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, 2011.  

 

or

 

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

   

Commission File Number 333-153829

 

GENSPERA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   20-0438951

State or other jurisdiction of

incorporation or organization

 

(I.R.S. Employer

Identification No.)

     

2511 N Loop 1604 W, Suite 204

San Antonio, TX

 

 

78258

(Address of principal executive offices)   (Zip Code)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

£ 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 o No

 

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   x

 

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

 

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

 

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

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was $33,006,967.

 

The number of shares outstanding of Registrant’s common stock, $0.0001 par value at February 22, 2012 was 21,707,420.  

 

DOCUMENTS INCORPORATED BY REFERENCE  

 

None

 

SUBSEQUENT EVENTS

 

During January and February of 2012, 250,001 of our outstanding common stock warrants were exercised resulting in gross proceeds to the Company of $355,002.

 

 
 

 

GENSPERA, INC

 

FORM 10-K

 

FOR THE YEAR ENDED DECEMBER 31, 2010

 

INDEX 

 

        Page
PART I
Item 1.   Business   3
Item 1A.   Risk Factors   11
Item 2.   Properties   18
Item 3.   Legal Proceedings   18
Item 4.   Mine Safety Disclosure   18
 
PART II
Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   19
Item 6.   Selected Financial Data   21
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   21
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   27
Item 8.   Financial Statements and Supplementary Data   27
Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure   28
Item 9A.   Controls and Procedures   28
Item 9B.    Other Items    30

 

PART III
Item 10.   Directors, Executive Officers and Corporate Governance   30
Item 11.   Executive Compensation   32
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   35
Item 13.   Certain Relationships and Related Transactions, and Director Independence   36
Item 14.   Principal Accounting Fees and Services   38
 
PART IV
Item 15.   Exhibits, Financial Statement Schedules   38

 

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

 

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

 

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

 

· the regulatory approval of our drug candidates;

 

· our use of clinical research centers and other contractors;

 

· our ability to sell, license or market any of our products;

 

· our ability to compete against other companies;

 

· our ability to secure adequate protection for our intellectual property;

 

· our ability to attract and retain key personnel; and

 

· our ability to obtain adequate financing.

 

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

 

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.

  

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 2004, we obtained an exclusive option to secure an exclusive license to certain intellectual property rights developed by Johns Hopkins University and assigned to Drs. John Isaacs, Soren Christensen, Hans Lilja, and Samuel Denmeade, the co-inventors of our technology. Subsequently, that option was formalized and we obtained an irrevocable, fully paid-up, exclusive license to all rights in that technology.

 

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.

 

3
 

 

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

 

 

5
 

 

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.

   

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 actively developing G-202 and are undertaking limited pre-clinical development with respect to G-115):

 

 

Prodrug Candidate

 

 

Activating enzyme

 

Target location of

active 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

Limited pre-clinical development

               

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. However, we are preparing the Company to be able to proceed into Phase III clinical trials and future sales and marketing operations if license/acquisition terms are not deemed to be favorable.

 

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. We are currently conducting our Phase I Clinical Trials on G-202 at University of Wisconsin Carbone Cancer Center in Madison, Wisconsin, 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 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 27 patients as of February 22, 2012. Although initial data from our Phase I clinical trial of G-202 appears promising, the outcome of the trial is uncertain and the trials may ultimately be unsuccessful. 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   241,740   1 in 6   -
Breast   229,060   n/a   1 in 8
Brain   22,910   n/a   n/a
Liver   28,720   n/a   n/a

 

Source: CA Cancer J. Clin 2012; 62; 10-29

 

G-115

 

We began development of G-115 in the fourth quarter of 2010. We recently deferred full development of G-115 to allow us to invest more aggressively in multiple G-202 Phase II clinical trials. We are however continuing limited preclinical development of G-115.

 

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 tumor’s nutrient supply and consequently an enhanced rate of tumor destruction.

 

Our drugs destroy new and existing blood vessels in tumors

 

 

7
 

 

Competition

 

The pharmaceutical, biopharmaceutical and biotechnology industries are very competitive, fast moving and intense, and are 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 issued patents and published pending patent applications that are either owned by or exclusively licensed to GenSpera:

 

Number   Country  

Filing

Date

  Issue Date  

Expiration

Date

  Title
Issued   Patents                    
                     
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   5/20/2018   Tissue specific prodrug (PSA)
                     
6,504,014   US   6/7/2000   1/7/2003   5/19/2018   Tissue specific prodrug (TG)
                     
6,545,131   US   7/28/2000   4/8/2003   5/19/2018   Tissue specific prodrug (TG)
                     
7,053,042   US   7/28/2000   5/30/2006   1/4/2023   Activation of peptide prodrugs by HK2
                     
7,468,354   US   11/30/2001   12/23/2008   11/24/2023  

 Tissue specific prodrug

(G-202, PSMA)

                     
7,635,682   US   1/6/2006   12/22/2009   5/19/2018  

Tumor activated prodrugs

(G-115)

                     
7,767,648   US   11/25/2008   8/3/2010   1/20/2022  

Tissue specific prodrug

(G-202, PSMA)

                     
7,906,477   US   11/18/2003   8/3/2010   9/20/2026   Activation of peptide prodrugs by HK2
                     
Patent Applications                    
                     
US 2010/0120697   US   11/5/2009   Pending   N/A   Tumor Activated Prodrugs (PSA,G-115)
                     
PCT/US2010/027657   PCT   3/17/2010   Pending   N/A   Methods and compositions for the detection of cancer
                     
US2011/0245147   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.

 

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 in order to achieve improvements in efficiency, costs, purity and the like as well as address different drug formulations to achieve improvements in stability and/or drug delivery.

 

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 additional 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.

 

The contract with Thapsibiza, SL expires by its terms in 2013. We are commencing to negotiate an extension of the contract term. We believe that we will be able to secure such extension under similar terms to our existing contract.

 

Long-term Supply of Raw Materials

 

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.  However, in order to secure a long-term stable supply of thapsigargin starting material, we are engaged in three ongoing research projects including traditional cultivation, aeroponic growth and metabolic engineering of moss cells.

 

We are funding an ongoing Thapsia garganica cultivation project with Thapsibiza, SL. It is known that thapsigargin is produced in the various parts of the plant and we are evaluating the most cost-effective way to produce thapsigargin, whether it is extracted from seedlings, early roots, stems and/or shoots or from seeds of the mature plant.  Reliable germination methods are established and transfer of plantings from greenhouse to fields appears straightforward.  At the current time, we believe that traditional cultivation, farming and harvesting of Thapsia garganica will be the most reliable and straightforward source of thapsigargin starting material.

 

9
 

 

We have funded a project in an academic lab at the University of Arizona to evaluate growth of Thapsia garganica in an aeroponic setting. This would allow soil-less cultivation under humid conditions and potentially less complex media for extraction of thapsigargin from the plant material.  This project is underway.

 

Lastly, we are co-funding a moss project at the University of Copenhagen.  A major goal of the project entitled SPOTLight ( S ustainable P roduction o f T hapsigargin using Light ) is to produce thapsigargin in high yields in genetically modified moss cells, thus enabling an inexpensive year-round supply of thapsigargin for drug manufacture.  The SPOTLight project is primarily funded by a DKK 18.3M (approximately $3.5M USD) grant from The Danish Council for Strategic Research and is directed by Dr. Soren Brogger Christensen, Professor at the University of Copenhagen, member of GenSpera’s Scientific Advisory Board and the scientist responsible for the initial isolation and characterization of thapsigargin.  GenSpera has agreed to co-fund the project to a total sum of $100,000 paid in four annual installments of $25,000. Under the terms of the agreement, GenSpera has obtained an exclusive, milestone- and royalty-free, fully paid license to the resulting moss cell lines necessary to generate thapsigargin or its chemical precursors.  The Company recognizes that this is an ambitious project and that the goal of having a thapsigargin-producing cell line may not be reached. However, even if the project can only generate cell lines that produce chemical precursors of thapsigargin, this might form the basis of a semi-synthetic route to thapsigargin on a commercially viable scale.

 

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 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, 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.

  

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.

 

10
 

 

Employees

 

As of December 31, 2011 we employed 2 individuals who are also our 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 Company’s website at www.genspera.com or 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.

 

General risks relating to our business and business model.

 

We are not profitable and may never be profitable.

 

Our net losses for the two most recent fiscal years ended December 31, 2011 and 2010 have been $5,714,107 and $4,257,839, respectively. Since inception, we have generated no revenue. We intend to develop our drug compounds through Phase I/II clinical trials, and then license our drug compounds to third parties. 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.

 

We have a limited operating history.

 

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.

 

Since inception in 2003 and through December 31, 2011, we have raised approximately $17,026,000 in capital. During this same period, we have recorded accumulated losses totaling $20,163,475. As of December 31, 2011, we had working capital of $4,626,518 and stockholders’ equity of $ $3,053,327. To date, we have generated no product revenues. Until, and unless, we receive approval from the United States Food and Drug Administration (“FDA”) and other regulatory authorities for our product candidates, we cannot sell our drugs and will not generate any revenues from the sale of our products. 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 potential future offerings of our securities. As of December 31, 2011, we had cash of $5,530,105. Our current monthly cash burn rate is approximately $400,000. Accordingly, based on our cash at December 31, 2011 and the monies received from exercise of warrants in Q1 2012, we believe that we have sufficient cash on hand to fund our operations until March, 2013. 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.

 

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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 that 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, product launches, or marketing efforts. Any such change may materially harm our business, financial condition, and operations.

 

Raising 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 financing, we may need to cease operations or materially scale back our business plan and/or operations.

 

We may not be able to commercially develop our technologies.

 

We have concentrated our research and development on our pro-drug technologies. Our ability to generate revenue and operate profitably will depend on 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.

 

We are conducting the clinical trials of G-202 at the University of Wisconsin Carbone Cancer Center in Madison Wisconsin, Sidney Kimmel Comprehensive Cancer Center at Johns Hopkins University and 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.

 

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.

 

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 Chief Executive Officer, and Russell Richerson, our Chief Operating Officer. In the event we terminate the employment of either 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.

 

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We may 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 personnel and the development of additional expertise by existing management. There is intense competition for qualified personnel in such areas. There can be no assurances that we will be able 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 competitors 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 individuals and/or entities 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.

 

We intend to rely exclusively upon 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.

 

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 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 1000 acres of land to cultivate and grow Thapsia garganica . We anticipate the cost to lease such land would be $400,000 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.

 

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Thapsia garganica and Thapsigargin are highly toxic.

 

The therapeutic component of our products, including our lead product G-202, is derived from the natural product, thapsigargin, which is isolated from the seeds of the plant Thapsia garganica . Both thapsigargin, as well as seeds of Thapsia garganica , are highly toxic. As a consequence, we are subject to numerous environmental and safety laws and regulations, including those governing laboratory procedures and the handling of toxic materials. We may be required to incur significant costs to comply with current or future environmental laws and regulations and may be adversely affected by the cost of compliance with these laws and regulations. Although we believe that our safety procedures for using, handling, storing and disposing of hazardous materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. In the event of such an accident, state or federal authorities could curtail our use of these materials and we could be liable for any civil damages that result, the cost of which could be substantial. Further, any failure by us to control the use, disposal, removal or storage, or to adequately restrict the discharge, or assist in the cleanup of toxic substances could subject us to significant liabilities, including joint and several liabilities under certain statutes. Although we feel this risk may be minimized through our use of third parties, it is possible that the employees of such contractors could suffer medical issues related to the handling of these toxic agents and subsequently seek compensation from us via, for example, litigation. Any such liability could exceed our resources and could have a material adverse effect on our business, financial condition and results of operations. 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 handling of Thapsia garganica and the natural product thapsigargin.

 

Additional federal, state and local laws and regulations affecting us may be adopted in the future. We may incur substantial costs to comply with these laws and regulations and substantial fines or penalties if we violate any of these laws or regulations, which would adversely affect our business.

 

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 the manufacturing of our therapeutic compounds, our business and future prospects will be adversely affected.

 

Our current manufacturing process requires acetonitrile which in the past has been in short supply.

 

The current manufacturing process for our compounds requires the common solvent acetonitrile. From late 2008 through 2009 there was a worldwide shortage of acetonitrile for a variety of reasons. We observed during that time that 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 in the future if such shortage reoccurs. 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 stages where they would represent a substantial departure 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. The degree of market acceptance of any of our developed products will depend on a number of factors, including but not limited to:

 

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

 

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

 

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

 

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

 

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If the health care community does not accept our products, 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 which is adequate to supply early stage clinical trials and our research activities. There can be no assurances that the current procedures for manufacturing G-202 or G-115 will work at a scale which is adequate for commercial needs. In the event our therapeutic compounds cannot be manufactured in sufficient commercial quantities, our future prospects could be significantly impacted.

