10-K 1 dara_10k.htm ANNUAL REPORT dara_10k.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
 
FORM 10-K
_______________________
 
(Mark One)
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
or
 
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from_________to_________
 
Commission file number 000-23776
 
DARA BIOSCIENCES, INC.
(Exact name of registrant as specified in its charter)
_______________________
 
Delaware    04-3216862
(State or other jurisdiction of 
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
8601 Six Forks Road, Suite 160
Raleigh, North Carolina  
  27615
(Address of principal executive offices)    (Zip Code)
 
Registrant’s telephone number, including area code: (919) 872-5578
_______________________
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class   Name of Each Exchange on Which Registered
Common Stock, Par Value $.01 Per Share   The NASDAQ Stock Market LLC
 
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
_______________________
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No R
 
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 o  No R
 
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.  Yes R  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R  No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. £
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, and/or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer £                                                  Accelerated filer £
 
Non-accelerated filer £                                                    Smaller reporting company R
 
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No R
 
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 30, 2012 was approximately $8,300,231.
 
The number of shares outstanding of the Registrant’s common stock as of March 21, 2013 was approximately 25,000,961.
 
Documents Incorporated by Reference
 
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on May 10, 2013 are incorporated by reference into Part III of this Form 10-K.
 


 
 

 
 
PART I
         
Item 1. Business.     2  
Item 1A. Risk Factors     12  
Item 1B. Unresolved Staff Comments.     23  
Item 2. Properties.     23  
Item 3. Legal Proceedings.     23  
Item 4. Mine Safety Disclosures.     23  
           
PART II
           
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.     24  
Item 6. Selected Financial Data.     24  
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.     24  
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.     32  
Item 8. Financial Statements and Supplementary Data.     33  
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.     69  
Item 9A. Controls and Procedures.     69  
Item 9B. Other Information.     70  
           
PART III
           
Item 10. Directors, Executive Officers and Corporate Governance.     71  
Item 11. Executive Compensation.     71  
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.     71  
Item 13. Certain Relationships and Related Transactions and Director Independence.     71  
Item 14. Principal Accounting Fees and Services.     71  
           
PART IV
           
Item 15. Exhibits and Financial Statement Schedules.     72  
 
 
FORWARD-LOOKING STATEMENTS
 
This Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. When used in this Form 10-K, the words “believe,” “anticipates,” “intends,” “plans,” “estimates,” and similar expressions are forward-looking statements. Such forward-looking statements contained in this Form 10-K are based on management’s current expectations and are subject to factors that could cause actual results to differ materially for us from those projected. Those factors include risks and uncertainties relating to our current cash position and our need to raise additional capital in order to be able to continue to fund our operations, the potential delisting of our common stock from the NASDAQ Capital Market, the potential stockholder dilution that may result from future capital raising efforts, our limited operating history which may make it difficult to evaluate our business and future viability, our ability to retain our managerial personnel and to attract additional personnel, any revenue we generate will come from a small group of commercialized products, our ability to successfully develop and out license our drug candidates as anticipated, the current regulatory environment in which we develop and sell our products, the market acceptance of those products, dependence on partners and third-party manufacturers, successful performance under collaborative and other commercial agreements, potential product liability risks that could exceed our liability coverage, potential risks related to healthcare fraud and abuse laws, competition from other pharmaceutical companies, biotechnology companies and other research and academic institutions, the strength of our intellectual property, the intellectual property of others and other risk factors identified in the documents we have filed, or will file, with the Securities and Exchange Commission. We caution investors that there can be no assurance that actual results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, the potential risks and uncertainties described in “Part I, Item 1A — Risk Factors” below.
 
You should also carefully consider the factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission (the “SEC”). Except as required by law, we undertake no obligation to update any forward-looking statements.
 
In this Form 10-K, we refer to information regarding potential markets for our drug candidates and other industry data. We believe that all such information has been obtained from reliable sources that are customarily relied upon by companies in our industry. However, we have not independently verified any such information.
 
 
PART I
 
Overview
 
DARA BioSciences, Inc. is a specialty pharmaceutical company focused on the development and commercialization of oncology treatment and oncology supportive care pharmaceutical products. Through our acquisition of Oncogenerix, Inc., which occurred on January 17, 2012, we acquired our first commercial, FDA-approved proprietary product license Soltamox® (tamoxifen citrate) oral solution.  Soltamox has been approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of breast cancer. On September 12, 2012, we entered into a license agreement with Helsinn Healthcare SA (“Helsinn”) to distribute, promote, market and sell Gelclair® a unique oral gel whose key ingredients are polyvinlypyrrolidone (PVP) and sodium hyaluronate (hyaluronic acid) for the treatment of certain approved indications. Gelclair is an FDA-cleared product indicated for the treatment of oral mucositis.  In addition, we have a marketing agreement with Innocutis Holdings, LLC pursuant to which we will promote Bionect® (hyaluronic acid sodium salt, 0.2%) within the oncology and radiation oncology marketplace. Bionect has been cleared by the FDA for the management of irritation of the skin as well as first and second degree burns.
 
We continue to have an internal clinical development program focused on KRN5500, a phase 2 drug targeted for treating cancer patients with painful chronic chemotherapy induced peripheral neuropathy (CCIPN) and we are pursuing out-licensing opportunities for DB959 which is targeted for treating diabetes and is outside the scope of our therapeutic focus.
 
We were incorporated on June 22, 2002. Our executive offices are located at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615, and our telephone number is (919) 872-5578.
 
Product Commercialization and Development
 
Our primary focus is on the commercialization and development of the following types of oncology treatment and oncology supportive care pharmaceutical products:
 
Soltamox, an FDA-approved oral solution of tamoxifen citrate and other liquid formulation products; and
 
Cancer support therapeutics, including Gelclair, an FDA-cleared product indicated for the treatment of oral mucositis and Bionect, an FDA cleared product for the management of irritation of the skin as well as first and second degree burns
 
KRN5500 is a novel, non-narcotic/non-opioid intravenous product for the treatment of cancer patients with painful chronic chemotherapy induced peripheral neuropathy which has completed Phase 2a development. We have improved and simplified the formulation and manufactured new drug substance for the next clinical trial and are looking to partner the drug with an established oncology development company to undertake and support the cost for the Phase 2b program.
 
Oral liquid formulations of FDA approved products
 
Oral liquids can provide an attractive and effective alternative to solid dose formulations for those patients with dysphagia, or difficulty swallowing, or those who simply prefer to take drug products in liquid form. Those suffering from dysphagia often have difficultly or experience pain when using oral tablet or capsule products and can benefit greatly from liquid formulations of drugs. In addition, breast cancer patients receiving chemotherapeutic agents are subject to oral mucositis, which makes liquid medical formulations preferable.
 
 
Soltamox
 
Soltamox (tamoxifen citrate) oral solution, our first proprietary, FDA approved product, is a drug primarily used to treat breast cancer. Soltamox is the only liquid formulation of tamoxifen available for sale in the United States. As a result of our acquisition of Oncogenerix, we became party to an exclusive license and distribution agreement with Rosemont Pharmaceuticals, Ltd., a U.K. based manufacturer, for rights to market Soltamox in the United States. Previously, Soltamox was marketed only in the U.K. and Ireland by Rosemont Pharmaceuticals, Ltd. Soltamox is protected by a U.S. issued patent which expires in June 2018. We launched Soltamox in the U.S. in the fourth quarter of 2012.
 
Soltamox is used primarily for the chronic treatment of breast cancer or for cancer prevention in certain susceptible breast cancer subgroups. The National Cancer Institute (NCI) estimated in 2011 that 230,480 women would be diagnosed with breast cancer and 39,520 women would die as a result of the disease. Tamoxifen therapy is generally indicated for breast cancer patients for up to 5 years.
 
In order to commercialize Soltamox, we have established a specialty commercial sales force which markets Soltamox to oncologists. Current physicians who prescribe tablet forms of tamoxifen in the United States are well known and easily identified by data sources such as IMS and Wolters Kluwer, providers of information services for the healthcare industry.
 
We are employing a multi-disciplinary approach to reach and educate health care providers, dispensers, patient advocacy groups, foundations, caregivers and patients directly. We believe we can accomplish this through utilization of a combination of our own specialized sales organization and independent sales representatives, innovative marketing programs, partnerships with Specialty Pharmacy Providers, working with Patient Advocacy Groups and Foundations as well as collaborative arrangements with third party sales organizations.
 
Cancer support therapeutics
 
We are also focusing on the commercialization and development of cancer support therapeutics.
 
Gelclair
 
On September 12, 2012, we entered into a distribution and license agreement with Helsinn Healthcare SA. The Company was granted an exclusive license to distribute, promote, market and sell Gelclair for treatment of certain approved indications in the United States. Gelclair, a unique oral gel whose key ingredients are polyvinlypyrrolidone (PVP) and sodium hyaluronate (hyaluronic acid) is an FDA-cleared product indicated for the treatment of oral mucositis. Under the License Agreement, the Company is obligated to meet minimum sales thresholds during the License Agreement’s ten-year term. The License Agreement also provides that the Company will receive exclusive rights to distribute, promote, market and sell Gelclair for an additional indication if Helsinn is able to obtain regulatory approval for such indication.
 
Bionect
 
On March 23, 2012, we entered into an Exclusive Marketing Agreement with Innocutis Holdings, LLC pursuant to which we will promote Bionect (hyaluronic acid sodium salt, 0.2%) within the oncology and radiation oncology marketplace. Bionect has been approved by the FDA for the management of irritation of the skin as well as first and second degree burns. Bionect is currently being promoted and sold by Innocutis in the dermatology market.  The Company will be compensated by Innocutis for each unit sold in the oncology and radiation oncology market. The Company began promoting Bionect in the U.S. in the second quarter of 2012.
 
 
 
Gemcitabine
 
In February 2012, we entered into an Exclusive Distribution Agreement with Uman Pharma Inc. pursuant to which we received an exclusive license to import, sell, market and distribute Uman’s gemcitabine lyophilized powder product in 200mg and 1g dosage sizes in the U.S. Gemcitabine went off patent in 2011 in the U.S. and is widely prescribed as first-line therapy for ovarian, breast, lung and pancreatic cancers. Uman originally intended to file an Abbreviated New Drug Application for gemcitabine with the FDA in the second half of 2012.
 
Due to the pricing deterioration in the U.S. market with gemcitabine lyophilized generics, Uman did not file an Abbreviated New Drug Application for gemcitabine with the FDA in 2012. In fact, downward pricing pressure on gemcitabine makes it unlikely that Uman will be able to manufacture it. Therefore we will not be able to commercialize gemcitabine in the U.S. at prices competitive enough to be commercially viable. As a result, we believe it is unlikely we will ever launch gemcitabine in the U.S. under our Exclusive Distribution Agreement with Uman.
 
