Although we are not aware of any competitor who is developing a drug that is designed to destroy both the existing and newly growing tumor vasculature in a manner similar to G-202, there are several marketed drugs and drugs in development that attack tumor-associated blood vessels to some degree. For example, Avastin  TM   is a marketed product that acts predominantly as an anti-angiogenic agent. Zybrestat   TM   is another drug in development that is described as a vascular-disrupting agent that inhibits blood flow to tumors. It is impossible to accurately ascertain how well our drug will compete against these or other products that may be in the marketplace until we have human patient data for comparison.

  Other larger and well funded companies have developed and are developing drug candidates that, if not similar in type to our drug candidates, are designed to address the same patient or subject population.  Therefore, our lead product, other products in development, or any other products we may acquire or in-license may not be the best, the safest, the first to market, or the most economical to make or use.  If a competitor’s product or product in development is better than ours, for whatever reason, then our ability to license our technology could be diminished and our sales could be lower than that of competing products, if we are able to generate sales at all. 

 
7

 

Patents and Proprietary Rights

Our success will likely depend upon our ability to preserve our proprietary technologies and operate without infringing on the proprietary rights of other parties. However, we may rely on certain proprietary technologies and know-how that are not patentable or that we determine to keep as trade secrets. We protect our proprietary information, in part, by the use of confidentiality and assignment of invention agreements with our officers, directors, employees, consultants, significant scientific collaborators and sponsored researchers that generally provide that all inventions conceived by the individual in the course of rendering services to us shall be our exclusive property.  The intellectual property underlying our technology is covered by certain patents and patent applications previously owned by JHU that were assigned to us in April of 2008.  By virtue of these assignments, we have no further financial obligations to the inventors or to JHU with regard to the assigned intellectual property. JHU retains a paid-up, royalty-free, non-exclusive license to use the intellectual property for non-profit purposes. 

Number
 
Country
 
Filing
Date
 
Issue Date
 
Expiration
Date
 
Title
 
                       
Patents Issued  
                     
6,504,014
 
US
 
6/7/00
 
1/7/2003
 
6/6/2020
 
Tissue specific pro-drug (TG)
 
                       
6,545,131
 
US
 
7/28/00
 
4/8/2003
 
7/27/2020
 
Tissue specific pro-drug (TG)
 
                       
6,265,540
 
US
 
5/19/98
 
7/24/2001
 
5/18/2018
 
Tissue specific pro-drug (PSA)
 
                       
6,410,514
 
US
 
6/7/00
 
6/25/2002
 
6/6/2020
 
Tissue specific pro-drug (PSA)
 
                       
7,053,042
 
US
 
7/28/00
 
5/30/2006
 
7/27/2020
 
Activation of peptide pro-drugs by HK2
 
                       
 7,468,354
 
US
 
11/30/01
 
12/23/08
 
11/29/2021
 
 Tissue specific pro-drug
(G-202, PSMA)
 
                       
7,635,682
 
US
 
1/6/06
 
12/22/09
 
1/5/2026
 
Tumor activated pro-drugs
(G-115)
 
Patents Pending
                     
US 2008/0247950
 
US
 
3/15/07
 
 Pending
 
N/A
 
Activation of peptide pro-drugs by HK2
 
                       
US 2007/0160536
 
US
 
1/6/2006
 
Pending
 
N/A
 
Tumor Activated Pro-drugs (PSA,G-115)
 
                       
US 2009/0163426
 
US
 
11/25/08
 
Pending
 
N/A
 
Tumor specific pro-drugs (PSMA)
 
 
When appropriate, we will continue to seek patent protection for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise believe will provide us with a competitive advantage. We will accomplish this by filing and maintaining patent applications for discoveries we make, either alone or in collaboration with scientific collaborators and strategic partners. Typically, we plan to file patent applications in the United States. In addition, we plan to obtain licenses or options to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing our research, development and commercialization initiatives and our strategic business interest.

Manufacturing & Development

12ADT is manufactured by chemically modifying the cytotoxin thapsigargin, which is isolated from the seeds of Thapsia garganica , a plant predominantly found in countries bordering the Mediterranean Sea. Our pro-drug, G-202, is then manufactured by attaching a specific peptide to 12ADT.

 
8

 

Outsource Manufacturing

To leverage our experience and available financial resources, we do not plan to develop company-owned or company-operated manufacturing facilities. We plan to outsource all drug manufacturing to contract manufacturers that operate in compliance with GMP.  We may also seek to refine the current manufacturing process and final drug formulation to achieve improvements in storage temperatures and the like.

Supply of Raw Materials – Thapsibiza SL

To our knowledge, there is only one commercial supplier of Thapsia garganica seeds. In April 2007, we obtained the proper permits from the United States Department of Agriculture (“USDA”) for the importation of   Thapsia garganica seeds. In January 2008, we entered into a sole source agreement with this supplier, Thapsibiza, SL. The material terms of the agreement are as follows:

Term
The term of the agreement is for 5 years.

Exclusivity
Thapsibiza shall exclusively provide Thapsia garganica seeds to the Company. The Company has the ability to seek addition suppliers to supplement the supply from Thapsibiza, SL.

Pricing
The price shall be 300 Euro/kg. Thapsibiza may, from time to time, without notice, increase the price to compensate for any increased governmental taxes.
 
Minimum
Order
Upon successfully securing $5,000,000 of equity financing, and for so long as the Company continues to develop drugs derived from thapsigargin, the minimum purchase shall be 50kg per harvest period year.

Indemnification
Once the product is delivered to an acceptable carrier, the Company shall be responsible for an injury or damage result from the handling of the product. Prior to delivery, Thapsibiza shall be solely responsible.
 
Government Regulation

The United States Food and Drug Administration (“FDA”), as well as drug regulators in state and local jurisdictions, imposes substantial requirements upon the clinical development, manufacturing and marketing of pharmaceutical products.  The process we are required by the FDA to complete before our drug compound may be marketed in the U.S. generally involves the following:

 
·
Preclinical laboratory and animal tests;

 
·
Submission of an Investigational New Drug Application (“IND”), which must become effective before human clinical trials may begin;

 
·
Adequate and well-controlled human clinical trials to establish the safety and efficacy of the product candidate for its intended use;

 
·
Submission to the FDA of an New Drug Application (“NDA”); and

 
·
FDA review and approval of an NDA.

The testing and approval process requires substantial time, effort, and financial resources, and we cannot be certain that any approval will be granted on an expeditious basis, if at all.  Preclinical tests include laboratory evaluation of the drug candidate, its chemistry, formulation and stability, as well as animal studies to assess the potential safety and efficacy of the drug candidate.  Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring such studies to be replicated.  In some cases, long-term preclinical studies are conducted while clinical studies are ongoing.

The results of the preclinical tests, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND, which must become effective before we may begin human clinical trials.  The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, raises concerns or questions about the conduct of the trials as outlined in the IND and imposes a clinical hold.  In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can begin.  Our submission of an IND may not result in FDA authorization to commence clinical trials for any particular compound.  All clinical trials must be conducted under the supervision of a qualified investigator in accordance with good clinical practice regulations.  These regulations include the requirement that all prospective patients provide informed consent. Further, an independent Institutional Review Board (“IRB”) at each medical center proposing to conduct the clinical trials must review and approve any clinical study.  The IRB also monitors the study and must be kept informed of the study’s progress, particularly as to adverse events and changes in the research.  Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if adverse events occur.

