AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION ON JULY 20, 2005 REGISTRATION NO. 333-120784
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO.1)
--------------------------
IR BIOSCIENCES HOLDINGS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 2834 13-3301899
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION IDENTIFICATION NO.)
ORGANIZATION) CODE NUMBER)
4021 NORTH 75TH STREET, SUITE 201
SCOTTSDALE, ARIZONA 85251
(480) 922-3926
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
--------------------------
MICHAEL K. WILHELM, CHIEF EXECUTIVE OFFICER
4021 NORTH 75TH STREET, SUITE 201
SCOTTSDALE, ARIZONA 85251
(480) 922-3926
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
--------------------------
COPIES TO
THOMAS J. POLETTI, ESQ.
KATHERINE J. BLAIR, ESQ.
MICHAEL S. YU, ESQ.
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP
10100 SANTA MONICA BLVD., 7TH FLOOR
LOS ANGELES, CA 90067
TELEPHONE (310) 552-5000 FACSIMILE (310) 552-5001
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
===========================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO REGISTERED PRICE PER OFFERING REGISTRATION
BE REGISTERED (1) SHARE PRICE FEE
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Common stock, $.001 par value (4) 37,141,981 $0.18(2) $6,685,557(2) $847(6)
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Common stock, $.001 par value (5) 10,019,600 0.18(2) 1,803,528(2) 229(6)
-------------------------------------------------------------------------------------------
Common stock, $.001 par value (4) 5,192,135 0.31(3) 1,609,562(3) 189
-------------------------------------------------------------------------------------------
Common stock, $.001 par value (5) 5,432,891 0.31(3) 1,684,196(3) 198
-------------------------------------------------------------------------------------------
Total Registration Fee 57,786,607 $387
========== ===
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(Footnotes to table on next page)
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL HEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
(1) In accordance with Rule 416(a), the Registrant is also registering
hereunder an indeterminate number of additional shares of common stock that
shall be issuable pursuant to Rule 416 to prevent dilution resulting from
stock splits, stock dividends or similar transactions.
(2) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee based on the
average of the bid and ask prices reported on the OTC Bulletin Board on
November 22, 2004.
(3) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee based on the
average of the bid and ask prices reported on the OTC Bulletin Board on
July 19, 2005.
(4) Represents shares of the Registrant's common stock being registered for
resale that have been issued to the selling stockholders named in the
prospectus or a prospectus supplement.
(5) Represents shares of the Registrant's common stock being registered for
resale that have been or may be acquired upon the exercise of warrants
issued to the selling stockholders named in the prospectus or a prospectus
supplement.
(6) Previously paid.
PROSPECTUS
Subject to Completion, Dated July 20, 2005
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================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
================================================================================
57,786,607 SHARES
IR BIOSCIENCES HOLDINGS, INC.
COMMON STOCK
This prospectus relates to 57,786,607 shares of common stock of IR
BioSciences Holdings, Inc. that may be sold from time to time by the selling
stockholders named in this prospectus. We will not receive any proceeds from the
sales by the selling stockholders, but we will receive funds from the exercise
of warrants held by selling stockholders, if exercised.
--------------------------
Our common stock is traded on the OTC Bulletin Board maintained by the
National Association of Securities Dealers, Inc. under the symbol "IRBO." On
July 20, 2005, the closing sales price for our common stock on the OTCBB was
$0.30 per share.
--------------------------
THE SECURITIES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
--------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------
The date of this prospectus is July 20, 2005
TABLE OF CONTENTS
PROSPECTUS SUMMARY...........................................................1
RISK FACTORS.................................................................5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...........................17
USE OF PROCEEDS.............................................................19
DIVIDEND POLICY.............................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS......................................20
BUSINESS....................................................................30
MANAGEMENT..................................................................44
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............................49
PRINCIPAL AND SELLING STOCKHOLDERS..........................................52
DESCRIPTION OF CAPITAL STOCK................................................77
SHARES ELIGIBLE FOR FUTURE SALE.............................................80
PLAN OF DISTRIBUTION........................................................81
LEGAL MATTERS...............................................................84
EXPERTS.....................................................................84
ADDITIONAL INFORMATION......................................................84
INDEX TO FINANCIAL STATEMENTS..............................................F-1
---------------------
ABOUT THIS PROSPECTUS
Please read this prospectus carefully. It describes our business, our
financial condition and results of operations. We have prepared this prospectus
so that you will have the information necessary to make an informed investment
decision.
You should rely on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell
shares of our common stock and seeking offers to buy shares of our common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of the prospectus,
regardless of the time the prospectus is delivered or the common stock is sold.
-i-
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus, and it may not
contain all of the information that is important to you. You should read the
following summary together with the more detailed information regarding our
company and the common stock being sold in this offering, including "Risk
Factors" and our consolidated financial statements and related notes, included
elsewhere in, or incorporated by reference into, this prospectus. All share and
per share information included in this prospectus has been adjusted for a
1-for-20 reverse split of our common stock that we effected in July 2003 and a
2-for-1 forward stock split of our common stock that we effected in April 2004.
OUR COMPANY
GENERAL
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of health enhancing and potential
life saving products. Our product development is focused around Homspera(TM), a
proprietary compound that is derived from homeostatic substance P, a naturally
occurring peptide. Our focus is on the research and development of products that
we believe will treat the suppression of the body's immune system caused by
exposure to various forms of radiation, toxic inhalants and viral infectious
diseases. Currently, the majority of our efforts are in the research and
development of Radilex(TM), a compound derived from Homspera, as a
countermeasure to the effects of radiological and nuclear threats. Currently, we
own or have obtained a license to 4 issued U.S. and foreign patents and 24
pending U.S. and foreign patent applications. As we continue our research and
development efforts we will look to add to our portfolio of patents and
trademarks.
COMPANY HISTORY
We were originally incorporated in Delaware in June 1985 under the name
Vocaltech, Inc. to develop, design, manufacture and market products utilizing
proprietary speech-generated tactile feedback devices. We completed our initial
public offering of our securities in October 1987. We changed our name to
InnoTek, Inc. in November 1992. In January 1992, we effected a 1-for-6.3 reverse
stock split of our common stock. In December 1994, we acquired all of the
outstanding stock of InnoVisions, Inc., a developer and marketer of skin
protective products, discontinued our prior operations in their entirety and
changed our name to DermaRx Corporation. In April 2000, we effected a reverse
merger with a subsidiary of Go Public Network, Inc., which was engaged in
assisting early-stage development and emerging growth companies with financial
and business development services. We changed our name to GoPublicNow.com, Inc.,
effected a 1-for-5 reverse stock split and discontinued our prior operations in
their entirety. In November 2000, we changed our name to GPN Network, Inc. In
July 2001, we discontinued the operations of GPN Network, Inc. in their entirety
and began looking for appropriate merger partners. Our objective became the
acquisition of an operating company with the potential for growth in exchange
for our securities. In July 2003, we effected a reverse merger with ImmuneRegen
BioSciences, Inc. and adopted our current business model. In July 2003, we
effected a 1-for-20 reverse stock split, and in April 2004, we effected a
2-for-1 stock split. ImmuneRegen BioSciences, Inc. was incorporated in October
2002; all information contained herein refers to the operations of ImmuneRegen
BioSciences, Inc., our wholly-owned operational subsidiary.
RECENT DEVELOPMENTS
In January 2005, we made a tender offer to temporarily reduce the exercise
price of certain warrants issued in October 2004 from $0.50 to $0.20 per share.
The tender offer expired on March 4, 2005. We accepted for exercise a total of
6,600,778 warrants validly tendered and not withdrawn pursuant to the terms of
the tender offer, which represents approximately 48% of the aggregate 13,780,449
warrants that were subject to the offer.
In October 2004, we completed a private placement, whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors (the "Private
Placement"). Each unit was sold for $10,000 (the "Unit Price") and consisted of
(a) a number of shares of our common stock determined by dividing the Unit Price
by $0.125, and (b) a warrant to purchase, at any time prior to the fifth
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to fifty percent (50%) of the number of shares included
within the unit, at a
-1-
price equal to $0.50 per share of common stock. We issued in the Private
Placement an aggregate of 27,560,897 shares of our common stock and warrants to
purchase 13,780,449 shares of our common stock. In consideration of the
investment, we granted to each investor certain registration rights and
anti-dilution rights.
Pursuant to the terms of a placement agency agreement, dated September 3,
2004, by and between us and Joseph Stevens & Co., Inc., we issued 4,900,000
shares of our common stock to Joseph Stevens & Co., Inc. or its designees, upon
the closing of the Private Placement. The shares were issued as consideration
for the services of Joseph Stevens & Co., Inc. as our placement agent in the
Private Placement.
Further to the Private Placement, we entered into a settlement agreement
with certain creditors whereby for full and complete satisfaction of claims
totaling an aggregate of $158,017 (the "Claim Amount"), we issued to the
creditors the following: (a) a number of shares of our common stock determined
by dividing the Claim Amount by $0.125, and (b) warrants to purchase, at any
time prior to the fifth anniversary following the date of issuance of the
warrant, a number of shares of our common stock equal to fifty percent (50%) of
the number of shares described above, at a price equal to $0.50 per share of
common stock. The warrants are identical to the warrants issued in the Private
Placement. Pursuant to the settlement we issued an aggregate of 1,264,138 shares
of common stock and warrants to purchase 632,069 shares of common stock. Under
the terms of the settlement agreement, the creditors released us from all
claims, known or unknown, relating to the Claim Amount.
Between June 2003 and August 2004 eleven investors entered into fifteen
convertible promissory notes totaling $558,500 with interest rates ranging
between 8% and 12% and having various maturities. In October 2004, these notes
were converted into equity in the aggregate amount of $558,500 plus accrued
interest of $56,757. For full and complete satisfaction of debt, we issued to
the note holders the following: (a) a number of shares of our common stock
determined by dividing the debt amount by $0.125, and (b) warrants to purchase,
at any time prior to the fifth anniversary following the date of issuance of the
warrant, a number of shares of our common stock equal to fifty percent (50%) of
the number of shares described above, at a price equal to $0.50 per share of
common stock. The warrants are identical to the warrants issued in the Private
Placement. Pursuant to the debt conversion we issued an aggregate of 6,694,149
shares of common stock and warrants to purchase 3,347,076 shares of common
stock. Under the terms of the conversion agreement, the note holders released us
from all claims, known or unknown, relating to the debt amount.
Effective December 17, 2004, Eric Hopkins resigned from his position as
our Chief Financial Officer.
Effective December 22, 2004, Dr. Harris resigned from his position as a
member of our Board of Directors and a member of the Board of Directors of
ImmuneRegen BioSciences, Inc., our subsidiary
Effective December 22, 2004, Steven J. Scronic resigned from his position
as our Corporate Secretary.
Our board of directors appointed John N. Fermanis to serve as our Chief
Financial Officer, effective as of December 22, 2004. Our Board resolved to
issue 100,000 shares of registered common stock to Mr. Fermanis for his
acceptance of this position. These shares were issued to Mr. Fermanis in May
2005.
Our board of directors appointed Michelle R. Laroche to serve as our
Corporate Secretary, effective as of December 22, 2004.
THE OFFERING
Common stock offered by selling stockholders............ 57,786,607 shares(1)
Common stock outstanding................................ 72,571,026
shares(2),(3)
Use of proceeds......................................... We will not receive
any proceeds from the
sale of the common
stock, but we will
receive funds from the
exercise of warrants
by selling
stockholders, if
exercised.
OTC Bulletin Board...................................... IRBO
-2-
(1) Represents 48,934,894 shares of our common stock that were issued to
selling stockholders and 8,851,713 shares of our common stock underlying
warrants that were issued to selling stockholders.
(2) The number of shares of common stock outstanding as of May 31, 2005 listed
above includes:
o 740,551 common shares that have been accrued due to convertible
features of notes, employment and advisory agreements.
o 3,228,400 shares to be issued in connection with a penalty clause
regarding the registerance of shares sold in our Private Offering in
October 2004. For each 30-day period beyond 90-days following the
second closing date (October 26, 2004), we have agreed to issue to
the holders of units sold in the Private Offering an additional 2% a
month, or in aggregate 461,200 shares and 181,600 warrants until
such a time as this Registration Statement is made effective.
(3) The number of shares of common stock outstanding as of May 31, 2005 listed
above excludes:
o 63,212 shares of our common stock issuable upon exercise of options
at a weighted average exercise price of $25.00 per share that were
granted outside of our 2003 Stock Option, Deferred Stock and
Restricted Stock Plan.
o 150,000 10-year common stock purchase options at an exercise price
of $0.40 have been granted under our 2003 Stock Option, Deferred
Stock and Restricted Stock Plan; and,
o 16,342,351 shares of our common stock issuable upon exercise of
warrants with exercise prices ranging from $0.05 to $2.00 per share.
SUMMARY FINANCIAL INFORMATION
The following summary financial information has been derived from the
financial statements that are included elsewhere in this prospectus. You should
read this information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and the related notes thereto included elsewhere in this prospectus.
FOR THE THREE MONTHS CUMULATIVE FROM INCEPTION
ENDED MARCH 31, FOR THE YEAR (OCTOBER 30, 2002)
2005 2004 ENDED DECEMBER 31 TO MARCH 31, 2005
(UNAUDITED) (UNAUDITED) 2004 2003 (UNAUDITED)
------------ ------------ ------------ ------------ ------------
Revenues ..................... $ -- $ -- $ -- $ -- $ --
Operating expenses:
Selling, general and
administrative expenses ... 838,520 931,074 4,498,390 1,045,776 6,428,404
Merger fees and costs ..... -- -- -- 350,000 350,000
Financing cost ............ -- -- -- 90,000 90,000
------------ ------------ ------------ ------------ ------------
Total operating expenses 838,520 931,074 4,498,390 1,485,776 6,868,404
------------ ------------ ------------ ------------ ------------
Operating loss ............... (838,520) (931,074) (4,498,390) (1,485,776) (6,868,404)
Interest expense .......... 977 304,078 807,017 370,926 1,179,120
------------ ------------ ------------ ------------ ------------
Total other expense .... 977 304,078 807,017 370,926 1,179,120
------------ ------------ ------------ ------------ ------------
Loss before income taxes .. (839,497) (1,235,152) (5,305,407) (1,856,702) (8,047,524)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss ..................... $ (839,497) $ (1,235,152) $ (5,305,407) $ (1,856,702) $ (8,047,524)
============ ============ ============ ============ ============
Net loss per share - basic and
diluted ................... $ (0.01) $ (0.05) $ (0.16) $ (0.09) $ (0.27)
============ ============ ============ ============ ============
Weighted average shares
outstanding - basic and
diluted ................... 62,863,440 24,845,493 33,510,168 21,317,292 29,486,331
============ ============ ============ ============ ============
-3-
ADDITIONAL INFORMATION
We were originally incorporated in Delaware under the name of Vocaltech,
Inc. in June 1985. We changed our name to InnoTek, Inc. in November 1992, to
DermaRx Corporation in December 1994, to GoPublicNow.com, Inc. in April 2000, to
GPN Network, Inc. in November 2000 and to IR BioSciences Holdings, Inc. in
August 2003. Our executive offices are located at 4021 N. 75th Street, Suite
201, Scottsdale, Arizona 85251. Our telephone number is (480) 922-3926.
In this prospectus, the terms "we," "us," and "our" refer to IR
BioSciences Holdings, Inc., a Delaware corporation, and its consolidated
subsidiary, as appropriate in the context, and, unless the context otherwise
requires, "common stock" refers to the common stock, par value $0.001 per share,
of IR BioSciences Holdings, Inc.
-4-
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. The risks described below are all of the material risks that we are
currently aware of that are facing our company. Additional risks not presently
known to us may also impair our business operations. If any of the following
risks actually occur, our business, financial condition and results of
operations could be harmed. The trading price of our common stock could decline,
and you may lose all or part of your investment in our common stock.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE HAVE AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY PROFITABLE AND EXPECT TO INCUR
SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
We have incurred a substantial net loss for the period from our inception
in October 2002 to March 31, 2005, and are currently experiencing negative cash
flow. We expect to continue to experience negative cash flow and operating
losses through at least 2007 and possibly thereafter. As a result, we will need
to generate significant revenues to achieve profitability.
WE MAY FAIL TO BECOME AND REMAIN PROFITABLE OR WE MAY BE UNABLE TO FUND OUR
CONTINUING LOSSES, IN WHICH CASE OUR BUSINESS MAY FAIL.
We are focused on product development and have not generated any revenue
to date. We have incurred operating losses since our inception. Our net loss for
the three months ended March 31, 2005 and for fiscal year 2004 was $839,497 and
$5,305,407, respectively. As of March 31, 2005, we had an accumulated deficit of
$8,047,524.
We currently have no product candidates for sale in the United States, and
we cannot guarantee that we will ever have marketable products in the United
States. We must demonstrate that our product candidates satisfy rigorous
standards of safety and efficacy before the U.S. Food and Drug Administration
("FDA") and other regulatory authorities in the United States and abroad will
approve the products for commercial marketing. We will need to conduct
significant additional research, preclinical testing and clinical testing before
we can file applications with the FDA for approval of our product candidates. In
addition, to compete effectively, our future products must be easy to use,
cost-effective and economical to manufacture on a commercial scale. We may not
achieve any of these objectives.
