**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 March 31, 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 of
      incorporation
      or organization)
    **84-1588441**
      (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 May
13, 2005 there were 18,141,693 shares of the issuer’s common stock, $.001 par
value, outstanding.
 
   
 **INDEX**
 
 Page**PART
      I**
    **FINANCIAL
      INFORMATION**Item
      1.
    Unaudited
      Condensed Consolidated Balance Sheets
    3Unaudited
      Condensed Consolidated Statements of Operations
    4Unaudited
      Condensed Consolidated Statement of Stockholders’ Equity
    5Unaudited
      Condensed Consolidated Statements of Cash Flows
    6Notes
      to Unaudited Condensed Consolidated Financial Statements
    7Item
      2.
    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
    10Item
      3.
    Controls
      and Procedures
    15**PART
      II**
    **OTHER
      INFORMATION**Item
      6.
    Exhibits
    16Signatures
    16Exhibits Index
    17
 
 
 **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)**
 **March
      31,**
    
    **December
      31,****2005**
    
    **2004****ASSETS**Current
      assets:Cash
      and cash equivalents
    
    $
    4,565,740
    
    $
    6,584,361Prepaid
      expenses
    
    
    33,202
    
    
    26,885Total
      current assets
    
    
    4,598,942
    
    
    6,611,246Property
      and equipment, net
    
    
    104,678
    
    
    109,604Investments
      in restricted equity securities, at cost
    
    
    636,000
    
    
    636,000Other
      assets
    
    
    20,453
    
    
    20,303Total
      assets
    
    $
    5,360,073
    
    $
    7,377,153**LIABILITIES
      AND STOCKHOLDERS' EQUITY**Current
      liabilities:Accounts
      payable
    
    $
    957,401
    
    $
    649,644Accrued
      expenses
    
    
    379,231
    
    
    515,215Total
      liabilities
    
    
    1,336,632
    
    
    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 March
      31, 2005 and December 31, 2004, respectively (liquidation preference
      $8,000,000)
    
    
    --
    
    
    2,395Common
      stock; $0.001 par value:100,000,000
      shares authorized, 14,225,611 and 10,792,702 shares issued and outstanding
      at March 31, 2005 and December 31, 2004,
respectively
    
    
    14,226
    
    
    10,793Additional
      paid-in capital
    
    
    14,452,248
    
    
    13,975,514Common
      stock to be issued - 55,500 shares
    
    
    --
    
    
    249,750Deficit
      accumulated during the development stage
    
    
    (10,443,033
    )
    
    (8,026,158
    )Total
      stockholders' equity
    
    
    4,023,441
    
    
    6,212,294Total
      liabilities and stockholders' equity
    
    $
    5,360,073
    
    $
    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**
      **March
      31,**
    
    **Cumulative
      Period from December 6, 2002 (date of inception) to March
      31,****2005**
    
    
    **2004**
    
    
    **2005**Operating
      expenses:General
      and administrative
    
    $
    707,213
    
    $
    392,710
    
    $
    3,747,585Research
      and development
    
    
    1,721,725
    
    
    452,086
    
    
    6,720,025Total
      operating expenses
    
    
    2,428,938
    
    
    844,796
    
    
    10,467,610Loss
      from operations
    
    
    (2,428,938
    )
    
    (844,796
    )
    
    (10,467,610
    )Other
      income (expense):Interest
      income (expense), net
    
    
    19,567
    
    
    (9,050
    )
    
    32,728Other
      income (expense), net
    
    
    (7,504
    )
    
    130
    
    
    (8,151
    )Total
      other income (expense)
    
    
    12,063
    
    
    (8,920
    )
    
    24,577Net
      loss
    
    $
    (2,416,875
    )
    $
    (853,716
    )
    $
    (10,443,033
    )Net
      loss per share, basic and diluted
    
    $
    (0.18
    )
    $
    (0.12
    )Weighted
      average shares used in computing net loss per share, basic and
      diluted
    
    
    13,569,263
    
    
    6,939,655
 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 March 31, 2005
 
 
 **Preferred stock**
    
    
    **Common stock****Shares**
    
    
    **Amount**
    
    
    **Shares**
    
    
    
