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, 2010.
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
 
(I.R.S. Employer
incorporation or organization
 
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 ¨ 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. ¨ 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 ¨   No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   ¨   Yes   ¨   No
 
Indicate by check mark 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    ¨
 
Accelerated filer  ¨
 
Non-accelerated filer ¨
 
Smaller reporting company   x
       
(Do not check if a smaller reporting company)
   
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   ¨ 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 $32,749,618.

The number of shares outstanding of Registrant’s common stock, $0.0001 par value at March 15, 2011 was 20,023,402.

DOCUMENTS INCORPORATED BY REFERENCE
 
None
 
SUBSEQUENT EVENTS

During January and February of 2011, we sold an aggregate of approximately 2,303,100 units resulting in gross proceeds of $4,145,578.   The price per unit was $1.80.  Each unit consists of: (i) one (1) share of common stock, and (ii) one half (1/2) common stock purchase warrant.
 
 
 

 
 
GENSPERA, INC
 
FORM 10-K
 
FOR THE YEAR ENDED DECEMBER 31, 2010
 
INDEX
 
 
 
 
 
Page
PART I
Item 1.
 
Business
 
3
Item 1A.
 
Risk Factors
 
10
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
 
18
Item 6.
 
Selected Financial Data
 
20
Item 7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
21
Item 7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 
26
Item 8.
 
Financial Statements and Supplementary Data
 
26
Item 9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
47
Item 9A.
 
Controls and Procedures
 
47
Item 9B.
 
Other Items
 
48
   
PART III
Item 10.
 
Directors, Executive Officers and Corporate Governance
 
48
Item 11.
 
Executive Compensation
 
54
Item 12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
57
Item 13.
 
Certain Relationships and Related Transactions, and Director Independence
 
57
Item 14.
 
Principal Accounting Fees and Services
 
59
 
PART IV
Item 15.
 
Exhibits, Financial Statement Schedules
 
60
 
 
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 approvals 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 prodrug cancer therapeutics, which is an emerging medical science. A prodrug is an inactive precursor of a drug that is converted into its active form only at the site of the tumor.
 
 
3

 
 
Our History

We were incorporated in the state of Delaware in 2003.  Our activities during the period of 2004-2007 were limited to the continued prosecution of our relevant patents and the development of our intellectual property.  In early 2008, we purchased certain intellectual property from Johns Hopkins University. Subsequently, Drs. John Isaacs, Soren Christensen, Hans Lilja, and Samuel Denmeade, co-inventors of our technology along with John Hopkins University, assigned us their rights in such inventions.  As of April 2008, we were the sole owners of our intellectual property.

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.

The Potential of Our Prodrug 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.

Prodrug 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 “prodrug”) is administered to the patient. The prodrug is converted into the active cytotoxin only at the tumor site.
 
We believe that, if successfully developed, prodrug 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 prodrug. 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 prodrugs 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 prodrug 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 prodrugs
 
 
How our prodrugs 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 prodrugs. 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 Prodrug Development Candidates

We currently have four prodrug candidates identified based on this technology, as summarized in the table below (at this time we are developing G-202 and G-115):

Prodrug 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
 
·
Pilot toxicology completed
 
 
 
 
 
 
 
 
G-301
(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 prodrug 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 prodrug 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 clinical trial has since expanded to the Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins University and the Cancer Therapy and Research Center at the University of Texas Health Science Center in San Antonio.   We are currently conducting the Phase I study in refractory cancer patients (those who have relapsed after former treatments) with any type of solid tumors.  This strategy is intended to facilitate enrollment and perhaps give us a glimpse of safety across a wider variety of patients. We expect to enroll up to 30 patients in this Phase I study of which we have already enrolled and dosed 12 patients as of March 15, 2011.  Although our trials are underway, 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.
 
 
6

 
 
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.

  
Estimated Number of
 
Probability of
Developing
(birth to death)
  
Cancer
New Cases 2010
 
Male
  
Female
  
Prostate
217,730
 
1 in 6
 
 
-
 
Breast
207,090
 
n/a
 
 
1 in 8
 
Urinary Bladder
70,530
 
1 in 26
 
 
1 in 84
 
Kidney & Renal Pelvis Cancer
58,240
 
n/a
 
 
n/a
 
   

Source: CA Cancer J. Clin 2010; 60; 277-300

G-115

We believe our second prodrug, G-115, will be useful in the treatment of prostate pathologies, specifically prostate cancer. We initiated pilot toxicology studies in the fourth quarter of 2010 with anticipated filing of an Initial New Drug (“IND”) application with the United States Food & Drug Administration (“FDA”) in the second half of 2011.  We believe that G-202 is expected to be useful in the treatment of prostate cancer and recognize that the two prodrugs might appear to be competitive agents.  However, we expect that this potential competition will be minimized as G-202 will be marketed to medical oncologists whereas G-115 would be marketed to urologists, who treat the majority of prostate cancer patients in this and other countries.

The clinical opportunity for our drug candidates

We believe that current anti-angiogenesis drugs (drugs that disrupt the blood supply to tumors) validate the clinical approach and market potential of our drug candidates.  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
 
 
 
7

 

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 our drug candidates, 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.

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 following table identifies our issued and pending patents with we own and/or license:
 
Number
 
Country
 
Filing
Date
 
Issue Date
 
Expiration
Date
 
Title
Patents Issued
                   
6,265,540
 
US
 
5/19/1998
 
7/24/2001
 
5/19/2018
 
Tissue specific prodrug (PSA)
                 
 
 
6,410,514
 
US
 
6/7/2000
 
6/25/2002
 
6/7/2020
 
Tissue specific prodrug (PSA)
                 
 
 
6,504,014
 
US
 
6/7/2000
 
1/7/2003
 
6/7/2020
 
Tissue specific prodrug (TG)
                 
 
 
6,545,131
 
US
 
7/28/2000
 
4/8/2003
 
7/28/2020
 
Tissue specific prodrug (TG)
                 
 
 
7,053,042
 
US
 
7/28/2000
 
5/30/2006
 
7/28/2020
 
Activation of peptide prodrugs by HK2
                 
 
 
7,468,354
 
US
 
11/30/2001
 
12/23/2008
 
11/30/2021
 
 Tissue specific prodrug
(G-202, PSMA)
                     