Internal Development of Drug Candidates
 
We had two internal drug candidates in clinical development prior to the acquisition of Oncogenerix in January 2012:
 
KRN5500, a phase 2a drug targeted for treating painful chronic chemotherapy induced peripheral neuropathy in cancer patients; and
 
DB959, a first-in-class drug candidate for the treatment of type 2 diabetes and dyslipidemia.
 
KRN5500 is a novel, non-narcotic/non-opioid intravenous product for the treatment of painful chronic chemotherapy induced peripheral neuropathy in patients with cancer. The drug has successfully completed a Phase 2a proof of concept study in patients with end-stage cancer and analgesia-resistant neuropathic pain where it showed statistically-significant pain reduction versus placebo (p = 0.03) using standardized pain test scores. There were no serious safety concerns although nausea and vomiting were a common occurrence. The FDA has designated KRN5500 a Fast Track drug, based on its potential usefulness in treating a serious medical condition and in fulfilling an unmet medical need. We have recently improved and simplified the formulation and manufactured new drug substance for the next clinical trial. We are working with the National Cancer Institute (NCI) to design an additional clinical trial under joint DARA-NCI auspices. Since KRN5500 would complement our portfolio of oncology treatment and supportive care pharmaceuticals, we are looking to partner the drug with an established oncology development company to undertake and support the cost for the Phase 2b program.
 
On November 8, 2012 we submitted a request seeking Orphan designation for KRN5500 to the Office of Orphan Products Development at the FDA. The orphan indication we are seeking is in cancer patients with painful chronic chemotherapy induced peripheral neuropathy(CCIPN).
 
DB959 comes from a family of PPAR alpha/delta/gamma agonists licensed from Bayer Pharmaceuticals Corporation. DB959 is a first-in-class, small molecule, non-TZD PPAR delta/gamma agonist for the treatment of diabetes and hyperlipidemia. The drug activates genes involved in the metabolism of sugars and fats, thereby improving the body’s ability to regulate both aspects of diabetes. DB959 has successfully completed Phase 1 trials, in which it demonstrated a good safety profile even when dosed at approximately 10 times the anticipated human dose. DB959 is outside the scope of our therapeutic focus and therefore is targeted for out-licensing to partners more able to sustain the prolonged timelines and significant costs involved in diabetes drug development.
 
 
Investments
 
Prior to our merger with Point Therapeutics, Inc. in February 2008, we made minority investments in several companies. At December 31, 2012 we held marketable securities in MRI Interventions, Inc. (“MRI”), (OTBB: MRIC), formerly SurgiVision, Inc. MRI Interventions became a publicly traded company on May 18, 2012. As of January 14, 2013, we no longer hold marketable securities in MRI Interventions or any minority investments in other companies.
 
Competition
 
In general, the pharmaceutical and biotechnology industries are intensely competitive. The technological areas in which we work continue to evolve at a rapid pace. Competition from pharmaceutical, chemical and biotechnology companies, universities and research institutions is intense and we expect it to increase. Many of these competitors are substantially larger than we are and have substantially greater capital resources, research and development capabilities and experience, manufacturing, marketing, sales, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical companies or other companies could enhance the financial, marketing and other resources available to these competitors.
 
An important factor in our ability to compete will be the timing of market introduction of competitive products. Accordingly, the relative speed with which we and competing companies can in license and market products will be an important element of market success. Other significant competitive factors include:
 
product safety and efficacy;
 
timing and scope of regulatory approval;
 
product availability;
 
marketing and sales capabilities;
 
reimbursement coverage from insurance companies and others;
 
the extent of clinical benefits and side effects of our products relative to their cost;
 
price;
 
patent protection; and
 
capabilities of partners with whom we may collaborate.
 
 
Intellectual Property
 
Patent Portfolio
 
Presently, we have rights to a number of issued U.S. and foreign patents and pending patent applications with varying expiration dates. Our patent rights categorized by individual drug development programs are summarized below.
 
KRN5500 – four issued U.S. patents directed to spicamycin and derivatives thereof, including KRN5500, and their use in methods of decreasing or preventing pain; one pending U.S. patent application and three pending U.S. provisional patent applications directed to formulations of spicamycin derivatives, including KRN5500, and their use in methods of treating or preventing pain; six issued foreign patents and four pending foreign applications directed to spicamycin and derivatives thereof, including KRN5500, and their use in methods of decreasing or preventing pain.
 
DB959 and DB900 – six issued U.S. patents and three pending U.S. patent applications with corresponding foreign patents and patent applications and one pending PCT application related to indane acetic acid derivative compounds and use thereof for treating type 2 diabetes, obesity, cardiovascular disease, liver disorders, Alzheimer's disease, autoimmune disorders, psoriasis and other diseases, and the process and intermediates for preparing compounds.
 
For information concerning the license agreements relating to these patents, see “Licenses” below.
 
We decided to allow patents and patent applications relating to DB160 and DB200 to lapse, as we determined that further development of these compounds is not of interest to DARA or other parties. This reduces our costs for our patent portfolio and allows us to use our capital to support the intellectual property for our active development programs and those programs which we believe contain future value and benefit to the company.
 
Licenses
 
We hold an exclusive license for the U.S. marketing rights to Soltamox from Rosemont Pharmaceuticals, Ltd., a U.K. based oral liquids specialty pharmaceutical company. We acquired this license on January 17, 2012 in connection with our acquisition of Oncogenerix. The term of the license is the later of (i) seven years from June 29, 2011; or (ii) the expiry of the last-to- expire Licensed Patent. We are obligated to pay certain milestones and  quarterly royalties based upon net revenues. Rosemont is responsible for the manufacturing and supply of Soltamox to us based on mutually agreed upon forecasts and purchase orders from us.
 
We have an exclusive license with Helsinn Healthcare SA (“Helsinn”), to distribute, promote, market and sell Gelclair for treatment of certain approved indications in the United States. Gelclair is an FDA-cleared product indicated for the treatment of oral mucositis. We acquired this license on September 12, 2012 for a term of ten years. Under the license agreement we are required to make certain up-front payments, milestone payments and royalty payments based upon net revenues. Helsinn is responsible for the manufacturing and supply of Gelclair to us based on mutually agreed upon forecasts and purchase orders from us. We have licensed exclusive worldwide rights (excluding Australia, New Zealand and Asia) to compounds from Kirin Brewery Co., Ltd. (now Kyowa Hakko Kirin Co., Ltd.) of Japan for the treatment of pain and central and peripheral nervous system conditions or diseases. This license was effective July 1, 2004. We have also entered into an exclusive worldwide license with Massachusetts General Hospital related to the use of certain spicamycin derivatives for use in treating pain. The effective date of this agreement was May 3, 2004.
 
 
We halted development of and patent maintenance for compounds acting as DPP-IV inhibitors for the treatment of type 2 diabetes and other metabolic diseases that we had previously licensed from Nuada, LLC on December 22, 2006.
 
We have licensed exclusive worldwide rights to compounds from Bayer Pharmaceuticals, Corp. for the treatment of metabolic diseases, including type 2 diabetes. The license has no restrictions on disease indications for therapeutic use. Bayer retains certain commercialization rights. This license was acquired October 8, 2007.
 
We ended our license agreement with Tufts University on July 20, 2011. This license had previously granted exclusive worldwide rights to certain compounds, including talabostat. This action was a cost-saving measure after our decision that further development of talabostat or related compounds was not of interest to DARA or other parties.
 
Governmental Regulation
 
The manufacture, advertising, marketing, distribution and sale of medical devices and drugs are subject to regulation principally by the FDA, but also by other federal agencies, and state and local authorities in the United States. The Federal Trade Commission (“FTC”), the FDA and state and local authorities regulate the advertising of medical devices, prescription drugs, over-the-counter drugs and cosmetics. The Federal Food, Drug and Cosmetic Act, as amended (“FDCA”) and the regulations promulgated thereunder, and other federal and state statutes and regulations, govern, among other things, the testing, manufacture, safety, effectiveness, labeling, storage, record keeping, approval, sale, distribution, advertising and promotion of our products. Both the FDCA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution. The FDA requires a Boxed Warning (sometimes referred to as a “Black Box” Warning) for products for significant risk of severe or life-threatening adverse events. Soltamox has a Black Box warning related to uterine malignances, stroke and pulmonary embolism. The FDA added this requirement for a Boxed Warning on all tamoxifen products in 2002. This warning can be found in the full Soltamox prescribing information at www.soltamox.com.
 
We are also subject to various federal and state laws pertaining to health care “fraud and abuse” issues, including anti-kickback laws and false claims laws. Anti-kickback laws make it illegal for a prescription drug manufacturer to solicit, offer, receive, or pay any remuneration in exchange for, or to induce, the referral of business, including the purchase or prescribing of a particular drug. False claims laws prohibit anyone from knowingly and willfully presenting, or causing to be presented for payment to the United States government, including Medicare and Medicaid, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. We have adopted the Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals, which is a voluntary industry code developed to establish standards for interactions with and communications to healthcare professionals and we have adopted processes that we believe enhance compliance with this code and applicable federal and state laws.
 
The drug candidates we are developing internally are subject to an extensive regulatory review and approval process by the U.S. Food and Drug Administration (the “FDA”) and by comparable agencies outside the United States. The process of obtaining FDA and other required regulatory approvals for drug and biological products, including required pre-clinical and clinical testing, is lengthy, expensive and uncertain. Changes in existing regulations or adoption of new regulations or policies could prevent us from obtaining, or could affect the timing of, future regulatory approvals. Even if regulatory clearance is obtained, a marketed product is subject to continual review and possible later discovery of previously unknown problems. Failure to comply with applicable regulatory requirements on an on-going basis may result in restrictions on a product’s marketing or withdrawal of the product from the market. Noncompliance with applicable requirements can result in fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal to authorize the marketing of new products or criminal prosecution.
 
 
Sales and Marketing Activities
 
We have built a commercial organization comprised of professionals in a variety of disciplines, including regional business directors, a trade and national account director, a U.S. head of marketing and a sales administration and operations assistant.

Our sales organization consists of field-based regional business directors who focus their efforts on sales and marketing of our product portfolio. Our trade and national accounts manager works to establish and maintain contracts with wholesalers, retail pharmacy chains, group purchasing organizations, hospital systems and integrated delivery networks, certain large individual hospital accounts and specialty pharmacies. The trade and national account director also works with commercial and government payers to assure market access and achieve reimbursement coverage for our products.

Our marketing team works to develop and implement strategies and tactics to support our products and the healthcare professionals who administer our products, including promotional materials, speaker programs, patient co-payment assistance, health care provider education, information to further support patient compliance and participation at national medical conventions.

Our customers consist of drug wholesalers, retail drug stores, hospitals, health care clinics, specialty pharmacies, mass merchandisers and grocery store pharmacies in the United States. We primarily sell products directly to drug wholesalers, which in turn distribute the products to retail drug stores, hospitals, mass merchandisers and grocery store pharmacies. Our top three customers, who represented 61% of our recognized gross sales of product in 2012, are drug wholesalers: Cardinal Health, McKesson Corporation and Amerisource Bergen Corporation.

