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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, 2010

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 Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)





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   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  | x

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

The number of shares outstanding of the Registrants common stock as of May 12, 2010 was approximately 3,060,212.









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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 |  | 14  
|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                                                       |  | 20  
|Item 4.                        |  | (Removed and Reserved).                                                               |  | 20  
|Item 5.                        |  | Other Information                                                                     |  | 20  
|Item 6.                        |  | Exhibits                                                                              |  | 21  



2



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##### Table of Contents

PART I - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------

DARA BIOSCIENCES, INC. AND SUBSIDIARIES

(a Development Stage Company)

CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                                      |  | March 31,2010 |             |   | December 31,2009 |  
|                                                                                                                                                                                      |  | (unaudited)   |             |   |                  |  
|Assets                                                                                                                                                                                |  |               |             |   |                  |   |             |  
|Current assets:                                                                                                                                                                       |  |               |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                                             |  | $             | 3,988,069   |   |                  | $ | 3,167,302   |  
|Prepaid expenses and other assets, current portion                                                                                                                                    |  |               | 288,117     |   |                  |   | 149,040     |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total current assets                                                                                                                                                                  |  |               | 4,276,186   |   |                  |   | 3,316,342   |  
|                                                                                                                                                                                      |  |              
|Furniture, fixtures and equipment, net                                                                                                                                                |  |               | 53,543      |   |                  |   | 56,213      |  
|Restricted cash                                                                                                                                                                       |  |               | 78,872      |   |                  |   | 78,757      |  
|Prepaid expenses and other assets, net of current portion                                                                                                                             |  |               | 199,331     |   |                  |   | 216,664     |  
|Prepaid license fee, net                                                                                                                                                              |  |               | 310,000     |   |                  |   | 340,000     |  
|Investments                                                                                                                                                                           |  |               | 130,468     |   |                  |   | 130,468     |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total assets                                                                                                                                                                          |  | $             | 5,048,400   |   |                  | $ | 4,138,444   |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Liabilities and stockholders equity                                                                                                                                                  |  |               |             |   |                  |   |             |  
|Accounts payable                                                                                                                                                                      |  | $             | 349,436     |   |                  | $ | 374,565     |  
|Accrued liabilities                                                                                                                                                                   |  |               | 275,422     |   |                  |   | 284,567     |  
|Capital lease obligation, current portion                                                                                                                                             |  |               | 6,717       |   |                  |   | 6,338       |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                                             |  |               | 631,575     |   |                  |   | 665,470     |  
|                                                                                                                                                                                      |  |              
|Deferred lease obligation                                                                                                                                                             |  |               | 11,987      |   |                  |   | 10,968      |  
|Other liability                                                                                                                                                                       |  |               | 271,622     |   |                  |   | 268,622     |  
|Capital lease obligation, net of current portion                                                                                                                                      |  |               | 20,180      |   |                  |   | 22,009      |  
|Patent obligation                                                                                                                                                                     |  |               | 17,895      |   |                  |   | 17,895      |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                                     |  |               | 953,259     |   |                  |   | 984,964     |  
|                                                                                                                                                                                      |  |              
|Stockholders equity                                                                                                                                                                  |  |               |             |   |                  |   |             |  
|Common stock, $0.01 par value, 75,000,000 shares authorized, 3,057,130 shares issued and outstanding at March 31, 2010,
2,789,526 shares issued and outstanding at December 31, 2009. |  |               | 30,571      |   |                  |   | 27,895      |  
|Additional paid-in capital                                                                                                                                                            |  |               | 32,673,627  |   |                  |   | 30,588,276  |  
|Deficit accumulated during the development stage                                                                                                                                      |  |               | (28,989,618 | ) |                  |   | (27,893,552 | )
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total stockholders equity before noncontrolling interest                                                                                                                             |  |               | 3,714,580   |   |                  |   | 2,722,619   |  
|Noncontrolling interest                                                                                                                                                               |  |               | 380,561     |   |                  |   | 430,861     |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total stockholders equity                                                                                                                                                            |  |               | 4,095,141   |   |                  |   | 3,153,480   |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                                                                                            |  | $             | 5,048,400   |   |                  | $ | 4,138,444   |  
|                                                                                                                                                                                      |  |               |             |   |                  |   |             |  

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



3



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DARA BIOSCIENCES, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|-------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                     |  |                              |            |   | Period from 
June22, 2002 (inception)through March 31,2010 |  
|                                                                     |  | Three months ended March 31, |            |  
|                                                                     |  | 2010                         |            |   | 2009                                                       |   |           
|Operating expenses:                                                  |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Research and development                                             |  | $                            | 359,569    |   |                                                            | $ | 890,558    |   |  | $ | 19,617,853  |  
|General and administrative                                           |  |                              | 788,622    |   |                                                            |   | 961,466    |   |  |   | 20,244,308  |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Total operating expenses                                             |  |                              | 1,148,191  |   |                                                            |   | 1,852,024  |   |  |   | 39,862,161  |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Loss from operations                                                 |  |                              | (1,148,191 | ) |                                                            |   | (1,852,024 | ) |  |   | (39,862,161 | )
|                                                                     |  |                              |           
|Other income (expense):                                              |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Gain on distribution of nonmonetary asset                            |  |                              |           |   |                                                            |   | 551,410    |   |  |   | 4,760,953   |  
|Gain on sale of marketable securities                                |  |                              |           |   |                                                            |   | 81,314     |   |  |   | 6,780,147   |  
|Other (expense) income                                               |  |                              | (160       | ) |                                                            |   | (2,785     | ) |  |   | 110,183     |  
|Interest income (expense)                                            |  |                              | 1,985      |   |                                                            |   | (9,227     | ) |  |   | 753,641     |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Other income (expense)                                               |  |                              | 1,825      |   |                                                            |   | 620,712    |   |  |   | 12,404,924  |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Loss before undistributed loss in equity method investments          |  |                              | (1,146,366 | ) |                                                            |   | (1,231,312 | ) |  |   | (27,457,237 | )
|Undistributed loss in equity method investments                      |  |                              |           |   |                                                            |   |           |   |  |   | (2,374,422  | )
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Consolidated net loss                                                |  |                              | (1,146,366 | ) |                                                            |   | (1,231,312 | ) |  |   | (29,831,659 | )
|                                                                     |  |                              |           
|Net loss attributable to non-controlling interest                    |  |                              | 50,300     |   |                                                            |   | 44,806     |   |  |   | 1,061,388   |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Net loss attributable to controlling interest                        |  | $                            | (1,096,066 | ) |                                                            | $ | (1,186,506 | ) |  | $ | (28,770,271 | )
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Basic and diluted net loss per common share                          |  | $                            | (0.38      | ) |                                                            | $ | (0.63      | ) |  |   |             |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  
|Shares used in computing basic and diluted net loss per common share |  |                              | 2,895,753  |   |                                                            |   | 1,881,987  |   |  |   |             |  
|                                                                     |  |                              |            |   |                                                            |   |            |   |  |   |             |  