 
9

 
 
Human cancer drug clinical trials are typically conducted in three sequential phases that may overlap:

 
·
Phase I: The drug candidate is initially introduced into cancer patients and tested for safety and tolerability at escalating dosages,

 
·
Phase II: The drug candidate is studied in a limited cancer patient population to further identify possible adverse effects and safety risks, to evaluate the efficacy of the drug candidate for specific targeted diseases and to determine dosage tolerance and optimal dosage.

 
·
Phase III: When Phase II evaluations demonstrate that a dosage range of the drug candidate may be effective and has an acceptable safety profile, Phase III trials are undertaken to further evaluate dose response, clinical efficacy and safety profile in an expanded patient population, often at geographically dispersed clinical study sites.

Our business strategy is to bring our drug candidates through Phase I/II clinical trials before licensing them to third parties who would then further develop the drugs and seek marketing approval. Once the drug is approved, the third party licensee will be expected to market, sell, and distribute the products in exchange for some combination of up-front payments, royalty payments, and milestone payments. Management cannot be certain that we, or our licensees, will successfully initiate or complete Phase I, Phase II, or Phase III testing of our product candidates within any specific time period, if at all.  Furthermore, the FDA or the IRB or the IND sponsor may suspend clinical trials at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk.

Concurrent with clinical trials and pre-clinical studies, we also must develop information about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in accordance with GMP requirements.  The manufacturing process must be capable of consistently producing quality batches of the experimental drug, and management must develop methods for testing the quality, purity, and potency of the final experimental drugs.  Additionally, appropriate packaging must be selected and tested.

The results of the drug development efforts and pre-clinical and clinical studies are then submitted to the FDA as part of an NDA for approval of the marketing and commercial shipment of the product.  The FDA reviews each NDA submitted and may request additional information, rather than accepting the NDA for filing. In this event, the application must be resubmitted with the additional information included.  The resubmitted application is also subject to review before the FDA accepts it for filing.  Once the FDA accepts the NDA for filing, the agency begins an in-depth review of the NDA.  The FDA has substantial discretion in the approval process and may disagree with our, or our licensees’, interpretation of the data submitted.
 
The review process may be significantly extended by FDA requests for additional information or clarification regarding information already provided.  Also, as part of this review, the FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians, for review, evaluation and a recommendation.  The FDA is not bound by the recommendation of the advisory committee.   Manufacturing establishments are also subject to inspections prior to NDA approval to assure compliance with GMPs and with manufacturing commitments made in the relevant marketing application.

Under the Prescription Drug User Fee Act (“PDUFA”), submission of an NDA with clinical data requires payment of a fee to the FDA, which is adjusted annually.  For fiscal year 2010, that fee is $1,405,500.  In return, the FDA assigns a goal (often months) for standard NDA reviews from acceptance of the application to the time the agency issues its “complete response,” in which the FDA may approve the NDA, deny the NDA if the applicable regulatory criteria are not satisfied, or require additional clinical data. Even if this data is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval.  If the FDA approves the NDA, the product becomes available for physicians to prescribe.  Even if the FDA approves the NDA, the agency may decide later to withdraw product approval if compliance with regulatory standards is not maintained or if safety problems are recognized after the product reaches the market.  The FDA may also require post-marketing studies, also known as Phase IV studies, as a condition of approval to develop additional information regarding the efficacy and safety of a product.  In addition, the FDA requires surveillance programs to monitor approved products that have been commercialized, and the agency has the power to require changes in labeling or to prevent further marketing of a product based on the results of these post-marketing programs.

Satisfaction of the above FDA requirements or requirements of state, local and foreign regulatory agencies typically takes several years.  Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon our activities.  Management cannot be certain that the FDA or any other regulatory agency will grant approval for our lead product G-202 (or any other products we may develop, acquire, or in-license) under development on a timely basis, if at all.  Success in preclinical or early-stage clinical trials does not assure success in later-stage clinical trials.  Data obtained from preclinical and clinical activities are not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval.  Even if a product receives regulatory approval, the approval may be significantly limited to specific indications or uses.  Further, even after regulatory approval is obtained, later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market.  Delays in obtaining, or failures to obtain regulatory approvals would have a material adverse effect on our business.

 
10

 

Any products manufactured or distributed by us, or our licensees, pursuant to the FDA clearances or approvals are subject to pervasive and continuing regulation by the FDA, including record-keeping requirements, reporting of adverse experiences with the drug, submitting other periodic reports, drug sampling and distribution requirements, notifying the FDA and gaining its approval of certain manufacturing or labeling changes, complying with certain electronic records and signature requirements, and complying with the FDA promotion and advertising requirements.  Failure to comply with these regulations could result, among other things, in suspension of regulatory approval, recalls, suspension of production or injunctions, seizures, or civil or criminal sanctions.  Management cannot be certain that our present or future subcontractors or licensees will be able to comply with these regulations and other FDA regulatory requirements.

Our product candidates are also subject to a variety of state laws and regulations in those states or localities where our lead product G-202 (and any other products we may develop, acquire, or in-license) will be marketed.  Any applicable state or local regulations may hinder our ability to market our lead product G-202 (and any other products we may develop, acquire, or in-license) in those states or localities.  In addition, whether or not FDA approval has been obtained, approval of a pharmaceutical product by comparable governmental regulatory authorities in foreign countries must be obtained prior to the commencement of clinical trials and subsequent sales and marketing efforts in those countries.  The approval procedure varies in complexity from country to country, and the time required may be longer or shorter than that required for FDA approval.  We may incur significant costs to comply with these laws and regulations now or in the future.

The FDA’s policies may change, and additional government regulations may be enacted which could prevent or delay regulatory approval of our potential products.  Moreover, increased attention to the containment of health care costs in the U.S. and in foreign markets could result in new government regulations that could have a material adverse effect on our business.  Management cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad.

Other Regulatory Requirements

The U.S. Federal Trade Commission and the Office of the Inspector General of the U.S. Department of Health and Human Services (“HHS”) also regulate certain pharmaceutical marketing practices. Also, reimbursement practices and HHS coverage of medicine or medical services are important to the success of procurement and utilization of our product candidates, if they are ever approved for commercial marketing.

We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances.  We may incur significant costs to comply with these laws and regulations now or in the future.  Management cannot assure you that any portion of the regulatory framework under which we currently operate will not change and that such change will not have a material adverse effect on our current and anticipated operations.

Employees

As of March 31, 2010 we employed 2 individuals who are also our 2 executive officers, both of whom hold advanced degrees. 

Where to Find More Information
 
We make our public filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these reports.  These materials are available on the SEC’s web site,   http://www.sec.gov . You may also read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  Alternatively, you may obtain copies of these filings, including exhibits, by writing or telephoning us at:

GENSPERA
2511 N Loop 1604 W, Suite 204
San Antonio, TX 78258
Attn: Chief Executive Officer
Tel: 210-479-8112
 
ITEM 1A. 
RISK FACTORS

We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Annual Report, may adversely affect our business, operating results and financial condition.  The uncertainties and risks enumerated below as well as those presented elsewhere in this Annual Report should be considered carefully in evaluating us, our business and the value of our securities. The following important factors, among others, could cause our actual business, financial condition and future results to differ materially from those contained in forward-looking statements made in this Annual Report or presented elsewhere by management from time to time.

 
11

 

Risks Relating to Our Stage of Development

As a result of our limited operating history, you cannot rely upon our historical performance to make an investment decision.

Since inception in 2003 and through December 31, 2009, we have raised approximately $7,228,000 in capital.  During this same period, we have recorded accumulated losses totaling $10,191,529. As of December 31, 2009, we had working capital of $2,134,006 and a stockholders’ deficit of $54,245. Our net losses for the two most recent fiscal years ended December 31, 2008 and 2009 have been 3,326,261 and $5,132,827, respectively. Since inception, we have generated no revenue.