 

We face product liability risks for which we may not be able to obtain adequate insurance coverage.

 

We currently have no products approved for commercial sale. However, in the event we gain approval to market one of our product candidates in the future, we may be exposed to product 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 secure or 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. If our intellectual property rights are challenged, no assurances can be given that our patents or licenses will survive claims alleging invalidity or infringement on other patents and/or licenses. Additionally, disputes may arise regarding inventorship of our intellectual property. There also could be existing patents of which we are unaware that our products may be infringing upon. As the number of participants in the market grows, the possibility of patent infringement claims against us increases. It is difficult, if not impossible, to determine how such disputes would be resolved. Furthermore, because of the substantial amount of discovery required in connection with patent litigation, there is a risk that some of our confidential information could be required to be publicly disclosed. In addition, during the course of patent litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation. Any litigation claims against us may cause us to incur substantial costs and could place a significant strain upon our financial resources, divert the attention of management or restrict our core business.

 

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 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. Additionally, we also 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 foreign or domestic 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 February 22, 2012, we had treated twenty-seven 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.

 

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Risks Relating To Our Common Stock

 

Our limited market is relatively illiquid.

 

Our common shares trade with limited volume on the Over-the-Counter Bulletin Board (“OTCBB”) and Pinksheets. Accordingly, although a limited public market for our securities exists, it is still relatively illiquid. Any prospective investor in our common stock should consider the limited market when making an investment decision. 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 investors to sell their shares.

 

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 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 and developmental 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 and pharmaceutical 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 United States Securities and Exchange Commission (“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. Presently we qualify as a non-accelerated filer and, accordingly, are exempt from the requirements of Section 404(b) and 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 expend substantial capital in connection with compliance.

 

Our internal controls over financial reporting are not effective.

 

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 number of 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. 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 developing our business to compliance activities which could have an adverse effect on our business.

 

Our common stock may be considered a “penny stock,” and is subject to additional sale and trading regulations that may make it more difficult to sell.

 

Our common stock may be a “penny stock.” 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 15g-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 issuer, 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 currently have limited research coverage by securities and industry analysts. In the event any of the analysts who cover us downgrade 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 pay, and 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 liquid 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, 2011, we have issued and outstanding 21,457,419 common shares and we have 16,576,980 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 are entitled to issue up to 41,965,601 additional common shares and 10,000,000 additional preferred shares. Our board may generally issue those common and preferred shares, or convertible securities 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 in order 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 31% of our outstanding common shares.

 

As of December 31, 2011, our Officers and Scientific Advisors owned approximately 31% of our issued and outstanding common shares. As a consequence of their level of stock ownership, the group retains substantial ability to influence the election or removal of 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 of 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 provides. 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. MINE SAFETY DISCLOSURES

 

Not Applicable

 

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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

 

Our common shares are quotation on the OTCBB and Pinksheets under the symbol GNSZ. Although a market for our common stock exists, it is relatively illiquid.   The following quotations are taken from the OTC Bulletin Board. The prices reflect high and low inter-dealer bid prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.

 

Quarter Ended   High     Low  
2011:                
Fourth Quarter   $ 1.92     $ 1.35  
Third Quarter   $ 1.91     $ 1.20  
Second Quarter   $ 2.00     $ 0.00  
First Quarter   $ 2.00     $ 1.10  
2010:                
Fourth Quarter   $ 1.99     $ 1.50  
Third Quarter   $ 2.27     $ 1.50  
Second Quarter   $ 2.80     $ 2.00  
First Quarter   $ 3.45     $ 1.60  

 

Holders

 

As of February 22, 2012, there were 21,707,420 shares of our common stock issued and outstanding those were held by approximately 120 shareholders of record. We believe our shares are held by another 755 “beneficial owners” with regard to shares held in street name.

 

Dividend Policy

 

We have never paid or declared cash dividends on our common stock, and we do not intend to pay or declare cash dividends on our common stock in the foreseeable future.

 

Equity Compensation Plan Information

 

The following table sets forth information as of December 31, 2011 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)     1,871,870     $ 1.62       3,970,967  
Equity compensation plans not approved by security holders                        
2009 Executive Compensation Plan     1,775,000       1.58       -  
Total     3,646,870     $ 1.60       3,970,967  

 

(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.

 

Deferred Compensation Plan

 

In July of 2011, we adopted Executive Deferred Compensation Plan (the “Deferred Plan”). The Deferred Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The Deferred Plan is intended to be an unfunded “top hat” plan which is maintained primarily to provide deferred compensation benefits for a select group of our “management or highly compensated employees” within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to therefore be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. The Deferred Plan is intended to help build a supplemental source of savings and retirement income through pre-tax deferrals of eligible compensation, which may include cash, option and stock bonus awards, discretionary cash, option and stock awards and/or any other payments which may be designated by the Deferred Plan administrator, as eligible, for deferral under the Deferred Plan from time to time. As administered, the Deferred Plan is used to defer compensation of stock awards granted under our other equity compensation plans and does not by its terms approve any grants or awards.

 

Recent Sales of Unregistered Securities.

 

The following information is given with regard to unregistered securities sold since January 1, 2011.  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.

 

· 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 grant 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.

 

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· In March of 2011 we entered into a consulting agreement pursuant to which we issued 33,334 units consisting of 33,334 common shares and warrants to purchase an addition 16,667 common shares as payment for $60,000 of previously incurred consulting expense. The price per unit was $1.80 and warrants have the same terms and conditions as the units issued during our January 2011 offering. The agreement also provides for a retainer of 32,500 common shares and a warrant to purchase 44,000 common shares. Pursuant to the agreement, we also issued an aggregate of 50,000 addition common shares and 100,000 common stock purchase warrants as payment of services rendered during the months of Jan., Feb., March, Apr., and May of 2011 (10,000 common shares per month, and 20,000 common stock purchase warrants per month). The warrants have substantially the same terms and conditions as the warrants issued during the Company’s January 2011 offering. As a result of agreement, we issues an aggregate of: (x) 115,834 common shares, and (y) warrants to purchase 160,667 common shares.

 

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

 

In connection with the offering, we incurred finder’s fees in the amount of $60,000 in cash and issued warrants to purchase a total of 36,364 shares at an exercise price per share of $3.15. The warrants have the same terms and conditions as the investor warrants. As a result of the offering and the finder’s warrants, we issued a total of 1,363,622 shares and 718,175 common stock purchase warrants.

 

· On May 23, 2011 we entered into a consulting agreement pursuant to which we issued 12,500 common shares and a warrant to purchase 11,000 common shares as a retainer. Pursuant to the agreement, we also issued an aggregate of: (i) 40,000 common shares, and (ii) 80,000 common stock purchase warrants, as payment for consulting fees (10,000 common shares per month, and 20,000 common stock purchase warrants per month). The warrants will have substantially the same terms and conditions as the warrants issued during the Company’s April 2011 offering. As a result of the agreement we issued an aggregate of: (x) 52,500 common shares, and (y) warrants to purchase 91,000 common shares.

 

· On May 26, 2011, we issued 4,211 common shares to Prism Production Services, Inc. as payment for services valued at $8,000 provided in connection with the creation of a corporate informational video. The shares were valued at $1.90 per share.

 

· On August 16, 2011, we entered into an agreement whereby we agreed to issue to LifeTech Capital, a division of Aurora Capital, LLC, a warrant to purchase 25,000 common shares as partial compensation for business advisory services. The warrant vests in amounts equal to 6,250 on: (i) October 16, 2011; (ii) January 16, 2012; (iii) April 16, 2012; and (iv) July 16, 2012, so long as consultant continues to provide us services. Additionally, the warrant has a term of five years, is exercisable for cash and has an exercise price of $1.94 which is subject to adjustment upon stock splits and dividends. We issued the warrant on January 12, 2012.

 

· In December of 2011, we issued warrants to purchase an aggregate of 190,000 common shares as compensation for business advisory services. The warrants have an exercise price of $2.03 per share, a term of 5 years and provide for cashless exercise.

 

ITEM 6. SELECTED FINANCIAL DATA

 

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

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

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

 

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  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 year ended December 31, 2011 to 2010.

 

  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 pursuing a business plan related to the development of targeted cancer therapeutics for the treatment of cancerous tumors, including prostate, brain and other cancers.  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”. Our operations are based in San Antonio, TX.

 

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. However, we are concurrently positioning the Company to be in a financial position to proceed in the absence of a license/acquisition deal with a large Pharma partner should the terms at that point in time appear not to be favorable.

 

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. 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.

 

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 and Phase II clinical needs.

 

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.  

 

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 2012 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. The study is designed to enroll three patients per dosing cohort, with each subsequent cohort receiving a higher dose of drug until a Maximum Tolerated Dose is identified. We are currently conducting the Phase I study in refractory cancer patients (those who have relapsed after former treatments) with any type of solid tumors. This strategy is intended to facilitate enrollment and perhaps give us a glimpse of safety across a wider variety of patients. We expect to enroll up to 36 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 at the Maximum Tolerated Dose 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.

 

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As of February 22, 2012, we have treated 27 patients with G-202 at doses ranging from 1.5 mg/m 2 /dose (~2.5 mg/dose) up to 88 mg/m 2 /dose (~150 mg/dose). The drug exposure in patients receiving the higher doses of G-202 is in the range of drug exposure associated with anti-tumor efficacy in animal tumor models. The drug appears to be relatively well-tolerated to date and the dose escalation component of the study is still ongoing. Once the Maximum Tolerated Dose (MTD) is established in this trial, we intend to initiate the Phase IB component of the study (described above) and concurrently initiate the Phase II clinical trial in castrate-resistant chemotherapy-naïve prostate cancer patients (described below).

 

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 have developed a Phase II clinical protocol for the treatment of castrate-resistant chemotherapy-naïve prostate cancer patients to be conducted in the US with additional sites in the UK. This trial will have an advantage of demonstrating approval by European regulatory agencies for the use of G-202 in patients and is expected to launch in Q3 2012. We are also evaluating Phase II trial designs in other tumor types and expect to initiate up to four separate concurrent Phase II studies in different tumor types over a time span of 18 months.

 

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 2016. If all goes as planned, we may expect marketing approval in the second half of 2017 with an additional $3,000,000 spent to get the NDA approved. We do not expect material net cash inflows from our own marketing efforts before late 2017.  The Phase III estimated costs are subject to major revision because we have not yet obtained any efficacy data for our drug in patients and therefore cannot accurately predict what may be the optimal Phase III patient population. The estimates will become more refined as we obtain more clinical data.

 

We have budgeted $4,684,000 in cash expenditures for the twelve month period following December 31, 2011, including (1) $1,484,000 to cover our projected general and administrative expense during this period; and (2) $3,200,000 for research and development activities. Based on our cash at December 31, 2011 and cash received during January and February 2012 from the sale of our securities, we believe we have sufficient cash on hand to fund our operations until March 2013, after which time we will need to undertake additional financings. These assumptions are based upon operations focused solely on the G-202 Phase I dose escalation trial, the Phase IB late-stage prostate cancer study and the Phase II clinical trial in castrate-resistant chemotherapy-naïve prostate cancer patients. We anticipate that we will require an additional $17 million (full operations, manufacturing and clinical trial costs) through the end of 2014 to complete Phase II clinical evaluations with G-202 in four indications.

 

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

 

Significant Accounting Policies

 

Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Note 1 of the Notes to Financial Statements describes the significant accounting policies used in the preparation of the financial statements. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. We do not believe that there have been significant changes to our accounting policies during the year ended December 31, 2011, as compared to those policies disclosed in the December 31, 2010 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.

 

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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.

 

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, 2011 Compared to the Year Ended December 31, 2010

 

Revenue

 

We did not have revenue during the years ending December 31, 2011 and 2010. We do not anticipate any revenues during 2012.

 

Operating Expenses

 

Operating expense totaled $6,320,044 and $4,172,634 during 2011 and 2010, respectively.  The increase in operating expenses is the result of the following factors.

 

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    Year Ended     Change in 2011  
    December 31,     Versus 2010  
    2011     2010     $     %  
Operating Expenses                                
General and administrative expenses   $ 3,262,360     $ 2,173,247     $ 1,089,113       50 %
Research and development     3,302,163       2,243,866       1,058,297       47 %
Research and development grant received     (244,479 )     (244,479 )            
Total expense   $ 6,320,044     $ 4,172,634     $ 2,147,410       51 %

 

General and Administrative Expenses

 

G&A expenses totaled $3,262,360 and $2,173,247 during 2011 and 2010, respectively. The increase of $1,089,113 or 50% for 2011 compared to 2010 was primarily attributable to a number of factors, including increases in compensation expense of approximately $514,000 (resulting primarily from the granting of both the 2011 and 2010 Long Term Incentive Grants during the 2011 year) and consulting and other professional fees of approximately $479,000. Of the increases in compensation, consulting and professional fees, approximately $838,000 has been or will be paid through the grant of common stock and common stock options and warrants.

