UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 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

Commission file number 0-27264

VIA Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)


DELAWARE		33-0687976
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

750 Battery Street, Suite 330
San Francisco, CA 94111
(Address of principal executive offices)

(415) 283-2200
(Registrant’s telephone number, including area code)

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 þ No o

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 o No o

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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

As of November 9, 2010, there were 20,558,446 shares of common stock, par value $0.001 per share, outstanding.

VIA PHARMACEUTICALS, INC.


	Page No.
PART I. — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Unaudited Condensed Balance Sheets as of September 30, 2010 and December 31, 2009		1

Unaudited Condensed Statements of Operations for the Three and Nine Month Periods Ended September 30, 2010 and 2009, and for the Period from June 14, 2004 (date of inception) to September 30, 2010		2

Unaudited Condensed Statements of Cash Flows for the Nine Month Periods Ended September 30, 2010 and 2009, and for the Period from June 14, 2004 (date of inception) to September 30, 2010		3

Notes to the Unaudited Condensed Financial Statements		4

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 4T. Controls and Procedures		47

PART II. — OTHER INFORMATION		48

Item 1A. Risk Factors		48

Item 5. Other Information		48

Item 6. Exhibits		49

SIGNATURE		51

Exhibit 4.7
Exhibit 4.8
Exhibit 4.11
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. — FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED BALANCE SHEETS


	September 30,			December 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	277,924		$	2,189,742
Prepaid expenses and other current assets		147,792			155,361

Total current assets		425,716			2,345,103
Property and equipment-net		31,802			170,617
Other non-current assets		32,289			40,374

Total	$	489,807		$	2,556,094

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	964,030		$	705,887
Accrued expenses and other liabilities		1,300,891			2,226,720
Accrued restructuring costs		122,650			—
Interest payable — affiliate		2,207,466			789,041
Notes payable — affiliate — net of discount of $491,565 at September 30, 2010 and $4,374 at December 31, 2009		12,508,435			9,995,626

Total current liabilities		17,103,472			13,717,274
Accrued expenses and other liabilities — long-term		52,763			—
Accrued restructuring costs — net of current portion		11,207			—
Deferred rent		10,323			37,450

Total liabilities		17,177,765			13,754,724
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock, $0.001 par value-200,000,000 shares authorized at September 30, 2010 and December 31, 2009, respectively; 20,558,446 and 20,646,374 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		20,559			20,646
Preferred stock Series A, $0.001 par value-5,000,000 shares authorized at September 30, 2010 and December 31, 2009, respectively; 0 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively		—			—
Convertible preferred stock Series C, $0.001 par value-17,000 shares authorized at September 30, 2010 and December 31, 2009, respectively; 2,000 shares issued and outstanding at September 30, 2010 and December 31, 2009, respectively; liquidation preference of $2,000,000		2			2
Additional paid-in capital		72,026,760			70,385,287
Deficit accumulated in the development stage		(88,735,279	)		(81,604,565	)

Total stockholders’ equity (deficit)		(16,687,958	)		(11,198,630	)

Total	$	489,807		$	2,556,094

See accompanying notes

VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS


													Period From
													June 14, 2004
													(Date of
	Three Months Ended						Nine Months Ended						Inception) to
	September 30,			September 30,			September 30,			September 30,			September 30,
	2010			2009			2010			2009			2010
Revenue	$	—		$	—		$	—		$	—		$	—

Operating costs and expenses:
Research and development		449,908			1,306,309			1,818,599			4,949,118			42,724,777
General and administration		757,996			1,697,476			3,209,947			5,491,380			32,256,000
Merger transaction costs		—			—			—			—			3,824,090
Restructuring costs		—			—			106,959			—			106,959

Total operating costs and expenses		1,207,904			3,003,785			5,135,505			10,440,498			78,911,826

Operating loss		(1,207,904	)		(3,003,785	)		(5,135,505	)		(10,440,498	)		(78,911,826	)

Other income (expense):
Interest income		—			—			—			—			914,628
Interest expense		(901,028	)		(5,033,598	)		(1,979,460	)		(6,299,768	)		(10,717,943	)
Other income (expense)-net		(9,391	)		(663	)		(15,749	)		8,893			(20,138	)

Total other income (expense)		(910,419	)		(5,034,261	)		(1,995,209	)		(6,290,875	)		(9,823,453	)

Net Loss	$	(2,118,323	)	$	(8,038,046	)	$	(7,130,714	)	$	(16,731,373	)	$	(88,735,279	)

Loss per share of common stock—basic and diluted	$	(0.10	)	$	(0.40	)	$	(0.35	)	$	(0.84	)

Weighted average shares outstanding—basic and diluted		20,452,332			20,014,457			20,358,351			19,875,482

See accompanying notes

VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS


							Period from
							June 14, 2004
							(Date of
	Nine Months Ended						Inception) to
	September 30,			September 30,			September 30,
	2010			2009			2010
Cash flows from operating activities:
Net loss	$	(7,130,714	)	$	(16,731,373	)	$	(88,735,279	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		66,437			103,653			596,310
Amortization of discount on notes payable — affiliate		561,035			5,888,810			7,505,384
Excess facility lease costs		133,222			—			133,222
Lease abandonment costs		173,712			—			173,712
Disposal of property and equipment		72,378			450			76,991
Stock compensation expense		592,631			980,560			4,550,213
Deferred rent		(27,127	)		5,961			10,323
Changes in assets and liabilities:
Prepaid expenses and other assets		15,654			327,108			(205,081	)
Accounts payable		258,143			(423,439	)		960,541
Accrued expenses and other liabilities		(1,046,778	)		(22,056	)		1,279,943
Accrued restructuring costs		635			—			635
Interest payable — affiliate		1,418,425			410,959			3,200,188

Net cash used in operating activities		(4,912,347	)		(9,459,367	)		(70,452,898	)

Cash flows from investing activities:
Purchase of property and equipment		—			(16,155	)		(664,175	)
Sale of property and equipment		—			532			532
Cash provided in the Merger		—			—			11,147,160
Capitalized merger transaction costs		—			—			(350,069	)

Net cash provided by (used in) investing activities		—			(15,623	)		10,133,448

Cash flows from financing activities:
Proceeds from convertible promissory notes — affiliate		—			—			24,425,000
Proceeds from notes payable — affiliate		3,000,000			10,000,000			13,000,000
Capital lease payments		—			—			(11,973	)
Issuance of common stock		—			—			23,141,360
Exercise of stock options for the issuance of common stock		1,292			1,933			49,550
Repurchase and retirement of common stock		(763	)		—			(6,563	)

Net cash provided by financing activities		3,000,529			10,001,933			60,597,374

Increase (decrease) in cash and cash equivalents		(1,911,818	)		526,943			277,924
Cash and cash equivalents-beginning of period		2,189,742			4,064,545			—

Cash and cash equivalents-end of period	$	277,924		$	4,591,488		$	277,924

Supplemental disclosure of noncash activities:
Issuance of warrant and related discount on notes payable — affiliate	$	1,048,226		$	6,948,723		$	7,996,949

Interest on convertible debt converted to notes payable — affiliate	$	—		$	—		$	992,722

Conversion of notes to preferred stock Series A — affiliate	$	—		$	—		$	25,517,722

Accrued compensation converted to notes payable	$	—		$	—		$	100,000

Stock issuance for license acquisition	$	—		$	—		$	1,000

Supplemental disclosure of cash flow information:
Interest paid	$	—		$	—		$	7,856

Taxes paid	$	770		$	116		$	37,385

See accompanying notes

VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

1. ORGANIZATION

Overview — VIA Pharmaceuticals, Inc. (“VIA,” the “Company,” “we,” “our,” or “us”), incorporated in Delaware in June 2004 and headquartered in San Francisco, California, is a development stage biotechnology company focused on the development of compounds for the treatment of cardiovascular and metabolic disease. The Company is building a pipeline of small molecule drugs that target the underlying causes of cardiovascular and metabolic disease, including vascular inflammation, high cholesterol, high triglycerides and insulin sensitization/diabetes. During 2005, the Company in-licensed a small molecule compound, VIA-2291, which targets an unmet medical need of reducing atherosclerotic plaque inflammation, an underlying cause of atherosclerosis and its complications, including heart attack and stroke. Atherosclerosis, depending on its severity and the location of the artery it affects, may result in major adverse cardiovascular events (“MACE”), such as heart attack and stroke. During 2006, the Company initiated two Phase 2 clinical trials of VIA-2291 in patients undergoing a carotid endarterectomy (“CEA”), and in patients at risk for acute coronary syndrome (“ACS”). During 2007, the Company initiated a third Phase 2 clinical trial where ACS patients undergo Positron Emission Tomography with flurodeoxyglucose tracer (“FDG-PET”), an experimental non-invasive imaging technique to measure the effect of treatment of VIA-2291 on uptake of FDG into the vascular wall. Effective during the first quarter of 2009, the Company licensed from Hoffman-LaRoche Inc. and Hoffmann-LaRoche Ltd. (collectively “Roche”) the exclusive worldwide rights to two sets of compounds. The first license is for Roche’s thyroid hormone receptor beta agonist, a clinically ready candidate for the control of cholesterol, triglyceride levels and potential in insulin sensitization/diabetes. The second license is for multiple compounds from Roche’s preclinical diacylglycerol acyl transferase 1 metabolic disorders program.

Through September 30, 2010, the Company has been primarily engaged in developing initial procedures and product technology, screening and in-licensing of target compounds, clinical trial activity, and raising capital. To fund operations, VIA has been raising cash through debt, a merger and equity financings. The Company is organized and operates as one operating segment.

Merger — On June 5, 2007, Corautus completed a merger (the “Merger”) with privately-held VIA Pharmaceuticals, Inc. pursuant to the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated February 7, 2007, by and among Corautus, Resurgens Merger Corp., a Delaware corporation and a wholly owned subsidiary of Corautus (“Resurgens”), and privately-held VIA Pharmaceuticals, Inc. Pursuant to the Merger Agreement, Resurgens merged with and into privately-held VIA Pharmaceuticals, Inc., which continued as the surviving company as a wholly-owned subsidiary of Corautus. Immediately following the effectiveness of the Merger on June 5, 2007, privately-held VIA Pharmaceuticals, Inc. merged (the “Parent-Subsidiary Merger”) with and into Corautus, pursuant to which Corautus continued as the surviving corporation. Immediately following the Parent-Subsidiary Merger, Corautus changed its corporate name from “Corautus Genetics Inc.” to “VIA Pharmaceuticals, Inc.” Unless otherwise specified, as used throughout these unaudited condensed financial statements, the “Company,” “we,” “us,” and “our” refers to the business of the combined company after the merger (the “Merger”) with Corautus Genetics Inc. (“Corautus”) on June 5, 2007 and the business of privately-held VIA Pharmaceuticals, Inc. prior to the Merger. Unless specifically noted otherwise, as used throughout these unaudited condensed financial statements, “Corautus Genetics Inc.” or “Corautus” refers to the business of Corautus prior to the Merger.

Going Concern — From inception, the Company has incurred expenses in research and development activities without generating any revenues to offset those expenses and the Company does not expect to generate revenues in the near future. The Company has incurred losses and negative cash flow from operating activities from inception, and as of September 30, 2010, the Company had an accumulated net deficit of approximately $88.7 million. Until the Company can establish profitable operations to finance its cash requirements, the Company’s ability to meet its obligations in the ordinary course of business is dependent upon its ability to raise substantial additional capital through public or private equity or debt financings, the establishment of credit or other funding facilities, collaborative or other strategic arrangements with corporate sources or other sources of financing, the availability of which cannot be assured. On June 5, 2007, the Company raised $11.1 million through the Merger with Corautus to cover existing obligations and provide operating cash flows. In July 2007, the Company entered into a securities purchase agreement that provided for issuance of 10,288,065 shares of common stock for approximately $25.0 million in gross proceeds.

As more fully described in Note 6 in the notes to the unaudited condensed financial statements, in March 2009, the Company entered into a Note and Warrant Purchase Agreement (the “Loan Agreement”) with its principal stockholder and one of its affiliates (the “Lenders”) whereby the Lenders agreed to lend to the Company in the aggregate up to $10.0 million. The Company secured the loan with all of its assets, including the Company’s intellectual property. On March 12, 2009, the Company borrowed the initial $2.0 million available under the Loan Agreement. Subsequently, the Company made $2.0 million borrowings under the Loan Agreement on May 19, 2009, June 29, 2009, August 14, 2009, respectively, and the Company borrowed the final $2.0 million available under the Loan Agreement on September 11, 2009. According to the terms of the original Loan Agreement, the debt was due to the Lenders on September 14, 2009. The parties agreed to extend the repayment terms on various dates in 2009, and on February 26, 2010, the Lenders agreed to modify the Loan Agreement to further extend the repayment terms to April 1, 2010. The Lenders did not modify the interest rate or offer any concessions in the amendments to the Loan Agreements. The Company failed to repay the debt and all related interest to the Lenders due on April 1, 2010.

As more fully described in Note 6 in the notes to the unaudited condensed financial statements, in March 2010, the Company entered into a second Note and Warrant Purchase Agreement (the “2010 Loan Agreement”) with its principal stockholder and one of its affiliates (the “Lenders”) whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million, pursuant to the terms of promissory notes (collectively, the “2010 Notes”) delivered under the 2010 Loan Agreement. The Company secured the loan with all of its assets, including the Company’s intellectual property. On March 29, 2010, the Company borrowed the initial $1.25 million available under the 2010 Loan Agreement. Subsequently, the Company made $100,000, $200,000, $300,000, $100,000, and $750,000 borrowings under the 2010 Loan Agreement on May 26, 2010, June 4, 2010, June 29, 2010, July 15, 2010, July 27, 2010, respectively, and the Company borrowed the final $300,000 available under the 2010 Loan Agreement on September 28, 2010. As more fully described in Note 14 in the notes to the unaudited condensed financial statements, on November 15, 2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010 Loan Amendment”) to enable the Company to borrow up to an additional aggregate principal amount of $3,000,000, pursuant to the terms of amended and restated promissory notes (collectively, the “2010 Amended and Restated Notes”) delivered under the 2010 Loan Amendment. According to the terms of the 2010 Loan Amendment, the debt is due to the Lenders on December 31, 2010. The 2010 Amended and Restated Notes are secured by a lien on all of the assets of the Company. Amounts borrowed under the 2010 Amended and Restated Notes accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event of default. Unless earlier paid in accordance with the terms of the 2010 Amended and Restated Notes, all unpaid principal and accrued interest shall become fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity.

The Company had $278,000 in cash at September 30, 2010. Management believes that, under normal continuing operations, this amount of cash will enable the Company to meet only a portion of its current obligations. Management does not believe that existing cash resources will be sufficient to enable the Company to meet its ongoing working capital requirements for the next twelve months and the Company will need to raise substantial additional funding in the near term to repay amounts owed under the Loan Agreement and 2010 Loan Agreement, and to meet its ongoing working capital requirements. As a result, there are substantial doubts that the Company will be able to continue as a going concern and, therefore, may be unable to realize its assets and discharge its liabilities in the normal course of business. The unaudited condensed financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or to amounts and classifications of liabilities that may be necessary should the Company be unable to continue as a going concern.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation — The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, in accordance with the instructions to Form 10-Q of Regulations S-X, with accounting guidance for the accounting and reporting by development stage enterprises and assume the Company will continue as a going concern. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The unaudited condensed financial statements have been prepared on the same basis as the annual financial statements as discussed below. The financial information for the three and nine months ended September 30, 2010 and 2009 is unaudited but includes all adjustments (consisting of only normal recurring adjustments), which the Company considers necessary for a fair presentation of the results of operations for those periods. Interim results are not necessarily indicative of results for the full fiscal year.

The unaudited condensed financial statements and related disclosures have been prepared with the presumption that users of the unaudited condensed financial statements have read or have access to the audited financial statements of the preceding fiscal year. Accordingly, these unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2009 on Form 10-K filed by the Company with the Securities and Exchange Commission (“SEC”) on March 31, 2010, and on Form 10-K/A filed by the Company with the SEC on April 30, 2010.

On March 21, 2006, the Company formed VIA Pharma UK Limited, a private corporation, in the United Kingdom to enable clinical trial activities in Europe. VIA Pharma UK Limited did not engage in operations from June 14, 2004 (date of inception) to September 30, 2010. The Company has a wholly-owned subsidiary Vascular Genetics Inc. (“VGI”) that was involved in Corautus clinical trials. VGI has not been active since the Corautus clinical trials ceased in 2006.

Use of Estimates — The preparation of the unaudited condensed financial statements in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our unaudited condensed financial statements and accompanying notes. Actual results could differ materially from those estimates.

Cash and Cash Equivalents — Cash equivalents are included with cash and consist of short term, highly liquid investments with original maturities of three months or less.

Property and Equipment — Property and equipment are stated at cost, less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years. Computers, lab and office equipment have estimated useful lives of three years; office furniture and equipment have estimated useful lives of five years; and leasehold improvements are amortized using the straight-line method over the shorter of the useful lives or the lease term.

Long-Lived Assets — Long-lived assets include property and equipment and certain purchased licensed patent rights that are included in other assets in the balance sheet. The Company reviews long-lived assets, including property and equipment, for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. As more fully discussed in Note 12 in the notes to the unaudited condensed financial statements, on March 31, 2010, the Company wrote-off $110,000 of certain computer equipment and leasehold improvements associated with the March 2010 restructuring resulting in $65,000 in losses on the disposal of property and equipment, which are included in restructuring costs in the Unaudited Condensed Statement of Operations. Through September 30, 2010, there have been no other such impairments.

Incentive Award Accruals — The Company accrues for liabilities under discretionary employee and executive incentive award plans. These estimated liabilities are based upon progress against corporate objectives approved by the Board of Directors, compensation levels of eligible individuals, and target bonus percentage level of employees. The Board of Directors and the Compensation Committee of the Board of Directors review and evaluate the performance against these objectives and ultimately determine what discretionary payments are made. At September 30, 2010 and December 31, 2009, the Company has accrued $767,185 and $1,308,043, respectively, for liabilities associated with these employee and executive incentive award plans. As described in Note 12 in the notes to the unaudited condensed financial statements, in March 2010, the Company reversed approximately $531,000 of previously recorded incentive award accruals related to the restructuring of the Company and reduction in workforce.

Research and Development Expenses — Research and development (“R&D”) expenses are charged to operations as incurred in accordance with accounting guidance for the accounting for research and development costs. R&D expenses include salaries, contractor and consultant fees; external clinical trial expenses performed by contract research organizations (“CROs”) and contracted investigators, licensing fees and facility allocations. In addition, the Company funds R&D at third-party research institutions under agreements that are generally cancelable at the Company’s option. Research costs typically consist of applied research, preclinical and toxicology work. Pharmaceutical manufacturing development costs consist of product formulation, chemical analysis and the transfer and scale-up of manufacturing at our contract manufacturers. Clinical costs include the costs of Phase 2 clinical trials. These costs, along with the manufacturing scale-up costs, are a significant component of R&D expenses.

The Company accrues costs for clinical trial activities performed by CROs and other third parties based upon the estimated amount of work completed on each study as provided by the vendors. These estimates may or may not match the actual services performed by the organizations as determined by patient enrollment levels and related activities. The Company monitors patient enrollment levels and related activities using available information; however, if the Company underestimates activity levels associated with various studies at a given point in time, the Company could record significant R&D expenses in future periods when the actual activity level becomes known. The Company charges all such costs to R&D expenses.