Our limited operating history means that there is a high degree of uncertainty in our ability to: (i) develop and commercialize our technologies and proposed products; (ii) obtain approval from the FDA; (iii) achieve market acceptance of our proposed product, if developed; (iv) respond to competition; or (v) operate the business, as management has not previously undertaken such actions as a company. No assurances can be given as to exactly when, if at all, we will be able to fully develop, license, commercialize, market, sell and derive material revenues from our proposed products in development.

We will need to raise additional capital to continue operations.

We currently generate no cash. We have relied entirely on external financing to fund operations. Such financing has come primarily from the sale of common stock to third parties and the exercise of warrants/options. We have expended and will continue to expend substantial amounts of cash in the development, pre-clinical and clinical testing of our proposed products. We will require additional cash to conduct drug development, establish and conduct pre-clinical and clinical trials and for general working capital needs. We anticipate that we will require an additional $7 million to take our lead drug through Phase II clinical evaluation, which is currently anticipated to occur in the fourth quarter of 2011.

As of December 31, 2009, we had cash on hand of approximately $2,255,000 and then raised $860,000 in the first quarter of 2010 which we anticipate will fund our operations through June of 2011.  Presently, the Company has an average monthly cash burn rate of approximately $185,000.  We expect this average monthly cash burn rate to remain constant over the next fifteen months, assuming we do not engage in an extraordinary transaction or otherwise face unexpected events or contingencies.  Accordingly, we will need to raise additional capital to fund anticipated operating expenses after June of 2011. In the event we are not able to secure financing, we may have to delay, reduce the scope of or eliminate one or more of our research, development or commercialization programs or product launches or marketing efforts.  Any such change may materially harm our business, financial condition and operations.

Our long term capital requirements are expected to depend on many factors, including:

 
·
our development programs;

 
·
the progress and costs of pre-clinical studies and clinical trials;

 
·
the time and costs involved in obtaining regulatory clearance;

 
·
the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims;

 
·
the costs and our ability to license our products;

 
·
competing technological and market developments;

 
·
market acceptance of our proposed products, if developed; and

 
·
the costs for recruiting and retaining employees, consultants and professionals.

We cannot assure you that financing whether from external sources or related parties, will be available if needed or on favorable terms. If additional financing is not available when required or is not available on acceptable terms, we may be unable to fund operations and planned growth, develop or enhance our technologies, take advantage of business opportunities or respond to competitive market pressures.

Raising needed capital may be difficult as a result of our limited operating history.

When making investment decisions, investors typically look at a company’s historical performance in evaluating the risks and operations of the business and the business’s future prospects. Our limited operating history makes such evaluation and an estimation of our future performance substantially more difficult. As a result, investors may be unwilling to invest in us or such investment may be on terms or conditions which are not acceptable. If we are unable to secure such additional finance, we may need to cease operations.

 
12

 

We may not be able to commercially develop our technologies.

We have concentrated our research and development on our pro-drug technologies.  Our ability to generate revenue and operate profitably will depend on our being able to develop these technologies for human applications. Our technologies are primarily directed toward the development of cancer therapeutic agents. We cannot guarantee that the results obtained in the pre-clinical and clinical evaluation of our therapeutic agents will be sufficient to warrant approval by the FDA. Even if our therapeutic agents are approved for use by the FDA, there is no guarantee that they will exhibit an enhanced efficacy relative to competing therapeutic modalities such that they will be adopted by the medical community. Without significant adoption by the medical community, our agents will have limited commercial potential which could harm our ability to generate revenues, operate profitably or remain a viable business.

Inability to complete pre-clinical and clinical testing and trials will impair our viability.

In the first quarter of 2010, we commenced our first clinical trials of G-202 at the University of Wisconsin, Carbone Cancer Center in Madison Wisconsin.   Although we have commenced our clinical 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. No assurances can be given that our clinical trials will be successful. The failure of such trials could delay or prevent regulatory approval and could harm our ability to generate revenues, operate profitably or remain a viable business.

Future financing will result in dilution to existing stockholders.

We will require additional financing in the future. We are authorized to issue 80 million shares of common stock and 10 million shares of preferred stock. Such securities may be issued without the approval or consent of our stockholders. The issuance of our equity securities in connection with a future financing will result in a decrease of our current stockholders’ percentage ownership.

Risks Relating to Intellectual Property and Government Regulation

We may not be able to withstand challenges to our intellectual property rights.

We rely on our intellectual property, including our issued and applied for patents, as the foundation of our business. Our intellectual property rights may come under challenge.  No assurances can be given that, even if issued, our patents will survive claims alleging invalidity or infringement on other patents. The viability of our business will suffer if such patent protection becomes limited or is eliminated.

We may not be able to adequately protect our intellectual property.

Considerable research with regard to our technologies has been performed in countries outside of the United States. The laws protecting intellectual property in some of those countries may not provide protection for our trade secrets and intellectual property.  If our trade secrets or intellectual property are misappropriated in those countries, we may be without adequate remedies to address the issue. At present, we are not aware of any infringement of our intellectual property. In addition to our patents, we rely on confidentiality and assignment of invention agreements to protect our intellectual property. These agreements provide for contractual remedies in the event of misappropriation.  We do not know to what extent, if any, these agreements and any remedies for their breach will be enforced by a court. In the event our intellectual property is misappropriated or infringed upon and an adequate remedy is not available, our future prospects will greatly diminish.

Our proposed products may not receive FDA approval.

The FDA and comparable government agencies in foreign countries impose substantial regulations on the manufacture and marketing of pharmaceutical products through lengthy and detailed laboratory, pre-clinical and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these regulations typically takes several years or more and varies substantially based upon the type, complexity and novelty of the proposed product.  On September 4, 2009, we received approval from the FDA for our first IND in order to commence clinical trials with our lead drug candidadte, G-202.   Although we began the G-202 Phase I clinical trial on January 19, 2010, we cannot assure you that we will successfully complete the trial.  Further, we cannot yet accurately predict when we might first submit any product license application for FDA approval or whether any such product license application would be granted on a timely basis, if at all.   Any delay in obtaining, or failure to obtain, such approvals could have a materially adverse effect on the commercialization of our products and the viability of the company.

General Risks Relating to Our Business and Business Model

We depend on Craig A. Dionne, PhD, our Chief Executive Officer, and Russell Richerson, PhD, our Chief Operating Officer, for our continued operations.

We only have 2 full time employees.  The loss of either Craig A. Dionne, PhD, our Chief Executive Officer, or Russell Richerson, PhD, our Chief Operating Officer, would be detrimental to us. Although we have entered into employment agreements with Messrs Dionne and Richerson, there can be no assurance that these individuals will continue to provide services to us. A voluntary or involuntary termination of employment by Messrs. Dionne or Richerson could have a materially adverse effect on our business.  Further, as part of their employment agreements, Messrs Dionne and Richerson agreed to not compete with us for a certain amount of time following the termination of their employment.  Once the applicable time of these provisions expires, Messrs Dionne and Richerson may be employed by a competitor of ours in the future.

 
13

 

We may be required to make significant payments to members of our management in the event their employment with us is terminated or if we experience a change of control.