We expect to incur losses as we research, develop and seek regulatory
approvals for our products. If our products fail in clinical trials or do not
gain regulatory approval, or if our products do not achieve market acceptance,
we will not be profitable. If we fail to become and remain profitable, or if we
are unable to fund our continuing losses, our business may fail.
OUR OPERATING EXPENSES ARE UNPREDICTABLE, WHICH MAY ADVERSELY AFFECT OUR
BUSINESS, OPERATIONS AND FINANCIAL CONDITION.
As a result of our limited operating history and because of the emerging
nature of the markets in which we will compete, our financial data is of limited
value in planning future operating expenses. To the extent our operating
expenses precede or are not rapidly followed by increased revenue, our business,
results of operations and financial condition may be materially adversely
affected. Our expense levels will be based in part on our expectations
concerning future revenues. A significant portion of our revenue is anticipated
to be derived from Homspera or derivatives thereof; however the size and extent
of such revenues are wholly dependent upon the choices and demand of
individuals, which are difficult to forecast accurately. We may be unable to
adjust our operations in a timely manner to compensate for any unexpected
shortfall in revenues. Further, business development and marketing expenses may
increase significantly as we expand our operations.
-5-
WE MAY EXPERIENCE FLUCTUATION OF QUARTERLY OPERATING RESULTS WHICH MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.
Our quarterly operating results may fluctuate significantly in the future
as a result of a variety of factors, many of which are outside our control.
These factors include: the level of demand for Radilex, Homspera and any other
products; our ability to attract and retain personnel with the necessary
strategic, technical and creative skills required for effective operations; the
amount and timing of expenditures by customers; the amount and timing of capital
expenditures and other costs relating to the expansion of our operations;
government regulation and legal developments regarding the use of Homspera; and
general economic conditions. As a strategic response to changes in the
competitive environment, we may from time to time make certain pricing, service,
technology or marketing decisions that could have a material adverse effect on
our quarterly results. Due to all of these factors, our operating results may
fall below the expectations of securities analysts, stockholders and investors
in any future quarter.
RISKS RELATED TO OUR BUSINESS
IF OUR PLAN IS NOT SUCCESSFUL OR MANAGEMENT IS NOT EFFECTIVE, THE VALUE OF OUR
COMMON STOCK MAY DECLINE.
Our operating subsidiary, ImmuneRegen BioSciences, Inc., was founded in
October 2002. As a result, we are a development stage company with a limited
operating history that makes it impossible to reliably predict future growth and
operating results. Our business and prospects must be considered in light of the
risks and uncertainties frequently encountered by companies in their early
stages of development. In particular, we have not demonstrated that we can:
o ensure that our products function as intended in human clinical
applications;
o obtain the regulatory approvals necessary to commercialize products
that we may develop in the future;
o manufacture, or arrange for third-parties to manufacture, future
products in a manner that will enable us to be profitable;
o establish many of the business functions necessary to operate,
including sales, marketing, administrative and financial functions,
and establish appropriate financial controls;
o make, use, and sell future products without infringing upon third
party intellectual property rights; or,
o respond effectively to competitive pressures.
We cannot be sure that we will be successful in meeting these challenges
and addressing these risks and uncertainties. If we are unable to do so, our
business will not be successful.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS. IF WE
CANNOT RAISE NEEDED ADDITIONAL CAPITAL IN THE FUTURE, WE WILL BE REQUIRED TO
CEASE OPERATIONS.
As of March 31, 2005, our cash and cash equivalents totaled approximately
$1,600,000. Based on our current plans, we believe these financial resources,
and interest earned thereon, will be sufficient to meet our operating expenses
and capital requirements through January 2006. However, changes in our research
and development plans or other events affecting our operating expenses may
result in the expenditure of such cash before that time. We may require
substantial additional funds in order to finance our drug discovery and
development programs, fund operating expenses, pursue regulatory clearances,
develop manufacturing, marketing and sales capabilities, and prosecute and
defend our intellectual property rights. We may seek additional funding through
public or private financing or through collaborative arrangements with strategic
partners.
You should be aware that in the future:
-6-
o we may not obtain additional financial resources when necessary or
on terms favorable to us, if at all; and,
o any available additional financing may not be adequate.
If we cannot raise additional funds when needed, or on acceptable terms,
we will not be able to continue to develop our drug candidates. We require
substantial working capital to fund our operations. Since we do not expect to
generate significant revenues in the foreseeable future, in order to fund
operations, we will be completely dependent on additional debt and equity
financing arrangements. There is no assurance that any financing will be
sufficient to fund our capital expenditures, working capital and other cash
requirements beyond January 2006. Our working capital as of March 31, 2005 was
$1,198,905. No assurance can be given that any such additional funding will be
available or that, if available, can be obtained on terms favorable to us. If we
are unable to raise needed funds on acceptable terms, we will not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. A material
shortage of capital will require us to take drastic steps such as reducing our
level of operations, disposing of selected assets or seeking an acquisition
partner. If cash is insufficient, we will not be able to continue operations.
ALL OUR APPLICATIONS ARE ALL DERIVED FROM THE USE OF HOMSPERA. IF HOMSPERA IS
FOUND TO BE UNSAFE OR INEFFECTIVE, OUR BUSINESS WOULD BE MATERIALLY HARMED.
All our potential applications are derived from the use of Homspera. In
addition, we expect to utilize Homspera in the development of any future
products we market. If these current or future products are found to be unsafe
or ineffective due to the use of Homspera, we may have to modify or cease
production of the products. As all of our applications utilize or will utilize
Homspera, any findings that Homspera is unsafe or ineffective would severely
harm our business operations, since all of our primary revenue sources would be
negatively affected by such findings.
IF WE FAIL TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS, WE WILL HAVE TO
CEASE OPERATIONS.
Our failure to develop and commercialize products successfully will cause
us to cease operations. Our potential therapies utilizing Homspera will require
significant additional research and development efforts and regulatory approvals
prior to potential commercialization in the future. We cannot guarantee that we,
or our corporate collaborators, if any, will ever obtain any regulatory
approvals of Homspera. We currently are focusing our core competencies on
Homspera although there may be no assurance that we will be successful in so
doing.
Our therapies and technologies utilizing Homspera are at early stages of
development and may not be shown to be safe or effective and may never receive
regulatory approval. Our technologies utilizing Homspera have not yet been
tested in humans. Regulatory authorities may not permit human testing of
potential products based on these technologies. Even if human testing is
permitted, any potential products based on Homspera may not be successfully
developed or shown to be safe or effective.
The results of our preclinical studies and clinical trials may not be
indicative of future clinical trial results. A commitment of substantial
resources to conduct time-consuming research, preclinical studies and clinical
trials will be required if we are to develop any products. Delays in planned
patient enrollment in our clinical trials may result in increased costs, program
delays or both. None of our potential products may prove to be safe or effective
in clinical trials. Approval of the Unites States Food and Drug Administration,
the FDA, or other regulatory approvals, including export license permissions,
may not be obtained and even if successfully developed and approved, our
potential products may not achieve market acceptance. Any products resulting
from our programs may not be successfully developed or commercially available
for a number of years, if at all.
Moreover, unacceptable toxicity or side effects could occur at any time in
the course of human clinical trials or, if any products are successfully
developed and approved for marketing, during commercial use of any of our
proposed products. The appearance of any unacceptable toxicity or side effects
could interrupt, limit, delay or abort the development of any of our proposed
products or, if previously approved, necessitate their withdrawal from the
market.
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THE MARKET FOR TREATING ASPECTS OF ACUTE RADIATION SYNDROME IS UNCERTAIN AND WE
MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE RADILEX.
We do not believe any drug has ever been approved and commercialized for
the treatment of severe acute radiation injury. In addition, the incidence of
large-scale exposure to nuclear or radiological events has been low.
Accordingly, even if Radilex, our leading drug candidate to treat aspects of
Acute Radiation Syndrome (ARS), is approved by the FDA, we cannot predict with
any certainty the size of this market. The potential market for Radilex is
largely dependent on the size of stockpiling orders, if any, procured by the
U.S. and foreign governments. While a number of governments have historically
stockpiled drugs to treat indications such as smallpox, anthrax exposure,
plague, tularemia and certain long-term effects of radiation exposure, we are
unaware of any significant stockpiling orders for drugs to treat ARS. While we
have filed a formal response to the U.S. Department of Health and Human Services
Request for Information (RFI) for therapeutics to treat ARS, at least one other
company has responded to this RFI, and we cannot guarantee that our response to
this RFI will result in a U.S. Department of Health and Human Services Request
for Proposal (RFP) or any stockpiling orders. A decision by the U.S. Government
to enter into a commitment to purchase Radilex prior to FDA approval is largely
out of our control. Our development plans and timelines may vary substantially
depending on whether we receive such a commitment and the size of such
commitment, if any. In addition, even if Radilex is approved by regulatory
authorities, we cannot guarantee that we will receive any stockpiling orders for
Radilex, that any such order would be profitable to us or that Radilex will
achieve market acceptance by the general public.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS.
Clinical testing, manufacture, promotion, export and sale of our proposed
products are subject to extensive regulation by numerous governmental
authorities in the United States, principally the FDA, and corresponding state
and foreign regulatory agencies. This regulation may delay or prevent us from
commercializing proposed products. Noncompliance with applicable requirements
can result in, among other things, fines, injunctions, seizure or recall of such
products, total or partial suspension of product manufacturing and marketing,
failure of the government to grant premarket approval, withdrawal of marketing
approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the
required preclinical studies and clinical testing, is lengthy and expensive. We
may not receive necessary FDA clearances for any of our potential products in a
timely manner, or at all. The length of the clinical trial process and the
number of patients the FDA will require to be enrolled in the clinical trials in
order to establish the safety and efficacy of our proposed products is
uncertain.
We are currently preparing the protocols for additional formulation and
stability studies. We expect these studies to be completed within 3 months. We
expect to perform toxicity inhalation studies, followed by additional mouse
studies. In these mouse studies we expect further validate our prior findings by
collecting additional data as requested by the FDA and NIH. We expect to begin
our eighth mouse study within the next 120 days. We estimate that the study will
be completed within 3 months of inception at an estimated cost of $100,000. Upon
completion of the aforementioned study we intend to prepare the protocols
necessary for a non-human primate study to test the efficacy of Radilex as a
treatment to acute radiation sickness and apply for an Investigative New Drug
("IND") application. We expect to receive an IND and begin this study within the
next twelve to eighteen months.
Even if human clinical trials of Homspera are initiated and successfully
completed, the FDA may not approve Homspera for commercial sale. We may
encounter significant delays or excessive costs in our efforts to secure
necessary approvals. Regulatory requirements are evolving and uncertain. Future
United States or foreign legislative or administrative acts could also prevent
or delay regulatory approval of our products. We may not be able to obtain the
necessary approvals for clinical trials, manufacturing or marketing of any of
our products under development. Even if commercial regulatory approvals are
obtained, they may include significant limitations on the indicated uses for
which a product may be marketed.
The FDA has not designated expanded access protocols for Homspera as
"treatment" protocols. The FDA may not determine that Homspera meets all of the
FDA's criteria for use of an investigational drug for treatment use. Even if
Homspera is allowed for treatment use, third party payers may not provide
reimbursement for the costs
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of treatment with Homspera. The FDA also may not consider Homspera to be an
appropriate candidate for acceptance as Emergency Use Authorization for
Promising Medical Countermeasures Under Development, accelerated approval,
expedited review or fast track designation.
IF WE OBTAIN REGULATORY APPROVAL OF OUR PRODUCTS, THEY WILL BE SUBJECT TO
CONTINUING REVIEW AND EXTENSIVE REGULATORY REQUIREMENTS, WHICH COULD AFFECT THE
MANUFACTURING AND MARKETING OF OUR PRODUCTS.
A marketed product is subject to continual FDA review. Later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market, as well as possible civil or criminal
sanctions. The FDA could withdraw a previously approved product from the market
upon receipt of newly discovered information, including a failure to comply with
regulatory requirements, the occurrence of unanticipated problems with products
following approval, or other reasons, which could adversely affect our operating
results.
Among the other requirements for regulatory approval is the requirement
that prospective manufacturers conform to the FDA's Good Manufacturing
Practices, or GMP, requirements. In complying with the FDA's GMP requirements,
manufacturers must continue to expend time, money and effort in production,
record keeping and quality control to assure that products meet applicable
specifications and other requirements. Failure to comply and maintain compliance
with the FDA's GMP requirements subjects manufacturers to possible FDA
regulatory action and as a result, may have a material adverse effect on us. We,
or our contract manufacturers, if any, may not be able to maintain compliance
with the FDA's GMP requirements on a continuing basis. Failure to maintain
compliance could have a material adverse effect on us.
Additionally, the FDA's policies may change and additional government
regulations may be enacted, which could prevent or delay regulatory approval of
our applications. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are not able to maintain
regulatory compliance, we might not be permitted to market our future products
and our business could suffer.
IF WE FAIL TO OBTAIN APPROVAL FROM FOREIGN REGULATORY AUTHORITIES, WE WILL NOT
BE ALLOWED TO MARKET OR SELL OUR PRODUCTS IN OTHER COUNTRIES.
Marketing any drug products outside of the United States will subject us
to numerous and varying foreign regulatory requirements governing the design and
conduct of human clinical trials and marketing approval. Additionally, our
ability to export drug candidates outside the United States on a commercial
basis will be subject to the receipt from the FDA of export permission, which
may not be available on a timely basis, if at all.
Approval procedures vary among countries and can involve additional
testing, and the time required to obtain approval may differ from that required
to obtain FDA approval. Foreign regulatory approval processes include all of the
risks associated with obtaining FDA approval set forth above, and approval by
the FDA does not ensure approval by the health authorities of any other country.
SIGNIFICANT DELAY OR FAILURE TO OBTAIN REGULATORY APPROVALS WOULD IMPEDE OUR
ABILITY TO GENERATE REVENUE.
The process of obtaining FDA and other regulatory approvals is time
consuming, expensive and difficult to design and implement. Clinical trials are
required and the marketing and manufacturing of our applications are subject to
rigorous testing procedures. Significant delays in clinical trials will impede
our ability to commercialize our applications and generate revenue and could
significantly increase our development costs. The commencement and completion of
clinical trials for our Homspera-based applications or any of our applications
could be delayed or prevented by a variety of factors, including:
o delays in obtaining regulatory approvals to commence a study;
o delays in identifying and reaching agreement on acceptable terms
with prospective clinical trial sites;
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o delays in the enrollment of patients;
o lack of efficacy during clinical trials; or,
o unforeseen safety issues.
Even if marketing approval from the FDA is received, the FDA may impose
post-marketing requirements, such as:
o labeling and advertising requirements, restrictions or limitations,
including the inclusion of warnings, precautions, contra-indications
or use limitations that could have a material impact on the future
profitability of our applications;
o testing and surveillance to monitor our future products and their
continued compliance with regulatory requirements;
o submitting products for inspection and, if any inspection reveals
that the product is not in compliance, prohibiting the sale of all
products;
o suspending manufacturing; or
o withdrawing marketing clearance.
CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR
APPLICATIONS, WHICH COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.
Prior to receiving approval to commercialize any of our applications or
therapies, we must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA and other regulatory
authorities in the United States and abroad, that our applications are both safe
and effective. We will need to demonstrate our applications' efficacy and
monitor their safety throughout the process. If any future clinical trials are
unsuccessful, our business and reputation would be harmed and our stock price
would be adversely affected.
All of our applications are prone to the risks of failure inherent in
biologic development. The results of early-stage clinical trials of our
applications do not necessarily predict the results of later-stage clinical
trials. Applications in later-stage clinical trials may fail to show desired
safety and efficacy traits despite having progressed through initial clinical
testing. Even if we believe the data collected from clinical trials of our
applications is promising, this data may not be sufficient to support approval
by the FDA or any other U.S. or foreign regulatory approval. Preclinical and
clinical data can be interpreted in different ways. Accordingly, FDA officials
could interpret such data in different ways than we do, which could delay, limit
or prevent regulatory approval. The FDA, other regulatory authorities, or we may
suspend or terminate clinical trials at any time. Any failure or significant
delay in completing clinical trials for our applications, or in receiving
regulatory approval for the sale of any products resulting from our
applications, may severely harm our business and reputation.
DELAYS IN THE CONDUCT OR COMPLETION OF OUR PRECLINICAL OR CLINICAL STUDIES OR
THE ANALYSIS OF THE DATA FROM OUR PRECLINICAL OR CLINICAL STUDIES MAY RESULT IN
DELAYS IN OUR PLANNED FILINGS FOR REGULATORY APPROVALS OR ADVERSELY AFFECT OUR
ABILITY TO ENTER INTO COLLABORATIVE ARRANGEMENTS.
We may encounter problems with some or all of our completed or ongoing
studies that may cause us or regulatory authorities to delay or suspend our
ongoing studies or delay the analysis of data from our completed or ongoing
studies. If the results of our ongoing and planned studies for our drug
candidates are not available when we expect or if we encounter any delay in the
analysis of the results of our studies for our drug candidates:
o we may not have the financial resources to continue research and
development of any of our drug candidates; and,
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o we may not be able to enter into collaborative arrangements relating
to any drug candidate subject to delay in regulatory filing.