Consistent with industry practice, we maintain a returns policy that allows our customers to return products within a specified period prior and subsequent to the expiration date. Occasionally, we may also provide additional discounts to some customers to ensure adequate distribution of our products.

We rely on Integrated Commercialization Solutions, or ICS, a third-party logistics provider, for the distribution of our products to drug wholesalers, retail drug stores, mass merchandisers and grocery store pharmacies. ICS ships our products from its warehouse in Louisville, Kentucky to our customers throughout the United States and its territories as orders are placed through our customer service center also at ICS.
 
Research and Development Activities
 
Research and development costs include personnel costs, patent costs, clinical and related drug manufacturing and testing costs, laboratory and animal supplies, outside services and contract laboratory costs. For a discussion of the amount spent on research and development activities, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.
 
 
Employees
 
We currently have 17 full-time employees and one part-time employee.
 
Available Information
 
Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K that we may file or furnish to the SEC pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as any amendments to any of those reports are available free of charge on or through our website as soon as reasonably practicable after we file them with or furnish them to the SEC electronically. Our website is located at www.darabio.com. In addition, you may receive a copy of any of our reports free of charge by contacting our corporate headquarters.
 
 
 
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this report in evaluating our company and its business before purchasing shares of our company's common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. You could lose all or part of your investment due to any of these risks.
 
Risks Related to Our Company
 
Our limited operating history may make it difficult to evaluate our business to date and our future viability.
 
We are in the early stage of operations and development and have only a limited operating history on which to base an evaluation of our current business and prospects. For example, we are in the early stages of building our sales and marketing strategy and organization. Our operations and development are subject to all of the risks inherent in the growth of an early stage company. We will be subject to the risks inherent in the ownership and operation of a company with a limited operating history such as regulatory setbacks and delays, fluctuations in expenses, competition, the general strength of regional and national economies and governmental regulation. Any failure to successfully address these risks and uncertainties could seriously harm our business and prospects. We may not succeed given the technological, marketing, strategic and competitive challenges we face. The likelihood of our success must be considered in light of the expenses, difficulties, complications, problems and delays frequently encountered in connection with the growth of a new business, the continuing development of new drug development technology and the competitive and regulatory environment in which we operate or may choose to operate in the future.
 
We expect to continue to incur losses.
 
We have incurred losses since inception and expect to continue to incur losses for the foreseeable future. Our losses are likely to be primarily attributable to personnel costs, working capital costs, marketing costs, research and development costs and regulatory approval costs as well as the costs associated with in-licensing of our products. We may never achieve sustained profitability.
 
We may need additional financing.
 
We may need additional financing to maintain and expand our business, and such financing may not be available on favorable terms, if at all. We intend to finance our business, in part, through the private placement and public offering of equity and debt securities as needed. We have historically financed our operations primarily from proceeds of registered direct offerings and private placements of equity securities and the sale of securities we acquired through investments made in other companies. In the event that we raise additional equity capital, investors’ interests in the Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. If we issue any such additional equity securities, such issuances also will cause a reduction in the proportionate ownership and voting power of all other stockholders. Further, any such issuance may result in a change in control.
 
When we need additional financing, we cannot provide assurance that it will be available on favorable terms, if at all. If we need funds and cannot raise them on acceptable terms, we may not be able to:
 
continue marketing and sales efforts with respect to Soltamox and Bionect and begin commercialization of Gelclair or any other products;
 
successfully build a portfolio of additional products for commercialization;
 
continue the development of our active drug development programs;
 
successfully out-license, otherwise monetize or commercialize any of our programs; or continue operations.
 
 
Our business depends on successful license and other collaborative arrangements.
 
Our business strategy requires us to in-license products for commercialization, enter into collaborative agreements with drug manufacturers and out-license or sell our internally developed drug candidates that have reached a certain level of clinical development. These measures are critical to successfully building our portfolio of oncological products for commercialization. We may not be able to secure needed licensing or other partnering arrangements, and any such arrangements, even if completed successfully, may not be on terms favorable to us, may not perform as expected, may result in unexpected liabilities and may never contribute significant revenues or cash flow. We depend to a significant extent on the expertise of and dedication of sufficient resources by our licensors, licensees and partners to develop and commercialize products. Each individual licensor, licensee or corporate partner will control the amount and timing of resources devoted by it to these activities. Moreover, the success of any such licenses or other alliances depends in part upon such partners’ own marketing and strategic considerations, including the relative advantages of alternative marketing partners and strategies. Corporate partners may pursue alternative technologies or develop products that are competitive with our products. Disputes may arise between us and one or more of our collaborative partners regarding our collaborative arrangements. In such an event, we may be required to initiate or defend expensive litigation or arbitration proceedings or to seek and attempt to reach agreement with another collaborative partner. We may not be able to resolve successfully a dispute with a collaborative partner or to enter into a satisfactory arrangement with a replacement collaborative partner.
 
The success of any products we may commercialize will depend on the degree of market acceptance by physicians, patients, healthcare payers and others in the medical community.
 
Any products that we bring to the market may not gain market acceptance by physicians, patients, healthcare payers and others in the medical community. If these products do not achieve an adequate level of acceptance, we may not generate material product revenues and we may not become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:
 
the prevalence and severity of any side effects;
 
the efficacy and potential advantages of alternative treatments;
 
the prices of our product candidates;
 
the willingness of physicians to prescribe our products; and
 
sufficient third-party coverage or reimbursement.
 
Commercialization of a new product or a new method of use for an existing product involves risks of failure inherent in the development of products based on innovative technologies and the risks associated with drug development generally.
 
Commercialization of a new or newly launched product, including Soltamox and Gelclair, or a new method of use for an existing product involves risks of failure inherent in the development of products based on innovative technologies and the risks associated with drug development generally. These risks include the following:
 
the products, even if safe and effective, may be difficult to manufacture on a large scale or uneconomical to market;
 
proprietary rights of third parties may prevent us from exploiting technologies or marketing products; and
 
third parties may market superior or equivalent products.
 
 
Our ability to commercialize our products will depend on our ability to:
 
complete any necessary studies;
 
obtain and maintain necessary intellectual property rights to our products;
 
obtain and maintain necessary regulatory approvals related to the efficacy and safety of our products;
 
enter into arrangements with manufacturers to provide manufacturing resources; and
 
establish marketing and sales channels.
 
We may not be successful in some or all of these initiatives.
 
We cannot guarantee that we will be able to effectively market our potential products.
 
A significant part of our success depends on the various marketing strategies we plan to implement. Our business model was historically focused solely on product development, and until the launch of Soltamox, we have never attempted to commercialize any product. We are in the early stages of building our sales and marketing strategy and organization. There can be no assurance as to the success of any such marketing strategy or that we will be able to build a successful sales and marketing organization. If we cannot effectively market those products we seek to commercialize directly, such products’ prospects will be harmed.
 
We anticipate that initially a relatively small group of products that we commercialize directly will represent a significant portion of net revenues. If the volume or pricing of any of these products declines, or we are unable to satisfy market demand for these products, it could have a material adverse effect on our business, financial position and results of operations.
 
We anticipate that initially sales of a limited number of our products will collectively represent a significant portion of our projected revenues. If the volume or pricing of our largest selling products declines in the future or we are unable to satisfy market demand for these products, our business, financial position and results of operations could be materially adversely affected, and our stock price could decline.
 
If we are unable to continue to commercialize additional products in a timely and cost-effective manner, we may not achieve our expected revenue growth or profitability or such revenue growth and profitability, if any, could be delayed.
 
Our future success will depend to a substantial degree on our ability to continue to commercialize new products in a timely and cost-effective manner. The acquisition, development and commercialization of new products is complex, time-consuming and costly and involves a high degree of business risk. We may, however, encounter unexpected delays in the launch of these products, or these products, when fully commercialized by us, may not perform as we expect.
 
The success of our new product offerings will depend upon several factors, including our ability to properly anticipate customer needs, obtain timely regulatory approvals and locate and establish collaborations for product development and finished product manufacturing in a timely and cost-effective manner. In addition, the acquisition, development and commercialization of new products is characterized by significant up-front costs, including costs associated with product development, obtaining regulatory approval, building inventory and sales and marketing. Furthermore, the development and commercialization of new products is subject to inherent risks, including the possibility that any new product may:
 
fail to receive or encounter unexpected delays in obtaining necessary regulatory approvals;
   
be difficult or impossible to manufacture on a larger scale;
 
 
be uneconomical to market;
 
fail to be developed prior to the successful marketing of similar or superior products by third parties; and
 
infringe on the proprietary rights of third parties.
 
We may not achieve our expected revenue growth or profitability or such revenue growth and profitability, if any, could be delayed if we are not successful in continuing to develop and commercialize new products.
 
We plan to rely on third parties for the manufacture of our potential products, and if such parties fail to supply us with finished products in the quantities we require on a timely basis, sales of our products could be delayed or prevented, our revenues could decline and we may not achieve profitability.
 
We currently do not intend to manufacture any products ourselves. Instead, we plan to rely on third parties to manufacture the products we seek to commercialize. If the third parties we contract with do not continue to provide these services to us as contracted, we may not be able to obtain these services from others in a timely manner or on commercially acceptable terms. Likewise, if we encounter delays or difficulties with our manufacturing partners in producing our products, the distribution, marketing and subsequent sales of these products could be adversely affected. If, for any reason, our third party manufacturers are unable to obtain or deliver sufficient quantities of finished products on a timely basis or we develop any significant disagreements with such parties, the manufacture or supply of our products could be disrupted, which may decrease our sales revenue, increase our operating expenses or otherwise negatively impact our operations. In addition, if we are unable to engage and retain third parties for the supply of finished products on commercially acceptable terms, we may not be able to sell our products as planned.
 
The manufacture of pharmaceutical products is highly exacting and complex and our manufacturing partners may experience problems during the manufacture of finished products for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, manufacturing quality concerns, problems with raw materials, natural disaster related events or other environmental factors. If problems arise during the production, storage or distribution of a batch of product, that batch of product may have to be discarded. If we are unable to find alternative sources of finished products, this could, among other things, lead to increased costs, lost sales and damage to customer relations. If problems are not discovered before the product is released to market, voluntary recalls, corrective actions or product liability related costs may also be incurred. Problems with respect to the manufacture, storage or distribution of our products could materially disrupt our business and reduce our revenues and prevent or delay us from achieving profitability.
 
Any loss of our license rights to use certain critical intellectual property from Rosemont, Helsinn or other licensors for any reason would have a material adverse effect on our business.
 
Soltamox (tamoxifen citrate) oral solution, our first proprietary, FDA approved product, is a drug primarily used to treat breast cancer. We are party to an exclusive license and distribution agreement with Rosemont Pharmaceuticals, Ltd., a U.K. based manufacturer, for rights to market Soltamox in the United States. If we breach or fail to perform the material conditions of, including the minimum sales requirement, or fail to extend the term of the agreements under which we license critical intellectual property from Rosemont or other licensors, we may lose all or some of our rights to such intellectual property, and such loss would have a material adverse effect on our business.
 
