**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-QSB**
  x    QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 For
        the
        quarter ended June 30, 2005
 
 OR
 
 o TRANSITION
        REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934
 
 
 Commission
        file number 000-50782
 
 
 **Hana
        Biosciences, Inc.**
 (Exact
        Name of Registrant as Specified in Its Charter)
  **Delaware**
                (State
                  or other jurisdiction ofincorporation
                  or organization)
              **32-0064979**
                (I.R.S.
                  Employer Identification No.)
 
  400
        Oyster Point Blvd., Suite 215, South San Francisco, CA 94080
 (Address
        of principal executive offices)
  (650)
        588-6404
 (Issuer's
        telephone number)
  Check
          whether the issuer: (1) 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 issuer was required to file such reports),
          and
          (2) has been subject to such filing requirements for the past 90 days.
          Yes [X]
          No [  ]
 
 As
          of
          August 15, 2005 there were 18,316,485 shares of the issuer's common stock,
          $.001
          par value, outstanding.
 
 Traditional
          Small Business Disclosure Format (check one): Yes [  ] No
          [X]
 
 
 
 **INDEX**
 
 Page**PART
                    I**
                **FINANCIAL
                    INFORMATION**Item
                    1.
                Unaudited
                    Condensed Balance Sheets
                3Unaudited
                    Condensed Statements of Operations
                4Unaudited
                    Condensed Statement of Stockholders' Equity (Deficiency)
                5Unaudited
                    Condensed Statements of Cash Flows
                7Notes
                    to Unaudited Condensed Financial Statements
                8Item
                    2.
                Management's
                    Discussion and Analysis of Financial Condition and Results of
                    Operations
                12Item
                    3.
                Controls
                    and Procedures
                19**PART
                    II**
                **OTHER
                    INFORMATION**Item
                    1.
                Legal
                    Proceedings
                20Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                20Item
                    3.
                Defaults
                    Upon Senior Securities
                20Item
                    4.
                Submission
                    of Matters to a Vote of Securities Holders
                20Item
                    5.
                Other
                    Information
                20Item
                    6.
                Exhibits
                20Signatures
                20Exhibits
                    Index
                21
 
 
 **Forward-Looking
          Statements**
  Certain
          statements contained in this Quarterly Report on Form 10-QSB that are
          forward-looking in nature are based on the current beliefs of our management
          as
          well as assumptions made by and information currently available to management,
          including statements related to the markets for our products, general trends
          in
          our operations or financial results, plans, expectations, estimates and
          beliefs.
          In addition, when used in this report, the words
“may,”“could,”“should,”“anticipate,”“believe,”“estimate,”“expect,”“intend,”“plan,”“predict”
          and similar expressions and their variants, as they relate to us or our
          management, may identify forward-looking statements. These statements reflect
          our judgment as of the date of this prospectus with respect to future events,
          the outcome of which are subject to risks, which may have a significant
          impact
          on our business, operating results or financial condition. Drug discovery
          and
          development involve a high degree of risk and you are cautioned that these
          forward-looking statements are inherently uncertain. Factors that might
          cause
          such a material difference include, among others, uncertainties related
          to the
          ability to attract and retain partners for our technologies, the identification
          of lead compounds, the successful preclinical development thereof, the
          completion of clinical trials, the FDA review process and other governmental
          regulation, our pharmaceutical collaborator's ability to successfully develop
          and commercialize drug candidates, competition from other pharmaceutical
          companies, product pricing and third party reimbursement, and other factors.
          Should one or more of these risks or uncertainties materialize, or should
          underlying assumptions prove incorrect, actual results or outcomes may
          vary
          materially from those described herein.
 
 2
 **PART
          I - FINANCIAL INFORMATION**
 **Item
          1. Unaudited Condensed Financial Statements**
 
 **HANA
          BIOSCIENCES, INC.**
  **(A
          DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
          BALANCE SHEETS**
 **(Unaudited)**
 **June
                    30,**
                
                **December
                    31,****2005**
                
                **2004****ASSETS**Current
                    assets:Cash
                    and cash equivalents
                
                $
                6,755,933
                
                $
                6,584,361Prepaid
                    expenses
                
                
                25,767
                
                
                26,885Total
                    current assets
                
                
                6,781,700
                
                
                6,611,246Property
                    and equipment, net
                
                
                100,622
                
                
                109,604Investments
                    in restricted equity securities, at cost
                
                
                636,000
                
                
                636,000Other
                    assets
                
                
                20,453
                
                
                20,303Total
                    assets
                
                $
                7,538,775
                
                $
                7,377,153**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Current
                    liabilities:Accounts
                    payable
                
                $
                331,822
                
                $
                649,644Accrued
                    expenses
                
                
                348,911
                
                
                515,215Total
                    liabilities
                
                
                680,733
                
                
                1,164,859Commitments
                    and contingenciesStockholders'
                    equity:Preferred
                    stock; $0.001 par value:10,000,000
                    shares authorized, 0 and 2,395,210 shares issued and outstanding
                    at June
                    30, 2005 and December 31, 2004, respectively (liquidation preference
                    $8,000,000)
                
                
                —
                
                
                2,395Common
                    stock; $0.001 par value:100,000,000
                    shares authorized, 18,141,693 and 10,792,702 shares issued and
                    outstanding
                    at June 30, 2005 and December 31, 2004, respectively
                
                
                18,142
                
                
                10,793Additional
                    paid-in capital
                
                
                19,333,875
                
                
                13,975,514Common
                    stock to be issued - 26,250 and 55,500 shares at June 30, 2005
                    and
                    December 31, 2004, respectively
                
                
                34,913
                
                
                249,750Deficit
                    accumulated during the development stage
                
                
                (12,528,888
                )
                
                (8,026,158
                )Total
                    stockholders' equity
                
                
                6,858,042
                
                
                6,212,294Total
                    liabilities and stockholders' equity
                
                $
                7,538,775
                
                $
                7,377,153
  See
          accompanying notes to unaudited condensed financial
          statements.
  3
 **HANA
          BIOSCIENCES, INC.**
  **(A
          DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
          STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 
 **Three
                    Months Ended**
                  **June
                    30,**
                
                **Six
                    Months Ended**
                  **June
                    30,**
                
                **Cumulative**
                  **Period
                    from**
                  **December
                    6, 2002 (date of inception) to**
                  **June
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004**
                
                **2005**Operating
                    expenses:General
                    and administrative
                
                $
                963,270
                
                $
                560,422
                
                $
                1,670,483
                
                $
                953,132
                
                $
                4,710,855Research
                    and development
                
                
                1,150,447
                
                
                615,019
                
                
                2,872,172
                
                
                1,067,105
                
                
                7,870,472Total
                    operating expenses
                
                
                2,113,717
                
                
                1,175,441
                
                
                4,542,655
                
                
                2,020,237
                
                
                12,581,327Loss
                    from operations
                
                
                (2,113,717
                )
                
                (1,175,441
                )
                
                (4,542,655
                )
                
                (2,020,237
                )
                
                (12,581,327
                )Other
                    income (expense):Interest
                    income (expense), net
                
                
                30,495
                
                
                (3,656
                )
                
                50,062
                
                
                (12,706
                )
                
                63,223Other
                    income (expense), net
                
                
                (2,633
                )
                
                493
                
                
                (10,137
                )
                
                623
                
                
                (10,784
                )Total
                    other income (expense)
                
                
                27,862
                
                
                (3,163
                )
                
                39,925
                
                
                (12,083
                )
                
                52,439Net
                    loss
                
                $
                (2,085,855
                )
                $
                (1,178,604
                )
                $
                (4,502,730
                )
                $
                (2,032,320
                )
                $
                (12,528,888
                )Net
                    loss per share, basic and diluted
                
                $
                (0.13
                )
                $
                (0.14
                )
                $
                (0.29
                )
                $
                (0.26
                )Shares
                    used in computing net loss per share, basic and diluted
                
                
                15,726,776
                
                
                8,553,588
                
                
                15,402,248
                
                
                7,750,659
  See
          accompanying notes to unaudited condensed financial statements.
 
 4
 **HANA
          BIOSCIENCES, INC.**
  **(A
          DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
          STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)**
 **(Unaudited)**
  Period
          from December 6, 2002 (date of inception) to June 30, 2005
  
 **Preferred stock**
                  
                  
                  **Common stock****Shares**
                  
                  
                  **Amount**
                  
                  
                  **Shares**
                  
                  
                  
                  **Amount**
                  
                  
                  **Additional**
                    **paid-in**
                    **capital**
                  
                  
                  **Common
                      Stock to be Issued**
                  
                  
                  **Subscription
                      receivable**
                  
                  
                  **Unearned
                      consulting**
                    **Fee**
                  
                  
                  **Deficit
                      accumulated during development**
                    **stage**
                  
                  
                  **Total**
                    **stockholders'
                      equity**
                    **(deficiency)**Issuance
                      of common stock at $0.001 per share for subscription
                      receivable
                  
                  
                  
                  
                  $
                  —
                  
                  
                  5,640,266
                  
                  
                  $
                  5,640
                  
                  $
                  34,360
                  
                  $
                  —
                  
                  $
                  (40,000
                  )
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (144,470
                  )
                  
                  (144,470
                  )Balance
                      at December 31, 2002
                  
                  
                  
                  
                  
                  
                  
                  
                  5,640,266
                  
                  
                  
                  5,640
                  
                  
                  34,360
                  
                  
                  —
                  
                  
                  (40,000
                  )
                  
                  —
                  
                  
                  (144,470
                  )
                  