    **Amount**
    
    
    **Additionalpaid-incapital**
    
    
    **Common
      Stock to be Issued**
    
    
    **Subscription
      receivable**
    
    
    **Unearned
      consulting**
      **Fee**
    
    
    **Deficit
      accumulated during developmentstage**
    
    
    **Total
      stockholders' equity(deficiency)**Issuance
      of common stock at  $0.001per 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 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
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    375,552Proceeds
      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
    
    
    --
    
    
    --
    
    
    --
    
    
    
    --
    
    
    19,371
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    19,371Compensation
      expense recorded upon
      issuance of stock options to employees
    
    
    --
    
    
    --
    
    
    --
    
    
    
    --
    
    
    208,651
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    208,651Net
      loss
    
    
    --
    
    
    --
    
    
    --
    
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    --
    
    
    (2,416,875
    )
    
    (2,416,875
    )Balance
      at March 31, 2005
    
    
    --
    
    $
    --
    
    
    14,225,611
    
    
    $
    14,226
    
    $
    14,452,248
    
    $
    --
    
    $
    --
    
    $
    --
    
    $
    (10,443,033
    )
    $
    4,023,441
 
 See
accompanying notes to unaudited condensed financial statements.
  5
 
 **HANA
BIOSCIENCES, INC.**
 
 **(A
DEVELOPMENT STAGE COMPANY)**
 
 **CONDENSED
STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 **Three
      Months Ended**
      **March
      31,**
    
    **Cumulative**
      **Period
      from**
      **December
      6, 2002**
      **(date
      of inception)**
      **to
      March 31,****2005**
    
    
    **2004**
    
    
    **2005****Cash
      flows from operating activities:**Net
      loss
    
    $
    (2,416,875
    )
    $
    (853,716
    )
    $
    (10,443,033
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
    
    
    7,415
    
    
    2,709
    
    
    33,441Issuance
      of stock and options to employees
    
    
    208,651
    
    
    51,817
    
    
    584,203Issuance
      of stock and options to nonemployees for services
    
    
    19,371
    
    
    104,822
    
    
    350,921Services
      rendered for satisfaction of unearned consulting fee
    
    
    --
    
    
    8,351
    
    
    212,445Services
      rendered in lieu of payment of subscription receivable
    
    
    --
    
    
    --
    
    
    36,000Shares
      to be issued to employees for services rendered
    
    
    --
    
    
    --
    
    
    249,750Issuance
      of shares in partial consideration for license agreement
    
    
    --
    
    
    --
    
    
    500,000Changes
      in operating assets and liabilities:Increase
      in prepaid expenses and other assets
    
    
    (6,467
    )
    
    (4,553
    )
    
    (53,655
    )Increase
      (decrease) in accounts payable
    
    
    307,757
    
    
    (11,124
    )
    
    957,401Increase
      (decrease) in accrued and other current liabilities
    
    
    (135,984
    )
    
    68,910
    
    
    379,231Net
      cash used in operating activities
    
    
    (2,016,132
    )
    
    (632,784
    )
    
    (7,193,296
    )**Cash
      flows from investing activities:**Purchase
      of property and equipment
    
    
    (2,489
    )
    
    (11,366
    )
    
    (138,119
    )Purchase
      of equity securities
    
    
    --
    
    
    --
    
    
    (636,000
    )Net
      cash used in investing activities
    
    
    (2,489
    )
    
    (11,366
    )
    
    (774,119
    )**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
    
    
    --
    
    
    4,379,155
    
    
    12,379,155Net
      cash provided by financing activities
    
    
    --
    
    
    4,504,155
    
    
    12,533,155Net
      increase (decrease) in cash and cash equivalents
    
    
    (2,018,621
    )
    
    3,860,005
    
    
    4,565,740Cash
      and cash equivalents, beginning of period
    
    
    6,584,361
    
    
    87,675
    
    
    --Cash
      and cash equivalents, end of period
    
    $
    4,565,740
    
    $
    3,947,680
    
    $
    4,565,740Supplemental
      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 to employees for services rendered in 2004
    
    $
    249,750
    
    $
    --
    
    $
    249,750
 
 See
accompanying notes to unaudited condensed financial
statements.
 