Gelclair is an FDA-cleared product indicated for the treatment of oral mucositis. We are party to an exclusive license and distribution agreement with Helsinn, a Switzerland based company, for rights to market Gelclair in the United States.  If we breach or fail to perform the material conditions of the agreement, including the launch and minimum sales requirements, we may lose all or some of our rights to such intellectual property, and such loss could have a material adverse effect on our business.
 
 
The drug candidate we are developing is in the early stages of development, and we may not be able to successfully develop this drug candidate into a commercially viable drug.
 
The drug development process is highly uncertain, and we have not developed and may never develop a drug candidate that ultimately leads to a commercially viable drug. KRN5500 is in the early stages of development and has not been approved for commercial sale. Before a drug product is approved by the FDA for commercial marketing, it must be tested for safety and effectiveness in clinical trials that can take many years. Promising results in preclinical development or early clinical trials may not be predictive of results obtained in later clinical trials. A number of pharmaceutical companies have experienced significant setbacks in advanced clinical trials, even after obtaining promising results in earlier preclinical and clinical trials. At any time, new safety information may lead the FDA to place a clinical trial on clinical hold, or permanently stop the trial. We or our collaborators may experience numerous unforeseen events during, or as a result of, the clinical development process that could delay or prevent our drug candidate from being successfully commercialized, including:
 
failure to achieve clinical trial results that indicate a product candidate is effective in treating a specified condition or illness in humans;
 
safety issues, including the presence of harmful side effects;
 
determination by the FDA that the submitted data do not satisfy the criteria for approval;
 
new information that suggests lack of commercial viability of the drug;
 
failure to acquire, on reasonable terms, intellectual property rights necessary for commercialization; and
 
development of competing therapeutics that are more effective.
 
Our success depends on our ability to retain our managerial personnel and to attract additional personnel (including a sales force).
 
Our success depends largely on our ability to attract and retain managerial personnel. Competition for desirable personnel is intense, and there can be no assurance that we will be able to attract and retain the necessary staff. We currently have seventeen full-time employees and one part-time employee, including a sales organization to commercialize products in accordance with our business plan. The loss of one or more members of managerial or scientific staff could have a material adverse effect on our future operations and on successful development of products for our target markets. The failure to maintain management, particularly our Chief Executive Officer/Chief Medical Officer and our Chief Operating Officer/President, and to attract additional key sales and other personnel could materially adversely affect our business, financial condition and results of operations.
 
The success of our business depends on our ability to develop and protect our intellectual property rights, which could be expensive.
 
Our success depends to a significant extent on our ability to obtain patent protection on technologies and products and preserve trade secrets and to operate without infringing the proprietary rights of others. There can be no assurance that any patent applications or patents we are able to license will afford any competitive advantages or will not be challenged or circumvented by third parties. Furthermore, there can be no assurance that others will not independently develop similar technologies or duplicate any technology developed or licensed by us. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that before any of our potential products can be commercialized, any related patent may expire, or remain in existence for only a short period following commercialization, thus reducing any advantage of the patent. Further, important legal issues remain to be resolved as to the extent and scope of available patent protection for biotechnology products and processes in the U.S. and other important markets outside the U.S., such as Europe and Japan. Foreign markets may not provide the same level of patent protection as provided under the U.S. patent system. In addition, changes in, or different interpretations of, patent laws in the U.S. and other countries may result in patent laws that allow others to take advantage of our discoveries or develop and commercialize our products. We cannot assure you that the patents we obtain or the unpatented technology we hold will afford us significant commercial protection.
 
 
We also rely on trademarks, copyrights, trade secrets and know-how to develop, maintain and strengthen our competitive positions. While we take steps to protect our proprietary rights to the extent possible, there can be no assurance that third parties will not know, discover or develop independently equivalent proprietary information or techniques, that they will not gain access to our trade secrets or disclose our trade secrets to the public. Therefore, we cannot guarantee that we can maintain and protect unpatented proprietary information and trade secrets. Misappropriation of our intellectual property would have an adverse effect on our competitive position and may cause us to incur substantial litigation costs.
 
Our inability to manage our planned growth could harm our business.
 
As we work toward building a portfolio of oncology treatment and supportive care pharmaceutical products and a sales organization that will market such products for sale we expect to require additional personnel. As a result, our operating expenses and capital requirements may increase significantly. Our ability to manage our growth effectively requires us to forecast accurately our sales and growth and manufacturing needs and to expend funds to improve our operational, financial and management controls, reporting systems and procedures. If we are unable to manage our anticipated growth effectively, our business could be harmed.
 
We may not achieve the benefits we expect from our acquisition of Oncogenerix, Inc., which may have a material adverse effect on the combined company’s business, financial, and operating results.
 
We consummated the acquisition of Oncogenerix with the expectation that the transaction will result in benefits to the combined company. Post-transaction challenges include the following:
 
successfully combining the operations of both companies;
 
potentially higher than expected costs required to achieve the anticipated benefits of the acquisition; and
 
retaining and integrating management and employees.
 
If the combined company is not successful in addressing these and other challenges, then the benefits of the acquisition may not be realized and, as a result, the combined company’s operating results and the market price of our common stock may be adversely affected.
 
Risks Relating to the Pharmaceutical Business
 
The pharmaceutical and biotechnology industries are intensely competitive and we may be unable to successfully compete against competitors with substantially more resources than we have.
 
In general, the pharmaceutical and biotechnology industries are intensely competitive. The technological areas in which we work continue to evolve at a rapid pace. Competition from pharmaceutical, chemical and biotechnology companies, universities and research institutions is intense and we expect it to increase. Many of these competitors are substantially larger than we are and have substantially greater capital resources, research and development capabilities and experience, manufacturing, marketing, financial and managerial resources than we do. Acquisitions of competing companies by large pharmaceutical companies or other companies could enhance the financial, marketing and other resources available to these competitors.
 
 
An important factor in our ability to compete will be the timing of market introduction of competitive products. Accordingly, the relative speed with which we and competing companies can in-license and develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market will be an important element of market success. Other significant competitive factors include:
 
product safety and efficacy;
 
timing and scope of regulatory approval;
 
product availability;
 
marketing and sales capabilities;
 
reimbursement coverage from insurance companies and others;
 
the extent of clinical benefits and side effects of our products relative to their cost;
 
price;
 
patent protection; and
 
capabilities of partners with whom we may collaborate.
 
There can be no assurance that we can develop products that are more effective or achieve greater market acceptance than competitive products, or that our competitors will not succeed in developing products and technologies that are more effective than ours or that render our products and technologies less competitive or obsolete.
 
We may be subject to claims that we infringe the intellectual property rights of others, and unfavorable outcomes could harm our business.
 
Our future operations may be subject to claims, and potential litigation, arising from our alleged infringement of patents, trade secrets or copyrights owned by other third parties. We intend to fully comply with the law in avoiding such infringements. However, within the drug development industry, established companies have actively pursued such infringements, and have initiated such claims and litigation, which has made the entry of competitive products more difficult. We may experience such claims or litigation initiated by existing, better-funded competitors. We could also become involved in disputes regarding the ownership of intellectual property rights that relate to our technologies. These disputes could arise out of collaboration relationships, strategic partnerships or other relationships. Any such litigation could be expensive, take significant time, and could divert management’s attention from other business concerns. Our failure to prevail in any such legal proceedings, or even the mere occurrence of such legal proceedings, could substantially affect our ability to meet our expenses and continue operations.
 
If the healthcare system or reimbursement policies change, the prices of our potential products may be lower than expected and our potential sales may decline.
 
The levels of revenues and profitability of bio-pharmaceutical companies like ours may be affected by the continuing efforts of government and third party payers to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets, pricing or profitability of therapeutic and other pharmaceutical products is subject to governmental control. In the U.S. there have been, and we expect that there will continue to be, a number of federal and state proposals to implement similar governmental control. While we cannot predict whether any legislative or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business, financial condition and profitability. In addition, in the U.S. and elsewhere, sales of therapeutic and other pharmaceutical products depend in part on the availability of reimbursement to the consumer from third party payers, such as government and private insurance plans. Third party payers are increasingly challenging the prices charged for medical products and services. We cannot assure you that any of our potential products will be considered cost effective or that reimbursement to the consumer will be available or will be sufficient to allow us to sell our potential products on a competitive and profitable basis.
 
 
Government regulation of our business is extensive and drug approvals are uncertain, expensive and time-consuming.
 
The research, development, pre-clinical and clinical trials of most of our intended products are subject to an extensive regulatory approval process by the FDA and other regulatory agencies in the U.S. and abroad, such as in Europe and Japan. The process of obtaining FDA and other required regulatory approvals for drug and biological products, including required pre-clinical and clinical testing, is lengthy, expensive and uncertain. Even if regulatory clearance is obtained, a marketed product is subject to continual review, and later discovery of previously unknown adverse events or failure to comply with the applicable manufacturing, packaging, distribution and marketing requirements may result in restrictions on a product’s marketing or withdrawal of the product from the market as well as possible criminal sanctions.
 
Currently we have only one drug candidate in development. A delay or setback in the clinical development of KRN5500 would likely have a material adverse effect on our business, financial condition and results of operations.
 
Our business, as well as that of our manufacturers, is strictly regulated by the federal and other governments, and there can be no assurance that either we or our manufacturers will be able to maintain full compliance with all applicable regulations.
 
Clinical testing and manufacture of our proposed products are subject to extensive regulation by numerous governmental authorities in the U.S., principally the FDA, and corresponding foreign regulatory agencies. Changes in existing regulations or adoption of new regulations or policies could prevent us from obtaining, or affect the timing of, future regulatory approvals or clearances. We cannot assure you that we will be able to obtain necessary regulatory clearances or approvals on a timely basis, or at all, or that we will not be required to incur significant costs in obtaining or maintaining such regulatory approvals. Delays in receipt of, or failure to receive, such approvals or clearances, the loss of previously obtained approvals or clearances or the failure to comply with existing or future regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.
 
Any enforcement action by regulatory authorities with respect to past or future regulatory noncompliance could have a material adverse effect on our business, financial condition and results of operations. Noncompliance with applicable requirements can result in fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, refusal to authorize the marketing of new products and criminal prosecution.
 
Even if our proposed products are approved for market, we will be subject to continuing regulation. We and our collaborative partners, including our manufacturers, will continuously be subject to routine inspection by the FDA and will have to comply with the host of regulatory requirements that usually apply to pharmaceutical products marketed in the U.S., including labeling regulations, the FDA’s Good Manufacturing Practice requirements, Good Clinical Practices and Good Laboratory Practices, review and response to adverse drug experience reports and regulation governing marketing and promotion of approved drug products. Our failure to comply with applicable regulatory requirements could result in enforcement action or sanctions by the FDA, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delay, suspension or withdrawal of approvals, license revocation, product seizures or recalls, operational restrictions or criminal prosecutions, any of which could have a material adverse effect on our business, financial condition and results of operations.
 
