##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q/A
 Amendment No. 1
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 001-16695
Commission File Number
 Radient Pharmaceuticals Corporation
 (Exact name of registrant as specified in its charter)
 Delaware(State or other jurisdiction 
of incorporation or organization)
    
    33-0413161
(IRS Employer Identification No.)
 2492 Walnut Avenue, Suite 100
Tustin, California 92780-7039
(714) 505-4460  (Address, including zip code, and telephone number,
including area code, of Registrants principal executive offices)
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
 ,




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##### 



EXPLANATORY NOTE
   Radient Pharmaceuticals Corporation
 FORM 10-Q/A
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
INDEX
 TABLE OF CONTENTS
  
 PART I   FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets at June 30, 2010 (Unaudited) (As restated) and December 31, 2009
    
    
    3Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six
months ended June 30, 2010 (As restated) and 2009
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 (As
restated) and 2009
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition & Results of Operation
    
    
    33Item 3. Quantitative and Qualitative Disclosure About Market Risks
    
    
    51Item 4. Controls and Procedures
    
    
    51PART II  OTHER INFORMATION
    
    
    53Item 1. Legal Proceedings
    
    
    53Item 2. Unregistered Sales of Equity Securities And Use Of Proceeds
    
    
    53Item 3. Defaults Upon Senior Securities
    
    
    53Item 4. Removed and Reserved
    
    
    53Item 5. Other Information
    
    
    53Item 6. Exhibits
    
    
    54Signatures:
    
    
    55EX-31.1EX-31.2EX-32.1EX-32.2
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Radient
Pharmaceuticals Corporation
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)(As restated)ASSETSCurrent assets:Cash
    
    $
    2,522,135
    
    
    $
    12,145Inventories
    
    
    74,367
    
    
    
    79,255Debt issuance costs
    
    
    1,528,750
    
    
    
    1,288,910Prepaid expenses and other current assets
    
    
    27,167
    
    
    
    57,778Prepaid consulting
    
    
    818,694
    
    
    
    358,667Total current assets
    
    
    4,971,113
    
    
    
    1,796,755Property and equipment, net
    
    
    81,670
    
    
    
    83,547Intangible assets, net
    
    
    1,108,333
    
    
    
    1,158,333Receivable from JPI, net of allowance
    
    
    2,675,000
    
    
    
    2,675,000Investment in JPI
    
    
    17,738,007
    
    
    
    20,500,000Other assets
    
    
    22,409
    
    
    
    105,451Total assets
    
    
    26,596,532
    
    
    $
    26,319,086LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    901,317
    
    
    $
    1,542,974Accrued salaries and wages
    
    
    340,910
    
    
    
    738,331Accrued interest expense
    
    
    783,010
    
    
    
    432,337Derivative liabilities
    
    
    16,086,662
    
    
    
    354,758Deferred revenue
    
    
    103,128
    
    
    
    103,128Convertible notes, net of discount
    
    
    5,892,767
    
    
    
    240,482Current portion of notes payable, net of discount
    
    
    2,312,576
    
    
    
    1,316,667Total current liabilities
    
    
    26,420,370
    
    
    
    4,728,677Other long-term liabilities
    
    
    
    
    
    
    295,830Notes payable, net of current portion and debt discount
    
    
    
    
    
    
    601,819Total liabilities
    
    
    26,420,370
    
    
    
    5,626,326Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value; 25,000,000 shares authorized; none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 100,000,000 shares authorized; 31,380,278 and 22,682,116
shares issued at June 30, 2010 and December 31, 2009, respectively; 31,140,804 and
22,265,441 shares outstanding at June 30, 2010 and December 31, 2009, respectively
    
    
    31,141
    
    
    
    22,265Additional paid-in capital
    
    
    79,057,478
    
    
    
    73,109,048Accumulated deficit
    
    
    (78,912,457
    )
    
    
    (52,438,553
    )Total stockholders equity
    
    
    176,162
    
    
    
    20,692,760Total liabilities and stockholders equity
    
    $
    26,596,532
    
    
    $
    26,319,086
 See Accompanying Notes to Condensed Consolidated Financial Statements
 3




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##### Table of Contents



Radient
Pharmaceuticals Corporation
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(As restated)
    
    
    
    
    
    (As restated)Net revenues
    
    $
    45,552
    
    
    $
    3,181,043
    
    
    $
    82,394
    
    
    $
    5,892,780Cost of sales
    
    
    8,178
    
    
    
    2,150,405
    
    
    
    30,113
    
    
    
    3,735,978Gross profit
    
    
    37,374
    
    
    
    1,030,638
    
    
    
    52,281
    
    
    
    2,156,802Operating expenses:Research and development
    
    
    243,779
    
    
    
    332,779
    
    
    
    294,815
    
    
    
    425,463Selling, general and administrative
    
    
    2,768,978
    
    
    
    3,784,801
    
    
    
    4,124,160
    
    
    
    6,375,5703,012,757
    
    
    
    4,117,580
    
    
    
    4,418,975
    
    
    
    6,801,033Loss from operations
    
    
    (2,975,383
    )
    
    
    (3,086,942
    )
    
    
    (4,366,694
    )
    
    
    (4,644,231
    )Other income (expense):Interest expense
    
    
    (20,939,255
    )
    
    
    (332,034
    )
    
    
    (22,101,929
    )
    
    
    (566,251
    )Gain on change in fair value of derivative instruments
    
    
    2,801,583
    
    
    
    
    
    
    
    2,758,589
    
    
    
    Impairment on investment in JPI
    
    
    (2,761,993
    )
    
    
    
    
    
    
    (2,761,993
    )
    
    
    Other expense, net
    
    
    (1,614
    )
    
    
    (36,721
    )
    
    
    (1,877
    )
    
    
    (72,830
    )Total other expense, net
    
    
    (20,901,279
    )
    
    
    (368,755
    )
    
    
    (22,107,210
    )
    
    
    (639,081
    )Loss before provision for income taxes and
discontinued operations
    
    
    (23,876,662
    )
    
    
    (3,455,697
    )
    
    
    (26,473,904
    )
    
    
    (5,283,312
    )Provision for income taxes
    
    
    
    
    
    
    417,165
    
    
    
    
    
    
    
    527,667Loss from continuing operations
    
    
    (23,876,662
    )
    
    
    (3,872,862
    )
    
    
    (26,473,904
    )
    
    
    (5,810,979
    )Loss from discontinued operations, net
    
    
    
    
    
    
    (4,222,696
    )
    
    
    
    
    
    
    (3,975,670
    )Net loss
    
    $
    (23,876,662
    )
    
    $
    (8,095,558
    )
    
    $
    (26,473,904
    )
    
    $
    (9,786,649
    )Other comprehensive loss:Foreign currency translation loss
    
    
    
    
    
    
    (54
    )
    
    
    
    
    
    
    (42,485
    )Comprehensive loss
    
    $
    (23,876,662
    )
    
    $
    (8,095,612
    )
    
    $
    (26,473,904
    )
    
    $
    (9,829,134
    )Basic and diluted loss per common share:Loss from continuing operations
    
    $
    (0.82
    )
    
    $
    (0.24
    )
    
    $
    (0.99
    )
    
    $
    (0.37
    )Loss from discontinued operations
    
    $
    
    
    
    $
    (0.27
    )
    
    $
    
    
    
    $
    (0.25
    )Net loss
    
    $
    (0.82
    )
    
    $
    (0.51
    )
    
    $
    (0.99
    )
    
    $
    (0.61
    )Weighted average common shares outstanding  basic
and diluted
    
    
    29,245,417
    
    
    
    15,851,815
    
    
    
    26,729,016
    
    
    
    15,916,133
 See Accompanying Notes to Condensed Consolidated Financial Statements
 4




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Radient
Pharmaceuticals Corporation
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended June 30,2010
    
    
    2009(As restated)Cash flows from operating activities:Net loss
    
    $
    (26,473,904
    )
    
    $
    (9,786,649
    )Less: income from discontinued operations
    
    
    
    
    
    
    (3,975,670
    )(26,473,904
    )
    
    
    (5,810,979
    )Adjustments to reconcile net loss before discontinued operations to net cash used in
operating activities:Depreciation and amortization
    
    
    67,000
    
    
    
    1,300,413Amortization of debt discount and debt issuance costs
    
    
    5,257,361
    
    
    
    194,291Impairment on investment in JPI
    
    
    2,761,993
    
    
    