Fair Value of Financial and Derivative Instruments — The Company values its financial instruments in accordance with new accounting guidance on fair value measurements which, for certain financial assets and liabilities, requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

•

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In March 2009, the Company entered into a $10.0 million Loan Agreement with the Lenders, as more fully described in Note 6 in the notes to the unaudited condensed financial statements. At the date of each borrowing under the Loan Agreement, the Company valued and reported the freestanding warrants issued in connection with the financing of notes payable to affiliates as paid-in-capital in the Stockholders’ Equity (Deficit) section of the Company’s balance sheets in accordance with the following accounting guidance:

•

Derivative financial instruments indexed to and potentially settled in a company’s own stock;

•

Accounting for derivative instruments and hedging activities; and

•

Accounting for convertible debt and debt issued with stock purchase warrants.

The Company made separate $2.0 million borrowings under the $10.0 million Loan Agreement on March 12, 2009, May 19, 2009, June 29, 2009, August 14, 2009, and a final borrowing on September 11, 2009, with warrants vesting at the time of each draw as described more fully in Note 6 in the notes to the unaudited condensed financial statements. The Company estimated the fair value of the warrants issued on the date of each draw using the Black-Scholes pricing model methodology. This methodology requires significant judgments in the estimation of fair value based on certain assumptions, including the market value and the estimated volatility of the Company’s common stock, a risk-free interest rate applicable to the facts and circumstances of the transaction, and the estimated life of the warrant. The freestanding warrant is classified within Level 3 of the fair value hierarchy.

In March 2010, the Company entered into the 2010 Loan Agreement with the Lenders, as more fully described in Note 6 in the notes to the unaudited condensed financial statements, whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million. At the date of each borrowing under the 2010 Loan Agreement, the Company valued and reported the freestanding warrants issued in connection with the financing of notes payable to affiliates as paid-in-capital in the Stockholders’ Equity (Deficit) section of the Company’s balance sheets in accordance with the following accounting guidance:

•

Derivative financial instruments indexed to and potentially settled in a company’s own stock;

•

Accounting for derivative instruments and hedging activities; and

•

Accounting for convertible debt and debt issued with stock purchase warrants.

The Company made separate borrowings of $1.25 million on March 29, 2010, $100,000 on May 26, 2010, $200,000 on June 4, 2010, $300,000 on June 29, 2010, $100,000 on July 15, 2010, $750,000 on July 27, 2010, and a final $300,000 borrowing on September 28, 2010 under the 2010 Loan Agreement, with warrants vesting at the time of the draw as described more fully in Note 6 in the notes to the unaudited condensed financial statements. The Company estimated the fair value of the warrants issued on the date of each draw using the Black-Scholes pricing model methodology. This methodology requires significant judgments in the estimation of fair value based on certain assumptions, including the market value and the estimated volatility of the Company’s common stock, a risk-free interest rate applicable to the facts and circumstances of the transaction, and the estimated life of the warrant. The freestanding warrant is classified within Level 3 of the fair value hierarchy.

Changes in Level 3 Recurring Fair Value Measurements — The following is a rollforward of balance sheet amounts as of September 30, 2010 (including the change in fair value when applicable), for financial instruments classified as Level 3. The Company has no financial instruments classified as Level 1 and Level 2 as of September 30, 2010. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable parameters to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable components, observable components (that is, components that are actively quoted and can be validated to external sources). Accordingly, the gains and losses in the table below include changes in fair value (when applicable) due in part to observable factors that are part of the methodology.


	As of
	September 30,
	2010
Fair value — December 31, 2009	$	6,948,723
Warrants (1)		1,048,226
Change in unrealized gains related to financial instruments at September 30, 2010 (2)		—

Fair value — September 30, 2010	$	7,996,949

Total unrealized gains (losses) (2)	$	—


(1)		The Warrants are included in additional paid in capital in the Stockholders’ Equity section of the Balance Sheet.

(2)		The Warrants are not revalued at the reporting dates and do not result in gains and losses.

Income Taxes — The Company accounts for income taxes using an asset and liability approach. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and operating loss and tax credit carryforwards measured by applying currently enacted tax laws. A valuation allowance is provided to reduce net deferred tax assets to an amount that is more likely than not to be realized. The amount of the valuation allowance is based on the Company’s best estimate of the recoverability of its deferred tax assets. On January 1, 2007, the Company adopted new accounting guidance for the accounting for uncertainty in income tax positions. This guidance seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes and provide guidance on de-recognition, classification, interest and penalties, and accounting in interim periods and requires expanded disclosure with respect to the uncertainty in income taxes. The accounting guidance requires that the Company recognize in its unaudited condensed financial statements the impact of a tax position if that position is more likely than not to be sustained on audit, based on the technical merits of the position.

Segment Reporting — Accounting guidance on disclosures about segments of an enterprise and related information requires the use of a management approach in identifying segments of an enterprise. Management has determined that the Company operates in one business segment — scientific research and development activities.

Earnings (Loss) Per Share of Common Stock — Basic earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock and potentially dilutive shares of common stock equivalents outstanding during the period.

The following table presents the calculation of basic and diluted net loss per common share for the three and nine months ended September 30, 2010 and 2009:


	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2010			2009			2010			2009
Net loss	$	(2,118,323	)	$	(8,038,046	)	$	(7,130,714	)	$	(16,731,373	)

Basic and diluted net loss per share:
Weighted-average shares of common stock outstanding		20,558,446			20,646,374			20,580,460			20,630,382
Less: Weighted-average shares of common stock subject to repurchase		(106,114	)		(631,917	)		(222,109	)		(754,900	)

Weighted-average shares used in computing basic net loss per share		20,452,332			20,014,457			20,358,351			19,875,482
Dilutive effect of common share equivalents		—			—			—			—

Weighted-average shares used in computing diluted net loss per share		20,452,332			20,014,457			20,358,351			19,875,482

Basic and diluted net loss per share	$	(0.10	)	$	(0.40	)	$	(0.35	)	$	(0.84	)

Diluted earnings (loss) per share of common stock reflects the potential dilution that could occur if options or warrants to purchase shares of common stock were exercised, or shares of preferred stock were converted into shares of common stock. The following table details potentially dilutive shares of common stock equivalents that have been excluded from diluted net loss per share for the three and nine months ended September 30, 2010 and 2009 because their inclusion would be anti-dilutive:


	As of
	September 30,		September 30,
	2010		2009
Common stock equivalents (in shares):
Shares of common stock subject to outstanding options		1,847,872		2,740,733
Shares of common stock subject to outstanding warrants		101,050,407		83,503,348
Shares of common stock subject to conversion from series C preferred stock		13,986,013		—

Total shares of common stock equivalents		116,884,292		86,244,081

As described in Note 7 in the notes to the unaudited condensed financial statements, the Series C Preferred Stock became convertible on June 13, 2010 and shares are convertible upon delivery of notice of conversion. The number of shares of common stock into which Series C Preferred Stock will be converted is based in part on the “fair market value” (as defined in the Amended and Restated Certificate of Designation of Preferences and Rights of Series C Preferred Stock of the Company) of the Company’s common stock on June 13, 2010. Accordingly, we have not included any Series C Preferred Stock in the table above for the three and nine month period ended September 30, 2009.

Comprehensive Income (Loss) — Comprehensive income (loss) generally represents all changes in stockholders’ equity except those resulting from investments or contributions by stockholders. Amounts reported in other comprehensive income (loss) include derivative financial instruments designated and effective as hedges of underlying foreign currency denominated transactions.

The following table presents the calculation of total comprehensive income (loss) for the three and nine months ended September 30, 2010 and 2009:


	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2010			2009			2010			2009
Net loss	$	(2,118,323	)	$	(8,038,046	)	$	(7,130,714	)	$	(16,731,373	)
Changes in unrealized gain (loss) on foreign currency cash flow hedges		—			—			—			—

Basic and diluted net loss per share	$	(2,118,323	)	$	(8,038,046	)	$	(7,130,714	)	$	(16,731,373	)

Derivative Instruments — From time to time, the Company uses derivatives to manage its market exposure to fluctuations in foreign currencies. The Company records these derivatives on the balance sheet at fair value in accordance with accounting guidance for derivatives. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and in the Company’s statement of operations in the same period or periods during which the hedged transaction affects earnings. The gain or loss on the derivative instruments in excess of the cumulative change in the present value of future cash flows of the hedged transaction, if any, is recognized in the Company’s statement of operations during the period of change. The Company does not use derivative instruments for speculative purposes.

As of September 30, 2010, December 31, 2009 and September 30, 2009, the Company does not have any outstanding forward foreign exchange contracts. All foreign currency purchased under forward foreign exchange contracts has been expended in the purchase of clinical trial services and, as a result, the Company does not have any outstanding unrealized gains or losses on forward foreign exchange contracts and also does not have any related accumulated other comprehensive income on the Company’s September 30, 2010, December 31, 2009 and September 30, 2009 Balance Sheets.

New Accounting Pronouncements — In October 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB Emerging Issues Task Force), which amends ASC 605-25, Revenue Recognition: Multiple-Element Arrangements. ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate consideration to each unit of accounting in the arrangement. This ASU replaces all references to fair value as the measurement criteria with the term selling price and establishes a hierarchy for determining the selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13 requires expanded disclosures. This ASU will become effective for revenue arrangements entered into or materially modified after the fiscal year 2010. Earlier application is permitted with required transition disclosures based on the period of adoption. The Company is currently evaluating the application date and does not believe this standard will have a material impact on our unaudited condensed financial statements.

3. STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted new accounting guidance for accounting for stock-based compensation. Under the fair value recognition provisions of this accounting guidance, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. The Company elected the modified-prospective method, under which prior periods are not revised for comparative purposes. The valuation provisions of the accounting guidance apply to new grants and to grants that were outstanding as of the effective date and are subsequently modified. Estimated compensation for grants that were outstanding as of the effective date of this new guidance are now being recognized over the remaining service period using the compensation cost estimated for the required pro forma disclosures.

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock-based awards. The determination of the fair value of stock-based awards on the date of grant using an option-pricing model is affected by the value of the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.

Prior to June 5, 2007, the Company was a privately-held company and its common stock was not publicly traded. The fair value of stock options granted from January 2006 through June 5, 2007 (date of completion of the Merger with Corautus), and related stock-based compensation expense, were determined based upon quoted stock prices of Corautus, the exchange ratio of shares in the Merger, and a private company 10% discount for grants prior to March 31, 2007, as this represented the best estimate of market value to use in measuring compensation. Subsequent to the Merger, the Company, now publicly held, uses the closing stock price of the Company’s common stock on the date the options are granted to determine the fair market value of each option. The Company revalues each non-employee option quarterly based on the closing stock price of the Company’s common stock on the last day of the quarter. The Company also revalues options when there is a change in employment status.

The Company estimates the expected term of options granted by taking the average of the vesting term and the contractual term of the option. As of September 30, 2010, the Company estimates common stock price volatility using a hybrid approach consisting of the weighted-average of actual historical volatility using a look back period of approximately three years, representing the period of time the Company’s stock has been publicly traded, blended with an average of selected peer group volatility for approximately six years, consistent with the expected life from grant date. The volatility for the Company and the selected peer group was approximately 128% and 105%, respectively, as of September 30, 2010, and 132% and 93%, respectively as of September 30, 2009. The blended volatility rate was approximately a range from 114% to 118% as of September 30, 2010 and 107% as of September 30, 2009. The Company will continue to incrementally increase the look back period of the Company’s common stock and percent of actual historical volatility until historical data meets or exceeds the estimated term of the options. Prior to the year ended December 31, 2009, the Company used peer group calculated volatility as the Company is a development stage company with limited stock price history from which to forecast stock price volatility. The risk-free interest rates used in the valuation model are based on U.S. Treasury issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any dividends in the foreseeable future and therefore used an expected dividend yield of zero.

The Company calculated an annualized forfeiture rate of 4.77% and 2.98% as of September 30, 2010 and 2009, respectively, using the Company’s historical data. These rates were used to exclude future forfeitures in the calculation of stock-based compensation expense as of September 30, 2010 and 2009, respectively.

The assumptions used to value option and restricted stock award grants for the three and nine months ended September 30, 2010 and 2009 are as follows:


	Three Months Ended				Nine Months Ended
	September 30,	September 30,			September 30,	September 30,
	2010	2009			2010	2009
Expected life from grant date	6.16-7.21		—		6.16-7.21		6.08
Expected volatility	114%-118%		—	%	114%-118%		105	%
Risk free interest rate	1.64%-1.95%		—	%	1.64%-1.95%		2.89	%
Dividend yield	—		—		—		—

The following table summarizes stock-based compensation expenses related to stock options and warrants for the three and nine months ended September 30, 2010 and 2009, and for the period from June 14, 2004 (date of inception) to September 30, 2010, which were included in the statements of operations in the following captions:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Research and development expense	$	43,453	$	19,115	$	122,250	$	228,110	$	1,201,676
General and administrative expense		110,034		232,121		436,035		705,206		3,240,897

Total	$	153,487	$	251,236	$	558,285	$	933,316	$	4,442,573

If all of the remaining non-vested and outstanding stock option awards that have been granted became vested, we would recognize approximately $616,000 in compensation expense over a weighted average remaining period of 1.0 year. However, no compensation expense will be recognized for any stock option awards that do not vest.

The following table summarizes stock-based compensation expenses related to employee restricted stock awards for the three and nine months ended September 30, 2010 and 2009, and for the period from June 14, 2004 (date of inception) to September 30, 2010, which were included in the statements of operations in the following captions:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Research and development expense	$	3,588	$	3,934	$	10,695	$	11,754	$	27,063
General and administrative expense		6,314		12,024		23,651		35,490		73,199

Total	$	9,902	$	15,958	$	34,346	$	47,244	$	100,262

If all of the remaining non-vested restricted stock awards that have been granted became vested, we would recognize approximately $8,000 in compensation expense over a weighted average remaining period of 0.25 years. However, no compensation expense will be recognized for any stock option awards that do not vest.

4. RESEARCH AND DEVELOPMENT

The Company’s research and development expenses include expenses related to Phase 2 clinical development of the Company’s lead compound VIA-2291, regulatory activities, and preclinical development costs for additional assets in the Company’s product pipeline. R&D expenses include salaries, contractor and consultant fees, external clinical trial expenses performed by CROs and contracted investigators, licensing fees and facility allocations. In addition, the Company funds R&D at third-party research institutions under agreements that are generally cancelable at the Company’s option. Research costs typically consist of applied research, preclinical and toxicology work. Pharmaceutical manufacturing development costs consist of product formulation, chemical analysis and the transfer and scale-up of manufacturing at our contract manufacturers. Clinical costs include the costs of Phase 2 clinical trials. These costs, along with the manufacturing scale-up costs, are a significant component of research and development expenses.

The following reflects the breakdown of the Company’s research and development expenses generated internally versus externally for the three and nine months ended September 30, 2010 and 2009, and for the period from June 14, 2004 (date of inception) to September 30, 2010:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Externally generated R&D expense	$	85,729	$	732,162	$	474,366	$	2,985,635	$	29,179,557
Internally generated R&D expense		364,179		574,147		1,344,233		1,963,483		13,545,220

Total	$	449,908	$	1,306,309	$	1,818,599	$	4,949,118	$	42,724,777

Externally generated research and development expenses consist primarily of the following:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
In-licensing expenses	$	—	$	—	$	—	$	400,000	$	5,270,000
CRO and investigator expenses		1,204		221,030		19,868		909,296		10,769,207
Consulting expenses		43,718		211,893		166,439		916,097		6,585,108
Other		40,807		299,239		288,059		760,242		6,555,242

Total	$	85,729	$	732,162	$	474,366	$	2,985,635	$	29,179,557

Internally generated research and development expenses consist primarily of the following:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Payroll and payroll related expenses	$	235,542	$	459,266	$	804,362	$	1,380,281	$	9,311,521
Stock-based compensation		47,041		23,050		132,945		239,864		1,228,739
Travel and entertainment expenses		11,724		29,799		55,005		134,815		1,210,624
Other		69,872		62,032		351,921		208,523		1,794,336

Total	$	364,179	$	574,147	$	1,344,233	$	1,963,483	$	13,545,220

5. PROPERTY AND EQUIPMENT

Property and equipment — net, at September 30, 2010 and December 31, 2009 consisted of the following:


	As of
	September 30,			December 31,
	2010			2009

Property and equipment at cost:
Computer equipment and software	$	281,822		$	308,467
Furniture and fixtures		113,363			113,363
Office equipment		21,048			38,282
Leasehold Improvements		24,794			129,740

Total property and equipment at cost		441,027			589,852
Less: accumulated depreciation		(409,225	)		(419,235	)

Total	$	31,802		$	170,617

Depreciation expense on property and equipment was $14,076 and $34,158 in the three months ended September 30, 2010 and 2009, respectively, $66,437 and $103,653 in the nine months ended September 30, 2010 and 2009, respectively, and $570,310 for the period from June 14, 2004 (date of inception) to September 30, 2010, and was included in the statements of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Research and development expense	$	2,729	$	5,865	$	10,923	$	17,730	$	142,851
General and administrative expense		11,347		28,293		55,514		85,923		427,459

Total	$	14,076	$	34,158	$	66,437	$	103,653	$	570,310

6. NOTES PAYABLE — AFFILIATES

Notes Payable — Affiliates consisted of the following:


	September 30,			December 31,
	2010			2009
Issued March 12, 2009 — 18% — due April 1, 2010 (Loan Agreement)	$	10,000,000		$	10,000,000
Less: Unamortized discount		—			(4,374	)

Balance	$	10,000,000		$	9,995,626

Issued March 26, 2010 — 15% — due December 31, 2010 (2010 Loan Agreement)		3,000,000			—
Less: Unamortized discount		(491,565	)		—

Balance	$	2,508,435		$	—

Total	$	12,508,435		$	9,995,626

Notes Payable Issued March 12, 2009 — due April 1, 2010 (Loan Agreement)

In March 2009, the Company entered into the Loan Agreement whereby the Lenders agreed to lend to the Company in the aggregate up to $10.0 million, pursuant to the terms of promissory notes (collectively, the “Notes”) delivered under the Loan Agreement.

On March 12, 2009, the Company borrowed an initial amount of $2.0 million under the Loan Agreement. During the three months ended June 30, 2009, the Company borrowed $2.0 million on May 19, 2009, and another $2.0 million on June 29, 2009. During the three months ended September 30, 2009, the Company borrowed $2.0 million on August 14, 2009, and borrowed the final $2.0 million on September 11, 2009. The Notes are secured by a first priority lien on all of the assets of the Company, including the Company’s intellectual property. Amounts borrowed under the Notes accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event of default. Unless earlier paid in accordance with the terms of the Notes, all unpaid principal and accrued interest became fully due and payable on April 1, 2010. While the Lenders have not declared an event of default, the Company failed to repay the debt and all related interest to the Lenders due on April 1, 2010. As a result, the Company is now accruing interest at the higher 18% per annum beginning April 1, 2010. On September 11, 2009, the Lenders agreed to extend the repayment terms from September 14, 2009 to October 31, 2009; on October 30, 2009, the Lenders agreed to further extend the repayment terms from October 31, 2009 to December 31, 2009; on December 22, 2009, the Lenders agreed to again further extend the repayment terms from December 31, 2009 to February 28, 2010; and on February 26, 2010, the Lenders agreed to further extend the repayment terms from February 28, 2010 to April 1, 2010. There were no other significant changes to any of the terms and conditions of the original Notes in the September 11, 2009, October 30, 2009, December 22, 2009 or February 26, 2010 amendments and the Lenders did not give any loan concessions. As a result of the loan amendments, and because the Company did not repay the debt on April 1, 2010, total interest expense on the note and the note discount amortization increased $1,681,644 from anticipated interest expense based on the original due date of the Notes of $7,328,449 to actual interest after the loan amendments of $9,010,093 from the inception of the Notes to September 30, 2010.