                  (144,470
                  )Payment
                      for subscription receivable
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,000Satisfaction
                      of subscription receivable through rendering of services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  36,000
                  
                  
                  —
                  
                  
                  —
                  
                  
                  36,000Stock
                      options issued to nonemployees for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  14,750
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  14,750Common
                      stock to be issued for services rendered
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  5,953
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5,953Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (551,856
                  )
                  
                  (551,856
                  )Balance
                      at December 31, 2003
                  
                  
                  —
                  
                  
                  —
                  
                  
                  5,640,266
                  
                  
                  
                  5,640
                  
                  
                  55,063
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (696,326
                  )
                  
                  (635,623
                  )Common
                      stock issued for services to be rendered
                  
                  
                  
                  
                  
                  
                  
                  
                  126,131
                  
                  
                  
                  126
                  
                  
                  212,319
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (212,445
                  )
                  
                  —
                  
                  
                  —Common
                      stock issued for services rendered in 2003
                  
                  
                  —
                  
                  
                  —
                  
                  
                  3,887
                  
                  
                  
                  4
                  
                  
                  591
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  595Proceeds
                      from private placement, net of $341,979 in fees
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,802,989
                  
                  
                  
                  2,803
                  
                  
                  4,376,352
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,379,155Stock
                      options issued to nonemployees for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  310,252
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  310,252Compensation
                      expense recorded upon issuance of stock options to
                      employees
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  375,552
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  375,552
  5
 Proceeds
                      from private placement
                  
                  
                  2,395,210
                  
                  
                  2,395
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  7,997,605
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  8,000,000Issuance
                      of shares for debt repayment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  63,326
                  
                  
                  
                  64
                  
                  
                  149,936
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  150,000Issuance
                      of shares for license agreement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  73,121
                  
                  
                  
                  73
                  
                  
                  499,927
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  500,00055,500
                      shares to be issued for services rendered
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  249,750
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  249,750Shares
                      issued by accounting acquirer in reverse acquisition
                  
                  
                  —
                  
                  
                  —
                  
                  
                  2,082,982
                  
                  
                  
                  2,083
                  
                  
                  (2,083
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Satisfaction
                      of unearned consulting fees through rendering of services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  212,445
                  
                  
                  —
                  
                  
                  212,445Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (7,329,832
                  )
                  
                  (7,329,832
                  )Balance
                      at December 31, 2004
                  
                  
                  2,395,210
                  
                  $
                  2,395
                  
                  
                  10,792,702
                  
                  
                  $
                  10,793
                  
                  $
                  13,975,514
                  
                  $
                  249,750
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  (8,026,158
                  )
                  $
                  6,212,294Automatic
                      conversion of Series A Preferred Stock
                  
                  
                  (2,395,210
                  )
                  
                  (2,395
                  )
                  
                  3,377,409
                  
                  
                  
                  3,377
                  
                  
                  (982
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Issuance
                      of 55,500 shares for services rendered in 2004
                  
                  
                  —
                  
                  
                  —
                  
                  
                  55,500
                  
                  
                  
                  56
                  
                  
                  249,694
                  
                  
                  (249,750
                  )
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Stock
                      options issued to nonemployees for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  20,587
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  20,587Compensation
                      expense recorded upon issuance of stock options to
                      employees
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  414,912
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  414,912Proceeds
                      from private placement, net of $334,519 in fees
                  
                  
                  —
                  
                  
                  —
                  
                  
                  3,916,082
                  
                  
                  
                  3,916
                  
                  
                  4,674,150
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,678,06626,250
                      shares to be issued for services rendered
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  34,913
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  34,913Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (4,502,730
                  )
                  
                  (4,502,730
                  )Balance
                      at June 30, 2005
                  
                  
                  —
                  
                  $
                  —
                  
                  
                  18,141,693
                  
                  
                  $
                  18,142
                  
                  $
                  19,333,875
                  
                  $
                  34,913
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  (12,528,888
                  )
                  $
                  6,858,042
  See
          accompanying notes to unaudited condensed financial statements.
  6
 **HANA
            BIOSCIENCES, INC.**
  **(A
            DEVELOPMENT STAGE COMPANY)**
  **CONDENSED
            STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 **Six
                      Months Ended**
                    **June
                      30,**
                  
                  **Cumulative**
                    **Period
                      from**
                    **December
                      6, 2002**
                    **(date
                      of inception)**
                    **to
                      June 30,****2005**
                  
                  **2004**
                  
                  **2005****Cash
                      flows from operating activities:**Net
                      loss
                  
                  $
                  (4,502,730
                  )
                  $
                  (2,032,320
                  )
                  $
                  (12,528,888
                  )Adjustments
                      to reconcile net loss to net cash used in operating
                      activities:Depreciation
                      and amortization
                  
                  
                  14,998
                  
                  
                  7,686
                  
                  
                  41,024Issuance
                      of options to employees
                  
                  
                  414,912
                  
                  
                  116,923
                  
                  
                  790,464Issuance
                      of stock and options to nonemployees for services
                  
                  
                  20,587
                  
                  
                  191,197
                  
                  
                  352,137Services
                      rendered for satisfaction of unearned consulting fee
                  
                  
                  —
                  
                  
                  164,975
                  
                  
                  212,445Services
                      rendered in lieu of payment of subscription receivable
                  
                  
                  —
                  
                  
                  —
                  
                  
                  36,000Shares
                      to be issued to employees for services rendered
                  
                  
                  34,913
                  
                  
                  —
                  
                  
                  284,663Issuance
                      of shares in partial consideration for license agreement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  500,000Changes
                      in operating assets and liabilities:(Increase)
                      decrease in prepaid expenses and other assets
                  
                  
                  968
                  
                  
                  (8,112
                  )
                  
                  (46,220
                  )Increase
                      (decrease) in accounts payable
                  
                  
                  (317,822
                  )
                  
                  62,285
                  
                  
                  331,822Increase
                      (decrease) in accrued and other current liabilities
                  
                  
                  (166,304
                  )
                  
                  20,989
                  
                  
                  348,911Net
                      cash used in operating activities
                  
                  
                  (4,500,478
                  )
                  
                  (1,476,377
                  )
                  
                  (9,677,642
                  )**Cash
                      flows from investing activities:**Purchase
                      of property and equipment
                  
                  
                  (6,016
                  )
                  
                  (71,213
                  )
                  
                  (141,646
                  )Purchase
                      of equity securities
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (636,000
                  )Net
                      cash used in investing activities
                  
                  
                  (6,016
                  )
                  
                  (71,213
                  )
                  
                  (777,646
                  )**Cash
                      flows from financing activities:**Proceeds
                      from issuances of notes payable to stockholders
                  
                  
                  —
                  
                  
                  125,000
                  
                  
                  801,619Collection
                      of subscription receivable
                  
                  
                  —
                  
                  
                  —
                  
                  
                  4,000Repayment
                      of notes payable to stockholders
                  
                  
                  —
                  
                  
                  —
                  
                  
                  (651,619
                  )Proceeds
                      from private placements of preferred and common stock, net
                  
                  
                  4,678,066
                  
                  
                  4,379,155
                  
                  
                  17,057,221Net
                      cash provided by financing activities
                  
                  
                  4,678,066
                  
                  
                  4,504,155
                  
                  
                  17,211,221Net
                      increase in cash and cash equivalents
                  
                  
                  171,572
                  
                  
                  2,956,565
                  
                  
                  6,755,933Cash
                      and cash equivalents, beginning of period
                  
                  
                  6,584,361
                  
                  
                  87,675
                  
                  
                  —Cash
                      and cash equivalents, end of period
                  
                  $
                  6,755,933
                  
                  $
                  3,044,240
                  
                  $
                  6,755,933Supplemental
                      disclosures of cash flow data:Cash
                      paid for interest
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  37,749Supplemental
                      disclosures of noncash financing activities:Common
                      stock issued for repayment of debt
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  150,000Common
                      stock issued for services to be rendered
                  
                  $
                  —
                  
                  $
                  450,948
                  
                  $
                  450,948Common
                      stock issued to employees for services rendered in 2004
                  
                  $
                  249,750
                  
                  $
                  —
                  
                  $
                  249,750
  See
            accompanying notes to unaudited condensed financial
            statements.
  7
 **HANA
            BIOSCIENCES, INC.**
 **(A
            DEVELOPMENT STAGE COMPANY)**
   **NOTES
            TO UNAUDITED FINANCIAL STATEMENTS**
  **NOTE
            1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 *Basis
            of Presentation*
 
 The
            accompanying unaudited condensed financial statements have been prepared
            in
            accordance with United States generally accepted accounting principles
            "for
            interim financial information." and, accordingly, they do not include
            all
            required disclosures for complete annual Financial Statements. The
            financial statements include all adjustments (consisting only of normal
            recurring adjustments) that the management of Hana Biosciences, Inc.
            ("Hana",
            the "Company" or we) believes are necessary for a fair presentation of
            the
            periods presented. These interim financial results are not necessarily
            indicative of results to be expected for the full fiscal year.
 
 Preparing
            financial statements requires management to make estimates and assumptions
            that
            affect the reported amounts of assets, liabilities, revenues and expenses.
            On an
            on-going basis, management evaluates its estimates and actual results
            may differ
            from these estimates. The accompanying condensed financial information
            should be
            read in conjunction with the audited consolidated financial statements
            for the
            year ended December 31, 2004, included in the Company’s Annual Report on Form
            10-KSB (the “10-KSB”) filed with the Securities and Exchange Commission
            ("SEC") on March
            30, 2005 .
 