    Interest expense related to fair value of derivative instruments granted
    
    
    12,733,818
    
    
    
    Incremental value of shares and warrants issued to former note holders
    
    
    81,780
    
    
    
    Additional principal added for triggering events
    
    
    3,237,295
    
    
    
    Share-based compensation related to options granted to employees and directors for services
    
    
    173,758
    
    
    
    154,056Share-based compensation related to common stock and warrants expensed for services
    
    
    1,620,789
    
    
    
    314,310Provision for bad debts
    
    
    
    
    
    
    1,932,384Change in fair value of derivative instruments
    
    
    (2,758,589
    )
    
    
    35,557Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    5,116,069Inventories
    
    
    4,888
    
    
    
    275,284Prepaid expenses and other assets
    
    
    130,726
    
    
    
    (5,674,930
    )Accounts payable and accrued expenses, salaries and wages
    
    
    (1,438,290
    )
    
    
    539,155Income taxes payable
    
    
    
    
    
    
    (412,035
    )Deferred revenue
    
    
    
    
    
    
    (87,720
    )Net cash used in operating activities of continuing operations
    
    
    (4,601,375
    )
    
    
    (2,124,145
    )Net cash provided by operating activities of discontinued operations
    
    
    
    
    
    
    1,853,502Net cash used in operating activities
    
    
    (4,601,375
    )
    
    
    (270,643
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (15,123
    )
    
    
    (2,034,324
    )Net cash used in investing activities of continuing operations
    
    
    (15,123
    )
    
    
    (2,034,324
    )Net cash used in investing activities
    
    
    (15,123
    )
    
    
    (2,034,324
    )Cash flows from financing activities:Proceeds from issuance of Senior Notes, net of cash issuance costs
    
    
    
    
    
    
    2,088,592Proceeds from issuance of convertible debt, net of cash offering costs
    
    
    6,308,000
    
    
    
    Proceeds from the exercise of warrants
    
    
    818,488
    
    
    
    Net cash provided by financing activities
    
    
    7,126,488
    
    
    
    2,088,592Effect of exchange rates on cash
    
    
    
    
    
    
    1,996Net change in cash
    
    
    2,509,990
    
    
    
    (214,379
    )Cash, beginning of period
    
    
    12,145
    
    
    
    2,287,283Cash, end of period
    
    $
    2,522,135
    
    
    $
    2,072,904
 See Accompanying Notes to Condensed Consolidated Financial Statements
 5




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Radient Pharmaceuticals Corporation
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 For the Six Months Ended June 30, 2010 and 2009
 NOTE 1  MANAGEMENTS REPRESENTATION
    NOTE 2  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
    Deconsolidation
  6




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
    
    Sales growth: based on managements expectations and historical analysis, the Company
expects growth of 150% in 2011, 20% in 2012 and 2013 and 10% in 2014.
    
    Risk adjusted weighted average cost of capital (WACC)  a WACC of 17.7% was utilized.
    
    Long term growth rate: we assumed a long term growth rate of 5%
    
    Cost of debt: assumed an after tax rate of 4.46%
    
    Cost of Equity:
    
    Risk free rate: 2.93%
    
    Equity risk premium: 11.15%
    
    Small stock risk premium: 3.99%
    
    Beta: .86x
    
    Subject company risk: 0%
    
    Discounts: combined discount for lack of marketability and lack of control of 35%
  Going Concern
  tm
 7




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tm tm
 Principles of Consolidation
  Restatement
  Reclassification
  Use of Estimates
  Revenue Recognition
   8




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##### Table of Contents



Taxes Collected from Customers and Remitted to Governmental Authorities
 Accounting for Shipping and Handling Revenue, Fees and Costs
 Shipping and Handling Fees and Costs
 Research and Development
  Inventories
  Property and Equipment
  Machinery and equipment, including lab equipment
    
    5 to 15 yearsOffice equipment
    
    3 to 5 years
  Intangible Assets
  Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 9




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##### Table of Contents




    
    significant under performance relative to expected historical or projected future operating results;
    
    market projections for cancer research technology;
    
    its ability to obtain patents, including continuation patents, on technology;
    
    significant changes in its strategic business objectives and utilization of the assets;
    
    significant negative industry or economic trends, including legal factors;
    
    potential for strategic partnerships for the development of its patented technology;
    
    changing or implementation of rules regarding manufacture or sale of pharmaceuticals in China; and
    
    ability to maintain Good Manufacturing Process (GMP) certifications.
   Derivative Financial Instruments
 Derivatives and Hedging
     10




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##### Table of Contents



Fair Value Measurements
     For the six monthsended June 30, 2010Annual dividend yield
    
    
    Expected life (years)
    
    
    0.67  6.17Risk-free interest rate
    
    
    0.3%  2.9%Expected volatility
    
    
    87.3%  253.9%
    Level 3CarryingValueJune 30,2010Derivative
Liabilities:Embedded conversion options
    
    $
    2,667,018Warrants
    
    
    13,419,644$
    16,086,662Decrease in fair value included in other expense, net
    
    $
    2,758,589
  Balance at December 31, 2009
    
    $
    354,758Derivative liabilities added  conversion options
    
    
    4,678,560Derivative liabilities added  warrants
    
    
    14,155,780Reclassification to equity in connection with conversion of underlying debt to equity
    
    
    (259,975
    )Reclassification to equity in connection with exercise of underlying stock warrants
    
    
    (83,872
    )Change in
fair value included in net loss
    
    
    (2,758,589
    )Balance at June 30, 2010
    
    $
    16,086,662
 11




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Risks and Uncertainties
 tm tm
  Share-Based Compensation
  Equity-Based Payments
to Non-Employees,
  Stock Compensation
 Basic and Diluted Income (Loss) Per Share
   12




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Supplemental Cash Flow Information
 Six Months Ended June 30,2010
    
    
    2009Supplemental disclosure of cash flow information:Cash paid during the period for interest
    
    $
    
    
    
    $
    207,356Cash paid during the period for taxes
    
    $
    
    
    
    $
    736,506Supplemental disclosure of non-cash activities:Fair value of warrants issued in connection with Senior Notes, included
in debt issuance costs and debt discount
    
    $
    
    
    
    $
    1,853,120Reclassification of amounts recorded to additional paid-in capital to
warrant liability, including $110,858 recorded to retained earnings,
representing the change in value of the warrants from date of issuance to
January 1, 2009
    
    $
    
    
    
    $
    209,166Reclassification of warrant liability to additional paid-in capital upon
expiration of share adjustment terms
    
    $
    
    
    
    $
    133,866Fair value of common stock recorded as prepaid consulting
    
    $
    1,850,000
    
    
    $
    Fair value of warrants issued for services, included in prepaid expense
    
    $
    
    
    
    $
    35,625Reclassification of derivative liabilities to equity
    
    $
    343,847
    
    
    $
    Amount paid directly from proceeds in connection with convertible debt
unrelated to the financing
    
    $
    35,000
    
    
    $
    Conversion of notes payable and accrued interest to shares of common stock
    
    $
    2,396,544
    
    
    $
    Debt issuance costs included in accounts payable
    
    $
    866,501
    
    
    $
    Additional derivative liability for penalty on St. George debt
    
    $
    19,430
    
    
    $
    Debt discounts related to derivative liabilities
    
    $
    6,091,092
    
    
    $
    Conversion of accounts payable to shares of common stock
    
    $
    45,000
    
    
    $
    
 Recent Accounting Pronouncements
   13




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NOTE 3  INVENTORIES
  June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)Raw materials
    
    $
    68,279
    
    
    $
    48,852Work-in-process
    
    
    6,048
    
    
    
    3,265Finished goods
    
    
    40
    
    
    
    27,138$
    74,367
    
    
    $
    79,255
 NOTE 4  INTANGIBLE ASSETS
  June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)Intellectual property
    
    $
    2,000,000
    
    
    $
    2,000,000Accumulated amortization
    
    
    (891,667
    )
    
    
    (841,667
    )$
    1,108,333
    
    
    $
    1,158,333
   NOTE 5  INCOME TAXES
   14




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NOTE 6  DEBT
  June 30,
    
    
    December 31,2010
    
    
    2009(Unaudited)(As restated)Convertible DebtConvertible Notes issued September 2008, net of
unamortized discount of $159,547 at June 30, 2010
and $1,607,111 at December 31, 2009, respectively
    