 
 6
 **HANA
BIOSCIENCES, INC.**
 **(A
DEVELOPMENT STAGE COMPANY)**
 
 
 **NOTES
TO UNAUDITED FINANCIAL STATEMENTS**
 
 **NOTE
1. BUSINESS DESCRIPTION**
 
 Hana
Biosciences, Inc. (“Hana” or the “Company”) is a biopharmaceutical company based
in South San Francisco, California, which seeks to acquire, develop, and
commercialize innovative products to enhance cancer care. The Company has
secured research grants of approximately $12 million to fund the initial
development of each of its two initial products. The Company is committed to
creating value by accelerating the development of lead product candidates and
expanding its product candidate pipeline by being the alliance partner of choice
to universities, research centers and other institutions.
 
 **NOTE
2. BASIS OF PRESENTATION**
 
 The
accompanying unaudited condensed financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information. Accordingly, the financial statements
do not include all information and footnotes required by accounting principles
generally accepted in the United States of America for complete annual financial
statements. In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring adjustments, considered necessary for a fair presentation. Interim
operating results are not necessarily indicative of results that may be expected
for the year ending December 31, 2005 or for any subsequent period. These
statements should be read in conjunction with the audited financial statements
of Hana Biosciences and notes thereto for the year ended December 31, 2004 in its
annual reporton Form 10-KSB filed with the SEC on March 30,
2005.
 
 **NOTE
3. LIQUIDITY AND CAPITAL RESOURCES**
 
 The
Company reported a net loss of $2,416,875 for the three months ended March 31,
2005. The net loss from date of inception, December 6, 2002, to March 31, 2005
amounted to $10,443,033.
 
 We have
financed our operations since inception primarily through equity and debt
financing. During the three months ended March 31, 2005, we had a net decrease
in cash and cash equivalents of $2,018,621. This decrease primarily resulted
from net cash used in operating activities of $2,016,132 and net cash used in
investing activities of $2,489 for the three months ended March 31, 2005. Total
cash resources as of March 31, 2005 were $4,565,740 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. Such
additional funds may not become available on acceptable terms and there can be
no assurance that any additional funding that we do obtain will be sufficient to
meet our needs in the long term. Through March 31, 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 nine 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
4. ISSUANCE OF SECURITIES**
 
 Issuance
of Shares in the three months ended March 31, 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 with EMLR, which was completed on September
30, 2004.
 
 7
 The
following table summarizes information about stock options outstanding at March
31, 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
    
    
    110,000
    
    
    2.40Outstanding
      March 31, 2005
    
    
    2,369,355
    
    
    1.04Exercisable
      at March 31, 2005
    
    
    798,108
    
    
    0.70
 
 The
following table summarizes information about stock options outstanding at March
31, 2005:
 
 Weighted Average 
      Number
      of Options
    
    
    Remaining
      Contractual Life of Options
    
    
    Number
      of OptionsExercise
      Price
    
    
    Outstanding
    
    
    Outstanding
    
    
    Exercisable$  
      0.07
    
    
    112,808
    
    
    9.0
      yrs.
    
    
    112,808$  
      0.17
    
    
    678,079
    
    
    8.7
      yrs.
    
    
    226,026$  
      0.34
    
    
    471,636
    
    
    9.1
      yrs.
    
    
    125,258$  
      1.01
    
    
    141,007
    
    
    8.9
      yrs.
    
    
    141,007$  
      1.69
    
    
    479,422
    
    
    9.1
      yrs.
    
    
    188,009$  
      2.39
    
    
    305,000
    
    
    9.6
      yrs.
    
    
    5,000$  
      2.40
    
    
    110,000
    
    
    9.8
      yrs.
    
    
    0$  
      3.34
    
    
    71,403
    
    
    9.5
      yrs.
    
    
    0$ 
      0.07 - $   3.34
    
    
    2,369,355
    
    
    9.1
      yrs.
    
    
    798,108
 
 In
addition on March 31, 2005, the Company also had 277,731 warrants outstanding in
connection with the Company's February 2004 Private Placement.
 