7,635,682
 
US
 
1/6/2006
 
12/22/2009
 
1/6/2026
 
Tumor activated prodrugs
(G-115)
                     
7,767,648
 
US
 
11/25/2008
 
8/3/2010
 
11/25/2028
 
Tissue specific prodrug
(G-202, PSMA)
                     
7,906,477
 
US
 
5/18/2005
 
3/15/2011
 
11/18/2023
 
Activation of peptide prodrugs by HK2
                     
                     
Patents Pending
 
 
 
         
 
 
US 2008/0247950
 
US
 
3/15/2007
 
Pending
 
N/A
 
Activation of peptide prodrugs by HK2
                 
 
 
US 2010/0120697
 
US
 
11/5/2009
 
Pending
 
N/A
 
Tumor Activated Prodrugs (PSA,G-115)
                              
 
 
WO 2010/107909
 
PCT
 
3/17/2010
 
Pending
 
N/A
 
Methods and compositions for the detection of cancer
                 
 
 
Pending Divisional
 
US
 
1/10/2011
 
Pending
 
N/A
 
Activation of peptide prodrugs by HK2
 
8

 
 
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 prodrugs are manufactured by attaching a specific peptide to 12ADT.

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, Thapsibiza, SL. (our supplier).  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
 
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.

FDA Approval Process
 
Prior to commencement of clinical studies involving humans, preclinical testing of new pharmaceutical products is generally conducted on animals in the laboratory to evaluate the potential efficacy and safety of the product candidate.  The results of these studies are submitted to the FDA as part of an IND application, which must become effective before clinical testing in humans can begin. Typically, human clinical evaluation involves a time-consuming and costly three-phase process.  In Phase I, clinical trials are conducted with a small number of people to assess safety and to evaluate the pattern of drug distribution and metabolism within the body.  In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease in order to determine preliminary efficacy, optimal dosages and expanded evidence of safety. (In some cases, an initial trial is conducted in diseased patients to assess both preliminary efficacy and preliminary safety and patterns of drug metabolism and distribution, in which case it is referred to as a Phase I/II trial.) In Phase III, large-scale, multi-center, comparative trials are conducted with patients afflicted with a target disease in order to provide enough data to demonstrate the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical testing and may, at its discretion, re-evaluate, alter, suspend, or terminate the testing based upon the data which have been accumulated to that point and its assessment of the risk/benefit ratio to the patient. All adverse events must be reported to the FDA. Monitoring of all aspects of the study to minimize risks is a continuing process.
 
The results of the preclinical and clinical testing on non-biologic drugs and certain diagnostic drugs are submitted to the FDA in the form of a New Drug Application (“NDA”) for approval prior to commencement of commercial sales. In responding to an NDA submission, the FDA may grant marketing approval, may request additional information, may deny the application if it determines that the application does not provide an adequate basis for approval, and may also refuse to review an application that has been submitted if it determines that the application does not provide an adequate basis for filing and review. There can be no assurance that approvals will be granted on a timely basis, if at all, for any of our proposed products.
 
 
9

 
 
European and Other Regulatory Approval
 
Whether or not FDA approval has been obtained, approval of a product by comparable regulatory authorities in Europe and other countries will be necessary prior to commencement of marketing the product in such countries. The regulatory authorities in each country may impose their own requirements and may refuse to grant an approval, or may require additional data before granting it, even though the relevant product has been approved by the FDA or another authority. As with the FDA, the regulatory authorities in the European Union (“EU”) and other developed countries have lengthy approval processes for pharmaceutical products. The process for gaining approval in particular countries varies, but generally follows a similar sequence to that described for FDA approval. In Europe, the European Committee for Proprietary Medicinal Products provides a mechanism for EU-member states to exchange information on all aspects of product licensing. The EU has established a European agency for the evaluation of medical products, with both a centralized community procedure and a decentralized procedure, the latter being based on the principle of licensing within one member country followed by mutual recognition by the other member countries.
 
Other Regulations
 
We are also subject to various U.S. federal, state, local and international laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing practices and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with our business. We cannot accurately predict the extent of government regulation which might result from future legislation or administrative action.
 
Employees

As of March 31, 2011 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, DC20549. 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, TX78258
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.

We are not profitable, may never be profitable and 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, 2010, we have raised approximately $11,400,000 in capital.  During this same period, we have recorded accumulated losses totaling $14,449,368.  As of December 31, 2010, we had working capital of $3,414,465 and stockholders’ equity of $1,285,030. Our net losses for the two most recent fiscal years ended December 31, 2010 and 2009 have been $4,257,839 and $5,132,827, respectively. Since inception, we have generated no revenue.  We intend to develop our drug compounds through Phase I/II, and then 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.  Even if we succeed in developing one or more product candidates, we expect to incur substantial losses for the foreseeable future and may never become profitable.
 
 
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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 regulatory approval to commence marketing our products; (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 any revenues from our proposed products in development.

We currently have no product revenues and will need to raise additional capital to operate our business.

To date, we have generated no product revenues .   Until, and unless, we receive approval from the FDA and other regulatory authorities for our product candidates, we cannot sell our drugs and will not have product revenues. Currently, our only product candidates are G-202 and G-115.  Neither of these products is approved for sale by the FDA. Therefore, for the foreseeable future, we will have to fund all of our operations and capital expenditures from cash on hand and potentially future offerings.  As of December 31, 2010, we had cash of $3,671,151.  During January and February of 2011, we completed a sale of our securities resulting in additional proceeds of approximately $3,534,000.  We currently have a cash burn rate of $375,000 per month and this is expected to remain constant through the first two quarters of 2011.  We project that our cash burn rate will increase to $625,000 per month in the last two quarters of 2011 as we embark upon Phase II studies with G-202 and remain at that level through 2012.  Accordingly, based on our cash at December 31, 2010 and cash received during January and February from the sale of our securities, we believe we have sufficient cash on hand to fund our operations until February 2012.  However, changes may occur that would consume our available capital before that time, including changes in and progress of our development activities, acquisitions of additional product candidates and changes in regulation. Accordingly, we will need additional capital to fund our continuing operations. Since we do not generate any revenue, the most likely sources of such additional capital include the sale of our securities or funds from a potential strategic licensing or collaboration transaction involving the rights to one or more of our product candidates or from grants. To the extent that we raise additional capital by issuing equity securities, our stockholders will likely experience dilution, which may be significant. If we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies, product candidates or products, or grant licenses on terms that are not favorable to us.  If we raise additional funds by incurring debt, we could incur significant interest expense and become subject to covenants in the related transaction documentation that could affect the manner in which we conduct our business.
 