 

Research and Development Expenses

 

Research and development expenses totaled $ 3,302,163 and $ 2,243,866 during 2011 and 2010, respectively. The increase of $ 1,058,297 or 47% for 2011 compared to 2010 was attributable to an increase in compensation expense of approximately $514,000 (resulting primarily from the granting of both the 2011 and 2010 Long Term Incentive Grants during the 2011 year) and an increase in development expense of approximately $545,000 resulting from our ongoing Phase I clinical trial.. Of the increase in compensation, approximately $458,000 has been or will be paid through the grant of common stock and common stock options.

 

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. 

 

Research and Development Grant

 

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

 

Other Income/Expenses

 

Other income / (expenses) totaled $605,937 and ($85,205) for 2011 and 2010, respectively.

 

    Year Ended     Change in 2011  
    December 31,     Versus 2010  
    2011     2010     $     %  
Other Income Expenses                                
Change in fair value of derivative liability   $ 579,906     $ (109,654 )   $ 689,560       629 %
Interest income (expense)     26,031       24,449       1,582       6 %
Total other income/expense   $ 605,937     $ (85,205 )   $ 691,142       811 %

  

Change in fair value of derivative liability

 

The income (charge) for the change in fair value of derivative liability totaled $579,906 and ($109,654) during 2011 and 2010, 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.

 

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Interest income (expense)

 

We had net interest income of $26,031 and $24,449 for the year ended December 31, 2011 and 2010, respectively. The increase in net interest income of $1,582 for 2011 compared to 2010 was attributable to an increase in interest earned on deposits.

 

Net Loss

 

Net losses for 2011 and 2010 were $5,714,107 and $4,257,839, 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, 2011 we had cash on hand of approximately $5,530,000. During the first quarter of 2012, we received approximately $355,000 as a result of the exercise of previously outstanding warrants. We currently have a cash burn rate of $400,000 per month and this is expected to remain steady throughout 2012. Accordingly, based on our cash at December 31, 2011 and cash received during the first quarter from the exercise of warrants, we believe we have sufficient cash on hand to fund our operations until March 2013 assuming we do not engage in an extraordinary transaction or otherwise face unexpected events or contingencies.

 

    Year Ended  
    December 31,  
Consolidated Statement of Cash Flows Data:   2011     2010  
Cash & Cash Equivalents   $ 5,530,105     $ 3,671,151  
Net cash used in operating activities     (3,744,055 )     (2,769,217 )
Net cash used in investment activities           (10,000 )
Net cash provided by financing activities     5,603,009       4,195,057  

 

Net Cash Used in Operating Activities

 

In our operating activities we used $3,744,055 and $2,769,217 during 2011 and 2010, respectively. The increase of $974,838 in cash used during 2011 compared to 2010 was attributable to an increase in loss of $1,616,358 (after adjusting for non-cash items), partially offset by an increase in accounts payable of $641,520.

 

Net Cash Used in Investing Activities

 

Cash used in investing activities was $0 and $10,000 for 2011 and 2010, respectively.  We did not expend any cash in investments during 2011 and expended $10,000 for patent acquisitions in 2010.

 

Net Cash Provided by Financing Activities

 

During 2011, we raised approximately $5,603,009 through the sale of our securities compared to $4,195,057 during 2010.

 

Listed below are key financing transactions we have entered into since January 1, 2010 through March 1, 2012:

 

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· 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.

 

· In April of 2011, we sold 1,363,622 units resulting in gross proceeds of $2,249,750.

 

· During 2012, we received gross proceeds of approximately $355,000 from the exercise of outstanding options and warrants.

 

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    
     
Balance Sheets   F-1
     
Statements of Losses   F-2
     
Statements of Stockholders’ Equity   F-3
     
Statements of Cash Flows    F-4
     
Notes to Financial Statements   F-5
     

 

27
 

 

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

 

  /s/   RBSM LLP
  RBSM LLP
New York, New York  
March 6, 2012  

 

 

 
 

 

GENSPERA INC.

(A Development Stage Company)

BALANCE SHEETS

 

    December 31,     December 31,  
    2011     2010  
Assets                
                 
Current assets:                
Cash   $ 5,530,105     $ 3,671,151  
                 
Total current assets     5,530,105       3,671,151  
                 
Fixed assets, net of accumulated depreciation of $7,042 and $3,874     8,791       11,959  
                 
Prepaid fees     -       3,500  
Intangible assets, net of accumulated amortization of $60,023 and $43,029     152,145       169,139  
                 
Total assets   $ 5,691,041     $ 3,855,749  
                 
Liabilities and stockholders' equity                
                 
Current liabilities:                
                 
Accounts payable and accrued expenses   $ 781,660     $ 139,169  
Accrued interest - stockholder     16,927       12,517  
Convertible notes payable - stockholder     105,000       105,000  
                 
Total current liabilities     903,587       256,686  
                 
Warrant derivative liabilities     1,734,127       2,314,033  
                 
Total liabilities     2,637,714       2,570,719  
                 
Commitments and contingencies                
                 
Stockholders' equity:                
                 
Preferred stock, par value $.0001 per share; 10,000,000 shares authorized,  none issued and outstanding     -       -  
Common stock, par value $.0001 per share; 80,000,000 shares authorized, 21,457,419 and 17,604,465 shares issued and outstanding, respectively     2,146       1,760  
Common stock subscribed     -       611,846  
Additional paid-in capital     23,214,656       15,120,792  
Deficit accumulated during the development stage     (20,163,475 )     (14,449,368 )
                 
Total stockholders' equity     3,053,327       1,285,030  
                 
Total liabilities and stockholders' equity   $ 5,691,041     $ 3,855,749  

 

See accompanying notes to audited financial statements.

 

F- 1
 

  

GENSPERA, INC. 

(A Development Stage Company)

STATEMENTS OF LOSSES

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2011

 

                Cumulative Period  
                from November 21, 2003  
                (date of inception) to  
    Years ended December 31,     December 31,  
    2011     2010     2011  
                   
Operating expenses:                        
General and administrative expenses   $ 3,262,360     $ 2,173,247     $ 8,149,996  
Research and development     3,302,163       2,243,866       11,057,570  
Research and development grant received     (244,479 )     (244,479 )     (488,958 )
                         
Total operating expenses     6,320,044       4,172,634       18,718,608  
                         
Loss from operations     (6,320,044 )     (4,172,634 )     (18,718,608 )
                         
Finance cost     -       -       (518,675 )
Change in fair value of derivative liability     579,906       (109,654 )     (960,298 )
Interest income, net     26,031       24,449       34,106  
                         
Loss before provision for income taxes     (5,714,107 )     (4,257,839 )     (20,163,475 )
                         
Provision for income taxes     -       -       -  
                         
Net loss   $ (5,714,107 )   $ (4,257,839 )   $ (20,163,475 )
                         
Net loss per common share, basic and diluted   $ (0.27 )   $ (0.25 )        
                         
Weighted average shares outstanding     20,821,555       16,909,610          

 

See accompanying notes to audited financial statements.

 

F- 2
 

 

GENSPERA, INC.

(A Development Stage Company)

STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

FROM DATE OF INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2011

 

                            Deficit        
                            Accumulated        
                Additional     Common     During the     Stockholders'  
    Common Stock     Paid-in     Stock     Development     Equity  
    Shares     Amount     Capital     Subscribed     Stage     (Deficit)  
                                     
Balance, November 21, 2003     -     $ -     $ -     $ -     $ -     $ -  
                                                 
Sale of common stock to founders at $0.0001 per share in November, 2003     6,100,000       610       (510 )     -       -       100  
                                                 
Contributed services     -       -       120,000       -       -       120,000  
                                                 
Net loss     -       -       -       -       (125,127 )     (125,127 )
                                                 
Balance, December 31, 2003     6,100,000       610       119,490       -       (125,127 )     (5,027 )
                                                 
Contributed services     -       -       192,000       -       -       192,000  
                                                 
Stock based compensation     -       -       24,102       -       -       24,102  
                                                 
Net loss     -       -       -       -       (253,621 )     (253,621 )
                                                 
Balance, December 31, 2004     6,100,000       610       335,592       -       (378,748 )     (42,546 )
                                                 
Contributed services     -       -       48,000       -       -       48,000  
                                                 
Stock based compensation     -       -       24,100       -       -       24,100  
                                                 
Net loss     -       -       -       -       (126,968 )     (126,968 )
                                                 
Balance, December 31, 2005     6,100,000       610       407,692       -       (505,716 )     (97,414 )
                                                 
Contributed services     -       -       144,000       -       -       144,000  
                                                 
Stock based compensation     -       -       42,162       -       -       42,162  
                                                 
Net loss     -       -       -       -       (245,070 )     (245,070 )
                                                 
Balance, December 31, 2006     6,100,000       610       593,854       -       (750,786 )     (156,322 )
                                                 
Shares sold for cash at $0.50 per share in November, 2007     1,300,000       130       649,870       -       -       650,000  
                                                 
Shares issued for services     735,000       74       367,426       -       -       367,500  
                                                 
Contributed services     -       -       220,000       -       -       220,000  
                                                 
Stock based compensation     -       -       24,082       -       -       24,082  
                                                 
Exercise of options for cash at $0.003 per share in March and June, 2007     900,000       90       2,610       -       -       2,700  
                                                 
Net loss     -       -       -       -       (691,199 )     (691,199 )
                                                 
Balance, December 31, 2007     9,035,000       904       1,857,842       -       (1,441,985 )     416,761  
                                                 
Exercise of options for cash at $0.50 per share on March 7,2008     1,000,000       100       499,900       -       -       500,000  
                                                 
Sale of common stock and warrants at $1.00 per share - July and August 2008     2,320,000       232       2,319,768       -       -       2,320,000  
                                                 
Cost of sale of common stock and warrants     -       -       (205,600 )     -       -       (205,600 )
                                                 
Shares issued for accrued interest     31,718       3       15,856       -       -       15,859  
                                                 
Shares issued for services     100,000       10       49,990       -       -       50,000  
                                                 
Stock based compensation     -       -       313,743       -       -       313,743  
                                                 
Contributed services     -       -       50,000       -       -       50,000  
                                                 
Beneficial conversion feature of convertible debt     -       -       20,675       -       -       20,675  
                                                 
Net loss     -       -       -       -       (3,326,261 )     (3,326,261 )
                                                 
Balance, December 31, 2008     12,486,718       1,249       4,922,174       -       (4,768,246 )     155,177  
                                                 
Cumulative effect of change in accounting principle     -       -       (444,161 )     -       (290,456 )     (734,617 )
                                                 
Warrants issued for extension of debt maturities     -       -       51,865       -       -       51,865  
                                                 
Stock based compensation     -       -       1,530,536       -       -       1,530,536  
                                                 
Common stock issued for services     86,875       10       104,109       -       -       104,119  
                                                 
Sale of common stock and warrants at $1.50 per share - February 2009     466,674       46       667,439       -       -       667,485  
                                                 
Sale of common stock and warrants at $1.50 per share - April 2009     33,334       3       49,997       -       -       50,000  
                                                 
Sale of common stock and warrants at $1.50 per share - June 2009     1,420,895       142       2,038,726       -       -       2,038,868  
                                                 
Sale of common stock and warrants at $1.50 per share - July 2009     604,449       60       838,024       -       -       838,084  
                                                 
Sale of common stock and warrants at $1.50 per share - September 2009     140,002       14       202,886       -       -       202,900  
                                                 
Common stock and warrants issued as payment of placement fees     53,334       5       (5 )     -       -       -  
                                                 
Common stock and warrants issued upon conversion of note and accrued interest     174,165       18       174,147       -       -       174,165  
                                                 
Net loss     -       -       -       -       (5,132,827 )     (5,132,827 )
                                                 
Balance, December 31, 2009     15,466,446       1,547       10,135,737       -       (10,191,529 )     (54,245 )
                                                 
Stock based compensation     -       -       1,165,450       -       -       1,165,450  
                                                 
Sale of common stock and warrants at $1.65 per share - February and March 2010     533,407       53       806,157       -       -       806,210  
                                                 
Sale of common stock and warrants at $2.00 per share - May 2010     1,347,500       135       2,655,365       -       -       2,655,500  
                                                 
Common stock and warrants issued as payment of placement fees     43,632       4       (4 )     -       -       -  
                                                 
Common stock issued as payment for patents and license     20,000       2       46,798       -       -       46,800  
                                                 
Common stock and warrants subscribed     -       -       -       611,846       -       611,846  
                                                 
Salaries paid with common stock     43,479       4       99,996       -       -       100,000  
                                                 
Exercise of options and warrants     150,001       15       124,986       -       -       125,001  
                                                 
Reclassification of derivative liability upon exercise of warrants     -       -       86,307       -       -       86,307  
                                                 
Net loss     -       -       -       -       (4,257,839 )     (4,257,839 )
                                                 
Balance, December 31, 2010     17,604,465       1,760       15,120,792       611,846       (14,449,368 )     1,285,030  
                                                 
Stock based compensation     -       -       1,290,193       -       -       1,290,193  
                                                 
Sale of common stock and warrants at $1.80 per share - January and February 2011     2,241,605       224       4,034,659       (611,846 )     -       3,423,037  
                                                 
Sale of common stock and warrants at $1.65 per share - April 2011     1,363,622       136       2,249,839       -       -       2,249,975  
                                                 
Common stock and warrants issued as payment of placement fees     61,498       6       (6 )     -       -       -  
                                                 
Common stock and warrants issued as payment of accrued consulting fees     33,334       3       59,997       -       -       60,000  
                                                 
Common stock and warrants issued as payment of consulting fees     152,895       17       532,685       -       -       532,702  
                                                 
Cost of sales of common stock and warrants     -       -       (73,503 )     -       -       (73,503 )
                                                 
Net loss     -       -       -       -       (5,714,107 )     (5,714,107 )
                                                 
Balance, December 31, 2011     21,457,419     $ 2,146     $ 23,214,656     $ -     $ (20,163,475 )   $ 3,053,327  

 

See accompanying notes to audited financial statements.