    $
    66,991
    
    
    $
    17,775St. George Convertible Note, issued September 2009,
net of unamortized discount $393,681 at December 31,
2009
    
    
    
    
    
    
    222,707First Closing of 2010 Convertible Note, issued March
22, 2010, including additional $267,860 principal
and interest for trigger event, net of unamortized
discount of $397,437 at June 30, 2010
    
    
    795,423
    
    
    
    Second Closing of 2010 Convertible Note, issued
April 8, 2010, including additional $1,742,121
principal and interest for trigger event, net of
unamortized discount of $4,346,378 at June 30, 2010
    
    
    2,885,908
    
    
    
    Third Closing of 2010 Convertible Note, issued April
13, 2010, including additional $1,177,314 principal
and interest for trigger event, net of unamortized
discount of $3,132,646 at June 30, 2010
    
    
    2,001,698
    
    
    
    Fourth Closing of 2010 Convertible Note, issued
April 26, 2010, net of unamortized discount of
$542,423 at June 30, 2010
    
    
    142,747
    
    
    
    $
    5,892,767
    
    
    $
    240,482Senior Notes payable, net of unamortized discount of
$1,323,523 and $1,701,398 at June 30, 2010 and
December 31, 2009, respectively
    
    
    2,229,576
    
    
    
    1,851,854Bridge note
    
    
    83,000
    
    
    
    66,632$
    8,205,343
    
    
    $
    2,158,968Less: Current Portion of Senior Notes and Bridge note
    
    
    (2,312,576
    )
    
    
    (1,316,667
    )Less: Current Portion of Convertible Debt
    
    
    (5,892,767
    )
    
    
    (240,482
    )$
    
    
    
    $
    601,819
  Defaults on Senior Notes and Proposed Debt Exchanges
   15




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16




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17




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St. George Convertible Note and Warrant Purchase Agreement Defaults and Waivers; Note
Conversions and Warrant Exercises After January 1, 2010
  September 2008 Convertible Notes, Note Conversions and Warrant Exercises After January 1, 2010
      18




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##### Table of Contents



Note and Warrant Purchase Agreements- March and April 2010
  MinimumConversion
    
    
    
    
    
    WarrantsPrice Per
    
    
    
    Maximum
    
    
    
    
    
    
    MinimumFace Value of
    
    
    
    
    
    
    
    
    
    
    Share at
    
    
    Shares
    
    
    
    
    
    
    ExerciseDate of
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    Issuance
    
    
    Issuable upon
    
    
    
    
    
    
    Price atIssuance
    
    Notes
    
    
    Discounts
    
    
    Gross Proceeds
    
    
    Date
    
    
    Conversion
    
    
    Number
    
    

Issuance Date[1]
    
    
    [2]
    
    
    
    
    
    
    [3]
    
    
    
    
    
    
    [5]First Closing 3/22/2010
    
    $
    925,000
    
    
    $
    (385,000
    )
    
    $
    540,000
    
    
    $
    0.28
    
    
    
    3,303,571
    
    
    
    1,100,000
    
    
    $
    0.28
    [6]Second Closing 4/8/2010
    
    
    5,490,165
    
    
    
    (2,285,165
    )
    
    
    3,205,000
    
    
    $
    0.28
    
    
    
    19,607,732
    
    
    
    6,528,213
    
    
    $
    0.38
    [7]Third Closing 4/13/2010
    
    
    3,957,030
    
    
    
    (1,647,030
    )
    
    
    2,310,000
    
    
    $
    0.28
    
    
    
    14,132,250
    
    
    
    4,705,657
    
    
    $
    0.38
    [7]Fourth Closing 4/26/2010
[4]
    
    
    599,525
    
    
    
    (249,525
    )
    
    
    350,000
    
    
    $
    0.28
    
    
    
    2,141,161
    
    
    
    712,949
    
    
    $
    0.28
    [7]Fourth Closing 4/26/2010

    
    
    85,645
    
    
    
    (35,645
    )
    
    
    50,000
    
    
    $
    0.28
    
    
    
    305,875
    
    
    
    101,849
    
    
    $
    0.89
    [7]$
    11,057,365
    
    
    $
    (4,602,365
    )
    
    $
    6,455,000
    
    
    
    
    
    
    
    39,490,589
    
    
    
    13,148,668
 
 [1]
    
    The Company also entered into a Registration Rights Agreement with the Lenders pursuant to which the Company agreed to file a registration statement by May 3, 2010, registering for resale
of all of the shares underlying the 2010 Financing Convertible Notes and the 2010 Financing Warrants. If the Company failed to file the registration statement timely or failed to have it
declared effective timely pursuant to the terms of the Registration Rights Agreement, each such event would have been deemed a trigger event under the 2010 Financing Convertible Notes. The
Company timely filed the initial registration statement on May 3, 2010, but it has not yet been declared effective. Therefore, a trigger event under the terms of the notes issued in the
First Closing, Second Closing and Third Closing occurred (the June 1 Trigger Event) (the Registration Rights Agreement requires us to have the Registration Statement effective by August
31, 2010 for the Fourth Closing). The total amount of 2010 Financing Convertible Notes issued in the first three closings was originally $10,372,195; as a result of the June 1 Trigger
Event, the principal amount of such notes is now $13,189,490 which represents 125% of the outstanding principal and accrued interest prior to the event.[2]
    
    In addition to scheduled debt discounts, the Company incurred debt
issuance costs of approximately 13% of the proceeds of these
financings.[3]
    
    The number of shares of common stock to be issued upon such conversion
shall be determined by dividing (a) the amount sought to be converted
by (b) the greater of (i) the Conversion Price (as defined below) at
that time, or (ii) the Floor Price (as defined below). The Conversion
Price is equal to 80% of the volume-weighted average price for the 5
trading days ending on the business day immediately preceding the
applicable date the conversion is sought, as reported by Bloomberg,
LP, or if such information is not then being reported by Bloomberg,
then as reported by such other data information source as may be
selected by the lender. The Floor Price is initially equal to $0.28
per share, subject to adjustment upon the occurrence of certain
events, including recapitalization, stock splits, issuance of equity
securities for a price less than the Floor Price and similar corporate
actions.[4]
    
    As part of the closing on April 26, 2010, certain investors in the
2009 Registered Direct Offering exercised their Right of Participation
and purchased $599,525 of the Notes issued in that closing and the
Company issued such participants warrants to purchase up to 712,949
shares of the Companys common stock exercisable at $0.28 per share
(the remainder of the participants in the Fourth Closing received
warrants exercisable at $0.89 per share).[5]
    
    At any time prior to the expiration date of the warrant, if and only
if there is no then effective registration statement covering the
warrant shares, the Holder may elect a cashless exercise of this
warrant whereby the Holder shall be entitled to
receive a number of shares of common stock equal to (x) the excess of
the Current Market Value over the aggregate Exercise Price of the
portion of the Warrant then being exercised, divided by (y) the
Adjusted Price of the Common Stock (as these terms are defined in the
warrant agreement). This formula, as it contains variables that are
directly linked to changes in the market price of the Companys shares, and
depending on the market price of the share on the date of exercise,
might result in the Company issuing an additional number of shares
than what is indicated in the table above.[6]
    
    The exercise price in First Closing warrants equals to the higher of:
(i) 105% of the VWAP for the five trading days immediately preceding
the date the Company issued the Warrants; or (ii) the Floor Price (as
defined in the First Closing Note).[7]
    
    The exercise price in Second, Third and Fourth Closings, can be
adjusted down (down-round protection) to a lower price if the Company
sells common stock or instruments convertible into or exercisable for
common shares in the future at a lower price than the exercise price.  19




---



##### Table of Contents



For the six monthsended June 30, 2010Annual dividend yield
    
    
    Expected life (years)
    
    
    0.67  6.17Risk-free interest rate
    
    
    0.3%  2.9%Expected volatility
    
    
    87.3%  253.9%
        20




---



##### Table of Contents



VWAP
    21




---



##### Table of Contents



22




---



##### Table of Contents



Shares Issued in Connection with Warrant Exercises and Financing Arrangements
  23




---



##### Table of Contents



St. George10% Notes
    
    
    Debt
    
    
    2010 NotesIssued
    
    
    Issued
    
    
    Issued
    
    
    Issued
    
    
    Issued
    
    
    IssuedSep-08
    
    
    Sep-09
    
    
    Mar-10
    
    
    Apr-10
    
    
    Apr-10
    
    
    Apr-10
    
    
    TotalCarrying Value
Before Discount at
December 31, 2009
    
    $
    1,624,886
    
    
    $
    616,390
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    2,241,276Face value of debt
issued 2010
    