We have no committed sources of additional capital and our access to capital funding is always uncertain. Accordingly, despite our ability to secure adequate capital in the past, there is no assurance that additional equity or debt financing will be available to us when needed, on acceptable terms or even at all.  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.

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.

We may not be able to commercially develop our technologies.

We have concentrated our research and development on our prodrug technologies. Our ability to generate revenue and operate profitably will depend on us 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 and at the Sydney Kimmel Comprehensive Cancer Center at Johns Hopkins University.  In the first quarter of 2011, we opened a third Phase I clinical trial site at the Cancer Therapy and Research Center at the University of Texas Health Science Center at San Antonio. Although our clinical trials are underway, 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.
 
 
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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 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.

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 executive terminates his employment with us, such executive 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, Johnson and Johnson, and Sanofi-Aventis, 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 are dependent upon third-parties to develop our product candidates, and such parties are, to some extent, outside of our control.

We depend upon independent investigators and collaborators, such as universities and medical institutions, to conduct our pre-clinical and clinical trials under agreements with us. These collaborators are not our employees and we cannot control the amount or timing of resources that they devote to our programs. These investigators may not assign as great a priority to our programs or pursue them as diligently as we would if we were undertaking such programs ourselves. If outside collaborators fail to devote sufficient time and resources to our drug-development programs, or if their performance is substandard, the approval of our FDA applications, if any, and our introduction of new drugs, if any, will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist our competitors at our expense, our competitive position would be harmed.

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 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.
 
 
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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 export the seeds derived from Thapsia garganica to 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.

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.

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 of the Thapsia garganica .

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 current manufacturing process requires acetonitrile.

The current manufacturing process for our compounds requires the common solvent acetonitrile. Beginning in late 2008, there was a 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 our compounds altogether, thus significantly impacting our future operations.
 
Our proposed products may not 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 cancer, 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:

 
·
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
 
 
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·
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.

Our therapeutic compounds have not been subjected to large scale manufacturing procedures.
 
To date, G-202 and G-115 have 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 and G-115 will work at a larger scale adequate for commercial needs.  In the event our therapeutic compounds cannot be manufactured in sufficient quantities, our future prospects could be significantly impacted.

We face product liability risks for which we may not be able to obtain adequate insurance to protect us against losses.

We currently have no products that have been approved for commercial sale. However, the current and future use of our product candidates by us in clinical trials, and the sale of any approved products in the future, may expose us to liability claims. These claims might be made directly by consumers or healthcare providers or indirectly by pharmaceutical companies, or others selling such products. We may experience financial losses in the future due to product liability claims. We have obtained limited general commercial liability insurance coverage for our clinical trials.  However, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against all losses. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may not be sufficient to cover such claims and our business operations could be impaired.

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 and our licenses, as the foundation of our business. Our intellectual property rights may come under challenge.  No assurances can be given that, our patents or licenses will survive claims alleging invalidity or infringement on other patents and/or licenses. 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.  Although our G-202 Phase I clinical trials are underway, we cannot assure you that we will successfully complete the trial.  As of March 15, 2011, we have dosed 12 patients.  It is still too early to 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.

Risks Relating To Our Common Stock

Our limited market is relatively illiquid.

On September 18, 2009, our common shares began quotation on the Over-the-Counter Bulletin Board (“OTCBB”) and Pinksheets.  The shares were initially sporadic traded and as a result, we did not consider that a public market for our securities existed.  Commencing in the first quarter of 2010, our common shares began trading regularly but with limited volume.   Accordingly, although a limited public market for our securities now exists, it is still relatively illiquid.  Any prospective investor in our common stock should consider the limited market when making an investment decision as our securities are still relatively illiquid.    No assurances can be given that the trading volume of our common shares will increase or that a liquid public market will ever materialize.   Additionally, due to the limited trading volume, it may be difficult for an investor to sell his shares.
 
 
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Our stock price may be particularly volatile because we are a drug development company.

The market prices for securities of biotechnology companies in general, and early-stage drug development companies in particular, have been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

 
the development status of our drug candidates, particularly the results of our clinical trials of G-202;

 
market conditions or trends related to the biotechnology and pharmaceutical industries, or the market in general;

 
announcements of technological innovations, new commercial products, or other material events by our competitors or us;

 
disputes or other developments concerning our proprietary rights;

 
changes in, or failure to meet, securities analysts’ or investors’ expectations of our financial performance;

 
additions or departures of key personnel;

 
discussions of our business, products, financial performance, prospects, or stock price by the financial and scientific press and online investor communities such as chat rooms;

 
public concern as to, and legislative action with respect to, testing or other research areas of biopharmaceutical companies, the pricing and availability of prescription drugs, or the safety of drugs;

 
regulatory developments in the United States or foreign countries; and

 
economic and political factors.

In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become subject to this type of litigation, which is often extremely expensive and diverts management’s attention.

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.

Section 404(b) is not applicable to non-accelerated filers.  Presently we qualify as a non-accelerated filer and, accordingly, our independent registered public accounting firm is not required to audit the design and operating effectiveness of our internal controls and management's assessment of the design and the operating effectiveness of such internal controls.  In the event we become an accelerated filer, 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.
 
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Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and will divert time and attention away from revenue generating activities.
 
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. For example, on January 30th, 2009, the SEC adopted rules requiring companies to provide their financial statements in interactive data format using the eXtensible Business Reporting Language, or XBRL. We will have to comply with these rules by June 15th, 2011. Our management team will need to invest significant management time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities which could have an adverse effect on our business.
 
Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.
 
Our common stock, which currently trades on the OTCBB, may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Securities Exchange Act for 1934, as amended (the “Exchange Act”).  Our common stock may be a “penny stock” if it meets one or more of the following conditions (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is NOT quoted on the Nasdaq Capital Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million.

The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act.  For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account.  Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor.  This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives.  Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

As an issuer of “penny stock” the protection provided by the federal securities laws relating to forward-looking statements does not apply to us.
 
Although the federal securities law provide a safe harbor for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, if we are a penny stock we will not have the benefit of this safe harbor protection in the event of any claim that the material provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include any statements necessary to make the statements not misleading.

