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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



| | For | the quarterly period ended March 31, 2009
| | --- | -----------------------------------------

or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



| | For | the transition period from                      to
| | --- | --------------------------------------------------

Commission file number 000-23776





DARA BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 04-3216862                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                       |  |           
|------------------------------------------------------ |  | ----------
|8601 Six Forks Road, Suite 160 Raleigh, North Carolina |  | 27615     
|(Address of principal executive offices)               |  | (Zip Code)

Registrants telephone number, including area code: (919) 872-5578







(Former Address if Changed Since Last Report)





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

Common
Stock, Par Value $.01 Per Share

Securities registered pursuant to Section 12(g) of the Act: None

(Title of Class)





Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

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

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



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

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

The number of shares outstanding of the Registrants common stock as of May 14, 2009 was approximately 30,083,412.









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Table of Contents



|                                                                                               |  |     
|---------------------------------------------------------------------------------------------- |  | ----
|                                                                                               |  | Page
|PART IFINANCIAL INFORMATION                                                                   |  |     
|                                                                                               | 
|Item 1.  Financial Statements                                                                  |  | 3   
|Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 15  
|Item 3.  Quantitative and Qualitative Disclosures about Market Risk                            |  | 20  
|Item 4.  Controls and Procedures                                                               |  | 20  
|                                                                                               | 
|PART IIOTHER INFORMATION                                                                      |  |     
|                                                                                               | 
|Item 1.  Legal Proceedings                                                                     |  | 20  
|Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 20  
|Item 3.  Defaults Upon Senior Securities                                                       |  | 21  
|Item 4.  Submission of Matters to a Vote of Security Holders                                   |  | 21  
|Item 5.  Other Information                                                                     |  | 21  
|Item 6.  Exhibits                                                                              |  | 21  



2



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PART IFINANCIAL INFORMATION

Item 1. Financial Statements

DARA BIOSCIENCES, INC.

(a Development Stage Company)

CONSOLIDATED BALANCE SHEET



|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                               |  | March 31,2009 |             |   | December 31,2008 |  
|                                                                                                                                                                               |  | (unaudited)   |             |   |                  |  
|Assets                                                                                                                                                                         |  |               |             |   |                  |   |             |  
|Current assets:                                                                                                                                                                |  |               |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                      |  | $             | 800,819     |   |                  | $ | 959,898     |  
|Marketable securities                                                                                                                                                          |  |               | 97,670      |   |                  |   | 1,656,408   |  
|Interest receivable                                                                                                                                                            |  |               | 431         |   |                  |   |            |  
|Prepaid expenses, current portion                                                                                                                                              |  |               | 248,307     |   |                  |   | 113,694     |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total current assets                                                                                                                                                           |  |               | 1,147,227   |   |                  |   | 2,730,000   |  
|Furniture, fixtures and equipment, net                                                                                                                                         |  |               | 99,627      |   |                  |   | 112,253     |  
|Restricted Cash                                                                                                                                                                |  |               | 78,105      |   |                  |   | 78,105      |  
|Prepaid expenses, net of current portion                                                                                                                                       |  |               | 268,663     |   |                  |   | 285,996     |  
|Prepaid license fee, net                                                                                                                                                       |  |               | 430,000     |   |                  |   | 460,000     |  
|Investments                                                                                                                                                                    |  |               | 173,889     |   |                  |   | 222,479     |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total assets                                                                                                                                                                   |  | $             | 2,197,511   |   |                  | $ | 3,888,833   |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Liabilities and stockholders equity                                                                                                                                           |  |               |             |   |                  |   |             |  
|Current liabilities:                                                                                                                                                           |  |               |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                               |  | $             | 664,251     |   |                  | $ | 866,081     |  
|Accrued liabilities                                                                                                                                                            |  |               | 922,814     |   |                  |   | 328,117     |  
|Note payable                                                                                                                                                                   |  |               | 50,316      |   |                  |   |            |  
|Capital lease obligation, current portion                                                                                                                                      |  |               | 13,742      |   |                  |   | 12,951      |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                      |  |               | 1,651,123   |   |                  |   | 1,207,149   |  
|                                                                                                                                                                               |  |              
|Deferred lease obligation                                                                                                                                                      |  |               | 7,911       |   |                  |   | 5,933       |  
|Accrued interest on note payable                                                                                                                                               |  |               | 6,667       |   |                  |   |            |  
|Note payablelong term                                                                                                                                                         |  |               | 500,000     |   |                  |   |            |  
|Other liability                                                                                                                                                                |  |               | 256,974     |   |                  |   | 253,174     |  
|Capital lease obligation, net of current portion                                                                                                                               |  |               | 45,226      |   |                  |   | 48,973      |  
|Patent obligation                                                                                                                                                              |  |               | 20,261      |   |                  |   | 20,261      |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                              |  |               | 2,488,162   |   |                  |   | 1,535,490   |  
|                                                                                                                                                                               |  |              
|Equity (deficit):                                                                                                                                                              |  |               |             |   |                  |   |             |  
|Common stock, $.01 par value; 75,000,000 shares authorized, 30,112,579 issued and outstanding as of March 31, 2009. 30,113,829 issued and
outstanding as of December 31, 2008. |  |               | 301,126     |   |                  |   | 301,138     |  
|Additional paid in capital                                                                                                                                                     |  |               | 24,442,846  |   |                  |   | 24,296,934  |  
|Accumulated other comprehensive income                                                                                                                                         |  |               | 97,426      |   |                  |   | 1,656,008   |  
|Deficit accumulated during the development stage                                                                                                                               |  |               | (25,736,443 | ) |                  |   | (24,549,937 | )
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total stockholders equity (deficit)                                                                                                                                           |  |               | (895,045    | ) |                  |   | 1,704,143   |  
|Noncontrolling interest                                                                                                                                                        |  |               | 604,394     |   |                  |   | 649,200     |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total equity (deficit)                                                                                                                                                         |  |               | (290,651    | ) |                  |   | 2,353,343   |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  
|Total liabilities and equity (deficit)                                                                                                                                         |  | $             | 2,197,511   |   |                  | $ | 3,888,833   |  
|                                                                                                                                                                               |  |               |             |   |                  |   |             |  

See accompanying notes.

The accompanying notes are an integral part of these consolidated financial statements.



3



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DARA BIOSCIENCES, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|-------------------------------------------------------------------- |  | --------------------------- | ---------- | - | --------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                     |  | Three months endedMarch 31, |            |   | Period from June 22,2002 (inception)through March 31,2009 |  
|                                                                     |  | 2009                        |            |   | 2008                                                      |   |           
|Operating expenses:                                                  |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Research and development                                             |  | $                           | 890,558    |   |                                                           | $ | 1,462,112  |   |  | $ | 18,261,629  |  
|General and administrative                                           |  |                             | 961,466    |   |                                                           |   | 1,221,532  |   |  |   | 17,568,990  |  
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Total operating expenses                                             |  |                             | 1,852,024  |   |                                                           |   | 2,683,644  |   |  |   | 35,830,619  |  
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Loss from operations                                                 |  |                             | (1,852,024 | ) |                                                           |   | (2,683,644 | ) |  |   | (35,830,619 | )
|                                                                     |  |                             |           
|Other income (expense):                                              |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Gain on distribution of nonmonetary asset                            |  |                             | 551,410    |   |                                                           |   |           |   |  |   | 5,220,453   |  
|Other income (expense), net                                          |  |                             |           |   |                                                           |   |           |   |  |   | 135,899     |  
|Interest (expense) income                                            |  |                             | (9,227     | ) |                                                           |   | 188,102    |   |  |   | 781,858     |  
|Loss on disposal of assets                                           |  |                             | (2,785     | ) |                                                           |   |           |   |  |   | (18,766     | )
|Gain on sale of marketable securities                                |  |                             | 81,314     |   |                                                           |   |           |   |  |   | 5,730,946   |  
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Other income (expense)                                               |  |                             | 620,712    |   |                                                           |   | 188,102    |   |  |   | 11,850,390  |  
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Loss before undistributed loss in equity method investments          |  |                             | (1,231,312 | ) |                                                           |   | (2,495,542 | ) |  |   | (23,980,229 | )
|Undistributed loss in equity method investments                      |  |                             |           |   |                                                           |   |           |   |  |   | (2,374,422  | )
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Consolidated net loss                                                |  |                             | (1,231,312 | ) |                                                           |   | (2,495,542 | ) |  |   | (26,354,651 | )
|Net loss attributable to non-controlling interest                    |  |                             | 44,806     |   |                                                           |   | 74,432     |   |  |   | 837,555     |  
|Net loss attributable to controlling interest                        |  | $                           | (1,186,506 | ) |                                                           | $ | (2,421,110 | ) |  | $ | (25,517,096 | )
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Basic and diluted net loss per common share                          |  | $                           | (0.04      | ) |                                                           | $ | (0.09      | ) |  |   |             |  
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Shares used in computing basic and diluted net loss per common share |  |                             | 30,112,926 |   |                                                           |   | 27,963,118 |   |  |   |             |  
|                                                                     |  |                             |            |   |                                                           |   |            |   |  |   |             |  