Pursuant to the terms of the Loan Agreement, the Company issued to the Lenders warrants (the “Warrants”) to purchase an aggregate of up to 83,333,333 shares (the “Warrant Shares”) of common stock at $0.12 per share as more fully described below. The number of Warrant Shares is equal to the $10.0 million maximum aggregate principal amount that may be borrowed under the Loan Agreement, divided by the $0.12 per share exercise price of the Warrants. The Warrant Shares vest based on the amount of borrowings under the Notes and based on the passage of time. For each $2.0 million borrowing, 8,333,333 Warrant Shares vested and became exercisable immediately on the date of grant, and 8,333,333 vested and became exercisable 45 days thereafter as the Company meets certain conditions provided for in the Warrants, including that the Company did not complete a $20.0 million financing, as defined in the Loan Agreement, within 45 days of the borrowing. Based on the aggregate $10.0 million of borrowings at September 30, 2010, all 83,333,333 Warrant Shares are vested and are exercisable at September 30, 2010. The Warrant Shares are exercisable at any time until March 12, 2014.

On March 12, 2009, the fair value of the note and of the 16,666,666 Warrant Shares related to the $2.0 million borrowed under the Loan Agreement was $2.0 million and approximately $1.6 million, respectively. This resulted in the Company allocating the relative fair value of approximately $1.1 million of the $2.0 million in proceeds to the note and approximately $900,000 to the Warrants. The Company has recorded the $900,000 freestanding Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $900,000 discount on the note payable — affiliate is netted against the $2.0 million note and is being amortized to interest expense using the interest method from March 12, 2009 through April 1, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $2,000,000 and the unamortized discount was $0.

Interest expenses on the $2.0 million March 12, 2009 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
March 12, 2009 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	90,740	$	75,616	$	254,466	$	166,849	$	496,932
Discount amortization		—		354,211		36		891,334		900,044

Total	$	90,740	$	429,827	$	254,502	$	1,058,183	$	1,396,976

The Company estimated the fair value of the Warrants of approximately $1.6 million at March 12, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the Warrants at March 12, 2009 (date of inception) are:


	March 12, 2009
Expected life from grant date — in years		5.0
Expected volatility		116.79	%
Risk free interest rate		2.10	%
Dividend yield		—

On May 19, 2009, the Company borrowed an additional $2.0 million under the Loan Agreement and the fair value of the note and of the 16,666,666 Warrant Shares related was $2.0 million and approximately $6.6 million, respectively. This resulted in the Company allocating the relative fair value of approximately $500,000 of the $2.0 million in proceeds to the note and approximately $1.5 million to the Warrants. The Company has recorded the $1.5 million freestanding Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $1.5 million discount on the note payable — affiliate is netted against the $2.0 million note and is being amortized to interest expense using the interest method from May 19, 2009 through April 1, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $2,000,000 and the unamortized discount was $0.

Interest expenses on the $2.0 million May 19, 2009 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
May 19, 2009 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	90,740	$	75,617	$	254,466	$	110,959	$	441,041
Discount amortization		—		950,913		96		1,509,509		1,532,892

Total	$	90,740	$	1,026,530	$	254,562	$	1,620,468	$	1,973,933

The Company estimated the fair value of the Warrants of approximately $1.5 million at May 19, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the Warrants at May 19, 2009 (date of inception) are:


	May 19, 2009
Expected life from grant date — in years		4.81
Expected volatility		108.63	%
Risk free interest rate		2.05	%
Dividend yield		—

On June 29, 2009, the Company borrowed an additional $2.0 million under the Loan Agreement and the fair value of the note and of the 16,666,666 Warrant Shares related was $2.0 million and approximately $8.7 million, respectively. This resulted in the Company allocating the relative fair value of approximately $400,000 of the $2.0 million in proceeds to the note and approximately $1.6 million to the Warrants. The Company has recorded the $1.6 million freestanding Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $1.6 million discount on the note payable — affiliate is netted against the $2.0 million note and is being amortized to interest expense using the interest method from June 29, 2009 through April 1, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $2,000,000 and the unamortized discount was $0.

Interest expenses on the $2.0 million June 29, 2009 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
June 29, 2009 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	90,740	$	75,616	$	254,466	$	77,260	$	407,343
Discount amortization		—		1,545,694		157		1,587,926		1,625,935

Total	$	90,740	$	1,621,310	$	254,623	$	1,665,186	$	2,033,278

The Company estimated the fair value of the Warrants of approximately $1.6 million at June 29, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the Warrants at June 29, 2009 (date of inception) are:


	June 29, 2009
Expected life from grant date — in years		4.7
Expected volatility		112.03	%
Risk free interest rate		2.40	%
Dividend yield		—

On August 14, 2009, the Company borrowed an additional $2.0 million under the Loan Agreement and the fair value of the note and of the 16,666,666 Warrant Shares related was $2.0 million and approximately $4.4 million, respectively. This resulted in the Company allocating the relative fair value of approximately $600,000 of the $2.0 million in proceeds to the note and approximately $1.4 million to the Warrants. The Company has recorded the $1.4 million freestanding Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $1.4 million discount on the note payable — affiliate is netted against the $2.0 million note and is being amortized to interest expense using the interest method from August 14, 2009 through April 1, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $2,000,000 and the unamortized discount was $0.

Interest expenses on the $2.0 million August 14, 2009 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
August 14, 2009 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	90,740	$	39,452	$	254,466	$	39,452	$	369,534
Discount amortization		—		1,293,316		329		1,293,316		1,373,041

Total	$	90,740	$	1,332,768	$	254,795	$	1,332,768	$	1,742,575

The Company estimated the fair value of the Warrants of approximately $1.4 million at August 14, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the Warrants at August 14, 2009 (date of inception) are:


	August 14, 2009
Expected life from grant date — in years		4.58
Expected volatility		115.22	%
Risk free interest rate		2.32	%
Dividend yield		—

On September 11, 2009, the Company borrowed the final $2.0 million under the Loan Agreement and the fair value of the note and of the 16,666,666 Warrant Shares related was $2.0 million and approximately $6.3 million, respectively. This resulted in the Company allocating the relative fair value of approximately $500,000 of the $2.0 million in proceeds to the note and approximately $1.5 million to the Warrants. The Company has recorded the $1.5 million freestanding Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $1.5 million discount on the note payable — affiliate is netted against the $2.0 million note and is being amortized to interest expense using the interest method from September 11, 2009 through April 1, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $2,000,000 and the unamortized discount was $0.

Interest expenses on the $2.0 million September 11, 2009 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
September 11, 2009 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	90,739	$	16,439	$	254,465	$	16,439	$	346,520
Discount amortization		—		606,724		3,756		606,724		1,516,811

Total	$	90,739	$	623,163	$	258,221	$	623,163	$	1,863,331

The Company estimated the fair value of the Warrants of approximately $1.5 million at September 11, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the Warrants at September 11, 2009 (date of inception) are:


	September 11, 2009
Expected life from grant date — in years		4.50
Expected volatility		115.41	%
Risk free interest rate		2.07	%
Dividend yield		—

Interest expenses on the aggregate $10.0 million Loan Agreement for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Interest expense	$	453,699	$	282,740	$	1,272,329	$	410,959	$	2,061,370
Discount amortization		—		4,750,858		4,374		5,888,809		6,948,723

Total	$	453,699	$	5,033,598	$	1,276,703	$	6,299,768	$	9,010,093

At September 30, 2010 the aggregate balance of the notes payable — affiliate net of discount was $10,000,000 and the aggregate unamortized discount was $0. The Company has accrued interest of $2,061,370 and $410,959 as of September 30, 2010 and December 31, 2009, respectively, which is included in the Balance Sheet.

Notes Payable Issued March 26, 2010 — 15% — due December 31, 2010 (2010 Loan Agreement)

In March 2010, the Company entered into the 2010 Loan Agreement whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million, pursuant to the terms of the 2010 Notes.

On March 29, 2010, the Company borrowed an initial amount of $1,250,000. During the three months ended June 30, 2010, the Company borrowed $100,000 on May 26, 2010, $200,000 on June 4, 2010, and another $300,000 on June 29, 2010. During the three months ended September 30, 2010, the Company borrowed $100,000 on July 15, 2010, $750,000 on July 27, 2010 and a final $300,000 on September 28, 2010. The 2010 Notes are secured by a lien on all of the assets of the Company. Amounts borrowed under the 2010 Notes accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event of default. Unless earlier paid in accordance with the terms of the 2010 Notes, all unpaid principal and accrued interest shall become fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity.

Pursuant to the 2010 Loan Agreement, the Company issued to the Lenders warrants (the “2010 Warrants”) to purchase an aggregate of 17,647,059 shares (the “2010 Warrant Shares”) of common stock at $0.17 per share. The number of 2010 Warrant Shares is equal to the $3,000,000 maximum aggregate principal amount that may be borrowed under the 2010 Loan Agreement, divided by the $0.17 per share exercise price of the 2010 Warrants. The 2010 Warrant Shares vest based on the amount of borrowings under the 2010 Notes. Based on the $3,000,000 borrowings as of September 30, 2010, all 17,647,059 of the 2010 Warrant Shares are vested and are exercisable at September 30, 2010. The Warrant Shares are exercisable at any time until March 26, 2015.

On March 29, 2010, the fair value of the 2010 Notes and of the 7,352,941 2010 Warrant Shares related to the $1.25 million borrowed under the 2010 Loan Agreement was $1.25 million and approximately $904,000, respectively. This resulted in the Company allocating the relative fair value of approximately $726,000 of the $1.25 million in proceeds to the 2010 Notes and approximately $524,000 to the 2010 Warrants. The Company has recorded the $524,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $524,000 discount on the note payable — affiliate is netted against the $1.25 million 2010 Notes and is being amortized to interest expense using the interest method from March 29, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $1,077,693 and the unamortized discount was $172,307.

Interest expenses on the $1.25 million March 29, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
March 29, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	47,260	$	—	$	95,548	$	—	$	95,548
Discount amortization		174,201		—		352,189		—		352,189

Total	$	221,461	$	—	$	447,737	$	—	$	447,737

The Company estimated the fair value of the 2010 Warrants of approximately $524,000 at March 29, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at March 29, 2010 (date of inception) are:


	March 29, 2010
Expected life from grant date — in years		4.99
Expected volatility		119.82	%
Risk free interest rate		2.60	%
Dividend yield		—

On May 26, 2010, the Company borrowed an additional $100,000 under the 2010 Loan Agreement and the fair value of the note and of the 588,235 Warrant Shares related was $100,000 and approximately $71,000, respectively. This resulted in the Company allocating the relative fair value of approximately $58,000 of the $100,000 in proceeds to the 2010 Notes and approximately $42,000 to the 2010 Warrants. The Company has recorded the $42,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $42,000 discount on the note payable — affiliate is netted against the $100,000 note and is being amortized to interest expense using the interest method from May 26, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $82,705 and the unamortized discount was $17,295.

Interest expenses on the $100,000 May 26, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
May 26, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	3,781	$	—	$	5,260	$	—	$	5,260
Discount amortization		17,484		—		24,326		—		24,326

Total	$	21,265	$	—	$	29,586	$	—	$	29,586

The Company estimated the fair value of the 2010 Warrants of approximately $42,000 at May 26, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at May 26, 2010 (date of inception) are:


	May 26, 2010
Expected life from grant date — in years		4.83
Expected volatility		119.48	%
Risk free interest rate		1.99	%
Dividend yield		—

On June 4, 2010, the Company borrowed an additional $200,000 under the 2010 Loan Agreement and the fair value of the note and of the 1,176,471 Warrant Shares related was $200,000 and approximately $101,000, respectively. This resulted in the Company allocating the relative fair value of approximately $133,000 of the $200,000 in proceeds to the 2010 Notes and approximately $67,000 to the 2010 Warrants. The Company has recorded the $67,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $67,000 discount on the note payable — affiliate is netted against the $100,000 note and is being amortized to interest expense using the interest method from June 4, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $170,998 and the unamortized discount was $29,002.

Interest expenses on the $200,000 June 4, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
June 4, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	7,562	$	—	$	9,781	$	—	$	9,781
Discount amortization		29,322		—		37,927		—		37,927

Total	$	36,884	$	—	$	47,708	$	—	$	47,708

The Company estimated the fair value of the 2010 Warrants of approximately $67,000 at June 4, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at June 4, 2010 (date of inception) are:


	June 4, 2010
Expected life from grant date — in years		4.81
Expected volatility		119.88	%
Risk free interest rate		1.90	%
Dividend yield		—

On June 29, 2010, the Company borrowed an additional $300,000 under the 2010 Loan Agreement and the fair value of the note and of the 1,764,706 Warrant Shares related was $300,000 and approximately $135,000, respectively. This resulted in the Company allocating the relative fair value of approximately $207,000 of the $300,000 in proceeds to the 2010 Notes and approximately $93,000 to the 2010 Warrants. The Company has recorded the $93,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $93,000 discount on the note payable — affiliate is netted against the $300,000 note and is being amortized to interest expense using the interest method from June 29, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $254,286 and the unamortized discount was $45,714.

Interest expenses on the $300,000 June 29, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
June 29, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	11,342	$	—	$	11,589	$	—	$	11,589
Discount amortization		46,217		—		47,221		—		47,221

Total	$	57,559	$	—	$	58,810	$	—	$	58,810

The Company estimated the fair value of the 2010 Warrants of approximately $93,000 at June 29, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at June 29, 2010 (date of inception) are:


	June 29, 2010
Expected life from grant date — in years		4.74
Expected volatility		120.12	%
Risk free interest rate		1.68	%
Dividend yield		—

On July 15, 2010, the Company borrowed an additional $100,000 under the 2010 Loan Agreement and the fair value of the note and of the 588,235 Warrant Shares related was $100,000 and approximately $30,000, respectively. This resulted in the Company allocating the relative fair value of approximately $77,000 of the $100,000 in proceeds to the 2010 Notes and approximately $23,000 to the 2010 Warrants. The Company has recorded the $23,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $23,000 discount on the note payable — affiliate is netted against the $100,000 note and is being amortized to interest expense using the interest method from July 15, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $87,668 and the unamortized discount was $12,332.

Interest expenses on the $100,000 July 15, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
July 15, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	3,206	$	—	$	3,206	$	—	$	3,206
Discount amortization		10,570		—		10,570		—		10,570

Total	$	13,776	$	—	$	13,776	$	—	$	13,776

The Company estimated the fair value of the 2010 Warrants of approximately $23,000 at July 15, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at July 15, 2010 (date of inception) are:


	July 15, 2010
Expected life from grant date — in years		4.70
Expected volatility		120.71	%
Risk free interest rate		1.64	%
Dividend yield		—

On July 27, 2010, the Company borrowed an additional $750,000 under the 2010 Loan Agreement and the fair value of the note and of the 4,411,765 Warrant Shares related was $750,000 and approximately $259,000, respectively. This resulted in the Company allocating the relative fair value of approximately $557,000 of the $750,000 in proceeds to the 2010 Notes and approximately $193,000 to the 2010 Warrants. The Company has recorded the $193,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $193,000 discount on the note payable — affiliate is netted against the $750,000 note and is being amortized to interest expense using the interest method from July 27, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $638,282 and the unamortized discount was $111,718.

Interest expenses on the $750,000 July 27, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
July 27, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	20,342	$	—	$	20,342	$	—	$	20,342
Discount amortization		81,026		—		81,026		—		81,026

Total	$	101,368	$	—	$	101,368	$	—	$	101,368

The Company estimated the fair value of the 2010 Warrants of approximately $193,000 at July 27, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at July 27, 2010 (date of inception) are:


	July 27, 2010
Expected life from grant date — in years		4.66
Expected volatility		120.64	%
Risk free interest rate		1.69	%
Dividend yield		—

On September 28, 2010, the Company borrowed the final $300,000 under the 2010 Loan Agreement and the fair value of the note and of the 1,764,706 Warrant Shares related was $300,000 and approximately $165,000, respectively. This resulted in the Company allocating the relative fair value of approximately $193,000 of the $300,000 in proceeds to the 2010 Notes and approximately $107,000 to the 2010 Warrants. The Company has recorded the $107,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock. The $107,000 discount on the note payable — affiliate is netted against the $300,000 note and is being amortized to interest expense using the interest method from September 28, 2010 through December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of notes payable — affiliate net of discount was $196,804 and the unamortized discount was $103,196.

Interest expenses on the $300,000 September 28, 2010 borrowing for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
September 28, 2010 Borrowing	2010		2009		2010		2009		2010
Interest expense	$	370	$	—	$	370	$	—	$	370
Discount amortization		3,402		—		3,402		—		3,402

Total	$	3,772	$	—	$	3,772	$	—	$	3,772

The Company estimated the fair value of the 2010 Warrants of approximately $107,000 at September 28, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The assumptions used to value the 2010 Warrants at September 28, 2010 (date of inception) are:


	September 28, 2010
Expected life from grant date — in years		4.49
Expected volatility		123.90	%
Risk free interest rate		1.09	%
Dividend yield		—

Aggregate interest expenses on the $3,000,000 2010 Loan Agreement debt for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Interest expense	$	93,863	$	—	$	146,096	$	—	$	146,096
Discount amortization		362,222		—		556,661		—		556,661

Total	$	456,085	$	—	$	702,757	$	—	$	702,757

At September 30, 2010 the aggregate balance of the 2010 notes payable — affiliate net of discount was $2,508,435 and the aggregate unamortized discount was $491,565. The Company has accrued interest of $146,096 as of September 30, 2010, which is included in the Balance Sheet.

Interest expenses in aggregate on the outstanding $13,000,000 debt for the three and nine months ended September 30, 2010 and 2009, and for the period from inception (June 14, 2004) to September 30, 2010 were included in the statement of operations as follows:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Interest expense	$	547,562	$	282,740	$	1,418,425	$	410,959	$	2,207,466
Discount amortization		362,222		4,750,858		561,035		5,888,809		7,505,384

Total	$	909,784	$	5,033,598	$	1,979,460	$	6,299,768	$	9,712,850

At September 30, 2010 the aggregate balance of the notes payable — affiliate net of discount was $12,508,435 and the aggregate unamortized discount was $491,565. At September 30, 2010, the Company has accrued interest of $2,207,466 which is included in the Balance Sheet.

7. EQUITY

On June 5, 2007, in connection with the Merger, the Certificate of Incorporation of Corautus became the Certificate of Incorporation of the Company, and the Company further amended and restated its Certificate of Incorporation to increase the number of authorized shares of common stock from 100,000,000 shares to 200,000,000 shares. The Certificate of Incorporation of the Company provides that the total number of authorized shares of preferred stock of the Company is 5,000,000 shares. Significant components of the Company’s stock are as follows:

Common Stock — The Company’s authorized common stock was 200,000,000 shares at September 30, 2010 and December 31, 2009. Common stockholders are entitled to dividends if and when declared by the Board of Directors, subject to preferred stockholder dividend rights.

At September 30, 2010 and December 31, 2009, the Company had reserved the following shares of common stock for issuance:


	September 30,		December 31,
	2010		2009
2007 Incentive Award Plan — outstanding and available to grant		3,916,326		3,328,398
Shares of common stock subject to outstanding warrants		101,050,407		83,403,348
Shares of common stock subject to conversion from series C preferred stock		13,986,013		—

Total shares of common stock equivalents		118,952,746		86,731,746

As noted below, the Series C Preferred Stock became convertible on June 13, 2010 and shares are convertible upon delivery of notice of conversion. The number of shares of common stock into which Series C Preferred Stock will be converted is based in part on the “fair market value” (as defined in the Amended and Restated Certificate of Designation of Preferences and Rights of Series C Preferred Stock of the Company) of the Company’s common stock. Accordingly, we have not included any Series C Preferred Stock in the table above for the period ended December 31, 2009.

Preferred Stock — The Company’s authorized Series A Preferred Stock was 5,000,000 shares at September 30, 2010 and December 31, 2009. There were no issued and outstanding shares of Series A Preferred Stock at September 30, 2010 and December 31, 2009.