 *Loss
            Per Share*
 
 Net
            loss
            per share is computed using the weighted average number of shares of
            common
            stock outstanding and is presented for basic and diluted loss per share.
            Basic
            loss per share is computed by dividing net loss by the weighted average
            number
            of common shares outstanding for the period.
 
 The
            Company has excluded all outstanding stock options and warrants from
            the
            calculation of diluted loss per share because all such securities are
            considered
            anti-dilutive. Accordingly, diluted loss per share equals basic loss
            per share.
            The total number of potential common shares excluded from the calculation
            of
            diluted loss per share for the three and six months ended June 30, 2005
            and 2004
            was 4,387,105 and 1,364,055, respectively.
 
 **NOTE
            2. LIQUIDITY AND CAPITAL RESOURCES**
 
 The
            Company reported a net loss of $4,502,730 for the six months ended June
            30,
            2005. The net loss from date of inception, December 6, 2002 to June 30,
            2005,
            amounted to $12,528,888.
 
 We
            have
            financed our operations since inception primarily through equity and
            debt
            financing. During the six months ended June 30, 2005, we had a net increase
            in
            cash and cash equivalents of $171,572. This increase primarily resulted
            from net
            cash provided by financing activities of $4,678,066 offset by cash used
            in
            operating activities of $4,500,478 and net cash used in investing activities
            of
            $6,016 for the six months ended June 30, 2005. Total cash resources as
            of June
            30, 2005 were $6,755,933 compared to $6,584,361 at December 31,
            2004.
 
 Our
            continued operations will depend on whether we are able to raise additional
            funds through various potential sources, such as equity and debt financing.
            Through June 30, 2005, a significant portion of our financing has been
            through
            private placements of common stock, preferred stock and debt financing.
            We will
            continue to fund operations from cash on hand and through the similar
            sources of
            capital previously described. We can give no assurances that any additional
            capital that we are able to obtain will be sufficient to meet our needs.
            Given
            the current and desired pace of clinical development of our three product
            candidates over the next twelve months, we estimate that we will
            need to
            raise additional capital to fund 2006 research and development activities,
            likely by selling shares of our capital stock or other securities, in
            order to
            fund our research and development activities. There can be no assurance
            that
            such capital will be available to us on favorable terms or at all. If
            we are
            unable to raise additional funds in the future on acceptable terms, or
            at all,
            we may be forced to curtail our desired development activities over the
            next 12
            months. In addition, we could be forced to delay or discontinue product
            development, reduce or forego sales and marketing efforts and forego
            attractive
            business opportunities. Any additional sources of financing will likely
            involve
            the sale of our equity securities, which will have a dilutive effect
            on our
            stockholders.
 
 **NOTE
            3. ISSUANCE OF SECURITIES**
 
 Issuance
            of Shares in the six months ended June 30, 2005:
 
 On
            January 19, 2005 the Company issued 55,500 shares of common stock as
            satisfaction of a recorded liability to certain current and former employees
            and
            a director of the Company. This grant was approved on September 23, 2004
            by the
            Board of Directors who authorized the issuance following the date the
            Company
            completed its reincorporation merger (See Note 2 in the 10-KSB).
 
 8
 On
            April
            22, 2005, the Company completed a private placement where it sold 3,916,082
            shares of its common stock at a price of $1.28 per share resulting in
            gross
            proceeds of approximately $5.01 million. In addition to the shares of
            common
            stock, the investors also received fully vested 5-year warrants to purchase
            an
            aggregate of 1,174,809 shares at an exercise price of $1.57 per share. These
            warrants may be redeemed, at the option of the Company, at any time after
            the
            average closing sale price of the common stock equals or exceeds 200%
            of the
            Exercise Price for 30 consecutive calendar days. In
            connection with the private placement, the Company paid an aggregate
            of
            approximately $321,000 in commissions to placement agents and issued
            fully
            vested 5-year warrants to purchase an aggregate of 350,820 shares of
            common
            stock at a price of $1.57 per share.  Included in the amounts
            paid to
            placement agents were $52,500 in commissions and 58,593 warrants to Paramount
            BioCapital, Inc., a related party. The Company also incurred approximately
            $14,000 of legal expenses.
 
 The
            following table summarizes information about stock options outstanding
            at June
            30, 2005, all of which are at fixed prices:
 
 NUMBER
                      OF SHARES
                  
                  WEIGHTED AVERAGE
                      EXERCISE PRICEOutstanding
                      January 1, 2005
                  
                  
                  2,259,355
                  
                  
                  
                  
                  $
                  0.97Options
                      granted under the plan
                  
                  
                  554,000
                  
                  
                  
                  
                  
                  1.59Options
                      cancelled
                  
                  
                  (229,209
                  )
                  
                  
                  
                  
                  1.57Outstanding
                      June 30, 2005
                  
                  
                  2,584,146
                  
                  
                  
                  
                  
                  1.05Exercisable
                      at June 30, 2005
                  
                  
                  822,608
                  
                  
                  
                  
                  
                  0.73
 
 The
            following table summarizes information about stock options outstanding
            at June
            30, 2005:
 
 Weighted
                      Average
                    Number
                      of Options
                  
                  
                  Remaining
                      Contractual Life of Options
                  
                  
                  Number
                      of OptionsExercise
                      Price
                  
                  
                  Outstanding
                  
                  
                  Outstanding
                  
                  
                  Exercisable$  
                      0.07
                  
                  
                  112,808
                  
                  
                  8.7
                      yrs.
                  
                  
                  112,808$  
                      0.17
                  
                  
                  678,079
                  
                  
                  8.4
                      yrs.
                  
                  
                  226,026$  
                      0.34
                  
                  
                  443,434
                  
                  
                  8.8
                      yrs.
                  
                  
                  125,257$  
                      1.01
                  
                  
                  141,007
                  
                  
                  8.6
                      yrs.
                  
                  
                  141,007$  
                      1.33
                  
                  
                  383,000
                  
                  
                  9.8
                      yrs.
                  
                  
                  0$  
                      1.69
                  
                  
                  338,415
                  
                  
                  8.8
                      yrs.
                  
                  
                  211,510$  
                      2.17
                  
                  
                  31,000
                  
                  
                  9.7
                      yrs.
                  
                  
                  1,000$  
                      2.39
                  
                  
                  305,000
                  
                  
                  9.3
                      yrs.
                  
                  
                  5,000$  
                      2.40
                  
                  
                  80,000
                  
                  
                  9.6
                      yrs.
                  
                  
                  0$  
                      3.34
                  
                  
                  71,403
                  
                  
                  9.3
                      yrs.
                  
                  
                  0$ 
                      0.07 - $   3.34
                  
                  
                  2,584,146
                  
                  
                  8.9
                      yrs.
                  
                  
                  822,608
 
 In
            addition on June 30, 2005, the Company also had 1,802,959 warrants outstanding
            in connection with the Company's Private Placements. The weighted average
            exercise price of these warrants is $1.61 per share.
 
 **NOTE
            4. STOCK-BASED COMPENSATION**
 
 A
            description of the Company's 2003 and 2004 Stock Option Plans and other
            information related to stock options are included in Note 4 in the
            10-KSB.
 
 The
            Company measures compensation cost related to stock options issued to
            employees
            using the intrinsic value method of accounting prescribed by Accounting
            Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to
            Employees”. The Company has adopted the disclosure-only provisions of Statement
            of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for
            Stock-Based Compensation” and Statement of Financial Accounting Standards No.
            148, "Accounting for Stock-Based Compensation-Transition and Disclosure".
            During
            the three months ended June 30, 2005 and 2004, the Company recorded earned
            compensation cost of $206,261 and $65,106, respectively. During the six
            months
            ended June 30, 2005 and 2004, the Company recorded earned compensation
            cost of
            $414,912 and $116,923, respectively. This cost was recognized in the
            accompanying condensed financial statements for the stock options granted
            by the
            Company to its employees since all of those options have been granted
            at
            exercise prices that were less than the market value at the date of
            grant.
  Had
            compensation costs for the three and six months ended June 30, 2005 and
            2004
            been determined in accordance with the fair value method prescribed by
            SFAS 123
            for all options issued to employees and amortized over the vesting period,
            the
            Company's net loss applicable to common shares and net loss per common
            share
            (basic and diluted) would have been increased to the pro forma amounts
            indicated
            below.
  9
 Three
                      Months Ended June 30, 2005
                  
                  Three
                      Months Ended June 30, 2004Net
                      loss, as reported
                  
                  $
                  (2,085,855
                  )
                  $
                  (1,178,604
                  )Add:
                      Stock-based employee compensation expense for stock options
                      included in
                      reported net loss per share
                  
                  
                  206,261
                  
                  
                  65,106Deduct:
                      Total stock-based employee compensation expense determined
                      under the fair
                      value method
                  
                  
                  (303,871
                  )
                  
                  (73,213
                  )Net
                      loss, pro forma
                  
                  $
                  (2,183,465
                  )
                  $
                  (1,186,711
                  )Net
                      loss per common share - basic and dilutedAs
                      reported
                  
                  $
                  (0.13
                  )
                  $
                  (0.14
                  )Pro
                      forma
                  
                  $
                  (0.14
                  )
                  $
                  (0.14
                  )
 
 Six
                      Months Ended June 30, 2005
                  
                  Six
                      Months Ended June 30, 2004Net
                      loss, as reported
                  
                  $
                  (4,502,730
                  )
                  $
                  (2,032,320
                  )Add:
                      Stock-based employee compensation expense for stock options
                      included in
                      reported net loss per share
                  
                  
                  414,912
                  
                  
                  116,923Deduct:
                      Total stock-based employee compensation expense determined
                      under the fait
                      value method
                  
                  
                  (605,450
                  )
                  