See accompanying notes.

The accompanying notes are an integral part of these consolidated financial statements.



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DARA BIOSCIENCES, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|--------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | --------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                            |  | Three months endedMarch 31, |            |   | Period From June 22,2002
(inception)through March 31,2009 |  
|                                                                            |  | 2009                        |            |   | 2008                                                      |   |           
|Operating activities                                                        |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Consolidated net loss                                                       |  | $                           | (1,231,312 | ) |                                                           | $ | (2,495,542 | ) |  | $ | (26,354,651 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Depreciation and amortization                                               |  |                             | 57,024     |   |                                                           |   | 37,443     |   |  |   | 315,684     |  
|Forgiveness of stock subscription receivable                                |  |                             |           |   |                                                           |   |           |   |  |   | 242,500     |  
|Recognition of expense related to nonmonetary asset                         |  |                             |           |   |                                                           |   |           |   |  |   | 1,035,589   |  
|Loss from equity investment                                                 |  |                             |           |   |                                                           |   |           |   |  |   | 2,374,422   |  
|Accretion of debt discount                                                  |  |                             |           |   |                                                           |   |           |   |  |   | 406,359     |  
|Shares issued to directors for services                                     |  |                             | 10,999     |   |                                                           |   | 27,500     |   |  |   | 147,539     |  
|Share-based compensation                                                    |  |                             | 134,901    |   |                                                           |   | 275,637    |   |  |   | 4,010,904   |  
|Expense of warrants issued with convertible notes                           |  |                             |           |   |                                                           |   |           |   |  |   | 4,860       |  
|Expense of warrants issued to placement agent                               |  |                             |           |   |                                                           |   |           |   |  |   | 183,214     |  
|Loss on disposal of furniture, fixtures and equipment                       |  |                             | 2,785      |   |                                                           |   |           |   |  |   | 36,805      |  
|Distribution of investment for compensation                                 |  |                             | 100,000    |   |                                                           |   |           |   |  |   | 100,000     |  
|Gain on distribution of nonmonetary asset                                   |  |                             | (551,410   | ) |                                                           |   |           |   |  |   | (5,220,453  | )
|Gain on sale of marketable securities                                       |  |                             | (81,314    | ) |                                                           |   |           |   |  |   | (5,730,946  | )
|Deferred lease obligation                                                   |  |                             | 1,978      |   |                                                           |   | (2,019     | ) |  |   | 7,912       |  
|Changes in operating assets and liabilities:                                |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Interest receivable                                                         |  |                             | (431       | ) |                                                           |   | (53,518    | ) |  |   | (431        | )
|Prepaid license fee and other prepaid expenses                              |  |                             | (84,297    | ) |                                                           |   | (157,378   | ) |  |   | (603,350    | )
|Due from affiliates                                                         |  |                             |           |   |                                                           |   | (17,184    | ) |  |   |            |  
|Accounts payable                                                            |  |                             | (201,830   | ) |                                                           |   | 419,440    |   |  |   | 334,251     |  
|Accrued liabilities                                                         |  |                             | 601,364    |   |                                                           |   | (223,891   | ) |  |   | 224,104     |  
|Other liability                                                             |  |                             | 3,800      |   |                                                           |   |           |   |  |   | 19,426      |  
|                                                                            |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Net cash used in operating activities                                       |  |                             | (1,237,743 | ) |                                                           |   | (2,189,512 | ) |  |   | (28,466,262 | )
|                                                                            |  |                             |           
|Investing activities                                                        |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Purchases of furniture, fixtures, and equipment                             |  |                             |           |   |                                                           |   | (10,828    | ) |  |   | (189,063    | )
|Proceeds from sale of furniture, fixtures, and equipment                    |  |                             | 150        |   |                                                           |   |           |   |  |   | 4,466       |  
|Payments on capital lease                                                   |  |                             | (2,956     | ) |                                                           |   |           |   |  |   | 761         |  
|Issuance of notes receivable                                                |  |                             |           |   |                                                           |   |           |   |  |   | (1,400,000  | )
|Proceeds from sale of marketable securities                                 |  |                             | 81,470     |   |                                                           |   |           |   |  |   | 1,854,557   |  
|Payments on notes receivable                                                |  |                             |           |   |                                                           |   |           |   |  |   | 711,045     |  
|Cash provided in the merger                                                 |  |                             |           |   |                                                           |   | 771,670    |   |  |   | 771,671     |  
|Purchase of investments in affiliates                                       |  |                             |           |   |                                                           |   |           |   |  |   | (2,471,400  | )
|Proceeds from sale of investments                                           |  |                             | 500,000    |   |                                                           |   |           |   |  |   | 4,405,692   |  
|                                                                            |  |                             |            |   |                                                           |   |            |   |  |   |             |  
|Net cash provided by investing activities                                   |  |                             | 578,664    |   |                                                           |   | 760,842    |   |  |   | 3,687,729   |  



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DARA BIOSCIENCES, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)



|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|-------------------------------------------------------------------------- |  | --------------------------- | -------- | - | --------------------------------------------------------- | - | ---------- | - |  | - | ---------- | -
|                                                                           |  | Three months endedMarch 31, |          |   | Period From June 22,2002
(inception)through March 31,2009 |  
|                                                                           |  | 2009                        |          |   | 2008                                                      |   |           
|Financing activities                                                       |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|Proceeds from issuance of notes payable                                    |  |                             | 500,000  |   |                                                           |   |           |   |  |   | 605,000    |  
|Principal payments on notes payable                                        |  |                             |         |   |                                                           |   |           |   |  |   | (255,000   | )
|Proceeds from exercise of options and warrants                             |  |                             |         |   |                                                           |   |           |   |  |   | 80,051     |  
|Proceeds from issuance of common stock and warrants, net of issuance costs |  |                             |         |   |                                                           |   |           |   |  |   | 25,227,406 |  
|Establishment of restricted cash                                           |  |                             |         |   |                                                           |   |           |   |  |   | (78,105    | )
|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|Net cash provided by financing activities                                  |  |                             | 500,000  |   |                                                           |   |           |   |  |   | 25,579,352 |  
|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|Net (decrease) increase in cash and cash equivalents                       |  |                             | (159,079 | ) |                                                           |   | (1,428,670 | ) |  |   | 800,819    |  
|Cash and cash equivalents at beginning of period                           |  |                             | 959,898  |   |                                                           |   | 8,263,006  |   |  |   |           |  
|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|Cash and cash equivalents at end of period                                 |  | $                           | 800,819  |   |                                                           | $ | 6,834,336  |   |  | $ | 800,819    |  
|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|Supplemental disclosure of non-cash financing activity                     |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|Equipment purchased through financing                                      |  | $                           |         |   |                                                           | $ |           |   |  | $ | 91,676     |  
|Advances to stockholders for stock issued                                  |  |                             |         |   |                                                           |   |           |   |  |   | 1,040      |  
|Payable accrued for stock issuance                                         |  |                             |         |   |                                                           |   |           |   |  |   | 350,000    |  
|Note issued for stock issuance                                             |  |                             |         |   |                                                           |   |           |   |  |   | 150,000    |  
|Note issued for prepaid license fee                                        |  |                             |         |   |                                                           |   |           |   |  |   | 1,000,000  |  
|Note received for stock issuance                                           |  |                             |         |   |                                                           |   |           |   |  |   | (242,500   | )
|Stock received for consideration of outstanding loans                      |  |                             |         |   |                                                           |   |           |   |  |   | (427,280   | )
|Forgiveness of stock subscription receivable                               |  |                             |         |   |                                                           |   |           |   |  |   | 242,500    |  
|Shares issued to directors for services                                    |  |                             |         |   |                                                           |   | 27,500     |   |  |   | 136,540    |  
|Shares issued to third party for services                                  |  |                             |         |   |                                                           |   |           |   |  |   | 322,261    |  
|Conversion of note into equity of subsidiary                               |  |                             |         |   |                                                           |   |           |   |  |   | 1,441,948  |  
|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  
|                                                                           |  | $                           |         |   |                                                           | $ | 27,500     |   |  | $ | 3,066,185  |  
|                                                                           |  |                             |          |   |                                                           |   |            |   |  |   |            |  