 

F- 3
 

 

GENSPERA, INC. 

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

AND FOR THE PERIOD FROM INCEPTION (NOVEMBER 21, 2003) TO DECEMBER 31, 2011

 

                Cumulative Period  
                from November 21, 2003  
                (date of inception) to  
    Years  ended December 31,     December 31,  
    2011     2010     2011  
                   
Cash flows from operating activities:                        
Net loss   $ (5,714,107 )   $ (4,257,839 )   $ (20,163,475 )
Adjustments to reconcile net loss to net cash used in operating activities:                        
Depreciation and amortization     20,162       19,337       67,065  
Stock based compensation     1,822,895       1,265,450       5,568,689  
Common stock issued for acquisition of license     -       28,800       28,800  
Warrants issued for financing costs     -       -       467,840  
Change in fair value of derivative liability     (579,906 )     109,654       960,298  
Contributed services     -       -       774,000  
Amortization of debt discount     -       -       20,675  
Changes in assets and liabilities:                        
Increase in accounts payable and accrued expenses     706,901       65,381       885,011  
                         
Cash used in operating activities     (3,744,055 )     (2,769,217 )     (11,391,097 )
                         
Cash flows from investing activities:                        
Acquisition of property and equipment     -       -       (15,833 )
Acquisition of intangibles     -       (10,000 )     (194,168 )
                         
Cash used in investing activities     -       (10,000 )     (210,001 )
                         
Cash flows from financing activities:                        
Proceeds from sale of common stock and warrants     5,673,012       4,073,556       16,974,705  
Proceeds from exercise of warrants     -       125,001       125,001  
Cost of common stock and warrants sold     (70,003 )     (3,500 )     (73,503 )
Proceeds from convertible notes - stockholder     -       -       155,000  
Repayments of convertible notes - stockholder     -       -       (50,000 )
                         
Cash provided by financing activities     5,603,009       4,195,057       17,131,203  
                         
Net increase in cash     1,858,954       1,415,840       5,530,105  
Cash, beginning of period     3,671,151       2,255,311       -  
Cash, end of period   $ 5,530,105     $ 3,671,151     $ 5,530,105  
                         
Supplemental cash flow information:                        
Cash paid for interest   $ -     $ 45          
Cash paid for income taxes   $ -     $ -          
                         
Non-cash financial activities:                        
Common stock units issued as payment of placement fees   $ 110,695     $ -          
Derivative liability reclassified to equity upon exercise of warrants     -       86,307          
Common stock issued for acquisition of patent     -       18,000          

 

See accompanying notes to audited financial statements.

 

F- 4
 

 

GENSPERA, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

AND FOR THE PERIOD FROM NOVEMBER 21, 2003

(INCEPTION) TO DECEMBER 31, 2011

 

NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

 

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

 

Business and Basis of Presentation

 

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

 

To date, we have generated no sales revenues, have incurred significant expenses and have sustained losses. Consequently, our operations are subject to all the risks inherent in the establishment of a new business enterprise. For the period from inception on November 21, 2003 through December 31, 2011, we have accumulated losses of $20,163,475.

 

Liquidity

 

Our financial statements have been prepared assuming that the Company will continue as a going concern. As of December 31, 2011, we had working capital (current assets in excess of current liabilities) of $4,626,518.  Our cash flow used in operations was $3,744,055 and $2,769,217 for the years ended December 31, 2011 and 2010, respectively.  At December 31, 2011, we had cash on hand of approximately $5,530,000. Based upon current cash flow projections, management believes the Company will have sufficient capital resources to meet projected cash flow requirements through 2012.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying disclosures. Although these estimates are based on management's best knowledge of current events and actions the Company may undertake in the future, actual results may differ from those estimates.

 

Research and Development

 

Research and development costs include expenses incurred by the Company for research and development of therapeutic agents for the treatment of cancer and are charged to operations as incurred. Our research and development expenses consist primarily of expenditures for toxicology and other studies, manufacturing, clinical trials and compensation and consulting costs.    

 

GenSpera incurred net research and development expenses of $3,057,684, $1,999,387 and $10,568,612 for the years ended December 31, 2011 and 2010, and from November 21, 2003 (inception) through December 31, 2011, respectively. 

 

Cash Equivalents

 

For purposes of the statements of cash flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. We maintain our cash in bank deposit accounts which, at times, may exceed insured limits. We have not experienced any losses in our accounts.

 

Concentrations of Credit Risk

 

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of applicable government mandated insurance limits. At December 31, 2011, deposits exceeded current insurance limits by approximately $5,165,000.

 

F- 5
 

 

Intangible Assets

 

Intangible assets consist of issued patents and patent applications pending worldwide (see Note 5). These patents and patent applications cover the intellectual property underlying our technology. The assets are recorded at cost. The patents are being amortized on the straight line basis over their estimated useful lives of twelve to seventeen years.

 

Property and equipment


Property and equipment is stated at cost less accumulated depreciation.  Depreciation is provided on the straight line basis over the estimated useful lives of the assets of five years

 

Expenditures for repair and maintenance which do not materially extend the useful lives of property and equipment are charged to operations. When property or equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected in operations. Management periodically reviews the carrying value of its property and equipment for impairment.   

 

Loss Per Share

 

We use ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. We compute basic loss per share by dividing net loss and net loss attributable to common shareholders by the weighted average number of common shares outstanding. Basic and diluted loss per share are the same, in that any potential common stock equivalents would have the effect of being anti-dilutive in the computation of net loss per share. There were 12,606,013 common share equivalents at December 31, 2011 and 9,159,371 at December 31, 2010. For the years ended December 31, 2011 and 2010, these potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.

 

Fair value of financial instruments

 

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

 

Fair value measurements

 

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

 

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

 

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

 

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

 

The table below summarizes the fair values of our financial liabilities as of December 31, 2011:

 

    Fair Value at     Fair Value Measurement Using  
   

December 31,

2011

    Level 1     Level 2     Level 3  
                         
Warrant derivative liability   $ 1,734,127     $     $     $ 1,734,127  
                                 
    $ 1,734,127     $     $     $ 1,734,127  

 

F- 6
 

 

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability) for the years ended December 31, 2011 and 2010.

 

    2011     2010  
Balance at beginning of year   $ 2,314,033     $ 2,290,686  
Additions to derivative instruments     -       -  
Change in fair value of warrant liability     (579,906 )     109,654  
Reclassification to equity upon exercise of warrants     -       (86,307 )
Balance at end of period   $ 1,734,127     $ 2,314,033  

 

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

 

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


Income Taxes


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


Stock-Based Compensation

 

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

 

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

 

Recent Accounting Pronouncements

 

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

 

NOTE 2 - CAPITAL STOCK AND STOCKHOLDER’S EQUITY

 

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

 

2011 Transactions:

 

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

 

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

 

F- 7
 

 

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

 

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

 

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

 

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

 

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

 

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

 

On March 1, 2011, we granted 39,000 common stock options to a director. The options have an exercise price of $1.90 per share. The options will vest quarterly over one year. The options lapse if unexercised after five years.  The options have a grant date fair value of $20,416, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.225%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 89%; and (4) an expected life of the options of 0.625 years. During the year ended December 31, 2011 we have recorded an expense of $17,014 related to the fair value of the options that vested or are expected to vest.

 

During May 2011, we issued 52,500 shares of common stock and 91,000 warrants as payment of consulting fees. The warrants have an exercise price of $3.15 per share and have the same terms as the warrants issued with the offerings described above. The common shares have been valued at $100,800 based on the market price of our common stock. The warrants have been valued at $104,277, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 1.50%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 87%; and (4) an expected life of the warrants of 5 years.

 

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

 

On May 18, 2011, we granted a total of 80,000 common stock options to the four members of our Advisory Board. The options have an exercise price of $1.85 per share. The options vested 20,000 upon grant and the balance quarterly over the remainder of 2011. The options lapse if unexercised after five years. During the year ended December 31, 2011 we have recorded an expense of $99,692 related to the fair value of the options that vested, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 1.2%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 84%; and (4) an expected life of the options of 4.75 years.

 

During January 2011, we granted a total of 25,000 common stock options for legal and consulting services. The options have an exercise price of $1.90 per share. Of these options, 5,000 vested upon grant and 20,000 vested quarterly during 2011. The options and warrants lapse if unexercised after five years.  We have recorded an expense of $30,655 during the year ended December 310, 2011 related to the fair value of the options and warrants that vested, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 1.58%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 86%; and (4) an expected life of the warrants of 4.6 years.  

 

F- 8
 

 

On July 1, 2011, our compensation committee approved the 2010 Long Term Incentive Grants for our chief executive officer and chief operating officer. The 2010 Long Term Incentive Grants aggregate $510,000 and were paid via the issuance of common stock options in lieu of cash. For purposes of calculating the number of options to be issued as payment of the discretionary bonuses we utilized the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.375%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 87%; and (4) an expected life of the options of 2.5 years. The grant date is July 1, 2011. The aggregate number of options granted is 559,370, with a weighted average exercise price of $1.93.

 

During August 2011, we granted 10,000 common stock options for consulting services. The options have an exercise price of $1.82 per share. The options vested upon grant. The options lapse if unexercised after five years.  We have recorded an expense of $11,485 during the year ended December 31, 2011 related to the fair value of the options, determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 1.5%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 78%; and (4) an expected life of the warrants of 5 years.  

 

During August 2011, we granted 8,000 common stock options for consulting services. The options have an exercise price of $1.65 per share. The options vested upon grant. The options lapse if unexercised after five years.  We have recorded an expense of $8,268 during the year ended December 31, 2011 related to the fair value of the options, determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 78%; and (4) an expected life of the warrants of 5 years.  

 

During August 2011, we granted 25,000 common stock warrants for consulting services. The warrants have an exercise price of $1.94 per share. The warrants vest quarterly over one year. The warrants lapse if unexercised after five years.  We have recorded an expense of $10,537 during the year ended December 31, 2011 related to the fair value of the warrants that vested or are expected to vest, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 85%; and (4) an expected life of the warrants of 4.71 years.  

 

On August 13, 2011, we granted 38,000 common stock options to a director. The options have an exercise price of $1.86 per share. The options will vest quarterly over one year. The options lapse if unexercised after five years.  The options have a grant date fair value of $17,133, determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 0.1%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 78%; and (4) an expected life of the options of 0.625 years. During the year ended December 31, 2011 we have recorded an expense of $6,425 related to the fair value of the options that vested or are expected to vest.

 

During September 2011 we issued 13,684 shares of common stock, valued at $26,000, as payment for services.

 

During December 2011, we granted a total of 195,000 common stock options and 190,000 common stock warrants for professional, legal and consulting services. The options and warrants have an exercise price of $2.03 per share. Of these options and warrants, 365,000 vested upon grant and 20,000 vests quarterly during 2012. The options and warrants lapse if unexercised after five years.  We have recorded an expense of $493,376 related to the fair value of the options and warrants that vested or are expected to vest, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 85%; and (4) an expected life of the options and warrants of 5 years.

 

During December, 2011, we granted a total of 80,000 common stock options to the four members of our Advisory Board. The options have an exercise price of $2.03 per share. The options vest quarterly over 2012. The options lapse if unexercised after five years. During the year ended December 31, 2011 we have recorded an expense of $1,154 related to the fair value of the options expected to vest, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 85%; and (4) an expected life of the options of 5 years.