 
Our business exposes us to potential liability for personal injury or product liability claims that could affect our financial condition.
 
Our business involves the testing of new drugs on human volunteers and the use of our marketed products by patients. This exposes us to the risk of liability for personal injury or death to patients resulting from, among other things, possible unforeseen adverse side effects or improper administration of a drug. Many study volunteers and participants are already seriously ill and are at risk of further illness or death. If we are required to pay damages or incur defense costs in connection with any personal injury claim that is outside the scope of indemnification agreements we have with clients and collaborative partners, if any indemnification agreement is not performed in accordance with its terms or if our liability exceeds the amount of any applicable indemnification limits or available insurance coverage, we could be materially and adversely affected both financially and reputationally. Any such claims may also prevent us from being able to obtain adequate insurance for these risks at reasonable rates in the future.
 
If we market our products in a manner that violates healthcare fraud and abuse laws, or if we violate false claims laws or fail to comply with our reporting and payment obligations under the Medicaid rebate program or other governmental pricing programs, we may be subject to civil or criminal penalties or additional reimbursement requirements and sanctions, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
 
In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include anti-kickback statutes and false claims statutes. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws.
 
The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federally financed healthcare program. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly and practices that involve remuneration intended to induce prescribing, purchasing or recommending such healthcare items or services may be subject to scrutiny if they do not qualify for an exemption or safe harbor.
 
Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal government or knowingly making, or causing to be made, a false statement in order to have a claim paid. Pharmaceutical and other healthcare companies have been prosecuted under these laws for a variety of alleged promotional and marketing activities, such as providing free trips, free goods, sham consulting fees and grants and other monetary benefits to prescribers, reporting inflated average wholesale prices to pricing services that were then used by federal programs to set reimbursement rates and engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered, off-label uses. Such activities have been alleged to cause the resulting claims for reimbursement to be “false” claims. Most states also have statutes or regulations similar to the federal anti-kickback and false claims laws, which apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.
 
We anticipate that we will participate in the federal Medicaid Rebate Program established by the Omnibus Budget Reconciliation Act of 1990, as well as several state supplemental rebate programs, in connection with the sale of Soltamox and Gelclair and other future products we may commercialize. Under the Medicaid rebate program, we anticipate paying a rebate to each state Medicaid program for our products that are reimbursed by those programs. Federal law requires that any company that participates in the Medicaid rebate program extend comparable discounts to qualified purchasers under the Public Health Service Act pharmaceutical pricing program, which requires us to sell our products to certain customers at prices lower than we otherwise might be able to charge. If products are made available to authorized users of the Federal Supply Schedule, additional pricing laws and requirements apply. Pharmaceutical companies have been prosecuted under federal and state false claims laws in connection with allegedly inaccurate information submitted to the Medicaid Rebate Program or for knowingly submitting or using allegedly inaccurate pricing information in connection with federal pricing and discount programs.
 
 
Pricing and rebate calculations vary among products and programs. The calculations are complex and may be subject to interpretation by us or our contractors, governmental or regulatory agencies and the courts. Our methodologies for calculating these prices could be challenged under false claims laws or other laws. We or our contractors could make a mistake in calculating reported prices and required discounts, revisions to those prices and discounts, or determining whether a revision is necessary, which could result in retroactive rebates (and interest, if any). Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. If this were to occur, we could face, in addition to prosecution under federal and state false claims laws, substantial liability and civil monetary penalties, exclusion of our products from reimbursement under government programs, criminal fines or imprisonment or the entry into a Corporate Integrity Agreement, Deferred Prosecution Agreement, or similar arrangement.
 
In addition, federal legislation now imposes additional requirements. For example, as part of the PPACA, a federal physician payment disclosure provision based on the Physician Payments Sunshine Act was enacted, which requires pharmaceutical manufacturers to report certain gifts and payments to physicians beginning in 2013. These reports will then be placed on a public database. Failure to so report could subject companies to significant financial penalties.
 
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities conducted by our sales team in the sale of Soltamox and Gelclair, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
 
Risks Relating to Our Common Stock
 
If we issue additional shares in the future, it will result in the dilution of our existing shareholders.
 
Our articles of incorporation authorize the issuance of up to 75,000,000 shares of common stock with a par value of $0.01 per share. Our Board of Directors may choose to issue some or all of such shares to acquire one or more products and to fund our overhead and general operating requirements. The issuance of any such shares will reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.
 
Our stock price could be volatile and our trading volume may fluctuate substantially.
 
The price of our common stock has been and may in the future continue to be extremely volatile. Many factors could have a significant impact on the future price of our common stock, including:
 
our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
 
our failure to successfully commercialize products we license for commercial sale;
 
our failure to successfully advance the development of our programs or otherwise implement our business objectives;
 
changes in our intellectual property portfolio or developments or disputes concerning the proprietary rights of our product candidates;
 
 
our ability to successfully enter into and maintain manufacturing relationships for our products;
 
progress or results of any of our clinical trials;
 
progress of regulatory approval of our product candidates and compliance with ongoing regulatory requirements;
 
market acceptance of our products;
 
technological innovations, new commercial products or drug discovery efforts and preclinical and clinical activities by us or our competitors;
 
changes in government regulations;
 
issuance of new or changed securities analysts’ reports or recommendations;
 
general economic conditions and other external factors;
 
actual or anticipated fluctuations in our quarterly financial and operating results;
 
the degree of trading liquidity in our common stock; and
 
our ability to meet the minimum standards required for remaining listed on the NASDAQ Capital Market.
 
A significant number of shares of our common stock are issuable pursuant to outstanding shares of convertible preferred stock, options and warrants, and we expect to sell additional shares of our common stock in the future. Sales of these shares will dilute the interests of other security holders and may depress the price of our common stock.
 
As of March 21, 2013, we had 25,000,961 shares of common stock outstanding. As of March 21, 2013, there were 331,200 shares of common stock issuable upon the conversion of outstanding shares of Series A preferred stock, 65,789 shares of common stock issuable upon the conversion of outstanding shares of Series B-2 preferred stock, 328,947 shares of common stock issuable upon the conversion of outstanding shares of Series B-4 preferred stock, 14,494,575 shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $1.90 per share, 3,084,399 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $1.28 per share, 2,968,427 shares of common stock reserved for future grants and awards under our equity incentive plans and 891,648 shares of common stock reserved for issuance to former Oncogenerix, Inc. stockholders, based upon our achievement of certain revenue or market capitalization milestones during the five year period ending January 2017. In addition, we may issue additional common stock and warrants from time to time to finance our operations. We may also issue additional shares in connection with additional stock options or restricted stock granted to our employees, officers, directors and consultants under our equity compensation plans. The issuance of the shares of common stock underlying these instruments, or perception that issuance may occur, will have a dilutive impact on other stockholders and could have a material negative effect on the market price of our common stock.
 
If we fail to satisfy applicable listing standards, including maintenance of at least $2.5 million of stockholders’ equity and maintenance of a $1.00 minimum bid price, our common stock may be delisted from the NASDAQ Capital Market.
 
If our common stock were delisted from NASDAQ, among other things, it could lead to a number of negative implications, including reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing.
 
 
We have never paid cash dividends and do not intend to do so.
 
We have never declared or paid cash dividends on our common stock. We currently plan to retain any earnings to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.
 
None.
 
Our principal property is our corporate headquarters located at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina. We lease this office space (7,520 square feet) under a lease agreement with Highwoods DLF Forum, LLC that has a term that runs through March 31, 2018.
 
On November, 2012, a suit was filed in the United States District Court District of Columbia naming DARA as a defendant. Plaintiff in the suit is GlycoBioSciences, Inc. Also named as defendant is Innocutis Holdings, LLC (“Innocutis”), Plaintiff alleges that defendants’ distribution and sale of Bionect infringes on certain of plaintiff’s patents and plaintiff seeks to enjoin defendants’ alleged patent infringement and seeks unspecified damages and costs. Pursuant to our license agreement with Innocutis, Innocutis is required to indemnify us in connection with this lawsuit. As a result, Innocutis has assumed our defense. The defendants filed a motion to dismiss the complaint on February 1, 2013. We believe the claim to be substantially without merit, and while no assurance can be given regarding the outcome of this litigation, we believe that the resolution of this matter will not have a material adverse effect on our financial position or results of operations.
 
 
Not applicable.
 
 
PART II
 
Market Information
 
The following table sets forth for the periods indicated the range of high and low reported sales price per share of our common stock as reported on The Nasdaq Capital Market.
 
   
High ($)
   
Low ($)
 
2012
           
First Quarter
    2.77       1.19  
Second Quarter
    1.40       0.62  
Third Quarter
    1.38       0.65  
Fourth Quarter
    1.20       0.69  
                 
2011
               
First Quarter
    4.29       3.00  
Second Quarter
    3.50       2.31  
Third Quarter
    3.39       1.85  
Fourth Quarter
    2.10       0.88  
 
Stockholders
 
Our transfer Agent is American Stock Transfer and Trust Company. On March 21, 2013, the last reported sale price of our common stock on The Nasdaq Capital Market was $1.05 per share. On March 21, 2013, there were approximately 172 holders of record of our common stock.
 
Dividend Policy
 
We have not declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Our board of directors will determine future dividends, if any.
 
Not applicable.
 
The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report includes forward-looking statements based on our current management’s expectations. There can be no assurance that actual results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, our limited operating history, unpredictability of future operating results, competitive pressures and the other potential risks and uncertainties discussed in the Risk Factors section of this Form 10-K.
 
 
Overview
 
We are a specialty pharmaceutical company focused on the development and commercialization of oncology treatment and supportive care pharmaceutical products. Through our acquisition of Oncogenerix, Inc., which occurred on January 17, 2012, we acquired exclusive U.S. marketing rights to our first commercial proprietary product, Soltamox (tamoxifen citrate) oral solution. Soltamox has been approved by the U.S. Food and Drug Administration (“FDA”) for the treatment of breast cancer and is currently sold in the UK and Ireland by Rosemont Pharmaceuticals, Ltd. We have an exclusive license with Helsinn Healthcare SA (“Helsinn”), to distribute, promote, market and sell Gelclair, a unique oral gel whose key ingredients are polyvinylpyrrolidone (PVP) and sodium hyaluronate (hyaluronic acid) for treatment of certain approved indications in the United States. Gelclair, is an FDA-cleared product indicated for the treatment of oral mucositis. In addition, we have a marketing agreement with Innocutis Holdings, LLC pursuant to which we will promote Bionect (hyaluronic acid sodium salt, 0.2%) within the oncology and radiation oncology marketplace. Bionect has been cleared by the FDA for the management of irritation of the skin as well as first and second degree burns. Additionally, we continue to have an internal clinical development program focused on our drug candidate KRN5500 for the treatment of painful chronic chemotherapy induced peripheral neuropathy in cancer patients.
 