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



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DARA BIOSCIENCES, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|--------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | -------------------------------------------------------- | - | ---------- | - |  | - | ----------- | -
|                                                                            |  | Three months endedMarch 31, |            |   | Period
FromJune 
22,2002(inception)throughMarch 
31,2010 |  
|                                                                            |  | 2010                        |            |   | 2009                                                     |   |           
|Operating activities                                                        |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|Consolidated net loss                                                       |  | $                           | (1,146,366 | ) |                                                          | $ | (1,231,312 | ) |  | $ | (29,831,659 | )
|Adjustments to reconcile net loss to net cash used in operating activities: |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|Depreciation and amortization                                               |  |                             | 35,760     |   |                                                          |   | 57,024     |   |  |   | 451,591     |  
|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     |  
|Share-based compensation                                                    |  |                             | 228,482    |   |                                                          |   | 145,900    |   |  |   | 4,744,087   |  
|Expense of warrants issued with convertible notes                           |  |                             |           |   |                                                          |   |           |   |  |   | 4,860       |  
|Expense of warrants issued to placement agent                               |  |                             |           |   |                                                          |   |           |   |  |   | 230,920     |  
|Loss on disposal of capital assets                                          |  |                             |           |   |                                                          |   |           |   |  |   | 19,930      |  
|Gain on extinguishment of capital lease obligation                          |  |                             |           |   |                                                          |   |           |   |  |   | (12,240     | )
|Loss on disposal of furniture, fixtures and equipment                       |  |                             | 160        |   |                                                          |   | 2,785      |   |  |   | 36,065      |  
|Sale of investment as payment for interest expense                          |  |                             |           |   |                                                          |   |           |   |  |   | 36,712      |  
|Distribution of investment for compensation                                 |  |                             |           |   |                                                          |   | 100,000    |   |  |   | 100,000     |  
|Gain on distribution of nonmonetary asset                                   |  |                             |           |   |                                                          |   | (551,410   | ) |  |   | (4,760,953  | )
|Gain on sale of marketable securities                                       |  |                             |           |   |                                                          |   | (81,314    | ) |  |   | (6,780,147  | )
|Deferred lease obligation                                                   |  |                             | 1,019      |   |                                                          |   | 1,978      |   |  |   | 11,988      |  
|Changes in operating assets and liabilities:                                |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|Prepaid license fee and other prepaid expenses                              |  |                             | (121,744   | ) |                                                          |   | (84,728    | ) |  |   | (606,811    | )
|Due from affiliates                                                         |  |                             |           |   |                                                          |   |           |   |  |   |            |  
|Accounts payable                                                            |  |                             | (25,129    | ) |                                                          |   | (201,830   | ) |  |   | 19,436      |  
|Accrued liabilities                                                         |  |                             | (95,016    | ) |                                                          |   | 601,364    |   |  |   | (526,695    | )
|Other liability                                                             |  |                             | 3,000      |   |                                                          |   | 3,800      |   |  |   | 34,074      |  
|                                                                            |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|Net cash used in operating activities                                       |  |                             | (1,119,834 | ) |                                                          |   | (1,237,743 | ) |  |   | (32,769,972 | )
|                                                                            |  |                             |           
|Investing activities                                                        |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|Purchases of furniture, fixtures, and equipment                             |  |                             | (3,600     | ) |                                                          |   |           |   |  |   | (196,659    | )
|Proceeds from sale of furniture, fixtures, and equipment                    |  |                             | 350        |   |                                                          |   | 150        |   |  |   | 5,716       |  
|Issuance of notes receivable                                                |  |                             |           |   |                                                          |   |           |   |  |   | (1,400,000  | )
|Proceeds from sale of marketable securities                                 |  |                             |           |   |                                                          |   | 81,470     |   |  |   | 1,951,211   |  
|Payments on notes receivable                                                |  |                             |           |   |                                                          |   |           |   |  |   | 711,045     |  
|Cash provided in the merger                                                 |  |                             |           |   |                                                          |   |           |   |  |   | 771,671     |  
|Purchase of investments in affiliates                                       |  |                             |           |   |                                                          |   |           |   |  |   | (2,471,400  | )
|Proceeds from sale of investments                                           |  |                             |           |   |                                                          |   | 500,000    |   |  |   | 4,405,692   |  
|                                                                            |  |                             |            |   |                                                          |   |            |   |  |   |             |  
|Net cash (used in) provided by investing activities                         |  |                             | (3,250     | ) |                                                          |   | 581,620    |   |  |   | 3,777,276   |  

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



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DARA BIOSCIENCES, INC. AND SUBSIDIARIES