The Company’s authorized Series C Preferred Stock was 17,000 shares at September 30, 2010 and December 31, 2009. There were 2,000 shares of Series C Preferred Stock issued and outstanding at September 30, 2010 and December 31, 2009. The Series C Preferred Stock is not entitled to receive dividends, has a liquidation preference amount of one thousand dollars ($1,000.00) per share, and has no voting rights, except as to the issuance of additional Series C Preferred Stock. Each share of Series C Preferred Stock became convertible into common stock on June 13, 2010. The Series C Preferred Stock is convertible into common stock in an amount equal to (a) the quotient of (i) the liquidation preference (adjusted for recapitalizations), divided by (ii) one hundred and ten percent (110%) of the per share “fair market value” (as defined in the Amended and Restated Certificate of Designation of Preferences and Rights of Series C Preferred Stock of the Company) of the Company’s common stock multiplied by (b) the number of shares of converted Series C Preferred Stock. As of September 30, 2010, the Series C Preferred Stock is convertible into 13,986,013 shares of the Company’s Common Stock.

2002 Stock Option Plans — In November 2002, the Corautus Board of Directors adopted the 2002 Stock Plan, which was approved by Corautus stockholders in February 2003 and was amended by Corautus stockholder approval in May 2004. Under the 2002 Stock Plan, the Board of Directors or a committee of the Board of Directors has the authority to grant options and rights to purchase common stock to officers, key employees, consultants and certain advisors to the Company. Options granted under the 2002 Stock Plan may be either incentive stock options or non-qualified stock options, as determined by the Board of Directors or a committee. The 2002 Stock Plan, as amended in May 2004, reserved an additional 233,333 shares for issuance under the 2002 Stock Plan plus (a) any shares of common stock which have been reserved but not issued under the 1999 Stock Plan, the 1995 Stock Plan and the 1995 Directors’ Option Plan as of the date of stockholder approval of the 2002 Stock Plan, (b) any shares of common stock returned to the 1999 Stock Plan, the 1995 Stock Plan and the 1995 Directors’ Option Plan as a result of the termination of options or repurchase of shares of common stock issued under those plans and (c) an annual increase on the first day of each year by the lesser of (i) 20,000 shares, (ii) the number of shares equal to two percent of the total outstanding common shares or (iii) a lesser amount determined by the Board of Directors. Generally, options are granted with vesting periods from one to two years and expire ten years from date of grant or three months after termination of employment or service, if sooner. Under the 2002 Stock Plan, the Company had 0 shares available for future grant as of December 31, 2007. In December 2007, the Company incorporated the outstanding options and shares available for grant into the 2007 Incentive Award Plan.

2004 Stock Option Plans — In 2004, the Company’s Board of Directors adopted the 2004 Stock Plan. Under the 2004 Stock Plan, up to 427,479 shares of the Company’s common stock, in the form of both incentive and non-qualified stock options, may be granted to eligible employees, directors, and consultants. In September 2006, the Company’s Board of Directors authorized an increase of 743,442 shares to the 2004 Stock Plan for a total of 1,170,921 authorized shares available for grant from the 2004 Stock Plan. The 2004 Stock Plan provides that grants of incentive stock options will be made at no less than the estimated fair value of the Company’s common stock, as determined by the Board of Directors at the date of grant. If, at the time the Company grants an option, the holder owns more than ten percent of the total combined voting power of all the classes of stock of the Company, the option price shall be at least 110% of the fair value. Vesting and exercise provisions are determined by the Board of Directors at the time of grant. Option vesting ranges from immediate and full vesting to five year vesting (twenty percent of the shares one year after the options’ vesting commencement date and the remainder vesting ratably each month). Options granted under the 2004 Stock Plan have a maximum term of ten years. Options can only be exercised upon vesting, unless the option specifies that the shares can be early exercised. The Company retains the right to repurchase exercised and unvested shares. Under the 2004 Stock Plan, the Company had 0 shares available for future grant as of December 31, 2007. In December of 2007, the Company incorporated the outstanding options and shares available for grant into the 2007 Incentive Award Plan.

2007 Incentive Award Plan — In December 2007, the Company’s Board of Directors adopted the 2007 Incentive Award Plan. The Company combined the 2002 and 2004 Stock Plan into the 2007 Incentive Award Plan, and added 2.0 million shares available for grant in the form of both incentive and non-qualified stock options which may be granted to eligible employees, directors, and consultants. Only employees are entitled to receive grants of incentive stock options. The 2007 Incentive Award Plan provides that grants of incentive stock options will be made at no less than the estimated fair market value of the Company’s common stock on the date of grant. If, at the time the Company grants an option, the holder owns more than ten percent of the total combined voting power of all the classes of stock of the Company, the option price shall be at least 110% of the fair value. Vesting and exercise provisions are determined by the Board of Directors at the time of grant. Option vesting ranges from immediate and full vesting to five year vesting (twenty percent of the shares one year after the options’ vesting commencement date and the remainder vesting ratably each month). Options granted under the 2007 Incentive Award Plan have a maximum term of ten years. Options can only be exercised upon vesting, unless the option specifies that the shares can be early exercised. The Company retains the right to repurchase exercised and unvested shares. Under the 2007 Incentive Award Plan, the Company had 2,068,454 and 587,712 shares available for future grant at September 30, 2010 and December 31, 2009, respectively. Under the 2007 Incentive Award Plan, there is an annual “evergreen” provision which provides that the plan shares are increased by the lesser of 500,000 shares or 3% of total common shares outstanding at the Company’s year-end. Effective January 1, 2010 and 2009, the Company added an additional 500,000 shares to the plan pursuant to this provision of the plan.

A summary of stock option award activity from December 31, 2009 to September 30, 2010 follows:


				Weighted
				Average
	Option Shares			Exercise
Stock Option Awards	Outstanding			Price
2007 Incentive Award Plan Options Outstanding — December 31, 2009		2,740,686		$	6.90
Granted		—			—
Exercised		(43,057	)	$	0.03
Canceled		(849,757	)	$	2.22

2007 Incentive Award Plan Options Outstanding — September 30, 2010		1,847,872		$	9.07

As of September 30, 2010, a total of 229,955 shares of stock options were early exercised before the shares were vested pursuant to provisions of the share grants under the 2007 Incentive Award Plan, of which 7,373 shares remain unvested and subject to repurchase by the Company in the event of employee termination.

The following table summarizes information concerning outstanding and exercisable options outstanding at September 30, 2010:


	Options Outstanding						Options Vested or Expected to Vest						Options Exercisable
			Average		Weighted		Number		Average		Weighted				Weighted
Range of	Number of		Remaining		Average		Exercisable or		Remaining		Average				Average
Exercise	Options		Contractual		Exercise		Expected to		Contractual		Exercise		Number		Exercise
Prices	Outstanding		Life (Years)		Price		Vest		Life (Years)		Price		Exercisable		Price
$0.03		124,897		4.66	$	0.03		124,897		4.66	$	0.03		124,897	$	0.03
$0.14		70,992		6.03	$	0.14		70,981		6.03	$	0.14		70,759	$	0.14
$0.15		40,000		8.21	$	0.15		40,000		8.21	$	0.15		40,000	$	0.15
$2.38		810,000		7.21	$	2.38		798,820		7.21	$	2.38		575,624	$	2.38
$2.90		235,000		7.29	$	2.90		231,263		7.29	$	2.90		156,666	$	2.90
$3.48		219,400		6.84	$	3.48		217,002		6.84	$	3.48		169,119	$	3.48
$5.10		16,725		6.68	$	5.10		16,725		6.68	$	5.10		16,725	$	5.10
$5.55		18,586		6.68	$	5.55		18,586		6.68	$	5.55		18,586	$	5.55
$11.25—$1023.75		312,272		4.15	$	42.36		312,272		4.15	$	42.36		312,272	$	42.36

		1,847,872		6.46	$	9.07		1,830,546		6.46	$	9.13		1,484,648	$	10.64

No options were granted in the nine months ended September 30, 2010. The weighted average fair value of options granted was $0.1478 in the nine months ended September 30, 2009. The total intrinsic value of stock options exercised was $897 and $11,865 in the nine months ended September 30, 2010 and 2009, respectively.

See also Note 8 for stock options with Related Parties.

Restricted Stock — In December 2008, under the provisions of the 2007 Incentive Award Plan, the Company granted employees restricted stock awards for 852,750 shares of the Company’s common stock with a weighted-average fair value of $0.15 per share that vest monthly over a two year period, with acceleration of vesting in the event of a defined partnering transaction related to the development of VIA-2291. The Company recognized $9,902 and $15,958 in stock-based compensation expense in the three months ended September 30, 2010 and 2009, respectively, $34,346 and $47,244 in the nine months ended September 30, 2010 and 2009, respectively, and $100,262 in stock-based compensation expense in the period from June 14, 2004 (date of inception) to September 30, 2010. As the restricted stock awards vest through December 17, 2010, the Company will recognize the related stock-based compensation expense over the vesting period. If all of the outstanding restricted stock awards at September 30, 2010 fully vest, the Company will recognize $8,183 in the period from September 30, 2010 through December 17, 2010. However, no compensation expense will be recognized for stock awards that do not vest. Restricted stock awards are shares of common stock which are forfeited if the employee leaves the Company prior to vesting. These stock awards offer employees the opportunity to earn shares of our stock over time. In contrast, stock options give the employee the right to purchase stock at a set price.

A summary of restricted stock activity from December 31, 2009 to September 30, 2010 follows:


				Weighted
				Average
				Grant Date
Restricted Stock Awards	Shares			Fair Value
Unvested at December 31, 2009		423,875		$	0.15
Granted		—			—
Vested		(233,653	)	$	0.15
Forfeited		(125,534	)	$	0.15

Unvested at September 30, 2010		64,688		$	0.15

Warrants — Affiliates — Pursuant to the terms of the Loan Agreement as more fully discussed in Note 6 in the notes to the unaudited condensed financial statements, the Company issued to the Lenders Warrants to purchase an aggregate of up to 83,333,333 shares of common stock at $0.12 per share, which will become fully exercisable to the extent that the entire $10.0 million is drawn. The number of Warrant Shares is equal to the $10.0 million maximum aggregate principal amount that may be borrowed under the Loan Agreement, divided by the $0.12 per share exercise price of the Warrants, which is fixed on the date of the Loan Agreement. The Warrant Shares vest based on the amount of borrowings under the Notes and based on the passage of time. For each $2.0 million borrowing, 8,333,333 Warrant Shares vested and are exercisable immediately on the date of grant, and 8,333,333 vested and are exercisable 45 days thereafter as the Company had met certain conditions provided for in the Warrants, including that the Company did not complete a $20.0 million financing, as defined in the Loan Agreement, within 45 days of the borrowing. At each subsequent closing, the Warrants will vest with respect to additional shares in proportion to the additional amount borrowed by the Company at the same coverage ratio as the initial closing and at the same vesting schedule, such that one-half of such additional shares will vest on the date of the subsequent closing and the remaining one-half of such shares will vest 45 days after such closing if certain conditions are met as provided for in the Warrants. The Warrant Shares, to the extent they are vested and exercisable, are exercisable at any time until March 12, 2014. Based on the $10.0 million of borrowings, all 83,333,333 Warrant Shares are vested and are exercisable on September 30, 2010.

As described more fully in Note 6 in the notes to the unaudited condensed financial statements, at September 30, 2010, the Company computed the fair value of the 83,333,333 Warrant Shares related to the aggregate $10.0 million of borrowings under the Loan Agreement utilizing the Black-Scholes pricing model. In accordance with the provisions of derivative financial instruments indexed to and potentially settled in a Company’s own stock, accounting for derivative instruments and hedging activities, and accounting for convertible debt and debt issued with stock purchase warrants, the relative fair value assigned to the Warrants of approximately $6.9 million was recorded as permanent equity in additional paid-in capital in the Stockholders’ Equity (Deficit) section of the Balance Sheet.

Pursuant to the terms of the 2010 Loan Agreement as more fully discussed in Note 6 in the notes to the unaudited condensed financial statements, the Company issued to the Lenders the 2010 Warrants to purchase an aggregate of up to 17,647,059 shares of common stock at $0.17 per share, which will become fully exercisable to the extent that the entire $3.0 million is drawn. The number of 2010 Warrant Shares is equal to the $3.0 million maximum aggregate principal amount that may be borrowed under the 2010 Loan Agreement, divided by the $0.17 per share exercise price of the 2010 Warrants, which is fixed on the date of the 2010 Loan Agreement. The 2010 Warrant Shares vest based on the amount of borrowings under the 2010 Notes. The 2010 Warrant Shares, to the extent they are vested and exercisable, are exercisable at any time until March 26, 2015. Based on the $3.0 million of borrowings, 17,647,059 2010 Warrant Shares are vested and are exercisable on September 30, 2010.

As described more fully in Note 6 in the notes to the unaudited condensed financial statements, at September 30, 2010, the Company computed the fair value of the 17,647,059 2010 Warrant Shares related to the $3.0 million of borrowings under the 2010 Loan Agreement utilizing the Black-Scholes pricing model. In accordance with the provisions of derivative financial instruments indexed to and potentially settled in a Company’s own stock, accounting for derivative instruments and hedging activities, and accounting for convertible debt and debt issued with stock purchase warrants, the relative fair value assigned to the 2010 Warrants of approximately $1,048,226 was recorded as permanent equity in additional paid-in capital in the Stockholders’ Equity (Deficit) section of the Balance Sheet.

Warrants — Other — The Company assumed obligations for certain warrants issued by Corautus in connection with previous financings and consulting engagements. As of September 30, 2010, outstanding warrants to purchase approximately 16,429 shares of common stock at exercise prices of $10.05-$67.50 will expire at various dates through February 2013.

In July 2007 the Company granted warrants to its investor relations firm to purchase 18,586 shares of the Company’s common stock at a fixed purchase price of $3.95 per share. The warrants began vesting 30 days after the issuance date and vested over a twelve month contracted service period. The warrant expires July 31, 2017. The warrants were fully expensed in 2008.

In December 2007, the Company granted warrants to a management consultant to purchase 10,000 shares of the Company’s common stock at a fixed purchase price of $2.38 per share. The warrants are expensed as stock-based compensation expense over the vesting period in the statements of operations. The warrants expire December 17, 2012. The warrants were fully expensed in 2007.

In March 2008, the Company granted warrants to a financial communications and investor relations firm to purchase 125,000 shares of the Company’s common stock at a fixed purchase price of $3.00 per share. As of March 1, 2008, 25,000 shares immediately vested, 50,000 will vest immediately upon attaining a Share Price Goal (as defined in the warrant) of $5.00, 25,000 shares will vest immediately upon attaining a Share Price Goal of $7.50, and 25,000 shares will vest immediately upon attaining a Share Price Goal of $10.00. The contractual service period and vesting period within which to attain the performance vesting ended December 31, 2008 and June 30, 2009, respectively. The 100,000 performance based warrants expired unvested on June 30, 2009. The remaining vested 25,000 shares expire August 31, 2013. The warrants were fully expensed in 2008.

8. RELATED PARTIES

As more fully described in Note 6 in the notes to the unaudited condensed financial statements, in March 2009, the Company entered into the Loan Agreement with its principal stockholder and one of its affiliates, as the Lenders, whereby the Lenders agreed to lend to the Company in the aggregate up to $10.0 million. In March 2010, the Company entered into the 2010 Loan Agreement with its principal stockholder and one of its affiliates, as the Lenders, whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million.

The Company terminated its licensing agreement with Leland Stanford Junior University (“Stanford”) effective February 2009. The Company’s founding Chief Scientific Officer (“Founder”) was an affiliate of Stanford and is a stockholder of the Company. The Company paid consulting fees to the Founder of $0 and $3,500 in the three months ended September 30, 2010 and 2009, respectively, and $0 and $6,500 in the nine months ended September 30, 2010 and 2009, respectively. While the Company did not issue any stock options in three and nine months ended September 30, 2010, the Company did issue 10,000 and 42,300 stock options to the Founder in the years ended December 31, 2008 and 2007, respectively. Using the Black-Scholes pricing model, the Company valued the 10,000 option shares granted in 2008 at a fair value of $0.0973 per share or $973 using an expected life of 5.0 years, a 1.5% risk free interest rate, an 81% volatility rate, and the grant date fair market value of $0.15 per share. The options were fully vested at the grant date, December 17, 2008, and expire December 17, 2018. The warrants were fully expensed in 2008. Using the Black-Scholes pricing model, the Company valued the 42,300 option shares granted in 2007 as of September 30, 2010 at fair values ranging from $0.052 per share to $0.0587 per share or an aggregate of $2,334 using an expected life ranging from 6.84 to 7.21 years, a risk free interest rate ranging from 1.85% to 1.95%, a volatility rate ranging from 114% — 115%, and the fair market value stock price at September 30, 2010 of $0.10 per share. The options become fully vested in the period from August 2, 2011 through December 17, 2011 and expire in the period from August 2, 2017 through December 17, 2017. The Company expensed the options as stock-based compensation expense over the vesting period in the statements of operations, resulting in expense of ($1,483) and ($571) in the three months ended September 30, 2010 and 2009, respectively, and $140 and $4,407 in the nine months ended September 30, 2010 and 2009, respectively. The Company revalues non-employee options quarterly based on the closing stock price of the Company’s common stock on the last day of the quarter, and does a final valuation on the last option vesting date based on the closing stock price of the Company’s common stock on the last vesting date.

During 2006, the Company used the services of an employee of the Company’s primary investor to act as Chief Financial Officer (“CFO”) and granted 18,586 stock option shares to the acting CFO as compensation for services rendered. The options were fully vested on March 8, 2008, and expire September 8, 2016. The options were fully expensed in 2008.

From the Company’s inception through February 4, 2010, the Company’s Chief Development Officer (“Officer”) was also an employee of the Company’s primary investor. The Company paid the Officer compensation of $0 and $15,000 in the three months ended September 30, 2010 and 2009, respectively and $44,384 and $45,000 in the nine months ended September 30, 2010 and 2009, respectively. The Company did not grant any options to the Officer in the three or nine months ended September 30, 2010, nor in the fiscal years ended December 31, 2009 and 2008. However, the Company granted 26,921, 35,685, and 15,611 shares of stock options to the Officer in 2007, 2006, and 2005, respectively. The options granted in 2005 became fully vested in the period from June 1, 2005 through June 1, 2006 and expire on June 29, 2015. The Company expensed the options as stock-based compensation expense over the vesting period in the statements of operations resulting in no expense in the three and nine months ended September 30, 2010 and 2009, respectively, as the options were fully vested in 2006. The options granted in 2006 became fully vested in the period from November 29, 2006 through November 29, 2007 and expire on November 29, 2016. The Company expensed the options as stock-based compensation expense over the vesting period in the statements of operations resulting in no expense in the three and nine months ended September 30, 2010 and 2009, respectively, as the options were fully vested in 2007. Using the Black-Scholes pricing model, the Company valued the 2007 options at fair values ranging from $2.43 to $5.78 per share or an aggregate fair value of $95,284 using an expected life of from 5.27 to 6.02 years, a 4.20% to 4.639% risk-free interest rate, a 67% to 77% volatility rate and the fair market value stock prices of the Company’s common stock on the grant dates ranging from $3.48 to $5.89 per share. The options become fully vested in the period from November 29, 2007 through August 2, 2011 and expire in the period from January 23, 2017 through August 2, 2017. The Company expensed the options as stock-based compensation expense over the vesting period in the statements of operations resulting in expense of $0 and $2,754 in the three months ended September 30, 2010 and 2009, respectively, and $1,135 and $8,380 in the nine months ended September 30, 2010 and 2009, respectively.