Any of the following reasons, among others, could delay or suspend the
completion of our ongoing and future studies:
o delays in enrolling volunteers;
o interruptions in the manufacturing of our drug candidates or other
delays in the delivery of materials required for the conduct of our
studies;
o lower than anticipated retention rate of volunteers in a trial;
o unfavorable efficacy results;
o serious side effects experienced by study participants relating to
the drug candidate;
o new communications from regulatory agencies about how to conduct
these studies; or,
o failure to raise additional funds.
IF THE MANUFACTURERS OF OUR PRODUCTS DO NOT COMPLY WITH CURRENT GOOD
MANUFACTURING PRACTICES REGULATIONS, OR CANNOT PRODUCE THE AMOUNT OF PRODUCTS WE
NEED TO CONTINUE OUR DEVELOPMENT, WE WILL FALL BEHIND ON OUR BUSINESS
OBJECTIVES.
Manufacturers producing our drug candidates must follow current Good
Manufacturing Practices, or GMP, regulations enforced by the FDA and foreign
equivalents. If a manufacturer of our drug candidates does not conform to the
GMP regulations and cannot be brought up to such a standard, we will be required
to find alternative manufacturers that do conform. This may be a long and
difficult process, and may delay our ability to receive FDA or foreign
regulatory approval of our products.
We also rely on our manufacturers to supply us with a sufficient quantity
of our drug candidates to conduct clinical trials. If we have difficulty in the
future obtaining our required quantity and quality of supply, we could
experience significant delays in our development programs and regulatory
process.
OUR LACK OF COMMERCIAL MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
EXPERIENCE MAY PREVENT US FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS.
The manufacturing process of our proposed products is expected to involve
a number of steps and requires compliance with stringent quality control
specifications imposed by us and by the FDA. We have no experience in the sales,
marketing and distribution of pharmaceutical or biotechnology products. We have
not manufactured any of our products in commercial quantities. We may not
successfully make the transition from manufacturing clinical trial quantities to
commercial production quantities or be able to arrange for contract
manufacturing and this could prevent us from commercializing products or limit
our profitability from our products.
WE RELY ON THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE OF HOMSPERA. OUR
INABILITY TO MANUFACTURE HOMSPERA, AND OUR DEPENDENCE ON SUCH MANUFACTURERS, MAY
DELAY OR IMPAIR OUR ABILITY TO GENERATE REVENUES, OR ADVERSELY AFFECT OUR
PROFITABILITY.
We may enter into arrangements with contract manufacturing companies in
order to meet requirements for our products or to attempt to improve
manufacturing efficiency. If we choose to contract for manufacturing services,
we may encounter costs, delays and/or other difficulties in producing, packaging
and distributing our clinical trials and finished product. Further, contract
manufacturers must also operate in compliance with the GMP requirements; failure
to do so could result in, among other things, the disruption of our product
supplies. Our
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potential dependence upon third parties for the manufacture of our proposed
products may adversely affect our profit margins and our ability to develop and
deliver proposed products on a timely and competitive basis.
For the manufacture of the applications under development, we obtain
synthetic peptides from third party manufacturers. A synthesized version of
substance P is readily available at low cost from several life science and
technology companies that provide biochemical and organic chemical products and
kits used in scientific and genomic research, biotechnology, pharmaceutical
development and the diagnosis of disease and chemical manufacturing. If any of
these proposed manufacturing operations prove inadequate, there may be no
assurance that any other arrangements may be established on a timely basis or
that we could establish other manufacturing capacity on a timely basis.
Although, we believe that the synthetic substance P and other materials
necessary to produce Homspera are readily available from various sources, and
several suppliers are capable of supplying substance P in both clinical and
commercial quantities, our dependence on such manufacturers, may delay or impair
our ability to generate revenues, or adversely affect our profitability.
ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING HOMSPERA.
Our ability to earn sufficient revenue on Homspera or any other proposed
products will depend in part on the extent to which reimbursement for the costs
of such products and related treatments will be available from government health
administration authorities, private health coverage insurers, managed care
organizations and other organizations. Failure to obtain appropriate
reimbursement may prevent us from successfully commercializing Homspera or any
proposed products. Third-party payers are increasingly challenging the prices of
medical products and services. If purchasers or users of Homspera or any such
other proposed products are not able to obtain adequate reimbursement for the
cost of using such products, they may forego or reduce their use. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products and whether adequate third party coverage will be available.
THE MEDICAL COMMUNITY MAY NOT ACCEPT AND UTILIZE HOMSPERA, WHICH WOULD PREVENT
US FROM SUCCESSFULLY COMMERCIALIZING THE PRODUCT.
Our ability to market and commercialize Homspera depends on the acceptance
and utilization of Homspera by the medical community. We will need to develop
commercialization initiatives designed to increase awareness about us and
Homspera among targeted audiences, including public health activists and
community-based outreach groups in addition to the investment community.
Currently, we have not developed any such initiatives. Without such acceptance
of Homspera, the product upon which we expect to be substantially dependent, we
may not be able to successfully commercialize Homspera or generate revenue.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY OR COSTS.
We face an inherent business risk of exposure to product liability and
other claims and lawsuits in the event that the development or use of our
technology or prospective products is alleged to have resulted in adverse
effects. We may not be able to avoid significant liability exposure. We may not
have sufficient insurance coverage, and we may not be able to obtain sufficient
coverage at a reasonable cost. An inability to obtain product liability
insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of our products.
A product liability claim could hurt our financial performance. Even if we avoid
liability exposure, significant costs could be incurred that could hurt our
financial performance.
AS A RESULT OF OUR INTENSELY COMPETITIVE INDUSTRY, WE MAY NOT GAIN ENOUGH
MARKETSHARE TO BE PROFITABLE.
The biotechnology and pharmaceutical industries are intensely competitive.
We have numerous competitors in the United States and elsewhere. Because we are
pursuing potentially large markets, our competitors include major multinational
pharmaceutical companies, specialized biotechnology firms and universities and
other research institutions. Several of these entities have already successfully
marketed and commercialized products that will compete with our products,
assuming that our products gain regulatory approval. Competitors such as
Hollis-Eden Pharmaceuticals, Inc. have developed or are developing products for
treating aspects of severe acute radiation
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injury. Companies such as VaxGen, Inc., Acambis plc and Emergent BioSolutions
have developed or are developing vaccines against infectious diseases, including
anthrax.
Many of our competitors have greater financial and other resources, larger
research and development staffs and more effective marketing and manufacturing
organizations than we do. In addition, academic and government institutions have
become increasingly aware of the commercial value of their research findings.
These institutions are now more likely to enter into exclusive licensing
agreements with commercial enterprises, including our competitors, to develop
and market commercial products.
Our competitors may succeed in developing or licensing technologies and
drugs that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates before we do. If competing drug candidates prove to be more effective
or less costly than our drug candidates, our drug candidates, even if approved
for sale, may not be able to compete successfully with our competitors' existing
products or new products under development. If we are unable to compete
successfully, we may never be able to sell enough products at a price sufficient
to permit us to generate profits.
IF WE FAIL TO ATTRACT AND RETAIN HIGHLY SKILLED SCIENTIFIC PERSONNEL, OUR GROWTH
COULD BE LIMITED, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL POSITION.
Our future success depends in large part upon our ability to attract and
retain highly skilled scientific personnel. The competition in the scientific
industry for such personnel is intense, and we cannot be sure that we will be
successful in attracting and retaining such personnel. Most of our consultants
and employees and several of our executive officers began working for us
recently, and all employees are subject to "at will" employment. We cannot
guarantee that we will be able to replace any of our scientific personnel in the
event their services become unavailable.
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF RESEARCH AND DEVELOPMENT EFFORTS.
We own or have obtained a license to 4 issued U.S. and foreign patents and
24 pending U.S. and foreign patent applications. Our success will depend in part
on our ability to obtain additional United States and foreign patent protection
for our drug candidates and processes, preserve our trade secrets and operate
without infringing the proprietary rights of third parties. We place
considerable importance on obtaining patent protection for significant new
technologies, products and processes.
Our long-term success largely depends on our ability to market
technologically competitive processes and products. If we fail to obtain or
maintain these protections, we may not be able to prevent third parties from
using our proprietary rights. Our currently pending or future patent
applications may not result in issued patents. In the United States, patent
applications are confidential until patent applications are published or the
patent is issued, and because third parties may have filed patent applications
for technology covered by our pending patent applications without us being aware
of those applications, our patent applications may not have priority over any
patent applications of others. In addition, our issued patents may not contain
claims sufficiently broad to protect us against third parties with similar
technologies or products or provide us with any competitive advantage. If a
third party initiates litigation regarding our patents, and is successful, a
court could revoke our patents or limit the scope of coverage for those patents.
Legal standards relating to the validity of patents covering
pharmaceutical and biotechnology inventions and the scope of claims made under
such patents are still developing. In some of the countries in which we intend
to market our products, pharmaceuticals are either not patentable or have only
recently become patentable. Past enforcement of intellectual property rights in
many of these countries has been limited or non-existent. Future enforcement of
patents and proprietary rights in many other countries may be problematic or
unpredictable. Moreover, the issuance of a patent in one country does not assure
the issuance of a similar patent in another country. Claim interpretation and
infringement laws vary by nation, so the extent of any patent protection is
uncertain and may vary in different jurisdictions. The U.S. Patent and Trademark
Office, commonly referred to as the USPTO, and the courts have not consistently
treated the breadth of claims allowed in biotechnology patents. If the USPTO or
the courts begin to allow broader claims, the incidence and cost of patent
interference proceedings and the risk of
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infringement litigation will likely increase. On the other hand, if the USPTO or
the courts begin to allow narrower claims, the value of our proprietary rights
may be limited. Any changes in, or unexpected interpretations of the patent laws
may adversely affect our ability to enforce our patent position.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.
OUR PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT BE ENFORCEABLE AND THE PATENTS
AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT US FROM COMMERCIALIZING
PRODUCTS.
Although we believe our inventions to be protected and our patents
enforceable, the failure to obtain meaningful patent protection products and
processes would greatly diminish the value of our potential products and
processes.
In addition, whether or not our applications are issued, or issued with
limited coverage, others may receive patents, which contain claims applicable to
our products. Patents we are not aware of may adversely affect our ability to
develop and commercialize products.
The patent positions of biotechnology and pharmaceutical companies are
often highly uncertain and involve complex legal and factual questions.
Therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents cannot be predicted. We also rely upon non-patented trade secrets and
know how, and others may independently develop substantially equivalent trade
secrets or know how. We also rely on protecting our proprietary technology in
part through confidentiality agreements with our current and former corporate
collaborators, employees, consultants and certain contractors. These agreements
may be breached, and we may not have adequate remedies for any such breaches.
Litigation may be necessary to defend against claims of infringement, to enforce
our patents or to protect trade secrets. Litigation could result in substantial
costs and diversion of management efforts regardless of the results of the
litigation. An adverse result in litigation could subject us to significant
liabilities to third parties, require disputed rights to be licensed or require
us to cease using certain technologies.
Our products could infringe on the intellectual property rights of others,
which may cause us to engage in costly litigation and, if not successful, could
cause us to pay substantial damages and prohibit us from selling our products.
Because patent applications in the United States are not publicly disclosed
until the patent application is published or the patent is issued, applications
may have been filed which relate to services similar to those offered by us. We
may be subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties.
If our products violate third-party proprietary rights, we cannot assure
you that we would be able to arrange licensing agreements or other satisfactory
resolutions on commercially reasonable terms, if at all. Any claims made against
us relating to the infringement of third-party propriety rights could result in
the expenditure of significant financial and managerial resources and
injunctions preventing us from providing services. Such claims could severely
harm our financial condition and ability to compete.
In addition, if another party claims the same subject matter or subject
matter overlapping with the subject matter that we have claimed in a United
States patent application or patent, we may decide or be required to participate
in interference proceedings in the United States Patent and Trademark Office in
order to determine the priority of invention. Loss of such an interference
proceeding would deprive us of patent protection sought or previously obtained
and could prevent us from commercializing our products. Participation in such
proceedings could result in substantial costs, whether or not the eventual
outcome is favorable. These additional costs could adversely affect our
financial results.
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COMPLIANCE WITH ENVIRONMENTAL LAWS OR REGULATIONS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
We may be required to incur significant costs to comply with current or
future environmental laws and regulations. Although we do not currently
manufacture commercial quantities of our proposed products, we do produce
limited quantities of these products for our clinical trials. Our research and
development and manufacturing processes involve the controlled storage, use and
disposal of hazardous materials, biological hazardous materials and radioactive
compounds. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of these
materials and some waste products. Although we believe that our safety
procedures for handling and disposing of these materials comply with the
standards prescribed by these laws and regulations, the risk of contamination or
injury from these materials cannot be completely eliminated. In the event of an
incident, ImmuneRegen BioSciences, Inc. could be held liable for any damages
that result, and any liability could exceed our resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF A
KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS.
The execution of our present business plan depends on the continued
services of Michael K. Wilhelm, our Chief Executive Officer and President, and
Mark L. Witten, Ph.D., our acting Chief Scientific Officer. We do not currently
maintain key-man insurance on their lives. While we have entered into employment
agreements with each of them, the loss of any of their services would be
detrimental to us and could have a material adverse effect on our business,
financial condition and results of operations.
OUR COMPLIANCE WITH SECURITIES LAWS, RULES AND REGULATIONS TO WHICH WE ARE
SUBJECT COULD SUBSTANTIALLY INCREASE OUR OPERATING EXPENSES AND DIVERT
MANAGEMENT'S ATTENTION FROM THE OPERATION OF OUR BUSINESS.
Because our common stock is publicly traded, we are subject to a variety
of rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded. These entities, including the SEC, the
Public Company Accounting Oversight Board and the NASD OTC Bulletin Board, have
recently issued new requirements and regulations and are currently developing
additional regulations and requirements in response to recent laws enacted by
Congress, most notably the Sarbanes-Oxley Act of 2002. As certain rules are not
yet finalized, we do not know the level of resources we will have to commit in
order to be in compliance. Our compliance with current and proposed rules is
likely to require the commitment of significant financial and managerial
resources. As a result, our management's attention might be diverted from other
business concerns, which could negatively affect our business.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL OUR
BUSINESS AND MAY MAKE DECISIONS THAT ARE NOT IN OUR BEST INTERESTS.
Our officers, directors and principal stockholders, and their affiliates,
in the aggregate, own over a majority of the outstanding shares of our common
stock. As a result, such persons, acting together, have the ability to
substantially influence all matters submitted to our stockholders for approval,
including the election and removal of directors and any merger, consolidation or
sale of all or substantially all of our assets, and to control our management
and affairs. Accordingly, such concentration of ownership may have the effect of
delaying, deferring or preventing a change in discouraging a potential acquirer
form making a tender offer or otherwise attempting to obtain control of our
business, even if such a transaction would be beneficial to other stockholders.
RISKS RELATED TO THIS OFFERING
TRADING IN OUR SECURITIES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS THAT
COULD ADVERSELY AFFECT YOUR INVESTMENT.
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The market prices for securities of life sciences companies, particularly
those that are not profitable, have been highly volatile, especially recently.
Publicized events and announcements may have a significant impact on the market
price of our common stock. For example:
o biological or medical discoveries by competitors;
o public concern about the safety of our drug candidates;
o delays in the conduct or analysis of our preclinical or clinical
studies;
o unfavorable results from preclinical or clinical studies;
o unfavorable developments concerning patents or other proprietary
rights; or
o unfavorable domestic or foreign regulatory developments;
may have the effect of temporarily or permanently driving down the price of our
common stock. In addition, the stock market from time to time experiences
extreme price and volume fluctuations which particularly affect the market
prices for emerging and life sciences companies, such as ours, and which are
often unrelated to the operating performance of the affected companies. For
example, our stock price has ranged from $0.09 to $1.00 between January 1, 2004
and May 23, 2005.
These broad market fluctuations may adversely affect the ability of a
stockholder to dispose of his shares at a price equal to or above the price at
which the shares were purchased. In addition, in the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against that company. Any
litigation against our company, including this type of litigation, could result
in substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our business, financial condition and
results of operations.
A LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK.
Our common stock is currently traded on a limited basis on the OTC
Bulletin Board (the "OTCBB") under the symbol "IRBO". The OTCBB is an
inter-dealer, Over-The-Counter market that provides significantly less liquidity
than the NASDAQ Stock Market. Quotes for stocks included on the OTCBB are not
listed in the financial sections of newspapers as are those for the NASDAQ Stock
Market. Therefore, prices for securities traded solely on the OTCBB may be
difficult to obtain and holders of common stock may be unable to resell their
securities at or near their original offering price or at any price.
The NASD has enacted recent changes that limit quotations on the OTC
Bulletin Board to securities of issuers that are current in their reports filed
with the Securities and Exchange Commission. The effect on the OTC Bulletin
Board of these rule changes and other proposed changes cannot be determined at
this time.
The quotation of our common stock on the OTCBB does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent
years such market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of many smaller companies like us.
Our common stock is thus subject to this volatility.
BROKER-DEALER REQUIREMENTS FOR "PENNY STOCK" TRANSACTIONS MAY AFFECT THE ABILITY
OF OUR INVESTORS TO RESELL THEIR SECURITIES.
Our common stock is considered to be a "penny stock" since it meets one or
more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section
15(g) of the Securities Exchange Act of 1934, as amended. Section 15(g) of the
Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated
thereunder by the SEC require broker-dealers dealing in penny stocks to provide
potential investors with a document disclosing the
-16-
risks of penny stocks and to obtain a manually signed and dated written receipt
of the document before effecting any transaction in a penny stock for the
investor's account. Compliance with this and other requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.