 

On December 28, 2011, our compensation committee approved the 2011 Long Term Incentive Grants for our chief executive officer and chief operating officer. The 2011 Long Term Incentive Grants aggregate $570,000 and were paid on January 2, 2012 via the issuance of common stock options in lieu of cash. For purposes of calculating the number of options to be issued as payment of the discretionary bonuses, we utilized the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.1875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 77%; and (4) an expected life of the options of 2.5 years. The grant date is January 2, 2012. The aggregate number of options granted is 637,740, with a weighted average exercise price of $2.12. The options lapse if unexercised after seven years.

 

On December 28, 2011, our compensation committee approved the 2011 Bonuses for our chief executive officer and chief operating officer. The 2011 Bonuses aggregate $208,260 of which $104,130 was paid in cash in December and $104,130 was paid on January 2, 2012 via the issuance of common stock options in lieu of cash. For purposes of calculating the number of options to be issued as payment of the discretionary bonuses, we utilized the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.1875%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 77%; and (4) an expected life of the options of 2.5 years. The grant date is January 2, 2012. The aggregate number of options granted is 116,918, with a weighted average exercise price of $2.13. The options lapse if unexercised after seven years.

 

F- 9
 

 

During the year ended December 31, 2011 we have recorded an expense of $75,578 related to the fair value of the options granted to our chief executive officer and chief operating officer in prior years that vested or are expected to vest.

 

During the year ended December 31, 2011 we have recorded an expense of $26,010 related to the fair value of the options granted to directors and consultants in prior years that vested.   

 

2010 Transactions:

 

During January and March 2010, we entered into securities purchase agreements with a number of accredited investors.  Pursuant to the terms of the agreements, we sold 533,407 units resulting in gross proceeds of approximately $880,000.  The price per unit was $1.65.  Each unit consists of: (i) one share of common stock; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and allow the investors to purchase our common shares at a price per share of $3.10.  The warrants also contain anti-dilution protection in the event of stock splits, stock dividends and other similar transactions. We incurred placement agent fees of $73,790 in connection with the transaction. We also issued a total of 42,673 additional common stock purchase warrants as compensation.  The warrants have the same terms as the investor warrants except that 12,160 warrants have an exercise price of $2.20 and 30,513 warrants have an exercise price of $2.94.

 

During May 2010, we entered into securities purchase agreements with a number of accredited investors.  Pursuant to the terms of the agreements, we sold 1,347,500 units resulting in gross proceeds of $2,695,000.  The price per unit was $2.00.  Each unit consists of: (i) one share of common stock; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and allow the investors to purchase our common shares at a price per share of $3.50.  The warrants also contain anti-dilution protection in the event of stock splits, stock dividends and other similar transactions. We incurred placement agent and escrow fees of $39,500 in connection with the transaction. We issued an additional 43,632 units as payment of $87,264 of consulting fees. We also issued a total of 18,000 additional common stock purchase warrants as compensation.  The warrants have the same terms as the investor warrants.     

 

During December 2010 we entered into securities purchase agreements with a number of accredited investors.  Pursuant to the terms of the agreements, we received $611,847 in proceeds from the subscriptions for 339,915 units.  The price per unit was $1.80.  Each unit consists of: (i) one share of common stock; and (ii) one half common stock purchase warrant.  The warrants have a term of five years and allow the investors to purchase our common shares at a price per share of $3.30.  The warrants also contain anti-dilution protection in the event of stock splits, stock dividends and other similar transactions.

 

During the third quarter of 2010 we issued 8,000 shares of common stock, valued at $18,000, for the acquisition of two patents and we issued 12,000 shares of common stock, valued at $28,800, as payment for a license.

 

During 2010, we issued 150,001 shares of common stock upon exercise of an equivalent number of options and warrants and received cash proceeds of $125,001.

 

As a result of the exercise of 50,001 of the warrants, we have reclassified $86,307 of our warrant derivative liability to paid in capital. 

 

During February and March 2010, we granted a total of 77,000 common stock options to two directors. The options have a weighted average exercise price of $2.30 per share. The options will vest quarterly over one year. The options lapse if unexercised after five years.  The options have an aggregate grant date fair value of $54,079, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.245%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 99%; and (4) an expected life of the options of 0.625 years.

During the year ended December 31, 2010 we have recorded an expense of $49,308 related to the fair value of the options that vested or are expected to vest.

 

On August 14, 2010, we granted a total of 63,000 common stock options to a director. The options have an exercise price of $2.00 per share. Of these options, 25,000 vested upon grant and the balance will vest quarterly over one year. The options lapse if unexercised after five years.  The options have an aggregate grant date fair value of $26,974, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 0.193%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 88%; and (4) an expected life of the options of 0.38 years. During the year ended December 31, 2010 we have recorded an expense of $16,805 related to the fair value of the options that vested or are expected to vest.

 

During the year ended December 31, 2010 we have recorded an expense of $294,645 related to the fair value of the 2009 options granted to our chief executive officer and chief operating officer that vested or are expected to vest.

 

During the year ended December 31, 2010, we have recorded an expense of $145,926 related to the fair value of options granted to members of our Scientific Advisory Board that vested during that period.

 

During May and June 2010, we granted a total of 291,425 common stock warrants to consultants. The warrants have a weighted average exercise price of $1.99 per share. The warrants vested upon grant. The warrants lapse if unexercised after five years.  We have recorded an expense of $389,275, determined using the Black-Scholes method based on the following weighted average 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 100%; and (4) an expected life of the warrants of 2 years.

 

F- 10
 

 

During December 2010, we granted a total of 157,500 common stock options and 40,000 common stock warrants for professional, legal and consulting services. The options and warrants have a weighted average exercise price of $2.00 per share. Of these options and warrants, 185,500 vested upon grant and 10,000 vests quarterly during 2011. The options and warrants lapse if unexercised after five years.  We have recorded an expense of $269,491 related to the fair value of the options and warrants that vested or are expected to vest, determined using the Black-Scholes method based on the following weighted average assumptions:  (1) risk free interest rate of 2.125%; (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 options and warrants of 5 years.

 

During May 2010 we issued an aggregate of 43,479 shares of common stock to our chief executive officer and chief operating officer as payment of discretionary bonuses aggregating $100,000. For purposes of calculating the number of shares to be issued as payment of the discretionary bonuses, the grant date is May 14, 2010. 

 

NOTE 3 -CONVERTIBLE NOTES PAYABLE

 

We have executed five convertible notes with our president and chief executive officer pursuant to which we have borrowed an aggregate of $155,000 ($105,000 principal balance outstanding at December 31, 2011). The notes bear an interest rate of 4.2% and matured at various dates through December 6, 2011. Accrued interest at December 31, 2011 and 2010 was $16,927 and $12,517, respectively. The notes and accrued interest are convertible, at the option of the holder, into shares of our common stock at a conversion price of $0.50 per share. 

 

NOTE 4 – DERIVATIVE LIABILITY

 

The Company has assessed its outstanding equity-linked financial instruments and has concluded that certain of its warrants issued during 2008 and 2009 are subject to derivative accounting, as a result of certain anti-dilution provisions contained in the warrants. The fair value of these warrants is classified as a liability in the financial statements with the change in fair value during the periods presented recorded in the statement of operations.

 

At December 31, 2011, we recalculated the fair value of our warrants subject to derivative accounting and have determined that their fair value at December 31, 2011 is $1,734,127. The value of the warrants was determined using the Black-Scholes method based on the following assumptions:  (1) risk free interest rate of 0.115%; (2) dividend yield of 0%; (3) volatility factor of the expected market price of our common stock of 71%; and (4) an expected life of the warrants of 1.5 years. We have recorded income of $579,906 during the year ended December 31, 2011 related to the change in fair value during that period.  

 

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

 

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

 

At 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 December31, 2010 related to the change in fair value during that period. 

 

NOTE 5 – INTELLECTUAL PROPERTY

 

We have acquired rights in know-how, pre-clinical data, development data and related patent portfolios for a series of technologies that relate to targeted, potentially curative treatments for a variety of human cancers. We currently are the exclusive licensee of issued patents and patent applications. The initial owner of the intellectual property, John Hopkins University, assigned the patent rights to the underlying technology to our co-founders (the “Assignee Co-Founders”) in return for 10% of the revenue they received in exchange for licensing the technology.  In exchange for the assumption of future patent fees and costs, and patent attorney fees and costs, associated with all of the assigned technology, the Assignee Co-Founders entered into world-wide, exclusive option agreements with us. In April 2008, GenSpera reimbursed approximately $122,778 in previously-paid patent costs, fees and expenses to John Hopkins University, and in April 2011 the Assignee Co-Founders exclusively licensed to GenSpera all of their right, title and interest in and to the intellectual property.  By virtue of these previous payments and the exclusive license, GenSpera has no further financial obligations to the Assignee Co-Founders or to John Hopkins University with regard to the licensed intellectual property. These reimbursement costs were required to be paid by the Assignee Co-Founders to Johns Hopkins University. As part of our agreements with the Assignee Co-Founders, we have provided these reimbursement costs directly to the Assignee Co-Founders specifically for reimbursement to Johns Hopkins University. Because these payments have been made by us to the Assignee Co-Founders, this may trigger a taxable event such that the Assignee Co-Founders may be required to pay Federal and state taxes (if any) based upon our payment of the reimbursement costs to the Assignee Co-Founders. Therefore, as part of our agreements with the Assignee Co-Founders, we have further provided additional funds to cover applicable Federal and state taxes (if any) associated with the reimbursement payments. Under our agreement with the Assignee Co-Founders, we will not be required to make any other future payments, including fees, milestone or royalty fees, to either Johns Hopkins University or the Assignee Co-Founders.

  

F- 11
 

 

On March 10, 2008, we paid an aggregate of $184,167 to acquire rights in the issued patents and patent applications described above. Additionally, during the third quarter of 2010 we issued 8,000 shares of common stock, valued at $18,000, for the acquisition of rights in two patents.

 

Amortization expense recorded during the years ended December 31, 2011 and 2010 was $16,994 and $16,171, respectively.

 

Amortization expense for each on the next five fiscal years is estimated to be $16,995 per year. 

 

NOTE 6 – PROPERTY AND EQUIPMENT

 

Property and equipment consists of the following:

 

    December 31,
2011
    December 31,
2010
 
Office equipment   $ 15,833     $ 15,833  
Accumulated depreciation     (7,042 )     (3,874 )
Carrying value   $ 8,791     $ 11,959  

 

Depreciation expense was $3,168 and $3,166 for the years ended December 31, 2011 and 2010, respectively. 

 

NOTE 7- STOCK OPTIONS AND WARRANTS

 

Deferred Compensation Plan

 

In July of 2011, we adopted Executive Deferred Compensation Plan (the “Deferred Plan”). The Deferred Plan is intended to comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”). The Deferred Plan is intended to be an unfunded “top hat” plan which is maintained primarily to provide deferred compensation benefits for a select group of our “management or highly compensated employees” within the meaning of Sections 201, 301, and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to therefore be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. The Deferred Plan is intended to help build a supplemental source of savings and retirement income through pre-tax deferrals of eligible compensation, which may include cash, option and stock bonus awards, discretionary cash, option and stock awards and/or any other payments which may be designated by the Deferred Plan administrator, as eligible, for deferral under the Deferred Plan from time to time. As administered, the Deferred Plan is used to defer compensation of stock awards granted under our other equity compensation plans and does not by its terms approve any grants or awards.

 

GenSpera 2009 Executive Compensation Plan

 

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

 

GenSpera 2007 Equity Compensation Plan

 

Our 2007 Plan is administered by a committee of non-employee directors who are appointed by our board of directors (“Committee”). The purpose of our 2007 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.

 

Under our 2007 Plan, we may grant stock options and restricted stock to employees, directors and consultants. Our 2007 Plan authorizes the issuance of up to 1,500,000 shares of our common stock per year for the foregoing awards. The exercise price of Nonqualified Stock Options shall not be less than 85% of the fair market value per share on the date of grant. The exercise price per share for Incentive Stock Option grants must be no less than 100% of the fair market value per share on the date of grant. The exercise price per share for an incentive stock option grant to an employee who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of stock of GenSpera or any parent or subsidiary, must be no less than 110% of the fair market value per share on the date of grant.

 

Generally, the option exercise price may be paid in cash, by check, by cashless exercise, by net exercise or by tender or attestation of ownership of shares having a fair market value not less than the exercise price and that either (A) have been owned by the optionee for more than six months and not used for another exercise by tender or attestation, or (B) were not acquired, directly or indirectly, from us.

 

At the time an award is granted, the Committee must fix the period within which the award may be exercised and determine any conditions that must be satisfied before the award may be exercised. Notwithstanding, options shall vest over a period of not more than five years and at a rate of not less than 20% per year. The Committee may accelerate the exercisability of any or all outstanding options at any time for any reason. The maximum term of an option granted under our 2007 Plan is ten years.