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)



|                                                                           |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|-------------------------------------------------------------------------- |  | --------------------------- | --------- | - | ------------------------------------------------------ | - | -------- | - |  | - | ---------- | -
|                                                                           |  | Three months endedMarch 31, |           |   | Period
FromJune 22,2002(inception)throughMarch 31,2010 |  
|                                                                           |  | 2010                        |           |   | 2009                                                   |   |         
|Financing activities                                                       |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|Proceeds from issuance of notes payable                                    |  |                             |          |   |                                                        |   | 500,000  |   |  |   | 605,000    |  
|Principal payments on notes payable                                        |  |                             |          |   |                                                        |   |         |   |  |   | (255,000   | )
|Repayments of capital lease obligation                                     |  |                             | (1,450    | ) |                                                        |   | (2,956   | ) |  |   | (19,070    | )
|Establishment of other financing                                           |  |                             | 103,927   |   |                                                        |   |         |   |  |   | 122,486    |  
|Repayments on other financing                                              |  |                             | (18,056   | ) |                                                        |   |         |   |  |   | (28,112    | )
|Proceeds from exercise of options and warrants                             |  |                             | 100,000   |   |                                                        |   |         |   |  |   | 479,355    |  
|Proceeds from issuance of common stock and warrants, net of issuance costs |  |                             | 1,759,545 |   |                                                        |   |         |   |  |   | 32,154,978 |  
|Establishment of restricted cash                                           |  |                             | (115      | ) |                                                        |   |         |   |  |   | (78,872    | )
|                                                                           |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|Net cash provided by financing activities                                  |  |                             | 1,943,851 |   |                                                        |   | 497,044  |   |  |   | 32,980,765 |  
|                                                                           |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                       |  |                             | 820,767   |   |                                                        |   | (159,079 | ) |  |   | 3,988,069  |  
|                                                                           |  |                             |          
|Cash and cash equivalents at beginning of period                           |  |                             | 3,167,302 |   |                                                        |   | 959,898  |   |  |   |           |  
|                                                                           |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|Cash and cash equivalents at end of period                                 |  | $                           | 3,988,069 |   |                                                        | $ | 800,819  |   |  | $ | 3,988,069  |  
|                                                                           |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|                                                                           |  |                             |          
|Supplemental disclosure of non-cash financing activities                   |  |                             |           |   |                                                        |   |          |   |  |   |            |  
|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 employees & non-employee directors                        |  |                             | 82,660    |   |                                                        |   |         |   |  |   | 328,757    |  
|Shares issued to third party for services                                  |  |                             | 22,650    |   |                                                        |   |         |   |  |   | 386,578    |  
|Exchange of investment for cancellation of accrued interest                |  |                             |          |   |                                                        |   |         |   |  |   | 36,712     |  
|Exchange of investment for cancellation of note payable                    |  |                             |          |   |                                                        |   |         |   |  |   | 500,000    |  
|Conversion of note into equity of subsidiary                               |  |                             |          |   |                                                        |   |         |   |  |   | 1,441,948  |  

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



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DARA BIOSCIENCES, INC. AND SUBSIDIARIES

(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 biopharmaceutical 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 a biopharmaceutical development company. The Company has incurred losses since inception through March 31, 2010 of
$28,770,271 and expects to continue to incur losses and require additional financial resources to achieve monetization of its product candidates.

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.

On May 12, 2010, the Company effected a
reverse stock split of the Companys common stock. Pursuant to this reverse stock split, each 16 shares of the Companys common stock issued and outstanding immediately prior to the reverse stock split was converted into one share of the
Companys common stock. The main purpose of the reverse stock split is to enable the Company to regain compliance with the minimum $1.00 per share bid price requirement for continued listing of the Companys common stock on The NASDAQ
Capital Market. All share or per share information included in these unaudited Notes to Consolidated Financial Statements and the audited and unaudited Consolidated Financial Statements have been retroactively restated to effect the reverse stock
split.

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, 2010.

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
Pharmaceuticals, Inc., (which is wholly owned by the Company), DARA Therapeutics, Inc. (which holds the Companys assets related to its KRN5500 program and is owned 75% by the Company) and Point Therapeutics Massachusetts, 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.



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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 Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) 320, Investments  Debt and Equity Securities. See Note 3 for further information. 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.

In accordance with FASB ASC 320, 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.

The Company utilizes FASB ASC 820, Fair Value Measurements and Disclosures, to
value its financial assets and liabilities. FASB ASC 820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. FASB ASC 820 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.

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 FASB ASC 323, Investments  Equity Method and Joint Ventures, 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 FASB ASC 320, Investments  Debt and Equity Securities.

Furniture, Fixtures and Equipment

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



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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 FASB ASC 718, Stock Compensation. For stock and
stock-based awards issued to employees, a compensation charge is recorded against earnings based on the fair value of the award 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. See Note 5 for further information.

Income Taxes

The Company uses the liability method in accounting for income taxes as required by FASB ASC 740,Income Taxes. Under this method,
deferred tax assets and liabilities are recognized for operating loss and tax credit carry forwards and for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets
unless it is more likely than not that such assets will be realized.

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.