SALES OR ISSUANCES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND YOUR RIGHTS IN US MAY BE REDUCED.
Certain of our stockholders have the right to register securities for
resale that they hold pursuant to registration rights agreements. We expect to
continue to incur product development and selling, general and administrative
costs, and in order to satisfy our funding requirements, we will need to sell
additional equity securities, which may be subject to similar registration
rights. The sale or the proposed sale of substantial amounts of our common stock
in the public markets may adversely affect the market price of our common stock.
An aggregate of 57,786,607 shares of our common stock are being registered with
the SEC in the registration statement. The registration and subsequent sales of
such shares of common stock will likely have an adverse effect on the market
price of our common stock.
The registration and subsequent sales of shares of our common stock will
likely have an adverse effect on the market price of our common stock. From time
to time, certain stockholders of our company may be eligible to sell all or some
of their shares of common stock by means of ordinary brokerage transactions in
the open market pursuant to Rule 144, promulgated under the Act ("Rule 144"),
subject to certain limitations. In general, pursuant to Rule 144, a stockholder
(or stockholders whose shares are aggregated) who has satisfied a one-year
holding periods may, under certain circumstances, sell within any three-month
period a number of securities which does not exceed the greater of 1% of the
then outstanding shares of our common stock or the average weekly trading volume
of the class during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of securities, without any
limitations, by a non-affiliate of our company who has satisfied a two-year
holding period. Any substantial sale of our common stock pursuant to Rule 144 or
pursuant to any resale prospectus may have an adverse effect on the market price
of our securities.
Our stockholders may experience substantial dilution and a reduction in
the price that they are able to obtain upon sale of their shares. Also, any new
equity securities issued, including any new series of preferred stock authorized
by our board of directors, may have greater rights, preferences or privileges
than our existing common stock. To the extent stock is issued or options and
warrants are exercised, holders of our common stock will experience further
dilution. In addition, as in the case of the warrants, in the event that any
future financing should be in the form of, be convertible into or exchangeable
for, equity securities and upon the exercise of options and warrants, security
holders may experience additional dilution.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains statements
relating to our future business and/or results, including, without limitation,
the statements under the captions "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business." These statements include certain projections and business trends
that are "forward-looking" within the meaning of the United States Private
Securities Litigation Reform Act of 1995 (the "PSLRA"). You can identify these
statements by the use of words like "may," "could," "should," "project,"
"believe," "anticipate," "expect," "plan," "estimate," "forecast," "potential,"
"intend," "continue" and variations of these words or comparable words.
Forward-looking statements do not guarantee future performance and involve risks
and uncertainties. Actual results will differ, and may differ materially, from
projected results as a result of certain risks and uncertainties. These risks
and uncertainties include, without limitation, those described under "Risk
Factors" and those detailed from time to time in our filings with the SEC, and
include, among others, the following:
o Our ability to raise additional funding and the amounts raised, if
any;
o Our ability to successfully develop and commercialize products based
on our therapies and technologies utilizing Homspera;
-17-
o A lengthy approval process and the uncertainty of FDA and other
government regulatory requirements may have a material adverse
effect on our ability to commercialize our applications;
o Clinical trials may fail to demonstrate the safety and effectiveness
of our applications or therapies, which could have a material
adverse effect on our ability to obtain government regulatory
approval;
o The degree and nature of our competition;
o Our ability to employ and retain qualified employees; and
o The other factors referenced in this prospectus, including, without
limitation, under the sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business."
Other sections of this prospectus may include additional factors which
could adversely impact our business and financial performance. Moreover, we
operate in a very competitive and rapidly changing environment. New risk factors
emerge from time to time and it is not possible for our management to predict
all risk factors, nor can we assess the impact of all factors on our business or
to the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
These forward-looking statements are made only as of the date of this
prospectus. Except for our ongoing obligation to disclose material information
as required by federal securities laws, we do not intend to update you
concerning any future revisions to any forward-looking statements to reflect
events or circumstances occurring after the date of this prospectus. The safe
harbor for forward-looking statements under the PSLRA does not apply to our
company.
-18-
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders, but we will receive funds from the exercise
of warrants held by selling stockholders, if exercised.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is approved for quotation on the NASD OTC Bulletin Board
under the symbol "IRBO". Previous to July 2, 2003, the Company traded under the
symbol "GPNN". The following table sets forth the high and low bid prices for
our common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.
2004
----------------------
High Low
---- ---
1st Quarter......................................... $ 1.00 $ 0.28
2nd Quarter......................................... 0.60 0.11
3rd Quarter......................................... 0.23 0.09
4th Quarter......................................... 0.50 0.15
2003
----------------------
High Low
---- ---
1st Quarter......................................... $ 0.01 $ 0.01
2nd Quarter......................................... 2.50 0.10
3rd Quarter......................................... 4.50 0.65
4th Quarter......................................... 1.13 0.28
On July 19, 2005, the closing price of our common stock as reported by the
OTC Bulletin Board was $0.30 per share. There were approximately 520
shareholders of record and beneficial stockholders of our common stock as of
such date. We have not paid any dividends on our common stock since inception
and do not intend to do so in the foreseeable future.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock, and
we currently intend to retain future earnings, if any, to finance the expansion
of our business, and we do not expect to pay any cash dividends in the
foreseeable future. The decision whether to pay cash dividends on our common
stock will be made by our board of directors, in their discretion, and will
depend on our financial condition, operating results, capital requirements and
other factors that the board of directors considers significant. We have never
declared or paid any dividends on our securities. We currently intend to retain
our earnings for funding growth and, therefore, do not expect to pay any
dividends in the foreseeable future.
-19-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Please note that the safe harbor
for forward-looking statements under the Securities Act of 1933 and the
Securities Exchange Act do not apply to our company. Our actual results could
differ materially from those set forth as a result of general economic
conditions and changes in the assumptions used in making such forward-looking
statements. The following discussion and analysis of our financial condition and
results of operations should be read together with the audited consolidated
financial statements and accompanying notes and the other financial information
appearing else where in this prospectus. The analysis set forth below is
provided pursuant to applicable Securities and Exchange Commission regulations
and is not intended to serve as a basis for projections of future events.
Except for historical information contained herein, the matters discussed
in this prospectus are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such forward-looking
statements may be identified by the use of certain forward-looking terminology,
such as "may," "expect," "anticipate," "intend," "estimate," "believe," or
comparable terminology that involves risks or uncertainties. Actual future
results and trends may differ materially from historical and anticipated
results, which may occur as a result of a variety of factors. Such risks and
uncertainties include, without limitation, factors discussed in management's
discussion and analysis of financial condition and results of operations set
forth below, as well as in "risk factors" set forth herein. Except for our
ongoing obligation to disclose material information as required by federal
securities laws, we do not intend to update you concerning any future revisions
to any forward-looking statements to reflect events or circumstances occurring
after the date of this prospectus.
OVERVIEW
We were originally incorporated in Delaware in June 1985 under the name
Vocaltech, Inc. to develop, design, manufacture and market products utilizing
proprietary speech-generated tactile feedback devices. We completed our initial
public offering of our securities in October 1987. We changed our name to
InnoTek, Inc. in November 1992. In January 1992, we effected a 1-for-6.3 reverse
stock split of our common stock. In December 1994, we acquired all of the
outstanding stock of InnoVisions, Inc., a developer and marketer of skin
protective products, discontinued our prior operations in their entirety and
changed our name to DermaRx Corporation. In April 2000, we effected a reverse
merger with a subsidiary of Go Public Network, Inc., which was engaged in
assisting early-stage development and emerging growth companies with financial
and business development services. We changed our name to GoPublicNow.com, Inc.,
effected a 1-for-5 reverse stock split and discontinued our prior operations in
their entirety. In November 2000, we changed our name to GPN Network, Inc. In
July 2001, we discontinued the operations of GPN Network, Inc. in their entirety
and began looking for appropriate merger partners. Our objective became the
acquisition of an operating company with the potential for growth in exchange
for our securities. In July 2003, we effected a reverse merger with ImmuneRegen
BioSciences, Inc. and adopted our current business model. In July 2003, we
effected a 1-for-20 reverse stock split, and in April 2004, we effected a
2-for-1 stock split. ImmuneRegen BioSciences, Inc. was incorporated in October
2002; all information contained herein refers to the operations of ImmuneRegen
BioSciences, Inc., our wholly-owned operational subsidiary.
GENERAL
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of health enhancing and potential
life saving products. Our product development is focused around Homspera(TM), a
proprietary compound that is derived from homeostatic substance P, a naturally
occurring peptide. Our focus is on the research and development of products that
we believe will treat the suppression of the body's immune system caused by
exposure to various forms of radiation, toxic inhalants and viral infectious
diseases. Currently, the majority of our efforts are in the research and
development of Radilex(TM), a compound derived from Homspera, as a
countermeasure to some of the effects caused by exposure to certain radiological
and nuclear threats.
-20-
In our studies to date, we have witnessed Homspera and Radilex to have
high anti-inflammatory and immunostimulatory properties. We believe the compound
is well-suited for treating some of the damaging effects of radiation injury
when given shortly after total body exposure to radiation. We have generated a
large amount of data in rodent animal models and toxicology studies relating to
the activity and safety of both Homspera and Radilex. To date we have conducted
two studies and co-sponsored five mouse studies in which Radilex was
administered after exposure to lethal doses of radiation. In these studies we
witnessed heightened survival rates in up to 50% of the exposed mice.
We own or have obtained a license to 4 issued U.S. and foreign patents and
24 pending U.S. and foreign patent applications. As we continue our research and
development efforts we will look to add to our portfolio of patents and
trademarks.
PLAN OF OPERATIONS
We expect to continue to incur increasing operating losses for the
foreseeable future, primarily due to our continued research and development
activities attributable to new and existing products and general and
administrative activities.
We spent approximately $65,849 and $21,382 for the first quarters ending
March 31, 2005 and 2004, respectively, in research and development activities
related to the development of Radilex as a protectant against the effects of
chemical, biological, radiological and nuclear threats. Due to our liquidity and
limited cash available, our spending on research and development activities was
limited. From our inception in October 2002, we have spent $281,417 in research
and development activities. These costs include the manufacture and delivery of
our drug by third party manufacturers, payments to Contract Research
Organizations ("CRO") for consulting related to our studies and costs of
performing such studies.
We anticipate that during the next 12 months we will increase our research
and development activities by approximately $450,000 to a total of approximately
$600,000 in an effort to further develop Radilex as a universal protectant
against chemical, biological, radiological and nuclear threats. The drug
development, clinical trial and regulatory process is lengthy, expensive and
uncertain and subject to numerous risks including, without limitation, the
following risks discussed under "Risk Factors" - "All Our Applications Are All
Derived From The Use Of Homspera. If Homspera Is Found To Be Unsafe Or
Ineffective, Our Business Would Be Materially Harmed.," "If We Fail To
Successfully Develop And Commercialize Products, We Will Have To Cease
Operations.;" and, "The Lengthy Product Approval Process And Uncertainty Of
Government Regulatory Requirements May Delay Or Prevent Us From Commercializing
Proposed Products."
Our major research and development projects include:
DEVELOPMENT OF RADILEX AS A COUNTERMEASURE TO THE EFFECTS OF RADIOLOGICAL
AND NUCLEAR THREATS.
--------------------------------------------------------------------------------
Because of the high anti-inflammatory and immunostimulatory properties of
Radilex that we have witnessed, we believe the compound is well-suited for
treating the damaging effects of radiation injury when given shortly after
exposure to total body irradiation. We have generated a large amount of data in
rodent animal models relating to the activity and safety of Radilex.
We are currently preparing the protocols for additional formulation and
stability studies. We expect these studies to be completed within 3 months.
Following these studies, we expect to perform toxicity inhalation studies. We
estimate that it will cost approximately $350,000 to complete the aforementioned
studies. Following these studies we expect to begin mouse study number eight. In
our eighth mouse study we expect further validate our prior studies by
collecting additional data as requested by the FDA and NIH. We expect to begin
the eighth study within the next 120 days. We estimate that the study will be
completed within 3 months of inception at an estimated cost of $100,000. Upon
completion of the aforementioned study we intend to prepare the protocols
necessary for a non-human primate study to test the efficacy of Radilex as a
treatment to acute radiation sickness and apply for an Investigative New Drug
("IND") application. We expect this study to begin within the next twelve to
eighteen months.
-21-
If we are successful in completing the study and achieve the desired
results, we will submit the necessary documentation to the FDA and other
regulatory agencies for approval. We believe that Radilex can be developed and
approval granted under Project BioShield, if so, we believe that the approval
process will be significantly shortened and less costly. If approval for Radilex
is granted in a timely manner, we expect to begin to commercialize our product
immediately thereafter. We are anticipating revenues from the sale of Radilex
beginning in calendar year 2007 as a treatment to the effects caused by
irradiation.
If product development or approval does not occur as scheduled our time to
reach market will be lengthened and our costs will likely increase.
Additionally, we may be requested to expand our findings to gather additional
data or we may not achieve the desired results. If so, we may have to design new
protocols and conduct additional studies. This will increase our costs and delay
the time to market for Radilex. Any of these occurrences would have a material
negative impact on our business and our liquidity as it may cause us to seek
additional capital sooner than expected and allow our competitors to
successfully enter the market ahead of us.
DEVELOPMENT OF RADILEX AS A COUNTERMEASURE TO THE EFFECTS OF CHEMICAL AND
BIOLOGICAL THREATS.
--------------------------------------------------------------------------------
We are currently continuing to research the efficacy of Radilex as a
universal protectant to be used also as a treatment for exposure to various
chemical and biological threats. We have generated data in preclinical studies
indicating that Radilex could potentially be used in treating respiratory
failure caused by exposure to various chemical and biological agents, such as
anthrax, ricin poisoning and other poisonous inhalants, as well as, infectious
diseases such as avian flu and SARS. We are continuing to design and perform
studies for the further development of Radilex for these applications. We have
budgeted approximately $35,000 for studies related to the use of Radilex as a
treatment for exposure to various chemical and biological threats. We anticipate
additional studies to begin in the third or fourth quarters of calendar 2005 and
continue on an ongoing basis over the next three years. If we are successful in
achieving desirable results, we intend to design the protocols and begin studies
for these indications, when capital is available. As we have only collected
preliminary data and additional studies are required, we cannot predict when, if
ever, a viable treatment can be commercialized. If we do not observe significant
results or we lack the capital to further the development, we may abandon such
research and development efforts; thereby limiting our future potential
revenues.
DEVELOPMENT OF HOMSPERA IN THE PROMOTION OF WOUND HEALING.
----------------------------------------------------------
We have observed in early preclinical studies that Homspera may have an
effect in promoting or accelerating wound healing. Within the next three months
we plan to begin preclinical studies to determine if Homspera could become a
candidate for further development as a compound used in wound healing. We
believe that such an application would have a large potential market and would
share synergies with potential uses for Radilex as a universal protectant. We
expect to begin studies regarding the use of Homspera in the promotion of wound
healing in the third quarter of calendar 2005. We do not have any research and
development expenses associated with the use of Homspera in wound healing in
2004 or 2003, as our observations were generated while conducting our radiation
studies. We have budgeted approximately $60,000 for the costs of such studies
over the next twelve months. We anticipate the completion of such studies within
eight months of commencement of the studies. If we achieve desirable results, we
will design the protocols and begin studies for these indications, when capital
is available. As we have only collected preliminary data and additional studies
are required, we cannot predict when, if ever, a viable product can be
commercialized. If we do not observe significant results or we lack the capital
to further the development, we may abandon such research and development
efforts; thereby limiting our future potential revenues.
We will need to generate significant revenues from product sales and or
related royalties and license agreements to achieve and maintain profitability.
Through March 31, 2005, we had no revenues from any product sales, royalties or
licensing fees, and have not achieved profitability on a quarterly or annual
basis. Our ability to achieve profitability depends upon, among other things,
our ability to develop products, obtain regulatory approval for products under
development and enter into agreements for product development, manufacturing and
commercialization. Moreover, we may never achieve significant revenues or
profitable operations from the sale of any of our products or technologies.
-22-
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements made in the fiscal quarter
ended March 31, 2005.
There were no off-balance sheet arrangements made in 2004.
REVENUES
We have not generated any revenues from operations from our inception. We
believe we will begin earning revenues from operations during calendar year 2007
as we transition from a development stage company to that of an active growth
and acquisition stage company.
COSTS AND EXPENSES
From our inception through March 31, 2005, we have incurred losses of
$8,047,524. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had current assets of $1,607,085 consisting of cash
of $1,600,000 and other current assets of $7,085. At March 31, 2005, we also had
current liabilities of $408,180, consisting of accounts payable and accrued
liabilities of $341,210 and notes payable of $66,970. This resulted in net
working capital at March 31, 2005 of $1,198,905. During the three months ended
March 31, 2005, the Company used cash in operating activities of ($550,971).
From the date of inception (October 30, 2002) to March 31, 2005, the Company has
had a net loss of ($8,047,524) and has used cash of ($2,625,316) in operating
activities.