If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price and trading volume of our common stock could decline.
 
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no securities or industry analysts commence coverage of us the trading price for our common stock and other securities would be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline.  If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and other securities and their trading volume to decline.

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.
 
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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, 2010, we have issued and outstanding 17,604,465 common shares and we have 14,178,392 common shares reserved for future grants under our equity compensation plans and issuances upon the exercise of current outstanding options, warrants and convertible securities. Accordingly, we will be entitled to issue up to 48,217,143 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 38% of our outstanding common shares.
 
Our Officers and Scientific Advisors own approximately 38% of our issued and outstanding common shares. As a consequence of their level of stock ownership, the group retains substantial ability to influence the 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.
 
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:

 
·
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.
 
ITEM 2.               PROPERTIES
 
Our executive   offices are located at 2511 N Loop 1604 W, Suite 204, San Antonio, TX 78258. We lease this facility consisting of approximately 853 square feet, for $1,528 per month. Our lease expires on September 15, 2012.  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)
 
 
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PART II

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

Market Information

On September 18, 2009 our common shares began quotation on the OTCBB and Pinksheets under the symbol GNSZ.  The shares were initially sporadically traded and as a result, we did not consider that a public market for our securities existed.  Commencing in the first quarter of 2010, our common shares began trading regularly but with limited volume. The following table sets forth, for the periods indicated, the high and low inter-dealer bid price information without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

   
High
   
Low
 
2010
           
First Quarter
  $ 3.45     $ 1.60  
Second Quarter
  $ 2.80     $ 2.00  
Third Quarter
  $ 2.27     $ 1.50  
Fourth Quarter
  $ 1.99     $ 1.50  

 
Holders

As of March 15, 2011, our common stock was held by approximately 156 record holders. We believe our actual number of shareholders may be significantly higher as 6,017,612 shares are currently being 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, 2010 with respect to our compensation plans under which equity securities may be issued.

 
(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)
837,500
 
$
1.22
 
5,019,021
Equity compensation plans not approved by security holders
           
2009 Executive Compensation Plan
1,775,000
 
 
1.58
 
-
Total
2,612,500
 
$
1.47
 
5,019,021
 
 
(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 the issuance of up to 6,000,000 common shares in the aggregate.
 
 
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GenSpera 2009 Executive Compensation Plan

Our 2009 Executive Compensation Plan (“2009 Plan”) is administered by our Board or any of its committees. 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.   As of December 31, 2010, we have granted awards under the plan equal to 1,775,000 common shares.  Accordingly, there are no shares available for future awards under the plan.

Recent Sales of Unregistered Securities.

The following information is given with regard to unregistered securities sold since January 1, 2010.  The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering.

 
·
During January and March of 2010, we entered into securities purchase agreements with a number of accredited investors.  Pursuant to the terms of the agreements, we sold 533,407 units resulting in gross proceeds of approximately $880,000.  The price per unit was $1.65.  Each unit consists of: (i) one common share; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and allow the investors to purchase our common stock 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. The warrants are callable by us assuming the following: (i) our common stock trades above $5.00 for twenty (20) consecutive days; (ii) the daily average minimum volume over such 20 days is 75,000 or greater; and (iii) there is an effective registration statement covering the underlying shares.   We incurred placement agent fees of $70,410 in connection with the transaction. We also issued a total of 42,673 additional common stock purchase warrants to our placement agent 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.
 
 
·
In February of 2010, we granted John M. Farah, Jr., PhD, one of our outside directors, options to purchase 39,000 common shares.  The options were granted pursuant to our director compensation plan as compensation for Dr. Farah’s service on our Board and related committees.  The options have an exercise price of $2.14 per share, a term of 5 years and vest quarterly over the grant year.

 
·
In March of 2010, we granted Scott Ogilvie, one of our outside directors, options to purchase 38,000 common shares.  The options were granted pursuant to our director compensation plan as compensation for Mr. Ogilvie’s service on our Board and related committees.  The options have an exercise price of $2.47 per share, a term of 5 years and vest quarterly over the grant year.

 
·
In May of 2010, we issued warrants to purchase 235,000 common shares as compensation for business advisory services.  The warrant has an exercise price of $1.65 per share, a term of 5 years and provides for cashless exercise after 6 months in the event the shares underlying the warrant are not registered at the time of exercise.

 
·
In May of 2010, we issued 5,800 common stock purchase warrants as compensation to a consultant.  The warrants have an exercise price of $2.40 and a term of 5 years and provides for cashless exercise after 6 months in the event the shares underlying the warrant are not registered at the time of exercise.

 
·
In May of 2010, we issued our Craig Dionne, our CEO, and Russell Richerson, our COO, an aggregate of 43,479 common shares as payment for their 2009 discretionary bonuses.  The shares were valued at $2.30 which represents their fair market value on the grant date of May 14, 2010.

 
·
On May 18, 2010, we sold 1,347,500 units resulting in gross proceeds of approximately $2,695,000.  The price per unit was $2.00.  Each unit consists of the following: (i) one common share, and (ii) one half common stock purchase warrant.  The warrants have a term of five years and an exercise price of $3.50.  The warrants also contain provisions providing for an adjustment in the underlying number of shares and exercise price in the event of stock splits or dividends and fundamental transactions.  The securities purchase agreement, pursuant to which the offering was completed, also contains a 180 days most favored nation provision whereby if we enter into a subsequent financing with another individual or entity on terms that are more favorable to the third party, then at the discretion of the holder, the agreements between us and the investors shall be amended to include such better terms.  The warrants are callable by us assuming the following: (i) our common stock trades above $6.50 for twenty (20) consecutive days; (ii) the daily average minimum volume over such 20 days is 50,000 or greater; and (iii) there is an effective registration statement covering the underlying shares.   We also granted the investors certain piggy-back registration rights.

In connection with the transaction, we incurred a total of $39,500 in fees and expenses.  We also issued warrants to purchase a total of 18,000 shares to our placement agent.  The placement agent warrant has the same terms and conditions as the investor warrant.
 
 
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As part of the offering, we also agreed to exchange 43,632 units for $87,264 in payables owed to a consultant.  The exchange was on the same terms and conditions as the offering.

As a result of the offering and the exchange, we issued a total of 1,391,132 shares and issued 713,566 warrants.

 
·
In June of 2010, we issued 100,000 common shares upon the exercise of an outstanding common stock purchase option.  The exercise price of the option was $0.50 per share and we received gross proceeds of $50,000.