                  (129,871
                  )Net
                      loss, pro forma
                  
                  $
                  (4,693,268
                  )
                  $
                  (2,045,268
                  )Net
                      loss per common share - basic and dilutedAs
                      reported
                  
                  $
                  (0.29
                  )
                  $
                  (0.26
                  )Pro
                      forma
                  
                  $
                  (0.30
                  )
                  $
                  (0.26
                  )
 
 As
            a
            result of amendments to SFAS 123, the Company will be required to expense
            the
            fair value of employee stock options over the vesting period beginning
            with its
            fiscal quarter ending March 31, 2006.
  In
            accordance with the provisions of SFAS 123, all other issuances of common
            stock,
            stock options or other equity instruments to non-employees as the consideration
            for goods or services received by the Company are accounted for based
            on the
            fair value of the equity instruments issued (unless the fair value of
            the
            consideration received can be more reliably measured). During the three
            months
            ended June 30, 2005 and 2004, the Company recognized $1,216 and $86,345
            of
            expense relating to the granting of options to non-employees for services
            and
            such expense is included in the accompanying statements of operations,
            for such
            periods. During the six months ended June 30, 2005 and 2004, the Company
            recognized $20,587 and $191,197 of expense relating to the granting of
            options
            to non-employees for services and such expense is included in the accompanying
            statements of operations, for such periods. The value of the options
            granted in
            2004 was determined using the Black-Scholes option pricing model with
            the
            following assumptions: dividend yield of 0%; expected volatility of 0%,
            risk-free interest rate of 3.0%; and expected lives of ten years. The
            value of
            the options granted in 2005 was determined using the Black-Scholes option
            pricing model with the following assumptions: dividend yield of 0%; expected
            volatility of 87% - 106%, risk-free interest rate of 3.0%; and expected
            lives of
            two to eight years.
 
 **NOTE
            5. AUTOMATIC CONVERSION OF PREFERRED SHARES**
 
 On
            January 18, 2005 the Company's registration statement on Form SB-2 was
            declared
            effective by the Securities and Exchange Commission. The Company filed
            and
            requested effectiveness of the SB-2 resale registration statement to
            satisfy
            certain of its obligations in connection with its private placements
            in February
            and July 2004. The registration statement covers the resale of the common
            shares
            underlying the Company's Series A Convertible Preferred Stock issued
            in July
            2004, among others. As a result of the effectiveness of the registration
            statement, all of the Series A Convertible Preferred Stock automatically
            converted into an aggregate of 3,377,409 common shares on January 18,
            2005.
  **NOTE
            6. INVESTMENT IN EQUITY SECURITIES**
 
 As
            explained in Note 6 in the 10-KSB during October 2004, the Company
            acquired
            400,000 shares of common stock from NovaDel Pharma Inc, (AMEX:NVD) for,
            effectively, $636,000. The Company is restricted from selling the shares
            for two
            years. Accordingly, the Company is accounting for the shares using the
            cost
            method. If the shares owned by the Company had been unrestricted at June
            30,
            2005, they would have had a market value of $492,000. The Company believes
            the
            decrease in the fair value of these shares to be temporary and no charge
            for
            impairment is required at June 30, 2005.
 
 10
 **NOTE
            7. SHARES TO BE ISSUED**
 
 On
            April
            8, 2005, the Company entered into an agreement with an investor relations
            firm
            whereby a portion of the monthly fee is payable in common stock of the
            Company.
            As of June 30, 2005, the total number of shares earned per the
            agreement is
            26,250 which had a fair value of $34,913 which will be issued in the
            future.
 
 11
 **Item
            2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
            OF
            OPERATIONS**
  The
            following discussion of our financial condition and results of operations
            should
            be read in conjunction with the financial statements and the notes to
            those
            statements included elsewhere in this Quarterly Report. This discussion
            includes
            forward-looking statements that involve risks and uncertainties. As a
            result of
            many factors, such as those set forth under “Risk Factors” following Item 1 of
            our Annual Report filed on form 10-KSB for the year ended December 31,
            2004, our
            actual results may differ materially from those anticipated in these
            forward-looking statements.
 
 **Overview**
 
 Hana
            Biosciences is a South San Francisco, CA development stage biopharmaceutical
            company focused on the acquisition, development and commercialization
            of
            innovative products to enhance cancer care.  Hana aims to acquire
            proprietary rights to these products, by license or otherwise, fund their
            research and development and bring the products to market.  We
            currently
            have three product candidates in early-stage development - Talotrexin
            (PT-523),
            for the treatment of a variety of solid tumor cancers and hematological
            malignancies; IPdR, being developed primarily for the treatment of brain
            cancers; and Ondansetron lingual spray, which is being developed to alleviate
            chemotherapy-induced nausea and vomiting.  To date, we have not
            received
            approval for the sale of any drug candidates in any market and, therefore,
            have
            not generated any revenues from our drug candidates.
 
 Our
            objective is to be a leading oncology company. Our business model focuses
            on
            leveraging our experienced biopharmaceutical management team to advance
            our
            unique product candidates through translational research for timely transfer
            from the lab to clinical trials. We believe risk is mitigated by targeting
            multiple technologies with well-validated mechanisms of action and strong
            intellectual property rights to set the platform for accelerated
            growth.
 
 Hana
            currently has three products in development:
 
 ·
                  **Talotrexin**(PT-523),our
                      lead product candidate, is an antifolate, cytotoxic agent (i.e.,
                      substance
                      harmful to the structure and function of cells) being evaluated
                      for the
                      treatment of solid tumors and hematological malignancies, including
                      NSCLC
                      (non-small cell lung cancer), ALL (acute lymphocytic leukemia),
                      cervical,
                      endometrial, and ovarian cancers. Compared to currently available
                      antifolates such as methotrexate or pemetrexed (Alimta®; Eli Lilly) in
                      preclinical studies, Talotrexin enters into cells up to 10-times
                      more
                      efficiently, overcomes resistance by remaining active in tumors
                      by not
                      requiring polyglutamation, and binds more tightly to its anti-tumor
                      target
                      DHFR, which we believe will enhance its efficacy.Phase
                      I trial in solid tumors, Ph I/II in non-small cell lung cancer,
                      and Ph
                      I/II in acute lymphocytic leukemia are ongoing. Hana intends
                      to initiate
                      Phase II trials in cervical, endometrial, ovarian cancers after
                      a maximum
                      tolerable dose is established in one of the aforementioned
                      Phase I
                      trials.
 
 ·
                  **Ondansetron
                      Lingual Spray (OLS)**is
                      a delivery system that uses the vast and highly-absorptive
                      surfaces of the
                      oral mucosa to deliver ondansetron (Zofran®;GlaxoSmithkline) directly into
                      the blood stream to prevent chemotherapy, radiation and post-operative
                      induced nausea and vomiting. Taking pills for patients experiencing
                      nausea
                      and vomiting can be problematic. Drug delivery via oral mucosa
                      avoids
                      degradation in the GI tract and metabolism by liver enzymes—the so-called
                      first-pass effect. Potential patient benefits include a faster
                      onset of
                      action, improved safety profile, and enhanced patient compliance.
                      OLS is
                      being developed as a 505(b)(2) registration and targets a 2007
                      launch.
 
 ***·***
                  **IPdR**is
                      a radiation therapy sensitizer that is designed for the treatment
                      of
                      certain types of brain cancers. Radiation therapy deposits
                      energy that
                      injures or destroys cells in the treated area. Radiosensitizers,
                      when used
                      in combination with radiation therapy, potentially make the
                      tumor cells
                      more likely to be damaged by the radiation therapy. IPdR is
                      an orally
                      administered prodrug for 5-iodo-2’-deoxyuridine, or IUdR. Prodrugs are
                      compounds that are converted within the body into active form
                      that has
                      medical effects. A prodrug can be useful when the active drug
                      is too toxic
                      to administer systemically. IUdR would be an effective radiosensitizer,
                      but its systemic toxicity limits the duration and dosage such
                      that its
                      efficacy is limited. We anticipate being able to commence a
                      Phase I
                      clinical trial of IPdR by mid to late 2005.****
  12
   The
              successful development of our product candidates is highly uncertain.
              Product
              development costs and timelines can vary significantly for each product
              candidate and are difficult to accurately predict. Various statutes
              and
              regulations also govern or influence the manufacturing, safety, labeling,
              storage, record keeping and marketing of each product. The lengthy
              process of
              seeking these approvals, and the subsequent compliance with applicable
              statutes
              and regulations, require the expenditure of substantial resources.
              Any failure
              by us to obtain, or any delay in obtaining, regulatory approvals could
              materially adversely affect our business.
 
 To
              date,
              we have not received approval for the sale of any drug candidates in
              any market
              and, therefore, have not generated any revenues from our drug
              candidates.
 
 Since
              the
              inception of Hana Biosciences, Inc. in December 2002, our efforts and
              resources
              have been focused primarily on acquiring and developing our biopharmaceutical
              technologies, raising capital and recruiting personnel. We completed
              three
              financings of $17.7 million, before applicable fees, and secured research
              grants
              totaling approximately $12 million. We are a development stage
              company and
              have no product sales to date and we will not receive any product sales
              until we
              receive approval from the FDA or equivalent foreign regulatory bodies
              to begin
              selling our pharmaceutical candidates. Developing pharmaceutical products,
              however, is a lengthy and very expensive process. Assuming we do not
              encounter
              any unforeseen safety issues during the course of developing our product
              candidates, we do not expect to complete the development of a product
              candidate
              until approximately 2007 or 2008. Currently, a large portion of the
              development
              expenses relating to our lead product candidate, Talotrexin, are being
              funded by
              grants. Once the development covered by the grants is complete, we
              expect that
              our research and development expenses will increase significantly.
              In addition,
              as we initiate development of IPdR and ondansetron lingual spray, our
              second and
              third product candidates, respectively, our research and development
              expenses
              will further increase. To the extent we are successful in acquiring
              additional
              product candidates for our development pipeline, our need to finance
              further
              research and development will continue increasing. Accordingly, our
              success
              depends not only on the safety and efficacy of our product candidates,
              but also
              on our ability to finance the development of the products. Our major
              sources of
              working capital have been proceeds from various private financings,
              primarily
              private sales of our common stock and other equity securities.
 