    
    
    
    
    
    
    
    
    
    925,000
    
    
    
    5,490,165
    
    
    
    3,957,030
    
    
    
    685,170
    
    
    
    11,057,365Additional
penalties and
trigger events note
increase
    
    
    
    
    
    
    50,000
    
    
    
    267,860
    
    
    
    1,742,121
    
    
    
    1,177,314
    
    
    
    
    
    
    
    3,237,295Portion of note
converted to equity
    
    
    (1,398,348
    )
    
    
    (666,390
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,064,738
    )Carrying Value
Before Discount at
June 30, 2010
    
    
    226,538
    
    
    
    
    
    
    
    1,192,860
    
    
    
    7,232,286
    
    
    
    5,134,344
    
    
    
    685,170
    
    
    
    14,471,198Discount, net of
accumulated
amortization at
December 31, 2009
    
    
    (1,607,111
    )
    
    
    (393,681
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,000,792
    )Acceleration of
amortization in
connection with
conversion
    
    
    1,419,215
    
    
    
    393,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,812,896Discount
attributable to
2010 notes
    
    
    
    
    
    
    
    
    
    
    (561,092
    )
    
    
    (5,490,165
    )
    
    
    (3,957,030
    )
    
    
    (685,170
    )
    
    
    (10,693,457
    )Amortization
expense during the
six months ended
June 30, 2010
    
    
    28,349
    
    
    
    
    
    
    
    163,655
    
    
    
    1,143,787
    
    
    
    824,384
    
    
    
    142,747
    
    
    
    2,302,922Discount, net of
accumulated
amortization at
June 30, 2010
    
    
    (159,547
    )
    
    
    
    
    
    
    (397,437
    )
    
    
    (4,346,378
    )
    
    
    (3,132,646
    )
    
    
    (542,423
    )
    
    
    (8,578,431
    )Net Carrying Value
at June 30, 2010
    
    
    66,991
    
    
    $
    
    
    
    $
    795,423
    
    
    $
    2,885,908
    
    
    $
    2,001,698
    
    
    $
    142,747
    
    
    $
    5,892,767
 24




---



##### Table of Contents



Series 1Dec-08
    
    
    Jan-09
    
    
    May-09
    
    
    Jun-09
    
    
    TotalCarrying Value Before Discount at June 30, 2010
    
    $
    1,077,500
    
    
    $
    680,000
    
    
    $
    1,327,249
    
    
    $
    468,350
    
    
    $
    3,553,099Discount, net of accumulated amortization, at December 31, 2009
    
    
    (318,178
    )
    
    
    (327,809
    )
    
    
    (782,043
    )
    
    
    (273,366
    )
    
    
    (1,701,396
    )Amortization expense for the six months ended June 30, 2010
    
    
    144,468
    
    
    
    108,288
    
    
    
    68,011
    
    
    
    57,106
    
    
    
    377,873Discount, net of accumulated amortization, at June 30, 2010
    
    
    (173,710
    )
    
    
    (219,521
    )
    
    
    (714,032
    )
    
    
    (216,260
    )
    
    
    (1,323,523
    )Net Carrying Value at June 30, 2010
    
    $
    903,790
    
    
    $
    460,479
    
    
    $
    613,217
    
    
    $
    252,090
    
    
    $
    2,229,576
 Bridge Note
  NOTE 7  EMPLOYMENT CONTRACT TERMINATION LIABILITY
  25




---



##### Table of Contents



NOTE 8  COMMITMENTS AND CONTINGENCIES
 Litigation
      Licensing Agreements
  Indemnities and Guarantees
  26




---



##### Table of Contents



Tax Matters
  NOTE 9  SHARE-BASED COMPENSATION
   Summary of Activity
  NOTE 10  FINANCING ACTIVITIES
 Common Stock Issued for Services
    27




---



##### Table of Contents



Warrants
  Six months endedJune 30, 2010WeightedAverageExerciseWarrants
(1)
    
    
    PriceOutstanding and exercisable, January 1, 2010
    
    
    10,393,287
    
    
    $
    1.84Granted
    
    
    13,148,668
    
    
    
    0.37Exercised
    
    
    (1,248,000
    )
    
    $
    0.71Outstanding and exercisable, June 30, 2010
    
    
    22,293,955
    
    
    $
    1.03
  (1)
    
    The
Company may be required to issued additional warrant shares as a
result of the cashless exercise feature associated with the First,
Second, Third and Fourth Closings, which may significantly impact the
table above.
   28




---



##### Table of Contents



NOTE 11  SEGMENT REPORTING
   China
    
    
    Corporate
    
    
    TotalNet revenue
    
    $
    3,152,693
    
    
    $
    28,350
    
    
    $
    3,181,043Gross profit
    
    $
    1,013,903
    
    
    $
    16,737
    
    
    $
    1,030,640Depreciation
    
    $
    263,512
    
    
    $
    31,777
    
    
    $
    295,289Amortization
    
    $
    602,684
    
    
    $
    50,000
    
    
    $
    652,684Interest expense
    
    $
    55,756
    
    
    $
    276,278
    
    
    $
    332,034Income (loss) before discontinued operations
    
    $
    (1,532,428
    )
    
    $
    (2,340,433
    )
    
    $
    (3,872,861
    )Capital expenditures
    
    $
    1,360,682
    
    
    $
    646
    
    
    $
    1,361,328
  China
    
    
    Corporate
    
    
    TotalNet revenue
    
    $
    5,841,360
    
    
    $
    51,420
    
    
    $
    5,892,780Gross profit
    
    $
    2,125,072
    
    
    $
    31,732
    
    
    $
    2,156,804Depreciation
    
    $
    469,899
    
    
    $
    45,678
    
    
    $
    515,577Amortization
    
    $
    709,837
    
    
    $
    75,000
    
    
    $
    784,837Interest expense
    
    $
    111,458
    
    
    $
    454,793
    
    
    $
    566,251Income (loss) before discontinued operations
    
    $
    (1,133,864
    )
    
    $
    (4,677,114
    )
    
    $
    (5,810,978
    )Capital expenditures
    
    $
    1,661,401
    
    
    $
    107,083
    
    
    $
    1,768,484
  NOTE 12  RELATED PARTY TRANSACTIONS
  NOTE 13  RESTATEMENT
  29




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##### Table of Contents



For the six monthsended June 30, 2010Annual dividend yield
    
    
    Expected life (years)
    
    
    0.67  6.17Risk-free interest rate
    
    
    0.3%  2.9%Expected volatility
    
    
    87.3%  253.9%
   AsPreviouslyEffects of Restatements
    
    Reported
    
    
    Adjustment
    
    
    As RestatedBalance Sheet as of June 30, 2010Investment in JPI [1]
    
    
    18,200,295
    
    
    
    (462,288
    )
    
    
    17,738,007Accounts payable and accrued expenses [2]
    
    
    1,291,315
    
    
    
    (389,998
    )
    
    
    901,317Accrued interest expense [3]
    
    
    777,240
    
    
    
    5,770
    
    
    
    783,010Derivative liability [4]
    
    
    22,119,563
    
    
    
    (6,032,901
    )
    
    
    16,086,662Convertible notes, net of discount [5]
    
    
    5,351,316
    
    
    
    541,451
    
    
    
    5,892,767Accumulated deficit [6]
    
    
    (84,325,849
    )
    
    
    5,413,392
    
    
    
    (78,912,457
    )Total stockholders equity [6]
    
    
    (5,237,230
    )
    
    
    5,413,392
    
    
    
    176,162Statement of operations and comprehensive loss for the three months ended June 30,
2010Interest expense [7]
    
    
    (33,149,910
    )
    
    
    12,210,655
    
    
    
    (20,939,255
    )Impairment on Investment in JPI [1]
    
    
    (2,299,705
    )
    
    
    (462,288
    )
    
    
    (2,761,993
    )Gain on change in fair value of derivative instruments [8]
    
    
    9,136,558
    
    
    
    (6,334,975
    )
    
    
    2,801,583Loss from continuing operations
    
    
    (29,290,054
    )
    
    
    5,413,392
    
    
    
    (23,876,662
    )Net loss
    
    
    (29,290,054
    )
    
    
    5,413,392
    
    
    