Net Loss Per Common Share

The Company calculates its basic loss per share in accordance with FASB ASC 260, 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 per share is computed by dividing the 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 purposes of this calculation, options and warrants to purchase common stock are considered to be common stock equivalents but have been excluded for
the three months ended March 31, 2010 and 2009 calculation of diluted net loss per share as their effect is anti-dilutive. For the three months ended March 31, 2010 and 2009, 62,000 options, and 20,314 options, respectively, and 0 warrants
for both years have been excluded from the calculation of diluted earnings per share because their inclusion would be anti-dilutive.



|                                                                                      |  |                              |            |   |      |   |            |  
|------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                      |  | Three Months ended March 31, |           
|                                                                                      |  | 2010                         |            |   | 2009 |  
|Net loss attributable to controlling interest                                         |  | $                            | (1,096,066 | ) |      | $ | (1,186,506 | )
|                                                                                      |  |                              |            |   |      |   |            |  
|Basic and diluted net loss per common share attributable to controlling interest:     |  |                              |            |   |      |   |            |  
|Weighted-average shares used in computing basic and diluted net loss per common share |  |                              | 2,895,753  |   |      |   | 1,881,987  |  
|                                                                                      |  |                              |            |   |      |   |            |  
|Basic and diluted net loss per common share attributable to controlling interest      |  | $                            | (0.38      | ) |      | $ | (0.63      | )
|                                                                                      |  |                              |            |   |      |   |            |  



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Recently Issued Accounting Pronouncements

The ASC includes guidance in ASC 605-25, Revenue Recognition-Mutiple-Element Arrangements, related to the allocation of arrangement
consideration to these multiple elements for purposes of revenue recognition when delivery of separate units of account occurs in different reporting periods. This guidance recently was modified by the final consensus reached on Emerging Issues Task
Force (EITF) Issue No. 08-1, Revenue Recognition for a Single Unit of Accounting that was codified by Accounting Standards Update (ASU) 2009-13. This change increases the likelihood that deliverables within an arrangement will be treated as
separate units of accounting, ultimately leading to less revenue deferral for many arrangements. The change also modifies the manner in which transaction consideration is allocated to separately identified deliverables. This guidance is effective
prospectively for fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not believe ASU 2009-13 will have a material impact on the Companys financial statements.

At the March 2010 meeting, the FASB ratified EITF Issue No. 08-9, Milestone Method of Revenue Recognition (EITF 08-9). The
Accounting Standards Update resulting from EITF 08-9 amends ASC 605-28, Revenue Recognition-Milestone Method. The Task Force concluded that the milestone method is a valid application of the proportional performance model when applied to
research or development arrangements. Accordingly, the consensus states that an entity can make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in
which the milestone is achieved. The milestone method is not required and is not the only acceptable method of revenue recognition for milestone payments. This guidance is effective prospectively for fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The Company does not believe ASC 605-28 will have a material impact on the Companys financial statements.

3. Investments

MiMedx (NASDAQ:
MDXG.OB)

The Company held 400,002 shares 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 and the Company sold 143,937 shares of MiMedx during the
three months ended March 31, 2009 realizing a gain on the sale of marketable securities of $81,314. The market value of the Companys remaining investment in MiMedx at March 31, 2009 was $97,670. The Company sold all its 400,002
shares of MiMedx as of June 30, 2009 and no longer holds an investment in MiMedx.

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. On December 23, 2009, SVI filed a registration statement on Form S-1 in anticipation of an initial public offering (IPO).

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.

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. The Company recorded a gain of $459,500 on the sale.

Also in January 2009, the board of directors
distributed 25,000 SVI shares to each of three independent members of the board valued at $1.00 per share. The Company distributed an additional 25,000 SVI 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.

On
December 31, 2009, the Company entered into a Stock Purchase Agreement with SVI pursuant to which the Company sold 536,712 shares of SVI common stock to SVI. The purchase price for the shares was paid through cancellation of outstanding
principal of $500,000 and accrued interest of $36,712 on the January 2009 secured promissory note issued by the Company to SVI. As of March 31, 2010, the remaining investment of 1,613,258 shares was carried at cost of $130,468. In



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addition, the Company is the holder of a warrant to acquire 405,000 shares of common stock in SVI that has an exercise price of $0.80 per share.

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, 2010.

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, 2010. The carrying value at
March 31, 2010 and December 31, 2009 of the investment in Medeikon was $0.

The fair values of cost method
investments (when applicable) are not estimated unless there are events or changes identified that may have a significant adverse effect on the fair value; such estimates of fair value could not be made without incurring excessive costs.

4. Stockholders Equity

On February 26, 2010 and March 5, 2010, the Company entered into two Securities Purchase Agreements with certain accredited
investors in connection with the private issuance and sale to such investors of 228,248 units and 6,648 units, respectively. Proceeds to the Company from these sales were $1,759,545, net of issuance costs of $6,959. Each unit consists of
(1) one share of common stock and (2) one-half of a warrant to purchase one share of common stock. The units were issued and sold to investors for $7.52 per unit. The warrants have an exercise price of $7.52 and are exercisable beginning
six months after the date of issuance with an expiration date of five years after the initial exercise date.

5. Share-Based Compensation

Effective with the adoption of FASB ASC 718, Compensation-Stock Compensation, 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. FASB ASC 718 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 options granted to
employees and non-employee directors was estimated using a Black-Scholes option-pricing model and the following weighted-average assumptions:



|                                          |  |                             |   |  |       |  |     
|----------------------------------------- |  | --------------------------- | - |  | ----- |  | ----
|                                          |  | Three months endedMarch 31,
|                                          |  | 2010                        |   |  |       |  | 2009
|Expected dividend yield                   |  |                            |   |  |     
|Expected volatility                       |  | 85                          | % |  | 81%  
|Weighted-average expected life (in years) |  | 5.7                         |   |  | 5.5  
|Risk free interest rate                   |  | 2.62                        | % |  | 2.05%
|Forfeiture rate                           |  | 10                          | % |  | 10%  

The
Companys consolidated statements of operations for the three months ended March 31, 2010 and 2009, respectively, include the following share-based compensation expense related to issuances of stock options to employees and non-employee
directors as follows:



|                                                                                            |  |                              |         |      |   |        
|------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ---- | - | -------
|                                                                                            |  | Three months endedMarch 
31,
|                                                                                            |  | 2010                         |         | 2009
|Research and development                                                                    |  | $                            | 9,932   |      | $ | 52,778 
|General and administrative                                                                  |  |                              | 113,393 |      |   | 67,470 
|                                                                                            |  |                              |         |      |   |        
|Total share-based compensation related to employee and non-employee directors stock options |  | $                            | 123,325 |      | $ | 120,248
|                                                                                            |  |                              |         |      |   |        



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The Company issued 31,250 restricted shares to five employees during 2009. The
Companys President and CEO was awarded 18,750 restricted shares and four employees were each awarded 3,125 restricted shares. The shares will vest 100% on the anniversary of the grant, September 24, 2010. The Company recognized $56,466
and $14,116 stock-based compensation expense in general and administrative and research and development, respectively during the three months ended March 31, 2010. There was no restricted share expense for employees during the three months
ended March 31, 2009.