Effective July 1, 2009, the Company sub-leased property in the Company’s office facilities in its headquarters in San Francisco, California on a month-to-month basis to an affiliate of the Company’s primary investor for $279 per month. Effective May 17, 2010, the Company sub-leased additional space within the same premises to the affiliate and the lease was amended to increase the rent to $907 per month through June 30, 2010 and $930 from July 1, 2010 through June 30, 2011. The Company received rent from the tenant in the amount of $2,790 and $5,396 in the three and nine months ended September 30, 2010, which were included as a reduction to rent expenses in the statement of operations for the three and nine months ended September 30, 2010.

Effective September 15, 2010, the Company sub-leased property in the Company’s office facilities in its headquarters in San Francisco, California for one year to an additional affiliate of the Company’s primary investor for $5,241 per month. The Company received rent from the tenant in the amount of $2,795 in the three and nine months ended September 30, 2010, which were included as a reduction to rent expenses in the statement of operations for the three and nine months ended September 30, 2010.

9. COMMITMENTS

Operating Leases — The Company leases its office facilities for various terms under long-term, non-cancelable operating lease agreements. The leases expire at various dates through 2013. The Company recognizes rent expense on a straight-line basis over the lease period, and accrues for rent expense incurred but not paid. As more fully discussed in Note 13 in the notes to the unaudited condensed financial statements, on June 1, 2010, the Company abandoned its office space leased in Princeton, New Jersey. As a result, the Company recorded rent expense of $165,904, which reflects the fair value of net continuing lease costs for which the Company will no longer receive any economic benefit. As of September 30, 2010, the Company increased the amount of the Princeton lease abandonment costs and related liability from $165,904 to $173,712 due to the passage of time and $7,808, the amount of the increase, is included in rent expense in the three and nine months ended September 30, 2010.

Rent expense, including lease abandonment costs, for the three and nine months ended September 30, 2010 and 2009, respectively, and for the period from June 14, 2004 (date of inception) to September 30, 2010, was included in the unaudited statements of operations as follows:


									Period from
									June 14, 2004
	Three months ended				Nine months ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010

Research and development expense	$	26,967	$	30,496	$	240,797	$	91,489	$	758,521
General and administrative expense		51,552		77,724		173,491		234,846		1,090,851

Total	$	78,519	$	108,220	$	414,288	$	326,335	$	1,849,372

Future minimum lease payments under non-cancelable operating leases, including lease commitments entered into subsequent to September 30, 2010 are as follows:


	Amount
October through December 2010	$	110,251
2011		445,777
2012		362,468
2013		139,742

Total minimum lease payments	$	1,058,238

Operating lease obligations reflect contractual commitments for the Company’s office facilities for its headquarters in San Francisco, California and its clinical operations location in Princeton, New Jersey. In January 2008, the Company expanded and extended both leases to ensure adequate facilities for current activities. The San Francisco headquarter lease has been extended through May 2013 and has been expanded to a total of 8,180 square feet. The lease amendment resulted in an increase of approximately $1.5 million in future rent. The lease amendment to the Princeton, New Jersey facility extends the lease through April 2, 2012 and has been expanded to a total of 4,979 square feet. The lease amendment resulted in an increase of approximately $330,000 in future rent. As more fully described in Note 13 to the unaudited condensed financial statements, on June 1, 2010, the Company abandoned its office space leased in Princeton, New Jersey.

10. INCOME TAXES

There is no income tax provision (benefit) for federal or state income taxes as the Company has incurred operating losses since inception. Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Utilization of the net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the ownership change limitations provided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The Company may have experienced a change of control which could result in a substantial reduction to the previously reported net operating losses at December 31, 2008; however, the Company has not performed a change of control study and therefore has not determined if such change has taken place and if such a change has occurred the related reduction to the net operating loss carryforwards. As of September 30, 2010, the net operating loss carryforwards continue to be fully reserved and any reduction in such amounts as a result of this study would also reduce the related valuation allowances resulting in no net impact to the financial results of the Company.

As of September 30, 2010, there have been no material changes to the Company’s uncertain tax positions disclosures as provided in Note 10 to the Financial Statements in the Company’s Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2009.

11. EMPLOYEE BENEFIT PLANS

The Company established a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code. Employees of the Company are eligible to participate in the Company’s 401(k) plan. Employees participating in the plan are permitted to contribute up to the maximum amount allowable by law. Company contributions are discretionary and only safe-harbor contributions were made in 2010 and 2009. The Company made safe-harbor contributions to certain plan participants in the aggregate amount of $58,869 and $35,355 in the nine months ended September 30, 2010 and 2009, respectively, and $208,523 for the period from June 14, 2004 (date of inception) to September 30, 2010.

12. RESTRUCTURING COSTS

On March 26, 2010 the Company’s Board of Directors approved a restructuring of the Company to reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce decreased total employees by approximately 63% to a total of six employees and increased the focus of future operating expense on research and development activities. This decision resulted in recording a charge to operating expenses of approximately $0 and $106,959 in the three and nine months ended September 30, 2010. This charge includes cash costs of restructuring, principally related to severance and related medical costs for terminated employees, of approximately $411,000, and non-cash charges of $227,000 primarily related to costs associated with excess facilities at the Company’s corporate headquarters, offset by approximately $531,000 related to the reversal of previously recorded incentive award accruals recorded as of December 31, 2009. In addition to this restructuring charge, the Company paid terminated employees $178,000 for amounts accrued for unused vacation and sick pay. The total cash cost of the restructuring costs, and amounts for accrued COBRA, vacation and sick pay, was $589,000, of which $635 has not been paid and is included in accrued restructuring costs on the unaudited condensed balance sheet as of September 30, 2010. As of September 30, 2010, the Company had accrued non-cash restructuring costs of $133,222 which consisted of excess facility lease costs, of which $122,650 is a current obligation and $11,207 is a long-term obligation on the unaudited condensed balance sheet.

13. LEASE ABANDONMENT COSTS

On June 1, 2010, the Company abandoned its office space leased in Princeton, New Jersey. Previously, the Company had leased approximately 4,979 square feet in Princeton, New Jersey, where its Senior Vice President, Research and Development, was located. This lease was to have expired on April 2, 2012. In addition, the Company had been subleasing a portion of the space. The sublease was to have expired on January 15, 2012. As a result, the Company recorded a liability and a research and development operating expense of $165,904, which reflects the fair value of net continuing lease costs for which the Company will no longer receive any economic benefit. On September 30, 2010, the balance of the liability was $173,712 which reflects increases of $7,808 of accretive expense due to the passage of time. The current portion of the liability, $120,949, was included in accrued expenses and other liabilities on the balance sheet, and the long term portion of the liability, $52,763, was included in long-term accrued expenses and other liabilities on the balance sheet.

14. SUBSEQUENT EVENTS

Bridge Note

On October 29, 2010, the Company executed a secured promissory note (the “Bridge Note”) in favor of Bay City Capital Fund IV, L.P., a Delaware limited partnership in the principal sum of $200,000 for general corporate purposes. By the terms of the Bridge Note, upon execution of the 2010 Loan Amendment (as defined below) the unpaid principal amount and accrued and unpaid interest under the Bridge Note automatically converted into obligations of the Company under the 2010 Loan Amendment as advances under the 2010 Amended and Restated Notes (as defined below).

2010 Loan Amendment

On November 15, 2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010 Loan Amendment”) to enable the Company to borrow up to an additional aggregate principal amount of $3,000,000, pursuant to the terms of amended and restated promissory notes (collectively, the “2010 Amended and Restated Notes”) delivered under the 2010 Loan Amendment. Subject to the Lenders’ approval, the Company may borrow in the aggregate up to an additional $2,800,000 at subsequent closings pursuant to the terms of the 2010 Loan Amendment and 2010 Amended and Restated Notes.

The 2010 Amended and Restated Notes are secured by a lien on all of the assets of the Company. Amounts borrowed under the 2010 Amended and Restated Notes accrue interest at the rate of fifteen percent (15%) per annum, which increases to eighteen percent (18%) per annum following an event of default. Unless earlier paid in accordance with the terms of the 2010 Amended and Restated Notes, all unpaid principal and accrued interest shall become fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity.

Pursuant to the 2010 Loan Amendment, the Company issued to the Lenders additional warrants (the “2010 Additional Warrants”) to purchase an aggregate of 42,253,521 shares (the “2010 Additional Warrant Shares”) of common stock at $0.071 per share. The number of 2010 Additional Warrant Shares is equal to the $3,000,000 maximum aggregate principal amount that may be borrowed under the 2010 Loan Amendment, divided by the $0.071 per share exercise price of the 2010 Additional Warrants. The 2010 Additional Warrant Shares vest based on the amount of borrowings under the 2010 Amended and Restated Notes. Based on the $201,397 initial borrowing, which amount includes accrued and unpaid interest under the Bridge Note, 2,836,577 of the 2010 Warrant Shares vested immediately on the date of grant. At each subsequent closing, the 2010 Additional Warrants will vest with respect to the additional amount borrowed by the Company. The 2010 Additional Warrant Shares, to the extent they are vested and exercisable, are exercisable at any time until November 15, 2015.

Qualifying Therapeutic Discovery Project

In November 2010, the Company was notified by the Internal Revenue Service that it has been awarded $244,479 in grants under the Qualifying Therapeutic Discovery Project (“QTDP”) program established under Section 48D of the Internal Revenue Code as part of the Patient Protection and Affordable Care Act of 2010. The Company submitted the grant application in July 2010 for qualified 2009 and 2010 investments in the VIA-2291 program. The grant is not taxable for federal income tax purposes. The Company expects to receive the full amount of the grant before the end of 2010.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the Company’s financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The Company’s actual results may differ materially from those anticipated in these forward-looking statements as a result of risks and uncertainties that exist in our operations, development efforts and business environment, including but not limited to those set forth under the Section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009 and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the Securities and Exchange Commission. All forward-looking statements included in this report are based on information available to us as of the date hereof, and, unless required by law, we assume no obligation to update any such forward-looking statement.

Management Overview

VIA Pharmaceuticals, Inc., incorporated in Delaware in June 2004 and headquartered in San Francisco, California, is a development stage biotechnology company focused on the development of compounds for the treatment of cardiovascular and metabolic disease. The Company is building a pipeline of small molecule drugs that target the underlying causes of cardiovascular and metabolic disease, including atherosclerotic plaque inflammation, high cholesterol, high triglycerides and insulin sensitization/diabetes.

During 2005, the Company in-licensed a small molecule compound, VIA-2291, which targets an unmet medical need of reducing atherosclerotic plaque inflammation, an underlying cause of atherosclerosis and its complications, including heart attack and stroke. Atherosclerosis, depending on its severity and the location of the artery it affects, may result in major adverse cardiovascular events (“MACE”), such as heart attack and stroke. During 2006, the Company initiated two Phase 2 clinical trials of VIA-2291 in patients undergoing a carotid endarterectomy (“CEA”), and in patients at risk for acute coronary syndrome (“ACS”). During 2007, the Company initiated a third Phase 2 clinical trial where ACS patients undergo Positron Emission Tomography with flurodeoxyglucose tracer (“FDG-PET”), an experimental non-invasive imaging technique to measure the effect of treatment of VIA-2291 on atherosclerotic plaque inflammation.

On November 9, 2008, the Company announced the results of its ACS and CEA Phase 2 clinical trials of its lead product candidate, VIA-2291, at the American Heart Association (“AHA”) 2008 Scientific Sessions conference in New Orleans, Louisiana (the “AHA Conference”). The Company completed enrollment of 52 patients in the FDG-PET Phase 2 clinical trial in May 2009.

On May 1, 2009, the Company announced results of a sub-study of the ACS Phase 2 clinical trial of VIA-2291 at the AHA Arteriosclerosis, Thrombosis and Vascular Biology Annual Conference 2009 in Washington D.C. The Company found that in 64 slice multi-detector computed tomography (“MDCT”) scans of patients with low density plaques demonstrated statistically significant, lower plaque volumes in combined VIA-2291 treated groups compared to placebo. A publication describing these results was published on-line February 27, 2010 by Circulation, Cardiovascular Imaging (Jean-Claude Tardif, Philippe L. L’Allier, Reda Ibrahim, Jean C. Grégoire, Anna Nozza, Mariève Cossette, Simon Kouz, Marc-André Lavoie, Janie Paquin, Tilmann M. Brotz, Rebecca Taub, and Josephine Pressacco Treatment with 5-Lipoxygenase Inhibitor VIA-2291 (Atreleuton) in Patients with Recent Acute Coronary Syndrome Circ Cardiovasc Imaging first published on February 27, 2010 as doi:10.1161/CIRCIMAGING.110.937169, and the final publication was in the May 2010 issue Circ Cardiovasc Imaging. 2010;3:298-307. Together the results of the CEA and ACS-MDCT studies suggest that VIA-2291 may reduce the coronary plaques that lead to heart attacks and stroke.

On May 14, 2009, the Company announced it had completed patient enrollment in the FDG-PET Phase 2 clinical trial. On December 3, 2009, the Company announced the last patient clinical visit. In the Company’s FDG-PET study, VIA-2291 was well-tolerated and demonstrated highly significant leukotriene inhibition similar to the other Phase 2 studies. As FDG-PET is an experimental technique in vascular disease, currently not validated for image analysis end points, it is not possible to interpret the imaging analyses of the study at this time, nor was it the Company’s intention to use the imaging results of the FDG-PET study in determining the future clinical plans for VIA-2291.

In December 2008, the Company expanded its drug development pipeline with preclinical compounds that target additional underlying causes of cardiovascular and metabolic disease, including high cholesterol, high triglycerides and insulin sensitization/diabetes.

The Company’s clinical development strategy integrates several technologies to provide clinical proof-of-concept as early as possible in the clinical development process. These technologies include the measurement of biomarkers (specific biochemicals in the body with a particular molecular feature that makes them useful for measuring the progress of a disease or the effects of treatment), medical imaging of the coronary and carotid vessel walls to evaluate the plaque characteristics, and atherosclerotic plaque bioassays (measurements of indicators of atherosclerotic plaque inflammation believed to promote MACE). Once the Company has established proof-of-concept, the Company plans to consider business collaborations with larger biotechnology or pharmaceutical companies for the late-stage clinical development and commercialization of its compounds.

Background

In March 2005, the Company entered into an exclusive license agreement (the “Stanford License”) with Leland Stanford Junior University (“Stanford”) to use a comprehensive gene expression database and analysis tool to identify novel, and prioritize known, molecular targets for the treatment of vascular inflammation and to study the impact of candidate therapeutic interventions on the molecular mechanisms underlying atherosclerosis (the “Stanford Platform”). One of the Company’s founders, Thomas Quertermous, M.D., developed the Stanford Platform at Stanford during the course of a four-year, $30.0 million research study (the “Stanford Study”). The Stanford Study initially utilized human tissue samples made available from the Stanford heart transplant program to characterize human plaque at the level of gene expression and identify the inflammatory genes and pathways involved in the development of atherosclerosis and associated complications in humans. To develop the Stanford Platform, the Stanford Study performed similar experiments on vascular tissue samples from mice prone to developing atherosclerosis and identified genes and pathways associated with the development of atherosclerosis that mice and humans have in common (the “Overlap Genes”). The Stanford Platform allowed us to analyze the expression of the Overlap Genes following the administration of candidate drugs to atherosclerotic-prone mice, and thus provided a useful tool for studying the effects of therapeutic intervention in the development of cardiovascular disease. This platform also gave us useful insight into the molecular pathways that we believe to be most relevant to the cardiovascular disease process. In January 2009, the Company advised Stanford that it was terminating its exclusive license agreement effective February 14, 2009.

VIA-2291

In 2005, the Company identified 5-Lipoxygenase (“5-LO”) as a key target of interest for treating atherosclerosis. 5-LO is a key enzyme in the biosynthesis of leukotrienes, which are important mediators of inflammation and are involved in the development and progression of atherosclerosis. In addition, cardiovascular-related literature has also identified 5-LO as a key target of interest for treating atherosclerosis and preventing heart attack and stroke. Following such identification, the Company identified a number of late-stage 5-LO inhibitors that had been in clinical trials conducted by large biotechnology and pharmaceutical companies primarily for non-cardiovascular indications, including ABT-761, a compound developed by Abbott Laboratories (“Abbott”) for use in treatment of asthma. Abbott abandoned its ABT-761 clinical program in 1996 after the U.S. Food and Drug Administration (“FDA”) approved a similar Abbott compound for use in asthma patients. Abbott made no further developments to ABT-761 from 1996 to 2005. In August 2005, the Company entered into an exclusive, worldwide license agreement (the “Abbott License”) with Abbott to develop and commercialize ABT-761 for any indication. The Company subsequently renamed the compound VIA-2291.

VIA-2291 is a potent, selective and reversible inhibitor of 5-LO that the Company is developing as a once-daily, oral drug to treat inflammation in the blood vessel wall. In March 2006, the Company filed an Investigational New Drug (“IND”) application with the FDA outlining the Company’s Phase 2 clinical program, which initially consisted of two trials for VIA-2291. Each of these clinical trials was initiated during 2006 to study the safety and efficacy of VIA-2291 in patients with existing cardiovascular disease. Using biomarkers of inflammation, medical imaging techniques and bioassays of plaque, the Company is evaluating and determining VIA-2291’s ability to reduce vascular inflammation in atherosclerotic plaque. The Company enrolled 50 patients in a Phase 2 study of VIA-2291 at clinical sites in Italy for patients who had a CEA procedure. In addition, the Company enrolled 191 patients in a second Phase 2 study at 15 clinical sites in the United States and Canada for patients with ACS who experienced a recent heart attack.

In October 2007, the Company’s Data Safety Monitoring Board (“DSMB”) performed a review of both safety and efficacy data related to the Company’s CEA and ACS clinical trials to determine the progress in the clinical program and the patient safety of VIA-2291. Based on this review, the DSMB observed a continued acceptable safety profile and evidence of a consistent pharmacological effect of VIA-2291 as would be predicted given its proposed mechanism of action. The DSMB recommended the studies continue as planned.

Following the results of the DSMB review, the Company began enrolling patients in a third Phase 2 clinical trial that utilized an experimental non-invasive imaging technique, Positron Emission Tomography with FDG-PET to measure the impact of VIA-2291 on reducing FDG uptake in vascular sites in treated patients. The Company enrolled 52 patients following an acute coronary syndrome event, such as heart attack or stroke, into the 24 week, randomized, double blind, placebo-controlled study, which was run at five clinical sites in the United States and Canada. Endpoints in the study included FDG uptake into vascular sites as measured by serial FDG-PET scans.

On November 9, 2008, the Company announced the results of its ACS and CEA Phase 2 clinical trials at the AHA conference in New Orleans, Louisiana. In both the ACS trial and the CEA trial, VIA-2291 effectively inhibited production of leukotrienes. The ACS trial met its primary endpoint by demonstrating a significant change from baseline in Leukotriene B4 (“LTB4”) production at all doses tested (p<0.001). The CEA trial missed its primary endpoint of percentage reduction in macrophage inflammatory cells in plaque tissue, but met key secondary endpoints including reduction of high sensitivity C-reactive protein (“hs-CRP”) (p<0.01). VIA-2291 was generally well-tolerated in both trials.

In May 2009, the Company announced results of a sub-study of the ACS Phase 2 clinical trial of VIA-2291 at the AHA Arteriosclerosis, Thrombosis and Vascular Biology Annual Conference 2009 in Washington D.C. The purpose of the sub-study was to evaluate the effect of VIA-2291 25mg, 50mg and 100mg doses relative to placebo from baseline in patients dosed with VIA-2291 for 24 weeks. After completion of the initial 12 weeks of dosing, more than 85 of the 191 total ACS patients continued on to receive an additional 12 weeks of dosing on top of current standard medical care and received a 64 slice MDCT scan at baseline and 24 weeks. Evaluable scans from patients treated with placebo showed significantly more evidence of new plaque lesions from VIA-2291 treated patients. MDCT scans of patients with low density plaques demonstrated statistically significant, lower plaque volumes in combined VIA-2291 treated groups compared to placebo. Together these results suggest that VIA-2291 may reduce the atherosclerotic plaques that lead to heart attacks and stroke.