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DARA BIOSCIENCES, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The Company

DARA BioSciences, Inc (the
Company or DARA), headquartered in Raleigh, North Carolina, was incorporated on June 22, 2002. The Company is a development stage company that acquires therapeutic drug candidates for development and subsequent
licensing or sale to biotechnology and pharmaceutical companies.

The activities of the Company have primarily consisted of establishing offices,
recruiting personnel, conducting research and development, performing business and financial planning and raising capital. Accordingly, the Company is considered to be in the development stage. The Company has incurred losses since inception through
March 31, 2009 of $25,517,096 and expects to continue to incur losses and require additional financial resources to achieve commercialization of its products.

The Companys business is subject to significant risks consistent with specialty pharmaceutical and biotechnology companies that are developing technologies and eventually products for human therapeutic use. These risks include, but
are not limited to, uncertainties regarding research and development, access to capital, obtaining and enforcing patents, receiving regulatory approval and competition with other biotechnology and pharmaceutical companies.

Going Concern

The Company has incurred significant net losses and
has had negative cash flows from operations during each period from inception through March 31, 2009 and has a deficit accumulated during the development stage of $25,736,443 at March 31, 2009. Management expects operating losses and
negative cash flows to continue during 2009 and into the foreseeable future.

At March 31, 2009 management believes that currently available cash and
cash equivalents and marketable securities together with existing financing agreements would provide sufficient funds to enable the Company to meet its obligations through June of 2009. To date, the Company has principally raised capital through
public and private placements of its equity securities. Management plans to continue to finance the Companys operations with a combination of equity issuances and debt arrangements, as well as pursuing collaborative revenue generating
arrangements with healthcare companies. If adequate funds are not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its development programs or obtain funds through collaborative arrangements with
others that may require the Company to relinquish rights to certain of its technologies, product candidates or products that the Company would otherwise seek to develop or commercialize itself.

The accompanying unaudited consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the
realization of assets and the settlement of liabilities and commitments in the normal course of business. However, as presented in the unaudited consolidated financial statements at March 31, 2009, DARA had unrestricted cash of $800,819 and the
Company also incurred a net loss attributable to controlling interest of $1,186,506 and negative cash flows from operations of $1,237,743 during the three month period ended March 31, 2009. As a result, there exists substantial doubt about the
Companys ability to continue as a going concern. The unaudited consolidated financial statements as of and for the period ended March 31, 2009 do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Companys ability to continue as a going concern.

Unaudited Interim Financial Statements

The accompanying unaudited interim financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) and applicable Securities and Exchange Commission (SEC) regulations for interim financial information. These financial statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal recurring accruals) necessary to present fairly the consolidated balance sheets, consolidated statements of operations and consolidated statements of cash flows for the periods
presented in accordance with GAAP. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.



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Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP
have been condensed or omitted pursuant to SEC rules and regulations.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements
include the accounts of DARA BioSciences, Inc. and its majority-owned subsidiaries: DARA Therapeutics, Inc. and Signum Pharmaceuticals, Inc. The Company has control of all subsidiaries, and as such they are all consolidated in the presentation of
the consolidated financial statements. All significant intercompany transactions have been eliminated in the consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual amounts could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate their fair value.

Investments

The Company accounts for its investment in marketable securities in accordance with Statement of Financial Accounting Standards (SFAS) No. 115,Accounting for Certain Investments in Debt and Equity Securities (SFAS 115).This statement requires certain securities to be classified into three categories:

Held-to-maturityDebt securities that the entity has the positive intent and ability to hold to maturity are reported at amortized cost.

Trading SecuritiesDebt and equity securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.

Available-for-SaleDebt and equity securities not classified as either securities held-to-maturity or trading securities are reported at fair value
with unrealized gains or losses excluded from earnings and reported as a separate component of shareholders equity.

Investments in marketable
securities with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations.

In accordance with SFAS 115, the Company reassesses the appropriateness of the classification of its investments as of the end of each reporting period. To date, all
marketable securities have been classified as available-for-sale, and are carried at fair value with unrealized gains and losses reported as a component of accumulated other comprehensive income (loss) in stockholders equity (deficit).

The Company utilizes SFAS No. 157, Fair Value Measurements (SFAS 157) to value its financial assets and liabilities.

SFAS 157s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources,
while unobservable inputs reflect our market assumptions. SFAS 157 classifies these inputs into the following hierarchy:

Level 1 InputsQuoted prices
for identical instruments in active markets.

Level 2 InputsQuoted prices for similar instruments in active markets; quoted prices for identical or
similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.



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Level 3 InputsInstruments with primarily unobservable value drivers.

In determining fair value, the Company utilizes techniques to optimize the use of observable inputs, when available, and minimize the use of unobservable inputs to the
extent possible. As such, the Company uses valuation models in determining fair value. Based on this valuation technique, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including
assumptions about risk and or risks inherent in the inputs.

The Companys other investments include investments in privately-held
companies. Pursuant to APB 18, The Equity Method of Accounting for Investments in Common Stock, the Company accounts for these investments either at historical cost, or if the Company has significant influence over the investee, the
Company accounts for these investments using the equity method of accounting. The Company reviews all investments for indicators of impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of the
assets may not be recoverable. In making impairment determinations for investments in privately-held companies, the Company considers certain factors, including each companys cash position, financing needs, earnings, revenue outlook,
operational performance, management or ownership changes as well as competition. In making impairment determinations for investments of available-for-sale securities, the Company also reviews the current market price for other-than-temporary
declines in values following the guidance required by Financial Accounting Standards Board (FASB) Staff Position 115-1, The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment
are recorded at cost and depreciated over the estimated useful lives of the assets (three to fifteen years) using the straight-line method.

Research
and Development Costs

The Company expenses research and development costs as incurred. Research and development costs include personnel and personnel
related costs, costs associated with clinical trials, including amounts paid to contract research organizations and clinical investigators, manufacturing, process development and clinical product supply costs, research costs and other consulting and
professional services, and allocated facility and related expenses.

Share-Based Compensation Valuation and Expense

Share-based compensation is accounted for using the fair value method prescribed by SFAS No. 123R, Share-Based Payment (SFAS 123R). For stock and
stock-based awards issued to employees, a compensation charge is recorded against earnings based on the fair value of the award on the date of grant. For transactions with non-employees in which services are performed in exchange for the
Companys common stock or other equity instruments, the transactions are recorded on the basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date of
issuance.