 Our
              company resulted from the July 2004 merger of EMLR, a Colorado corporation
              incorporated in March 2001, and Hudson Health Sciences, Inc., a Delaware
              corporation. In connection with that transaction, a wholly-owned subsidiary
              of
              EMLR merged with and into Hudson Health Sciences, with Hudson Health
              Sciences
              remaining as the surviving corporation and a wholly-owned subsidiary
              of EMLR.
              Hudson Health Sciences changed its name to “Hana Biosciences, Inc.” in
              connection with the merger. In exchange for their shares of capital
              stock in
              Hana Biosciences, the former stockholders of Hana Biosciences received
              shares of
              capital stock of EMLR representing approximately 87 percent of the
              outstanding
              equity of EMLR on a fully-diluted basis after giving effect the to
              the
              transaction. In addition, the terms of the merger provided that the
              board of
              directors of EMLR would be reconstituted immediately following the
              effective
              time of the transaction such that the directors of EMLR were replaced
              by the
              directors of Hana Biosciences. Further, upon the effective time of
              the merger,
              the business of EMLR was abandoned and the business plan of Hana Biosciences
              was
              adopted. The transaction was therefore accounted for as a reverse acquisition
              with Hana Biosciences, Inc. as the acquiring party and EMLR as the
              acquired
              party. Accordingly, when we refer to our business and financial information
              relating to periods prior to the merger, we are referring to the business
              and
              financial information of Hana Biosciences, Inc., unless the context
              indicates
              otherwise.
 
 Research
              and development expenses consist primarily of salaries and related
              personnel
              costs, fees paid to consultants and outside service providers for laboratory
              development, legal expenses resulting from intellectual property prosecution
              and
              organizational affairs and other expenses relating to the design, development,
              testing, and enhancement of our product candidates. We expense our
              research and
              development costs as they are incurred.
 
 13
 General
              and administrative expenses consist primarily of salaries and related
              expenses
              for executive, finance and other administrative personnel, recruitment
              expenses,
              professional fees and other corporate expenses, including business
              development
              and general legal activities.
 
 Our
              results include non-cash compensation expense as a result of the issuance
              of
              stock and stock option grants. Compensation expense for options granted
              to
              employees represents the difference between the fair value of our common
              stock
              and the exercise price of the options at the date of grant. We account
              for
              stock-based employee compensation arrangements in accordance with the
              provisions
              of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
              Employees” and comply with the disclosure provisions of Statement of Financial
              Accounting Standards No. 123, “Accounting for Stock-Based Compensation.”
              However, as a result of amendments to SFAS 123, the Company will be
              required to
              expense the fair value of employees stock options over the vesting
              period
              beginning with its fiscal quarter ending March 31, 2006. Compensation
              for
              options granted to consultants has been determined in accordance with
              SFAS No.
              123 as the fair value of the equity instruments issued. APB Opinion
              No. 25 has
              been applied in accounting for fixed and milestone-based stock options
              to
              employees and directors as allowed by SFAS No. 123. We currently have
              no
              outstanding milestone-based options. This amount is being recorded
              over the
              respective vesting periods of the individual stock options. The expense
              is
              included in the respective categories of expense in the statement of
              operations.
              We expect to record additional non-cash compensation expense in the
              future,
              which may be significant.
  **Results
                of Operations**
 
 **Three
                Months Ended June 30, 2005 Compared to Three Months Ended June 30,
                2004**
  *General
                and administrative expenses.* For the
                three months ended June 30, 2005, general and administrative expense
                was
                $963,270 as compared to $560,422 for the three months ended June
                30, 2004. The
                increase of $402,848 is due primarily to an increase in salaries
                and other
                employee benefits of approximately $190,000. This increase is primarily
                a result
                of the Company's increase in headcount from four fulltime employees
                at June 30,
                2004 to five fulltime employees at June 30, 2005. For the three months
                ended
                June 30, 2005, we recognized an increase in professional fees of
                approximately
                $121,000 when compared to the three months ended June 30, 2004. The
                increase in
                professional fees primarily relates to legal, accounting and public
                relations
                expenses. Other increases for the three months ended June 30, 2005
                when compared
                to the corresponding period of the previous year is an increase in
                director and
                officer insurance of $17,000. For the three months ended June 30,
                2005, we also
                incurred an increase to stock-based compensation expense for options
                issued to
                employees of approximately $68,000.
 
 *Research
                and development expenses.* For the
                three months ended June 30, 2005, research and development (“R&D”) expense
                was $1,150,447 as compared to $615,019 for the three months ended
                June 30, 2004.
                The increase of $535,428 is due primarily to an increase in salaries
                and other
                employee benefits of approximately $386,000 which resulted from increasing
                our
                full-time employees from two at June 30, 2004 to eight full-time
                employees
                devoted to R&D at June 30, 2005. For the three months ended June 30, 2005,
                we also recognized an increase in professional outside services of
                approximately
                $196,000. This increase relates to the continuing development of
                our three lead
                compounds (Talotrexin, IPdR and OLS) and includes costs incurred
                for the
                physical manufacturing of drug compounds, payments to our contract
                research
                organization and legal expenses associated with our continued patent
                protection.
                Other increases for the three months ended June 30, 2005 when compared
                to the
                corresponding period of the previous year is an increase in travel
                expense
                related to research and development of $35,000. For the three months
                ended June
                30, 2005 we also incurred a decrease of $100,000 associated with
                milestone
                payments related to advancements in our product candidates in the
                three months
                ended June 30, 2004. For the three months ended June 30, 2005 we
                also incurred
                an increase to stock-based compensation expense for options issued
                to employees
                totaling approximately $73,000. In addition, for the three months
                ended June 30,
                2005 we experienced a decrease of approximately $83,000 relating
                to the fair
                value option grants to non employees for services rendered for the
                three months
                ended June 30, 2004.
 
 *Interest
                income (expense), net.* For the
                three months ended June 30, 2005, net interest income was $30,495
                as compared to
                net interest expense of $3,656 for the three months ended June 30,
                2004. The
                increase of $34,151 resulted from our increased cash balance deposited
                in
                interest earning money market accounts as well as our repayment of
                all notes
                payable during the latter half of 2004.
 
 *Other
                income (expense), net.* For the
                three months ended June 30, 2005, net other expense was $2,633 as
                compared to
                net other income of $493 for the corresponding period of the previous
                year. The
                decrease is attributed to our miscellaneous minimum state tax present
                in the
                current year.
 
 *Net
                loss.* Net loss
                for the three months ended June 30, 2005 was $2,085,855 as compared
                to
                $1,178,604 for the three months ended June 30, 2004. This increase
                in net loss
                is attributable primarily to an increase in research and development
                expenses of
                $535,428 and an increase in general and administrative expenses of
                $402,848.
 
 14
 **Six
                Months Ended June 30, 2005 Compared to Six Months Ended June 30,
                2004**
  *General
                and administrative expenses.* For the
                six months ended June 30, 2005, general and administrative expense
                was
                $1,670,483 as compared to $953,132 for the six months ended June
                30, 2004. The
                increase of $717,351 is due primarily to an increase in salaries
                and other
                employee benefits of approximately $292,000. This increase is primarily
                a result
                of the Company's increase in headcount from four fulltime employees
                at June 30,
                2004 to five fulltime employees at June 30, 2005. For the six months
                ended June
                30, 2005, we recognized an increase in professional fees of approximately
                $204,000 when compared to the six months ended June 30, 2004. The
                increase in
                professional fees primarily relates to legal, accounting and investor
                relations
                expenses. Other increases for the six months ended June 30, 2005
                when compared
                to the corresponding period of the previous year is an increase in
                director and
                officer insurance of $39,000. For the six months ended June 30, 2005,
                we also
                incurred an increase to stock-based compensation expense for the
                intrinsic value
                of options issued to employees of approximately $144,000. In addition,
                for the
                six months ended June 30, 2005 we incurred expense of approximately
                $19,000
                relating to the fair value option grants to non employees for services
                rendered,
                no corresponding expense existed for the six months ended June 30,
                2004.
 