    (23,876,662
    )EPS  basic and diluted  loss from continuing operations
    
    
    (1.00
    )
    
    
    0.18
    
    
    
    (0.82
    )EPS  basis and diluted  net loss
    
    
    (1.00
    )
    
    
    0.18
    
    
    
    (0.82
    )
 30




---



##### Table of Contents



AsPreviouslyEffects of Restatements
    
    Reported
    
    
    Adjustment
    
    
    As RestatedStatement of operations and comprehensive loss for the six months ended June 30,
2010Interest expense [7]
    
    
    (34,312,584
    )
    
    
    12,210,655
    
    
    
    (22,101,929
    )Impairment on Investment in JPI [1]
    
    
    (2,299,705
    )
    
    
    (462,288
    )
    
    
    (2,761,993
    )Gain on change in fair value of derivative instruments [8]
    
    
    9,093,564
    
    
    
    (6,334,975
    )
    
    
    2,758,589Loss from continuing operations
    
    
    (31,887,296
    )
    
    
    5,413,392
    
    
    
    (26,473,904
    )Net loss
    
    
    (31,887,296
    )
    
    
    5,413,392
    
    
    
    (26,473,904
    )EPS  basis and diluted  loss from continuing operations
    
    
    (1.19
    )
    
    
    0.20
    
    
    
    (0.99
    )EPS  basis and diluted  net loss
    
    
    (1.19
    )
    
    
    0.20
    
    
    
    (0.99
    )Statement of cash flows for the six months ended June 30, 2010Cash flows from operating activities:Net loss [1],[7],[8]
    
    
    (31,887,296
    )
    
    
    5,413,392
    
    
    
    (26,473,904
    )Adjustments to reconcile net loss before discontinued operations to net
cash provided by (used in) operating activities:Amortization of debt discount and debt issuance costs [7]
    
    
    5,344,166
    
    
    
    (86,805
    )
    
    
    5,257,361Impairment on investment in JPI [1]
    
    
    2,299,705
    
    
    
    462,288
    
    
    
    2,761,993Interest expense related to fair value of derivative instruments granted [7]
    
    
    24,053,345
    
    
    
    (11,319,527
    )
    
    
    12,733,818Additional principal added for triggering events [5]
    
    
    2,877,295
    
    
    
    360,000
    
    
    
    3,237,295Change in fair value of derivative instruments [4]
    
    
    (9,093,564
    )
    
    
    6,334,975
    
    
    
    (2,758,589
    )Changes in operating assets and liabilities:Accounts payable and accrued expenses, salaries and wages [2]
    
    
    (273,967
    )
    
    
    (1,164,323
    )
    
    
    (1,438,290
    )Supplemental Cash Flow InformationSupplemental disclosure of cash flow information:Debt issuance costs included in accounts payable [9]
    
    
    70,200
    
    
    
    796,301
    
    
    
    866,501Debt discounts related to derivative liabilities [4]
    
    
    6,333,138
    
    
    
    (242,046
    )
    
    
    6091,092
 
 [1]
    
    This adjustment is to decrease the Companys carrying
value of its Investment in JPI to reflect the investment based upon
the Companys 97.4% ownership interest. The Companys
investment balance in JPI in the previous condensed consolidated
interim financial statements was erroneously based upon the Company having a 100% ownership interest of JPI As of June 30, 2010. 31




---



##### Table of Contents



[2]
    
    Per the terms of the First, Second, and Third Closings of the 2010 convertible notes, the Company was required to file
the registration statement and have it become effective as of June 1, 2010. The effectiveness of the registration
statement did not occur. As a result and per the terms of the underlying registration rights agreements with the note
holders of the First, Second, and Third Closings, the note holders were entitled to penalties of $10,000 each. The
Company originally recorded these penalty amounts to accrued expenses in the amount of $390,000. However, the actual
penalties as of June 30, 2010 were $370,000 and not $390,000, and the accompanying restated interim financial
statements reflect this change, as well as a reclassification change to reclassify the penalties from accrued expenses
to convertible notes. These penalty amounts are convertible into shares of common stock.[3]
    
    This adjustment represents the interest expense accrued for the month of June 2010 in connection with the additional
principal added to the convertible debt balance as noted in item 2 above.[4]
    
    This adjustment represents the
difference in value from the Black-Scholes option pricing model and that of the Binomial
Lattice option pricing model as of June 30, 2010 of the embedded conversion features of the convertible debt and warrants associated with the
First, Second, Third and Fourth Closings in 2010 as well as the Whalehaven & Alpha warrants that were previously
valued using the Black-Scholes option pricing model. This adjustment also includes the effect of the cashless exercise
provision under the First, Second, Third and Fourth Closings.[5]
    
    This adjustment is related to (i) additional principal added to the First, Second and Third convertible debt balance
and (ii) the effect of the Binomial Lattice Option Pricing Model on the debt discount recorded for the First Closing
in 2010 resulting in a reduction in original debt discount.[6]
    
    This adjustment is the sum of all adjustments recorded to the Companys condensed consolidated statement of operations
and comprehensive loss related to the Companys decision to move from the Black-Scholes option pricing model to the
Binomial Lattice option pricing model during the period ended
June 30, 2010. This adjustment also includes the effect of the cashless exercise
provision under the First, Second, Third and Fourth Closings.[7]
    
    This adjustment relates to the effects of using the Binomial Lattice option pricing model to value the embedded
conversion features of the convertible debt and warrants in connection with the First, Second, Third and Fourth Closings in 2010 on their
grant dates, triggering dates, and quarter end dates. This adjustment also includes the effect of the cashless exercise
provision under the First, Second, Third and Fourth Closings.[8]
    
    This adjustment relates to the effect of using the Binomial Lattice option pricing model to revalue the embedded
conversion features of the convertible debt and warrants in connection with the First, Second, Third and Fourth Closings in 2010, as well as
the Whalehaven & Alpha warrants on their grant dates, triggering
dates, and quarter end dates. This adjustment also includes the effect of the cashless exercise
provision under the First, Second, Third and Fourth Closings.[9]
    
    This amount represents a typographical error in the amount previously disclosed.
 NOTE 14  SUBSEQUENT EVENTS
   32




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##### Table of Contents



Item 2
 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATION
 This report contains forward-looking statements. These statements relate to future events or
our future financial performance. In some cases, you can identify forward-looking statements by
terminology such as may, will, should, expect, plan, anticipate, believe, estimate,
predict, potential or continue, the negative of such terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ materially.
 Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness
of the forward-looking statements. We are under no obligation to update any of the forward-looking
statements after the filing of this Quarterly Report to conform such statements to actual results
or to changes in our expectations.
 The following discussion of our financial condition and results of operations should be read
in conjunction with our consolidated financial statements and the related notes and other financial
information appearing elsewhere in this Quarterly Report. Readers are also urged to carefully
review and consider the various disclosures made by us which attempt to advise interested parties
of the factors which affect our business, including without limitation the disclosures made under
the caption Managements Discussion and Analysis of Financial Condition and Results of
Operations, and the audited consolidated financial statements and related notes included in our
Annual Report on Form 10-K/A for the year ended December 31, 2009, previously filed with the U.S.
Securities and Exchange Commission (SEC).
 Overview
 The Company
      33




---



##### Table of Contents



Deconsolidation
    
 
    
    Risk adjusted weighted average cost of capital (WACC)  a WACC of 17.7% was utilized.
    