Income Taxes

The Company uses the liability
method in accounting for income taxes as required by SFAS No. 109, Accounting for Income Taxes (SFAS 109). Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards
and for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of
operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.

Concentration of Credit Risk

Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and marketable securities. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits.

Comprehensive Income (Loss)

Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires components of other comprehensive income, including gains and losses on available-for-sale investments, to be included as part of total
comprehensive income. The Company displays comprehensive income (loss) and its components as part of the statement of



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stockholders equity (deficit) in its annual financial statements. Comprehensive income (loss) consists of net loss
and unrealized gains and losses on available-for-sale investments.

As of March 31, 2009, an unrealized gain of $97,426 has been recorded in
accumulated other comprehensive income in the accompanying unaudited Consolidated Balance Sheet. Comprehensive loss consists of net loss and unrealized gains and losses on available-for-sale investments. Comprehensive loss was $1,089,080 and
$225,099 for the three month periods ended March 31, 2009 and 2008, respectively.

Net (Loss) Earnings Per Common Share

The Company calculates its basic (loss) earnings per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share,by dividing the earnings or loss applicable to common stockholders by the weighted-average number of common shares outstanding for the period less the weighted average unvested common shares subject to forfeiture and
without consideration for common stock equivalents. Diluted (loss) earnings per share is computed by dividing the earnings or loss applicable to common stockholders by the weighted-average number of common share equivalents outstanding for the
period less the weighted average unvested common shares subject to forfeiture and dilutive common stock equivalents for the period determined using the treasury-stock method. For the three month periods ended March 31, 2009 and 2008, 4,277,511
warrants, 1,445,165 options and 635,264 warrants, 1,561,432 options respectively, have been excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive.



|                                                                   |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                   |  | Three months endedMarch 31, |           
|                                                                   |  | 2009                        |            |   | 2008 |  
|Net loss attributable to controlling interest                      |  | $                           | (1,186,506 | ) |      | $ | (2,421,110 | )
|                                                                   |  |                             |            |   |      |   |            |  
|Basic and diluted net loss per share:                              |  |                             |            |   |      |   |            |  
|Weighted-average shares used in computing basic net loss per share |  |                             | 30,112,926 |   |      |   | 27,963,118 |  
|                                                                   |  |                             |            |   |      |   |            |  
|Basic and diluted net loss per common share                        |  | $                           | (0.04      | ) |      | $ | (0.09      | )
|                                                                   |  |                             |            |   |      |   |            |  

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, provides a consistent framework for
measuring fair value under GAAP and expands fair value financial statement disclosure requirements. SFAS 157 does not require any new fair value measurements. It only applies to accounting pronouncements that already require or permit fair value
measures, except for standards that relate to share-based payments (SFAS 123R, Share Based Payment). SFAS 157 is effective for fiscal years beginning after November 15, 2007. Effective January 1, 2008, the Company adopted
the provisions of SFAS 157. The adoption of SFAS 157 had no effect on the consolidated financial statements.

Effective January 1, 2008, the
Company adopted Emerging Issues Task Force (EITF) Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities (EITF 07-3).
Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. Such amounts should be recognized as an expense as the related goods are delivered
or the services are performed, or when the goods or services are no longer expected to be provided. The Companys adoption of EITF 07-3 did not have a material effect on the Companys consolidated results of operations and financial
position.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Non-controlling Interests in Consolidated
Financial Statementsan amendment of ARB No. 51 (SFAS 160). SFAS 160 requires that non-controlling interests (previously referred to as minority interests) be clearly identified and presented as a component of
equity, separate from the parents equity. SFAS 160 also requires that the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the
consolidated statement of income; that changes in ownership interest be accounted for as equity transactions; and that when a subsidiary is deconsolidated, any retained non-controlling equity investment in that subsidiary and the gain
or loss on the deconsolidation of that subsidiary be measured at fair value. SFAS 160 is to be applied prospectively, except for the presentation and disclosure requirements (which are to be applied retrospectively for all periods presented) and is
effective for fiscal years beginning after December 15, 2008. Effective January 1, 2009, the Company adopted SFAS 160. The effect was an increase in Total equity (deficit) of $604,394 as of March 31, 2009 and $649,200 for
December 31, 2008. There was no material effect to the Companys consolidated results of operations.



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FAS 160 also requires retrospective application of its disclosure and presentation requirements for all periods
presented. Accordingly, noncontrolling interests at December 31, 2008 and March 31, 2008, which were previously reported as minority interest in subsidiary, have been reclassified as a separate component of equity. Furthermore, net
earnings previously reported as minority interest in subsidiary for the three months ended March 31, 2008 have been presented as attributable to noncontrolling interest.

In November 2007, the EITF ratified a consensus on EITF 07-1, Accounting for Collaborative Arrangements, or EITF 07-1, which requires participants in a collaboration to make separate disclosures regarding the
nature and purpose of an arrangement, their rights and obligations under the arrangement, the accounting policy for the arrangement and the income statement classification and amounts arising from the arrangement between participants for each period
an income statement is presented. EITF 07-1 is effective beginning January 1, 2009. The Companys adoption of EITF 07-1 did not have a material effect on the Companys consolidated results of operations and financial position.

Certain 2008 amounts have been reclassified to conform to the 2009 presentation. The reclassifications had no impact on previously reported results of
operations, financial position, or cash flows.

3. Investments

MiMedx (NASDAQ: MDXG.OB)

The Companys marketable securities classified as available-for-sale entirely consist of equity securities in
MiMedx Group, Inc. (OTBB:MDXG), formerly Spine Medica, Inc. MiMedx became a publicly traded company on February 8, 2008. The Company had carried the investment at cost of $400 and classified it as a long-term investment in fiscal years prior to
that date.

The Company was restricted from selling the shares until February 9, 2009 upon which date the Company became able to sell shares to
improve its cash position. Utilizing SFAS 157, the valuation of MiMedx was based upon Level 3 inputs which included applying a lack-of-marketability discount to the quoted market price of MiMedx common stock as of December 31, 2008. This
resulted in a fair value of $1,656,000 as of December 31, 2008 which represented an unrealized gain of $1,656,000 for the year.

In the period
subsequent to December 31, 2008, the restriction from selling shares of MiMedx was lifted and the market value declined to $0.40 as of March 31, 2009. The Company has sold 143,937 shares of MiMedx since February 9, 2009 realizing a
gain on the sale of marketable securities of $81,314. The current market value of the Companys investment in MiMedx at March 31, 2009 is $97,670.

The Company does not have any other assets measured at fair value that would require non-recurring fair value adjustments (for example, where there is evidence of impairment).

SurgiVision, Inc.

SurgiVision, Inc. (SVI) is developing real-time devices to be used with Functional MRI
Technology. The company is targeting clinical solutions in areas such as MRI-guided deep brain stimulation and cardiac ablation to treat atrial fibrillation. The Companys initial investment of $2,000,000 for 9,094,970 shares was in 2004. In
2006, the Company distributed a dividend of 6,166,312 and 178,688 shares of SVI common stock to all investors and vested stock option holders, respectively. The remaining investment of 2,749,970 shares was carried at cost of $222,479 at
December 31, 2008.

In January 2009, the Company entered into a stock purchase and loan agreement and related agreements (the Purchase and Loan
Agreement) with SVI in which the Company received $1,000,000 of total proceeds. The Company sold 500,000 of its 2,749,970 shares of SVI at $1.00 per share. In addition the Company entered into a loan agreement secured by 500,000 shares of the
Companys SVI stock (See Footnote 4). The Company recorded a gain of $459,500 on distribution of nonmonetary asset.

Also in January 2009, the board
of directors distributed 25,000 shares each, to three independent members of the board valued at $1.00 per share. The Company distributed an additional 25,000 shares valued at $1.00 per share as severance to its former Chief Financial Officer. The
Company recorded compensation expense of $100,000 and a gain of $91,910 on distribution of nonmonetary asset.