The Company currently has no revenue. There is no guarantee that our
business model will be successful, or that we will be able to generate
sufficient revenue to fund future operations. As a result, we expect our
operations to continue to use net cash, and that we will be required to seek
additional debt or equity financings during the coming quarters. Since
inception, the Company has financed its operations through debt and equity
financing. While we have raised capital to meet our working capital and
financing needs in the past, additional financing is required in order to meet
our current and projected cash flow deficits from operations and development of
our product line. We met our cash requirements from our inception through March
31, 2005 via the private placement of $3,259,903 of our common stock, including
$1,190,857 net of costs from the exercise of common stock purchase warrants and
$973,500 from the issuance of notes payable, net of repayments.
In January 2005, we made a tender offer to temporarily reduce the exercise
price of certain warrants issued in October 2004 from $0.50 to $0.20 per share.
The tender offer expired on March 4, 2005. We accepted for exercise a total of
6,600,778 warrants validly tendered and not withdrawn pursuant to the terms of
the tender offer, which represents approximately 48% of the aggregate 13,780,449
warrants that were subject to the offer. We raised an aggregate of $1,190,857
from the tender offer, net of costs.
During the three months ended March 31, 2005, the Company paid a note
payable in the amount of $10,000.
At March 31, 2005, the Company had outstanding two unsecured notes payable
to Company shareholders in the aggregate amount of $66,970. Interest accrues at
8% per annum. Accrued interest at March 31, 2005 is $8,946. These notes were in
default at March 31, 2005. One of the two notes payable as of March 31, 2005 was
subsequently repaid in full for $4,998 ($3,900 principal & $1,098 accrued
interest) on April 11, 2005, releasing the Company from further obligations
under the note. On June 7, 2005, the remaining note in the principal amount of
$50,000 and all accrued interest of $15,003 were converted into 232,153 shares
of our common stock in accordance with the terms of the note.
-23-
We also previously issued convertible promissory notes in the aggregate
principal amount of $35,000. On December 24, 2004 all outstanding principal and
accrued interest was forgiven by the note holder. Consideration of $100.00 was
paid by us to the note holder. Under the terms of the agreement, the note holder
released us from all claims, known or unknown, relating to the amount owed.
Between June 2003 and August 2004 eleven investors entered into fifteen
convertible promissory notes totaling $558,500 with interest rates ranging
between 8% and 12% and having various maturities. In October 2004, these notes
were converted into equity in the aggregate amount of $558,500 plus accrued
interest of $56,757. For full and complete satisfaction of debt, we issued to
the note holders the following: (a) a number of shares of our common stock
determined by dividing the debt amount by $0.125, and (b) warrants to purchase,
at any time prior to the fifth anniversary following the date of issuance of the
warrant, a number of shares of our common stock equal to fifty percent (50%) of
the number of shares described above, at a price equal to $0.50 per share of
common stock. The warrants are identical to the warrants issued in the Private
Placement. Pursuant to the debt conversion we issued an aggregate of 6,694,149
shares of common stock and warrants to purchase 3,347,076 shares of common
stock. Under the terms of the conversion agreement, the note holders released us
from all claims, known or unknown, relating to the debt amount.
Pursuant to our employment agreement with Michael Wilhelm, our President
and Chief Executive Officer, dated December 16, 2002, we paid a salary of
$125,000 and $175,000 to Mr. Wilhelm during the first and second years of his
employment, respectively. Thereafter we paid, and will continue to pay, through
the term of Mr. Wilhelm's employment, an annual salary of $250,000. Mr.
Wilhelm's salary is payable in regular installments in accordance with the
customary payroll practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief
Financial Officer, dated February 15, 2005, we paid a salary of $60,000 until
the company completed a financing of $500,000 or more. This occurred on March 4,
2005 when the company completed a Tender Offer for warrants totaling $1,190,857
net of fees. From March 4, 2005, until December 31, 2005, we will pay an annual
salary of $85,000. Thereafter, we will pay an annual salary of $98,000 for the
second year ending December 31, 2006 and an annual salary of $112,000 for the
third year ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our company.
On December 16, 2002 we entered into a consulting agreement on a
month-to-month basis with Dr. Mark Witten, our chief research scientist and
director. Under the terms of this agreement, Dr. Witten agrees to place at the
disposal of us his judgment and expertise in the area of acute lung injury. In
consideration for these services, we agree to pay Dr. Witten a non-refundable
fee of $5,000 per month. .
Since our inception, we have been seeking additional third-party funding.
During such time, we have retained a number of different investment banking
firms to assist us in locating available funding; however, we have not yet been
successful in obtaining any of the long-term funding needed to make us into a
commercially viable entity. During the period from October 2004 to March 2005,
we were able to obtain financing of $3,590,136 from a series of private
placements of our securities (which resulted in net proceeds to us of
$3,182,845). Based on our current plan of operations all of our current funding
is expected to be depleted by the end of January 2006. If we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, it would have a material adverse effect on our business,
results of operations, liquidity and financial condition.
While we have successfully raised capital to meet our working capital and
financing needs in the past through debt and equity financings, additional
financing will be required in order to implement our business plan and to meet
our current and projected cash flow deficits from operations and development.
There can be no assurance that we will be able to consummate future debt or
equity financings in a timely manner on a basis favorable to us, or at all. If
we are unable to raise needed funds, we will not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. A material shortage of capital will
require us to take drastic steps such as reducing our level of operations,
disposing of selected assets or seeking an acquisition partner.
Until such time, if at all, as we receive adequate funding, we intend to
continue to defer payment of all of our obligations which are capable of being
deferred, which actions have resulted in some vendors demanding cash
-24-
payment for their goods and services in advance, and other vendors refusing to
continue to do business with us. In the event that we are successful in
obtaining third-party funding, we do not expect to generate a positive cash flow
from our operations for at least several years, if at all, due to anticipated
expenditures for research and development activities, administrative and
marketing activities, and working capital requirements and expect to continue to
attempt to raise further capital through one or more further private placements.
Based on our operating expenses and anticipated research and development
activities, we believe that we will require an additional $1 million to meet our
expenses over the next 12 months.
ACQUISITION OR DISPOSITION OF PLANT AND EQUIPMENT
-------------------------------------------------
We did not dispose or acquire any significant property, plant or equipment
during the first quarter ended March 31, 2005.
We do not anticipate the sale of any significant property, plant or
equipment during the next twelve months.
NUMBER OF EMPLOYEES
-------------------
From our inception through the period ended March 31, 2005, we have relied
on the services of outside consultants for services and currently have five
total employees, two contract employees and three full-time employees. Our
full-time employees are Michael K. Wilhelm, our Chief Executive Officer; John
Fermanis, our Chief Financial Officer; and, the third serves in an
administrative role. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. We do
not anticipate our employment base will significantly change during the next
twelve months, other than the addition of one senior level appointment to the
position of Senior Vice President of Scientific Development. As we continue to
expand, we will incur additional cost for personnel. This projected increase in
personnel is dependent upon our generating revenues and obtaining sources of
financing. There is no guarantee that we will be successful in raising the funds
required or generating revenues sufficient to fund the projected increase in the
number of employees.
CRITICAL ACCOUNTING POLICY
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires us
to make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
Future events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policy involves the most complex, difficult and subjective
estimates and judgments:
STOCK-BASED COMPENSATION
------------------------
In December 2002, the FASB issued SFAS No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS
No. 123 - Accounting for Stock-Based Compensation, providing alternative methods
of voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2003.
We elected to continue to account for stock-based compensation plans using
the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
the provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.
From its inception, the Company has incurred significant costs in connection
with the issuance of equity- based compensation, which is comprised primarily of
our
-25-
common stock and warrants to acquire our common stock, to non-employees. The
Company anticipates continuing to incur such costs in order to conserve its
limited financial resources. The determination of the volatility, expected term
and other assumptions used to determine the fair value of equity based
compensation issued to non-employees under SFAS 123 involves subjective judgment
and the consideration of a variety of factors, including our historical stock
price, option exercise activity to date and the review of assumptions used by
comparable enterprises.
We account for equity based compensation, issued to non-employees in
exchange for goods or services, in accordance with the provisions of SFAS No.
123 and EITF No. 96-18, "Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In November 2004, the Financial Accounting Standards Board (FASB) issued
SFAS 151, Inventory Costs--an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This
-26-
Statement also amends FASB Statement No. 67, Accounting for Costs and Initial
Rental Operations of Real Estate Projects, to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in SOP 04-2. This Statement is
effective for financial statements for fiscal years beginning after June 15,
2005. with earlier application encouraged. The Company does not anticipate that
the implementation of this standard will have a material impact on its financial
position, results of operations or cash flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions ("SFAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005 AND FOR
THE PERIOD OF INCEPTION (OCTOBER 30, 2002) TO MARCH 31, 2005.
REVENUE
We are in the development stage and have no revenue.
SALES, GENERAL, AND ADMINISTRATIVE EXPENSES
Sales, general, and administrative expenses ("SG&A") were $838,520 for the
three months ended March 31, 2005, a decrease of $92,554 or approximately 10%
compared to SG&A of $931,074 during the three months ended March 31, 2004. For
the three months ended March 31, 2005, this amount consisted primarily of
non-cash compensation issued to consultants of $299,943, legal and accounting
fees of $161,806, other consulting fees of $117,739, payroll and related costs
of $77,574, and research and development expenses of $65,849.
The Company expects SG&A to increase during the coming twelve months as we
continue to utilize non-cash compensation in order to conserve cash, we build
out the Company's infrastructure, and continue to develop the Company's line of
potential products.
INTEREST EXPENSE
Interest expense was $977 for the three months ended March 31, 2005, a
decrease of $303,101 or approximately 99% compared to interest expense of
$304,078 for the three months ended March 31, 2004. Interest expense was
dramatically reduced because the Company paid or converted to equity most of its
outstanding debt during the three months ended December 31, 2004.
The Company expects interest expense to remain at low levels during the
coming twelve months.
-27-
NET LOSS
For the reasons above, the net loss for the three months ended March 31,
2005 was $839,497, a decrease of $395,655 or 32% compared to a net loss of
$1,235,152 for the three months ended March 31, 2004.
The Company expects losses to increase during the coming twelve months.
The Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as we move our line of potential
products through the testing and approval phases, and as we build out our
corporate infrastructure.
SALES, GENERAL, AND ADMINISTRATIVE EXPENSES
Sales, general, and administrative expenses ("SG&A") were $6,428,404 from
the period of inception (October 30, 2002) to March 31, 2005.
INTEREST EXPENSE
Interest expense was $1,179,120 from the period of inception (October 30,
2002) to March 31, 2005.
NET LOSS
Our net loss was $8,047,524 from the period of inception (October 30,
2002) to March 31, 2005.
RESULTS OF OPERATIONS FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 2004
COMPARED TO THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 2003.
REVENUE
We are in the development stage and have no revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $4,498,390 for the
twelve months ended December 31, 2004 which is an increase of $3,452,614 or 330%
compared to selling, general and administrative expenses of $1,045,776 for the
twelve months ended December 31, 2003. These expenses are primarily comprised of
non-cash compensation of $3,284,577, legal and accounting fees of $271,077,
officer wages of $175,000, research and development costs of $150,091,
consulting fees of $169,311, and contract labor of $89,989.
Over the coming twelve months, we expect legal and accounting fees to
remain high due to the compliance requirements of our company's publicly-traded
status. In addition, we intend to investigate possible acquisitions and
strategic alliance arrangements which will require legal and accounting due
diligence. Expenses related to contract labor and personnel are expected to
increase over the coming twelve months as our overhead and administrative burden
increases. Officer salary will increase during the coming twelve months to
approximately $250,000 pursuant to contractual arrangements. We may also hire
additional and/or part-time employees to discharge certain critical functions
during the next 12 months. We expect to hire one additional employee during the
next 12 months. Research and development costs are expected to increase by
approximately $600,000 as we further focus on developing our products for the
marketplace. Rent expense is expected to stay constant for the coming twelve
months.
INTEREST EXPENSE
Interest expense was $807,017 for the twelve months ended December 31,
2004, an increase of $436,091 or 117% compared to interest expense of $370,926
for the twelve months ended December 31, 2003. This amount consists of
amortization of the discount on notes payable of $704,633 and interest on notes
payable of $102,384.
We expect interest expense will decrease over the next twelve months as we
have either repaid or converted substantially all of this debt into shares of
our common stock in November 2004.
-28-
NET LOSS
For the reasons above, the net loss for the twelve months ended December
31, 2004 was $5,305,407, an increase of $3,448,705 or 186% compared to a net
loss of $1,856,702 for the twelve months ended December 31, 2003.
We expect our losses to continue and to increase over the coming twelve
months. We do not expect to expect to begin to generate revenue in the next
twelve months, and costs are likely to increase as we move our products through
the testing and approval phases, and as we continue to build out our corporate
infrastructure.
RESULTS OF OPERATIONS FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 2004 AND
FOR THE PERIOD OF INCEPTION (OCTOBER 30, 2002) TO DECEMBER 31, 2004.
REVENUE
We are currently in the development stage and have not yet generated any
revenue.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $4,498,390 for the
twelve months ended December 31, 2004. These expenses are primarily comprised of
non-cash compensation of $3,284,577, legal and accounting fees of $271,077,
officer wages of $175,000, research and development costs of $150,091,
consulting fees of $169,311, and contract labor of $89,989.
Total selling, general and administrative expenses for the period of
inception (October 30, 2002) through December 31, 2004, were $5,589,884. This
increase of $1,091,494 from the twelve months ended December 31, 2004 consists
primarily of an additional $125,000 in officer wages, an additional $264,630 in
legal and accounting fees, an additional $204,354 in consulting fees, and an
additional $86,611 in non-cash compensation.
MERGER FEES AND COSTS
Merger fees and costs were $0 for the twelve months end December 31, 2004
and $350,000 for the period of inception (October 30, 2002) to December 31,
2004. This amount is related to the reverse merger between GPN Network, Inc. and
ImmuneRegen Biosciences, Inc., which was consummated in July 2003. $185,000 of
this amount were monies paid to the former controlling shareholder of GPN
Network, Inc., and the remaining $165,000 of these funds were used to satisfy
certain outstanding liabilities of GPN Network, Inc.
During the twelve months ending December 31, 2005 we may investigate
potential acquisition candidates, and the potential cash costs of such an
acquisition or acquisitions is not possible to forecast.
FINANCING COST
Financing costs were $0 for the twelve months ending December 31, 2004 and
$90,000 for the period of inception (October 30, 2003) to December 31, 2004.
This amount consists of non-refundable prepaid travel and road show costs
relating to the reverse merger and an aborted private offering.
INTEREST EXPENSE
Interest expense during the twelve months ended December 31, 2004 was
$807,017. This amount consists of interest payable on our notes payable. An
additional $68,824 of interest was accrued during the period of inception
(October 30, 2002) through December 31, 2004.
-29-
NET LOSS
For the reasons stated above, our net loss for the twelve months ending
December 31, 2004 was $5,305,407 or $0.16 per share. For the period of inception
(October 30, 2002) through December 31, 2004, our net loss was $7,208,027 or
$0.28 per share. We expect that losses will continue through the period ending
December 31, 2005.
BUSINESS
OVERVIEW
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of health enhancing and potential
life saving products. Our product development is focused around Homspera(TM), a
proprietary compound that is derived from homeostatic substance P, a naturally
occurring peptide. We believe Homspera can be used as treatment for various
medical conditions as our preclinical animal studies have shown the compound to
have very high anti-inflammatory and immunostimulatory properties when
introduced into the body. To date, results from several animal studies and
initial toxicology data have shown Homspera to be safe.
Our patents and continued substance P research are derived from
discoveries made during research studies funded by the Air Force Office of
Scientific Research in early 1991 by our Chief Scientific Officer and Director,
Dr. Mark Witten. These studies further showed that the administration of
Homspera prevented and reversed the damaging effects of jet fuel exposure in the
lungs, as well as protecting and regenerating the immune system. These findings
led to early research on treatments for exposure to acute radiation, toxic
inhalants, viral infection and on the reversal of lung damage.
In December 2002 we entered into consulting agreements on a month-to-month
basis with Dr. Mark Witten and Dr. David Harris, who are our two founders and
largest shareholders. Under the terms of these agreements, Drs. Witten and
Harris agree to place at the disposal of us their judgment and expertise in the
area of acute lung injury. In consideration for these services, we agree to pay
each of Drs. Witten and Harris a non-refundable fee of $5,000 per month.
In December 2002, we entered into a royalty-free license agreement with
Drs. Witten and Harris. Under the terms of the license agreement, Drs. Harris
and Witten granted to us an exclusive license to use and sublicense certain
patents, medical applications, and other technologies developed by them. Our
obligations under this agreement include (i) reasonable efforts to protect any
licensed patents or other associated property rights; (ii) reasonable efforts to
maintain confidentiality of any proprietary information; (iii) upon the granting
by the U. S. Food and Drug Administration to us the right to market a product,
we will maintain a broad form general liability and product liability insurance.
Our current area of focus is on the development of Radilex(TM) as a
universal protectant against various potential forms of injury caused by
chemical, biological, radiological and nuclear threats. We are developing
Radilex pursuant to a new rule enacted by the U.S. Food and Drug Administration
("FDA") under which approval may be granted solely on the basis of proof of
safety in humans and proof of efficacy in relevant animal species. We have
chosen this area of focus initially because we believe that it offers us the
best potential to reach a large market quicker and more cost effectively as
compared to the development of a drug under a traditional medical indication
model.