    Long term growth rate: we assumed a long term growth rate of 5%
    
    Cost of debt: assumed an after tax rate of 4.46%
    
    Cost of Equity:
 
    
    Risk free rate: 2.93%
    
    Equity risk premium: 11.15%
    
    Small stock risk premium: 3.99%
    
    Beta: .86x
    
    Subject company risk: 0%
 
    
    Discounts: combined discount for lack of marketability and lack of control of 35%
  Monetization of the Value of JPI
   34




---



##### Table of Contents



IV Diagnostics
 IVD Cancer Diagnostics
 ONKO-SURE TM Kit
 TM
 TM TM TM in- vitro TM TM
 TM
 TM TM TM
 in-vitro DR-70 TM
 IVD Cancer Research and Development
 TM TM TM TM
  
    
    Validation study to determine if ONKO-SURE can be utilized as a
general cancer screen for 10 to 20 different cancers in a CLIA
laboratory developed test environment;
    
    Evaluate ONKO-SURE as an additional marker in a existing test to
determine if the addition will enhance and improve analytical
performance.
 TM TM
 35




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##### Table of Contents



Cancer Therapeutics
  Critical Accounting Estimates
    Revenue Recognition.
  Taxes Collected
from Customers and Remitted to Governmental Authorities
 Sales Allowances.
 Allowance for Doubtful Accounts.
 36




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##### Table of Contents



Inventories.
 Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived
Assets
 
    
    significant under performance relative to expected historical or projected future operating results;
    
    market projections for cancer research technology;
    
    its ability to obtain patents, including continuation patents, on technology;
    
    significant changes in its strategic business objectives and utilization of the assets;
    
    significant negative industry or economic trends, including legal factors;
    
    potential for strategic partnerships for the development of its patented technology;
    
    changing or implementation of rules regarding manufacture or sale of pharmaceuticals in China; and
    
    ability to maintain Good Manufacturing Process (GMP) certifications.
   Deferred Taxes.
 37




---



##### Table of Contents



Litigation.
 Stock-Based Compensation Expense.
   Derivative Financial Instruments
 Derivatives and Hedging
     38




---



##### Table of Contents



Results of Operations
 Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009
 Introduction
  Six months ended June 30,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Net revenues
    
    $
    82,394
    
    
    $
    51,420
    
    
    $
    30,974
    
    
    
    60
    %Cost of sales
    
    
    30,113
    
    
    
    19,688
    
    
    
    10,425
    
    
    
    53
    %Gross profit
    
    
    52,281
    
    
    
    31,732
    
    
    
    20,549
    
    
    
    65
    %Operating expenses:Research and development
    
    
    294,815
    
    
    
    425,463
    
    
    
    (130,648
    )
    
    
    (31
    )%Selling, general and administrative
    
    
    4,124,160
    
    
    
    3,757,049
    
    
    
    367,111
    
    
    
    10
    %4,418,975
    
    
    
    4,182,512
    
    
    
    236,463
    
    
    
    6
    %Loss from operations
    
    
    (4,366,694
    )
    
    
    (4,150,780
    )
    
    
    (215,914
    )
    
    
    5
    %Other income (expense):Interest expense
    
    
    (22,101,929
    )
    
    
    (454,793
    )
    
    
    (21,647,136
    )
    
    
    4,760
    %Gain on change in fair value of derivative instruments
    
    
    2,758,589
    
    
    
    
    
    
    
    2,758,589
    
    
    
    100
    %Impairment of investment in JPI
    
    
    (2,761,993
    )
    
    
    
    
    
    
    (2,761,993
    )
    
    
    100
    %Other expense, net
    
    
    (1,877
    )
    
    
    (36,093
    )
    
    
    34,216
    
    
    
    (95
    )%Total other expense, net
    
    
    (22,107,210
    )
    
    
    (490,886
    )
    
    
    (21,616,324
    )
    
    
    4,404
    %Net loss
    
    
    (26,473,904
    )
    
    
    (4,641,666
    )
    
    
    (21,832,238
    )
    
    
    471
    %
 39




---



##### Table of Contents



Net Revenues
 tm
  tm
 tm TM tm
 Gross Profit
 tm
 Research and Development.
   
    
    The need for research and development for an updated version of the
ONKO-SURE tm test kit in the US, clinical
trials for such tests and funds for ultimate USFDA approval; and
    
    Additional expenditures for research and development incurred under agreements with CLIA laboratories.
 Selling, General and Administrative Expenses
  40




---



##### Table of Contents



Six months ended June 30,2010
    
    
    2009Investor relations (including value of warrants/common stock shares)
    
    $
    1,840,701
    
    
    $
    547,797Salary and wages (including value of options)
    
    
    882,270
    
    
    
    1,446,979Accounting and other professional fees
    
    
    781,214
    
    
    
    849,023Stock exchange fees
    
    
    142,500
    
    
    
    Directors fees (including value of options)
    
    
    86,694
    
    
    
    170,096Rent and office expenses
    
    
    76,907
    
    
    
    130,296Employee benefits
    
    
    66,218
    
    
    
    129,612Travel and entertainment
    
    
    70,133
    
    
    
    77,584Insurance
    
    
    40,889
    
    
    
    96,346Taxes and licenses
    
    
    33,057
    
    
    
    99,567Other
    
    
    103,577
    
    
    
    209,749$
    4,124,160
    
    
    $
    3,757,049
 Interest Expense
  For the six monthsended June 30, 2010Annual dividend yield
    
    
    Expected life (years)
    
    
    0.67  6.17Risk-free interest rate
    
    
    0.3%  2.9%Expected volatility
    
    
    87.3%  253.9%
   [1]
    
    
    [2],[4]
    
    
    [3]Fair Value of
    
    
    Interest
    
    
    InterestDerivatives in
    
    
    Penalty
    
    
    Penalty Not
    
    
    Amortization
    
    
    AmortizationExcess of Debt
    
    
    Added To
    
    
    Added To
    
    
    of Debt
    
    
    of DebtDiscounts
    
    
    Principal
    
    
    Principal
    
    
    Issuance Cost
    
    
    Discount
    
    
    Total[7]
    
    
    
    
    
    
    [7]
    
    
    [8]
    
    
    [8]Senior Notes:December 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    77,164
    
    
    $
    144,468
    
    
    $
    221,632January 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,402
    
    
    
    108,287
    
    
    
    147,689May 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,288
    
    
    
    68,011
    
    
    
    98,299June 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,820
    
    
    
    57,106
    
    
    
    83,926Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,121
    
    
    
    
    
    
    
    12,121
 41




---



##### Table of Contents



[1]
    
    
    [2],[4]
    
    
    [3]Fair Value of
    
    
    Interest
    
    
    InterestDerivatives in
    
    
    and Penalties
    
    
    and Penalties Not
    
    
    Amortization
    
    
    AmortizationExcess of Debt
    
    
    Added To
    
    
    Added To
    
    
    of Debt
    
    
    of DebtDiscounts
    
    
    Principal
    
    
    Principal
    
    
    Issuance Cost
    
    
    Discount
    
    
    Total[7]
    
    
    
    
    
    
    [7]
    
    
    [8]
    
    
    [8]Convertible Debt:September 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,216
    
    
    
    49,216Conversions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,622
    
    
    
    1,398,348
    
    
    
    1,751,970St. George
    
    
    
    
    
    
    50,000
    
    
    
    12,597
    
    
    
    
    
    
    
    393,681
    
    
    
    456,2781st Closing
    
    
    
    
    
    
    267,860
    
    
    
    68,422
    
    
    
    53,144
    
    
    
    163,655
    
    
    
    533,0812nd Closing
    
    
    3,968,028
    
    
    
    1,742,121
    
    
    
    445,294
    
    
    
    92,711
    
    
    
    1,143,787
    
    
    
    7,391,9413rd Closing
    
    
    7,414,307
    
    
    
    1,177,314
    
    
    
    302,261
    
    
    
    66,821
    
    
    
    824,384
    
    
    
    9,785,0874th Closing
    
    
    522,909
    
    
    
    
    
    
    
    
    
    
    
    11,569
    
    
    
    142,747
    
    
    
    677,225Incremental cost of
shares and warrants [5]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,780Interest on debt [6]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    791,684Total interest
expense
    
    $
    11,905,244
    
    
    $
    3,237,295
    
    
    $
    828,574
    
    
    $
    763,662
    
    
    $
    4,493,690
    
    
    $
    22,101,929
 
 [1]
    
    This amount represents the excess fair value of the debt discount related to the derivative liability associated with the embedded conversion feature
and warrants (see Note 6 to our condensed consolidated financial statements).[2]
    
    This amount represents additional penalty interest and/or accrued interest added directly to the outstanding principal of the convertible debt for
Trigger Events (see Note 2 to our condensed consolidated financial statements).[3]
    
    This amount represents additional interest recognized for the increase in principal balance associated with the embedded conversion feature of the
First, Second and Third Closings as a result of the June 1, 2010 Trigger Event and default on the registration rights agreements (see Note 6 to our
condensed consolidated financial statements).[4]
    
    This amount includes $370,000 of additional penalty recognized for the default related to the registration rights agreements as a result of not being
declared effective by June 1, 2010 related to the First, Second and Third Closings in 2010.[5]
    
    This amount represents the incremental costs associated with the additional shares and warrants issued in connection with the 2008 convertible debt
that occurred during Q2 of 2010.[6]
    
    This amount represents the interest portion of the debt based on the respective interest rates as noted in Footnote 6 to our condensed consolidated
financial statements as of June 30, 2010.Sum of [7]
    