 **NOTE
5. 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 its audited
financial statements as of and for the year ended December 31, 2004, which are
included in Company’s Annual Report on Form 10-KSB filed with the SEC on March
30, 2005.
 
 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 Principles No. 123 (“SFAS 123”), “Accounting for
Stock-Based Compensation” and Statement of Financial Accounting Principles No.
148, "Accounting for Stock-Based Compensation-Transition and Disclosure". During
the three months ended March 31, 2005 and 2004, the Company recorded earned
compensation cost of $208,651 and $51,817, 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 months ended March 31, 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) for options would have been increased to the pro forma
amounts indicated below.
 2005
    
    2004Net
      loss, as reported
    
    $
    (2,416,875
    )
    $
    (853,716
    )Add:
      Stock-based employee compensation expense for stock options included in
      reported net loss per share
    
    
    208,651
    
    
    51,817Deduct:
      Total stock-based employee compensation expense determined under the fait
      value method
    
    
    (301,579
    )
    
    (56,658
    )Net
      loss, pro forma
    
    $
    (2,509,803
    )
    $
    (858,557
    )Net
      loss per common share - basic and dilutedAs
      reported
    
    $
    (0.18
    )
    $
    (0.12
    )Pro
      forma
    
    $
    (0.19
    )
    $
    (0.12
    )
   
 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 March 31, 2005 and 2004, the Company recognized $19,371 and $104,822 of
expense relating to the granting of options to non-employees for services and
such expense is included in the accompanying statement of operations,
respectively. 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 87%, risk-free interest
rate of 3.0%; and expected lives of eight years.
 
 **NOTE
6. 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 two most recent 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.
 
 8
 **NOTE
7. LICENSE AGREEMENTS**
 
 In
December 2002, the Company entered into an exclusive worldwide royalty-bearing
license agreement with Dana-Farber Cancer Institute and Ash Stevens, Inc. for
its product PT-523. In consideration for the license, the Company paid to the
licensors an initial license fee of $100,000 and agreed to make additional
payments totaling $6 million upon the achievement of certain milestones,
including a $5 million payment upon approval by the FDA of a New Drug
Application.
 
 In
February 2004, the Company entered into an exclusive worldwide, royalty-bearing
license agreement with Yale University and The Research Foundation of State
University of New York for its product IPdR. In consideration for the grant of
the license, the Company paid Yale and SUNY an initial aggregate license fee of
$100,000 and issued 10 year options to purchase 100,000 shares of Hana’s common
stock. The Company is also required to make two additional license payments of
$250,000 each upon the completion of a Phase IIb clinical trial and upon New
Drug Application approval by the FDA, respectively.
 
 On
October 26, 2004, the Company entered into a License Agreement with NovaDel
Pharma, Inc. (NovaDel). Pursuant to the terms of the License Agreement, NovaDel
granted to the Company a royalty-bearing exclusive right and license to develop
and commercialize within the United States and Canada NovaDel's lingual spray
version of ondansetron, the most widely prescribed anti-emetic for preventing
chemotherapy-induced nausea and vomiting. The technology licensed to the Company
under the license agreement currently covers one United States issued patent. In
connection with the development of the licensed product, NovaDel has agreed to
perform or cause to be performed certain development activities on behalf and at
the expense of the Company.
 
 The
license agreement provides that (i) the Company will make royalty payments to
NovaDel based on a percentage of “Net Sales” (as defined in the agreement); (ii)
the Company is obligated to make various milestone payments in an aggregate
amount of up to $10 million.
 
 As part
of the agreement the Company has issued to NovaDel 73,121 shares of its common
stock having a value of $500,000 and the Company also purchased 400,000 shares
of NovaDel's common stock for $1,000,000 or $2.50 per share. The fair value of
the NovaDel shares equaled $1.59 per share on the date of the license agreement
and as a result, the Company has expensed the $364,000 premium as a licensing
fee in 2004 and recorded the balance of $636,000 as an investment (see Note 8).
Neither party may sell each other's shares for a 2-year period following the
effective date of the license agreement.
 