 *Research
                and development expenses.* For the
                six months ended June 30, 2005, research and development (“R&D”) expense was
                $2,872,172 as compared to $1,067,105 for the six months ended June
                30, 2004. The
                increase of $1,805,067 is due primarily to an increase in salaries
                and other
                employee benefits of approximately $696,000 which resulted from increasing
                our
                full-time employees from two at June 30, 2004 to eight full-time
                employees
                devoted to R&D at June 30, 2005. For the six months ended June 30, 2005, we
                also recognized an increase in professional outside services of approximately
                $1,205,000. This increase relates to the continuing development of
                our three
                lead compounds (Talotrexin, IPdR and OLS) and includes costs incurred
                for the
                physical manufacturing of drug compounds, payments to our contract
                research
                organization and legal expenses associated with our continued patent
                protection.
                Other increases for the six months ended June 30, 2005 when compared
                to the
                corresponding period of the previous year is an increase in travel
                expense
                related to research and development of $122,000. For the six months
                ended June
                30, 2005 we also incurred a decrease of $175,000 associated with
                milestone
                payments related to advancements in our product candidates in the
                six months
                ended June 30, 2004. For the six months ended June 30, 2005 we also
                incurred an
                increase to stock-based compensation expense for options issued to
                employees
                totaling approximately $155,000. In addition, for the six months
                ended June 30,
                2005 we experienced a decrease of approximately $186,000 relating
                to the fair
                value option grants to non employees for services rendered for the
                six months
                ended June 30, 2004. Given the current and desired pace of clinical
                development
                of our three product candidates, over the next twelve months we estimate
                that we
                will need approximately $10.9 million in order to fund our research
                and
                development activities.  This amount includes milestone payments
                that we
                expect to be triggered under the license agreements relating to our
                product
                candidates, the manufacturing and clinical trial costs for our three
                product
                candidates and the salaries associated with those individuals in
                the research
                and development department. Based on this amount the Company estimates
                that we
                will have sufficient capital to fund our research and development
                activities
                through 2005. However, we will need to raise additional capital in
                2006, likely
                by selling shares of our capital stock or other securities in order
                to fund our
                research and development activities beyond the current year. In the
                event we are
                not able to raise additional capital in 2006, we will be forced to
                curtail our
                planned R&D activities, which will delay the overall development of our
                product candidates.
 
 *Interest
                income (expense), net.* For the
                six months ended June 30, 2005, net interest income was $50,062 as
                compared to
                net interest expense of $12,706 for the six months ended June 30,
                2004. The
                increase of $62,768 resulted from our increased cash balance deposited
                in
                interest earning money market accounts as well as our repayment of
                all notes
                payable during the latter half of 2004.
 
 *Other
                income (expense), net.* For the
                six months ended June 30, 2005, net other expense was $10,137 as
                compared to net
                other income of $623 for the corresponding period of the previous
                year. The
                decrease is attributed to our miscellaneous minimum state tax present
                in the
                current year.
 
 *Net
                loss.* Net loss
                for the six months ended June 30, 2005 was $4,502,730 as compared
                to $2,032,320
                for the six months ended June 30, 2004. This increase in net loss
                is
                attributable primarily to an increase in research and development
                expenses of
                $1,805,067 and an increase in general and administrative expenses
                of
                $717,351.
  **Liquidity
                and Capital Resources**
 
 From
                inception to June 30, 2005, we have incurred an aggregate net loss
                of
                $12,528,888, primarily as a result of expenses incurred through a
                combination of
                research and development activities related to the various technologies
                under
                our control and expenses supporting those activities.
 
 We
                have
                financed our operations since inception primarily through equity
                and debt
                financing. From inception through June 30, 2005, we had a net increase
                in cash
                and cash equivalents of $6,755,933. This increase primarily resulted
                from net
                cash provided by financing activities of $17,211,221, substantially
                all of which
                was derived from our three private placements which netted us $17,057,221.
                The
                increase in cash provided by financing activities was offset by net
                cash used in
                operating activities of $9,677,642 and net cash used in investing
                activities of
                $777,646 for the cumulative period from inception to June 30, 2005.
 
 Our
                continued operations will depend on whether we are able to raise
                additional
                funds through various potential sources, such as equity and debt
                financing.
                Through June 30, 2005, a significant portion of our financing has
                been through
                private placements of common stock, preferred stock and debt financing.
                We will
                continue to fund operations from cash on hand and through future
                placements of
                capital stock or debt financings. We can give no assurances that
                any additional
                capital that we are able to obtain will be sufficient to meet our
                needs. Given
                the current and desired pace of clinical development of our three
                product
                candidates, we estimate that we will need to raise additional capital
                in 2006 in
                order to fund our development activities over the next twelve months,
                likely by
                selling shares of our capital stock or other securities, in order
                to fund our
                research and development activities. If we are unable to raise additional
                capital in 2006, we will likely be forced to curtail our desired
                development
                activities over the next 12 months, which will delay the development
                of our
                product candidates. There can be no assurance that such capital will
                be
                available to us on favorable terms or at all. We will need additional
                financing
                thereafter until we can achieve profitability, if ever.
 
 15
 ***Financings.*** In
                February 2004, we raised gross proceeds of approximately $4.7 million
                through
                the sale of 2,802,989 shares of our common stock. In connection with
                this
                offering, we paid commissions and other offering-related expenses
                consisting of
                $341,979 in cash and issued a 5-year warrant to purchase 277,331
                shares of our
                common stock to Paramount BioCapital, Inc., as placement agent services
                rendered.
 
 Immediately
                prior to the EMLR - Hana Biosciences merger in July 2004, we raised
                gross
                proceeds of $8 million through the sale of 2,395,210 shares of Series
                A
                Convertible Preferred Stock. Each share of Series A Convertible Preferred
                Stock
                is convertible at the holder's election into 1.410068 common shares.
                On January
                18, 2005 the effective date of the registration statement covering
                the resale of
                the common shares issuable upon conversion of the Series A Preferred
                Stock, the
                Series A Preferred Stock automatically converted into 3,377,409 shares
                of common
                shares.
 
 In
                April
                2005, the Company completed a private placement where it sold 3,916,082
                shares
                of its common stock at a price of $1.28 per share resulting in gross
                proceeds of
                approximately $5.01 million. In addition to the shares of common
                stock, the
                investors also received fully vested 5-year warrants to purchase
                an aggregate of
                1,174,809 shares at an exercise price of $1.57 per share. These
                warrants may be redeemed, at the option of the Company, at any time
                after the
                average closing sale price of the Common Stock equals or exceeds
                200% of the
                Exercise Price for thirty consecutive calendar days. In
                connection with the private placement, the Company paid an aggregate
                of
                approximately $321,000 in commissions to placement agents and issued
                fully
                vested 5-year warrants to purchase an aggregate of 350,820 shares
                of common
                stock at a price of $1.57 per share. Included in the amounts paid
                to placement
                agents were $52,500 in commissions and 58,593 warrants to Paramount
                BioCapital,
                Inc., a related party. In connection with the private placement the
                Company also
                incurred approximately $14,000 of legal expenses.
  ***Current
                and Future Financing Needs.*** We have
                incurred negative cash flow from operations since we started our
                business. We
                have spent, and expect to continue to spend, substantial amounts
                in connection
                with implementing our business strategy, including our planned product
                development efforts, our clinical trials, and our research and discovery
                efforts. Given the current and desired pace of clinical development
                of our three
                product candidates, over the next 12 months we estimate that we will
                need
                approximately $10.9 million in order to fund our research and development
                activities.  This amount includes 3.5 million relating to
                milestone
                payments that we expect to be triggered under the license agreements
                relating to
                our product candidates. The remaining amount is devoted to salaries
                associated
                with those individuals in the research and development department
                as well as and
                the manufacturing and clinical trial costs for our three product
                candidates.
                Based on the recently completed private placement the Company estimates
                that we
                will have sufficient capital to fund our research and development
                activities
                through 2005. However, we will need to raise additional capital in
                2006, likely
                by selling shares of our capital stock or other securities in order
                to fund our
                research and development activities beyond 2005. In the event we
                are not able to
                raise additional capital in 2006, we will be forced to curtail our
                planned
                R&D activities, which will delay the overall development of our product
                candidates.
  However,
                the actual amount of funds we will need to operate is subject to
                many factors,
                some of which are beyond our control. These factors include the
                following:
 ·
                      progress
                          of our research activities;
 
 ·
                      the
                          number and scope of our research
                          programs;
 
 ·
                      the
                          progress of our pre-clinical and clinical development
                          activities;
 
 ·
                      the
                          progress of the development efforts of parties with whom
                          we have entered
                          into research and development
                          agreements;
 
 ·
                      our
                          ability to maintain current research and development programs
                          and to
                          establish new research and development and licensing
                          arrangements;
 
 ·
                      our
                          ability to achieve our milestones under licensing
                          arrangements;
 
 ·
                      the
                          costs involved in prosecuting and enforcing patent claims
                          and other
                          intellectual property rights; and
  ·
                        the
                            costs and timing of regulatory
                            approvals.
 16
 We
                  have
                  based our estimate on assumptions that may prove to be wrong. We
                  may need to
                  obtain additional funds sooner or in greater amounts than we currently
                  anticipate. Potential sources of financing include strategic relationships,
                  public or private sales of our stock or debt and other sources.
                  We may seek to
                  access the public or private equity markets when conditions are
                  favorable due to
                  our long-term capital requirements. We do not have any committed
                  sources of
                  financing at this time, and it is uncertain whether additional
                  funding will be
                  available when we need it on terms that will be acceptable to us,
                  or at all. If
                  we raise funds by selling additional shares of common stock or
                  other securities
                  convertible into common stock, the ownership interest of our existing
                  stockholders will be diluted. If we are not able to obtain financing
                  when
                  needed, we may be unable to carry out our business plan. As a result,
                  we may
                  have to significantly limit our operations and our business, financial
                  condition
                  and results of operations would be materially harmed.
 