The majority of our efforts are in the research and development of Radilex
as a countermeasure to the effects of radiological and nuclear threats. Because
of the high anti-inflammatory and immunostimulatory properties of Radilex that
we have witnessed, we believe the compound is well-suited for treating the
damaging effects of radiation injury when given shortly after total body
irradiation. We have generated a large amount of data in rodent animal models
relating to the activity and safety of both Homspera and Radilex. To date we
have completed seven mouse studies in which Radilex was administered after
exposure to lethal doses of radiation. In these studies we witnessed heightened
survival rates in up to 50% of the exposed mice.
Based on data collected in our preclinical animal studies, we believe that
similar results would be possible in humans. We are now finalizing the protocols
that we believe will allow us to initiate pivotal large animal trials
-30-
that will be necessary for establishing efficacy in treating the effects of
exposure to radiation. Within the next twelve months, we expect to begin studies
in non-human primates in order to collect data on the efficacy of Radilex in the
treatment of exposure to radiation. In conjunction, we are establishing all of
the manufacturing, toxicology and human safety data that will be needed to
support a New Drug Application (NDA).
We are continuing to research the efficacy of Radilex as a universal
protectant, used to treat not only radiological and nuclear threats, but also as
a treatment for exposure to potential chemical and biological threats. We have
generated data in preclinical studies indicating that Radilex could conceivably
be used in treating respiratory failure caused by exposure to various chemical
and biological threats, such as anthrax, ricin poisoning and other poisonous
inhalants, as well as infectious diseases such as avian flu and SARS. We are
continuing to design and perform studies for the further development of Radilex
in treating these potential threats.
We have observed in early preclinical studies that Homspera may have an
effect in promoting or accelerating wound healing. We plan to conduct
preclinical studies to determine if Homspera could become a candidate for
further development as a compound to be used in wound healing. We believe that
such an application would have a large potential market and would share
synergies with potential uses for Radilex.
Our initial data shows that both Homspera and Radilex can be produced
quickly and cost-effectively in large quantities, are easily administered using
an inhaler or puffer device, are easy to store and have a reasonable shelf
lives. Further, in that Radilex may have efficacy in the treatment of the
life-threatening effects of radiation exposure, we believe there may be strong
interest by government agencies to stockpile Radilex if it is successfully
developed. We believe this would not only provide us with an existing market
opportunity, but would also require less infrastructure to market our product,
thereby allowing us to commercialize Radilex at a substantially lower cost. We
are currently in discussions with drug manufacturers and government officials,
both foreign and domestic, with regard to such possibilities.
Our principal offices are located at 4021 North 75th Street, Suite 201,
Scottsdale, Arizona 85251 and our telephone number is (480) 922-3926. We are
incorporated in Delaware. We maintain a website at www.immuneregen.com. The
reference to our worldwide web address does not constitute incorporation by
reference of the information contained on our website.
HOMSPERA AND SUBSTANCE P
Substance P (SP) is a naturally occurring small (1348 D molecular weight)
peptide of 11 amino acids that is localized to the nerves in the airways of
several species, including humans. It is the most potent member of the
tachykinin family of neuropeptides, which are widely distributed in the
peripheral and central nervous systems and have direct, receptor-mediated
actions on most tissues and organs.
The receptor mediating the effects of Substance P is the NK-1 tachykinin
receptor (Nantel, F., Rouissi, N., Rhaleb, N. E., Dion, S., Drapeau, G., &
Regoli, D. (1990) EUR. J. PHARMACOL. 179, 457-462; Seelig A et al, (1996)
BIOCHEMISTRY 35, 4365-4374), but unlike other tachykinins, SP does not induce
bronchoconstriction when administered in vivo by infusion or inhalation. This
non-classic behavior enables the inhalation of Substance P analogs such as Sar9,
Met (O2)11-Substance P without apparently compromising respiratory function.
This in turn may provide an easily accessible access point for administration of
such agents to large populations in the absence of trained health care
professionals, a valuable trait for a Universal Protectant of potential use
prophylactically or in mass casualty situations.
The primary amino acid sequence of SP and of Sar9, Met (O2)11-Substance P
are distinct from Neurokinin A and B in the region of the molecule associated
with bioactivity rather than binding affinity, thus supporting the unique
bioactivity profile of Sar9, Met (O2)11-Substance P and SP relative to other
tachykinins.
SUBSTANCE P
-----------
A review of the Substance P literature reveals a number of activities
attributable to the peptide which are initially homeostatic in stress
situations, but which could be harmful if overactive in cases of severe or
chronic stress. As such, as described below, they could be targets for Sar9, Met
(O2)11-Substance P administration following
-31-
exposure to radiation or to respiratory trauma (e.g., inhalant toxicity,
microbiological or virological exposure) to protect against cellular and
organismal damage.
Example of some Substance P mediated activities reported in the
literature:
- Vasodilation and increased blood flow
- Increased fibrinolysis
- Stimulates growth hormone secretion
- Enhance hematopoeisis
- Immune system stimulation
Additionally, SP has been shown by ImmuneRegen-associated and/or funded
research scientists to protect respiratory function in a model of jet fuel
induced pulmonary damage in a series of studies over the past decade (some also
funded by the Department of Defense). Additional information is provided below,
and is available from ImmuneRegen.
SP is associated with C-nerve fibers in the respiratory system and is
implicated in airway reactivity, although as mentioned above, when SP is
administered in vivo by infusion or inhalation, in contrast to other
tachykinins, it does not induce bronchoconstriction.
SP has different dose (concentration) dependent effects on target cells
and tissues, especially in the pulmonary system. At lower concentrations, SP
demonstrates protective and immune stimulating effects. SP is regulated
(deactivated) by an enzyme named Neutral Endopeptidase (NEP). Under normal
conditions, there is adequate NEP available to deactivate SP a short time after
release from the C-nerve fibers, thus the activity of SP will be protective to
external triggers of cell damage. Once NEP activity is diminished or overwhelmed
by high local SP concentrations, the relative overexpression of SP will cause
negative tissue effects and promote inflammation and tissue damage. In the
absence of SP due to either long term depletion or prolonged receptor blockade,
but in the presence of normally balancing homeostatic factors, the inadequate
levels will be pro-inflammatory as well. Thus the balance between SP and other
peptidergic or stress-related factors can have profound inpact on the organisms
state of health.
The importance of SP in maintaining pulmonary (and immune) function was
investigated by ImmuneRegen-associated scientists, who reported that short-term
(7 days) exposure of C57BL/6 mice to low concentrations of environmental
hydrocarbons (i.e. jet fuels) resulted in profound and significant alterations
in the pulmonary and immune systems as well as a depletion of Substance P in the
bronchoalveolar fluids of the lung. In confirmatory experiments in which
endogenous lung SP was depleted (by capsaicin injection) prior to hydrocarbon
exposure, the effects of jet fuel on the pulmonary system were observed to be
more severe.
When aerosolized SP was administered to jet fuel exposed animals it
reversed and/or prevent many of the resulting pathological lung effects and the
immunotoxicological effects.
SAR9, MET (O2)11 - SUBSTANCE P
------------------------------
Not as extensively investigated as endogenous SP, Sar9, Met
(O2)11-Substance P has been reported to
- Enhance immunoglobulin production
- Enhance interleukin-2 production
- Facilitate platelet synthesis
- Enhance leukocyte (white blood cell) production
- Regulate PARP (poly-(adenosy-ribosy)polymerase-1)
Briefly, PARP is a family of 18 proteins involved in DNA surveillance and
repair, specifically of single and double-stranded breaks of the type induced by
ionizing radiation. In circumstances of low to moderate DNA damage, PARP-1
activation is curative, but in situations of intense DNA damage, activation of
PARP-1 causes depletion of cellular energy stores ((beta)-nicotinamide adenine
dinucleotide (NAD) and ATP), ultimately leading to fatal energy loss and
apoptosis, or programmed cellular death.
-32-
As we have added Dr. Mark Smulson to our Drug Development Advisory Board,
an expert in PARP, enormous excitement has accompanied the recognition that
PARP-1 suppression protects against cellular stresses accompanying ischemia,
inflammation, diabetes and septic shock in animal models, and we have evidence
that Sar9, Met (O2)11-Substance P can suppress PARP-1 activity and apoptosis.
CYTOKINES AND IMMUNE FUNCTION
-----------------------------
Substance P and Homspera both exhibit various and powerful effects on
different blood and tissue cell types at physiological levels, likely via the
cytokines (termed interleukins) released from cells of the immune system
(generally leukocytes). Some of the immune system cell targets and effects of
Substance P and Homspera are presented.
Target Effect
-----------------------------------------------------------------------------------------------------------------
Macrophages Chemotaxis, phagocytosis, release of IL- 1,6,12,TNF(alpha), PGE2, TXB2, superoxide
Monocytes Chemotaxis, phagocytosis, release of IL- 1,6,12,TNF(alpha), PGE2, TXB2, superoxide
Mast Cells Degranulation, release of TNF(alpha)
Lymphocytes Proliferation, chemotaxis, Lg synthesis, IL2 release
Neutrophils Adhesion, chemotaxis, release of IL8 and superoxide
Eosinophils Chemotaxis, degranulation, release of superoxide
Endothelial Cells Chemotaxis, angiogenesis, ICAM1
Smooth Muscle Cells Proliferation
Fibroblasts Chemotaxis, proliferation
The immune system cells called macrophages play a major role in the
actions of SP and Sar9, Met (O2)11-Substance P. These cells contain the DNA that
codes for the precursors of many of the tachykinins, including SP. Additionally,
macrophage NK1 receptors play an active role in the action of SP. SP binding to
its macrophage receptor actually stimulates additional tachykinin synthesis.
Thus, newly formed intracellular SP will be expelled from the macrophage via
exocytosis and local SP levels will rise in the blood or tissues.
In response to these elevated SP levels, the macrophages will synthesize
additional NK1 receptors on their surfaces. In the absence of balancing factors,
available Neutral Endopeptidase (NEP) may not be sufficient to keep SP levels in
a low or physiological range. Thus there will be an excess amount of SP
available to activate the macrophage NK1 receptors, triggering a vicious cycle,
and responsible for the destructive effects of high Substance P levels on cells
and tissues.
Evidence reveals that Homspera has a higher NK1 receptor affinity
(stronger receptor binding) than SP, thus it competes with SP at the NK1
receptor and prevents SP binding to the receptor. It is believed that Homspera
although bound to the receptor, does not similarly activate SP transcription and
thus there is no increase of intracellular SP and subsequently no exocytosis of
SP that would increase local SP levels. Thus, due to the low endogenous SP
activity expressed by Homspera, it appears to act as a partial agonist,
providing immune stimulatory activity on its own, but protecting against the
overload of excessive SP.
Thus it appears that Sar9, Met (O2)11-Substance P acts via a receptor
mediated mechanism in two distinct ways, through endogenous partial agonist
activation of immune system function and via inhibition of the SP-mediated
positive feedforward loop that underlies SP-overexpression toxicity.
Additionally, via inhibition of PARP-1, Sar9, Met (O2)11-Substance P can
directly prevent apoptosis at the level of the cell nucleus.
PRODUCTS IN DEVELOPMENT
Radilex
We are currently focusing our development efforts on Radilex as a
potential countermeasure for exposure to lethal doses of radiation in humans. As
traditional efficacy studies would require healthy human volunteers to be
exposed to potentially lethal effects of radiation, Radilex is being developed
pursuant to a new rule enacted by the U.S. Food and Drug Administration (FDA)
under which approval may be granted solely on the basis of proof of efficacy in
relevant animal species and proof of safety in humans. We believe that this will
not only greatly
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accelerate the development of Radilex(TM) but also will substantially reduce our
development costs and allow us to enter the marketplace more quickly as compared
to following a traditional drug development program.
To date we have conducted two studies and co-sponsored five radiation
studies using Radilex on mice to determine dose response to radiation, the
maximum efficacious dose, the impact on survival and to distinguish survival
response between aerosol versus intra muscular delivery. In each of these
studies mice were exposed to varying levels of radiation.
Our studies to date are summarized below:
o Pilot Studies numbers 1 and 2, co-sponsored by us, attempted to find
a 50% lethal dose (LD50) total body dose of Gamma radiation in a
C57BL/6 male mouse. We found that an LD50 dose was impractical
because the threshold between no lethality and complete lethality
was so small.
o Pilot study number 3, co-sponsored by us, was intended to determine
if Homspera treatment would prolong life in C57BL/6 male mice
exposed to a single total body irradiation 9 gy dose of Gamma
radiation. The radiation exposed, Homspera treated mice lived an
average of two days longer than untreated, radiation exposed mice.
o Pilot Study number 4, co-sponsored by us, analyzed whether Homspera
treatment would prolong life in C57BL/6 male mice exposed to a
single total body 7.75 gy dose of Gamma radiation. The Homspera
Treated, radiation exposed mice lived an average of 17.3 days longer
than untreated but radiation exposed mice.
o Pilot Study number 5, co-sponsored by us, was meant to find a
long-term survival rate of C57BL/6 male mice exposed to a single
total body, 7.75 gy dose of Gamma radiation. 50% of radiation
exposed, Homspera treated mice survived at 90 days post exposure.
When compared with non-irradiated mice, the Homspera treated,
radiation exposed mice showed no significant differences in their
immune system.
o Pilot Study number 6, conducted by us, was initiated at the request
of the US FDA to determine efficacy in treating radiation exposure
with Homspera by intramuscular injection, rather than inhalation.
The study compared inhalation to direct injection over a range of
radiation and Homspera doses, and found that direct injection did
not offer any particular advantage.
o Pilot Study number 7, conducted by us, was intended to find a
maximum efficacious dose of Homspera in mice exposed to total body
7.75 gy dose of Gamma radiation. All mice remained alive until 17
days post exposure, when they were exposed to a second dose of
radiation, at 9 gy. All of the mice died at roughly the same time.
However, this study was confounded by the fact that the mice spent
their first 7 days post-exposure in Biolevel 2 conditions.
PLANNED STUDIES
Study planning is taking into account both the short-term and long-term
needs to support both the Homeland Security opportunity regarding the Strategic
National Stockpile as well as for NIH and FDA clearance under either the "Animal
Rule" enabling accelerated approval for indications that can not ethically be
tested in humans, or for more traditional marketing approval via the IND/NDA
process.
Currently, we are finalizing the protocols for an eighth mouse study. We
are designing this study to achieve proof of concept, as well as obtaining the
optimum dosing regime, drug dosage levels and delivery method. This study will
evaluate the survival impact of Radilex following exposure to various gamma
radiation levels; to validate the effects of Radilex on PARP-1 levels/expression
following irradiation; to determine Radilex levels in major organs; to determine
the impact of Radilex on survival when administered 12, 24 and 36 hours
following cobalt radiation exposure; and, to validate and compare survival rates
of aerosol versus intra muscular delivery. We expect this study to begin within
the next 60 days.
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We are also determining the protocols that we believe will allow us to
initiate pivotal large animal trials that will be necessary for establishing
efficacy. We expect these studies to begin within the next 12 to 18 months. In
conjunction with this, we are establishing protocols for toxicology and human
safety studies that will be needed to support a New Drug Application (NDA).
Furthermore we are also researching the efficacy of Radilex as a treatment
for exposure to various chemical and biological agents. We have generated data
in preclinical studies indicating that Radilex could potentially be used in
treating respiratory failure caused by exposure to various chemical and
biological threats, such as anthrax, ricin poisoning and other poisonous
inhalants, as well as infectious diseases.
Listed below are some of the studies that we currently anticipate
performing over the next 12 months:
o Confirm radiological dose-response in model system under GLP
conditions for FDA/NIH review
o Confirm inhalation route versus IM provides ease of dosing
post-exposure in mass casualty environment
o Qualify radiolabeled Radilex for pharmacokinetics and organ
distribution on inhalation
o Determine Radilex protection via Kaplan-Meier survival data
analysis, log-probit transformation for Dose Reduction Factor
determination
o Determine Radilex effects on PARP-1 in various organs, as well as
neutropenia and thrombocytopenia
o Demonstrate Radilex efficacy versus inhaled biologics
o Perform rodent and non-rodent FDA/ICH-compliant safety studies; and,
o Perform Primate studies to confirm distribution, dose effect and
biological safety.
ACUTE RADIATION SICKNESS (ARS)
------------------------------
Radiation sickness, known as acute radiation sickness or syndrome, is a
serious illness that occurs when the entire body (or most of it) receives a high
dose of radiation, usually over a short period of time. Severe body injury can
result from such exposure including: skin damage; lung radiation injury, similar
to Acute Respiratory Distress Syndrome; hematopoietic syndrome, which includes
thrombocytopenia and neutropenia; and, damage to the body's organs. The chance
of survival for people with ARS decreases with increasing radiation dose. Most
people who do not recover from ARS will die within several months of exposure.
The cause of death in most cases is the destruction of the person's bone marrow,
which results in infections and internal bleeding. For the survivors, the
recovery process may last from several weeks up to 2 years.
MARKET FOR OUR PRODUCTS
-----------------------
Because of past terrorist events, people have expressed much greater
concern about the possibility of a terrorist attack involving radioactive
materials, possibly through the use of a "dirty bomb," and the harmful effects
of radiation from such an event.