 The
license agreement expires on the later of (i) the expiration date of the last to
expire patent covered by the license (currently March 18, 2022) or (ii) 20 years
from the effective date of the license agreement. The license agreement also
provides that NovaDel may terminate the agreement upon notice prior to the
expiration of its term in the event the Company becomes insolvent or defaults in
its payment obligations, and either party may terminate the agreement after
giving notice and an opportunity to cure in the event the other party commits a
material breach.
 
 **NOTE
8. INVESTMENT IN EQUITY SECURITIES**
 
 As
explained in Note 7, during October 2004, the Company acquired 400,000 shares of
common stock from NovaDel 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 March 31, 2005, they would have had a market value of
$488,000. The Company believes the decrease in the fair value of these shares to
be temporary and no charge for impairment is required during the first
quarter.
 
 **NOTE
9. SUBSEQUENT EVENTS**
 
 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 5-year warrants to purchase an aggregate of
1,174,809 shares at an exercise price of $1.57 per share. In connection with the
private placement, the Company paid an aggregate of approximately $321,000 in
commissions to placement agents and issued 5-year warrants to purchase an
aggregate of 350,820 shares of common stock at a price of $1.57 per
share.  In
connection with the private placement, the Company agreed to file, within 30
days of the closing, a registration statement under the Securities Act covering
the resale of the Shares and the shares issuable upon exercise of the Warrants.
  9
   **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**
 
 We are a
development stage biopharmaceutical company focused on the acquisition,
development and commercialization of innovative products to enhance cancer care.
We aim 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 - PT-523, for
the treatment of a variety of solid tumor cancers and immunological diseases;
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.
 
 Since the
inception of Hana Biosciences, Inc. in December 2002, our efforts and resources
have been focused primarily on acquiring and developing our pharmaceutical
technologies, raising capital and recruiting personnel. 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,
PT-523, 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 2004
highlights include the following product development and business
achievements:
 
 §
    Three
      oncology products entered the development
pipeline.
 
 o
    PT-523,
      a novel nonpolyglutamable antifolate for non-small cell lung cancer,
      cervical cancer and acute lymphocytic leukemia, was licensed from Harvard
      and entered clinical trials. In the first quarter of 2005, we began a
      Phase I and II clinical trial with our lead compound, PT-523, in non-small
      cell lung cancer, or “NSCLC,” with five sites in the U.S. and ten sites in
      Russia.
 
 o
    IPdR,
      a novel radiosensitizer, for pancreatic, colorectal, liver, and brain
      cancers was licensed from Yale University and The Research Foundation of
      the State University of New York at
Buffalo.
 
 o
    Ondansetron
      Lingual Spray (OLS) for chemotherapy-induced nausea and vomiting, was
      licensed from NovaDel, Inc. Ondansetron hydrochloride is the active
      ingredient of GlaxoSmithkline's Zofran,.which in 2003, had sales of about $1.0 billion. GSK's product patent
      expires in June, 2006, and OLS is on target to start producing revenues
      for Hana in 2007. In February 2005, we commenced a pilot pharmacokinetic,
      or “PK,” study with OLS, the results to which we expect by the second
      quarter of 2005.
 
 §
    We
      completed two financings of $12.7 million and secured research grants
      totaling $12 million.
 
 Over the
next several months we expect to begin a Phase I with IPdR in pancreatic, liver
and colorectal cancer at Case Western and a Phase I and II study with IPdR in
Glioblastoma Multiforme at the New Approaches to Brain Tumor Therapy. We also
expect to begin Phase I and II trials in acute lymphoblastic leukemia and
cervical cancer at M.D. Anderson in Houston, Texas and the Gynecologic Oncology
Group, respectively. Later in the year we expect to do a pivotal PK study in
healthy volunteers and a Phase IV in adjuvant breast cancer with Ondansetron
lingual spray. Phase IV trials look at the long-term safety and benefits of a
treatment. It continues to study the treatment once it has been approved for use
and doctors are able to give it to patients routinely. Phase IV studies are
useful for gathering information on any side effects that may have been missed
in the earlier trials
 
 10
 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.
 