On January 4, 2010, the Company issued 625 shares of restricted stock to each of two
non-employee members of the board which vest one year from the date of issue, January 4, 2011. On February 9, 2010 the Company issued 208 shares of restricted stock to a non-employee member of the board which vest on January 4, 2011.
The Company recognized share-based compensation expense related to issuance of restricted stock to certain members of the board of directors in general and administrative expense of $12,078 and $10,999 for the three months ended March 31, 2010
and 2009, respectively.

On January 4, 2010 the Company issued 6,250 shares for third party services. During the three
months ended March 31, 2010, the Company recognized share-based compensation related to issuance of restricted stock to non-employees in exchange for services totaling $21,400. There was no restricted share expense for non-employees during the
three months ended March 31, 2009.

The Company accounts for equity instruments issued to non-employees in accordance
with the provisions of ASC 505 Equity, 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. Measurements of share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and are recognized as an expense over the term of the related financing or the period over which services are received.

For the three months ended March 31, 2010 and 2009, non-employee (i.e. consultants) option expense was $0 and $13,360
for research and development and $1,097 and $1,293 for general and administrative, respectively.

In January 2010, the
Companys President and CEO exercised 25,000 stock options at $4.00 per share.

Unrecognized share-based compensation
expense, including time-based options and, performance-based options expected to be recognized over an estimated weighted-average amortization period of 2.49 years was $315,739 at March 31, 2010 and over an estimated weighted-average
amortization period of 1.83 years was $354,221 at March 31, 2009.

A summary of activity under the Companys stock
option plans for the three months ended March 31, 2010 is as follows:



|                              |  |                         |   |  |                     |   |  |                              |      
|----------------------------- |  | ----------------------- | - |  | ------------------- | - |  | ---------------------------- | -----
|                              |  |                         |   |  | Options Outstanding
|                              |  | SharesAvailable togrant |   |  | Number ofShares     |   |  | WeightedAverageExercisePrice
|Balance at December 31, 2009  |  | 168,048                 |   |  | 89,473              |   |  | $                            | 18.40
|2008 Stock Plan increase      |  | 284,347                 |   |  |                    |   |  |                              |     
|Options granted               |  | (68,125                 | ) |  | 68,125              |   |  |                              | 7.35 
|Options exercised             |  |                        |   |  | (25,000             | ) |  |                              | 4.00 
|Shares issued as compensation |  | (7,708                  | ) |  |                    |   |  |                              |     
|                              |  |                         |   |  |                     |   |  |                              |      
|Balance at March 31, 2010     |  | 376,562                 |   |  | 132,598             |   |  | $                            | 15.42
|                              |  |                         |   |  |                     |   |  |                              |      

6. Commitments and Contingencies

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 material matters as of the date of these financial statements.

7. Income Taxes

The Company did not record any current tax expense in the three months ended March 31, 2010 and 2009.



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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 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 total balance of unrecognized tax liabilities at March 31, 2010 was $271,622 which was recorded in other liability and if
recognized, would affect the effective tax rate for computing tax expense for the three and twelve month periods then ended, respectively. Consistent with prior periods, the Company accrued interest and penalties, if any, within its interest
expense.

8. Employee Benefit Plan

As part of the Companys cost reduction program, effective April 1, 2009, the Company amended its contribution to the employee
benefit plan to remove the Safe Harbor Cash or Deferred Arrangement provisions. The plan provides for voluntary employee contributions and a discretionary matching employer contribution equal to amounts that do not exceed the maximum amounts allowed
by the Internal Revenue Service. The defined contribution plan match prior to the effective date of the amendment was $6,524. The Company does not anticipate matching employee contributions for the remainder of the year.

9. Subsequent Events

On
May 12, 2010 at the Companys annual Stockholders meeting the stockholders approved the proposal to effect a reverse stock split to afford the board of directors the authority to implement a reverse stock split in its discretion
within the range of 2:1 to 16:1. The board of directors authorized a reverse split of 16:1 which was implemented on May 12, 2010 and the financial statements included within this document have been adjusted accordingly.



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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 and the audited financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the
year ended December 31, 2009, which has been filed with the Securities and Exchange Commission (the SEC). .

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, 2009 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 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.

Overview

We are
a Raleigh, North Carolina-based development stage biopharmaceutical company that acquires promising therapeutic drug candidates from third parties and advances their clinical development for later sale or license to pharmaceutical and biotechnology
companies or other entities that have the potential to complete development, gain approval and commercialize the product. We focus our therapeutic development efforts on small molecules from late preclinical development through Phase 2 clinical
trials. 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) or market the drug
candidates we are developing.

While in the past we had a broader pipeline of drug development programs, we are currently
focusing all of our resources on our two most advanced drug development programs which are KRN550 for the treatment of neuropathic pain in cancer patients and DB959 for the treatment of metabolic diseases including type 2 diabetes.

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.



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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
development 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 $1,951,211 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 in the near-term. 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.

Status of our Drug Candidates

We currently have a portfolio of drug candidates at various stages of development for the treatment of neuropathic pain for patients with
cancer, type 2 diabetes (including dyslipidemia), enhancement of homing and engraftment of stem cell transplantation and psoriasis. Our portfolio also includes CPT-1 inhibitors intended for topical application for patients with psoriasis, a library
of DPPIV inhibitors and a diverse library of approximately 1800 PPAR agonists of various molecular modalities. PPAR receptors are found throughout the human body and recent publications report that PPAR agonists may be useful in the treatment of
Alzheimers disease, cystic fibrosis, liver disease, and a variety of autoimmune diseases. Because our diverse PPAR library has the potential to address the unmet medical needs of these diseases, we plan to explore several of these indications.