 ***Plan
                  of Operation***
 
 Our
                  plan
                  of operation for the year ending December 31, 2005 is to continue
                  implementing
                  our business strategy, including the clinical development of our
                  three product
                  candidates. We also intend to expand our drug candidate portfolio
                  by acquiring
                  additional drug technologies for development. We expect our principal
                  expenditures during the next 6 months to include:
 
 §
                        operating
                            expenses, including expanded research and development
                            and general and
                            administrative expenses; and
 §
                          product
                                development expenses, including the costs incurred
                                with respect to
                                applications to conduct clinical trials in the United
                                States for
                                Talotrexin, IPdR and ondansetron lingual
                                spray.
 As
                  part
                  of our planned expansion, we intend to use clinical research organizations
                  and
                  third parties to perform our clinical studies and manufacturing.
                  As indicated
                  above, at our current and desired pace of clinical development
                  of our three
                  product candidates, over the next 12 months we expect to spend
                  approximately
                  $10.9 million on clinical development (including milestone payments
                  that we
                  expect to be triggered under the license agreements relating to
                  our product
                  candidates), $1.7 million on general corporate, and $120,000 on
                  facilities rent.
                  We expect to have completed our Phase I trial for Talotrexin and
                  to have
                  initiated our Phase I trial for IPdR. Additionally, we expect to
                  have initiated
                  clinical trials for ondansetron lingual spray.
 
 ***Research
                  and Development Projects***
 
 ***Talotrexin.*** In 2003,
                  we submitted an Investigational New Drug application (“IND”) with the U.S. Food
                  and Drug Administration (“FDA”) to commence Phase I clinical trials of
                  Talotrexin for the treatment of cancer. Phase I trials, which commenced
                  in April
                  2004, will involve an estimated 25 - 45 patients, to date nineteen
                  subjects have
                  received doses of Talotrexin. The primary purposes for this study
                  are to
                  evaluate the safety of Talotrexin when administered intravenously
                  to patients
                  with solid tumors and who have failed curative or survival prolonging
                  therapy or
                  for whom no such therapies exist, establish the maximum tolerated
                  dose, and
                  identify dose limiting toxicities.
 
 In
                  February 2005, we commenced a Phase I and II study of Talotrexin
                  in the
                  treatment of relapsed or refractory non-small cell lung cancer
                  or “NSCLC”. The
                  primary objectives of the Phase I portion of this study are to:
                  (1) evaluate the
                  safety of Talotrexin and (2) establish the maximum tolerated dose
                  and identify
                  the dose limiting toxicities of Talotrexin. The primary objectives
                  of the Phase
                  II portion of this study are to evaluate the activity of Talotrexin
                  as therapy
                  in subjects with NSCLC who have progressed on or following first-line
                  therapy's,
                  as measured by overall survival. A total of 120 patients are expected
                  to enroll
                  in the Phase I and II clinical trial with nine subjects already
                  having received
                  doses of Talotrexin. Further, we anticipate initiating a Phase
                  II clinical trial
                  in cervical cancer before the end of 2005.
 
 In
                  May
                  2005, we commenced a Phase I and II study of Talotrexin in the
                  treatment of
                  refractory adult lymphoblastic leukemia or “ALL”. The primary objectives of the
                  Phase I portion of this study are to: (1) evaluate the safety of
                  Talotrexin and
                  (2) establish the maximum tolerated dose and identify the dose
                  limiting
                  toxicities of Talotrexin. The primary objectives of the Phase II
                  portion of this
                  study are to evaluate the activity of Talotrexin as therapy in
                  leukemia patients
                  with relapsed or refractory to frontline and/or salvage therapy
                  as measured by
                  overall response. A total of 75 patients are expected to enroll
                  in the Phase I
                  and II clinical trial with four subjects already having received
                  doses of
                  Talotrexin.
 
 Talotrexin
                  has received clinical development grants from the National Cancer
                  Institute
                  covering approximately $8 million in development activities. These
                  grants cover
                  the predominant cost of pre-clinical efficacy and safety testing,
                  clinical
                  manufacturing, and Phase I clinical program. Under the terms of
                  these grants,
                  all amounts are disbursed directly to the institutions conducting
                  the studies.
                  None of the funds are disbursed to us and we have no obligation
                  to repay such
                  funds. We estimate that the NCI has disbursed approximately $1
                  million in
                  connection with the development of Talotrexin. Through June 30,
                  2005, we have
                  incurred $1,967,282 of costs related to our development of Talotrexin,
                  of which
                  $272,205 and $1,027,847 was incurred in fiscal 2003 and 2004, respectively.
                  For
                  the six months ended June 30, 2005, we incurred $667,230 in the
                  development of
                  Talotrexin. We currently anticipate that we will need to expend
                  approximately an
                  additional $1,000,000 to $1,300,000 in development costs in fiscal
                  2005 and at
                  least an aggregate of approximately $75 million until we receive
                  FDA approval
                  for Talotrexin, should we opt to continue development. Costs incurred
                  are a
                  direct result of ensuring proper study conduct in accordance with
                  local
                  regulations. Should we choose to continue development we expect
                  that it will
                  take an additional 4-5 years before we complete development and
                  obtain FDA
                  approval of Talotrexin, if ever.
 
 17
 We
                  believe we currently have sufficient capital to fund development
                  activities of
                  Talotrexin during the remainder of 2005. Since our business does
                  not generate
                  any cash flow, however, we will need to raise additional capital
                  to continue
                  development of the product beyond 2005. We expect to raise such
                  additional
                  capital by either borrowing money or by selling shares of our capital
                  stock. To
                  the extent additional capital is not available when we need it,
                  we may be forced
                  to sublicense our rights to Talotrexin or abandon our development
                  efforts
                  altogether, either of which would have a material adverse effect
                  on the
                  prospects of our business. Further, our assumptions relating the
                  expected costs
                  of development and timeframe for completion are dependent on numerous
                  factors
                  other than available financing, including unforeseen safety issues,
                  lack of
                  effectiveness, and significant unforeseen delays in the clinical
                  trial and
                  regulatory approval process, any of which could be extremely costly.
                  In
                  addition, our estimates assume that we will be able to enroll a
                  sufficient
                  number of patients in each clinical trial.
  ***IPdR.*** In
                  August 2004, an investigator-initiated IND was submitted to the
                  FDA to initiate
                  a Phase I clinical trial of IPdR for the treatment of selected
                  radiosensitive
                  cancers. Assuming FDA approval of the IND, a phase I trial is expected
                  to
                  commence by mid to late 2005, which we estimate will involve approximately
                  40-60
                  patients. The primary purposes for this study will be to evaluate
                  the safety of
                  oral IPdR in patients with selected radiosensitive and who have
                  failed curative
                  or survival prolonging therapy or for whom no such therapies exist,
                  establish
                  the maximum tolerated dose, and identify dose limiting toxicities. In
                  addition, we expect to commence a clinical trial in glioblastoma
                  multiforme, a
                  type of brain cancer, in 2005.
 
 IPdR
                  has
                  received clinical development grants from the National Cancer Institute.
                  These
                  grants cover the predominant cost of pre-clinical efficacy and
                  safety testing,
                  clinical manufacturing, and Phase I clinical program. Under our
                  license
                  agreement the Company was obligated to reimburse other parties
                  approximately
                  $15,000 for past patent expenses. Since acquiring our rights to
                  IPdR, through
                  June 30, 2005, we have incurred $1,388,333 of project costs related
                  to our
                  development of IPdR, of which $656,251 was incurred in fiscal 2004.
                  Currently,
                  we anticipate that we will need to expend an additional $100,000
                  to $200,000 in
                  development costs in fiscal 2005 and at least an aggregate of approximately
                  $50
                  million until we receive FDA approval for IPdR, should we opt to
                  continue
                  development. Should we choose to continue, we expect that it will
                  take an
                  additional 5 or 6 years until we will have completed development
                  and obtained
                  FDA approval of IPdR, if ever.
 
 We
                  believe we currently have sufficient capital to fund our development
                  activities
                  of IPdR during 2005. Since our business does not generate any cash
                  flow,
                  however, we will need to raise additional capital to continue development
                  of the
                  product beyond 2005. We expect to raise such additional capital
                  by either
                  borrowing money or by selling shares of our capital stock. To the
                  extent
                  additional capital is not available when we need it, we may be
                  forced to
                  sublicense our rights to IPdR or abandon our development efforts
                  altogether,
                  either of which would have a material adverse effect on the prospects
                  of our
                  business. Further, our assumptions relating the expected costs
                  of development
                  and timeframe for completion are dependent on numerous factors
                  other than
                  available financing, including unforeseen safety issues, lack of
                  effectiveness,
                  and significant unforeseen delays in the clinical trial and regulatory
                  approval
                  process, any of which could be extremely costly. In addition, our
                  estimates
                  assume that we will be able to enroll a sufficient number of patients
                  in each
                  clinical trial.
  ***Ondansetron
                  Lingual Spray.*** In
                  October 2004, we acquired the exclusive license rights to develop
                  and
                  commercialize ondansetron lingual spray, or “OLS,” in the United States and
                  Canada. As initial consideration for that license, we purchased
                  400,000 shares
                  of common stock of NovaDel Pharma, Inc., our licensor, for an aggregate
                  price of
                  $1 million, and we issued to NovaDel 73,121 shares of our common
                  stock. . Since
                  acquiring our rights to OLS, through June 30, 2005, we have incurred
                  $84,496 of
                  project costs related to our development of which the entire amount
                  was incurred
                  in fiscal 2005. Currently, we anticipate that we will need to expend
                  an
                  additional $1,500,000 to $2,500,000 in development costs in fiscal
                  2005 and at
                  least an aggregate of approximately $20 million until we receive
                  FDA approval
                  for OLS, should we opt to continue development. Should we choose
                  to continue, we
                  expect that it will take an additional 1 or 2 years until we will
                  have completed
                  development and obtained FDA approval of OLS, if ever.
 