 
·
In June of 2010, we issued warrants to purchase an aggregate of 50,625 common shares.  The warrants were issued as compensation to consultants.  The warrants have an exercise price of $3.50, a term of 5 years, are callable in the event certain conditions are met, and generally have the same terms and conditions as the warrants issued to our investors in the May 18, 2010 offering.

 
·
In July of 2010, we issued 12,000 common shares to Johns Hopkins University and 8,000 common shares to Soren Brogger Christensen, PhD, as partial payment for the license of certain intellectual property.  We valued the issuances at $28,800 and $18,800, respectively.

 
·
On August 16, 2010, upon joining the board, we granted Bo Jesper Hansen MD PhD, options to purchase 63,000 common shares.  The options were granted pursuant to our director compensation plan as compensation for Bo Jesper Hansen MD PhD’s service on our Board and related committees.  The options have an exercise price of $2.00 per share and a term of 5 years.  Of the Options granted, 25,000 are vested with the balance vest quarterly over the grant year.

 
·
On December 22, 2010, we issued options to purchase an aggregate of 157,500 common shares.  The options were issued as a discretionary bonus to certain employees and consultants.   The options have an exercise price of $2.00 and a term of 5 years.  Of the options granted, 10,000 vest quarterly over 2011 with the first vesting date being March 31, 2011 and 147,500 are fully vested as of the grant date.The grants were made from our  2007 Stock Plan.

 
·
On December 22, 2010, we issued a warrant to 40,000 common shares.  The warrant was issued as compensation to a consultant.  The warrant has an exercise price of $2.00 and a term of 5 years.  The warrant is in substantially the same form as the consultant warrants issued May and June 2010 consultant warrants.

 
·
On January 27, 2011, we issued options to purchase 25,000 common shares.  The options were issued as partial compensation for legal services related to our intellectual property and for market research with regard to our proposed products.  The options have an exercise price of $1.90 and a term of 5 years.  Of the options granted, 20,000 vest quarterly over 2011 with the first vesting date being March 31, 2011 and 5,000 are fully vested as of the grant date.   The grants were made from our 2007 Stock Plan.

 
·
On January 21, 2011, we sold 2,074,914 units resulting in gross proceeds of $3,734,840.  The price per unit was $1.80.  Each unit consists of: (i) one (1) share of the common stock, par value $.0001, and (ii) one half (1/2) common stock purchase warrant. Of these units, 339,915 were subscribed at December 31, 2010 with gross proceeds to the Company of $611,847 recorded in the December 31, 2010 financial statements.  The warrants have a term of five years and entitle the holders to purchase the common shares at a price per share of $3.30.  In the event the shares underlying the warrants are not subject to a registration statement, the warrants may be exercised on a cashless basis after 12 months from the issuance date.   The warrants also contain provisions providing for an adjustment in the underlying number of shares and exercise price in the event of stock splits or dividends and fundamental transactions.  The warrants do not contain any price protection provisions.   The warrants are callable assuming the following: (i) our common stock trades above $5.50 for ten (10) consecutive days; (ii) the daily average minimum volume over such ten (10) days is 15,000 or greater; and (iii) there is an effective registration statement covering the underlying shares.   We also grants the investors certain piggy-back registration rights.

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

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

As a result of the offerings, the reinvestment of fees, and the issuance of placement agent and finder’s warrants, we issued a total of 2,303,103 shares and 1,218,610 common stock purchase warrants.
 
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.
 
 
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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 2010 to 2009.

 
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 Annual Report. 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 prodrug technology platform and bring them through Phase I/II clinical trials. At that point, we plan to license the rights to further development of the drug candidates to major pharmaceutical companies. We believe that major pharmaceutical companies see significant value in drug candidates that have passed one or more phases of clinical trials, and these organizations have the resources and expertise to finalize drug development and market the drugs.

Plan of Operation

Management believes that the best way to increase shareholder value in the short and long-term is to stay focused on the efficient clinical development of G-202 as our highest priority. Consequently, the preclinical and clinical development of our second drug, G-115, will only occur when we are assured that expenditures in this area will not impede progress with 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. In anticipation of the upcoming G-202 Phase II clinical trials, we will complete manufacture of GMP grade G-202 over the next three months.  The costs for manufacture of this clinical batch of drug are included in the current projected expenditures.

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

 
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Additionally, we will continue to protect our intellectual property position particularly with regard to the outstanding claims contained within the core PSMA-prodrug 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 the first half of 2011 we will be engaged in conducting the Phase I clinical trial of G-202. The purpose of a Phase I study of G-202 is to evaluate safety, understand the pharmacokinetics (the process by which a compound is absorbed, distributed, metabolized, and eliminated by the body) of the drug candidate in humans, and to determine an appropriate dosing regimen for the subsequent clinical studies. We are currently conducting the Phase I study in refractory cancer patients (those who have relapsed after former treatments) with any type of solid tumors. This strategy is intended to facilitate enrollment and perhaps give us a glimpse of safety across a wider variety of patients. We expect to enroll up to 30 patients in this Phase I study at: (i) Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins (Michael Carducci, MD as Principal Investigator); (ii) University of Wisconsin Carbone Cancer Center (George Wilding, MD as Principal Investigator); and (iii) Cancer Therapy and Research Center at the University of Texas Health Science Center in San Antonio (Devalingam Mahalingam, MD PhD as Principal Investigator).  The Phase I clinical protocol has been modified to accommodate enrollment of up to 18 additional patients in a Phase IB component of the study to evaluate the drug’s safety and tolerability and possible efficacy in a broader patient population consisting primarily of prostate cancer patients who have previously failed treatment with chemotherapeutic agents.

Assuming successful completion of the Phase I clinical trial, we expect to conduct several Phase II clinical trials to determine the therapeutic efficacy of G-202 in cancer patients.  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. We are developing a Phase II clinical protocol for the treatment of castrate-resistant pre-chemotherapy prostate cancer patients to be conducted in the US with additional sites in the UK. This trial will have an advantage of demonstrating approval by European regulatory agencies for the use of G-202 in patients and is expected to launch in Q3 2011. We are also evaluating Phase II trial designs in other tumor types and expect  to conduct up to four separate concurrent Phase II studies in different tumor types over a time span of 18 months.