Our recognized net revenue for 2012 is $53,629 (deferred net revenue - $149,848) primarily from the launch of Soltamox in the fourth quarter of 2012. We have liquidated or distributed to our stockholders substantially all of our investments made in other companies. Our primary sources of working capital have been proceeds from the sale of our securities and proceeds from the sale of securities held in subsidiary companies and marketable securities. From inception through December 31, 2012, we raised a total of $48,402,280 in proceeds from issuance of preferred and common stock, net of issuance costs. From inception through December 31, 2012, we received net proceeds from the sale of investments of $7,103,599.
 
We expect to continue to incur operating losses in the near-term. Our results may vary depending on many factors, including the success of our product marketing efforts, the progress of licensing activities with pharmaceutical partners and clinical test results.
 
Product Commercialization
 
Our primary focus is on the commercialization and development of the following types of oncology treatment and oncology supportive care pharmaceutical products:
 
Soltamox (tamoxifen citrate) oral solution, an FDA-approved liquid formulation of tamoxifen and other liquid formulation products; and
 
Cancer support therapeutics, including Gelclair, an FDA-cleared product indicated for the treatment of oral mucositis and Bionect, an FDA-cleared product for the management of irritation of the skin as well as first and second degree burns
 
KRN5500 is a novel, non-narcotic/non-opioid intravenous product for the treatment of painful chronic chemotherapy induced peripheral neuropathy in patients with cancer. Since KRN5500 would complement our portfolio of oncology treatment and supportive care pharmaceuticals, we are looking to advance clinical development with a partner who has the pain/oncology expertise and resources to fund the Phase 2b trial.
 
We currently have an exclusive license to a FDA approved product, Soltamox, an exclusive license to distribute, promote and market a FDA cleared product, Gelclair, and a marketing agreement to promote Bionect within the oncology and radiation oncology marketplace. We are working to build a portfolio of additional products through licenses and other collaborative arrangements.
 
 
Soltamox (tamoxifen citrate) oral solution, our first proprietary, FDA approved product, is a drug primarily used to treat breast cancer. Soltamox is the only liquid formulation of tamoxifen available for sale in the United States. As a result of our acquisition of Oncogenerix, we became party to an exclusive license and distribution agreement with Rosemont Pharmaceuticals, Ltd., a U.K. based manufacturer, for rights to market Soltamox in the United States. Previously, Soltamox was marketed only in the U.K. and Ireland. Soltamox is the subject of a U.S. issued patent which expires in June, 2018. We launched Soltamox in the U.S. in the fourth quarter of 2012.
 
In February 2012, we entered into an Exclusive Distribution Agreement with Uman Pharma Inc. pursuant to which we received an exclusive license to import, sell, market and distribute Uman’s gemcitabine lyophilized powder product in 200mg and 1g dosage sizes in the U.S. Gemcitabine went off patent in 2011 in the U.S. and is widely prescribed as first-line therapy for ovarian, breast, lung and pancreatic cancers. Uman intended to file an Abbreviated New Drug Application for Gemcitabine with the FDA in the second half of 2012.
 
However, due to the current U.S. market conditions for gemcitabine lyophilized powder, Uman did not file an Abbreviated New Drug Application for gemcitabine with the FDA in 2012. In fact, downward pricing pressure on gemcitabine makes it unlikely that Uman will be able to manufacture it. Therefore, we will not be able to commercialize gemcitabine in the U.S. at prices competitive enough to be commercially viable. As a result, we believe it is unlikely we will ever launch gemcitabine in the U.S. under our Exclusive Distribution Agreement with Uman.
 
On March 23, 2012, we entered into an Exclusive Marketing Agreement with Innocutis Holdings, LLC pursuant to which we are promoting Bionect (hyaluronic acid sodium salt, 0.2%) within the oncology and radiation oncology marketplace. Bionect has been approved by the FDA for the management of irritation of the skin as well as first and second degree burns. Bionect is currently being promoted and sold by Innocutis in the dermatology market. The Company will be compensated by Innocutis for each unit sold in the oncology and radiation oncology market. The Company began marketing and promoting Bionect in the U.S. in the second quarter of 2012.
 
We have two lead drug candidates in clinical development with cleared Investigational New Drug applications from the FDA:
 
KRN5500, a cancer support product for the treatment of chronic chemotherapy-induced neuropathic pain in cancer patients; and
 
DB959, a first-in-class drug candidate for the treatment of type 2 diabetes and dyslipidemia.
 
We are actively pursuing partnering opportunities for KRN5500 and out-licensing opportunities for DB959.
 
Status of our Drug Candidates
 
KRN5500
 
KRN5500 is a novel, non-narcotic/non-opioid intravenous product for the treatment of chronic chemotherapy-induced neuropathic pain in patients with cancer. The drug has successfully completed a Phase 2a proof of concept study in patients with end-stage cancer and analgesia-resistant neuropathic pain where it showed statistically-significant pain reduction versus placebo (p = 0.03) using standardized pain test scores. There were no major safety concerns. The FDA has designated KRN5500 a Fast Track drug, based on its potential usefulness in treating a serious medical condition and in fulfilling an unmet medical need. We are working with the National Cancer Institute (NCI) to design an additional clinical trial under joint DARA-NCI auspices. Since KRN5500 would complement our portfolio of oncology treatment and supportive care pharmaceuticals, we are looking to partner the drug with an established oncology development company to undertake and support the cost for the Phase 2b program. We incurred $598,257 in costs associated with the development of KRN5500 during 2012, and we have incurred third party costs of $5,371,472 from inception to date.
 
 
DB959
 
DB959 is a first-in-class small molecule drug candidate for the treatment of type 2 diabetes and dyslipidemia and has successfully completed Phase 1a and 1b studies. This compound activates genes involved in the metabolism of sugars and fats thereby improving the body’s ability to regulate both aspects of diabetes. Phase 1 clinical data demonstrated a good safety profile even when dosed at approximately 10 times the anticipated human dose and a pharmacokinetic profile supporting a once-a-day oral dose. Our review of non-clinical studies in models predictive of human disease indicates that this drug candidate provides glucose control and increases good HDL cholesterol and lowers triglycerides better than rosiglitazone (Avandia) with less weight gain. DB959 is targeted for out-licensing to partners more able to sustain the prolonged time-lines and significant costs involved in diabetes drug development.
 
We incurred $383,342 in direct outside development costs associated with the development of DB959 during 2012, and we have incurred costs of $7,830,020 from inception to date.
 
Critical Accounting Policies
 
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to clinical trial expenses, stock-based compensation and asset impairment and significant judgments and estimates. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
 
While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements included in this report, we believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial results.
 
Revenue Recognition
 
We recognize revenue when there is persuasive evidence that an arrangement exists, title has passed, collection is reasonably assured and the price is fixed or determinable  We sell mostly to wholesalers who, in-turn, sell the product to hospitals and other end-user customers. Sales to wholesalers provide for selling prices that are fixed on the date of sale, although we offer certain discounts to group purchasing organizations and governmental programs. The wholesalers take title to the product, bear the risk of loss of ownership, and have economic substance to the inventory.
 
We allow for product to be returned beginning prior to and following product expiration. We do not believe that we have sufficient sales and returns history at this time to reasonably estimate product returns from our wholesaler distribution channel. Therefore, we are deferring the recognition of revenue until the wholesalers sells its product to hospitals or other end-user customers. We will continue to defer revenue recognition until the point at which we have obtained sufficient sales history to reasonably estimate returns from the wholesalers and inventory levels are reduced to normalized amounts. Shipments of product that are not recognized as revenue are treated as deferred revenue until evidence exists to confirm that pull through sales to hospitals or other end-user customers have occurred.  Revenue is recognized from products sales directly to hospitals, clinics, and pharmacies when the merchandised is shipped.
 
 
We recognize sales allowances as a reduction of revenues in the same period the related revenue is recognized. Sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with wholesale distributors and the levels of inventory within the distribution channels that may result in future discounts taken. We must make significant judgments in determining these allowances. If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future, which could have an effect on revenue in the period of adjustment. The following briefly describes the nature of each provision and how such provisions are estimated
 
Payment discounts are reductions to invoiced amounts offered to customers for payment within a specified period and are estimated upon shipment utilizing historical customer payment experience.
 
The returns reserve is based on management's best estimate of the product sales recognized as revenue during the period that are anticipated to be returned. The returns reserve is recorded as a reduction of revenue in the same period the related product sales revenue is recognized and is included in accrued expenses.
 
Generally, credits may be issued to wholesalers for decreases that are made to selling prices for the value of inventory that is owned by the wholesaler at the date of the price reduction. Price adjustment credits are estimated at the time the price reduction occurs and the amount is calculated based on the level of the wholesaler inventory at the time of the reduction.
 
There are arrangements with certain parties establishing prices for products for which the parties independently select a wholesaler from which to purchase. Such parties are referred to as indirect customers. A chargeback represents the difference between the sales invoice price to the wholesaler and the indirect customer's contract price, which is lower. Provisions for estimating chargebacks are calculated primarily using historical chargeback experience, contract pricing and sales information provided by wholesalers and chains, among other factors. The Company recognizes chargebacks in the same period the related revenue is recognized.
 
Income Taxes
 
The Company uses the liability method in accounting for income taxes as required by FASB ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carry forwards and for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. At December 31, 2012 and December 31, 2011 a valuation allowance has been recorded to reduce the net deferred tax asset to zero.
 
The Company's policy for recording interest and penalties is to record them as a component of interest income (expense), net.
 
As of December 31, 2012 and 2011, respectively, the Company had an estimated $203,122,000 and $203,893,300 of U.S. Federal net operating loss carryforwards that have started to expire. The Company also has an estimated $37,716,000 and $41,459,200 of state net economic loss carryforwards that have started to expire. Additionally, the Company has research and development credits of approximately $2,830,000 and $922,000 for federal and state tax purposes that have started to expire.
 
The Internal Revenue Code provides limitations on utilization of existing net operating losses and tax credit carryforwards against future taxable income based upon changes in share ownership. If these changes have occurred, the ultimate realization of the net operating loss and R&D credit carryforwards could be permanently impaired.
 
Sales and Marketing Costs
 
Sales and marketing costs consist of salaries, commissions, and benefits to sales and marketing personnel, sales personnel travel and operating costs marketing programs, certain promotional allowances to customers, co-pay assistance and administration costs and advertising costs.
 
 
Research and Development Expenses
 
We expense research and development costs as incurred. Research and development costs include personnel and personnel related costs, costs associated with clinical trials, including amounts paid to contract research organizations and clinical investigators, clinical material manufacturing costs, process development and clinical supply costs, research costs and other consulting and professional services.
 