As of March 31, 2009, the remaining
investment of 2,149,970 shares was carried at cost of $173,889.



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Medeikon, Corporation

Medeikon Corporation (Medeikon) is developing technology focusing on the diagnostics of vulnerable plaque using an optical detection system. The Companys investment represents approximately 25.4% of the outstanding shares of Medeikon
at March 31, 2009.

The Companys share of Medeikons loss for the year ended December 31, 2006 exceeded its basis. The loss of a
minority interest is limited to the extent of equity capital. Application of the equity method resulted in an equity method loss in Medeikon of $1,050,000 for the period from June 22, 2002 (inception) through March 31, 2009. The carrying
value at March 31, 2009 and 2008 of the investment in Medeikon was $0.

4. Note Payable

On January 30, 2009, the Company entered into a stock purchase and loan agreement and related agreements (the Purchase and Loan Agreement) with SurgiVision, Inc.
(SVI) pursuant to which the Company received $1,000,000 of total proceeds. The Company sold 500,000 of its 2,749,970 shares of SVI at $1.00 per share. The Company also entered into a loan agreement for $500,000 at 8% interest per annum due
July 30, 2010. As collateral security for this loan, DARA pledged to SVI 500,000 additional SVI shares owned by the Company (See Footnote 3).

5.
Merger

On February 12, 2008, DARA and Point Therapeutics, Inc. (Point) merged. The Directors of Point and DARA, respectively, believed
that by combining Point and DARA, the combined company would generate improved long-term operating and financial results and establish a stronger competitive position in the industry by gaining access to greater resources, diversification and
increased access to capital. In merging with Point, the DARA board also considered the potential for increased liquidity for its stockholders expected as the result of the Merger.

Following the effectiveness of the Merger, Point changed its corporate name to DARA BioSciences, Inc. and changed its ticker symbol on the NASDAQ Capital Market to DARA. The Merger was intended, among
other things, to allow the business of privately-held DARA to be conducted by the Company given that DARAs business became the primary business of the Company following the Merger.

The Merger was accounted for as a reverse acquisition under the purchase method of accounting for business combinations in accordance with GAAP. Under this method of accounting, Point is treated as the acquired
company for financial reporting purposes. On February 12, 2008, Point had approximately $762,000 in unrestricted cash. Under the terms of the Merger Agreement, as of the closing of the Merger, the former holders of DARA equity securities
acquired 96.4% of the capital stock of the Company (on a fully diluted basis). Immediately following the Merger, the Board of Directors of the Company consisted of six directors, all of whom were former directors of DARA. In addition, the senior
management team of DARA manages the operations of the Company, with the exception of the Chairman of the Board of Directors and Chief Executive Officer who resigned from the Company as of March 21, 2008. In accordance with guidance
applicable to these circumstances, the Merger was considered to be a capital transaction in substance. Accordingly, for accounting purposes, the Merger was treated as the equivalent of the Company issuing stock for the net assets of Point. The net
assets of Point were stated at fair value, which approximates historical cost, with no goodwill or other intangible assets recorded. The Companys deficit accumulated in the development stage was carried forward after the Merger. Following is
the allocation of the purchase price to the net assets of Point based on fair values:



|                                  |  |   |           |  
|--------------------------------- |  | - | --------- | -
|Cash                              |  | $ | 772,000   |  
|Other current assets              |  |   | 480,000   |  
|Fixed assets, net of depreciation |  |   | 56,000    |  
|Accrued liabilities               |  |   | (837,000  | )
|Merger transaction cost expensed  |  |   | 1,272,000 |  
|                                  |  |   |           |  
|Total purchase price              |  | $ | 1,743,000 |  
|                                  |  |   |           |  

The Merger had no effect on loss per share.

6. Commitments and Contingencies

On March 10, 2009, the United States Food and Drug Administration
(FDA) cleared the Companys Investigational New Drug Application (IND) for DB959, allowing DARA to commence Phase 1 studies in humans. DB959 is a unique, first-in-class dual peroxisome proliferator activated receptor
(PPAR) delta/gamma agonist and is intended for use in the treatment



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of Type 2 Diabetes Mellitus (T2D) including addressing the abnormalities in cholesterol and triglycerides in
these patients. DARA plans to study DB959 as both monotherapy and in combination with other standard glucose lowering agents such as metformin, dipeptidyl-peptidase IV (DPP IV) inhibitors, sulphonylureas (SU), and metformin/SU
combinations. DARA is in the process of evaluating strategies for raising additional capital and/or forming strategic partnerships to fund further clinical development. Under the terms of its third party license agreement, this IND approval triggers
a $500,000 milestone payment to be paid within 90 days. The Company accrued this $500,000 expense in research and development expense at March 31, 2009.

From time to time, the Company is exposed to various claims, threats, and legal actions in the ordinary course of business. Management was aware of no such matters as of the date of these financial statements.

7. Income Taxes

The Company recorded no tax expense in either of the
three months ended March 31, 2009 or 2008.

The Company maintains a full valuation allowance against its net deferred tax assets and will continue to
do so until an appropriate level of profitability is sustained or tax strategies can be developed that would enable the Company to conclude that it is more likely than not that a portion of these net deferred assets would be realized.

The Company adopted the provisions of FASB Interpretation No.48 Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
as of January 1, 2007. As of January 1, 2009 the Company had approximately $253,174 of unrecognized tax liabilities. The total balance of unrecognized liabilities at March 31, 2009 of $256,974, if recognized, would affect the
effective tax rate. Consistent with prior periods, the Company recognized interest and penalties within its income tax provision.

8. Stockholders
Equity (Deficit)

Pursuant to the Merger, each share of DARA common stock and preferred stock issued and outstanding immediately prior to the effective
time of the merger ceased to be outstanding and was converted into the right to receive 1.031406 shares of post-merger Company common stock, plus cash in lieu of any fractional shares. Additionally, outstanding options and warrants to purchase
shares of DARA common stock became options and warrants to purchase shares of post-merger Company common stock adjusted as follows: the number of shares acquirable upon exercise was multiplied by 1.031406 and the exercise price per share was divided
by 1.031406. As a result of the transaction, the former DARA stockholders received 96.4% of the Companys outstanding shares of common stock on a fully-diluted basis and Merger Sub merged with and into DARA, with DARA surviving as a
wholly-owned subsidiary of the Company.

9. Stock-Based Compensation

Effective with the adoption of SFAS 123R, Share Based Payments as of January 1, 2006, the Company has elected to use the Black-Scholes option pricing model to determine the fair value of options granted.
Share price volatility is based on an analysis of historical stock price data reported for a peer group of public companies. The expected life is the length of time options are expected to be outstanding before being exercised. The Company estimates
expected life using the simplified method as allowed under the provision of the Securities and Exchange Commissions Staff Accounting Bulletin No. 107, Share-Based Payment. The simplified method uses an average of the
option vesting period and the options original contractual term. The Company uses the implied yield of U.S. Treasury instruments with terms consistent with the expected life of options as the risk-free interest rate. SFAS 123R requires
companies to estimate a forfeiture rate for options and accordingly reduce the compensation expense reported. The Company used historical data among other factors to estimate the forfeiture rate.