The adverse health consequences of a terrorist nuclear attack vary
according to the type of attack and the distance a person is from the attack. In
light of the current risk of terrorism, high-risk areas include military
installations, major metropolitan areas and those areas surrounding nuclear
power plants or spent fuel facilities. Additionally, Radilex could potentially
be made available for distribution in the event of a natural disaster or
accident to those individuals living near nuclear power plants, spent fuel
facilities and those living along transport routes of radioactive materials. The
uncertainties of terrorism, natural disasters and accidents coupled with a
virtually unlimited number of individuals that could potentially be affected,
presents us with significant, untapped market opportunities not only
domestically, but also throughout the world.
-35-
Based on our studies we believe that Radilex must be administered as soon
as possible after exposure to radiation. Due to the suddenness of a potential
attack or disaster and the number of people that would be affected, we believe
that Radilex would need to be stockpiled to be appropriately distributed.
Administration of Radilex can be done quickly and cost effectively using an
inhaler or puffer device. In that Radilex may prove effective in the treatment
of the life-threatening effects of radiation exposure, we believe there may be
strong interest by government agencies to stockpile Radilex if it is
successfully developed. We are currently in discussions with drug manufacturers
and government officials with regard to such possibilities.
RESEARCH AND DEVELOPMENT
Due to our liquidity and limited cash available, our spending on research
and development activities in 2003 and most of 2004 was limited. We spent
approximately $150,091 and $42,972 in 2004 and 2003, respectively, in research
and development activities related to the development of Radilex as a universal
protectant against the effects of chemical, biological, radiological and nuclear
threats. From our inception in October 2002, we have spent $193,063 in research
and development activities. These costs include the manufacture and delivery of
our drug by third party manufacturers, payments to Contract Research
Organizations ("CRO") for consulting related to our studies and costs of
performing such studies.
We anticipate that during the next 12 months we will increase our research
and development activities by approximately $450,000 to a total of approximately
$600,000 in an effort to further develop Radilex as a universal protectant
against chemical, biological, radiological and nuclear threats.
COMPETITION
We are engaged in segments of the biopharmaceutical industry that are
intensely competitive and rapidly changing. Based on recent world events and
aggressive governmental legislation, we believe a large market opportunity has
developed. Given this large potential market, numerous pharmaceutical and
biotechnology companies have directed their research efforts toward developing
therapeutics to treat the same indications that we are researching.
If successfully developed and approved, we believe that there is a
significant market for Radilex relating to the treatment of exposure to
radiation and poisonous inhalants. We anticipate that, even if we successfully
develop Homspera and Radilex and they are approved for marketing, we will face
intense and increasing competition in the future as new products enter the
market and advanced technologies become available. There can be no assurance
that existing products or new products for the treatment of such ailments
developed by competitors, including Hollis-Eden Pharmaceuticals, Inc., VaxGen,
Inc., Acambis plc, Emergent BioSolutions, Inc. and other larger
biopharmaceutical companies, will not be more effective or more effectively
marketed and sold. Competitive products or the development by others of a cure
or new treatment methods may render our technologies and products and compounds
obsolete, noncompetitive or uneconomical prior to our recovery of development or
commercialization expenses incurred with respect to any such technologies or
products or compounds.
We believe that due to the global political environment that time to
market is critical in the discovery of an effective countermeasure to radiation
exposure and other biological and chemical threats. New developments in areas in
which we are conducting our research and development are expected to continue at
a rapid pace in both industry and academia. Many of our competitors have
significantly greater financial, technical and human resources than us and may
be better equipped to develop, manufacture, sell, market and distribute
products. In addition, many of these companies have extensive experience in
preclinical testing and clinical trials, obtaining FDA and other regulatory
approvals and manufacturing and marketing pharmaceutical products. Many of these
competitors also have products for use individually or in combination therapy
that have been approved or are in late-stage development and operate large,
well-funded research and development programs. Smaller companies may also prove
to be significant competitors, particularly through collaborative arrangements
with large pharmaceutical and biotechnology companies.
If our product candidates and compounds are successfully developed and
approved, we will face competition based on the safety and effectiveness of our
products and compounds, the timing and scope of regulatory approvals,
availability of manufacturing, sales, marketing and distribution capabilities,
reimbursement
-36-
coverage, price and patent position. There can be no assurance that our
competitors will not develop more effective or more affordable technology or
products, or achieve earlier patent protection, product development or product
commercialization than us. Accordingly, our competitors may succeed in
commercializing products more rapidly or effectively than us, which could have a
material adverse effect on our business, financial condition and results of
operations.
GOVERNMENTAL REGULATION
Our technologies are subject to extensive government regulation,
principally by the U.S. Food and Drug Administration and state and local
authorities in the United States and by comparable agencies in foreign
countries. Governmental authorities in the United States extensively regulate
the pre-clinical and clinical testing, safety, efficacy, research, development,
manufacturing, labeling, storage, record-keeping, advertising, promotion,
export, marketing and distribution, among other things, of pharmaceutical
products under various federal laws including the Federal Food, Drug and
Cosmetic Act, or FFDCA, and under comparable laws by the states and in most
foreign countries.
DOMESTIC REGULATION
-------------------
In the United States, the FDA, under the FFDCA, the Public Health Service
Act and other federal statutes and regulations, subject pharmaceutical and
biologic products to rigorous review. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve our
marketing applications or allow us to manufacture or market our products or
product candidates, and we may be criminally prosecuted. The FDA also has the
authority to discontinue or suspend manufacture or distribution, require a
product withdrawal or recall or revoke previously granted marketing
authorizations, if we fail to comply with regulatory standards or if we
encounter problems following initial marketing.
Project Bioshield
The U.S. government, in response to the increased threat to its citizens,
has enacted Project BioShield, a comprehensive effort to develop and make
available modern, effective drugs and vaccines to protect against attack by
biological and chemical weapons or other dangerous pathogens. Project BioShield
will:
o Ensure that resources are available to pay for "next-generation"
medical countermeasures. Project BioShield will allow the government
to buy improved vaccines or drugs for smallpox, anthrax, and
botulinum toxin. Use of this authority is currently estimated to be
$6 billion over ten years. Funds would also be available to buy
countermeasures to protect against other dangerous pathogens, such
as Ebola and plague, as soon as scientists verify the safety and
effectiveness of these products.
o Strengthen the development capabilities of the National Institute of
Health ("NIH") by speeding research and development on medical
countermeasures based on the most promising recent scientific
discoveries.
o Give FDA the ability to make promising treatments quickly available
in emergency situations. This tightly controlled new authority can
make the newest treatments widely available to patients who need it
in a crisis.
Project BioShield has three major components:
1. Spending Authority for the Delivery of Next-Generation Medical
Countermeasures. This authority will enable the government to
purchase vaccines and other therapies as soon as experts believe
that they can be made safe and effective, ensuring that the private
sector devotes efforts to developing the countermeasures.
2. New NIH Programs to Speed Research and Development on Medical
Countermeasures. NIH's usual methods for supporting research and
development on conventional diseases have been extremely effective
in those areas but may not always be suited to meet the urgent
demands posed by the risk of
-37-
terrorism. The new authorities would apply only to support research
and development on bioterrorism threat agents.
3. New FDA Emergency Use Authorization for Promising Medical
Countermeasures Under Development. Some of the most promising
treatments for a terrorist agent may still be under formal FDA
review when an attack occurs. This will improve access to a
potentially beneficial treatment in an emergency situation, when it
is most likely to save lives, even if it has not yet been proven to
be suitable for routine general use or has not completed the formal
process for full FDA licensure.
Project BioShield contains provisions enabling the U.S. Department of
Health and Human Services ("HHS") to begin purchasing new medical
countermeasures for the Strategic National Stockpile in advance of formal FDA
approval. This provision, known as an Emergency Use Authorization, has already
been implemented for other development stage medical countermeasures to weapons
of mass destruction.
As the result of the Project BioShield legislation, the Administration has
already begun the process of acquiring several new medical countermeasures. In
late 2004, the HHS issued a Request for Information ("RFI") for therapeutics to
treat ARS. In December 2004 we filed a formal response to this request detailing
the potential for Radilex in this indication.
If we are unable to develop Radilex under the legislation enacted by
Project BioShield, we will be required to follow the traditional FDA approval
process and guidelines. We believe that approval for Radilex under the
traditional process would be considerably more costly and time consuming.
FDA APPROVAL PROCESS
--------------------
To obtain approval of a new product from the FDA, we must, among other
requirements, submit data demonstrating the product's safety and efficacy, as
well as, detailed information and reports on the manufacture and composition of
the product candidate. In most cases, this entails extensive laboratory tests,
pre-clinical and clinical trials. This testing and the preparation of necessary
applications and processing of those applications by the FDA are expensive and
typically take many years to complete. The FDA may deny our applications or may
not act quickly or favorably in reviewing these applications, and we may
encounter significant difficulties or costs in our efforts to obtain FDA
approvals that could delay or preclude us from marketing any products we may
develop. The FDA also may require post-marketing testing and surveillance to
monitor the effects of approved products or place conditions on any approvals
that could restrict the commercial applications of these products. Regulatory
authorities may withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems following initial marketing. With respect
to patented products or technologies, delays imposed by the governmental
approval process may materially reduce the period during which we will have the
exclusive right to exploit the products or technologies.
The FDA does not apply a single regulatory scheme to human tissues and the
products derived from human tissue. On a case-by-case basis, the FDA may choose
to regulate such products as transplanted human tissue, medical devices or
biologics. A fundamental difference in the treatment of products under these
classifications is that the FDA generally permits human tissue for
transplantation to be commercially distributed without marketing approval. In
contrast, products regulated as medical devices or biologics usually require
such approval.
The process required by the FDA before a new drug or biologic may be
marketed in the United States generally involves the following:
o completion of pre-clinical laboratory tests or trials and
formulation studies;
o submission to the FDA of an IND for a new drug or biologic, which
must become effective before human clinical trials may begin;
o performance of adequate and well-controlled human clinical trials to
establish the safety and efficacy of the proposed drug or biologic
for its intended use; and,
o submission and approval of a New Drug Application, or NDA, for a
drug, or a BLA for a biologic.
-38-
Pre-clinical tests include laboratory evaluation of product chemistry
formulation and stability, as well as studies to evaluate toxicity. In view of
the nature of our product candidates and our prior clinical experience with our
product candidates, we concluded that it was reasonably safe to initiate
clinical trials and that the clinical trials would be adequate to further assess
both the safety and efficacy of our product candidates. The results of
pre-clinical testing, together with manufacturing information and analytical
data, are submitted to the FDA as part of an IND application. The FDA requires a
30-day waiting period after the filing of each IND application before clinical
trials may begin, in order to ensure that human research subjects will not be
exposed to unreasonable health risks. At any time during this 30-day period or
at any time thereafter, the FDA may halt proposed or ongoing clinical trials, or
may authorize trials only on specified terms. The IND application process may
become extremely costly and substantially delay development of our products.
Moreover, positive results of pre-clinical tests will not necessarily indicate
positive results in clinical trials.
The sponsor typically conducts human clinical trials in three sequential
phases, which may overlap. These phases generally include the following:
Phase I: The product is usually first introduced into healthy humans or,
on occasion, into patients, and is tested for safety, dosage
tolerance, absorption, distribution, excretion and metabolism.
Phase II: The product is introduced into a limited patient population to:
o assess its efficacy in specific, targeted indications;
o assess dosage tolerance and optimal dosage; and,
o identify possible adverse effects and safety risks.
Phase III: These are commonly referred to as pivotal studies. If a
product is found to have an acceptable safety profile and to be
potentially effective in Phase II clinical trials, new clinical
trials will be initiated to further demonstrate clinical
efficacy, optimal dosage and safety within an expanded and
diverse patient population at geographically-dispersed clinical
study sites.
If the FDA does ultimately approve the product, it may require
post-marketing testing, including potentially expensive Phase IV studies, to
monitor its safety and effectiveness.
Clinical trials must meet requirements for Institutional Review Board, or
IRB, oversight, informed consent and the FDA's Good Laboratory Practices. Prior
to commencement of each clinical trial, the sponsor must submit to the FDA a
clinical plan, or protocol, accompanied by the approval of the committee
responsible for overseeing clinical trials at one of the clinical trial sites.
The FDA and the IRB at each institution at which a clinical trial is being
performed may order the temporary or permanent discontinuation of a clinical
trial at any time if it believes that the clinical trial is not being conducted
in accordance with FDA requirements or presents an unacceptable risk to the
clinical trial patients.
The sponsor must submit to the FDA the results of the pre-clinical and
clinical trials, together with, among other things, detailed information on the
manufacturing and composition of the product, in the form of an NDA, or, in the
case of a biologic, a BLA. Once the submission has been accepted for filing, the
FDA has 180 days to review the application and respond to the applicant. The
review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the BLA to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved, but the FDA is not bound by the recommendation of an advisory
committee.
It is possible that our product candidates will not successfully proceed
through this approval process or that the FDA will not approve them in any
specific period of time, or at all. The FDA may deny or delay approval of
applications that do not meet applicable regulatory criteria, or if the FDA
determines that the clinical data do not adequately establish the safety and
efficacy of the product. Satisfaction of FDA pre-market approval requirements
for a new biologic is a process that may take several years and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. The FDA reviews these applications and, when and
-39-
if it decides that adequate data are available to show that the product is both
safe and effective and that other applicable requirements have been met,
approves the drug or biologic for marketing. Government regulation may delay or
prevent marketing of potential products for a considerable period of time and
impose costly procedures upon our activities. Success in early stage clinical
trials does not assure success in later stage clinical trials. Data obtained
from clinical activities is not always conclusive and may be susceptible to
varying interpretations that could delay, limit or prevent regulatory approval.
Upon approval, a product candidate may be marketed only for those indications
approved in the BLA or NDA and may be subject to labeling and promotional
requirements or limitations, including warnings, precautions, contraindications
and use limitations, which could materially impact profitability. Once approved,
the FDA may withdraw the product approval if compliance with pre- and
post-market regulatory standards is not maintained or if safety, efficacy or
other problems occur after the product reaches the marketplace.
The FDA may, during its review of an NDA or BLA, ask for additional test
data. If the FDA does ultimately approve the product, it may require
post-marketing testing, including potentially expensive Phase IV studies, to
monitor the safety and effectiveness of the product. In addition, the FDA may,
in some circumstances, impose restrictions on the use of the product, which may
be difficult and expensive to administer and may require prior approval of
promotional materials.
ONGOING FDA REQUIREMENTS
------------------------
Before approving an NDA or BLA, the FDA will inspect the facilities at
which the product is manufactured and will not approve the product unless the
manufacturing facilities are in compliance with the FDA's current Good
Manufacturing Practices, or cGMP, requirements which govern the manufacture,
holding and distribution of a product. Manufacturers of biologics also must
comply with the FDA's general biological product standards. Following approval,
the FDA periodically inspects drug and biologic manufacturing facilities to
ensure continued compliance with the cGMP requirements. Manufacturers must
continue to expend time, money and effort in the areas of production, quality
control, record keeping and reporting to ensure full compliance with those
requirements. Failure to comply with these requirements subjects the
manufacturer to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product, voluntary recall of product, withdrawal of
marketing approval or civil or criminal penalties. Adverse experiences with the
product must be reported to the FDA and could result in the imposition of
marketing restrictions through labeling changes or market removal. Product
approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems concerning safety or efficacy of the product occur
following approval.
The labeling, advertising, promotion, marketing and distribution of a drug
or biologic product also must be in compliance with FDA and FTC requirements
which include, among others, standards and regulations for direct-to-consumer
advertising, industry-sponsored scientific and educational activities, and
promotional activities involving the internet. The FDA and FTC have very broad
enforcement authority, and failure to abide by these regulations can result in
penalties, including the issuance of a Warning Letter directing the company to
correct deviations from regulatory standards, a requirement that future
advertising and promotional materials be pre-cleared by the FDA and enforcement
actions that can include seizures, injunctions and criminal prosecution.
Manufacturers are also subject to various laws and regulations governing
laboratory practices, the experimental use of animals and the use and disposal
of hazardous or potentially hazardous substances in connection with their
research. In each of the above areas, the FDA has broad regulatory and
enforcement powers, including the ability to levy fines and civil penalties,
suspend or delay issuance of approvals, seize or recall products and deny or
withdraw approvals.
HIPAA REQUIREMENTS
------------------
Other federal legislation may affect our ability to obtain certain health
information in conjunction with our research activities. The Health Insurance
Portability and Accountability Act of 1996, or HIPAA, mandates, among other
things, the adoption of standards designed to safeguard the privacy and security
of individually identifiable health information. In relevant part, the U.S.
Department of Health and Human Services, or HHS, has released two rules to date
mandating the use of new standards with respect to such health information. The
first rule imposes new standards relating to the privacy of individually
identifiable health information. These standards restrict the manner
-40-
and circumstances under which covered entities may use and disclose protected
health information so as to protect the privacy of that information. The second
rule released by HHS establishes minimum standards for the security of
electronic health information. While we do not believe we are directly regulated
as a covered entity under HIPAA, the HIPAA standards impose requirements on
covered entities conducting research activities regarding the use and disclosure
of individually identifiable health information collected in the course of
conducting the research. As a result, unless they meet these HIPAA requirements,
covered entities conducting clinical trials for us may not be able to share with
us any results from clinical trials that include such health information.
In addition to the statutes and regulations described above, we are also
subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations.