Accrued Expenses
 
As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when invoices have not yet been sent and we have not otherwise been notified of actual cost. The majority of our service providers invoice monthly in arrears for services performed. We make estimates of accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include:
 
fees paid to CROs in connection with preclinical and toxicology studies and clinical trials;
 
fees paid to investigative sites in connection with clinical trials;
 
fees paid to contract manufacturers in connection with the production of raw materials, drug substance and drug products; and
 
professional service fees.
 
Share-Based Compensation
 
Share-based compensation is accounted for using the fair value based method prescribed by Financial Accounting Standards Board Accounting Standards Codification 718 (“ASC 718, Compensation-Stock Compensation”). For stock and stock-based awards issued to employees, a compensation charge is recorded against earnings based on the fair value of the award. For transactions with non-employees in which services are performed in exchange for our common stock or other equity instruments, the transactions are recorded on the basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date of issuance. Please refer to Note 10 - Share Based Compensation, included in the condensed consolidated financial statements appearing elsewhere in this report, for additional information regarding our adoption of ASC 718.
 
Significant Judgments and Estimates
 
The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions that affect the reported amounts and disclosure of certain assets and liabilities at our balance sheet date. Such estimates include the carrying value of property and equipment and the value of certain liabilities. Actual results may differ from such estimates.
 
Results of Operations
 
We incurred sales and marketing expense of $1,609,601, for the year ended December 31, 2012 as a result of its merger with Oncogenerix and the costs incurred in establishment of a sales and marketing infrastructure to support the promotion of Bionect and to prepare for the launch of Soltamox in the fourth quarter of the year. As of December 31, 2012 sales and marketing costs consist of salaries, and benefits to sales and marketing personnel, marketing programs, and distribution establishment costs. Prior to the merger we had no commercial activities.
 
 
Research and development expenses increased from $2,633,449 for the year ended December 31, 2011 to $2,734,517 for the year ended December 31, 2012. While costs related to DB959 in the 2012 period were reduced by approximately $1 million as compared to the 2011 period due to a decision to cease development and pursue out-licensing opportunities, the Company incurred additional costs of $125,000 related to gemcitabine licensing and development, additional costs of approximately $650,000 related to Soltamox regulatory FDA fees and also incurred greater research and development infrastructure costs as well as stock based compensation expense for the year ended December 31, 2012.
 
General and administrative expenses consist primarily of salaries and benefits, professional fees related to administrative, finance, human resource, legal and information technology functions. In addition, general and administrative expenses include allocated facility, basic operational and support costs and insurance costs. General and administrative expenses increased from $3,989,054 in 2011 to $4,663,359 in 2012, primarily as a result of expenses associated with our increase in investor relations activities and additional compensation expense.  Depreciation and and amortization expense increased from $139,392 in 2011 to $659,441 in 2012 primarily related to amortization on the Rosemont, Bayer, and Helsinn licenses for the year ended December 31, 2012. Other income (expense), net reflects non-operating activities associated with investments and dispositions of investments made in collaborations with other companies, as well as interest earned and expensed and other revenues not related to normal basic operations. Other income, net increased from income of $90,200 in 2011 to $596,885 in 2012. The increase is due to the gain on the net sale of our marketable securities of $608,601 and an increase in other income of $1,510, offset by a decrease in interest income of $103,426. The income of $90,200 for the corresponding 2011 period was primarily as a result of the $85,277 benefit to accrued interest from the recognition of previously unrecognized state tax benefits of $194,445.
 
Liquidity and Capital Resources
 
Overview
 
From inception through December 31, 2012, we have financed our operations primarily from the net proceeds of (1) registered direct offerings and private placements of equity securities, through which we raised $48,402,280 in net proceeds and (2) the sale of marketable securities and securities held in subsidiary companies, through which we raised $1,951,211 and $5,152,388, respectively.
 
Working Capital
 
   
December 31,
   
December 31,
 
   
2012
   
2011
 
Current assets
  $ 7,044,827     $ 1,462,866  
Current liabilities
    2,038,862       867,995  
Working capital
  $ 5,005,965     $ 594,871  
 
At December 31, 2012, our principal sources of liquidity were our cash and cash equivalents which totaled $6,496,457. As of December 31, 2012, we had working capital of $5,005,965. Our cash resources have been used to acquire licenses, and to fund research and development activities, capital expenditures, sales and marketing and general and administrative expenses. From December 31, 2011 to December 31, 2012, our working capital increased by $4,411,094 due primarily to the Series B-1 and Series B-2 equity financings totaling approximately $10,698,000, exercises of Series B-2 $1.00 warrants totaling approximately $1,170,000 and cash received from the sale of available for sale securities totaling approximately $747,000, offset by purchases of license rights of approximately $250,000, cash used in operating activities of approximately $7,021,000 and other increases in other current assets and liabilities of approximately $933,000, primarily made up of the 2012 accrual for FDA fees related to Soltamox of $620,000 as well as a year-end accrual of license fees of $250,000.
 
 
We have incurred significant net losses and have had negative cash flows from operations during each period from inception through December 31, 2012 and have a deficit accumulated during the development stage of $47,027,581 at December 31, 2012. Management expects operating losses and negative cash flows to continue through 2013 and the foreseeable future.
 
Cash Flows
 
 
 
2012
   
2011
 
Cash used in operating activities
  $ (7,021,194 )   $ (4,860,806 )
                 
Cash provided by investing activities
    459,346       -  
                 
Cash provided by financing activities
    11,879,148       561,549  
                 
Net increase (decrease) in cash and cash equivalents
  $ 5,317,300     $ (4,299,257 )
 
Our cash used in operating activities for the year ended December 31, 2012 compared to our cash used in operating activities for the year ended December 31, 2011 increased by $2,160,388 primarily due to the increase in consolidated net loss of $1,263,121, which was driven primarily by the increase in sales and marketing expenses of $1,609,601, an increase in general and administrative expenses of $674,305, an increase in research and development expenses of $101,068, and an increase in depreciation and amortization expense of $520,049 as explained above.
 
Our net cash provided by investing activities during the year ended December 31, 2012 was $459,346 which consisted of proceeds received from sale of its marketable securities of $746,696 and cash from the Oncogenerix merger of $10,632 offset by purchases of license rights of $250,000, purchases of furniture and fixtures of $18,063, as well as an investment in MRI Interventions Inc. of $29,919. There was no cash provided by investing activities during the same period in 2011.
 
Our net cash provided by financing activities for the year ended December 31, 2012 compared to our net cash provided by financing activities for the year ended December 31, 2011 increased by $11,317,599 primarily due to (i) the issuances of preferred stock which generated net proceeds of $10,698,197 and (ii) net proceeds of $1,170,200 from the exercise of 1,170,000 Series B-2 warrants while during the same period in 2011, we had only $562,500 in receipts from the exercise of options and warrants.
 
Financial Condition
 
In addition to working capital on hand at December 31, 2012, we received approximately $2,500,000 in net proceeds from issuance of Series B-3 and B-4 convertible preferred stock in January 2013. Also, during the period from January 1, 2013 through March 21, 2013, investors in the B-2 preferred stock have exercised 1,213,874 warrants at $.80 per share for proceeds of approximately $971,000 and 250,000 warrants at $1.00 per share for proceeds of approximately $250,000.
 
 
We believe we have sufficient working capital to continue our operations through 2013. We expect to require additional investment capital to pursue our long-term business plan. Our working capital requirements will depend upon numerous factors including the costs we may incur building a portfolio of pharmaceutical products and a sales force to commercialize such products, and our ability to sell or license these technologies to third parties. In any event, we may require substantial funds in addition to those presently available to meet our business objectives. To ensure the continued level of development and funding of our operations, we expect to continue  to explore various possible financing options that may be available to us, which may include a sale of our securities, the sale of certain of our investments or out-licensing of one or more of our drug programs. We have no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If we need to raise funds and are unable to secure them, we may not be able to:
 
continue marketing and sales efforts with respect to Soltamox or begin such efforts for other products;
 
successfully build a portfolio of additional products for commercialization;
 
continue the development of our active drug development programs;
 
successfully out-license, otherwise monetize or commercialize any of our programs; or
 
continue operations.
 
Off-Balance Sheet Arrangements
 
We had no off-balance sheet arrangements as of December 31, 2012.
 
Recently Issued Accounting Pronouncements
 
In accordance with the guidance of FASB issued in Accounting Standards Update (ASU) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income (“ASU 2011-05”), the Company adopted the requirement to separately report its comprehensive income. Other comprehensive income refers to revenue, expenses, gains, and losses that are recorded directly as an adjustment to shareholders’ equity. These changes became effective for the Company in the first quarter of 2012 and are reflected in the consolidated statement of operations and comprehensive income/loss. The adoption of ASU 2011-05 did not have a material impact on the Company’s financial statements.
 
In May 2011, FASB amended the fair value measurement and disclosure guidance in ASC 820, Fair Value Measurement, to converge US GAAP and IFRS requirements for measuring amounts at fair value as well as disclosures about these measurements. FASB ASC 820 is effective for interim and annual periods beginning after December 15, 2011. The Company’s application of FASB ASC 820 did not have a material effect on the Company’s consolidated results of operations and financial position.
 
Not applicable.
 

 
 
DARA BioSciences, Inc.
(A Development Stage Company)
 
 
   
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The accompanying notes are an integral part of these consolidated financial statements.
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
DARA BioSciences, Inc.

We have audited the accompanying consolidated balance sheet of DARA BioSciences, Inc. and subsidiaries (a development stage enterprise) (the “Company”) as of December 31, 2012, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the year then ended, and for the period from inception (June 22, 2002) to December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements for the period from inception (June 22, 2002) to December 31, 2011 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts included for such prior periods, is based solely on the report of other such auditors.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012, and the results of its operations and its cash flows for the year then ended, and for the period from inception (June 22, 2002) to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.



/s/ HORNE LLP

Ridgeland, Mississippi
March 28, 2013
.
 
 
Report of Independent Registered Public Accounting Firm
 
 
 
The Board of Directors and Shareholders of DARA BioSciences, Inc.
 
We have audited the accompanying consolidated balance sheet of DARA BioSciences, Inc. and subsidiaries, as of December 31, 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the period ended December 31, 2011 and for the period from June 22, 2002 (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 these financial statements based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits 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 also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of DARA BioSciences, Inc. and subsidiaries, at December 31, 2011, and the consolidated results of their operations and their cash flows for the period ended December 31, 2011 and for the period from June 22, 2002 (date of inception) through December 31, 2011, in conformity with U.S. generally accepted accounting principles.
 