We are a party to employment agreements with each of Craig Dionne, our President and Chief Executive Officer and Russell Richerson, our Chief Operating Officer.  In the event we terminate the employment of any of these executives, we experience a change in control, or in certain cases, if such executives terminate their employment with us, such executives will be entitled to receive certain severance and related payments.  Additionally, in such instance, certain securities held by Messrs. Dionne and Richerson will become immediately vested and exercisable.  Upon the occurrence of any such event, our obligation to make such payments could significantly impact our working capital and accordingly, our ability to execute our business plan which could have a materially adverse effect to our business.  Also, these provisions may discourage potential takeover attempts.

We will require additional personnel to execute our business plan.

Our anticipated growth and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing and marketing, may require the addition of new management personnel and the development of additional expertise by existing management. There is intense competition for qualified personnel in such areas.  There can be no assurance that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business.

Our competitors have significantly greater experience and financial resources.

We compete against numerous companies, many of which have substantially greater financial and other resources than us. Several such enterprises have research programs and/or efforts to treat the same diseases we target. Companies such as Merck, Ipsen and Diatos, as well as others, have substantially greater resources and experience than we do and are situated to compete with us effectively.  As a result, our competitors may bring competing products to market that would result in a decrease in demand for our product, if developed, which could have a materially adverse effect on the viability of the company.

We intend to rely exclusively upon the third-party FDA-approved manufacturers and suppliers for our products.

We currently have no internal manufacturing capability, and will rely exclusively on FDA-approved licensees, strategic partners or third party contract manufacturers or suppliers. Should we be forced to manufacture our products, we cannot give you any assurance that we will be able to develop internal manufacturing capabilities or procure third party suppliers. In the event we seek third party suppliers, they may require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event would materially impact our prospects and could delay the development and sale of our products. Moreover, we cannot give you any assurance that any contract manufacturers or suppliers that we select will be able to supply our products in a timely or cost effective manner or in accordance with applicable regulatory requirements or our specifications.

Our business is dependent upon securing sufficient quantities of a natural product that currently grows in very specific locations outside of the United States.

The therapeutic component of our products, including our lead compound G-202, is referred to as 12ADT. 12ADT functions by dramatically raising the levels of calcium inside cells, which leads to cell death. 12ADT is derived from a material called thapsigargin. Thapsigargin is derived from the seeds of a plant referred to as Thapsia garganica which grows along the coastal regions of the Mediterranean Sea. We currently secure the seeds from Thapsibiza, SL, a third party supplier. There can be no assurances that the countries from which we can secure Thapsia garganica will continue to allow Thapsibiza, SL to collect such seeds and/or to do so and export the seeds derived from Thapsia garganica    to the United States. In the event we are no longer able to import these seeds, we will not be able to produce our proposed drug and our business will be adversely affected.

The current manufacturing process of G-202 requires acetonitrile.

The current manufacturing process for G-202 requires the common solvent acetonitrile. Beginning in late 2008, there was a temporary worldwide shortage of acetonitrile for a variety of reasons. We observed that during that period of time the available supply of acetonitrile was of variable quality, some of which is not suitable for our purposes.  If we are unable to successfully change our manufacturing methods to avoid the reliance upon acetonitrile, we may incur prolonged production timelines and increased production costs if an acetonitrile shortage was to reoccur. In an extreme case this situation could adversely affect our ability to manufacture G-202 altogether, thus significantly impacting our future operations.

In order to secure market share and generate revenues, our proposed products must be accepted by the health care community.

Our proposed products, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community in general may decide not to accept and utilize them. We are attempting to develop products that will likely be first approved for marketing in late stage cancer where there is no truly effective standard of care. If approved for use in late stage, the drugs will then be evaluated in earlier stage where they would represent substantial departures from established treatment methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. It is too early in the development cycle of the drugs for us to accurately predict our major competitors.  Nonetheless, the degree of market acceptance of any of our developed products will depend on a number of factors, including:

 
14

 

 
·
our demonstration to the medical community of the clinical efficacy and safety of our proposed products;

 
·
our ability to create products that are superior to alternatives currently on the market;

 
·
our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and

 
·
the reimbursement policies of government and third-party payors.

If the health care community does not accept our products for any of the foregoing reasons, or for any other reason, our business will be materially harmed.

We may be required to secure land for cultivation and harvesting of Thapsia garganica.

We believe that we can satisfy our needs for clinical development of G-202 through completion of Phase III clinical studies from Thapsia garganica that grows naturally in the wild.  In the event G-202 is approved for commercial marketing, our current supply of Thapsia garganica may not be sufficient for the anticipated demand.  We estimate that in order to secure sufficient quantities of Thapsia garganica for the commercialization of a product comprising G-202, we will need to secure approximately 100 acres of land to cultivate and grow Thapsia garganica .   We anticipate the cost to lease such land would be $40,000 per year but have not yet fully assessed what other costs would be associated with a full-scale farming operation. There can be no assurances that we can secure such acreage, or that even if we are able to do so, that we could adequately grow sufficient quantities of Thapsia garganica to satisfy any commercial objectives that involve G-202. Our inability to secure adequate seeds will result in us not being able to develop and manufacture our proposed drug and will adversely impact our business.

Thapsia garganica and Thapsigargin can cause severe skin irritation.

It has been known for centuries that the plant Thapsia garganica can cause severe skin irritation when contact is made between the plant and the skin.  In 1978, thapsigargin was determined to be the skin-irritating component of the plant Thapsia garganica . The therapeutic component of our products, including our lead product G-202, is derived from thapsigargin. We obtain thapsigargin from the above-ground seeds of Thapsia garganica . These seeds are harvested by hand and those conducting the harvesting must wear protective clothing and gloves to avoid skin contact. Although we obtain the seeds from a third-party contractor located in Spain, and although the contractor has contractually waived any and all liability associated with collecting the seeds, it is possible that the contractor or those employed by the contractor may suffer medical issues related to the harvesting and subsequently seek compensation from us via, for example, litigation.  No assurances can be given, despite our contractual relationship with the third party contractor, that we will not be the subject of litigation related to the harvesting.

The synthesis of 12ADT must be conducted in special facilities.

There are a limited number of manufacturing facilities qualified to handle and manufacture therapeutic toxic agents and compounds. This limits the potential number of possible manufacturing sites for our therapeutic compounds derived from Thapsia garganica .   No assurances can be provided that these facilities will be available for the manufacture of our therapeutic compounds under our time schedules or within the parameters of our manufacturing budget. In the event facilities are not available for manufacturing our therapeutic compounds, our business and future prospects will be adversely affected.

Our lead therapeutic compound, G-202, has not been subjected to large scale manufacturing procedures.

To date, G-202 has only been manufactured at a scale adequate to supply early stage clinical trials. There can be no assurances that the current procedure for manufacturing G-202 will work at a larger scale adequate for commercial needs.  In the event G-202 cannot be manufactured in sufficient quantities, our future prospects could be significantly impacted.

We may not have adequate insurance coverage.

The testing, manufacturing, marketing and sale of human therapeutic products entail an inherent risk of product liability claims.  We cannot assure you that substantial claims will not be asserted against us.  In the event we are forced to expend significant funds on defending such claims beyond our current coverage, and in the event those funds come from operating capital, we will be required to reduce our business activities, which could lead to significant losses.