Our cost containment program announced on January 6, 2009, designed to reduce our cash burn rate, necessitated that we
focus the majority of our working capital on advancing our two lead programs; the continued development of KRN5500 for the treatment of neuropathic pain for patients with cancer and DB959 for the treatment type 2 diabetes. Due to this allocation, we
reduced our headcount by approximately 60 percent and inventoried three programs, DB160, DB900 and DB200, for future development. Based on our present working capital and sharpened focus, we have sufficient working capital to advance KRN5500 and
DB959 development through 2010. In the event that these two candidates are not monetized during 2010, additional funding will be required to continue development. A brief discussion of the status of each of our drug candidates follows.

KRN5500

KRN5500 is a
drug candidate 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 the market being targeted by KRN5500 is chemotherapy-induced
neuropathic pain. On May 12, 2009, we announced positive results from the recently completed Phase 2a clinical trial in cancer patients with neuropathic pain to assess its safety and efficacy. KRN5500 met its primary endpoint and was
statistically significantly (p=0.03) better than placebo. A second Phase 2 clinical trial is planned to start during the second half of 2010. On April 26, 2010, DARA Therapeutics, Inc., a subsidiary of ours, entered into an agreement with the
Division of Cancer Prevention, National Cancer Institute (DCP), which is an agency of the U.S. Government with a mission to improve cancer care, for the clinical development of KRN5500. Under the agreement, we will, at our sole cost and
expense, supply DCP with KRN5500 to perform clinical trials that are intended to further test the effectiveness of KRN5500 as a treatment and/or prevention for chemotherapy-induced peripheral neuropathy. DCP will be responsible for all costs and
expenses associated with DCPs activities in carrying out the clinical trials.

We incurred $98,227 in development costs
associated with the development of KRN5500 during the three month period ended March 31, 2010, and we have incurred costs of $3,505,336 from inception to date. We estimate the market potential for chemotherapy-induced neuropathy to be roughly
$1.6 billion in 2014.



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DB959

The second drug candidate, DB959, is a highly selective, non-thiazolidinedione (TZD), first-in-class dual PPAR
(peroxisome proliferator activated receptor) delta/gamma agonist in development for type 2 diabetes. A phase 1 clinical for DB959 is underway and the Company plans to announce results in the second half of 2010. 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 on DB959 is being conducted under an exclusive worldwide license to develop and commercialize the drug candidate
from Bayer Pharmaceuticals Corp. This license, which was acquired in October 2007, gives us 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 costs
of $112,381 during the three month period ended March 31, 2010, and we have incurred costs of $4,320,027 from inception to date. We estimate the market potential for the PPAR agonist segment of type 2 Diabetes market to be roughly $21 billion
in 2034.

DB160

DB160 is a dipeptidylpeptidase (DPPIV) inhibitor. Prior to January 2009 we were developing this drug candidate as a once-daily oral
therapy for the treatment of type 2 diabetes. In connection with the implementation of our January 2009 cost reduction plan we suspended this development program. Our development work with DB160 is pursuant to an exclusive worldwide license to
develop and commercialize the drug candidate from Nuada, LLC.

We incurred nominal expense of $210 during the three month
period ended March 31, 2010, and we have incurred costs of $2,294,463 from inception to date.

On August 4, 2009, we
announced a collaboration with America Stem Cell to expand on observations from recent preclinical studies showing that DPPIV inhibitors improve the efficiency of hematopoietic stem cell (HSC) transplants.On October 12, 2009, we entered
into an Addendum and First Amendment to Material Transfer Agreement with America Stem Cell, Inc. pursuant to which the Material Transfer Agreement between the Company and America Stem Cell was amended. Under the Material Transfer Agreement, we are
providing America Stem Cell with DB160 as well as another one of our DPPIV inhibitors, DB295, which America Stem Cell is using to further its research and development program related to HSC transplants.

Under the Material Transfer Agreement as amended, America Stem Cell is required to pay us a total of $250,000, in four equal installments
over approximately three years, contingent upon America Stem Cells receipt of a specified amount of grant funding for its HSC research and development program.

DB900

DB900 is a series
of compounds which are PPARg/a/d agonists for the treatment of type 2 diabetes. These compounds activate 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. Should we decide to resume the
development of DB900, a clinical candidate will be selected from a number of strong lead compounds. Our development work with DB900 is pursuant to an exclusive worldwide license to develop and commercialize the drug candidate from Bayer
Pharmaceuticals Corp.

We incurred $0 in direct outside development costs associated with the development of DB900 series
compounds during the three month period ended March 31, 2010, and we have incurred costs of $129,272 from inception to date. We estimate the market potential for the PPAR agonist segment of type 2 Diabetes market to be roughly $30.0 billion in
2014.



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##### Table of Contents

DB200

DB200 refers to a series of compounds that 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 would be to file an IND
application with the FDA. There are no third party licenses associated with this program.

We incurred $599 in direct outside
development costs associated with the development of DB200 series compounds during the three month period ended March 31, 2010, and we have incurred costs of $379,818 from inception to date. We estimate the market potential for the topical
agent segment of the psoriasis market to be roughly $3.9 billion in 2011.

Talabostat

We have no current plans to develop Talabostat as a therapy for lung cancer, the original indication for which it was studied at Point
Therapeutics in humans. However, as we continue to receive requests for Talabostat material for other investigations, we recognize value in maintaining the patent estate, as potential future uses for this drug may be identified as a result of
these other investigations. Therefore, we continue to keep these filings current by paying the various patent-related fees which become due.