 **Off-Balance
                  Sheet Arrangements** ******
  We
                  do not
                  have any “off-balance sheet agreements,” as that term is defined by SEC
                  regulation. We do, however, have various commitments under certain
                  agreements,
                  as follows:
  ***License
                  Agreements.*** In the
                  event we achieve certain milestones in connection with the development
                  of our
                  product candidates, we will be obligated to make milestone payments
                  to our
                  licensors in accordance with the terms of our license agreements,
                  as discussed
                  below. The development of pharmaceutical product candidates is
                  subject to
                  numerous risks and uncertainties, including, without limitation,
                  the following:
                  (1) risk of delays in or discontinuation of development from lack
                  of financing,
                  (2) our inability to obtain necessary regulatory approvals to market
                  the
                  products, (3) unforeseen safety issues relating to the products,
                  (4) our ability
                  to enroll a sufficient number of patients in our clinical trials,
                  and (5)
                  dependence on third party collaborators to conduct research and
                  development of
                  the products. Additionally, on a historical basis, only approximately
                  11 percent
                  of all product candidates that enter human clinical trials are
                  eventually
                  approved for sale. Accordingly, we cannot state that it is reasonably
                  likely
                  that we will be obligated to make any milestone payments under
                  our license
                  agreements. Summarized below are our future commitments under our
                  license
                  agreements, as well as the amounts we have paid to date under such
                  agreements.
  §
                        *Talotrexin
                            License.*Our rights to Talotrexin are governed by the terms of
                            a December 2002
                            license agreement with Dana-Farber Cancer Institute and
                            Ash Stevens, Inc.
                            The agreement provides us with an exclusive worldwide
                            royalty bearing
                            license, including the right to grant sublicenses, to
                            the intellectual
                            property rights and know-how relating to Talotrexin and
                            all of its uses.
                            Upon execution of the license agreement, we paid a $100,000
                            license fee
                            and reimbursed our licensors for approximately $11,000
                            of patent-related
                            expenses. The license agreement also requires us to make
                            an annual license
                            fee payment of $25,000 and provides for future payments
                            totaling up to $6
                            million upon the achievement of certain milestones, including
                            a $5 million
                            payment upon approval by the FDA of a New Drug Application
                            for Talotrexin.
                            To date, we have made one of these milestone payments
                            in the amount of
                            $100,000 following commencement of the Phase I clinical
                            trial.
                            Additionally, we are obligated to pay royalties in the
                            amount of 3.5
                            percent of “net sales” (as defined in the license agreement) of
                            Talotrexin. We are also required to pay to the licensors
                            20 percent of
                            fees or non-royalty consideration (e.g., milestone payments,
                            license fees)
                            received by us in connection with any sublicense of Talotrexin
                            granted
                            prior to the start of a Phase II trial, and 15 percent
                            of such fees after
                            initiation of a Phase II clinical trial.
 
 18
 §
                        *IPdR
                            License.*In
                            February 2004, we entered into an exclusive worldwide,
                            royalty-bearing
                            license agreement with Yale University and The Research
                            Foundation of
                            State University of New York, including the right to
                            grant sublicenses,
                            for the rights to the intellectual property relating
                            to IPdR. The license
                            agreement expires as the patent rights subject to the
                            license expire. The
                            IPdR license covers two issued patents, expiring in 2007
                            and 2015,
                            respectively. In addition to a $100,000 license fee paid
                            on execution of
                            the agreement, we are required to make additional license
                            payments in the
                            aggregate amount of $500,000 upon the completion of a
                            Phase IIb clinical
                            trial (currently estimated to be during fiscal 2006)
                            and upon NDA approval
                            by the FDA, which we estimate to occur no earlier than
                            2010, if
                            ever. As further consideration for the license,
                            we are required to
                            pay royalties to Yale and SUNY equal to 3 percent of
                            net sales (as defined
                            in the license agreement) from IPdR.
  §
                        *OLS
                            License.*Our rights to OLS are subject to the terms of an October
                            2004 license
                            agreement with NovaDel Pharma, Inc. The license agreement
                            grants us a
                            royalty-bearing, exclusive right and license to develop
                            and commercialize
                            OLS within the United States and Canada. The technology
                            licensed to us
                            under the license agreement currently covers one United
                            States issued
                            patent, which expires in March 2022. In consideration
                            for the license, we
                            issued 73,121 shares of our common stock to NovaDel and
                            have agreed to
                            make double-digit royalty payments to NovaDel based on
                            a percentage of
                            “net sales” (as defined in the agreement). We are also obligated
                            to make
                            various milestone payments in an aggregate amount of
                            up to $10 million. In
                            addition, we purchased from NovaDel 400,000 shares of
                            its common stock at
                            a price of $2.50 per share for an aggregate payment of
                            $1 million.
  ***Lease
                  Agreements.*** In
                  December 2004 the Company entered into an office lease that expires
                  on December
                  31, 2005. Total remaining lease commitments amount to approximately
                  $61,000.
 
 ***Employment
                  Agreements.*** The
                  Company entered into a written three year employment agreement
                  with its
                  President and Chief Executive Officer dated November 1, 2003. The
                  aggregate
                  amount of compensation to be provided for over the remaining term
                  of the
                  agreement amounted to approximately $334,000 at June 30, 2005.
  The
                  Company entered into a written two year employment agreement with
                  its Vice
                  President of Business Development on January 25, 2004. The aggregate
                  amount of
                  compensation to be provided for over the remaining term of the
                  agreement
                  amounted to approximately $161,000 at June 30, 2005.
 
 The
                  Company entered into a written three year employment agreement
                  with its Vice
                  President and Chief Medical Officer on October 21, 2004. The aggregate
                  amount of
                  compensation to be provided for over the remaining term of the
                  agreement
                  amounted to approximately $338,000 at June 30, 2005.
 
 The
                  Company entered into a written three year employment agreement
                  with its Vice
                  President and Chief Financial Officer on November 15, 2004. The
                  aggregate amount
                  of compensation to be provided for over the remaining term of the
                  agreement
                  amounted to approximately $408,000 at June 30, 2005.
  **Item
                  3. Controls and Procedures**
 
 As
                  of
                  June 30, 2005, we carried out an evaluation, under the supervision
                  and with the
                  participation of our chief executive and chief financial officers,
                  of the
                  effectiveness of the design and operation of our disclosure controls
                  and
                  procedures (as defined in Rules 13A- 15(e) and 15d-15(e)
                  of the Securities
                  Exchange Act of 1934, as amended). Based upon that evaluation,
                  our Chief
                  Executive Officer and Chief Financial Officer concluded that our
                  disclosure
                  controls and procedures are effective in alerting them on a timely
                  basis to
                  material information required to be disclosed in our periodic reports
                  to the
                  Securities and Exchange Commission. During the quarter ended June
                  30, 2005,
                  there were no changes in our internal controls over financial reporting
                  that
                  have materially affected, or are reasonably likely to materially
                  affect, our
                  internal controls over financial reporting subsequent to such
                  evaluation.
 
 19
 **PART
                  II - OTHER INFORMATION**
 
 **Item
                  1. Legal Proceedings**
 
 None
 
 **Item
                  2. Unregistered Sales of Equity Securities and Use of
                  Proceeds**
 
 Not
                  applicable
 
 **Item
                  3. Defaults Upon Senior Securities**
 
 Not
                  applicable
 
 **Item
                  4. Submission of Matters to a Vote of Securities Holders**
 
 Not
                  applicable
  **Item
                  5. Other Information**
 
 Not
                  applicable
 
 **Item
                  6. Exhibits**
  4.1
                        Form
                            of common stock purchase warrants issued in connection
                            with Registrant’s
                            April 2005 private placement (incorporated by reference
                            to Exhibit 4.5 of
                            the Registrant’s Registration Statement on Form SB-2 (File No.
                            333-125083).10.1
                        Form
                            of Subscription Agreement between the Registrant and
                            investors in the
                            Registrant’s April 2005 private placement (incorporated by reference
                            to
                            Exhibit 10.12 of the Registrant’s Registration Statement on Form SB-2
                            (File No. 333-125083).31.1
                        Certification
                            of Chief Executive Officer31.2
                        Certification
                            of Chief Financial Officer32.1
                        Certification
                            of Chief Executive and Chief Financial Officers pursuant
                            to Section 906 of
                            the Sarbanes-Oxley Act of 2002.
 
 
 **SIGNATURES**
  In
                  accordance with the requirements of the Exchange Act of 1934, the
                  registrant
                  caused this report to be signed on its behalf by the undersigned,
                  thereunto duly
                  authorized.
  **HANA
                              BIOSCIENCES, INC.**Date:
                              August 15, 2005
                          By:
                          /s/ Mark
                            J. AhnMark J. Ahn
                            President
                                and Chief Executive Officer
 Date:
                              August 15, 2005
                          By:
                          /s/ Russell
                            L. SkibstedRussell L. Skibsted
                            Chief
                                Financial Officer
  20
  **Exhibit
                  Index**
  **Exhibit
                            No.**
                        **Description**4.1
                        Form
                            of common stock purchase warrants issued in connection
                            with Registrant’s
                            April 2005 private placement (incorporated by reference
                            to Exhibit 4.5 of
                            the Registrant’s Registration Statement on Form SB-2 (File No.
                            333-125083).10.1
                        Form
                            of Subscription Agreement between the Registrant and
                            investors in the
                            Registrant’s April 2005 private placement (incorporated by reference
                            to
                            Exhibit 10.12 of the Registrant’s Registration Statement on Form SB-2
                            (File No. 333-125083).31.1
                        Certification
                            of Chief Executive Officer31.2
                        Certification
                            of Chief Financial Officer32.1
                        Certification
                            of Chief Executive and Chief Financial Officers pursuant
                            to Section 906 of
                            the Sarbanes-Oxley Act of 2002.
  21