Provisions in Delaware law and executive employment agreements may prevent or delay a change of control

We are subject to the Delaware anti-takeover laws regulating corporate takeovers.  These anti-takeover laws prevent Delaware corporations from engaging in a merger or sale of more than 10% of its assets with any stockholder, including all affiliates and associates of the stockholder, who owns 15% or more of the corporation’s outstanding voting stock, for three years following the date that the stockholder acquired 15% or more of the corporation’s assets unless:

 
15

 

 
·
the Board of Directors approved the transaction in which the stockholder acquired 15% or more of the corporation’s assets;

 
·
after the transaction in which the stockholder acquired 15% or more of the corporation’s assets, the stockholder owned at least 85% of the corporation’s outstanding voting stock, excluding shares owned by directors, officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held under the plan will be tendered in a tender or exchange offer; or

 
·
on or after this date, the merger or sale is approved by the Board of Directors and the holders of at least two-thirds of the outstanding voting stock that is not owned by the stockholder.

A Delaware corporation may opt out of the Delaware anti-takeover laws if its certificate of incorporation or bylaws so provide. We have not opted out of the provisions of the anti-takeover laws. As such, these laws could prohibit or delay mergers or other takeover or change of control of GenSpera and may discourage attempts by other companies to acquire us.

In addition, employment agreements with certain executive officers provide for the payment of severance and acceleration of the vesting of options and restricted stock in the event of termination of the executive officer following a change of control of GenSpera.  These provisions could have the effect of discouraging potential takeover attempts.

Risks Relating To Our Common Stock

There is no established public market for our securities.

On September 18, 2009, our common shares began quotation on the OTCBB.  Notwithstanding, there has been sporadic trading in our common shares.  Accordingly, there is no established public market for our securities.  An investment in our common stock should be considered totally illiquid.  No assurances can be given that a public market for our securities will ever materialize. Additionally, even if a public market for our securities develops and our securities become traded, the trading volume may be limited, making it difficult for an investor to sell shares.

We face risks related to compliance with corporate governance laws and financial reporting standards.

The Sarbanes-Oxley Act of 2002, as well as related new rules and regulations implemented by the SEC and the Public Company Accounting Oversight Board, require changes in the corporate governance practices and financial reporting standards for public companies.  These new laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting (“Section 404”), will materially increase the Company's legal and financial compliance costs and make some activities more time-consuming and more burdensome. As a result, management will be required to devote more time to compliance which could result in a reduced focus on the development thereby adversely affecting the Company’s development activities. Also, the increased costs will require the Company to seek financing sooner that it may otherwise have had to.

Starting in 2007, Section 404 of the Sarbanes-Oxley Act of 2002 requires a company’s management to assess the company’s internal control over financial reporting annually and include a report on such assessment in our annual report filed with the SEC.  For small reporting companies with fiscal years ending on or after June 15, 2010, independent registered public accounting firms will be required to audit both the design and operating effectiveness of our internal controls and management's assessment of the design and the operating effectiveness of such internal controls.  If this deadline is not extended, we will be required to expand substantial capital in connection with compliance.

Because of our limited resources, management has concluded that our internal control over financial reporting may not be effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the Committee of Sponsoring Organizations of the Treadway Commission internal control framework.

We do not intend to pay cash dividends.

We do not anticipate paying cash dividends in the foreseeable future. Accordingly, any gains on your investment will need to come through an increase in the price of our common stock.  The lack of a market for our common stock makes such gains highly unlikely.

 
16

 

Our board of directors has broad discretion to issue additional securities.

We are entitled under our certificate of incorporation to issue up to 80,000,000 common and 10,000,000 “blank check” preferred shares. Blank check preferred shares provide the board of directors broad authority to determine voting, dividend, conversion, and other rights. As of December 31, 2009, we have issued and outstanding 15,466,446 common shares and we have 7,648,684 common shares reserved for issuance upon the exercise of current outstanding options, warrants and convertible securities. Accordingly, we will be entitled to issue up to 56,884,870 additional common shares and 10,000,000 additional preferred shares. Our board may generally issue those common and preferred shares, or options or warrants to purchase those shares, without further approval by our shareholders.  Any preferred shares we may issue will have such rights, preferences, privileges and restrictions as may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation provisions. It is likely that we will be required to issue a large amount of additional securities to raise capital to further our development and marketing plans. It is also likely that we will be required to issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our various stock plans. The issuance of additional securities may cause substantial dilution to our shareholders.

Our Officers and Scientific Advisors beneficially own approximately 41%of our outstanding common shares.

Our Officers and Scientific Advisors own approximately 41% of our issued and outstanding common shares. As a consequence of their level of stock ownership, the group will substantially retain the ability to elect or remove members of our board of directors, and thereby control our management. This group of shareholders has the ability to significantly control the outcome of corporate actions requiring shareholder approval, including mergers and other changes of corporate control, going private transactions, and other extraordinary transactions any of which may be in opposition to the best interest of the other shareholders and may negatively impact the value of your investment.

ITEM 2. 
PROPERTIES
 
Our executive   offices are located at 2511 N Loop 1604 W, Suite 204San Antonio, TX 78258. We lease this facility consisting of approximately 850square feet, for $1,422 per month. Our lease expires on September 15, 2012.
 
The aforesaid properties are in good condition and we believe they will be suitable for our purposes for the next 12 months. There is no affiliation between us or any of our principals or agents and our landlords or any of their principals or agents.
 
ITEM 3.
LEGAL PROCEEDINGS
 
As of the date of this Annual Report, there are no material pending legal or governmental proceedings relating to our company or properties to which we are a party, and to our knowledge there are no material proceedings to which any of our directors, executive officers or affiliates are a party adverse to us or which have a material interest adverse to us.
 
ITEM 4. 
(REMOVED AND RESERVED)
 
PART II

ITEM 5. 
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is currently quoted on the Over-the-Counter Bulletin Board under the symbol GNSZ.  The trading and quotation of our shares is limited and sporadic.  Accordingly, we have concluded that no established public trading market for our common stock exists.

Holders

As of March 29, 2010, our common stock was held by approximately 118 record holders. We believe that our actual number of shareholders may be significantly higer as 4,957,975 shares are currently held in street name.

Dividends

We have not paid any cash dividends to date, and we have no plans to do so in the future.

Equity Compensation Plan Information

The following table sets forth information as of December 31, 2009 with respect to our compensation plans under which equity securities may be issued.

 
17

 
 
   
(a)
 
(b)
 
(c)
 
   
Number of Securities
to be Issued
upon Exercise of
Outstanding
Options, Warrants
and Rights
 
Weighted-Average
 Exercise Price of 
Outstanding
Options,
Warrants and
Rights
 
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation Plans
(Excluding Securities
Reflected in Column (a))
 
Equity compensation plans approved by security holders
               
2007 Stock Plan, as amended  (1)
 
784,000
 
$
0.67
 
5,216,000
 
Equity compensation plans not approved by security holders
               
2009 Executive Compensation Plan
 
1,775,000
   
1.58
 
0
 
Total
 
2,559,000
 
$
1.30
 
5,216,000
 
 

  
(1)
Our 2007 Stock Plan, as amended, provides for the issuance of up to 1,500,000 common shares during any calendar year.  The plan provides for authorizes the issuance of up to 6,000,000 common shares in the aggregate.
 
GenSpera2009 Executive Compensation Plan

Our 2009 Executive Compensation Plan (“2009 Plan”) is administered by our Board or any of its committee. The purpose of our 2009 Plan is to advance the interests of GenSpera and our stockholders by attracting, retaining and rewarding persons performing services for us and to motivate such persons to contribute to our growth and profitability.  The issuance of awards under our 2009 Plan is at the discretion of the administrator, which has the authority to determine the persons to whom any awards shall be granted and the terms, conditions and restrictions applicable to any award. Under our 2009 Plan, we may grant stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares and other stock based awards. Our 2009 Plan authorizes the issuance of up to 1,775,000 shares of our common stock for the foregoing awards.