 

Our 2007 Plan provides that in the event of our merger with or into another corporation, the sale of substantially all of our assets, or the sale or exchange of more than 50% of our voting stock, each outstanding award shall be assumed or an equivalent award substituted by the surviving, continuing, successor or purchasing corporation or a parent thereof. The Committee may also deem an award assumed if the award confers the right to the award-holder to receive, for each share of stock subject to an award immediately prior to the change in control, the consideration that a stockholder is entitled on the effective date of the change in control. Upon a change in control, all outstanding options shall automatically accelerate and become fully exercisable and all restrictions and conditions on all outstanding restricted stock grants shall immediately lapse.

 

F- 12
 

 

The Committee may at any time amend, suspend or terminate our 2007 Plan. Notwithstanding the forgoing, the Committee shall not amend the Plan without shareholder approval if such approval is required by section 422 of the Internal Revenue Code or section 162(m) therein. 

  

Transactions involving our stock options are summarized as follows:

 

    2011     2010  
    Number     Weighted
Average
Exercise Price
    Number     Weighted
Average Exercise
Price
 
Outstanding at beginning of the period     2,612,500     $ 1.47       2,415,000     $ 1.35  
Granted during the period     1,034,370       1.94       297,500       2.08  
Exercised during the period                 (100,000 )     0.50  
Terminated during the period                        
Outstanding at end of the period     3,646,870     $ 1.60       2,612,500     $ 1.47  
Exercisable at end of the period     2,896,120     $ 1.59       1,952,750     $ 1.42  

 

At December 31, 2011 employee options outstanding totaled 2,766,370 with a weighted average exercise price of $1.61. At December 31, 2011 these options had an intrinsic value of $1,129,242 and a weighted average remaining contractual term of 5.1 years. Of these options, 2,115,620 are exercisable at December 31, 2011, with an intrinsic value of $864,020 and a remaining weighted average contractual term of 5.2 years. Compensation cost related to the unvested employee options not yet recognized is $113,898 at December 31, 2011. We have estimated that $113,898 will be recognized during 2012.

 

The weighted average remaining life of the options is 5.0 years.

 

Transactions involving our stock warrants are summarized as follows:

 

    2011     2010  
    Number     Weighted
Average
Exercise Price
    Number     Weighted
Average Exercise
Price
 
Outstanding at beginning of the period     6,311,837     $ 2.11       5,007,470     $ 1.86  
Granted during the period     2,403,452       3.13       1,354,368       3.03  
Exercised during the period                 (50,001 )     1.50  
Terminated during the period                        
Outstanding at end of the period     8,715,289     $ 2.39       6,311,837     $ 2.11  
Exercisable at end of the period     8,696,539     $ 2.39       6,311,837     $ 2.11  

 

The weighted average remaining life of the warrants is 2.8 years.

 

The number and weighted average exercise prices of our options and warrants outstanding as of December 31, 2011 are as follows:

 

Range of Exercise Prices   Remaining
Number
Outstanding
    Weighted Average
Contractual Life
(Years)
    Weighted 
Average
Exercise Price
 
$0.50 - $1.00     1,559,000       2.6     $ 0.83  
$1.50 - $2.00     5,085,243       3.3     $ 1.60  
$2.01 - $3.00     2,504,127       3.5     $ 2.67  
$3.10 - $3.50     3,213,789       3.9     $ 3.29  

 

  NOTE 8 - INCOME TAXES

 

We utilize ASC 740 “Income Taxes”, which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.

 

F- 13
 

 

Net operating losses for tax purposes of approximately $11,392,000 at December 31, 2011 are available or carryover. The net operating losses will expire from 2013 through 2031. We have provided a 100% valuation allowance for the deferred tax benefits resulting from the net operating loss carryover and our tax credits due to our limited operating history. In addressing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. The valuation allowance increased by $1,248,000 and $1,064,000 during the years ended December 31, 2011 and 2010, respectively. A reconciliation of the statutory Federal income tax rate and the effective income tax rate for the years ended December 31, 2011 and 2010 follows.

 

Significant components of deferred tax assets and liabilities are as follows:

 

    2011     2010  
             
Deferred tax assets:                
Net operating loss carryover     3,873,000     $ 2,738,000  
Tax credits     328,000       215,000  
Valuation allowance     (4,201,000 )     (2,953,000 )
                 
Net deferred tax assets   $ -     $ -  
                 
Statutory federal income tax rate     -34 %     -34 %
State income taxes, net of federal taxes     -0 %     -0 %
Non-deductible items     8 %     10 %
Tax credits     2 %     2 %
Valuation allowance     24 %     22 %
                 
Effective income tax rate     0 %     0 %

 

NOTE 9 - COMMITMENTS AND CONTINGENCIES

 

(a) Operating Leases

 

The Company lease executive offices under an operating lease with lease term which expires on September 15, 2012.  The following is a schedule of the future minimum lease payments required under the operating lease that has an initial non-cancelable lease term in excess of one year:

 

  Fiscal year
ending
December 31,
  Minimum Lease
Commitments
 
  2012     13,080  

 

Rent expense for office space amounted to $19,404 and $17,743 for the years ended December 31, 2011 and 2010, respectively.

 

(b) Employment Agreements

 

On September 2, 2009, we entered into two employment agreements with the Chief Executive Officer and Chief Operating Officer.  The employment agreements contain severance provision and indemnification clauses.  The indemnification agreement provides for the indemnification and defense of the executive officers, in the event of litigation, to the fullest extent permitted by law.  We also adopted the form of indemnification agreement for use with all other executive officers, employees and directors.

 

 

As part of the agreements, the executives shall be entitled to the following:

 

    Chief Executive
Officer
    Chief Operating
Officer
 
Terminated without cause   $ 1062,000     $ 460,500  
Terminated, change of control  without good reason     1,527,000       -  
Terminated for cause, death, disability and by executive without good reason     330,000       289,000  

 

NOTE 10 – SUBSEQUENT EVENTS

 

During 2012 we issued 250,001 share of common stock upon the exercise of an equivalent number of options and warrants. We received proceeds of approximately $355,000.

 

F- 14
 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the “ SEC”), and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

 

28
 

 

The Company’s management, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial (and principal accounting) Officer, carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2011.  Based upon that evaluation and the identification of the material weakness in the Company’s internal control over financial reporting as described below, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report.

 

The Company has limited resources and a limited number of employees. As a result, management concluded that our internal control over financial reporting is not 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 internal control framework.

 

Management Report on Internal Control Over Financial Reporting

 

The management of GenSpera, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal accounting officers to provide reasonable assurance to the Company’s management regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

 

  · pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
     
  · provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
     
  · provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

 

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO ”) as a guide. Based on this assessment, our management concluded that, as of December 31, 2011, our internal control over financial reporting were ineffective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America, due to the Company’s limited resources and limited number of employees.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit smaller reporting companies to provide only the management’s report in this annual report.

 

29
 

 

Limitations on Effectiveness of Controls and Procedures

 

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

 

Changes in Internal Control over Financial Reporting

 

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

 

ITEM 9B OTHER INFORMATION

 

None

 

PART III

   

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors

 

The following sets forth the current members of our board of directors (“Board”) and information concerning their ages and background. All directors hold office until the next annual meeting of stockholders or until their respective successors are elected, except in the case of death, resignation or removal:

 

Name   Principal Occupation   Age  

Director

Since

Craig A. Dionne, PhD   Chief Executive Officer, Chief Financial Officer, President and Director of GenSpera   54   11/2003
             
Bo Jesper Hansen, MD, PhD   Executive Chairman of the Board of Swedish Orphan Biovitrum AB (STO: SOBI)   53   08/2010
             
Scott Ogilvie   President and CEO of AFin International, Inc.   57   02/2008

 

Craig A. Dionne, PhD, age 54, has over 23 years of experience in the pharmaceutical industry, including direct experience of identifying promising oncology treatments and bringing them through the clinic. For example, he served for five years as VP Discovery Research at Cephalon, Inc. where he was responsible for its oncology and neurobiology drug discovery and development programs. Dr. Dionne has also recently served as EVP at the Prostate Cancer Research Foundation. In addition to extensive executive experience, Dr. Dionne’s productive scientific career has led to 6 issued patents and co-authorship of many scientific papers. In evaluating Mr. Dionne’s specific experience, qualifications, attributes and skills in connection with his appointment to our board,  we took into account his 23 year career in pharmaceutical drug discovery and development, prior work for our company in additional to being one of our founders, familiarity with our technologies, and academic background.

 

Bo Jesper Hansen, MD, PhD , age 53, joined our board in August of 2010. Dr. Hansen is currently the Executive Chairman of the Board of Swedish Orphan Biovitrum AB (STO: SOBI), an international growth company specializing in the development, registration, marketing and distribution of pharmaceutical drugs for rare and life-threatening diseases. Dr. Hansen has held the position since January of 2010 as a result of the merger of Swedish Orphan International AB Group and Biovitrum. Prior to the merger, Dr. Hansen served in numerous positions with Swedish Orphan International AB Group, including, from 1998 to 2010, CEO, President and Director of the Board. Dr. Hanson’s responsibilities at the company include establishment, development and expansion of the company’s operations in Europe, Japan, the Americas and Australia. Dr. Hansen holds a Doctor of Medicine degree from the University of Copenhagen with a specialty in urology. Dr. Hansen also serves on the boards of CMC AB, MipSalus ApS, Incentive AB (Gambro), Orphazyme ApS, Novagali SAS and TopoTarget A/S (NASDAQ OMX: TOPO), Hyperion Therapeutics Inc. and Zymenex A/S. In evaluating Dr. Hansen’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work with both public and private organizations including his experience in building biopharmaceutical organizations, his strong business development background and experience with mergers and acquisitions and his past experience and relationships in the biopharma and biotech field.

 

30
 

 

Scott Ogilvie , age 57, is President of AFIN International, Inc. a private equity/business advisory firm, which he founded in 2006.  Prior to December 31, 2009, he was CEO of Gulf Enterprises International, Ltd, ("Gulf") a company that brings strategic partners, expertise and investment capital to the Middle East and North Africa. He held this position since August of 2006.  Mr. Ogilvie previously served as Chief Operating Officer of CIC Group, Inc., an investment manager, a position he has held from 2001 to 2007.  He began his career as a corporate and securities lawyer with Hill, Farrer & Burrill, and has extensive public and private corporate management and board experience in finance, real estate, and technology companies. Mr. Ogilvie currently serves on the board of directors of Neuralstem, Inc. (NYSE AMEX:CUR), Preferred Voice Inc., (OTCBB:PRFV) and Derycz Scientific, Inc. (OTCBB: DYSC) and National Healthcare Exchange (NHXS).  In evaluating Mr. Ogilvie’s specific experience, qualifications, attributes and skills in connection with his appointment to our board, we took into account his prior work in both public and private organizations regarding corporate finance, securities and compliance and international business development.

 

Executive Officers and Significant Employees

 

The following sets forth our current executive officers and information concerning their age and background:

 

Name   Position   Age  

Position

Since

Craig A. Dionne, PhD   Chief Executive Officer, Chief Financial Officer and President   54   11/2003
             
Russell Richerson, PhD   Chief Operating Officer and Secretary   60   07/2008

 

Craig A. Dionne, PhD – See Bio in Directors Section

 

Russell Richerson, PhD , age 60, has over 25 years of experience in the Biotechnology/Diagnostics industry, including 11 years at Abbott Laboratories in numerous management roles. Most recently, he has served as Vice President of Diagnostic Research and Development at Prometheus Laboratories (2001-2004) and then as Chief Operating Officer of the Molecular Profiling Institute (2005-2008).

 

Family Relationships

 

There are no family relationships between any director, executive officer, or person nominated or chosen by the registrant to become a director or executive officer.

 

Code of Ethics

 

We have adopted a "Code of Ethics” that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our code can be viewed on our website at www.genspera.com .

 

Committees

 

The board of directors has established three standing committees: (1) an Audit Committee, (2) a Nominating and Corporate Governance Committee, and (3) a Leadership Development and Compensation Committee.  Each of the committees operates under a written charter adopted by the board of directors. All of the committee charters are available on our web site at www.genspera.com.  The committee membership and the function of each of the committees are described below.

 

Director   Audit Committee  

Nominating

and Corporate

Governance

Committee

 

Leadership

Development

and Compensation

Committee

Scott V. Ogilvie   Chair   Chair   Member
             
Bo Jesper Hansen, MD, PhD   Member   Member   Chair

 

Executive compensation is determined by the Leadership Development and Compensation Committee.

 

31
 

 

Independent Directors

 

For purposes of determining independence, the Company has adopted the definition of independence as contained in NASDAQ Market Place Rules 4200. Pursuant to the definition, the Company has determined that Messrs. Ogilvie and Hansen qualify as independent.