In June 2009, the Company announced that it held an end of Phase 2a meeting with the FDA. The Company reviewed safety and biologic activity data from the VIA-2291 CEA and ACS trials with the FDA and received guidance, including suggestions from the FDA on the Company’s potential Phase 3 trial design.

The Company completed enrollment and last patient clinical visit in the FDG-PET Phase 2 clinical trial. In the Company’s FDG-PET study, VIA-2291 was well-tolerated and demonstrated highly significant leukotriene inhibition similar to the other Phase 2 studies. As FDG-PET is an experimental technique in vascular disease, currently not validated for image analysis end points, it is not possible to interpret the imaging analyses of the study at this time, nor was it the Company’s intention to use the imaging results of the FDG-PET study in determining the future clinical plans for VIA-2291.

A publication describing the results of the ACS/MDCT study was published on-line February 27, 2010 by Circulation, Cardiovascular Imaging (Jean-Claude Tardif, Philippe L. L’Allier, Reda Ibrahim, Jean C. Grégoire, Anna Nozza, Mariève Cossette, Simon Kouz, Marc-André Lavoie, Janie Paquin, Tilmann M. Brotz, Rebecca Taub, and Josephine Pressacco Treatment with 5-Lipoxygenase Inhibitor VIA-2291 (Atreleuton) in Patients with Recent Acute Coronary Syndrome Circ Cardiovasc Imaging first published on February 27, 2010 as doi:10.1161/CIRCIMAGING.110.937169), and the final publication was in the May 2010 issue Circ Cardiovasc Imaging. 2010;3:298-307. Together the results of the CEA and ACS-MDCT studies suggest that VIA-2291 may reduce the coronary plaques that lead to heart attacks and stroke.

The Company plans to consider business collaborations with large biotechnology or pharmaceutical companies to conduct additional clinical trials required for regulatory approval.

Roche Licensed Assets

In December 2008, the Company entered into two exclusive, worldwide Research, Development and Commercialization agreements with Hoffmann LaRoche Inc. and Hoffmann LaRoche Ltd. (collectively, “Roche”) for two sets of compounds that we believe represent novel potential drugs for treatment of cardiovascular and metabolic disease. The first license is for Roche’s THR beta agonist, a clinically ready candidate for the control of cholesterol, triglyceride levels and potential in insulin sensitization/diabetes. The second license is for multiple compounds from Roche’s preclinical DGAT1 metabolic disorders program. Under the terms of the agreements, the Company assumes control of all development and commercialization of the compounds, and will own exclusive worldwide rights for all potential indications.

Roche will receive up to $22.8 million in upfront and milestone payments, the majority of which is tied to the achievement of product development and regulatory milestones. In addition, once products containing the compounds are approved for marketing, Roche will receive single-digit royalties based on net sales, subject to certain reductions.

The Company must use commercially reasonable efforts to conduct clinical and commercial development programs for products containing the compounds. Under the license for the THR beta agonist, if the Company has not completed a Phase 1 clinical trial with respect to a lead product containing this compound within three years, then either the Company must commit to developing another of Roche’s compounds or Roche may terminate the license for that compound.

If the Company determines that it is not reasonable to continue clinical trials or other development of the compounds, it may elect to cease further development and Roche may terminate the licenses. If the Company determines not to pursue the development or commercialization of the compounds in the United States, Japan, the United Kingdom, Germany, France, Spain, or Italy, Roche may terminate the licenses for such territories.

The Roche license will expire, unless earlier terminated pursuant to other provisions of the licenses, on the last to occur of (i) the expiration of the last valid claim of a licensed patent covering the manufacture, use or sale of products containing the compounds, or (ii) ten years after the first sale of a product containing the compounds.

The THR beta agonist is an orally administered, small-molecule beta-selective thyroid hormone receptor agonist designed to specifically target receptors in the liver involved in metabolism and cholesterol regulation, and avoid side effects associated with thyroid hormone receptor activation outside the liver. Roche has completed preclinical studies of the THR beta agonist. These studies demonstrated a rapid reduction of non-HDL cholesterol and the drug was shown to be synergistic with statins in animal studies. The Company will investigate the possibility of using the THR beta agonist in combination with statins for the treatment of hypercholesterolemia. In addition, in animal studies insulin sensitization and glucose lowering were observed making this compound a possible treatment of patients with type 2 diabetes in combination with other diabetes medications.

DGAT1 is an enzyme that catalyzes triglyceride synthesis and fat storage. Triglycerides are the principal component of fat, which is the major repository for storage of metabolic energy in the body. Overweight and obese individuals have significantly greater triglyceride levels, making them more prone to diabetes and its associated metabolic complications. DGAT1 inhibitors are believed to be an innovative class of compounds that modify lipid metabolism. In studies of obese animals, DGAT1 inhibitors have been shown to induce weight loss and improve insulin sensitization, glucose tolerance and lipid levels. These observations suggest DGAT1 inhibitors may have the potential to treat obesity, diabetes and dyslipidemia. The Company intends to identify potential clinical candidates from the compounds in this program and determine which compounds may be moved into further preclinical development.

Going Concern

To further expand the Company’s product candidate pipeline, the Company continues to engage in discussions regarding the purchase or license of additional preclinical or clinical compounds that the Company believes may be of interest in treating cardiovascular and metabolic disease.

Through September 30, 2010, the Company has been primarily engaged in developing initial procedures and product technology, screening and in-licensing of target compounds, clinical trial activity, and raising capital. The Company is organized and operates as one operating segment.

The Company has incurred losses since inception as it has devoted substantially all of its resources to research and development, including early-stage clinical trials. As of September 30, 2010, the Company’s accumulated deficit was approximately $88.7 million. The Company expects to incur substantial and increasing losses for the next several years as it continues to expend substantial resources seeking to successfully research, develop, manufacture, obtain regulatory approval for, and commercialize its product candidates.

On March 26, 2010, the Company’s Board of Directors approved a restructuring of the Company to reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce decreased total employees by approximately 63% to a total of six employees and increased the focus of future operating expense or research and development activities.

The Company has not generated any revenues to date, and does not expect to generate any revenues from licensing, achievement of milestones or product sales until it is able to commercialize product candidates or execute a collaboration agreement. The Company cannot estimate the actual amounts necessary to successfully complete the successful development and commercialization of its product candidates or whether, or when, it may achieve profitability.

Until the Company can establish profitable operations to finance its cash requirements, the Company’s ability to meet its obligations in the ordinary course of business is dependent upon its ability to raise substantial additional capital through public or private equity or debt financings, the establishment of credit or other funding facilities, collaborative or other strategic arrangements with corporate sources or other sources of financing, the availability of which cannot be assured. On June 5, 2007, the Company raised $11.1 million through a merger (the “Merger”) with Corautus Genetics, Inc. (“Corautus”) to cover existing obligations and provide operating cash flows. In July 2007, the Company entered into a securities purchase agreement that provided for issuance of 10,288,065 shares of common stock for approximately $25.0 million in gross proceeds.

As more fully described in Note 6 in the notes to the unaudited condensed financial statements, in March 2009, the Company entered into a Note and Warrant Purchase Agreement (the “Loan Agreement”) with its principal stockholder and one of its affiliates (the “Lenders”) whereby the Lenders agreed to lend to the Company in the aggregate up to $10.0 million, pursuant to the terms of promissory notes (collectively, the “Notes”) delivered under the Loan Agreement. The Company secured the loan with all of its assets, including the Company’s intellectual property. On March 12, 2009, the Company borrowed the initial $2.0 million available under the Loan Agreement. Subsequently, the Company made $2.0 million borrowings under the Loan Agreement on May 19, 2009, June 29, 2009, August 14, 2009, and the Company borrowed the final $2.0 million available under the Loan Agreement on September 11, 2009. According to the terms of the original Loan Agreement, the debt was due to the Lenders on September 14, 2009. The parties agreed to extend the repayment terms and the Lenders agreed to modify the Loan Agreement to further extend the repayment terms to April 1, 2010. The Lenders did not modify the interest rate or offer any concessions in the amended Loan Agreement. The Company failed to repay the debt and all related interest to the Lenders due on April 1, 2010.

In March 2010, the Company entered into the 2010 Loan Agreement whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million, pursuant to the terms of promissory notes (collectively, the “2010 Notes”) delivered under the 2010 Loan Agreement. On March 29, 2010, the Company borrowed an initial amount of $1,250,000. Subsequently, the Company made $100,000, $200,000, $300,000, $100,000, $750,000 and $300,000 borrowings under the Loan Agreement on May 26, 2010, June 4, 2010, June 29, 2010, July 15, 2010, July 27, 2010 and September 28, 2010, respectively. As more fully described in Note 14 in the notes to the unaudited condensed financial statements, on November 15, 2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010 Loan Amendment”) to enable the Company to borrow up to an additional aggregate principal amount of $3,000,000, pursuant to the terms of amended and restated promissory notes (collectively, the “2010 Amended and Restated Notes”) delivered under the 2010 Loan Amendment. According to the terms of the 2010 Loan Amendment, the debt is due to the Lenders on December 31, 2010. The 2010 Amended and Restated Notes are secured by a lien on all of the assets of the Company. Amounts borrowed under the 2010 Amended and Restated Notes accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event of default. Unless earlier paid in accordance with the terms of the 2010 Amended and Restated Notes, all unpaid principal and accrued interest shall become fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity.

The Company cannot guarantee to its stockholders that the Company’s efforts to raise additional private or public funding will be successful. If adequate funds are not available in the near term, the Company may be required to:

•

terminate or delay clinical trials or studies of VIA-2291;

•

terminate or delay the preclinical development of one or more of its other preclinical candidates;

•

curtail its licensing activities that are designed to identify molecular targets and small molecules for treating cardiovascular disease;

•

relinquish rights to product candidates, development programs, or discovery development programs that it may otherwise seek to develop or commercialize on its own; and

•

delay, reduce the scope of, or eliminate one or more of its research and development programs, or ultimately cease operations.

All outstanding principal and accrued interest under the Loan Agreement was due on April 1, 2010. The company was not able to repay the loan on April 1, 2010. As such, the Lenders may terminate the loan, demand immediate payment of all amounts borrowed by the Company and take possession of all collateral securing the loan, which consists of all of our assets, including our intellectual property rights. All outstanding principal and accrued interest under the 2010 Loan Agreement is due on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity.

Revenue

The Company has not generated any revenue to date and does not expect to generate any revenue from licensing, achievement of milestones or product sales until the Company is able to commercialize product candidates or execute a collaboration arrangement.

Research and Development Expenses

The Company is focused on the development of compounds for the treatment of cardiovascular and metabolic disease. The Company completed the ACS and CEA Phase 2 clinical trials for VIA-2291, and has completed enrollment and the last patient visit in the ongoing FDG-PET Phase 2 clinical trial for VIA-2291. In November 2008, the Company announced the results of its ACS and CEA Phase 2 clinical trials at the AHA Conference, and the Company reported results from an MDCT sub-study of its ACS Phase 2 clinical trial in May of 2009. In June 2009, the Company announced that it held an end of Phase 2a meeting with the FDA. The Company reviewed safety and biologic activity data from the VIA-2291 CEA and ACS trials with the FDA and received guidance, including suggestions from the FDA on the Company’s potential Phase 3 trial design. In December 2009, the Company announced its last patient visit and as FDG-PET is an experimental technique in vascular disease, currently not validated for image analysis end points, it is not possible to interpret the imaging analysis of the study at this time, nor was it the Company’s intention to use the imaging results of the FDG-PET study in determining the future clinical plans for VIA-2291. In addition to the VIA-2291 compound, the Company’s pipeline consists of the THR beta agonist, a clinically ready candidate for the control of cholesterol, triglyceride levels and potential in insulin sensitization/diabetes, and DGAT1, a set of preclinical compounds for the treatment of metabolic disorders and dyslipidemia.

Research and development (“R&D”) expense represented 38% and 43% of total operating expense for the three months ended September 30, 2010 and 2009, respectively, 36% and 47% for the nine months ended September 30, 2010 and 2009, respectively, and 54% for the period from June 14, 2004 (date of inception) to September 30, 2010. The Company expenses research and development costs as incurred. Research and development expenses are those incurred in identifying, in-licensing, researching, developing and testing product candidates. These expenses primarily consist of the following:

•

compensation of personnel associated with research and development activities, including consultants, investigators, and contract research organizations (“CROs”);

•

in-licensing fees;

•

laboratory supplies and materials;

•

costs associated with the manufacture of product candidates for preclinical testing and clinical studies;

•

preclinical costs, including toxicology and carcinogenicity studies;

•

fees paid to professional service providers for independent monitoring and analysis of the Company’s clinical trials;

•

depreciation and equipment; and

•

allocated costs of facilities and infrastructure.


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Externally generated R&D expense	$	85,729	$	732,162	$	474,366	$	2,985,635	$	29,179,557
Internally generated R&D expense		364,179		574,147		1,344,233		1,963,483		13,545,220

Total	$	449,908	$	1,306,309	$	1,818,599	$	4,949,118	$	42,724,777

Externally generated research and development expenses consist primarily of the following:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
In-licensing expenses	$	—	$	—	$	—	$	400,000	$	5,270,000
CRO and investigator expenses		1,204		221,030		19,868		909,296		10,769,207
Consulting expenses		43,718		211,893		166,439		916,097		6,585,108
Other		40,807		299,239		288,059		760,242		6,555,242

Total	$	85,729	$	732,162	$	474,366	$	2,985,635	$	29,179,557

Internally generated research and development expenses consist primarily of the following:


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Payroll and payroll related expenses	$	235,542	$	459,266	$	804,362	$	1,380,281	$	9,311,521
Stock-based compensation		47,041		23,050		132,945		239,864		1,228,739
Travel and entertainment expenses		11,724		29,799		55,005		134,815		1,210,624
Other		69,872		62,032		351,921		208,523		1,794,336

Total	$	364,179	$	574,147	$	1,344,233	$	1,963,483	$	13,545,220

The Company does not presently segregate total research and development expenses by individual project because our research is focused on atherosclerosis and cardiometabolic disease as a unitary field of study. Although the Company has a mix of preclinical and clinical research and development, personnel working on the programs are combined, financial expenditures are combined, and reporting has not matured to the point where they are separate and distinct projects. The Company cannot reliably allocate the personnel costs, consulting costs, and other resources dedicated to these efforts to individual projects, as we are conducting our research on an integrated basis.

Assuming the Company is able to raise additional financing, it is expected that there will be significant research and development expenses for the foreseeable future. Clinical trial activity in the CEA and ACS Phase 2 clinical trials and related expenses have decreased as a result of completing the studies, and expenses for the ongoing FDG-PET trial have decreased and will continue to decrease as the last patient visit was reported in December 2009. The Company began the development of its preclinical metabolic assets in 2009 and the Company expects expenses to increase substantially over the next several years. The ultimate level and timing of research and development spending is difficult to predict due to the uncertainty inherent in the timing of raising additional financing, the timing and extent of progress in our research programs, and initiation and progress of clinical trials. In addition, the results from the Company’s preclinical and clinical research and development activities, as well as the results of trials of similar therapeutics under development by others, will influence the number, size and duration of planned and unplanned trials. As the Company’s research efforts mature, we will continue to review the direction of our research based on an assessment of the value of possible future compounds emerging from these efforts. Based on this continuing review, the Company expects to establish discrete research programs and evaluate the cost and potential for cash inflows from commercializing products, partnering with others in the biotechnology or pharmaceutical industry, or licensing the technologies associated with these programs to third parties.

The Company believes that it is not possible at this time to provide a meaningful estimate of the total cost to complete our ongoing projects and to bring any proposed products to market. The potential use of compounds targeting atherosclerotic plaque inflammation as a therapy is an emerging area. Costs to complete current or future development programs could vary substantially depending upon the projects selected for development, the number of clinical trials required and the number of patients needed for each study. It is possible that the completion of these studies could be delayed for a variety of reasons, including difficulties in enrolling patients, incomplete or inconsistent data from the preclinical or clinical trials, difficulties evaluating the trial results and delays in manufacturing. Any delay in completion of a trial would increase the cost of that trial, which would harm our results of operations. Due to these uncertainties, the Company cannot reasonably estimate the size, nature or timing of the costs to complete, or the amount or timing of the net cash inflows from our current activities. Until the Company obtains further relevant preclinical and clinical data, and progresses further through the FDA regulatory process, the Company will not be able to estimate our future expenses related to these programs or when, if ever, and to what extent we will receive cash inflows from resulting products.

General and Administrative

General and administrative expense consists primarily of personnel costs, including salaries, incentive and other compensation, travel and entertainment expenses, for personnel in executive, finance, accounting, business development, information technology and human resource functions. Other costs include facility costs not otherwise included in research and development expense, professional fees for legal and accounting services, and public company expenses, including investor relations, transfer agent fees and printing expenses.

Interest Income, Interest Expense and Other Expenses

Interest income consists of interest earned on cash and cash equivalents. Interest expense consists primarily of interest due on secured notes payable and on capital leases, and amortization of discount on notes payable — affiliate. Other expenses consist of net realized and unrealized gains and losses associated with foreign currency transactions, and unrealized gains and losses associated with the warrant obligation.

Results of Operations

Comparison of the three months ended September 30, 2010 and 2009

The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the three months ended September 30, 2010 and 2009 together with the change in such items in dollars and as a percentage:


	For the Three Months Ended
	September 30,		September 30,
	2010		2009		$ Change			% Change
Revenue	$	—	$	—	$	—			—
Research and development expense		449,908		1,306,309		(856,401	)		(66	)%
General and administrative expense		757,996		1,697,476		(939,480	)		(55	)%
Interest expense		901,028		5,033,598		(4,132,570	)		(82	)%
Other expense		9,391		663		8,728			1,316	%

Revenue. The Company did not generate any revenue in the three months ended September 30, 2010 and 2009, respectively, and does not expect to generate any revenue from licensing, achievement of milestones or product sales until the Company is able to commercialize product candidates or execute a collaboration arrangement.

Research and Development Expense. Research and development expense decreased 66%, or $856,000 from $1,306,000 in the three months ended September 30, 2009 to $450,000 in the three months ended September 30, 2010. Clinical trial and preclinical related CRO and investigator clinical trial related expenses decreased $220,000 from $221,000 in the three months ended September 30, 2009 to $1,000 in the three months ended September 30, 2010 primarily due to the completion of the ACS and CEA Phase 2 clinical trials in 2008, and the completion of the FDG-PET Phase 2 clinical trial in 2009. Lab data analysis and other R&D expenses decreased $258,000 from $299,000 in the three months ended September 30, 2009 to $41,000 in the three months ended September 30, 2010. The $258,000 decrease consisted a decrease of $13,000 in the ACS, CEA and FDG-PET Phase II clinical trial expenses, a decrease of $58,000 in VIA-2291 general development expenses, a decrease of $57,000 in expenses associated with the DNA isolation and genotyping study associated with the development of VIA-2291, and a decrease of $130,000 in drug development expenses for one of the Roche compounds. Employee related expenses including salary, benefits, stock-based compensation, travel and entertainment expense, information technology and facilities expenses, decreased $210,000 from $574,000 in the three months ended September 30, 2009 to $364,000 in the three months ended September 30, 2010 primarily due to a reduction in the number of employees that resulted from the March 2010 restructuring. Consulting expenses decreased $168,000 from $212,000 in the three months ended September 30, 2009 to $44,000 in the three months ended September 30, 2010 primarily due to the completion of the Phase 2 clinical trials.