The fair value of our options granted to employees was estimated using a Black-Scholes option-pricing model and the following weighted-average assumptions:



|                                          |  |                                 |   |  |                                 |  
|----------------------------------------- |  | ------------------------------- | - |  | ------------------------------- | -
|                                          |  | Three monthsended March 31,2009 |   |  | Three monthsended March 31,2008 |  
|Expected dividend yield                   |  |                                |   |  |                                |  
|Expected volatility                       |  | 81.44                           | % |  | 75.00                           | %
|Weighted-average expected life (in years) |  | 5.50                            |   |  | 5.80                            |  
|Risk free interest rate                   |  | 2.05                            | % |  | 3.00                            | %
|Forfeiture rate                           |  | 10.00                           | % |  | 10.00                           | %



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The Companys consolidated statements of operations for the three month periods ended March 31, 2009 and 2008,
respectively, include the following stock-based compensation expense related to issuances of stock options which the Company recognized as stock-based compensation expense to employees and non-employee consultants and board members as follows:



|                               |  |                             |         |      |   |        
|------------------------------ |  | --------------------------- | ------- | ---- | - | -------
|                               |  | Three months endedMarch 31,
|                               |  | 2009                        |         | 2008
|Research and development       |  | $                           | 66,138  |      | $ | 88,743 
|General and administrative     |  |                             | 79,762  |      |   | 214,394
|                               |  |                             |         |      |   |        
|Total stock-based compensation |  | $                           | 145,900 |      | $ | 303,137
|                               |  |                             |         |      |   |        

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of Emerging
Issues Task Force (EITF) No.96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services, using a fair-value approach. The equity instruments, consisting of
shares of restricted stock, stock options and warrants granted to lenders and consultants, are valued using the Black-Scholes valuation model. The measurement of stock-based compensation is subject to periodic adjustments as the underlying equity
instruments vest and is recognized as an expense over the term of the related financing or the period over which services are received. For the periods ended March 31, 2009 and 2008, employee option expense was $52,778 and $88,743 for research
and development, respectively; and $67,470 and $186,894 for general and administrative, respectively. For the periods ended March 31, 2009 and 2008, non-employee option expense was $13,360, and $0 for research and development consultant
expense; and $1,293 and $0 general and administrative consultant expense, respectively. For the periods ended March 31, 2009 and 2008, non-employee option expense was $0 and $27,500 for general and administrative board of director expense. The
Company recognized restricted stock-based compensation expense to certain members of the board of directors of $10,999 and $0 for the three month periods ended March 31, 2009 and 2008, respectively.

Unrecognized stock-based compensation expense, including time-based options, performance-based options and restricted stock awards, expected to be recognized over an
estimated weighted-average amortization period of 1.83 years was approximately $354,221 at March 31, 2009 and over an estimated weighted-average amortization period of 2.2 years was $1,761,500 at March 31, 2008.

A summary of activity under the Companys stock option plans for the three month period ended March 31, 2009 is as follows:



|                               |  |                          |   |  |                     |   |  |                                |     
|------------------------------ |  | ------------------------ | - |  | ------------------- | - |  | ------------------------------ | ----
|                               |  |                          |   |  | Options Outstanding
|                               |  | Shares AvailableTo Grant |   |  | Number ofShares     |   |  | Weighted-AverageExercise Price
|Balance at December 31, 2008   |  | 4,041,408                |   |  | 2,228,213           |   |  | $                              | 2.15
|Options granted                |  | (1,000,000               | ) |  | 1,000,000           |   |  |                                | 0.25
|Shares issued to directors     |  | (11,251                  | ) |  |                    |   |  |                                |    
|Shares cancelled and forfeited |  |                         |   |  | (398,121            | ) |  |                                | 2.31
|                               |  |                          |   |  |                     |   |  |                                |     
|Balance at March 31, 2009      |  | 3,030,157                |   |  | 2,830,092           |   |  | $                              | 1.44
|                               |  |                          |   |  |                     |   |  |                                |     

10. Subsequent Events

On April 13, 2009 the Company filed a Current Report on Form 8-K reporting the receipt of notice from the Staff of The NASDAQ Stock Market that the Company no longer satisfies Marketplace Rule 4310(c)(3), which requires a listed
company to maintain a minimum stockholders equity of $2.5 million, at least $35 million in market value of listed securities, or a minimum $500,000 of net income from continuing operations for the most recently completed fiscal year or two of
the three most recently completed fiscal years for continued listing on The NASDAQ Capital Market (the Rule). The Staffs notice has no effect on the Companys listing at this time.



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Item 2. 
Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis
should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this report includes forward-looking statements based on our current managements expectations. There can be no assurance that actual results, outcomes or business conditions will not differ
materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, our limited operating history, unpredictability of future program dispositions and operating results,
competitive pressures and the other potential risks and uncertainties discussed in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2008.

Overview

We are a Raleigh, North Carolina-based development stage pharmaceutical company that acquires
promising therapeutic drug candidates from third parties and advances their clinical development for later sale or license to healthcare companies. We operate a business model that focuses on the following:



| |  |  | Obtaining patents for innovative drug candidates which we believe have value in the marketplace;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | Utilizing a small group of talented employees to develop those ideas through proof of concept in patients (generally through phase 2a clinical trials) by working
with strategic outsource partners; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Licensing the resulting product to a strong healthcare partner to commercialize. We do not intend to fully develop, obtain clearance from the U.S. Food and Drug
Administration (FDA) and then market the drug candidates we are developing.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We hire experts with strong pharmaceutical
project management skills in specific disciplines we believe are important to maintain within our Company. We contract with and manage strong outsource partners to complete the necessary development work. This permits us to avoid incurring the cost
of buying or building laboratories, manufacturing facilities or clinical research operation sites. It allows us to control our annual expenses and to optimize resources.

After we establish proof of concept for an innovative drug candidate, we seek a strong biotechnology or pharmaceutical partner to license the drug candidate and to commercialize it after regulatory approval. The
success of our business is highly dependent on the marketplace value of our drug candidates, the related patents we obtain and our ability to find strong commercial partners to successfully commercialize the drug candidates.

We generally in-license or otherwise acquire drug candidates that are prepared to enter pre-clinical studies prior to being submitted for an Investigational New Drug
application (IND) (which is part of the process to get approval from the FDA for marketing a new prescription drug in the U.S.). The first operational stage of develop of our drug candidates is in-licensing, which we typically do at the
pre-clinical stage of development. The next stage of development is to obtain FDA approval of an IND application and test the drug candidates in Phase 1 and Phase 2 clinical trials. Finally, we seek to license the drug candidate or find a strategic
collaborative partner who would further the development of the compound in later stage trials and commercialize it. Key indicators to evaluate our success are how our drug candidates advance through the drug development process, and ultimately, if
we are successful in negotiating collaborations, licenses, or sales agreements with larger pharmaceutical companies for our drug candidates. In order to successfully achieve these goals, having sufficient liquidity is important since we do not have
a recurring sales or revenue stream to provide such working capital.

We have not generated any revenue from operations to date. We have liquidated or
distributed to our stockholders some of our investments made in other companies. To date, we have received net proceeds from the sale of those assets in the amount of $1,854,557 in sale of marketable securities and $4,405,692 in proceeds from sale
of an investment. These proceeds together with capital raised from the sale of our securities have been our primary source of working capital.

We expect
to continue to incur operating losses for the foreseeable future. Our results may vary depending on many factors, including pre-clinical and clinical test results, the performance of our strategic outsource partners and the progress of licensing
activities with pharmaceutical partners.



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Status of our Drug Candidates

We currently have a portfolio of five programs with drug candidates for the treatment of neuropathic pain, type 2 diabetes and psoriasis. In connection with a cost reduction plan we announced on January 6, 2009
necessitated by our inability to raise sufficient funds to maintain all of our programs, we have focused our resources entirely towards the development of our two most advanced programs, KRN5500 and DB959. Due to this allocation of resources,
development of our other three programs, DB160, DB900 and DB200 has been delayed. Based on our present working capital, we believe that we have sufficient working capital to maintain our KRN5500 and DB959 development programs on a limited basis into
the second quarter of 2009 and that we will require additional funding to meet our working capital needs to progress those programs to a liquidity event through a collaboration, sale or out-license. A brief discussion of the status of each of our
drug candidates follows.

KRN5500

KRN5500 is a drug
candidate with initial development for the treatment of neuropathic pain in cancer patients. An active component of KRN5500 has been shown to inhibit nerve cell pain signals. The primary segment of this market being targeted is chemotherapy-induced
neuropathic pain (CINP). The drug candidate has recently completed a Phase 2a clinical trial in cancer patients with neuropathic pain to assess its safety and efficacy. The results of this trial are expected to be reported in the second quarter of
2009. A second larger Phase 2 trial is planned for initiation in 2009 assuming sufficient additional funding is secured or through a collaboration or out-license.