 

Audit Committee Financial Experts

 

Our Audit Committee is currently comprised of Scott V. Ogilvie and Bo Jesper Hansen, MD, PhD, each of whom is a non-employee member of our board of directors. The board of directors has determined that Scott V. Ogilvie and Bo Jesper Hansen, MD, PhD are each an audit committee financial expert as defined under the rules of the SEC.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Executive Compensation

 

Summary Compensation

 

The following table sets forth information for our most recently completed fiscal year concerning the compensation of Craig Dionne, our Chief Executive Officer (“CEO”), and all other executive officers of GenSpera, Inc. who earned over $100,000 in salary and bonus during the last most recently completed fiscal years ended December 31, 2011 and 2010 (together the “Named Executive Officers”).  

 

Name & Principal Position   Year     Salary ($)     Bonus ($)     Stock
Awards ($)
    Option
Awards ($)
    Non-Equity
Incentive Plan
Compensation ($)
    Nonqualified
Deferred
Compensation
Earnings ($)
    All Other
Compensation ($)
    Total ($)  
                                                       
Craig Dionne, PhD     2011       300,000       122,400       -       300,000 (1)     -       -       23,135       745,535  
Chief Executive     2010       270,000       60,000       -       270,000 (2)      -       -       23,744       623,744  
Officer/Chief                                                                        
Financial Officer                                                                        
                                                                         
Russell Richerson, PhD     2011       270,000       85,860       -       270,000 (3)      -       -       9,503       635,363  
Chief Operating     2010       220,000       40,000       -       240,000 (4)      -       -       9,633       509,633  
Officer                                                                        

 

(1) Mr. Dionne was awarded a 2011 long term incentive grant on December 28, 2011 in the amount of $300,000. As payment of the grant, 344,813 options were issued on January 2, 2012. The number of options issued pursuant to the long term incentive grant was calculated based on the value determined using the Black Sholes option pricing model with the following assumptions: (i) exercise price of $2.21 per share; (ii) fair value of a share of common stock of $2.01; (iii) volatility of 77%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.1875%; and (vi) estimated life of 2.5 years. The options are fully vested and lapse if unexercised on January 2, 2019.

 

(2) Mr. Dionne was awarded a long term incentive grant, aggregating 302,580 options, on July 1, 2011 as payment of additional 2010 compensation. The grant was valued using the Black-Sholes option pricing model with the following assumptions: (i) exercise price of $2.01 per share; (ii) fair value of a share of common stock of $1.83; (iii) volatility of 87%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.375%; and (vi) estimated life of 2.5 years. The options vested upon grant and will lapse if unexercised on July 1, 2018.

 

(3) Mr. Richerson was awarded a 2011 long term incentive grant on December 28, 2011 in the amount of $270,000. As payment of the grant, 292,927 options were issued on January 2, 2012. The number of options issued pursuant to the long term incentive grant was calculated based on the value determined using the Black Sholes option pricing model with the following assumptions: (i) exercise price of $2.01 per share; (ii) fair value of a share of common stock of $2.01; (iii) volatility of 77%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.1875%; and (vi) estimated life of 2.5 years. The options are fully vested and lapse if unexercised on January 2, 2019.

 

(4) Mr. Richerson was awarded a long term incentive grant, aggregating 256,790 options, on July 1, 2011 as payment of additional 2010 compensation. The grant was valued using the Black-Sholes option pricing model with the following assumptions: (i) exercise price of $1.83 per share; (ii) fair value of a share of common stock of $1.83; (iii) volatility of 87%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.375%; and (vi) estimated life of 2.5 years. The options vested upon grant and will lapse if unexercised on July 1, 2018.

 

Outstanding Equity Awards at Fiscal Year-End

 

    Option Awards   Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
    Option
Exercise
Price ($)
    Option
Expiration
Date
    Number of
Shares or Units 
of Stock That 
Have Not Vested 
(#)
    Market Value of 
Shares or Units
of Stock That
Have Not 
Vested ($)
    Equity Incentive
Plan Awards:
Number of
Unearned Shares, 
Units or Other 
Rights That Have 
Not Vested (#)
    Equity Incentive
Plan Awards:
Market or Payout 
Value of Unearned
Shares, Units or
Other Rights That 
Have Not Vested 
($)
 
                                                                         
Craig Dionne, PhD     650,000       -       350,000     $ 1.65       09/02/16       -       -       -       -  
Chief Executive Officer and     302,580       -       -     $ 2.01       07/01/18       -       -       -       -  
Chief Financial Officer                                                                        
                                                                         
Russell Richerson, PhD     512,500       -       262,500     $ 1.50       09/02/16       -       -       -       -  
Chief Operating Officer     256,790       -       -     $ 1.83       07/01/18       -       -       -       -  

 

Employment Agreements and Change in Control

 

Craig Dionne

 

In connection with Mr. Dionne’s employment, we have entered into: (i) an employment agreement; (ii) a severance agreement; (iii) a proprietary information, inventions and competition agreement; and (iv) an indemnification agreement.

 

Employment Agreement

 

We employ Craig Dionne as our Chief Executive Officer pursuant to a 5 year written contract which commenced on September 2, 2009.  As compensation for his services during 2011, Mr. Dionne receives a base salary of $300,000 per year. Effective January 1, 2012, Mr. Dionne’s base salary was increased to $330,000 per year. Such base salary is reviewed yearly with regard to possible increase.  In addition, Mr. Dionne is eligible to receive annual discretionary and long term incentive bonuses as determined by the Board.  For 2011, Mr. Dionne’s target bonus levels for annual discretionary bonus and long term incentive bonuses were: (i) 40%, and (ii) 100%, of Mr. Dionne’s current base salary, respectively. For 2012, Mr. Dionne’s target bonus levels for annual discretionary bonus and long term incentive bonuses are: (i) 50%, and (ii) 100%, of 2012 base salary, respectively. The bonuses are paid in cash, restricted stock grants or options, at the discretion of the board. Mr. Dionne is also entitled to receive certain payments and acceleration of outstanding equity awards in the event his employment is terminated.  As part of his employment agreement, Mr. Dionne was also granted options to purchase 1,000,000 shares of Common Stock with an exercise price of $1.65 per share and a term of seven years.  The options were issued pursuant to our 2009 Plan and vest, if at all, upon the achievement of the following milestones:

 

· Options to purchase an aggregate of 500,000 shares were vested immediately. The options represent compensation for prior services and an inducement grant.

 

· 150,000 options vest upon: (i) the Company’s Common Stock becoming listed on a national exchange or on the Over-the-Counter Bulletin Board; and (ii) the enrollment of the first patient in a Phase 1 clinical trial for G-202. ( This milestone was achieved on January 19, 2010 .)

 

32
 

 

· 200,000 options vest upon: (i) enrollment of first patient in a second Phase 1 clinical trial; (ii) enrollment of first patient in a Phase II clinical trial or an expanded cohort in a Phase 1B clinical trial; or (iii) enrollment of tenth patient in a Phase II clinical trial or in an expanded cohort in a phase 1B clinical trial.

 

· 150,000 options vest upon an additional: (i) enrollment of first patient in a second Phase 1 clinical trial; (ii) enrollment of first patient in a Phase II clinical trial or an expanded cohort in a Phase 1B clinical trial; or (iii) enrollment of tenth patient in a Phase II clinical trial or in an expanded cohort in a phase 1B clinical trial. (For purposes of clarity, these milestones are in addition to those required for the vesting of options to purchase 200,000 shares of Common Stock as contained in the paragraph immediately above.)

 

Severance Agreement

 

The severance agreement provides for certain payments, as described below, in the event Mr. Dionne’s employment is terminated in connection with a change in control.

 

Proprietary Information, Inventions and Competition Agreement

 

The proprietary information, inventions and competition agreement requires Mr. Dionne to maintain the confidentiality of the Company’s intellectual property as well as the assignment of any inventions made by Mr. Dionne during his employment.  The agreement also limits Mr. Dionne’s ability to compete within certain fields of interest, as defined in the agreement, for a period of 18 months following the end of his employment.

 

Indemnification Agreement

 

The indemnification agreement provides for the indemnification and defense of Mr. Dionne, in the event of litigation, to the fullest extent permitted by law.  The Company has also adopted the form of indemnification agreement for use with its other executive officers, employees and directors.

 

Potential Payments upon Termination or Change-in-Control

 

As part of the agreements, Mr. Dionne shall be entitled to 

 

Officer   Salary     Bonus     Health     Accelerated
Vesting
    Total  
Craig Dionne                                        
Terminated without cause (1)   $ 990,000 (2)   $ 165,000 (3)   $ 72,000 (4)   $ 360,000 (5)   $ 1,587,000  
Terminated, change of control   $ 990,000 (2)   $ 465,000 (6)   $ 72,000 (4)   $ 360,000 (5)   $ 1,887,000  
Termination for as a result of Disability   $ 330,000                       $ 330,000  

  

(1) Also includes termination by Mr. Dionne with Good Reason.
(2) Represents 36 months of Mr. Dionne’s base salary of $330,000.
(3) Assumes all annual bonus milestones have been reached prior to termination.
(4) Represents 36 months of Mr. Dionne’s monthly health care reimbursement of $2,000.
(5) Represents: (i) difference between the trading price of $2.01 as of December 31, 2011 and (ii) the options exercise price as well as well as the market value of restricted stock awards and units as of December 31, 2011.
(6) Assumes maximum annual and long term bonus.

 

The foregoing summary of Mr. Dionne’s:  (i) employment agreement; (ii) severance agreement; (iii) proprietary information, inventions and competition agreement; and (iv) indemnification agreement are qualified in their entirety by reference to the full text of the agreements which have been filed with the SEC as exhibits to our public filings and incorporated hereby by reference.

 

Russell Richerson

 

In connection with Mr. Richerson’s employment, we have entered into: (i) an employment agreement; (ii) a proprietary information, inventions and competition agreement; and (iii) an indemnification agreement.

 

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Employment Agreement

 

We employ Russell Richerson as our Chief Operating Officer pursuant to a 3 year written contract which commenced on September 2, 2009.  As compensation for his services during 2011, Mr. Richerson received a base salary of $270,000 per year.  Effective January 1, 2012, Mr. Richerson base salary was increased to $289,000 per year.   Such base salary is reviewed yearly with regard to possible increase.  In addition, Mr. Richerson is eligible to receive annual discretionary and long term incentive bonuses as determined by the Board.   For 2011, Mr. Richerson’s target bonus levels for annual discretionary bonus and long term incentive bonuses was: (i) 30%, and (ii) 100%, of Mr. Richerson’s current base salary, respectively. For 2012, Mr. Richerson’s target bonus levels for annual discretionary bonus and long term incentive bonuses are: (i) 35%, and (ii) 100%, of 2012 base salary, respectively. The bonuses are paid in cash, restricted stock grants or options, at the discretion of the board.  Mr. Richerson is also entitled to receive certain payments and acceleration of outstanding equity awards in the event his employment is terminated and as described below.  As part of the agreement, Mr. Richerson was also granted options to purchase 775,000 shares of Common Stock with an exercise price of $1.50 per share and have a term of 7 years.  The options were issued pursuant to the 2009 Plan and vest upon the achievement of the following milestones:

 

· Options to purchase an aggregate of 350,000 shares were vested immediately. The options represent compensation for prior services and an inducement grant.

 

· 112,500 options vest upon: (i) development of a plan acceptable to the Company’s CEO for the synthesis and/or purification of G-202 bulk from first synthesis to enough G-202 API to complete Phase I and Phase II clinical trials for G-202; (ii) develop and implement plan to define site and studies for G-202 propagation and determination of Thapsigargin distribution in plan parts; (iii) the Company’s Common Stock becoming listed on a national exchange or on the Over-the-Counter Bulletin Board; and (iv) the enrollment of the first patient in a Phase 1 clinical trial for G-202. ( This milestone was achieved on January 19, 2010. )

 

· 150,000 options vest upon: (i) enrollment of first patient in a second Phase 1 clinical trial; (ii) enrollment of first patient in a Phase II clinical trial or an expanded cohort in a Phase 1B clinical trial; or (iii) enrollment of tenth patient in a Phase II clinical trial or in an expanded cohort in a phase 1B clinical trial.

 

· 112,500 options vest upon an additional: (i) enrollment of first patient in a second Phase 1 clinical trial; (ii) enrollment of first patient in a Phase II clinical trial or an expanded cohort in a Phase 1B clinical trial; or (iii) enrollment of tenth patient in a Phase II clinical trial or in an expanded cohort in a phase 1B clinical trial. (For purposes of clarity, these milestones are in additional to those required for the vesting of options to purchase 150,000 shares of Common Stock as contained in the paragraph immediately above.)