General and Administrative Expense. General and administrative expense decreased 55%, or $939,000, from $1,697,000 in the three months ended September 30, 2009 to $758,000 in the three months ended September 30, 2010. Employee related expenses, including salary and benefits, stock-based compensation and travel and entertainment expenses decreased $732,000 from $1,041,000 in the three months ended September 30, 2009 to $309,000 in the three months ended September 30, 2010, primarily due to a reduction in the number of employees that resulted from the March 2010 restructuring. Corporate and facilities general and administrative expenses decreased $204,000 from $518,000 in the three months ended September 30, 2009 to $314,000 in the three months ended September 30, 2010 primarily due to the March 2010 restructuring. The $204,000 decrease consisted of a $1,000 increase in audit expense, net of a decrease of $91,000 in legal expense, a $51,000 decrease in board fees, investor relations expenses, SEC printing expenses and other public company expenses, and a $63,000 decrease in facilities, IT and depreciation expenses. Consulting expenses decreased $3,000 from $138,000 in the three months ended September 30, 2009 to $135,000 in the three months ended September 30, 2010 due primarily to the use of strategic consulting services necessary as a result of the March 2010 restructuring.

Interest Expense. Interest expense decreased 82% or $4,133,000 from $5,034,000 in the three months ended September 30, 2009 to $901,000 in the three months ended September 30, 2010. Interest on the notes payable increased $264,000 from $283,000 in the three months ended September 30, 2009 to $547,000 in the three months ended September 30, 2010. Interest from the amortization of notes payable discounts decreased $4,389,000 from $4,751,000 in the three months ended September 30, 2009 to $362,000 in the three months ended September 30, 2010 due primarily to a decrease in the amount of amortizable discount on notes payable. Interest on excess lease facility costs was $6,000 in the three months ended June 30, 2010 was reclassified as operating expense in the three months ended September 30, 2010. Interest on the abandonment of the leased Princeton office space of $2,000 in the three months ended June 30, 2010 was also reclassified as operating expense in the three months ended September 30, 2010.

Other Expense. Other expense increased $8,000 from $1,000 in the three months ended September 30, 2009 to $9,000 in the three months ended September 30, 2010. Unrealized losses on foreign exchange transactions increased $7,000 from $0 in the three months ended September 30, 2009 to $7,000 in the three months ended September 30, 2010. Realized losses on foreign exchange transactions were $1,000 in both the three months ended June 30, 2010 and the three months ended September 30, 2010. Losses on the disposal of fixed assets increased $1,000 from $0 in the three months ended September 30, 2009 to $1,000 in the three months ended September 30, 2010.

Income Tax Expense. There is no income tax provision (benefit) for federal or state income taxes as the Company has incurred operating losses since inception and a full valuation allowance has also been in place since inception.

Comparison of the Nine months ended September 30, 2010 and 2009

The following table summarizes the Company’s results of operations with respect to the items set forth in such table for the nine months ended September 30, 2010 and 2009 together with the change in such items in dollars and as a percentage:


	For the Nine Months Ended
	September 30,			September 30,
	2010			2009		$ Change			% Change
Revenue	$	—		$	—	$	—			—
Research and development expense		1,818,599			4,949,118		(3,130,519	)		(63	)%
General and administrative expense		3,209,947			5,491,380		(2,281,433	)		(42	)%
Restructuring costs		106,959			—		106,959			—
Interest expense		1,979,460			6,299,768		(4,320,308	)		(69	)%
Other income/(expense)		(15,749	)		8,893		(24,642	)		(277	)%

Revenue. The Company did not generate any revenue in the nine months ended September 30, 2010 and 2009, respectively, and does not expect to generate any revenue from licensing, achievement of milestones or product sales until the Company is able to commercialize product candidates or execute a collaboration arrangement.

Research and Development Expense. Research and development expense decreased 63%, or $3,130,000, from $4,949,000 in the nine months ended September 30, 2009 to $1,819,000 in the nine months ended September 30, 2010. Clinical trial and preclinical related CRO and investigator clinical trial related expenses decreased $889,000 from $909,000 in the nine months ended September 30, 2009 to $20,000 in the nine months ended September 30, 2010 primarily due to the completion of the ACS and CEA Phase 2 clinical trials in 2008, and the completion of the FDG-PET Phase 2 clinical trial in 2009. The $889,000 decrease consisted of a $833,000 decrease in the ACS, CEA and FDG-PET Phase II clinical trial expenses; a decrease of $46,000 in VIA-2291 general development expenses; and a decrease of $10,000 in PDE4 expenses. Lab data analysis and other R&D expenses decreased $472,000 from $760,000 in the nine months ended September 30, 2009 to $288,000 in the nine months ended September 30, 2010. The $472,000 decrease consisted of a decrease of $157,000 in the ACS, CEA and FDG-PET Phase II clinical trial expenses, a decrease of $229,000 in VIA-2291 general development expenses, a decrease of $132,000 in expenses associated with the DNA isolation and genotyping study associated with the development of VIA-2291, net of an increase of $46,000 in drug development expenses for one of the Roche compounds. In-licensing expenses decreased $400,000 from $400,000 in the nine months ended September 30, 2009 to $0 in the nine months ended September 30, 2010 due to the in-licensing of two Roche compounds in the nine months ended September 30, 2009. Employee related expenses including salary, benefits, stock-based compensation, travel and entertainment expense, information technology and facilities expenses, decreased $785,000 from $1,964,000 in the nine months ended September 30, 2009 to $1,179,000 in the nine months ended September 30, 2010 primarily due to a reduction in the number of employees that resulted from the restructuring in March 2010. Consulting expenses decreased $750,000 from $916,000 in the nine months ended September 30, 2009 to $166,000 in the nine months ended September 30, 2010 primarily due to the completion of the Phase 2 clinical trials. Lease abandonment costs increased $166,000 from $0 in the three months ended September 30, 2009 to $166,000 in the three months ended September 30, 2010 due to the early termination of the leased office space in Princeton, New Jersey in September of 2010.

General and Administrative Expense. General and administrative expense decreased 42%, or $2,281,000, from $5,491,000 in the nine months ended September 30, 2009 to $3,210,000 in the nine months ended September 30, 2010. Employee related expenses, including salary and benefits, stock-based compensation and travel and entertainment expenses decreased $1,571,000 from $3,051,000 in the nine months ended September 30, 2009 to $1,481,000 in the nine months ended September 30, 2010, primarily due to a reduction in the number of employees that resulted from the March 2010 restructuring. Corporate and facilities general and administrative expenses decreased $714,000 from $2,075,000 in the nine months ended September 30, 2009 to $1,361,000 in the nine months ended September 30, 2010 primarily due to the March 2010 restructuring. The $714,000 decrease consisted of a $133,000 increase in audit expense, net of a $483,000 decrease in legal expense, a $223,000 decrease in board fees, investor relations expenses, SEC printing expenses and other public company expenses, and a $141,000 decrease in facilities, IT and depreciation expenses. Consulting expenses increased $3,000 from $365,000 in the nine months ended September 30, 2009 to $368,000 in the nine months ended September 30, 2010 due primarily to the use of strategic consulting services necessary as a result of the March 2010 restructuring.

Restructuring Costs. On March 26, 2010 the Company’s Board of Directors approved a restructuring of the Company to reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce decreased total employees by approximately 63% to a total of six employees and increased the focus of future operating expense on research and development activities. This decision resulted in recording a charge to operating expenses of approximately $0 and $106,959 in the three and nine months ended September 30, 2010. This charge includes cash costs of restructuring, principally related to severance and related medical costs for terminated employees, of approximately $411,000, and non-cash charges of $227,000 primarily related to costs associated with excess facilities at the Company’s corporate headquarters, offset by approximately $531,000 related to the reversal of previously recorded incentive award accruals recorded as of December 31, 2009. In addition to this restructuring charge, the Company paid terminated employees $178,000 for amounts accrued for unused vacation and sick pay. The total cash cost of the restructuring costs, and amounts for accrued COBRA, vacation and sick pay, was $589,000, of which $635 has not been paid and is included in accrued restructuring costs on the unaudited condensed balance sheet as of September 30, 2010. As of September 30, 2010, the Company had accrued non-cash restructuring costs of $133,222 which consisted of excess facility lease costs, of which $122,650 is a current obligation and $11,207 is a long-term obligation on the unaudited condensed balance sheet.

Interest Expense. Interest expense decreased $4,321,000 from $6,300,000 in the nine months ended September 30, 2009 to $1,979,000 in the nine months ended September 30, 2010. Interest on the notes payable increased $1,007,000 from $411,000 in the nine months ended September 30, 2009 to $1,418,000 in the nine months ended September 30, 2010. Interest from the amortization of notes payable discounts decreased $5,328,000 from $5,889,000 in the nine months ended September 30, 2009 to $561,000 in the nine months ended September 30, 2010 due primarily to a decrease in the amount of amortizable discount on notes payable.

Other Income/(Expense). Other expense increased $25,000 from other income of $9,000 in the nine months ended September 30, 2009 to other expense of $16,000 in the nine months ended September 30, 2010. Unrealized losses on foreign exchange transactions increased $3,000 from $4,000 in the nine months ended September 30, 2009 to $7,000 in the nine months ended September 30, 2010. Realized losses on foreign exchange transactions increased $16,000 from gains of $14,000 in the nine months ended September 30, 2009 to losses of $2,000 in the nine months ended September 30, 2010. Losses on the disposal of fixed assets increased $6,000 from $1,000 in the nine months ended September 30, 2009 to $7,000 in the nine months ended September 30, 2010.

Liquidity and Capital Resources

The Company does not have commercial products from which to generate cash resources. As a result, from June 14, 2004 (date of inception) to September 30, 2010, the Company has financed its operations primarily through a series of issuances of secured convertible notes, the generation of interest income on the borrowed funds, the Merger with Corautus, a private placement through a public equities transaction, and debt. The Company expects to incur substantial and increasing losses for the next several years as it continues to expend substantial resources seeking to successfully research, develop, manufacture, obtain regulatory approval for, and commercialize its product candidates.

The Company’s ability to meet its obligations in the ordinary course of business is dependent upon its ability to raise substantial additional financing through public or private equity or debt financings, collaborative or other strategic arrangements with corporate sources or other sources of financing, until it is able to establish profitable operations. The Company received approximately $11.1 million in cash through the Merger with Corautus that was consummated on June 5, 2007, and the Company issued 10,288,065 shares of common stock for $25.0 million in gross proceeds in the private placement equity financing which closed in July and August of 2007.

In March 2009, the Company entered into the Loan Agreement with the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $10.0 million as more fully described in Note 6 in the notes to the unaudited condensed financial statements. The Company secured the loan with all of its assets, including the Company’s intellectual property. On March 12, 2009, the Company borrowed an initial amount of $2.0 million under the Loan Agreement. During the three months ended June 30, 2009, the Company borrowed $2.0 million on May 19, 2009, and another $2.0 million on June 29, 2009. During the three months ended September 30, 2009, the Company borrowed $2.0 million on August 14, 2009, and borrowed the final $2.0 million on September 11, 2009. According to the terms of the original Loan Agreement, the debt and related interest was due to the Lenders on September 14, 2009. The parties agreed to extend the repayments terms and, on February 26, 2010, the Lenders agreed to modify the Loan Agreement to further extend the repayment terms to April 1, 2010. The Lenders did not modify the interest rate or offer any concessions in the amended Loan Agreement. The Company failed to repay the debt and all related interest to the Lenders due on April 1, 2010.

In March 2010, the Company entered into the 2010 Loan Agreement with the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million as more fully described in Note 6 in the notes to the unaudited condensed financial statements. On March 29, 2010, The Company secured the loan with all of its assets, including the Company’s intellectual property. On March 29, 2010, the Company borrowed an initial amount of $1,250,000. During the three months ended June 30, 2010, the Company borrowed $100,000 on May 26, 2010, $200,000 on June 4, 2010, and another $300,000 on June 29, 2010. During the three months ended September 30, 2010, the Company borrowed $100,000 on July 15, 2010, $750,000 on July 27, 2010 and a final $300,000 on September 28, 2010. As more fully described in Note 14 in the notes to the unaudited condensed financial statements, on November 15, 2010, the Company entered into the 2010 Loan Amendment to enable the Company to borrow up to an additional aggregate principal amount of $3,000,000, pursuant to the terms of the 2010 Amended and Restated Notes delivered under the 2010 Loan Amendment. According to the terms of the 2010 Loan Amendment, the debt is due to the Lenders on December 31, 2010.

Global market and economic conditions have been, and continue to be, disrupted and volatile. The Company cannot provide assurance that additional financing will be available in the near term when needed, particularly in light of the current economic environment and adverse conditions in the financial markets, or that, if available, financing will be obtained on terms favorable to the Company or to the Company’s stockholders. Having insufficient funds may require the Company to delay, scale back, or eliminate some or all research and development programs, including clinical trial activities, or to relinquish greater or all rights to product candidates at an earlier stage of development or on less favorable terms than the Company would otherwise choose. Failure to obtain adequate financing in the near term will adversely affect the Company’s ability to operate as a going concern and may require the Company to cease operations. If the Company raises additional capital by issuing equity securities, its existing stockholders’ ownership will be diluted. In addition, to the extent the vested warrants granted to the Lenders to purchase an aggregate of 83,333,333 shares of common stock at an exercise price of $0.12 per share are exercised by the Lenders, and to the extent the vested warrants granted to the Lenders in the 2010 Loan Agreement to purchase an aggregate of 17,647,059 shares of common stock at an exercise price of $0.17 per share are exercised by the Lenders existing stockholders’ ownership in the Company will be significantly diluted. Any new debt financing the Company enters into may involve covenants that restrict its operations. The Loan Agreement and 2010 Loan Agreement with the Lenders includes restrictive covenants relating to the Company’s ability to incur additional indebtedness, make future acquisitions, consummate asset dispositions, grant liens and pledge assets, pay dividends or make other distributions, incur capital expenditures and make restricted payments. The Company may also be required to pledge all or substantially all of its assets, including intellectual property rights, as collateral to secure any debt obligations. The Company’s obligations under the Loan Agreement and 2010 Loan Agreement are secured by all of the Company’s assets, including its intellectual property and any additional pledge of its assets would require the consent of the lenders. In addition, if the Company raises additional funds through collaborative or other strategic arrangements, the Company may be required to relinquish potentially valuable rights to its product candidates or grant licenses on terms that are not favorable to the Company.

Prior to the Merger and the private placement, the Company issued secured convertible notes for a total of $24.4 million from June 14, 2004 (date of inception) to September 30, 2010 to finance its operations. All of the $24.4 million in secured convertible notes have been converted to equity as of December 31, 2007. No convertible notes were issued in the three or nine months ended September 30, 2010 nor in the years ended December 31, 2009 and 2008.

The Company’s cash on hand decreased approximately $4.3 million from $4.6 million at September 30, 2009 to $278,000 at September 30, 2010. In the twelve months ended September 30, 2010, the Company received $3.0 million in cash inflows and disbursed $7.3 million in cash outflows resulting in the approximately $4.3 million decrease in cash. Cash inflows of $3.0 million consisted of $3.0 million in proceeds from borrowings on the affiliate loan arrangements. Cash outflows of $7.3 million consisted of $3.3 million in payments for payroll and related expenses, $1.2 million in payments for research and development related expenses, $900,000 in payments to consultants for consulting services, $500,000 in payments for legal services, $400,000 in payments for corporate expenses, including audit fees, board fees, and public company expenses, and $1.0 million in payments for travel reimbursement, facilities and other office related expenses.

The Company used $4.9 million and $9.5 million in net cash from operations in the nine months ended September 30, 2010 and 2009, respectively, and $70.5 million for the period from September 14, 2004 (date of inception) to September 30, 2010. The $4.6 million decrease in the net cash used in operations was comprised of a $9.6 million decrease in net loss from $16.7 million in the nine months ended September 30, 2009 to $7.1 million in the nine months ended September 30, 2010, a $300,000 decrease in the change in net assets, a $343,000 decrease in the change in net liabilities, an $5.3 million decrease in amortization of the discount on notes payable, a $133,000 increase in excess facility lease costs resulting from the restructuring, a $174,000 increase in lease abandonment costs, a $1,000 increase in the change in accrued restructuring costs, a $1.0 million increase in the change in interest payable to affiliate, a $33,000 decrease in deferred rent, a $37,000 decrease in depreciation and amortization, a $72,000 increase in the disposal of fixed assets, and a decrease of $388,000 in stock-based compensation expense. The $9.6 million decrease in net loss was the result of a decrease of $3.1 million in research and development expenses, a $2.3 million decrease in general and administrative expenses; net of a $107,000 increase in restructuring costs, a $4.3 million decrease in interest expense and a $25,000 increase in other expense. For the period from June 14, 2004 (date of inception) to September 30, 2010, the Company used $70.5 million of net cash in operating activities which was comprised of inception-to-date net losses of $88.7 million, net of $13.0 million non-cash expenses, including $4.5 million inception-to-date stock-based compensation expense, $600,000 in depreciation and deferred rent expenses, $7.5 million in interest expense from the amortization of the discount on notes payable, $173,000 in excess facility lease costs, $133,000 in lease abandonment costs, and $77,000 in disposals of fixed assets; and net of $5.2 million net increase in the change in net assets and liabilities. The Company cannot be certain if, when or to what extent it will receive cash inflows from the commercialization of its product candidates. The Company expects its clinical, research and development expenses to be substantial and to increase over the next few years as it continues the advancement of its product development programs.

The Company used $0 and $16,000 in net cash from investing activities in the nine months ended September 30, 2010 and 2009, respectively, and obtained $10.1 million cash from investing activities for the period from June 14, 2004 (date of inception) to September 30, 2010. The Company used $0 and $16,000 in cash for capital expenditures in the nine months ended September 30, 2010 and 2009, respectively. From June 14, 2004 (date of inception) to September 30, 2010, the Company received $11.1 million in cash from the Merger with Corautus, net of an additional $350,000 in capitalized Merger costs and $664,000 in capital expenditures.

The Company received $3.0 million and $10.0 million in net cash from financing activities in the nine months ended September 30, 2010 and 2009, respectively, primarily through the issuance of debt to the Company’s principal investor in the amount of $3.0 million and $10.0 million in the nine months ended September 30, 2010 and 2009, respectively. The Company also received $1,292 and $1,933 in cash from employee exercises of stock options in the nine months ended September 30, 2010 and 2009, and used $763 and $0 to repurchase and retire common stock in the nine months ended September 30, 2010 and 2009, respectively. From June 14, 2004 (date of inception) to September 30, 2010, the Company received $60.6 million in net cash provided by financing activities, $13.0 million in notes payable borrowings from the Company’s principal stockholder, $24.4 million of cash received through the issuance of secured convertible debt, $23.1 million of net cash received through the equity financing completed in 2007, and $50,000 of cash received from employee and consultant exercises of stock options.

Contractual Obligation and Commitments

The following table describes the Company’s contractual obligations and commitments as of September 30, 2010:


	Payments Due by Period
			Less Than						After
	Total		1 Year		1-3 Years		4-5 Years		5 Years
Operating lease obligations (1)	$	1,058,238	$	443,732	$	614,506	$	—	$	—
Notes and related interest payable — affiliate (2)		15,207,466		15,207,466		—		—		—
Uncertain tax positions (3)		—		—		—		—		—
Licensing agreements (4)		—		—		—		—		—

	$	16,265,704	$	15,651,198	$	614,506	$	—	$	—


(1)		Operating lease obligations reflect contractual commitments for the Company’s office facilities for its headquarters in San Francisco, California and its clinical operations location in Princeton, New Jersey. The San Francisco headquarters lease has been extended through May 31, 2013 and has been expanded to a total of 8,180 square feet. The lease amendment resulted in an increase of approximately $1.5 million in future rent. The lease amendment to the Princeton, New Jersey facility extends the lease through April 2, 2012 and has been expanded to a total of 4,979 square feet. The lease amendment resulted in an increase of approximately $330,000 in future rent. As more fully described in Note 13 to the unaudited condensed financial statements, on June 1, 2010, the Company abandoned its office space leased in Princeton, New Jersey.