We estimate that the development of G-202 will occur as follows:

It is estimated that the ongoing Phase I clinical trial will cost an additional $400,000 and will be completed in the second quarter of 2011.  Based on our cash at December 31, 2010 and cash received during January and February from the sale of our securities, we believe we have sufficient cash on hand to fund our operations until February 2012.

We anticipate that we will require an additional $6.25 million (full operations and clinical trial costs) to complete Phase II clinical evaluations with G-202, which is currently anticipated to occur in the fourth quarter of 2012. These costs are based on the assumption that we will conduct up to four concurrent Phase II evaluations in different cancer indications. An additional $3 million will be required to fully develop G-115 through preclinical development and Phase I clinical evaluation. We will need to complete a significant financing before we can complete our anticipated clinical development programs with G-202 and G-115.

We anticipate that we will license G-202 to a third party during or after Phase II clinical studies.  In the event we are not able or decide not to license G-202, we will proceed with Phase III Clinical trials.  We estimate that Phase III Clinical trials will cost approximately $25,000,000 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 from our own marketing efforts before late 2016.  The Phase III estimated costs are subject to major revision because we have not yet obtained any efficacy data for our drug in patients and therefore cannot accurately predict what may be the optimal Phase III patient population. The estimates will become more refined as we obtain more clinical data.

We began development of G-115 in the fourth quarter of 2010 with an anticipated filing of an IND in the third quarter of 2011. The extra costs for preclinical development of G-115 to an IND submission may total up to $2,500,000.  In the event management determines that the clinical development of G-115 would delay or negatively affect the G-202 clinical program as a result of scarce resources or capital, we will defer the development of G-115 until such time as we secure additional capital and resources.

We have identified 4 prodrug candidates: G-202, G-114, G-115 and G-301 (formerly designated as Ac-GKAFRR-L12ADT). At this time, we are engaged primarily in the development of G-202 together with metered early development of G-115.  It is anticipated that the development of the remaining candidates will not commence until we have sufficient resources to devote to their development.

We have budgeted $5,980,000 in cash expenditures for the twelve month period following December 31, 2010, including (1) $1,460,000 to cover our projected general and administrative expense during this period; and (2) $4,520,000 for research and development activities. Based on our cash at December 31, 2010 and cash received during January and February from the sale of our securities, we believe we have sufficient cash on hand to fund our operations until February 2012, after which time we will need to undertake additional financings. These assumptions are based upon operations focused solely on the G-202 Phase I clinical program including manufacture of G-202 in anticipation of the Phase II clinical program.

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

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

Recent Accounting Pronouncements

For a discussion of new accounting pronouncements affecting the Company, refer to Note 1 of Notes to Financial Statements.
 
 
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Result of Operations
 
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, 2010 Compared to the Year Ended December 31, 2009

Revenue

We did not have revenue during the years ending December 31, 2010 and 2009.  We do not anticipate any revenues during 2011.

Operating Expenses

Operating expense totaled $4,172,634 and $3,511,981 during 2010 and 2009, respectively.  The increase in operating expenses is the result of the following factors.
 
                 
Change in
 
               
2010
 
               
Versus 2009
 
   
2010
   
2009
   
$
   
%
 
Operating Expenses
                       
General and administrative expenses
  $ 2,173,247     $ 1,424,847     $ 748,400       53 %
Research and development, net
    1,999,387       2,087,134       (87,747 )     (4 )%
Total expense
  $ 4,172,634     $ 3,511,981     $ 660,653       19 %

General and Administrative Expenses

G&A expenses totaled $2,173,247 and $1,424,847 during 2010 and 2009, respectively. The increase of $748,400 or 53% for 2010 compared to 2009 was primarily attributable to a number of factors, including the allocation of 100% of Dr. Dionne’s compensation to G&A in 2010 as opposed to the 50% allocation to G&A for the first three quarters of 2009 (an increase in G&A allocation of $95,000), plus an increase in Dr. Dionne’s compensation of $90,000 in 2010. Stock based compensation decreased by approximately $173,000, related primarily to options granted during the third quarter of 2009. Stock based consultant and professional fee expense increased by approximately $420,000 during the 2010 period, related to stock warrants granted during the 2010 period. Professional and other fees increased by approximately $136,000, insurance expense increased by approximately $65,000 and travel and entertainment expense increased by approximately $24,000.

Research and Development Expenses

Net research and development expenses totaled $1,999,387 and $2,087,134 during 2010 and 2009, respectively. The decrease of $87,747 or 4% for 2010 compared to 2009 was primarily attributable to a decrease in compensation expense of approximately $614,000 offset by increases in license fees of approximately $29,000 and third party development costs of approximately $511,000 (net of $244,000 of grants received). The decrease in compensation was a result of a decrease in stock based compensation of approximately $579,000 and a decrease attributable to the allocation of 100% of Dr. Dionne’s compensation to G&A as opposed to the 50% allocation to R & D in 2009 (a decrease in R & D allocation of $95,000), offset by an increase in other compensation of approximately $60,000. Our third party development costs for 2010 include approximately $479,000 of costs  related to the development of G-115 in 2010, with no costs expended for G-115 in 2009.

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

Under the planning and direction of key personnel, we expect to outsource all of our GLP preclinical development activities (e.g., toxicology) and GMP manufacturing and clinical development activities to CROs and CMOs.  Manufacturing will be outsourced to organizations with approved facilities and manufacturing practices.

Other Expenses

Other expenses totaled $85,205 and $1,620,846 for 2010 and 2009, respectively.

                 
Change in
 
               
2010
 
               
Versus 2009
 
   
2010
   
2009
   
$
   
%
 
Other Expenses
                       
Financing Cost
  $ -     $ (478,886 )   $ 478,886       100 %
Change in fair value of derivative liability
    (109,654 )     (1,140,094 )     1,030,440       90 %
Interest income (expense)
    24,449       (1,866 )     26,315       1396 %
Total expense
  $ (85,205 )   $ (1,620,846 )   $ 1,535,641       95 %
 
 
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Finance Cost

Finance Cost totaled $0 and $478,886 during 2010 and 2009, respectively. During 2009 we incurred a $415,976 charge for the fair value of additional warrants issued when the anti-dilution provisions in our warrants issued during the July and August 2008 financing were triggered plus a $51,864 charge for the fair value of additional warrants issued as consideration for the extension of the maturity dates of notes payable. The balance of the cost consisted of the amortization of debt discount. We had no comparable expense during 2010.