We incurred $11,156 in direct costs associated with Talabostat during the three month period ended March 31, 2010, and we have
incurred costs of $82,481 from inception to date.

Critical Accounting Policies and Significant Judgments and Estimates

Our managements discussion and analysis of our financial condition and results of operations are based on our
consolidated financial statements, which have been prepared in accordance with 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 clinical trial expenses, stock-based compensation and asset impairment and significant judgments and estimates. We base our estimates on historical experience and on various other factors that are
believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. 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;
| | - |  | --------------------------------------------------------------------



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



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

Share-Based Compensation

Share-based compensation is accounted for using the fair value based method prescribed by Financial Accounting Standards Board Accounting
Standards Codification 718, Compensation-Stock Compensation. For stock and stock-based awards issued to employees, a compensation charge is recorded against earnings based on the fair value of the award. For transactions with non-employees in
which services are performed in exchange for 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 and non-employee directors resulted in compensation expense of $205,985 and $131,247 for the three months ended
March 31, 2010 and 2009, respectively. The Company recognized stock-based compensation expense for awards to consultants for services totaling $22,497 and $14,653 for the three months ended March 31, 2010 and 2009, respectively.

Carrying Value of Property and Equipment and the Value of Certain Liabilities

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

Results of Operations

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

Research and development expenses decreased $530,989 from $890,558 for the three months ended March 31, 2009 to $359,569 for the
corresponding 2010 period, primarily as a result of the DB959 $500,000 Milestone payment to Bayer in 2009, as well as other cost reduction measures implemented in 2009.

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 $172,844 from $961,466 for the three months ended March 31, 2009 to $788,622 for the corresponding 2010 period, as a result of the accrual of severance taken the first quarter of 2009 for the former Chief Operating Officer of the
Company offset by an increase in option and restricted stock expense as well as an increase in investor relations expense and the reinstatement of Board of Director fees.

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 decreased $618,887 from an income of $620,712 for the three months ended March 31, 2009 to an income of $1,825 for the corresponding 2010 period. The decrease is primarily due to
the gain on investments of $551,410 from the distribution of SurgiVision stock, as well as the gain on the Companys sale of its marketable securities of $81,314 in 2009.

Liquidity and Capital Resources

Overview

From inception
through March 31, 2010, we have financed our operations primarily from the net proceeds of (1) registered direct offerings and private placements of equity securities, through which we raised $32,161,937 in net proceeds, including
$1,759,545 in net proceeds from the Companys private placement in February and March 2010 discussed below and (2) the sale of securities we acquired through investments made in other companies, through which we raised $6,856,903.

On February 26, 2010 and March 5, 2010, we entered into two Securities Purchase Agreements with certain accredited
investors in connection with the private issuance and sale to such investors of 228,243 units and 6,648 units, respectively. Our gross proceeds were $1,766,504. Each unit consisted of (1) one share of common stock and (2) one-half of a
warrant to purchase one share of common stock. The units were issued and sold to investors for $7.52 per unit. The warrants have an exercise price of $7.52 and are exercisable beginning six months after the date of issuance with an expiration date
of five years after the initial exercise date.



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At March 31, 2010, our principal sources of liquidity were our cash and cash
equivalents which totaled $3,988,069. As of March 31, 2010, we had net working capital of $3,644,611. Our cash resources have been used to acquire licenses, fund research and development activities, capital expenditures, and general and
administrative expenses.

Cash Flows

During the three months ended March 31, 2010, cash used in our operating activities was $1,119,834. Cash used in operating activities
was primarily due to the operating loss offset in part by non-cash stock-based compensation of $228,482 and depreciation and amortization of $35,760. Prepaid expenses increased by $121,744 for the three months ended March 31, 2010, primarily
representing prepaid director and officer insurance coverage. Accounts payable decreased by $25,129 and accrued liabilities decreased by $95,016.

Our investing activities used $3,600 cash for the purchase of computers offset by the sale of equipment previously disposed.

We generated $1,759,545 of net cash from the private placement of common stock and warrants, $100,000 from the exercise of options by the
Companys President and CEO. We established $103,927 in other financing offset by payments of $19,506 on capital lease and other financing agreements during the three months ended March 31, 2010.

Financial Condition

We
believe we have sufficient working capital to pursue our current limited operations through the end of 2010. 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 equity securities or the sale of certain
of our investments. In particular, as described in the Registration Statement on Form S-1 filed by us with the Securities and Exchange Commission on April 2, 2010, we are currently contemplating an underwritten public offering of $10 million of
units comprised of shares of common stock and warrants to purchase shares of common stock. However, we have no binding commitments for any transactions at this time and there can be no assurance that we will consummate this transaction or any other
transaction. 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;
| | - |  | ------------------------------------------------------------------------------



| |  |  | successfully out-license or otherwise monetize any of our programs; or
| | - |  | ----------------------------------------------------------------------



| |  |  | continue operations.
| | - |  | --------------------

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2010.

NASDAQ Capital Market Listing

Our common stock is currently traded on the NASDAQ Capital Market. The NASDAQ Capital Market imposes, among other requirements, listing
maintenance standards including minimum bid and public float requirements. In particular, NASDAQ rules require us to maintain a minimum bid price of $1.00 per share of our common stock. Since November 2008, our common stock has traded below the
$1.00 per share level. The closing price on March 5, 2010, was $0.54 per share, pre-split. On September 15, 2009, we received a letter from NASDAQ stating that the minimum bid price of our common stock was below $1.00 per share for 30
consecutive business days and that we were therefore not in compliance with Marketplace Rule 5550(a)(2) (the Minimum Bid Price Rule). The notification letter stated that we had until March 15, 2010, to regain compliance with the
Minimum Bid Price Rule. In accordance with Marketplace Rule 5810(c)(3)(a), to regain compliance the closing bid price of our common stock must meet or exceed $1.00 per share for at least 10 consecutive business days.