 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 March 31, 2005 Compared to Three Months Ended March 31,
2004**
 
 *General
and administrative expenses.* For the
three months ended March 31, 2005, general and administrative expense was
$707,213 as compared to $392,710 for the three months ended March 31, 2004. The
increase of $314,503 is due to an increase in payroll expenses of approximately
$62,000 and in increase in employee benefits expense of approximately $41,000.
This increase is primarily a result of the Company’s increase in headcount
from three fulltime employees at March 31, 2004 to five fulltime employees at
March 31, 2005. For the three months ended March 31, 2005, we recognized an
increase in professional fees of approximately $64,000 when compared to the
three months ended March 31, 2004. The increase in professional fees primarily
relates to legal, accounting and public relations expenses. Other increases for
the three months ended March 31, 2005 when compared to the corresponding period
of the previous year is an increase in director and officer insurance of
$21,000. For the three months ended March 31, 2005, we also incurred an increase
to stock-based compensation expense for options issued to employees of
approximately $76,000. In addition, for the three months ended March 31, 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 three months ended March 31, 2004.
 
 *Research
and development expenses.* For the
three months ended March 31, 2005, research and development (“R&D”) expense
was $1,721,725 as compared to $452,086 for the three months ended March 31,
2004. The increase of $1,269,639 is due primarily to an increase in
salaries and other employee benefits of approximately $275,000 which resulted
from increasing our full-time employees from two at March 31, 2004 to nine
full-time employees devoted to R&D at March 31, 2005. For the three months
ended March 31, 2005, we also recognized an increase in professional outside
services of approximately $1,011,000. This increase relates to the continuing
development of our three lead compounds (PT-523, 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 March 31, 2005
when compared to the corresponding period of the previous year is an increase in
travel expense of $58,000. For the three months ended March 31, 2005 we also
incurred a decrease of $75,000 associated with milestone payments related to
advancements in our product candidates in the three months ended March 31, 2004.
For the three months ended March 31, 2005 we also incurred an increase to
stock-based compensation expense for options issued to employees totaling
approximately $81,000 In addition, for the three months ended March 31, 2005 we
experienced a decrease of approximately $102,000 relating to the fair value
option grants to non employees for services rendered for the three months ended
March 31, 2004. Given the current and desired pace of clinical development of
our three product candidates, over the next 9 months we estimate that we will
need approximately $4.8 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. On April
22, 2005, the Company completed a private placement where it sold 3,849,472
shares of its common stock at a price of $1.28 per share resulting in gross
proceeds of approximately $4.93 million. In connection with the private
placement, the Company paid an aggregate of approximately $315,000 in
commissions to placement agents. Based on this private placement the Company
estimates that we will have sufficient capital to fund our research and
development activities through 2006. 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.
 
 11
 *Interest
income (expense), net.* For the
three months ended March 31, 2005, net interest income was $19,567 as compared
to net interest expense of $9,050 for the three months ended March 31, 2004. The
increase of $28,617 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 March 31, 2005, net other expense was $7,504 as compared to
net other income of $130 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 March 31, 2005 was $2,416,875 as compared to $853,716
for the three months ended March 31, 2004. This increase in net loss is
attributable primarily to an increase in research and development expenses of
$1,269,639 and an increase in general and administrative expenses of
$314,503.
 
 **Liquidity
and Capital Resources**
 
 From
inception to March 31, 2005, we have incurred an aggregate net loss of
$10,443,033, 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 March 31, 2005, we had a net increase in cash
and cash equivalents of $4,565,740. This increase primarily resulted from net
cash provided by financing activities of $12,533,155, substantially all of which
was derived from our two private placements which netted us $12,379,155. The
increase in cash provided by financing activities was offset by net cash used in
operating activities of $7,193,296 and net cash used in investing activities of
$774,119 for the cumulative period from inception to March 31,
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. Such
additional funds may not become available on acceptable terms and there can be
no assurance that any additional funding that we do obtain will be sufficient to
meet our needs in the long term. Through March 31, 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 2005 in order to fund our development activities
over the next nine 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 2005, we will likely be forced to
curtail our desired development activities over the next 9 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.
 