Change in fair value of derivative liability

The charge for the change in fair value of derivative liability totaled $109,654 and $1,140,094 during 2010 and 2009, respectively. The change in the fair value of our warrant derivative liability resulted primarily from the changes in our stock price and the volatility of our common stock during the reported periods. Refer to Note 4 to the financial statements for further discussion on our warrant liabilities.

During 2010, 50,001 of our warrants subject to derivative accounting were exercised into common stock. We have recorded a net aggregate expense of $18,075 at the dates of exercise related to the change in fair value from January 1, 2010 (for those warrants exercised during the first quarter) and April 1, 2010 (for those warrants exercised during the second quarter) to the dates of exercise. As a result of the exercise of the warrants, we have reclassified $86,307 of our warrant derivative liability to paid in capital.

At December 31, 2010, we recalculated the fair value of our remaining warrants subject to derivative accounting and have determined that their fair value at December 31, 2010 was $2,314,033. The value of the warrants was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 0.625%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 93%; and (4) an expected life of the warrants of 2 years. We have recorded an expense of $91,579 during the year ended December 31, 2010 related to the change in fair value during that period.

Interest income (expense)

We had net interest income of $24,449 for the year ended December 31, 2010 and net interest expense of $1,866 for the year ended December 31, 2009. The increase in net interest income of $26,315 for 2010 compared to 2009 was attributable to a decrease in debt outstanding in 2010 and an increase in interest earned on deposits.

Net Loss

Net losses for 2010 and 2009 were $4,257,839 and $5,132,827, respectively, resulting from the expenses described above.

Liquidity and Capital Resources

Since our inception, we have financed our operations mainly through the private placement of our securities. At December 31, 2010 we had cash on hand of approximately $3,671,000 and raised an additional $3,534,000 in the first quarter of 2011. We currently have a cash burn rate of $375,000 per month and this is expected to remain constant through the first two quarters of 2011.  We project that our cash burn rate will increase to $625,000 per month in the last two quarters of 2011 as we embark upon Phase II studies with G-202 and remain at that level through 2012.  Accordingly, based on our cash at December 31, 2010 and cash received during January and February from the sale of our securities, we believe we have sufficient cash on hand to fund our operations until February 2012 assuming we do not engage in an extraordinary transaction or otherwise face unexpected events or contingencies.

     
 
   
 
   
Change in
 
 
 
 
   
 
   
2010
 
 
 
 
   
 
   
Versus 2009
 
 
 
2010
   
2009
   
$
   
%
 
Cash & Cash Equivalents
  $ 3,671,151     $ 2,255,311     $ 1,415,840       63 %
Net cash used in operating activities
  $ (2,769,217 )   $ (2,010,483 )   $ (758,734 )     38 %
Net cash used in investing activities
  $ (10,000 )   $ (15,833 )   $ 5,833       37 %
Net cash provided by financing activities
  $ 4,195,057     $ 3,747,337     $ 447,720       12 %

Net Cash Used in Operating Activities

In our operating activities we used $2,769,217 and $2,010,483 during 2010 and 2009, respectively. The increase of $758,734 in cash used during 2010 compared to 2009 was attributable to an increase in losses of $971,461 (after adjusting for non-cash items) offset by a decrease in payments for accounts payable of $212,727.

Net Cash Used in Investing Activities

Cash used in investing activities was $10,000 and $15,833 for 2010 and 2009, respectively.  We expended $10,000 for patent acquisitions in 2010 and $15,833 for the acquisition of furniture and equipment in 2009.

 
25

 

Net Cash Provided by Financing Activities

During 2010 and 2009 we raised approximately $4,195,000 and $3,797,000 through the sale of our securities.

Listed below are key financing transactions we have entered into since January 1, 2009 through March 15, 2011.

 
·
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.

 
·
In May of 2010, we sold 1,347,500 units resulting in gross proceeds of approximately $2,695,000.

 
·
In January and February of 2011, we sold 2,303,100 units resulting in gross proceeds of $4,146,000 (of which approximately $612,000 had been received as of December 31, 2010).

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

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

ITEM 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
  27 
     
Balance Sheets
 
28
     
Statements of Losses
 
29
     
Statements of Stockholders’ Equity
 
30
     
Statements of Cash Flows
 
31
     
Notes to Financial Statements
 
32
 
 
26

 
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, 2010 and 2009, 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, 2010 and the period November 21, 2003 (date of inception) through December 31, 2010. 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, 2010 and 2009 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2010 and the period November 21, 2003 (date of inception) through December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/   RBSM LLP
 
RBSM LLP
New York, New York
 
March 30, 2011
 

 
27

 
 
GENSPERA INC.
(A Development Stage Company)
BALANCE SHEETS

   
December 31,
   
December 31,
 
   
2010
   
2009
 
Assets
           
             
Current assets:
           
Cash
  $ 3,671,151     $ 2,255,311  
                 
Total current assets
    3,671,151       2,255,311  
                 
Fixed assets, net of accumulated depreciation of $3,874 and $708
    11,959       15,125  
                 
Prepaid fees
    3,500       -  
Intangible assets, net of accumulated amortization of $43,029 and $26,858
    169,139       157,310  
                 
Total assets
  $ 3,855,749     $ 2,427,746  
                 
Liabilities and stockholders' equity (deficit)
               
                 
Current liabilities:
               
                 
Accounts payable and accrued expenses
  $ 139,169     $ 78,198  
Accrued interest - stockholder
    12,517       8,107  
Convertible note payable - stockholder, current portion
    105,000       35,000  
                 
Total current liabilities
    256,686       121,305  
                 
Convertible notes payable - stockholder, long term portion
    -       70,000  
Warrant derivative liabilities
    2,314,033       2,290,686  
                 
Total liabilities
    2,570,719       2,481,991  
                 
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,
17,604,465 and 15,466,446 shares issued and outstanding, respectively as of December 31, 2010 and 2009
    1,760       1,547  
Common stock subscribed
    611,846       -  
Additional paid-in capital
    15,120,792       10,135,737  
Deficit accumulated during the development stage
    (14,449,368 )     (10,191,529 )
                 
Total stockholders' equity (deficit)
    1,285,030       (54,245 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 3,855,749     $ 2,427,746  

See accompanying notes to audited financial statements.
 