Recent Sales of Unregistered Securities.

The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder:

 
·
On February 17, 2009, we entered into a modification with TRW with regard to our 5% Convertible Debenture issued to TRW in the amount of $163,600.  Pursuant to the modification, TRW agreed to extend the maturity date of the debenture from July 14, 2009 to July 14, 2010.  As consideration for the modification, we issued TRW a common stock purchase warrant entitling TRW to purchase 50,000 shares of our common stock at a per share purchase price of $1.50.  The warrant has a five year term and contains certain anti-dilution provisions requiring us to adjust the exercise price and number of shares upon the occurrence of a stock split, stock dividends or stock consolidation.

 
·
On February 17, 2009, we entered into a modification with Craig Dionne, our Chief Executive Officer and Chairman with regard to our 4% Convertible Promissory Note issued to Mr. Dionne in the amount of $35,000.  Pursuant to the modification, Mr. Dionne agreed to extend the maturity date of the Note from December 2, 2008 to December 2, 2009.  Mr. Dionne had previously deferred repayment of the note.  As consideration for the modification, we issued Mr. Dionne a common stock purchase warrant entitling Mr. Dionne to purchase 11,000 shares of our common stock at a per share purchase price of $1.50.  The warrant has a five year term and contains certain anti-dilution provisions requiring us to adjust the exercise price and number of shares upon the occurrence of a stock split, stock dividends or stock consolidation.
 
 
·
On February 19, 2009, we entered into a securities purchase agreement with a number of accredited investors.  Pursuant to the terms of the securities purchase agreement, we sold the investors 500,000 units in the aggregate amount of approximately $750,000.  The price per unit was $1.50.  Each unit consists of: (i) one share of common stock; and (ii) one-half common stock purchase warrant.  The warrants have a term of five years and allow the holder to purchase our common shares at a price per share of $3.00.  The warrants also contain anti-dilution protection in the event of stock splits, stock dividends and other similar transactions.   The provisions do not provide for any adjustment in the event of subsequent equity sales or transactions.  The warrants are also callable by the Company in the event the Company’s shares are publically traded in the future and certain price and volume conditions are met.

As a result of offering, the anti-dilution provisions in our warrants issued during the July and August 2008 financing were triggered.  These anti-dilution provisions resulted in the exercise price of these warrants being reduced from $2.00 to $1.50.  Additionally, we issued holders of these warrants an additional 506,754 additional warrants.  We were obligated to file a registration statement for the common stock underlying such warrants pursuant to the registration rights agreement entered into in connection with the July and August 2008 financing.

 
18

 

We also entered into registration rights agreements with the investors granting certain registration rights with regard to the shares and the shares underlying the warrants.  The registration rights Agreement provides for penalties to be paid in restricted shares in the event the Company: (i) fails to file a registration statement or have such registration statement declared effective within a certain period of time; or (ii) fails to maintain the registration statement effective until all the securities registered therein are sold or are eligible for resale pursuant to Rule 144 without manner of sale or volume restrictions.  Subsequent to the issuance, a majority of the investors agreed to waive the date by which the registration statement needed to be filed.  As a result of the waiver, a registration statement covering the shares and shares underlying the warrants was filed.

 
·
On May 8, 2009, we issued 61,875 common shares to Lyophilization Services of New England, Inc. as payment for services valued at $74,869 provided in connection with manufacturing of our first drug compound.   The shares were valued at $1.50 per share.

 
·
In June and July of 2009 we entered into a series of securities purchase agreements with a number of accredited and institutional investors.  Pursuant to the terms of the agreements, we offered and sold an aggregate of 2,025,344 units resulting in gross proceeds to us of approximately $3,038,000.  The price per unit was $1.50.  Each unit consists of: (i) one share of common stock; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and entitle the investors to purchase our common shares at a price per share of $3.00.  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 stock dividends and fundamental transactions.  The provisions do not provide for any adjustment in the event of subsequent equity sales or transactions.  The warrants are also callable in the event our common stock becomes publically traded and certain other conditions, as described in the warrants, are met.  The Company incurred a total of $222,050 in fees and expenses incurred in connection with the transactions.  Of this amount, $64,000 was paid through the issuance of 42,667 units. We also issued a total of 83,895 additional common stock purchase warrants as compensation to certain finders.  The warrants have the same terms as the investor warrants.  The securities purchase agreements are substantially similar other than the agreement entered into on June 29, 2009 extended the expiration of most favored nation treatment from 90 days until December 31, 2009.

The Company also entered into two Registration Rights Agreements with the investors granting the Investors certain registration rights with regard to the Shares and the shares underlying the Warrants.  The Company has fulfilled all of its requirements pursuant to the Registration Rights Agreements.

 
·
On July 10, 2009, we issued Kemmerer Resources Corp. a common stock purchase warrant to purchase 150,000 common shares as reimbursement of due diligence expenses. The warrants have a term of five years and entitle the investors to purchase our common shares at a price per share of $3.00.  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 stock dividends and fundamental transactions.  The provisions do not provide for any adjustment in the event of subsequent equity sales or transactions.

 
·
On September 2, 2009 we entered a securities purchase agreement with a number of accredited investors.  Pursuant to the terms of the agreement, the Company sold units in the aggregate of 140,000 units resulting in gross proceeds of $210,000.  The price per unit was $1.50.  Each unit consists of: (i) one share of the Company’s common stock; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and entitle the Investors to purchase the Company’s common shares at a price per share of $3.00.  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 stock dividends and fundamental transactions.  The provisions do not provide for any adjustment in the event of subsequent equity sales or transactions.  The warrants are also callable in the event the our common stock becomes publically traded and certain other conditions, as described in the warrants, are met.  In connection with the offering, we incurred a total of $23,100 in fees and expenses incurred in connection with the transaction.  Of this amount, $16,000 has been paid through the issuance of 10,667 units. We also issued warrants to purchase 12,267, common shares, with identical terms to the warrant, as a partial finder’s fee in connection with the offering.
 
 
·
The Company also entered into a Registration Rights Agreement with the investors granting the Investors certain registration rights with regard to the Shares and the shares underlying the Warrants.  The Company has fulfilled all of its requirements pursuant to the Registration Rights Agreements.

 
·
On September 2, 2009, in connection with their employment agreements, we issued Messrs Dionne and Richerson common stock purchase options to purchase an aggregate of 1,775,000 common shares ( Dionne-1,000,000, Richerson—775,000 ) for a further description of the transaction see the section of this Report entitled “ Employment Agreements and Change in Control .”


 
·
On September 2, 2009, we issued certain consultants options to purchase an aggregate of 125,000 common shares.  The options were granted pursuant to our 2007 Equity Compensation Plan, have an exercise price of $1.50 per share and are fully vested at the grant date.  The options have a term of 5 years and can be exercised at any time during their term.

 
·
On September 2, 2009, we issued a consultant a warrant to purchase 20,000 common shares.  The warrant was issued as compensation for services related to our clinical trials.  The warrant has an exercise price of $1.50 per share and is fully vested at the grant date.  The warrant has a term of 5 years.

 
19

 

 
·
On September 2, 2009, we issued a consultant a warrant to purchase 100,000 common shares.  The warrant was issued as compensation for investor relations services.  The warrant has an exercise price of $1.50 per share and is fully vested at the grant date.  The warrant has a term of 5 years.

 
·
On September 2, 2009, we issued one of our service providers 25,000 common shares as compensation for services relating to the coordination of clinical trial sites and CRO services.  The shares were valued at $1.50 per share or an aggregate consideration of $37,500.