    12,733,818 Total interest expense related to fair value of derivative instruments grantedSum of [8]
    
    5,257,352 Total amortization of debt discount and debt issuance costs Other Expense
  42




---



##### Table of Contents



Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
  Three months ended June 30,
    
    
    Difference2010
    
    
    2009
    
    
    $
    
    
    %Net revenues
    
    $
    45,552
    
    
    $
    28,350
    
    
    $
    17,202
    
    
    
    61
    %Cost of sales
    
    
    8,178
    
    
    
    11,613
    
    
    
    (3,435
    )
    
    
    (30
    )%Gross profit
    
    
    37,374
    
    
    
    16,737
    
    
    
    20,637
    
    
    
    123
    %Operating expenses:Research and development
    
    
    243,779
    
    
    
    332,679
    
    
    
    (88,900
    )
    
    
    (27
    )%Selling, general and administrative
    
    
    2,768,978
    
    
    
    1,712,665
    
    
    
    1,056,313
    
    
    
    62
    %3,012,757
    
    
    
    2,045,444
    
    
    
    967,313
    
    
    
    47
    %Loss from operations
    
    
    (2,975,383
    )
    
    
    (2,028,707
    )
    
    
    (946,776
    )
    
    
    47
    %Other expense:Interest expense
    
    
    (20,939,255
    )
    
    
    (276,278
    )
    
    
    (20,662,977
    )
    
    
    7,479
    %Gain on change in fair value of
derivative instruments


    
    2,801,583
    
    
    
    
    
    
    
    2,801,583
    
    
    
    100
    %Impairment of investment in JPI

    
    
    (2,761,993
    )
    
    
    
    
    
    
    (2,761,993
    )
    
    
    100
    %Other expense, net


    
    
    (1,614
    )
    
    
    (36,734
    )
    
    
    35,120
    
    
    
    (96
    )%Total other expense, net
    
    
    (20,901,279
    )
    
    
    (313,012
    )
    
    
    (20,588,267
    )
    
    
    6,577
    %Net loss
    
    
    (23,876,662
    )
    
    
    (2,341,719
    )
    
    
    (21,534,943
    )
    
    
    920
    %
 Net Revenues
 tm
  tm
 43




---



##### Table of Contents



tm TM tm
 Gross Profit
  Research and Development.
  
    
    The need for research and development for an updated version of the
ONKO-SURE tm test kit in the US, clinical
trials for such tests and funds for ultimate USFDA approval; and
    
    Additional expenditures for research and development incurred under agreements with CLIA laboratories.
 Selling, General and Administrative Expenses
   Three months ended June 30,2010
    
    
    2009Investor relations (including value of warrants/options)
    
    $
    1,379,364
    
    
    $
    244,932Salary and wages (including value of options)
    
    
    474,784
    
    
    
    734,646Accounting and other professional fees
    
    
    693,674
    
    
    
    316,367Stock exchange fees
    
    
    57,107
    
    
    
    Directors fees (including value of options)
    
    
    14,194
    
    
    
    73,720Rent and office expenses
    
    
    45,445
    
    
    
    55,572Employee benefits
    
    
    34,906
    
    
    
    102,496Travel and entertainment
    
    
    40,041
    
    
    
    70,093Insurance
    
    
    15,483
    
    
    
    38,606Taxes and licenses
    
    
    10,481
    
    
    
    40,473Other
    
    
    3,499
    
    
    
    35,760$
    2,768,978
    
    
    $
    1,712,665
 44




---



##### Table of Contents



Interest Expense
  For the three monthsended June 30, 2010Annual dividend yield
    
    Expected life (years)
    
    0.67  5.92Risk-free interest rate
    
    0.3%  2.4%Expected volatility
    
    121.0%  253.9%
   45




---



##### Table of Contents



[1]
    
    
    [2],[4]
    
    
    [3]Fair Value of
    
    
    Interest
    
    
    InterestDerivatives in
    
    
    Penalty
    
    
    Penalty Not
    
    
    Amortization
    
    
    AmortizationExcess of Debt
    
    
    Added To
    
    
    Added To
    
    
    of Debt
    
    
    of DebtDiscounts
    
    
    Principal
    
    
    Principal
    
    
    Issuance Cost
    
    
    Discount
    
    
    Total[7]
    
    
    
    
    
    
    [7]
    
    
    [8]
    
    
    [8]Senior Notes:December 2008
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41,862
    
    
    $
    78,375
    
    
    $
    120,237January 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,212
    
    
    
    61,044
    
    
    
    83,256May 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,753
    
    
    
    37,617
    
    
    
    54,370June 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,170
    
    
    
    34,431
    
    
    
    50,601Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,060
    
    
    
    (194,085
    )
    
    
    (188,025
    )Convertible Debt:September 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,058
    )
    
    
    (23,058
    )Conversions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353,622
    
    
    
    1,398,348
    
    
    
    1,751,970St. George
    
    
    
    
    
    
    50,000
    
    
    
    12,597
    
    
    
    
    
    
    
    95,158
    
    
    
    157,7551st Closing
    
    
    
    
    
    
    267,860
    
    
    
    68,422
    
    
    
    46,773
    
    
    
    140,276
    
    
    
    523,3312nd Closing
    
    
    3,968,028
    
    
    
    1,742,121
    
    
    
    445,294
    
    
    
    92,711
    
    
    
    1,143,787
    
    
    
    7,391,9413rd Closing
    
    
    7,414,307
    
    
    
    1,177,314
    
    
    
    302,261
    
    
    
    66,821
    
    
    
    824,384
    
    
    
    9,785,0874th Closing
    
    
    522,909
    
    
    
    
    
    
    
    
    
    
    
    11,569
    
    
    
    142,747
    
    
    
    677,225Incremental Cost of
Shares and Warrants [5]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,780Interest on Debt [6]
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    472,785Total Interest
expense
    
    $
    11,905,244
    
    
    $
    3,237,295
    
    
    $
    828,574
    
    
    $
    674,553
    
    
    $
    3,739,024
    
    
    $
    20,939,255
 46




---



##### Table of Contents



[1]
    
    This amount represents the excess fair value of the debt discount related to the derivative liability associated with the embedded conversion feature
and warrants (see Note 6 to our condensed consolidated financial statements).[2]
    
    This amount represents additional penalty interest and/or accrued interest added directly to the outstanding principal of the convertible debt for
Trigger Events (see Note 2 to our condensed consolidated financial statements).[3]
    
    This amount represents additional interest recognized for the increase in principal balance associated with the embedded conversion feature of the
First, Second and Third Closings as a result of the June 1, 2010 Trigger Event and default on the registration rights agreements (see Note 6 to our
condensed consolidated financial statements).[4]
    
    This amount includes $370,000 of additional penalty recognized for the default related to the registration rights agreements as a result of not being
declared effective by June 1, 2010 related to the First, Second and Third Closings in 2010.[5]
    
    This amount represents the incremental costs associated with the additional shares and warrants issued in connection with the 2008 convertible debt
that occurred during the second quarter of 2010.[6]
    
    This amount represents the interest portion of the debt based on the respective interest rates as noted in Footnote 6 to our condensed consolidated
financial statements as of June 30, 2010.Sum of [7]
    
    12,738,818 Total interest expense related to fair value of derivative instruments grantedSum of [8]
    
    4,413,577 Total amortization of debt discount and debt issuance costs Other Expense
  Liquidity and Capital Resources
  (i)
    
    Accounts payable and accrued expenses of approximately $901,000;(ii)
    
    Accrued salaries of approximately $341,000;(iii)
    
    Accrued interest of approximately $783,000;(iv)
    
    Approximately $227,000 in unsecured convertible notes bearing interest at 10% per annum due September 15, 2010;(v)
    
    Approximately $11 million in unsecured convertible notes bearing
interest at 12% per annum, increased to 18% per annum upon the
occurrence of trigger event, due one year from issuance. As of June
30, 2010, the principal increased by approximately $3.2 million due to
trigger event and default. These convertible notes are related to four
closings during March and April of 2010;(vi)
    
    An $83,000 unsecured bridge loan bearing interest at 12% per annum
which was due October 9, 2009 and obligations under a consulting
agreement aggregating $25,000 due to Cantone Research, Inc. and
Cantone Asset Management, LLC, respectively; and(vii)
    