(2)		As more fully described in Note 6 in the notes to the unaudited condensed financial statements, in March 2009, the Company entered into the Loan Agreement with the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $10.0 million, pursuant to the terms of the Notes delivered under the Loan Agreement. On March 12, 2009, the Company borrowed an initial amount of $2.0 million. During the three months ended September 30, 2009, the Company borrowed $2.0 million on May 19, 2009, and another $2.0 million on June 29, 2009. During the three months ended September 30, 2009, the Company borrowed $2.0 million on August 14, 2009, and a final $2.0 million on September 11, 2009. The Notes are secured by a first priority lien on all of the assets of the Company, including the Company’s intellectual property. Amounts borrowed under the Notes accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event of default. As of September 30, 2010, the Company accrued $1,607,671 in interest payable — affiliate for unpaid interest expenses. Unless earlier paid in accordance with the terms of the Notes, all unpaid principal and accrued interest shall become fully due and payable on the earlier to occur of (i) April 1, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity. While the Lenders have not declared an event of default, the Company failed to repay the debt and all related interest to the Lenders due on April 1, 2010. As a result, the Company is now accruing interest at the higher 18% per annum beginning April 1, 2010.


		Also as more fully described in Note 6 in the notes to the unaudited condensed financial statements, in March 2010, the Company entered into an additional Note and Warrant Purchase Agreement (the “2010 Loan Agreement”) with the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $3,000,000, pursuant to the terms of promissory notes (collectively, the “2010 Notes”) delivered under the 2010 Loan Agreement. On March 29, 2010, the Company borrowed an initial amount of $1,250,000. During the three months ended June 30, 2010, the Company borrowed $100,000 on May 26, 2010, $200,000 on June 4, 2010, and another $300,000 on June 29, 2010. During the three months ended September 30, 2010, the Company borrowed $100,000 on July 15, 2010, $750,000 on July 27, 2010 and a final $300,000 on September 28, 2010. The 2010 Notes are secured by a lien on all of the assets of the Company. Amounts borrowed under the 2010 Notes accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event of default. As of September 30, 2010, the Company accrued $52,233 in interest payable — affiliate for unpaid interest expenses. Unless earlier paid in accordance with the terms of the 2010 Notes, all unpaid principal and accrued interest shall become fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation, reorganization or other transaction or series of transactions pursuant to which stockholders of the Company prior to such acquisition own less than 50% of the voting interests in the surviving or resulting entity.

(3)		The Company adopted new accounting guidance for the accounting for uncertainty in income tax positions on the first day of its 2007 fiscal year. The amount of unrecognized tax benefits at December 31, 2009 was $584,710. This amount has been excluded from the contractual obligations table because a reasonably reliable estimate of the timing of future tax settlements cannot be determined.

(4)		Under certain licensing agreements, Roche may receive up to $22.4 million in milestone payments, the majority of which would be tied to the achievement of product development and regulatory milestones. In addition, once products containing the compounds are approved for marketing, Roche will receive single-digit royalties based on net sales, subject to certain reductions.

Off-Balance Sheet Arrangements

The Company has not engaged in any off-balance sheet activities.

Critical Accounting Policies

The Company’s discussion and analysis of its financial condition and results of operations are based on its unaudited condensed financial statements, which have been prepared in accordance with GAAP. The preparation of these unaudited condensed financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenue and expenses during the reporting periods. Note 2 in the notes to the unaudited condensed financial statements includes a summary of the Company’s significant accounting policies and methods used in the preparation of the Company’s unaudited condensed financial statements. On an ongoing basis, the Company’s management evaluates its estimates and judgments, including those related to accrued expenses and the fair value of its common stock. The Company’s management bases its estimates on historical experience, known trends and events, and various other factors that it believes to be reasonable under the circumstances, which form its basis for management’s judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company’s management believes the following accounting policies and estimates are most critical to aid in understanding and evaluating the Company’s reported financial results.

A critical accounting policy is defined as one that is both material to the presentation of our unaudited condensed financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on our financial condition and results of operations. Specifically, critical accounting estimates have the following attributes: (i) we are required to make assumptions about matters that are uncertain at the time of the estimate; and (ii) different estimates we could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on our financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. We base our estimates on historical experience, facts available to date, and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as our operating environment changes. These changes have historically been minor and have been included in the unaudited condensed financial statements as soon as they became known. The estimates are subject to variability in the future due to external economic factors as well as the timing and cost of future events. Based on a critical assessment of our accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that our unaudited condensed financial statements are fairly stated in accordance with GAAP, and present a meaningful presentation of our financial condition and results of operations. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our unaudited condensed financial statements.

Research and Development Accruals

As part of the process of preparing its unaudited condensed financial statements, the Company is required to estimate expenses that the Company believes it has incurred, but has not yet been billed for. This process involves identifying services and activities that have been performed by third party vendors on the Company’s behalf and estimating the level to which they have been performed and the associated cost incurred for such service as of each balance sheet date in its unaudited condensed financial statements. Examples of expenses for which the Company accrues include professional services, such as those provided by certain CROs and investigators in conjunction with clinical trials, and fees owed to contract manufacturers in conjunction with the manufacture of clinical trial materials. The Company makes these estimates based upon progress of activities related to contractual obligations and also information received from vendors.

A substantial portion of our preclinical studies and all of the Company’s clinical trials have been performed by third-party CROs and other vendors. For preclinical studies, the significant factors used in estimating accruals include the percentage of work completed to date and contract milestones achieved. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, duration of enrollment and percentage of work completed to date.

The Company monitors patient enrollment levels and related activities to the extent possible through internal reviews, correspondence and status meetings with CROs, and review of contractual terms. The Company’s estimates are dependent on the timeliness and accuracy of data provided by our CROs and other vendors. If we have incomplete or inaccurate data, we may either underestimate or overestimate activity levels associated with various studies or trials at a given point in time. In this event, we could record adjustments to research and development expenses in future periods when the actual activity level become known. No material adjustments to preclinical study and clinical trial expenses have been recognized to date.

Incentive Award Accruals

The Company accrues for liabilities under discretionary employee and executive incentive award plans. These estimated liabilities are based upon progress against corporate objectives approved by the Board of Directors, compensation levels of eligible individuals, and target bonus percentage level of employees. The Board of Directors and the Compensation Committee of the Board of Directors reviews and evaluates the performance against these objectives and ultimately determines what discretionary payments are made. The Company has accrued incentive compensation expenses of $767,185 and $1,308,043 at September 30, 2010 and December 31, 2009, respectively, for liabilities associated with these employee and executive incentive award plans.

Stock-based Compensation

The assumptions used to value option and restricted stock award grants for the three and nine months ended September 30, 2010 and 2009 are as follows:


	Three Months Ended				Nine Months Ended
	September 30,	September 30,			September 30,	September 30,
	2010	2009			2010	2009
Expected life from grant date	6.16-7.21		—		6.16-7.21		6.08
Expected volatility	114%-118%		—	%	114%-118%		105	%
Risk free interest rate	1.64%-1.95%		—	%	1.64%-1.95%		2.89	%
Dividend yield	—		—		—		—


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Research and development expense	$	43,453	$	19,115	$	122,250	$	228,110	$	1,201,676
General and administrative expense		110,034		232,121		436,035		705,206		3,240,897

Total	$	153,487	$	251,236	$	558,285	$	933,316	$	4,442,573


									Period from
									June 14, 2004
	Three Months Ended				Nine Months Ended				(date of inception) to
	September 30,		September 30,		September 30,		September 30,		September 30,
	2010		2009		2010		2009		2010
Research and development expense	$	3,588	$	3,934	$	10,695	$	11,754	$	27,063
General and administrative expense		6,314		12,024		23,651		35,490		73,199

Total	$	9,902	$	15,958	$	34,346	$	47,244	$	100,262

Forward-looking statements

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events or to the Company’s future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,” “plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control and that could materially affect actual results, levels of activity, performance or achievements. Factors that may cause actual results to differ materially from current expectations include, but are not limited to:

•

the Company’s ability to find a market maker to apply and be cleared by the Financial Industry Regulatory Authority to quote the Company’s common stock on the OTC Bulletin Board;

•

ability and willingness of active market makers in our Company’s common stock to trade the Company’s common stock on the Pink Sheets under a “piggyback qualification”;

•

the Company’s ability to obtain necessary financing in the near term, including amounts necessary to repay the 2009 loan from Bay City Capital following the April 1, 2010 maturity date and the 2010 loan, as amended, from Bay City Capital by the December 31, 2010 maturity date (or earlier if certain repayment acceleration provisions are triggered);

•

the Company’s ability to control its operating expenses;

•

the Company’s ability to comply with covenants included in the loans with Bay City Capital;

•

the Company’s ability to operate its business following the restructuring, as described in Note 12 in the notes to the unaudited condensed financial statements;

•

the Company’s ability to comply with its reporting obligations under the rules and regulations promulgated by the Securities and Exchange Commission following the restructuring;

•

the Company’s ability to timely recruit and enroll patients in any future clinical trials;

•

the Company’s failure to obtain sufficient data from enrolled patients that can be used to evaluate VIA-2291, thereby impairing the validity or statistical significance of its clinical trials;

•

the Company’s ability to successfully complete its clinical trials of VIA-2291 on expected timetables and the outcomes of such clinical trials;

•

complexities in designing and implementing cardiometabolic clinical trials using surrogate endpoints in Phase 1 and Phase 2 clinical trials which may differ from the ultimate endpoints required for registration of a candidate drug;

•

the results of any future clinical trials of the Company;

•

if the results of the ACS and CEA studies, upon further review and analysis, are revised, interpreted differently by regulatory authorities or negated by later stage clinical trials;

•

the Company’s ability to obtain necessary FDA approvals;

•

the Company’s ability to successfully commercialize VIA-2291;

•

the Company’s ability to identify potential clinical candidates from the family of DGAT1 compounds licensed and move them into preclinical development;

•

the Company’s ability to obtain and protect its intellectual property related to its product candidates;

•

the Company’s potential for future growth and the development of its product pipeline, including the THR beta agonist candidate and the other compounds licensed from Roche;

•

the Company’s ability to obtain strategic opportunities to partner and collaborate with large biotechnology or pharmaceutical companies to further develop VIA-2291;

•

the Company’s ability to form and maintain collaborative relationships to develop and commercialize our product candidates;

•

general economic and business conditions; and

•

the other risks described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as supplemented by the risks described under “Risk Factors” in Part II, Item 1A in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010.

All forward-looking statements attributable to the Company or persons acting on the Company’s behalf are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update publicly any of these statements in light of new information or future events.

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management to allow timely decisions regarding required disclosures. As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of its disclosure controls and procedures. Based on that evaluation, the Company’s Chief Executive Officer and Principal Financial and Accounting Officer concluded that the Company’s disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q, were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in United States Securities and Exchange Commission rules and forms and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the management, including CEO and PFO, as appropriate to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

As a result of the restructuring, the Company made significant changes in internal control over financial reporting to mitigate the risks associated with a lack of segregation of duties that resulted from the reduction in force. Specifically, the Company increased the use of highly qualified financial consultants to analyze all financial transactions for the three and nine months ended September 30, 2010, prepare bank reconciliations for each month in the three months ended September 30, 2010, and prepare and independently review financial statements for external reporting purposes in accordance with GAAP for the review and approval of the Company’s Chief Executive Officer and Principal Financial and Accounting Officer.

The changes in internal control over financial reporting provides management with reasonable assurance that (1) the maintenance of records is in reasonable detail and accurately and fairly reflects the transactions and dispositions of the assets of the Company; (2) transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (3) any unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements will be prevented or timely detected.

PART II. — OTHER INFORMATION

Item 1A. Risk Factors

The risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010 and June 30, 2010 have not materially changed.

Item 5. Other Information

2010 Loan Amendment

In connection with the 2010 Loan Amendment and the 2010 Additional Warrants, on November 15, 2010, the Company also amended that certain Second Amended and Restated Registration Rights Agreement, dated as of March 12, 2009, as amended by that certain First Amendment to the Second Amended and Restated Registration Rights Agreement, dated as of March 26, 2010, (as so amended, the “Registration Rights Agreement”) with the Lenders and certain stockholders of the Company (the Lenders and certain stockholders collectively, the “Stockholders”), to include the 2010 Additional Warrants Shares in the Registration Rights Agreement, pursuant to which the Company has granted certain demand, shelf and “piggyback” registration rights to such Stockholders to register their shares of common stock with the SEC so that such shares become freely tradeable without restriction under the Securities Act.

The Lenders beneficially owned in the aggregate approximately 90% of the Company’s common stock immediately prior to the 2010 Loan Amendment. Fred B. Craves, Ph.D., a member of the Company’s Board of Directors, is the founder, chairman, and a manager of Bay City Capital LLC, the beneficial owner of the shares held by the Lenders. Dr. Craves also owns 22.0588% of the membership interests in Bay City Capital LLC. Douglass Given, the chairman of the Company’s Board of Directors is an investment partner of Bay City Capital LLC.

The 2010 Loan Amendment was approved by the Company’s Board of Directors on November 12, 2010 following the recommendation of a special committee of the Company’s Board of Directors.

The 2010 Loan Amendment, the 2010 Amended and Restated Notes, the 2010 Additional Warrants and the second amendment to the Registration Rights Agreement (collectively, the “Filed Agreements”) have been filed as exhibits to this Form 10-Q to provide investors and security holders with information regarding their terms. They are not intended to provide any other factual information about the Company. The representations, warranties, and covenants contained in the Filed Agreements were made only for purpose of the Filed Agreements and as of specific dates, were solely for the benefit of the parties to the Filed Agreements, and may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Filed Agreements. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the Filed Agreements instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors and security holders (other than the Lenders who are a party to the Filed Agreements) are not third-party beneficiaries under the Filed Agreements and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Company. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Filed Agreements, which subsequent information may or may not be fully reflected in the Company’s public disclosures.

The 2010 Additional Warrants issued to the Lenders were offered and issued pursuant to a private placement in reliance upon the exemption from registration pursuant to Rule 506 under the Securities Act. Each Lender represented to the Company that it is an “accredited investor” as defined in Rule 501(a) of Regulation D and that such Lender is acquiring the securities for investment purposes for such Lender’s own account and not with a view toward distribution of the securities. The Company advised the Lenders that the 2010 Additional Warrants and the securities underlying the 2010 Additional Warrants have not been registered under the Securities Act and may not be sold unless they are registered under the Securities Act or sold pursuant to a valid exemption from registration under the Securities Act. The 2010 Additional Warrants issued to the Lenders contain legends that the 2010 Additional Warrants have not been registered under the Securities Act and states the restrictions on transfer and resale as described above. Additionally, the Company did not engage in any general solicitation or advertisement in connection with the issuance of the 2010 Additional Warrants.

Item 6. Exhibits


Exhibit
Number		Description
	3.1	Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Form 10-K filed on March 22, 2005 and incorporated herein by reference)

	3.2	Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Form 10-KSB filed on March 30, 2000 and incorporated herein by reference)

	3.3	Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.3 to the Form 10-K filed on March 28, 2003 and incorporated herein by reference)

	3.4	Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.4 to the Form 10-K filed on March 28, 2003 and incorporated herein by reference)

	3.5	Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.5 to the Form 10-K filed on March 28, 2003 and incorporated herein by reference)

	3.6	Amended and Restated Certificate of Designation of Preferences and Rights of Series C Preferred Stock (filed as Annex H to the Form S-4/A filed on December 19, 2002 and incorporated herein by reference)

	3.7	Certificate of Amendment to the Restated Certificate of Incorporation (Increase in Authorized Shares) (filed as Exhibit 3.7 to the Form 10-Q filed on August 14, 2007 and incorporated herein by reference)

	3.8	Certificate of Amendment to the Restated Certificate of Incorporation (Reverse Stock Split) (filed as Exhibit 3.8 to the Form 10-Q filed on August 14, 2007 and incorporated herein by reference)

	3.9	Certificate of Amendment to the Restated Certificate of Incorporation (Name Change) (filed as Exhibit 3.9 to the Form 10-Q filed on August 14, 2007 and incorporated herein by reference)


Exhibit
Number			Description
	3.10		Fourth Amended and Restated Bylaws (filed as Exhibit 3.1 to the Form 8-K filed on April 17, 2008 and incorporated herein by reference)

	4.1		Warrant issued to Trout Partners LLC, dated July 31, 2007 (filed as Exhibit 99.1 to the Form 8-K filed on August 6, 2007 and incorporated herein by reference)

	4.2		Warrant issued to Redington, Inc., dated March 1, 2008 (filed as Exhibit 4.2 to the Form 10-K filed on March 28, 2008 and incorporated herein by reference)

	4.3		Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Fund, L.P., dated March 12, 2009 (filed as Exhibit 4.1 to the Form 8-K filed on March 12, 2009 and incorporated herein by reference)

	4.4		Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Co-Investment Fund, L.P., dated March 12, 2009 (filed as Exhibit 4.2 to the Form 8-K filed on March 12, 2009 and incorporated herein by reference)

	4.5		Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Fund, L.P., dated March 26, 2010 (filed as Exhibit 4.5 to the Form 10-K filed on March 31, 2010 and incorporated herein by reference)

	4.6		Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Co-Investment Fund, L.P., dated March 26, 2010 (filed as Exhibit 4.6 to the Form 10-K filed on March 31, 2010 and incorporated herein by reference)

	4.7	*	Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Fund, L.P., dated November 15, 2010

	4.8	*	Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Co-Investment Fund, L.P., dated November 15, 2010

	4.9		Second Amended and Restated Registration Rights Agreement, dated as of March 12, 2009, by and among VIA Pharmaceuticals, Inc. and the parties named therein (filed as Exhibit 4.3 to the Form 8-K filed on March 12, 2009 and incorporated herein by reference)

	4.10		Amendment No. 1 to the Second Amended and Restated Registration Rights Agreement, dated as of March 26, 2010, by and among VIA Pharmaceuticals, Inc. and the parties named therein (filed as Exhibit 4.8 to the Form 10-K filed on March 31, 2010 and incorporated herein by reference)

	4.11	*	Amendment No. 2 to the Second Amended and Restated Registration Rights Agreement, dated as of November 15, 2010, by and among VIA Pharmaceuticals, Inc. and the parties named therein

	10.1		Promissory Note, dated as of October 29, 2010, by VIA Pharmaceuticals, Inc. and Bay City Capital Fund IV, L.P. (filed as Exhibit 10.1 to the Form 8-K filed on November 4, 2010 and incorporated herein by reference)

	10.2	*	Omnibus Amendment, dated as of November 15, 2010 by and among VIA Pharmaceuticals, Inc., Bay City Capital Fund IV, L.P., Bay City Capital Fund IV Co-Investment Fund, L.P., and Bay City Capital LLC

	10.3	*	Amended and Restated Promissory Note, dated as of November 15, 2010, by VIA Pharmaceuticals, Inc. and payable to Bay City Capital Fund IV, L.P.

	10.4	*	Amended and Restated Promissory Note, dated as of November 15, 2010, by VIA Pharmaceuticals, Inc. and payable to Bay City Capital Fund IV Co-Investment Fund, L.P.

	31.1	*	Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2	*	Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1	*	Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).

	32.2	*	Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).


*		Filed herewith

SIGNATURE

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.

Date: November 15, 2010


	VIA PHARMACEUTICALS, INC.
	By:	/s/ Karen S. Wright
		Karen S. Wright
		Vice President, Controller Duly Authorized Officer and Principal Financial Officer

VIA Pharmaceuticals, Inc. 10-Q