We incurred approximately $129,000 in development costs associated with the development of KRN5500 during the three month period ended March 31, 2009, and we have incurred costs of approximately $3,098,000 from inception to date. We
estimate the market potential for chemotherapy-induced neuropathy to be roughly $1.6 billion in 2014.

DB959

DB959 is a PPARd/g agonist for the treatment of
type 2 diabetes. In March 2009, the FDA cleared our IND application for DB959, allowing us to commence Phase 1 studies in humans. This compound activates genes involved in the metabolism of sugars and fats thereby improving the bodys ability
to regulate blood sugar. We are developing this drug candidate as a once-daily oral therapy. Our review of non-clinical data indicates that this drug candidate is a potential leading successor to Avandia® and Actos® because, among other indications, it increases good HDL cholesterol and lowers triglycerides better than Avandia® with greater cardiac safety and less weight gain.

Our development work is being conducted under an exclusive worldwide
license to develop and commercialize the drug candidate from Bayer Pharmaceuticals Corp (Bayer). This license, which was entered into in October 2007, gives the Company rights to over 2,000 compounds with agonist activities toward
multiple PPAR sub-types. On October 24, 2008, in accordance with the terms of this license, we provided Bayer with written notice of our intent to pursue a sublicense of our rights under the agreement to a third party for purposes of enabling
such third party to commercialize Licensed Products (as such term is defined in the agreement). Under the terms of the license agreement, unless Bayer exercises certain rights of first refusal provided to it under the agreement and we
reach agreement with Bayer concerning commercialization of Licensed Products, we will be permitted to enter into an agreement with a third party concerning commercialization of Licensed Products.

We incurred approximately $585,000 in development costs associated with the development of DB959 during the three month period ended March 31, 2009, and we have
incurred costs of approximately $3,951,000 from inception to date. We estimate the market potential for the PPAR agonist segment of type 2 Diabetes market to be roughly $5.4 billion in 2010.

DB160

DB160 is a DPP-IV inhibitor for the treatment of type 2
diabetes. DDP-IV is an enzyme that inactivates a key hormone involved in promoting control of blood sugar levels thus giving diabetics better control of their blood sugar levels. Prior to the implementation of the cost reduction plan, the Company
was developing this drug candidate as a once-daily oral therapy. We have currently suspended the development of DB160, but we will continue to evaluate the competitive environment for DB160 and potential positioning of the compound for other
indications. If our evaluation concludes that further development is warranted, the next step in our development of this candidate would be to file an IND application to the FDA. Our development work with DB160 is pursuant to an exclusive worldwide
license to develop and commercialize the drug candidate from Nuada, LLC.



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##### Table of Contents

DB900

DB900 is a
series of compounds which are PPARg/a/d agonists for the treatment of type 2 diabetes. This compound activates genes involved in the metabolism of sugars
and fats thereby improving the bodys ability to regulate blood sugar. These compounds have the potential to raise good HDL cholesterol, lower bad LDL cholesterol and lower triglycerides with potential greater efficacy than DB959 as well as the
potential to deliver weight loss. This program is currently not being resourced. Development will not be re-initiated until sufficient additional funding is secured. Our development work with DB900 is pursuant to an exclusive worldwide license to
develop and commercialize the drug candidate from Bayer Pharmaceuticals Corp.

DB200

DB200 refers to a series of compounds we have which are inhibitors of CPT-1 for the topical treatment of psoriasis. This drug candidate has the potential to inhibit inflammation and the proliferation of skin cells
thus resulting in decreased reddening and less flaking of the skin. Should development of DB200 resume, a clinical candidate will be selected from a number of strong lead compounds. This program is currently not being resourced. Development will not
be re-initiated until sufficient additional funding is secured. Should we decide to resume the development of DB200, the next step in the process is to file an IND application to the FDA. There are no third party licenses associated with this
program.

Critical Accounting Policies and Significant Judgments and Estimates

This Managements Discussion and Analysis of Financial Condition and Results of Operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted
accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to research and development expenses, accrued expenses and
share-based compensation. We base our estimates on historical experience and on various other factors that we believe to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our consolidated financial statements.

Research and Development Expenses

We expense research and development expenses when incurred. The cost of certain research programs, such as patient recruitment and related supporting functions for
clinical trials, are based on reports and invoices submitted by the contract research organization (CRO) assisting us in conducting the clinical trial. These expenses are based on patient enrollment as well as costs consisting primarily
of payments made to the CRO, clinical centers, investigators, testing facilities and patients for participating in our clinical trials. Certain research and development costs must be prepaid which, if the research and development work ceases to
progress for whatever reason, are not repayable to us. In such cases, those costs are expensed when paid.

Accrued Expenses

As part of the process of preparing financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase
orders, communicating with applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when invoices have not yet been sent and we
have not otherwise been notified of actual cost. The majority of our service providers invoice monthly in arrears for services performed. We make estimates of accrued expenses as of each balance sheet date in our financial statements based on facts
and circumstances known to us. We periodically confirm the accuracy of our estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued expenses include:



| |  |  | fees paid to CROs in connection with preclinical and toxicology studies and clinical trials;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | fees paid to investigative sites in connection with clinical trials;
| | - |  | --------------------------------------------------------------------



| |  |  | fees paid to contract manufacturers in connection with the production of raw materials, drug substance and drug products; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | professional service fees.
| | - |  | --------------------------



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Share-Based Compensation

Share-based compensation is accounted for using the fair value based method prescribed by SFAS No. 123R, Share-Based Payment (SFAS 123R). For stock and stock-based awards issued to employees, a compensation charge is
recorded against earnings based on the fair value of the award. For transactions with non-employees in which services are performed in exchange for the Companys common stock or other equity instruments, the transactions are recorded on the
basis of the fair value of the service received or the fair value of the equity instruments issued, whichever is more readily measurable at the date of issuance. Our Companys share-based compensation transactions for employees resulted in
compensation expense of $120,248 and $275,637 for the three months ended March 31, 2009 and 2008, respectively. The Company recognized stock-based compensation expense for awards to non-employees totaling $25,652 and $27,500 for the three
months ended March 31, 2009 and 2008, respectively.

Significant Judgments and Estimates

The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires that we make estimates and assumptions
that affect the reported amounts and disclosure of certain assets and liabilities at our balance sheet date. Actual results may differ from such estimates.

Results of Operations

Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008

Research and development expenses decreased approximately $571,000, from approximately $1,462,000 for the three months ended March 31, 2008 to approximately
$891,000 for the corresponding 2009 period, primarily as a result of the implementation of a cost reduction plan to conserve our remaining cash balance.

General and administrative expenses consist primarily of salaries and benefits, professional fees related to administrative, finance, human resource, legal and information technology functions and patent costs. In addition, general and
administrative expenses include allocated facility, basic operational and support costs and insurance costs. General and administrative expenses decreased approximately $261,000, from approximately $1,222,000 for the three months ended
March 31, 2008 to approximately $961,000 for the corresponding 2009 period, primarily as a result of the substantial expenses we incurred in the first quarter of 2008 in connection with the Merger and becoming a public company and the
implementation of a cost reduction plan to conserve our remaining cash balance.

Other (expense) income, net reflects non-operating activities associated
with investments and dispositions on investments made in collaborations with other companies. Other (expense) income, net increased approximately $433,000 from income of approximately $188,000 for the three months ended March 31, 2008 to
approximately $621,000 for the corresponding 2009 period. The increase is primarily due to the gain on investments of approximately $551,000 from the distribution of SurgiVision stock, as well as the gain on the Companys sale of its marketable
securities of approximately $81,000.