 
28

 
 
GENSPERA, INC.
(A Development Stage Company)
STATEMENTS OF LOSSES FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2010
  
               
Cumulative Period
 
               
from November 21, 2003
 
               
(date of inception) to
 
   
Years ended December 31,
   
December 31,
 
   
2010
   
2009
   
2010
 
                   
Operating expenses:
                 
General and administrative expenses
  $ 2,173,247     $ 1,424,847     $ 4,887,636  
Research and development
    2,243,866       2,087,134       7,755,407  
Research and development grant received
    (244,479 )             (244,479 )
                         
Total operating expenses
    4,172,634       3,511,981       12,398,564  
                         
Loss from operations
    (4,172,634 )     (3,511,981 )     (12,398,564 )
                         
Finance cost
    -       (478,886 )     (518,675 )
Change in fair value of derivative liability
    (109,654 )     (1,140,094 )     (1,540,204 )
Interest income (expense), net
    24,449       (1,866 )     8,075  
                         
Loss before provision for income taxes
    (4,257,839 )     (5,132,827 )     (14,449,368 )
                         
Provision for income taxes
    -       -       -  
                         
Net loss
  $ (4,257,839 )   $ (5,132,827 )   $ (14,449,368 )
                         
Net loss per common share, basic and diluted
  $ (0.25 )   $ (0.37 )        
                         
Weighted average shares outstanding
    16,909,610       14,035,916          

See accompanying notes to audited financial statements.
 
 
29

 
 
GENSPERA, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2010

                           
Deficit
       
                           
Accumulated
       
               
Additional
   
Common
   
During the
   
Stockholders'
 
   
Common Stock
   
Paid-in
   
Stock
   
Development
   
Equity
 
   
Shares
   
Amount
   
Capital
   
Subscribed
   
Stage
   
(Deficit)
 
                                     
Balance, November 21, 2003
    -     $ -     $ -     $ -     $ -     $ -  
                                                 
Sale of common stock to founders at $0.0001 per share in November, 2003
    6,100,000       610       (510 )     -       -       100  
                                                 
Contributed services
    -       -       120,000       -       -       120,000  
                                                 
Net loss
    -       -       -       -       (125,127 )     (125,127 )
                                                 
Balance, December 31, 2003
    6,100,000       610       119,490       -       (125,127 )     (5,027 )
                                                 
Contributed services
    -       -       192,000       -       -       192,000  
                                                 
Stock based compensation
    -       -       24,102       -       -       24,102  
                                                 
Net loss
    -       -       -       -       (253,621 )     (253,621 )
                                                 
Balance, December 31, 2004
    6,100,000       610       335,592       -       (378,748 )     (42,546 )
                                                 
Contributed services
    -       -       48,000       -       -       48,000  
                                                 
Stock based compensation
    -       -       24,100       -       -       24,100  
                                                 
Net loss
    -       -       -       -       (126,968 )     (126,968 )
                                                 
Balance, December 31, 2005
    6,100,000       610       407,692       -       (505,716 )     (97,414 )
                                                 
Contributed services
    -       -       144,000       -       -       144,000  
                                                 
Stock based compensation
    -       -       42,162       -       -       42,162  
                                                 
Net loss
    -       -       -       -       (245,070 )     (245,070 )
                                                 
Balance, December 31, 2006
    6,100,000       610       593,854       -       (750,786 )     (156,322 )
                                                 
Shares sold for cash at $0.50 per share in November, 2007
    1,300,000       130       649,870       -       -       650,000  
                                                 
Shares issued for services
    735,000       74       367,426       -       -       367,500  
                                                 
Contributed services
    -       -       220,000       -       -       220,000  
                                                 
Stock based compensation
    -       -       24,082       -       -       24,082  
                                                 
Exercise of options for cash at $0.003 per share in March and June, 2007
    900,000       90       2,610       -       -       2,700  
                                                 
Net loss
    -       -       -       -       (691,199 )     (691,199 )
                                                 
Balance, December 31, 2007
    9,035,000       904       1,857,842       -       (1,441,985 )     416,761  
                                                 
Exercise of options for cash at $0.50 per share on March 7,2008
    1,000,000       100       499,900       -       -       500,000  
                                                 
Sale of common stock and warrants at $1.00 per share - July and August 2008
    2,320,000       232       2,319,768       -       -       2,320,000  
                                                 
Cost of sale of common stock and warrants
    -       -       (205,600 )     -       -       (205,600 )
                                                 
Shares issued for accrued interest
    31,718       3       15,856       -       -       15,859  
                                                 
Shares issued for services
    100,000       10       49,990       -       -       50,000  
                                                 
Stock based compensation
    -       -       313,743       -       -       313,743  
                                                 
Contributed services
    -       -       50,000       -       -       50,000  
                                                 
Beneficial conversion feature of convertible debt
    -       -       20,675       -       -       20,675  
                                                 
Net loss
    -       -       -       -       (3,326,261 )     (3,326,261 )
                                                 
Balance, December 31, 2008
    12,486,718       1,249       4,922,174       -       (4,768,246 )     155,177  
                                                 
Cumulative effect of change in accounting principle
    -       -       (444,161 )     -       (290,456 )     (734,617 )
                                                 
Warrants issued for extension of debt maturities
    -       -       51,865       -       -       51,865  
                                                 
Stock based compensation
    -       -       1,530,536       -       -       1,530,536  
                                                 
Common stock issued for services
    86,875       10       104,109       -       -       104,119  
                                                 
Sale of common stock and warrants at $1.50 per share - February 2009
    466,674       46       667,439       -       -       667,485  
                                                 
Sale of common stock and warrants at $1.50 per share - April 2009
    33,334       3       49,997       -       -       50,000  
                                                 
Sale of common stock and warrants at $1.50 per share - June 2009
    1,420,895       142       2,038,726       -       -       2,038,868  
                                                 
Sale of common stock and warrants at $1.50 per share - July 2009
    604,449       60       838,024       -       -       838,084  
                                                 
Sale of common stock and warrants at $1.50 per share - September 2009
    140,002       14       202,886       -       -       202,900  
                                                 
Common stock and warrants issued as payment of placement fees
    53,334       5       (5 )     -       -       -  
                                                 
Common stock and warrants issued upon conversion of note and accrued interest
    174,165       18       174,147       -       -       174,165  
                                                 
Net loss
    -