 ***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.
 
 ***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 9 months we estimate that we will need
approximately $4.8 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 and the manufacturing and clinical trial costs for our
three product candidates. The remaining amount is devoted to salaries associated
with those individuals in the research and development department. Based on
the recently completed private placement the Company estimates that we will have
sufficient capital to fund our research and development activities through 2006. 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.
 
 12
 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:
 
 §
    the
      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.
 
 
 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 9 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 PT-523,
      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 9 months we expect to spend approximately $4.8
million on clinical development (including milestone payments that we expect to
be triggered under the license agreements relating to our product candidates),
$1.3 million on general corporate, and $90,000 on facilities rent. We expect to
have completed our Phase I trial for PT-523 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***
 
 ***PT-523.*** 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 PT-523
for the treatment of cancer. Phase I trials, which commenced in April 2004, will
involve an estimated 20 - 45 patients, to date twelve patients have received
doses of PT-523. The primary purposes for this study are to evaluate the safety
of PT-523 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 2005, we initiateda Phase I/II study in previously treated non-small cell lung cancer, and
plan to initiate a Phase I/II trial in recurrent Acute Lymphocytic Leukemia
(“ALL”).
 
 13
 PT-523
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 PT-523. Through
March 31, 2005, we have incurred $1,761,218 of costs related to our development
of PT-523, of which $272,205 and $1,027,847 was incurred in fiscal 2003 and
2004, respectively. For the three months ended March 31, 2005, we incurred
$461,166 in the development of PT-523. We currently anticipate that we will need
to expend approximately an additional $1,200,000 to $1,500,000 in development
costs in fiscal 2005 and at least an aggregate of approximately $75 million
until we receive FDA approval for PT-523, 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 PT-523, if ever.
 
 We
believe we currently have sufficient capital to fund development activities of
PT-523 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 PT-523 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 March 31, 2005, we have incurred
$1,259,122 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 $300,000 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. Other
than our purchase of NovaDel shares and the issuance to NovaDel of our shares,
we have not yet expended any significant funds toward development of
OLS. NovaDel is undertaking to complete, at its expense,  an
initial pharmacokinetic, or “PK,” study with respect to OLS in the first
half of 2005. PK studies measure the degree to which a drug is absorbed,
distributed, metabolized and eliminated by the body. Until we receive the
results of the PK study, however, we will not be able to formulate a development
plan for OLS and, therefore, cannot provide any reasonable assessment of the
overall anticipated scope, timing and cost of completing development of
OLS.
 
 **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.
  14
 §
    *PT-523
      License.*Our rights to PT-523 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 PT-523 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 PT-523. 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 PT-523. 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 PT-523 granted prior to the start of a Phase II trial, and 15 percent
      of such fees after initiation of a Phase II clinical trial. See “Item 1 -
      License Agreements - IPdR License.”
 
 
 §
    *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. See “Item 1 - License Agreements -
      IPdR License.”
 
 
 §
    *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. See
      “Item 1 - License Agreements - OLS
License.”
 
 ***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
$91,000.
 
 ***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 $396,000 at March 31, 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 $145,000 at March 31, 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 $375,000 at March 31, 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 $452,000 at March 31, 2005.
 
 **Item
3. Controls and Procedures**
 
 As of
March 31, 2005, we carried out an evaluation, under the supervision and with the
participation of our chief executive and chief financial officer, 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 March 31, 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.
 
 15
 **PART
II - OTHER INFORMATION**
  **Item
1. Legal Proceedings**
 
 None
 
  **Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds**
 
 None
 
  **Item
3. Defualts Upon Senior Securities**
 
 None
  ****
 **Item
4. Submission of Matters to a Vote of Securities Holders**
 
 None
 
 **Item
5. Other Information**
 
 None
 
 **Item
6. Exhibits**
  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: May 13, 2005
    By:
    /s/ Mark J. AhnMark J. AhnPresident
      and Chief Executive OfficerDate: May 13, 2005
    By:
    /s/ Russell L. SkibstedRussell L. SkibstedChief Financial Officer
  16


****Exhibit
Index****
 
 **Exhibit No.**
    **Description**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.
 ****
 17