 

Proprietary Information, Inventions and Competition Agreement

 

The proprietary information, inventions and competition agreement requires Mr. Richerson to maintain the confidentiality of the Company’s intellectual property as well as the assignment of any inventions made by Mr. Richerson during his employment.  The agreement also limits Mr. Richerson’s ability to compete within certain fields of interest, as defined in the agreement, for a period of 18 months following end of his employment. 

 

Indemnification Agreement

 

The indemnification agreement provides for the indemnification and defense of Mr. Richerson, in the event of litigation, to the fullest extent permitted by law.

 

Potential Payments Upon Termination or Change-in-Control

 

As part of the agreements, Mr. Richerson shall be entitled to

 

Officer   Salary     Bonus     Health     Accelerated
Vesting of
Options
    Total  
Russell Richerson                                        
Terminated without cause (1)   $ 433,500 (2)   $ 390,150 (3)   $ 27,000 (4)   $ 441,472 (5)   $ 1,292,122  
Terminated, change of control   $                   441,472 (5)   $ 441,472  
Disability   $ 289,000                       $ 289,000  

 

(1) Also includes termination by Mr. Richerson with Good Reason.
(2) Represents 18 months of Mr. Richerson’s base salary of $289,000.
(3) Assumes all annual bonus milestones have been reached prior to termination.
(4) Represents 18 months of Mr. Richerson’s monthly health care reimbursement of $1,500.
(5) Represents: (i) difference between the trading price of $2.01 as of December 31, 2011 and (ii) the options exercise price as well as well as the market value of restricted stock awards and units as of December 31, 2011.

 

34
 

 

The foregoing summary of Mr. Richerson’s:  (i) employment agreement; (ii) proprietary information, inventions and competition agreement; and (iii) indemnification agreement  are qualified in their entirety by reference to the full text of the agreements which have been filed with the SEC as exhibits to our public filings and incorporated hereby by reference.

 

Director Compensation

 

Name   Fees Earned 
or Paid in
Cash ($)
    Stock
Awards ($)
    Option
Awards ($)
    Non-Equity Incentive 
Plan Compensation ($)
    Non-Qualified
Deferred
Compensation 
Earnings ($)
    All Other
Compensation ($)
    Total ($)  
                                                         
Craig Dionne PhD     -       -       -       -       -       -       -  
                                                         
Scott Ogilvie     35,002       -       20,416 (1)      -       -       -       55,418  
                                                         
Bo Jesper Hansen     35,002       -       17,133 (2)      -       -       -       52,135  

 

(1) Mr. Ogilvie was awarded an option grant on March 1, 2011 in the amount of 39,000 shares. The grant was valued using the Black-Sholes option pricing model with the following assumptions: (i) exercise price of $1.90 per share; (ii) fair value of a share of common stock of $1.90; (iii) volatility of 89%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.225%; and (vi) estimated life of 0.625 years. The options vest quarterly over one year.

 

(2) Mr. Hansen was awarded an option grant on August 13, 2011 in the amount of 38,000 shares. The grant was valued using the Black-Sholes option pricing model with the following assumptions: (i) exercise price of $1.86 per share; (ii) fair value of a share of common stock of $1.86; (iii) volatility of 78%; (iv) dividend rate of 0%; (v) risk free interest rate of 0.10%; and (vi) estimated life of 0.625 years. The options vest quarterly over one year.

 

Director Compensation Plan

 

Pursuant to the terms of our non-executive director compensation policy, non-employee directors will be entitled to the following compensation for service on our Board:

 

Inducement/First Year Grant.   Upon joining the Board, individual will receive options to purchase 50,000 shares of our common stock.  The options vest as follows:  (i) 25,000 immediately upon appointment to the Board; and (ii) 25,000 vesting quarterly over the following 12 months.

 

Annual Grant.   Subject to shareholder rights to elect any individual director, starting on the first year anniversary of service, and each subsequent anniversary thereafter, each eligible director will be granted options to purchase 25,000 shares of common stock.  The annual grants vest quarterly during the grant year.

 

Committee and Committee Chairperson Grant.   Each director will receive options to purchase an additional 4,000 shares of common stock for each committee on which he or she serves. Chairpersons of each committee will receive options to purchase an additional 1,000 share common stock.  The committee grants vest quarterly during the grant year.

 

Special Committee Grants .   From time to time, individual directors may be requested by the Board to provide extraordinary services.  These services may include such items as the negotiation of key contracts, assistance with scientific issues, or such other items as the Board deems necessary and in the best interest of the Company and our shareholders.  In such instances, the Board shall have the flexibility to issue special committee grants.   The amount of such grants and terms will vary commensurate with the function and tasks of the special committee.

 

Exercise Price and Term .  All options issued pursuant to the non-executive board compensation policy will have an exercise price equal to the fair market value of the Company’s common stock at close of market on the grant date.  The term of the options shall be for a period of 5 years from the grant date.

 

Cash Compensation .  Effective January 1, 2011, our eligible directors will also receive cash compensation equal to: (i) an annual cash retainer of $25,000, and (ii) a per committee cash award of $3,334.  Cash compensation to directors is paid quarterly on each member’s 3 month anniversary of joining the Board or respective committees thereof.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Securities authorized for issuance under equity compensation plans

 

Information regarding shares authorized for issuance under equity compensation plans approved and not approved by stockholders required by this Item are incorporated by reference from Item 5 of this Annual Report from the section entitled “ Equity Compensation Plan Information .”

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth, as of February 22, 2012, information regarding beneficial ownership of our capital stock by:

 

· each person, or group of affiliated persons, known by us to be the beneficial owner of 5% or more of any class of our voting securities;

 

· each of our current directors and nominees;

 

· each of our current named executive officers; and

 

· all current directors and named executive officers as a group.

 

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Beneficial ownership is determined according to the rules of the SEC. Beneficial ownership means that a person has or shares voting or investment power of a security and includes any securities that person or group has the right to acquire within 60 days after the measurement date. This table is based on information supplied by officers, directors and principal stockholders. Except as otherwise indicated, we believe that each of the beneficial owners of the common stock listed below, based on the information such beneficial owner has given to us, has sole investment and voting power with respect to such beneficial owner’s shares, except where community property laws may apply.

 

    Common Stock  
Name and Address of Beneficial Owner(1)   Shares     Shares
Underlying
Convertible
Securities(2)
    Total     Percent of
Class(2)
 
Directors and named Executive Officers                                
Craig Dionne, PhD     2,464,749       1,623,871       4,088,620       17.5 %
Russell B. Richerson, PhD(3)     942,392       1,108,793       2,051,185       9.0 %
John M. Farah, PhD(4)           139,000       139,000       *  
Bo Jesper Hansen, MD, PhD           82,000       82,000       *  
Scott Ogilvie           192,000       192,000       *  
                                 
All directors and executive officers as a group (5 persons)     3,407,141       3,145,664       6,552,805       26.4 %
                                 
Beneficial Owners of 5% or more                                
John T. Isaacs, PhD(5)     1,271,528       85,000       1,356,528       6.2 %
Samuel R. Denmeade, MD(6)     1,271,528       85,000       1,356,528       6.2 %
Kihong Kwon, MD(7)     3,151,260             3,151,260       14.7 %

 

* Less than one percent.

 

(1) Except as otherwise indicated, the persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Unless otherwise indicated, the address of the beneficial owner is GenSpera, Inc., 2511 N Loop 1604 W, Suite 204, San Antonio, TX 78258.

 

(2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. There are 21,707,420 shares of common stock issued and outstanding as of February 22, 2012

 

(3) 5050 East Gleneagles Drive, Tucson, AZ 85718

 

(4) Dr. Farah served as one of our directors from February of 2008 through August of 2010.

 

(5) 13638 Poplar Hill Road, Phoenix, MD 21131

 

(6) 5112 Little Creek Drive, Ellicott City, MD 21043

 

(7) 1015 E. Chapman, Suite 201, Fullerton, CA 92831. Does not include warrants or convertible securities subject to exercise conditions based on percentage ownership.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 

Information regarding disclosure of an employment relationship or transaction involving an executive officer and any related compensation solely resulting from that employment relationship or transaction is incorporated by reference from the section of this annual report entitled “ Executive Compensation .”

 

Information regarding disclosure of compensation to a director is incorporated by reference from the section of this annual report entitled “ Independent Directors .”

 

36
 

 

Related Party Transactions

 

· We have entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and executive officers to the fullest extent permitted by Delaware law.

 

· In February of 2010, we granted John M. Farah, Jr., PhD, one of our former 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 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 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 vested upon grant with the balance vest quarterly over the grant year. Additionally, we also entered into our standard indemnification agreement with Bo Jesper Hansen MD PhD

 

· On August 16, 2010, upon the effective date of John M. Farah, Jr. PhD’s resignation, we vested all of his unvested common stock purchase options. The options have a weighted average exercise price of $2.14. We also agreed to allow Mr. Farah to exercise such options at any time during their term.

 

· During our January and February 2011 offerings, Kihong Kwon, MD, (including related and/or affiliated entities), purchased 1,773,804 units on the same terms and conditions as the other investors in the offering. Prior to the transaction, Dr. Kwon was not a related person.

 

· During our April offerings, Kihong Kwon, MD, (including related and/or affiliated entities), purchased 1,212,122 units on the same terms and conditions as the other investors in the offering.

 

· On May 18, 2011, we granted each of Messrs. Isaacs and Denmeade, our Scientific Advisors, common stock purchase options to purchased 20,000 shares, as compensation for serving on the Company’s scientific advisory board. The options have an exercise price of $1.85 per share. The options vest on the following schedule: 5,000 shares vested immediately and the rest vest in equal installments quarterly during the year beginning June 30, 2011, and lapse if unexercised on May 18, 2016.

 

· On July 1, 2011, we amended our outside director compensation policy to provide our outside directors with a $25,000 per year cash retainer as partial compensation for their service on our board.

 

· As of February 22, 2012, we have 3 promissory notes payable to Mr. Dionne, or Chief Executive Officer. Each note accrues interest at 4.2% per annum. The loans were originally made in order to provide us with working capital. The aggregate balance of the notes is $105,000 in principal and $17,568 in accrued interest. The notes and accrued interest are convertible into common shares at a price per share of $0.50.

 

37
 

 

Related Party Transactions Policy and Procedure

 

We will only enter into or ratify a transaction with a related party when our board of directors, acting through the Audit Committee, determines that the transaction is in the best interests of GenSpera and its stockholders. We review all known relationships and transactions in which GenSpera and our directors, executive officers, and significant stockholders or their immediate family members are participants to determine whether such persons have a direct or indirect interest. Our outside legal counsel, in consultation with our management team, is primarily responsible for developing and implementing processes and controls to obtain information regarding our directors, executive officers, and significant stockholders with respect to related party transactions and then determining, based on the facts and circumstances, whether GenSpera or a related party has a direct or indirect interest in these transactions. On a periodic basis, our outside counsel and our management team reviews all transactions in which our executive officers, director or significant shareholders may have a material interest. In addition, our directors and executive officers are required to notify us of any potential related party transactions and provide us with the information regarding such transactions. If our outside legal counsel determines that a transaction is a related party transaction, the Audit Committee must review the transaction and either approve or disapprove it. Any member of the Audit Committee who is a related party with respect to a transaction under review may not participate in the deliberations or vote on the approval of the transaction. In the event all members of the Audit Committee are a related party with respect to a transaction, the transaction is reviewed and approved by a majority of the disinterested directors.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table summarizes the approximate aggregate fees billed to us or expected to be billed to us by our independent auditors for our 2011 and 2010 fiscal years:

 

             
Type of Fees   2011     2010  
             
Audit Fees   $ 69,143     $ 68,023  
                 
Audit Related Fees     8,100       3,500  
                 
Tax Fees             -  
                 
All Other Fees             -  
                 
Total Fee's   $ 77,243     $ 71,523  

 

Pre-Approval of Independent Auditor Services and Fees

 

Our board of directors reviewed and pre-approved all audit and non-audit fees for services provided by RBSM, LLP and has determined that the provision of such services to us during fiscal 2011 is compatible with and did not impair independence. It is the practice of the audit committee to consider and approve in advance all auditing and non-auditing services provided to us by our independent auditors in accordance with the applicable requirements of the SEC. RBSM, LLP did not provide us with any services, other than those listed above.

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

1. Financial Statements: See “Index to Financial Statements” in Part II, Item 8 of this Form 10-K.

  

2. Exhibits: The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-K.

  

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement. These representations and warranties:

 

· may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which disclosures are not necessarily reflected in the agreements;

  

38
 

 

· may apply standards of materiality that differ from those of a reasonable investor; and

 

· were made only as of specified dates contained in the agreements and are subject to later developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time, and investors should not rely on them as statements of fact.

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  GENSPERA, INC
     
Dated: March 6, 2012 By:   /S/ Craig Dionne
     

Craig Dionne

Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the following capacities and on the dates indicated.

  

Name