Liquidity and Capital Resources

Overview

From inception through March 31, 2009, we have financed our operations primarily from the net proceeds
of (1) private placements of equity securities, through which we raised approximately $25,227,000, (2) the sale of securities we acquired through investments made in other companies, through which we raised approximately $6,260,000, and
(3) a $500,000 loan we received from SurgiVision, Inc.

At March 31, 2009, our principal sources of liquidity were our cash and cash equivalents
which totaled approximately $801,000. As of March 31, 2009, we had net working capital of approximately ($504,000). Our cash resources have been used to acquire licenses, fund research and development activities, capital expenditures, and
general and administrative expenses. Over the next several years, we expect to incur substantial additional research and development costs, including costs related to preclinical and clinical trials, increased administrative expenses to support our
research and development operations and increased capital expenditures, and various equipment needs and facility improvements.



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Cash Flows

During
the three month period ended March 31, 2009, cash used in our operating activities was $1,238,000. This decrease in cash from operations was primarily due to the operating loss offset in part by non-cash stock-based compensation of
approximately $146,000 and depreciation and amortization of approximately $57,000. Prepaid expenses decreased by approximately $84,000 for the three month period ended March 31, 2009, primarily representing prepaid director and officer
insurance coverage. Accounts payable decreased by approximately $202,000 and accrued liabilities increased by approximately $601,000 during the three month period ended March 31, 2009 primarily due to the $500,000 milestone payment accrual to
Bayer for the cleared IND application for DB959.

Our investing activities provided net cash of approximately $579,000 for the three month period ended
March 31, 2009 primarily as a result of proceeds of approximately $81,000 from sale of marketable securities and proceeds of $500,000 from the sale of an investment.

We generated approximately $500,000 of cash from financing activities for the three month period ended March 31, 2009. The Company entered into a loan agreement for $500,000 at 8% interest per annum due
July 30, 2010.

Financial Condition

We believe we
have sufficient working capital to pursue our current limited operations into the second quarter of 2009. We will require additional funds to pursue our business plan. Our working capital requirements will depend upon numerous factors, including the
progress of our research and development programs (which may vary as product candidates are added or abandoned), preclinical testing and clinical trials, timing and cost of seeking as well as the achievement of regulatory milestones, the status of
competitive programs, and the ability to sell or license our technologies to third parties. In any event, we will require substantial funds in addition to those presently available to develop all of our programs to meet our business objectives. To
ensure the continued level of research development and funding of our operations, we are currently exploring various possible financing options that may be available to us, which may include a sale of our securities or the sale of certain of our
investments. We have no commitments to obtain any additional funds, and there can be no assurance such funds will be available on acceptable terms or at all. If we are unable to obtain such needed capital, we may not be able to:



| |  |  | continue the development of our two active drug development programs;
| | - |  | ---------------------------------------------------------------------



| |  |  | resume development of any of our currently inactive drug development programs;
| | - |  | ------------------------------------------------------------------------------



| |  |  | respond to customers and competition; or
| | - |  | ----------------------------------------



| |  |  | remain in operation.
| | - |  | --------------------

Off-Balance Sheet
Arrangements

We had no off-balance sheet arrangements as of March 31, 2009 that have or are reasonably likely to have a current or future
effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

NASDAQ Delisting Notice

On April 6, 2009 we received a
notice from The NASDAQ Stock Market that we no longer satisfied Marketplace Rule 4310(c)(3), which requires a listed company to maintain a minimum stockholders equity of $2.5 million, at least $35 million in market value of listed securities,
or a minimum $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years for continued listing on The NASDAQ Capital Market (the Rule). The
Staffs notice has no effect on the Companys listing at this time.

On April 20, 2009 we submitted a plan to regain compliance with the
Rule (the Plan). If the Plan is accepted, we may receive an exception of up to 105 calendar days, through July 20, 2009, to evidence compliance with the Rule. If the Plan is not accepted, we may appeal the Staffs determination
to a Listing Qualifications Panel pursuant to applicable NASDAQ rules. We are currently evaluating our alternatives to resolve the listing deficiency. If we are not able to cure the listing deficiency, our common stock may be delisted from the
NASDAQ Capital Market. Delisting could adversely affect both the market liquidity and the market price of our common stock.



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Cautionary Information regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. When used in this Form 10-Q, the words believe, anticipates, intends, plans, estimates, and similar expressions are forward-looking statements. Such
forward-looking statements contained in this Form 10-Q are based on managements current expectations. These statements and expectations are based on currently available competitive, financial and economic data along with our operating plans,
and are subject to future events and uncertainties that could cause anticipated events not to occur or actual results to differ materially from historical or anticipated results. Forward-looking statements may address the following subjects: results
of operations; development of drug candidates; operating expenses, including research and development expense; capital resources and access to financing; and results of clinical trials. We caution investors that there can be no assurance that actual
results, outcomes or business conditions will not differ materially from those projected or suggested in such forward-looking statements as a result of various factors, including, among others, the potential risks and uncertainties described in our
Annual Report on Form 10-K for the year ended December 31, 2008 under Part I, Item 1ARisk Factors.

You should also carefully consider the
factors set forth in other reports or documents that we file from time to time with the Securities and Exchange Commission (the SEC). Except as required by law, we undertake no obligation to update any forward-looking statements.

In this Form 10-Q, we refer to information regarding potential markets for our drug candidates and other industry data. We believe that all such
information has been obtained from reliable sources that are customarily relied upon by companies in our industry. However, we have not independently verified any such information.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934 (the Exchange Act), our management, including our Chief Executive Officer and Chief Accounting Officer, conducted an evaluation as of
the end of the period covered by this report, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the Chief Executive Officer and Chief
Accounting Officer have concluded that these disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file under the Securities and Exchange Act of 1934 is
recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commission rules and forms. It should be noted that in designing and evaluating the disclosure controls and procedures, management recognized
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures. We have designed our disclosure controls and procedures to reach a level of reasonable assurance of achieving desired control objectives and, based on the evaluation described above, our
Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were effective at reaching that level of reasonable assurance.

During the first quarter of 2009, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.

PART IIOTHER INFORMATION

Item 1. Legal Proceedings

As of May 14, 2009, we had no outstanding material
legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable.



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Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submission of Matters to a Vote of
Security Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The exhibits required to be filed as a part of this report are
listed in the Exhibit Index.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                   |  |  |  |                        |  |                                      
|------------------ |  |  |  | ---------------------- |  | -------------------------------------
|                   |  |  |  | DARA BIOSCIENCES, INC.
|                   |  |  | 
|Date: May 15, 2009 |  |  |  | By:                    |  | /s/    Richard A. Franco             
|                   |  |  |  |                        |  | Richard A. Franco                    
|                   |  |  |  |                        |  | President and Chief Executive Officer
|                   |  |  | 
|                   |  |  |  |                        |  |                                      
|Date: May 15, 2009 |  |  |  | By:                    |  | /s/    Ann A. Rosar                  
|                   |  |  |  |                        |  | Ann A. Rosar                         
|                   |  |  |  |                        |  | Chief Accounting Officer             



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EXHIBIT INDEX



|Item 15(c) | Exhibits:
|---------- | ---------



|            |  |                                                                                                                        |  |                                                                                        
|----------- |  | ---------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                            |  | Incorporated by Reference to                                                           
|10.1        |  | Stock Purchase and Loan Agreement dated January 30, 2009, by and between the Company and SurgiVision, Inc.             |  | Incorporated by reference to the Companys Report on Form 8-K filed on January 30, 2009
|            |  |                                                                                                                       
|10.2        |  | Secured Promissory Note                                                                                                |  | Incorporated by reference to the Companys Report on Form 8-K filed on January 30, 2009
|            |  |                                                                                                                       
|31.1        |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002                 |  |                                                                                        
|            |  |                                                                                                                       
|31.2        |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002                 |  |                                                                                        
|            |  |                                                                                                                       
|32          |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |  |                                                                                        



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