We had not regained compliance with the Minimum Bid Price Rule as of March 15, 2010. Accordingly, we received a notice from NASDAQ
on March 16, 2010 stating that due to our failure to so regain compliance with the Minimum Bid Price Rule



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##### Table of Contents

our stock would be delisted. We requested a hearing before a NASDAQ Listing Qualifications Panel (the Panel), which took place on April 28, 2010 and at which we requested the
continued listing of our common stock on The NASDAQ Capital Market pending the completion of our plan to evidence compliance with the Minimum Bid Price Rule, the centerpiece of which is implementation of a reverse stock split. On May 12, 2010,
we effected a reverse stock split pursuant to which each 16 shares of our common stock issued and outstanding immediately prior to the reverse stock split was converted into one share of our common stock. As a result, we anticipate that we will
regain compliance with the Minimum Bid Price Rule. However, there can be no assurance that the Panel will grant our request for continued listing or that we will regain compliance with the Minimum Bid Price Rule, and if it does not or we do not, our
common stock would be delisted from the NASDAQ Capital Market.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

Not applicable.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of
Disclosure 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.

Changes in Internal Control Over Financial Reporting

During the first quarter of 2010, 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 13, 2010, we had no outstanding material legal proceedings.



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

Not applicable.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

Not applicable.



|Item 4. | (Removed and Reserved).
|------- | -----------------------



|Item 5. | Other Information
|------- | -----------------

The
Annual Meeting of Stockholders of the Company was held May 12, 2010 at the Corporations offices at 8601 Six Forks Road, Suite 160, Raleigh, North Carolina 27615 at 11:00 a.m. local time. The following proposals, each of which is described



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in the definitive proxy statement filed by the Company with the SEC on April 12, 2010, were submitted to and approved by the stockholders at the meeting:



|1. | Election of four members of the board of directors:
|-- | ---------------------------------------------------



|                         |  |            |  |              
|------------------------ |  | ---------- |  | -------------
|                         |  | Votes For  |  | VotesWithheld
|Richard A. Franco, Sr.   |  | 16,404,173 |  | 271,176      
|Haywood D. Cochrane, Jr. |  | 16,307,969 |  | 367,380      
|David J. Drutz, M.D.     |  | 16,307,669 |  | 367,680      
|Gail F. Lieberman        |  | 16,306,855 |  | 368,494      



|2. | Approval of an amendment to the Certificate of Incorporation to effect a reverse stock split to afford the board of directors the authority to
implement a reverse stock split in its discretion within the range of 2:1 to 16:1 (29,681,361 for, 1,726,504 against, 0 broker non-votes, 150,997 abstaining).
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | Approval of an amendment to the Certificate of Incorporation to effect an increase in the authorized number of shares of common stock to up to
100,000,000 to afford the board of directors the authority to implement an increase in our authorized shares of common stock in its discretion (29,630,339 for, 1,521,064 against, 0 broker non-votes, 407,457 abstaining).
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | Ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the 2010 fiscal year (31,196,312 for,
302,284 against, 0 broker non-votes, 60,265 abstaining).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On May 12, 2010, the Company filed a
certificate of amendment to the Companys restated certificate of incorporation in order to effect a 16-for-1 reverse stock split of the Companys common stock effective as of the opening of trading of the Companys common stock on
the NASDAQ Capital Market on May 13, 2010. The main purpose of the reverse stock split is to enable the Company to regain compliance with the minimum $1.00 per share bid price requirement for continued listing of the Companys common stock
on The NASDAQ Capital Market.

As a result of the reverse stock split, every 16 shares of the Companys issued and
outstanding common stock were combined into one share of common stock. The reverse stock split did not change the number of authorized shares of the Companys common stock. No fractional shares of common stock were issued as a result of the
reverse stock split. Holders of record of common stock who, as a result of the reverse stock split, would otherwise have received a fractional share of common stock, are entitled to receive a cash payment in lieu thereof.

The certificate of amendment to the Companys restated certificate of incorporation is filed herewith as Exhibit 3 and is
incorporated by reference herein.



|Item 6. | Exhibits
|------- | --------

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



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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, on May 14, 2010.



|                   |  |  |  |                        |  |                                      
|------------------ |  |  |  | ---------------------- |  | -------------------------------------
|                   |  |  |  | DARA BIOSCIENCES, INC.
|                   |  |  | 
|Date: May 14, 2010 |  |  |  | By:                    |  | /s/ Richard A. Franco                
|                   |  |  |  |                        |  | Richard A. Franco                    
|                   |  |  |  |                        |  | President and Chief Executive Officer



|                   |  |  |  |     |  |                         
|------------------ |  |  |  | --- |  | ------------------------
|Date: May 14, 2010 |  |  |  | By: |  | /s/ Ann A. Rosar        
|                   |  |  |  |     |  | Ann A. Rosar            
|                   |  |  |  |     |  | Chief Accounting Officer



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EXHIBIT INDEX



|           |  |                                                                                                                                            |  |                             
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------------------------
|ExhibitNo. |  | Description                                                                                                                                |  | Incorporated by Reference to
|           |  |                                                                                                                                           
|3          |  | Certificate of Amendment to Restated Certificate of Incorporation                                                                          |  |                             
|           |  |                                                                                                                                           
|4          |  | Form of Common Stock Purchase Warrant                                                                                                      |  |                             
|           |  |                                                                                                                                           
|10         |  | Form of Securities Purchase Agreement by and between DARA Pharmaceuticals, Inc. and certain accredited investors                           |  |                             
|           |  |                                                                                                                                           
|31.1       |  | Certification of Richard A. Franco, Sr., R.Ph. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2010               |  |                             
|           |  |                                                                                                                                           
|31.2       |  | Certification of Ann A. Rosar pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated May 14, 2010                                |  |                             
|           |  |                                                                                                                                           
|32         |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated May 14, 2010 |  |                             



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