 
·
On November 2, 2009, we issued TR Winston & Company, LLC, 174,165 common shares as payment in full ($163,500 principal and $10,565 accrued interest) of its 5% convertible debenture dated July 14, 2009.

 
·
During January and March 2010, we entered into securities purchase agreements with a number of accredited investors.  Pursuant to the terms of the agreements, we sold 553,407 units resulting in gross proceeds of  approximately $880,000.  The price per unit was $1.65.  Each unit consists of: (i) one share of common stock; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and allow the investors to purchase our common shares at a price per share of $3.10.  The warrants also contain anti-dilution protection in the event of stock splits, stock dividends and other similar transactions. We incurred placement agent fees of  of $70,410 in connection with the transaction. We also issued a total of 42,673 additional common stock purchase warrants as compensation.  The warrants have the same terms as the investor warrants except that 12,160 warrants have an exercise price of $2.20 and 30,513 warrants have an exercise price of $2.94.   
 
ITEM 6. 
SELECTED FINANCIAL DATA

We are not required to provide the information as to selected financial data as we are considered a smaller reporting company.

ITEM 7. 
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 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 our business 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 2009 to 2008.

 
·
Liquidity and Capital Resources —  A discussion of our financial condition and potential sources of liquidity.
 
The various sections of this MD&A contain a number of 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 Risk Factors section of this Prospectus. Our actual results may differ materially.

Overview

We are a development stage 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, TX.

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.

 
20

 

Plan of Operation

We have made significant progress in key areas such as drug manufacture, toxicology, and pre-clinical activities for our lead compound G-202.

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.
 
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 much of 2010, 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 regime for the subsequent clinical studies. We currently plan to conduct 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). We are currently negotiating contracts for conduct of the Phase I studies.  The final terms of the contracts have not yet been determined.

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 single tumor type will be evaluated, but we expect that over 40 patients will be required for an appropriate evaluation over a total 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 and in all likelihood this will not occur until after the development of G-202.

From inception through December 31, 2009, 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 $5,277,000, 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.

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 $1,600,000 and will be completed in the second quarter of 2011.

Phase II clinical studies will cost an additional $4,200,000 and will be completed in the fourth quarter of 2012.

We anticipate that we will license G-202 to a third party during Phase I/II.  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 second half of 2016 with an additional $3,000,000 spent to get the NDA approved. We do not expect material net cash inflows before late 2015.  The Phase III estimated costs are subject to major revision simply because we have not yet entered clinical testing of our drug in patients. The estimates will become more refined as we obtain 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.

 
21

 
 
We currently have budgeted $2,219,000 in cash expenditures for the twelve month period following the date of this report, including (1) $1,013,000 to cover our projected general and administrative expense during this period; and (2) $1,206,000 for research and development activities. Our cash on hand as of December 31, 2009 together with the monies raised in the fisrt quarter of 2010 is sufficient to fund our operations for the next 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.

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.

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.

 
22

 

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.
 
Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008

Revenue
 
We did not have revenue during the years ending December 31, 2009 and 2008.  We do not anticipate any revenues for 2010.

Operating Expenses
 
Operating expense totaled $3,511,981 and $3,287,285 during 2009 and 2008, respectively.  The increase in operating expenses is the result of the following factors.
 
 
  
 
  
  
 
  
  
Change in
  
  
  
 
  
  
 
  
  
2009
  
               
Versus 2008
 
   
2009
   
2008
   
$
   
%
 
Operating Expenses
                               
General and administrative expenses
 
$
1,424,847
   
$
854,294
   
$
570,553
     
66.8
%
Research and development
   
2,087,134
     
2,432,991
     
(345,857
)    
(14.2
)%
Total expense
 
$
3,511,981
   
$
3,287,285
   
$
224,696
     
6.8
%
 
General and Administrative Expenses
 
G&A expenses totaled $1,424,847 and $854,294 during 2009 and 2008, respectively.   The increase of $570,553 or 66.8% for 2009 compared to 2008 was primarily attributable to increases of approximately $292,000 in compensation and consulting expense (including an increase in stock based compensation of approximately $215,000), $31,000 in travel and entertainment expense, $25,000 in insurance expense and $203,000 in professional fees (including stock based cost of approximately $88,000).

Research and Development Expenses
 
Research and development expenses totaled $2,087,134 and $2,432,991 during 2009 and 2008, respectively.   The decrease of $345,857
or 14.2% for 2009 compared to 2008 was primarily attributable to an increase of approximately $852,000 in compensation expense (including stock based compensation of approximately $831,000), which was more than offset by a decrease of approximately $1,198,000 in costs associated with manufacture and other expenses related to our lead drug.

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. 

 
23

 
 
Other Expenses
 
Other expenses totaled $1,620,846 and $38,976 for 2009 and 2008, respectively.

 
  
 
  
  
 
  
  
Change in
  
  
  
 
  
  
 
  
  
2009
  
  
  
 
  
  
 
  
  
Versus 2008
  
  
  
2009
  
  
2008
  
  
$
  
  
%
  
Other Expenses
                               
Financing Cost
 
$
(478,886
)  
$
(39,789
 
$
(439,097
)    
1104
%
Change in fair value of derivative liablity
   
(1,140,094
)    
-
     
(1,140,094
)    
-
 
Interest income (expense)
   
(1,886
)    
813
     
(2,699
)    
331
%
Total expense
 
$
(1,620,846
)  
$
(38,976
)
 
$
(1,581,870
)    
4058
%
 
Finance Cost
 
Finance Cost totaled $478,886 and $39,789 during 2009 and 2008, respectively. The increase of $439,097 or 1104% for 2009 compared to 2008 was primarily attributable to 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. The balance of the cost consists of the amortization of debt discount of $11,046 and $9,629 during 2009 and 2008, respectively, and a 2008 charge of $30,160 related to a penalty for the late filing of our registration statement.
  
Change in fair value of derivative liability

The charge for the change in fair value of derivative liability totaled $1,140,094 for 2009 compared to $0 for 2008. The increase of $1,140,094 for 2009 compared to 2008 was the result of a change to the accounting treatment of our issued and outstanding warrants which contain certain anti-dilution provisions.

At December 31, 2009 we recalculated the fair value of our warrants subject to derivative accounting and have determined that their fair value at December 31, 2009 is $2,290,686. The fair 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 98%; and (4) an expected life of the warrants of 2 years. We have recorded an expense of $1,140,094 during  2009 related to the change in fair value during that period.

Interest expense

Interest expense totaled $1,886 for 2009 compared to interest income of $813 for 2008. The increase of $2,699 for 2009 compared to 2008 was attributable to an increase in debt outstanding in 2009, partially offset by interest earned on deposits. 

Net Loss
 
Net losses for 2009 and 2008 were $5,132,827 and $3,326,261, respectively, resulting from the expenses described above. 

Liquidity and Capital Resources
 
Since our inception, we have financed our operations through the private placement of our securities. At December 31, 2009 we had cash on hand of approximately $2,255,000 and raised an additional $860,000 in the first quarter of 2010. Our currently average monthly cash burn rate is approximately $185,000. We anticipate that our available cash will be sufficient to finance most of our current activities for at least the next eighteen months from December 31, 2009, assuming we do not engage in an extraordinary transaction or otherwise face unexpected events or contingencies.  