The accompanying consolidated financial statements have been prepared assuming that DARA BioSciences, Inc. will continue as a going concern. As more fully described in Note 1, DARA has incurred recurring operating losses since inception which has resulted in insufficient working capital. These conditions raise substantial doubt about DARA’s ability to continue as a going concern. Management’s plans in regard to these matters also are described in Note 1. The December 31, 2011 financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 
/s/ Ernst & Young LLP
 
Raleigh, North Carolina
February 17, 2012
                                                    
 

 
 
 
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
 
   
2012
   
2011
 
Assets
           
Current assets:
           
Cash and cash equivalents
  $ 6,496,457     $ 1,179,157  
Investment-available-for-sale, at fair value
    96,346        
Accounts receivable
    173,382        
Inventory
    125,275        
Prepaid expenses and other assets, current portion
    153,367       283,709  
Total current assets
    7,044,827       1,462,866  
                 
Furniture, fixtures and equipment, net
    50,190       42,455  
Restricted cash
    12,875       38,554  
Prepaid expenses and other assets, net of current portion
    54,439       77,999  
Intangible assets, net
    3,708,569       100,000  
Goodwill
    821,210        
Investments
          130,468  
Total assets
  $ 11,692,110     $ 1,852,342  
                 
Liabilities and stockholders’ equity
               
Current liabilities:
               
Accounts payable
  $ 1,382,881     $ 640,817  
Accrued liabilities
    326,713       140,673  
Accrued compensation
    172,250       71,193  
Deferred revenue
    149,848        
Capital lease obligation, current portion
    7,170       15,312  
Total current liabilities
    2,038,862       867,995  
                 
Deferred lease obligation
    40,865       9,099  
License milestone liability, non-current
    599,446        
Capital lease obligation, net of current portion
    19,962       16,100  
Total liabilities
    2,699,135       893,194  
                 
Stockholders’ equity:
               
Preferred stock, Series A, $0.01 par value, 1,000,000 shares authorized,
               
828 shares issued and outstanding at December 31, 2012, and 2011.
    8       8  
Preferred stock, Series B2, $0.01 par value, 1,250,000 shares authorized,
               
1,110 shares issued and outstanding at December 31, 2012.
    11        
Common stock, $0.01 par value, 75,000,000 shares authorized,
               
18,947,094 shares issued and outstanding at December 31, 2012,
               
5,600,804 issued and outstanding as of December 31, 2011.
    189,471       56,008  
Accumulated other comprehensive income, net of taxes
    45,469        
Additional paid-in capital
    56,430,227       40,834,972  
Deficit accumulated during the development stage
    (47,027,581 )     (39,716,548 )
                 
Total stockholders’equity before noncontrolling interest
    9,637,605       1,174,440  
Noncontrolling interest
    (644,630 )     (215,292 )
                 
Total stockholders' equity
    8,992,975       959,148  
                 
Total liabilities and stockholders’ equity
  $ 11,692,110     $ 1,852,342  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 (A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 
   
Year Ended December 31,
   
Period from
June 22, 2002
(inception) through
December 31,
 
   
2012
   
2011
    2012  
                   
Net revenues
  $ 53,629     $     $ 53,629  
Cost of Goods Sold
    23,804             23,804  
Gross Margin
    29,825             29,825  
                         
Operating expenses:
                       
Sales and marketing
    1,609,601             1,609,601  
Research and development
    2,734,517       2,633,449       27,969,018  
General and administrative
    4,663,359       3,989,054       30,042,566  
Depreciation and amortization of intangibles
    659,441       139,392       2,006,353  
Total operating expenses
    9,666,918       6,761,895       61,627,538  
Loss from operations
    (9,637,093 )     (6,761,895 )     (61,597,713 )
                         
Other income (expense):
                       
Gain on distribution of nonmonetary asset
                4,760,953  
Gain on sale of marketable securities and nonmonetary assets
    608,601             7,388,748  
Other (expense) income, net
          (1,510 )     605,462  
Interest (expense) income, net
    (11,716 )     91,710       827,877  
Other income
    596,885       90,200       13,583,040  
                         
Loss before undistributed loss in equity method investments
    (9,040,208 )     (6,671,695 )     (48,014,673 )
Undistributed loss in equity method investments
                (2,374,422 )
Net loss before benefit from income taxes
    (9,040,208 )     (6,671,695 )     (50,389,095 )
Income tax benefit
    1,299,837       194,445       1,494,282  
Consolidated net loss
    (7,740,371 )     (6,477,250 )     (48,894,813 )
Loss attributable to noncontrolling interest
    429,338       306,662       2,086,579  
Loss attributable to controlling interest
  $ (7,311,033 )   $ (6,170,588 )   $ (46,808,234 )
                         
Basic and diluted net loss per common share
                       
attributable to controlling interest
  $ (0.60 )   $ (1.20 )        
                         
Shares used in computing basic and diluted net loss per
                       
common share
    12,110,386       5,151,017          
                         
Comprehensive Loss:
                       
Consolidated net loss
  $ (7,740,371 )   $ (6,477,250 )   $ (48,894,813 )
Other comprehensive income
                       
Unrealized gain on investments available for sale
    682,654             7,786,198  
Reclassification adjustments for gains included in net loss
    (608,601 )           (7,712,145 )
Income taxes related to other comprehensive income
    (28,584 )           (28,584 )
Other comprehensive income, net of tax
    45,469             45,469  
Comprehensive Loss
    (7,694,902 )     (6,477,250 )     (48,849,334 )
Comprehensive loss attributable to noncontrolling interest
    429,338       306,662       2,086,579  
Comprehensive loss attributable to controlling interest
  $ (7,265,564 )   $ (6,170,588 )   $ (46,762,765 )
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 (A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                                                               
Stockholders’
             
                                                   
Deficit
         
Equity
             
                                                   
Accumulated
   
Accumulated
   
(Deficit)
             
   
Series A
   
Series B
               
Additional
   
Stock
   
During the
   
Other
   
Before
         
Total
 
   
Convertible
   
Convertible
               
Paid-In
   
Subscription
   
Development
   
Comprehensive
   
Noncontrolling
   
Noncontrolling
   
Stockholders’
 
   
Preferred Stock
   
Preferred Stock
   
Common Stock
   
Capital
   
Receivable
   
Stage
   
Income
   
Interest
   
Interest
   
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
                                           
                                                                               
Issuance of common stock to founders
        $           $       65,000     $ 65     $ 975     $     $     $     $ 1,040     $     $ 1,040  
Net loss
                                                    (111,563 )           (111,563 )           (111,563 )
Balance at December 31, 2002
                            65,000       65       975             (111,563 )           (110,523 )           (110,523 )
Issuance of common stock
                            310,000       310       4,650                         4,960             4,960  
Issuance of preferred stock, net of  ssuance costs of $176,959
    208,437       208                               3,161,168                         3,161,376             3,161,376  
Share-based compensation
                                        57,000                         57,000             57,000  
Net loss and comprehensive loss
                                                    (589,010 )           (589,010 )           (589,010 )
Balance at December 31, 2003
    208,437       208                   375,000       375       3,223,793             (700,573 )           2,523,803             2,523,803  
Issuance of common stock
                            18,275       18       174,982                         175,000             175,000  
Issuance of preferred stock, net of issuance costs of $155,948
    104,063       104       22,500       23                   2,590,950                         2,591,077             2,591,077  
Stock subscription receivable
                            16,406       16       242,484       (242,500 )                              
Issuance of options for services
                                        12,254                         12,254             12,254  
Share-based compensation
                                        94,219                         94,219             94,219  
Net loss and comprehensive loss
                                                    (3,949,039 )           (3,949,039 )           (3,949,039 )
Balance at December 31, 2004
    312,500     $ 312       22,500     $ 23       409,681     $ 409     $ 6,338,682     $ (242,500 )   $ (4,649,612 )   $     $ 1,447,314     $     $ 1,447,314  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
DARA BIOSCIENCES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
 
                                                               
Stockholders’
             
                                                   
Deficit
         
Equity
             
                                                   
Accumulated
   
Accumulated
   
(Deficit)
             
   
Series A
   
Series B
               
Additional
   
Stock
   
During the
   
Other
   
Before
         
Total
 
   
Convertible
   
Convertible
               
Paid-In
   
Subscription
   
Development
   
Comprehensive
   
Noncontrolling
   
Noncontrolling
   
Stockholders’
 
   
Preferred Stock
   
Preferred Stock
   
Common Stock
   
Capital
   
Receivable
   
Stage
   
Income
   
Interest
   
Interest
   
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Shares
   
Amount
                                           
                                                                               
Balance at December 31, 2004
    312,500     $ 312       22,500     $ 23       409,681     $ 409     $ 6,338,682     $ (242,500 )   $ (4,649,612 )   $     $ 1,447,314     $     $ 1,447,314  
Common stock dividend
                            429,891       430       (430 )                                    
Issuance of common stock
                            7,894       8       67,592                         67,600             67,600  
Issuance of preferred stock, net of issuance costs of $88,877
                107,208       107                     4,795,233                         4,795,340             4,795,340  
Issuance of options for services
                                        16,304                         16,304             16,304  
Share-based compensation
                                        1,224,805                         1,224,805             1,224,805  
Dividend of Medivation, Inc. stock
                                        (2,532,600 )                       (2,532,600 )           (2,532,600 )
Comprehensive loss:
                                                                                                       
Net loss
                                                    (4,618,654 )           (4,618,654 )           (4,618,654 )
Unrealized
gain on
investments
                                                          647,572       647,572             647,572  
                                                                                                         
Comprehensive loss
                                                                                    (3,971,082 )           (3,971,082 )
Balance at December 31, 2005
    312,500       312       129,708       130       847,466       847       9,909,586       (242,500 )     (9,268,266 )     647,572       1,047,681             1,047,681  
Issuance of common stock
                            3             50                         50             50  
Non-cash exercise of options
                            10,052       10       (10 )                                    
Issuance of preferred stock, net of issuance costs of $487,987
                267,187       267                   12,336,747                         12,337,014             12,337,014  
Non-cash exercise of warrants
                            20,883       21       (21 )                                    
Issuance of common stock warrants
                            1,666       2       79,999                         80,001             80,001  
Share-based compensation
                                        339,505                         339,505             339,505  
Distribution of Surgi-vision, Inc. stock
                                        (3,083,156 )                       (3,083,156 )           (3,083,156 )
Comprehensive loss:
                                                                                                       
Net loss
                                                    (1,965,290 )           (1,965,290 )           (1,965,290 )
Unrealized gain on investments
                                                          4,799,964       4,799,964             4,799,964  
                                                                                                         
Comprehensive loss
                                                                                    2,834,674             2,834,674  
Balance at December 31, 2006
    312,500     $ 312       396,895     $ 397       880,070     $ 880     $ 19,582,700     $ (242,500 )   $ (11,233,556 )   $ 5,447,536     $ 13,555,769     $     $ 13,555,769  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
DARA BIOSCIENCES, INC. AND SUBSIDIARIES
 (A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (continued)
 
                                                               
Stockholders’
             
                                                   
Deficit
         
Equity
             
                                                   
Accumulated
   
Accumulated
   
(Deficit)
             
   
Series A
   
Series B
               
Additional
   
Stock
   
During the