    Approximately $3.6 million in senior unsecured promissory notes
bearing interest at 18% interest, payable quarterly in cash, which
are due between December 2010 and May 2011.
 47




---



##### Table of Contents



Minimum
    
    
    
    
    
    
    WarrantsConversion
    
    
    Maximum
    
    
    
    
    
    
    MinimumFace Value of
    
    
    
    
    
    
    
    
    
    
    Price Per
    
    
    Shares
    
    
    
    
    
    
    ExerciseDate of
    
    Convertible
    
    
    
    
    
    
    
    
    
    
    Share at Issuance
    
    
    Issuable upon
    
    
    
    
    
    
    Price at IssuanceIssuance
    
    Notes
    
    
    Discounts
    
    
    Gross Proceeds
    
    
    Date
    
    
    Conversion
    
    
    Number
    
    
    Date[1]
    
    [2]
    
    
    
    [3]
    
    
    
    
    
    
    [5]First Closing 3/22/2010
    
    $
    925,000
    
    
    $
    (385,000
    )
    
    $
    540,000
    
    
    $
    0.28
    
    
    
    3,303,571
    
    
    
    1,100,000
    
    
    $
    0.28
    [6]Second Closing 4/8/2010
    
    
    5,490,165
    
    
    
    (2,285,165
    )
    
    
    3,205,000
    
    
    $
    0.28
    
    
    
    19,607,732
    
    
    
    6,528,213
    
    
    $
    0.38
    [7]Third Closing 4/13/2010
    
    
    3,957,030
    
    
    
    (1,647,030
    )
    
    
    2,310,000
    
    
    $
    0.28
    
    
    
    14,132,250
    
    
    
    4,705,657
    
    
    $
    0.38
    [7]Fourth Closing 4/26/2010 [4]
    
    
    599,525
    
    
    
    (249,525
    )
    
    
    350,000
    
    
    $
    0.28
    
    
    
    2,141,161
    
    
    
    712,949
    
    
    $
    0.28
    [7]Fourth Closing 4/26/2010
    
    
    85,645
    
    
    
    (35,645
    )
    
    
    50,000
    
    
    $
    0.28
    
    
    
    305,875
    
    
    
    101,849
    
    
    $
    0.89
    [7]$
    11,057,365
    
    
    $
    (4,602,365
    )
    
    $
    6,455,000
    
    
    
    
    
    
    
    39,490,589
    
    
    
    13,148,668
 
 [1]
    
    The Company also entered into a Registration Rights Agreement with the Lenders pursuant to which the Company agreed to file a registration statement by May 3, 2010, registering for resale of
all of the shares underlying the 2010 Financing Convertible Notes and the 2010 Financing Warrants. If the Company failed to file the registration statement timely or failed to have it declared
effective timely pursuant to the terms of the Registration Rights Agreement, each such event would have been deemed a trigger event under the 2010 Financing Convertible Notes. The Company
timely filed the initial registration statement on May 3, 2010, but it has not yet been declared effective. Therefore, a trigger event under the terms of the notes issued in the First Closing,
Second Closing and Third Closing occurred (the June 1 Trigger Event) (the Registration Rights Agreement requires us to have the Registration Statement effective by August 31, 2010 for the
Fourth Closing). The total amount of 2010 Financing Convertible Notes issued in the first three closings was originally $10,372,195; as a result of the June 1 Trigger Event, the principal
amount of such notes is now $13,189,490 which represents 125% of the outstanding principal and accrued interest prior to the event.[2]
    
    In addition to scheduled debt discounts, the Company incurred debt
issuance costs of approximately 13% of the proceeds of these
financings.[3]
    
    The number of shares of common stock to be issued upon such conversion
shall be determined by dividing (a) the amount sought to be converted
by (b) the greater of (i) the Conversion Price (as defined below) at
that time, or (ii) the Floor Price (as defined below). The Conversion
Price is equal to 80% of the volume-weighted average price for the 5
trading days ending on the business day immediately preceding the
applicable date the conversion is sought, as reported by Bloomberg,
LP, or if such information is not then being reported by Bloomberg,
then as reported by such other data information source as may be
selected by the lender. The Floor Price is initially equal to $0.28
per share, subject to adjustment upon the occurrence of certain
events, including recapitalization, stock splits, issuance of equity
securities for a price less than the Floor Price and similar corporate
actions. 48




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[4]
    
    As part of the closing on April 26, 2010, certain investors in the
2009 Registered Direct Offering exercised their Right of Participation
and purchased $599,525 of the Notes issued in that closing and the
Company issued such participants warrants to purchase up to 712,949
shares of the Companys common stock exercisable at $0.28 per share
(the remainder of the participants in the Fourth Closing received
warrants exercisable at $0.89 per share).[5]
    
    At any time prior to the expiration date of the warrant, if and only
if there is no then effective registration statement covering the
warrant shares, the Holder may elect a cashless exercise of this
warrant whereby the Holder shall be entitled to receive a number of
shares of common stock equal to (x) the excess of the Current Market
Value over the aggregate Exercise Price of the portion of the Warrant
then being exercised, divided by (y) the Adjusted Price of the Common
Stock (as these terms are defined in the warrant agreement). This formula,
as it contains variables that are directly linked to changes in the
market price of the Companys shares, and depending on the market
price of the share on the date of exercise, might result in the
Company having to issue additional number of shares than what is
indicated in the table above.[6]
    
    The exercise price in First Closing warrants equals to the higher of:
(i) 105% of the VWAP for the five trading days immediately preceding
the date the Company issued the Warrants; or (ii) the Floor Price (as
defined in the First Closing Note).[7]
    
    The exercise price in Second, Third and Fourth Closings, can be
adjusted down (down-round protection) to a lower price if the Company
sells common stock or instruments convertible into or exercisable for
common shares in the future at a lower price than the exercise price.  For the six monthsended June 30, 2010Annual dividend yield
    
    
    Expected life (years)
    
    
    0.67  6.17Risk-free interest rate
    
    
    0.3%  2.9%Expected volatility
    
    
    87.3%  253.9%
     49




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Operating activities.
 Investing activities.
 Financing activities .
 Off-Balance Sheet Arrangements
  Going Concern
  tm
  50




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##### Table of Contents



tm tm
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 4. CONTROLS AND PROCEDURES
 Disclosure of Controls and Procedures
   Material Weaknesses
    51




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Remediation Plan for Material Weaknesses
      Changes in Internal Control Over Financial Reporting.
  52




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PART II  OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
   
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    Information relating to sales of the Companys securities that were
not registered under the Securities Act are disclosed in the Current
Reports on Form 8-K that the Company filed on March 26, 2010, April
13, 2010, April 16, 2010 and April 28, 2010 and we are therefore not
furnishing such information herein.(b)
    
    Not Applicable.(c)
    
    Not Applicable.
 
 ITEM 3. Defaults upon Senior Securities
 (a)
    
    We previously disclosed information relating to defaults on our senior
notes in the Current Report on Form 8-K that we filed with the
Securities and Exchange Commission on March 16, 2010 and therefore are
not required to provide such information herein.(b)
    
    We previously disclosed information relating to defaults on our
convertible notes in the Current Report on Form 8-K that we filed with
the Securities and Exchange Commission on August 12, 2010 and
therefore are not required to provide such information herein.(c)
    
    Not applicable.
 
 ITEM 4. Removed and Reserved
 
 ITEM 5. Other Information
 (a)
    
    On June 11, 2010, a claim was filed against us in an Illinois Court. The details of the claim are set forth on Part II, Item 1 above.(b)
    
    Not applicable.
 53




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ITEM 6. EXHIBITS
  Exhibit Number
    
    Document3.1
    
    Certificate of Incorporation of the Company, as amended. (Incorporated by reference to Exhibit 3.1 to
the Current Report on Form 8-K filed on September 18, 2009.)3.2
    
    Amended and restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K filed on July 12, 2010.)31.1
    
    Certification of Principal Executive Officer required by Rule 13a-14/15d-14(a) under the Exchange Act31.2
    
    Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
 54




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Radient Pharmaceuticals Corporation
 
 SIGNATURES
  RADIENT PHARMACEUTICALS CORPORATION
(Registrant)Date: November 8, 2010
    By:
    /s/ Douglas C. MacLellanDouglas C. MacLellan,President and Chief Executive OfficerDate: November 8, 2010
    By:
    /s/ Akio AriuraAkio Ariura,Chief Financial Officer and Secretary (Principal Financial Officer) 55