               
Change in
 
               
2009
 
               
Versus 2008
 
   
2009
   
2008
   
$
   
%
 
Cash & Cash Equivalents
 
$
2,255,311
   
$
534,290
   
$
1,721,021
     
322.1
%
Net cash used in operating activities
 
$
(2,010,483
)  
$
(2,649,977
)  
$
639,494
     
24.1
%
Net cash used in investing activities
 
$
(15,833
)  
$
(184,168
)  
$
168,335
     
91.4
%
Net cash provided by financing activities
 
$
3,747,337
   
$
2,778,000
   
$
969,337
     
34.9
%

Net Cash Used in Operating Activities
 
In our operating activities we used 2,010,483 and $2,649,977 during 2009 and 2008, respectively.  An increase in net loss of approximately $1,806,000 was offset by increases in noncash expenses of approximately $2,835,000. We also had a decrease in accounts payable and accrued expenses of approximately $389,000.

Net Cash Used in Investing Activities
 
In our investment activities we used $15,833 and $184,168 during 2009 and 2008, respectively.  The decrease in investment activities of $168,335 for 2009 compared to 2008 was attributable to the $184,168 cost associated with acquisition of key intellectual property in 2008, with $15,833 expended on fixed assets in 2009.

 
24

 

Net Cash Provided by Financing Activities

During 2009 and 2008 we raised approximately $3,797,000 and $2,778,000 through the sale of our securities.

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.

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, if 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 7A. 
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 

We are not required to provide the information as to selected financial data as we are considered a smaller reporting company.
 
ITEM 8. 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
INDEX TO FINANCIAL STATEMENTS
 
   
Page
Report of RBSM, LLP, Independent Registered Public Accounting Firm
 
F-1
     
Balance Sheets
 
F-2
     
Statements of Losses  
F-3
     
Statements of Stockholders’ Equity
 
F-4
     
Statements of Cash Flows  
F-5
     
Notes to Financial Statements
 
F-6
 
25

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors
GenSpera Inc.
San Antonio, TX
 
We have audited the accompanying balance sheets of GenSpera Inc., a development stage company, as of December 31, 2009 and 2008, and the related statements of losses, statement of stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2009 and the period November 21, 2003 (date of inception) through December 31, 2009. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on the financial statements based upon our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GenSpera Inc., a development stage company, at December 31, 2009 and 2008 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2009 and the period November 21, 2003 (date of inception) through December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/   RBSM LLP
  RBSM LLP
New York, New York
 
March 30, 2010
 
 
F-1

 
GENSPERA INC.
(A Development Stage Company)
BALANCE SHEETS

   
December 31,
   
December 31,
 
   
2009
   
2008
 
Assets
           
             
Current assets:
           
Cash
  $ 2,255,311     $ 534,290  
                 
Total current assets
    2,255,311       534,290  
                 
Fixed assets, net of accumulated depreciation of $708 and $0
    15,125       -  
                 
Intangible assets, net of accumulated amortization of $26,858 and $11,511
    157,310       172,657  
                 
Total assets
  $ 2,427,746     $ 706,947  
                 
Liabilities and stockholders' equity (deficit)
               
                 
Current liabilities:
               
                 
Accounts payable and accrued expenses
  $ 78,198     $ 238,817  
Accrued interest - stockholder
    8,107       5,399  
Convertible note payable - stockholder, current portion
    35,000       50,000  
                 
Total current liabilities
    121,305       294,216  
                 
Convertible note payable, net of discount of $0 and $11,046
    -       152,554  
Convertible notes payable - stockholder, long term portion
    70,000       105,000  
Derivative liabilities
    2,290,686       -  
                 
Total liabilities
    2,481,991       551,770  
                 
Commitments and contingencies
               
                 
Stockholders' equity (deficit):
               
                 
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,
               
15,466,446 and 12,486,718 shares issued and outstanding
    1,547       1,249  
Additional paid-in capital
    10,135,737       4,922,174  
Deficit accumulated during the development stage
    (10,191,529 )     (4,768,246 )
                 
Total stockholders' equity (deficit)
    (54,245 )     155,177  
                 
Total liabilities and stockholders' equity (deficit)
  $ 2,427,746     $ 706,947  

See accompanying notes to financial statements.
 
F-2

  
GENSPERA, INC.
(A Development Stage Company)
STATEMENTS OF LOSSES
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2009

         
Cumulative Period
 
         
from November 21, 2003
 
         
(date of inception) to
 
   
Years ended December 31,
   
December 31,
 
   
2009
   
2008
   
2009
 
Operating expenses:
                 
General and administrative expenses
  $ 1,424,847     $ 854,294     $ 2,714,389  
Research and development
    2,087,134       2,432,991       5,511,541  
                         
Total operating expenses
    3,511,981       3,287,285       8,225,930  
                         
Loss from operations
    (3,511,981 )     (3,287,285 )     (8,225,930 )
                         
Finance cost
    (478,886 )     (39,789 )     (518,675 )
Change in fair value of derivative liability
    (1,140,094 )     -       (1,430,550 )
Interest income (expense), net
    (1,866 )     813       (16,374 )
                         
Loss before provision for income taxes
    (5,132,827 )     (3,326,261 )     (10,191,529 )
                         
Provision for income taxes
    -       -       -  
                         
Net loss
  $ (5,132,827 )   $ (3,326,261 )   $ (10,191,529 )
                         
Net loss per common share, basic and diluted
  $ (0.37 )   $ (0.30 )        
                         
Weighted average shares outstanding
    14,035,916       11,030,657          

See accompanying notes to financial statements.
 
F-3

GENSPERA, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2009

                     
Deficit
       
                     
Accumulated
       
               
Additional
   
During the
   
Stockholders'
 
   
Common Stock
   
Paid-in
   
Development
   
Equity
 
   
Shares
   
Amount
   
Capital
   
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 for derivative liability
    -       -       (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 )

See accompanying notes to financial statements.
 
F-4

 

GENSPERA, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2009

         
Cumulative Period
 
         
from 
November 21, 2003
 
         
(date of inception) to
 
   
Years ended December 31,
   
December 31,
 
   
2009
   
2008
   
2009
 
                   
Cash flows from operating activities:
                 
Net loss
  $ (5,132,827 )   $ (3,326,261 )   $ (10,191,529 )
Adjustments to reconcile net loss to net
                       
cash used in operating activities:
                       
Depreciation and amortization
    16,055       11,511       27,566  
Stock based compensation
    1,634,655       363,743       2,480,344  
Warrants issued for financing costs
    467,840       -       467,840  
Change in fair value of derivative liability
    1,140,094       -       1,430,550  
Contributed services
    -       50,000       774,000  
Amortization of debt discount
    11,046       9,629       20,675  
Changes in assets and liabilities:
                       
(Decrease) increase in accounts payable and accrued expenses
    (147,346 )     241,401       112,729  
                         
Cash used in operating activities
    (2,010,483 )     (2,649,977 )     (4,877,825 )
                         
Cash flows from investing activities:
                       
Acquisition of property and equipment
    (15,833 )     -       (15,833 )
Acquisition of intangibles
    -       (184,168 )     (184,168 )
                         
Cash used in investing activities
    (15,833 )     (184,168 )     (200,001 )
                         
Cash flows from financing activities:
                       
Proceeds from sale of common stock and warrants
    3,797,337       2,778,000       7,228,137  
Proceeds from convertible notes - stockholder
    -       -       155,000  
Repayments of convertible notes - stockholder
    (50,000 )     -       (50,000 )
                         
Cash provided by financing activities
    3,747,337       2,778,000       7,333,137  
                         
Net increase (decrease) in cash
    1,721,021       (56,145 )     2,255,311  
Cash, beginning of period
    534,290       590,435       -  
Cash, end of period
  $ 2,255,311     $ 534,290     $ 2,255,311