MANUFACTURING
We do not have, and do not intend to establish, manufacturing facilities
to produce Radilex or any future products. We have used and expect to continue
to use third party manufacturers to obtain synthetic peptides. We believe
synthesized versions of substance P is readily available at low cost from
several life science and technology companies that provide biochemical and
organic chemical products used in scientific and genomic research,
biotechnology, pharmaceutical development and the diagnosis of disease and
chemical manufacturing. We believe that the synthetic substance P and other
materials necessary to produce Homspera and Radilex are readily available from
various sources, and several suppliers are capable of supplying such in both
clinical and commercial quantities. We have established relationships to fulfill
our near-term production needs and we have had extensive discussions to fulfill
any future commercial production needs.
The manufacture of our product candidates or any future products, whether
done by outside contractors as planned or internally, will be subject to
rigorous regulations, including the need to comply with the FDA's current Good
Manufacturing Practice (GMP) standards. As part of obtaining FDA approval for
each product, each of the manufacturing facilities must be inspected, approved
by and registered with the FDA. In addition to obtaining FDA approval of the
prospective manufacturer's quality control and manufacturing procedures,
domestic and foreign manufacturing facilities are subject to periodic inspection
by the FDA and/or foreign regulatory authorities.
DISTRIBUTION
If Radilex receives approval from the FDA, we will attempt to
commercialize the product. Upon such approval, we intend to use our best efforts
to market Radilex as a treatment to the damaging effects of radiation injury
that result after exposure to total body irradiation, and possibly as a
universal protectant against exposure to various biological and chemical
threats. We intend to offer for sale the product to various governmental
agencies at the local, state and federal levels, both domestically and outside
the United States.
Prior to FDA approval, Radilex may become eligible for purchase by the
U.S. government. Project BioShield legislation contains provisions enabling the
HHS to begin purchasing new medical countermeasures for the Strategic National
Stockpile in advance of formal FDA approval. This provision, known as an
Emergency Use Authorization, has already been implemented for other development
stage medical countermeasures to weapons of mass destruction. In that Radilex
may have efficacy in the treatment of the life-threatening effects of radiation
exposure, we believe there may be strong interest by government agencies to
stockpile Radilex if it is successfully developed.
PATENTS
Our patents and continued substance P research are derived from
discoveries made during research studies funded by the Air Force Office of
Scientific Research in early 1991 by our Chief Scientific Officer and Director,
Dr. Mark Witten. These studies further showed that the administration of
Homspera prevented and reversed the damaging effects of jet fuel exposure in the
lungs, as well as protecting and regenerating the immune system. These findings
led to early research on treatments for exposure to acute radiation, toxic
inhalants, viral infection and on the reversal of lung damage.
-41-
We currently own or have obtained a license to two issued U.S. patents,
six pending U.S. patents applications and 4 one-year provisional patents. We
also currently own or have obtained two issued foreign patents and 18 pending
foreign patent applications. Our issued patents and patent applications
primarily cover the methods whereby Homspera is used in improving pulmonary
function and stimulating the immune system. We are in the process of pursuing
several other patent applications.
We believe that patents, trademarks, copyrights and other proprietary
rights are important to our business. We also rely on trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position. We seek to protect our intellectual property
rights by a variety of means, including obtaining patents, maintaining trade
secrets and proprietary know-how, and technological innovation to operate
without infringing on the proprietary rights of others and to prevent others
from infringing on our proprietary rights. Our policy is to seek to protect our
proprietary position by, among other methods, actively seeking patent protection
in the United States and foreign countries.
Our success depends in part on our ability to maintain our proprietary
position through effective patent claims and their enforcement against our
competitors. Although we believe our patents and patent applications provide a
competitive advantage, the patent positions of companies like ours are generally
uncertain and involve complex legal and factual questions. We do not know
whether any of our patent applications will result in the issuance of any
patents. Our issued patents, those that may be issued in the future or those
acquired by us, may be challenged, invalidated or circumvented, and the rights
granted under any issued patent may not provide us with proprietary protection
or competitive advantages against competitors with similar technology. In
particular, we do not know if competitors will be able to design variations on
our treatment methods to circumvent our current and anticipated patent claims.
Furthermore, competitors may independently develop similar technologies or
duplicate any technology developed by us. Because of the extensive time required
for the development, testing and regulatory review of a potential product, it is
possible that, before any of our products can be commercialized or marketed, any
related patent claim may expire or remain in force for only a short period
following commercialization, thereby reducing the advantage of the patent. We
also rely upon trade secrets, confidentiality agreements, proprietary know-how
and continuing technological innovation to remain competitive, especially where
we do not believe patent protection is appropriate or obtainable. We continue to
seek ways to protect our proprietary technology and trade secrets, including
entering into confidentiality or license agreements with our employees and
consultants, and controlling access to and distribution of our technologies and
other proprietary information. While we use these and other reasonable security
measures to protect our trade secrets, our employees or consultants may
unintentionally or willfully disclose our proprietary information to
competitors.
Our commercial success will depend in part on our ability to operate
without infringing upon the patents and proprietary rights of third parties. It
is uncertain whether the issuance of any third party patents would require us to
alter our products or technology, obtain licenses or cease certain activities.
Our failure to obtain a license to technology that we may require to discover,
develop or commercialize our future products may have a material adverse impact
on us. One or more third-party patents or patent applications may conflict with
patent applications to which we have rights. Any such conflict may substantially
reduce the coverage of any rights that may issue from the patent applications to
which we have rights. If third parties prepare and file patent applications in
the United States that also claim technology to which we have rights, we may
have to participate in interference proceedings in the USPTO to determine
priority of invention.
Our rights to the US Patent Nos. 5,945,508 and 5,998,376 have certain
limitations with respect to the University of Arizona and the United States Air
Force.
Our agreements with the University of Arizona outline very specific rights
in regard to our sponsored-supported projects. In accordance with our
sponsored-supported project agreements, The University of Arizona retains the
right to use data developed during these projects for non-commercial purposes,
including teaching, research and education. ImmuneRegen BioSciences, Inc.
retains the rights to trade secrets, inventions, developments and discoveries as
limited by the University of Arizona's employment contracts in effect at the
time the Intellectual Property was created. Further to this point, the two
principal investigators at the University of Arizona, Dr. Mark Witten and Dr.
David Harris, are consultants to ImmuneRegen BioSciences, and, under the terms
of the consulting agreements, ImmuneRegen BioSciences, Inc. retains rights to
any developments or discoveries that they may make in the course of working for
us.
-42-
The United States Air Force has reserved a non-exclusive license to the
patents in connection with Air Force grant F49620-94-1-0297 and may, under
certain conditions, have commensurate or additional license rights under the
Bayh-Dole Act.
In December 2002 we entered into consulting agreements on a month-to-month
basis with Dr. Mark Witten and Dr. David Harris, who are our two founders and
largest shareholders. Under the terms of these agreements, Drs. Witten and
Harris agree to place at the disposal of us their judgment and expertise in the
area of acute lung injury. In consideration for these services, we agree to pay
each of Drs. Witten and Harris a non-refundable fee of $5,000 per month. In
March 2005, Dr. Harris resigned as consultant to the Company and its
subsidiaries.
In December 2002, we entered into a royalty-free license agreement with
Drs. Witten and Harris. Under the terms of the license agreement, Drs. Harris
and Witten granted to us an exclusive license to use and sublicense certain
patents, medical applications, and other technologies developed by them. Our
obligations under this agreement include (i) reasonable efforts to protect any
licensed patents or other associated property rights; (ii) reasonable efforts to
maintain confidentiality of any proprietary information; (iii) upon the granting
by the U. S. Food and Drug Administration to us the right to market a product,
we will maintain a broad form general liability and product liability insurance.
In February 2005, Drs. Witten and Harris executed assignment documents in
which for good and valuable consideration patents and patents applications
developed by them are assigned to ImmuneRegen BioSciences, Inc.
We may collaborate in the future with other entities on research,
development and commercialization activities. Disputes may arise about
inventorship and corresponding rights in know-how and inventions resulting from
the joint creation or use of intellectual property by us and our collaborators,
partners, licensors and consultants. As a result, we may not be able to maintain
our proprietary position.
EMPLOYEES
From our inception through the period ended March 31, 2005, we have relied
on the services of outside consultants for services and currently have five
total employees, two contract employees and three full-time employees. Our
full-time employees are Michael K. Wilhelm, our Chief Executive Officer; John
Fermanis, our Chief Financial Officer; and, the third serves in an
administrative role. In order for us to attract and retain quality personnel, we
anticipate we will have to offer competitive salaries to future employees. We do
not anticipate our employment base will significantly change during the next
twelve months, other than the addition of one senior level appointment to the
position of Senior Vice President of Scientific Development. As we continue to
expand, we will incur additional cost for personnel. This projected increase in
personnel is dependent upon our generating revenues and obtaining sources of
financing. There is no guarantee that we will be successful in raising the funds
required or generating revenues sufficient to fund the projected increase in the
number of employees.
PROPERTY
Our corporate headquarters are currently located at 4021 N. 75th Street,
Suite 201, Scottsdale, Arizona 85251, where we have leased approximately 1,800
square feet of office space through September 30, 2005. Our rent expense is
$2,614 per month. We believe that our facilities are adequate for our current
needs and suitable additional or substitute space will be available in the
future to replace our existing facilities, if necessary, or accommodate
expansion of our operations.
LEGAL PROCEEDINGS
On December 13, 2001, service of process was effectuated upon GPN Network,
Inc. with regard to a fee agreement between GPN Network, Inc. and Silver &
Deboskey, a Professional Corporation located in Denver, Colorado. The complaint
sought compensation for legal services allegedly rendered to DermaRx Corp. On
November 7, 2002, the District Court in Denver, Colorado rendered judgment in
favor of Silver & Deboskey in the amount of $28,091. At December 31, 2004, we
had not paid any of this amount. The judgment of $28,091 has been accrued and is
contained in the $341,210 of Accounts Payable and Accrued Liabilities on the
Company's condensed consolidated balance sheet of March 31, 2005.
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MANAGEMENT
Executive officers are elected annually by the Board of Directors. Board
members serve one-year terms until their death, resignation or removal by the
Board of Directors.
Name Age Position
--------------------------------------------------------------------------------
Michael K. Wilhelm 38 President, Chief Executive Officer
and Director
John N. Fermanis 51 Chief Financial Officer
Mark L. Witten, Ph.D. 51 Director and Research Scientist
Theodore E. Staahl, M.D. 59 Director
MICHAEL K. WILHELM, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr.
Wilhelm has served as our President and Chief Executive Officer and on our Board
of Directors since July 2003 and as President and Chief Executive Officer of
ImmuneRegen BioSciences, Inc. since December 2002 and on its Board of Directors
since November 2002. Mr. Wilhelm has been actively involved in the financial
industry since 1990. After leaving the brokerage industry, Mr. Wilhelm founded
Foresight Capital Partners in July 1996, a company designed to identify early
stage companies with above average growth potential and assist them in reaching
the next stage of development. In working with these companies, Mr. Wilhelm took
an active role, provided advisory services and facilitated financing for
continued growth and development. Mr. Wilhelm was Managing Director of Foresight
Capital Partners until December 2002. Mr. Wilhelm works on average 70 hours per
week.
JOHN N. FERMANIS, CHIEF FINANCIAL OFFICER. Mr. Fermanis was appointed as
our Chief Financial Officer, effective as of December 22, 2004. Mr. Fermanis is
a co-founder of AMPS Wireless Data, Inc., a privately held Arizona corporation
founded in 1998, where he served as Chief Financial Officer from May, 2001 to
October, 2004. Mr. Fermanis had overall financial responsibility at AMPS and was
instrumental in raising over $5 Million in venture capital. From 1997 to 2001,
he held the position of Treasury Manager for Peter Piper, Inc., a national
restaurant chain headquartered in Scottsdale, Arizona, where he was responsible
for managing a $25 Million revolving line of credit and cash concentration and
disbursement for a company with over $100 Million annual sales. Mr. Fermanis has
over 18 years of financial management experience with both the American Express
Corporation and Citigroup in New York City. Mr. Fermanis holds a Bachelor of
Arts degree from the S.U.N.Y. at Stony Brook and attended Pace University's
Graduate School of Management in New York City. Mr. Fermanis works on average 60
hours per week.
MARK L. WITTEN, PH.D., DIRECTOR AND RESEARCH SCIENTIST. Dr. Witten has
served as a research scientist for our company and on our Board of Directors
since July 2003 and as a research scientist for ImmuneRegen BioSciences, Inc.
since December 2002 and on its Board of Directors since November 2002. Dr.
Witten has served as a Research Professor at the University of Arizona since
July 2000. Since July 1998 Dr. Witten has served as the Director of the Joan B.
and Donald R. Diamond Lung Injury Laboratory in the Department of Pediatrics at
the University of Arizona College of Medicine. Dr. Witten obtained his Ph.D.
from Indiana University in 1983 with a double major in physiology and exercise
physiology. He conducted a post-doctoral fellowship in Respiratory Sciences at
the University of Arizona College of Medicine from 1983 to 1988. He then spent
two years as an Assistant Biologist at Massachusetts General Hospital and
Instructor in Medicine at Harvard Medical School. He returned to The University
of Arizona College of Medicine in 1990. Dr. Witten has authored over 200
published manuscripts, book chapters and abstracts. Dr. Witten works on average
40 hours per month.
THEODORE E. STAAHL, M.D., DIRECTOR. Dr. Staahl has served on our Board of
Directors since April 2003. Dr. Staahl is employed at the Cosmetic, Plastic and
Reconstructive Surgery Center, a company which he founded in 1978. Dr. Staahl's
professional training was received at the University of Illinois and the
University of Wisconsin and is board certified by the American Board of Facial,
Plastic and Reconstruction Surgeons, the Board of Cosmetic Surgeons and the
American Board of Head and Neck Surgeons. Dr. Staahl has presented papers at
national and international meetings on hair transplant, rhinoplasty and cleft
lip deformities. Additionally, Dr. Staahl is currently participating in the FDA
approval process of another biotechnology company. Dr. Staahl works on average
12 hours per month.
-44-
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS. Directors currently receive no cash compensation
from IR BioSciences Holdings, Inc. for their services as members of the Board or
for attendance at committee meetings. Members of the Board are reimbursed for
some expenses in connection with attendance at Board and committee meetings.
OTHER ARRANGEMENTS. We may from time to time issue warrants to executives
and directors for fulfilling certain performance goals.
On December 16, 2002 we entered into a consulting agreement with Mark
Witten, our chief research scientist and director. The consulting agreement is
on a month-to-month basis. Under the terms of this agreement, Dr. Witten agrees
to place at the disposal of us his judgment and expertise in the area of acute
lung injury. In consideration for these services, we agree to pay Dr. Witten a
non-refundable fee of $5,000 per month.
COMMITTEES AND ATTENDANCE AT BOARD MEETINGS
Our board of directors does not maintain a separate audit, nominating or
compensation committee. Functions customarily performed by such committees are
performed by our board of directors as a whole. We are not required to maintain
such committees under the applicable rules of the Over-the-Counter Bulletin
Board. None of our independent directors qualify as an "audit committee
financial expert" as that term is defined in Item 401(e) of Regulation S-B.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all compensation
awarded to, earned by, or paid to (1) our Chief Executive Officer and President,
(2) our former Chief Executive Officer and President who served in such
capacities until July 2003 when ImmuneRegen BioSciences, Inc. became a
wholly-owned subsidiary of IR BioSciences, Inc. (the "Reorganization") and (3)
each of the other executive officers whose annual salary and bonus during 2002,
2003 and 2004 exceeded $100,000 (the "Named Executive Officers").
Annual Compensation
-----------------------
Name and Principal Position Year Salary ($) Bonus($)
------------------------------------------------------------------------------------------
2004 175,000 247,301(2)
Michael K. Wilhelm 2003 125,000 0
Chief Executive Officer and President(1).............. 2002 5,208 0
Todd M. Ficeto 2004 0 0
Chief Executive Officer, Chief Financial Officer, 2003 0 0
President and Secretary(3)............................ 2002 0 0
----------
(1) Michael K. Wilhelm has served as Chief Executive Officer and President of
IR BioSciences Holdings, Inc. since July 2003 when the Reorganization was
completed. Prior to the completion of the Reorganization, Mr. Wilhelm
served as Chief Executive Officer and President of ImmuneRegen
BioSciences, Inc. since December 2002. Mr. Wilhelm's compensation is
reported in the table with respect to his positions at both IR BioSciences
Holdings, Inc. and ImmuneRegen BioSciences, Inc. for the years ended
December 31, 2003 and 2004.
(2) Reflects the value of 948,980 warrants granted to Michael K. Wilhelm as
performance bonuses. In May 2004, the Company issued a warrant to Mr.
Wilhelm to purchase 500,000 shares (post-split) of common stock at a price
of $0.25 per share (post-split). The warrants were issued as performance
bonuses. The
-45-
Company valued these warrants using the Black-Scholes model, and charged
the amount of $134,604 to operations during the twelve months ended
December 31, 2004. In October 2004, the Company issued a warrant to Mr.
Wilhelm to purchase 448,980 shares (post-split) at a price of $0.125 per
share (post-split) as a performance bonus for achieving certain
objectives. The Company valued this warrant using the Black-Scholes
valuation model, and charged the amount of $112,697 to operations during
the twelve months ended December 31, 2004.
(3) Todd M. Ficeto served as Chief Financial Officer and Secretary of GPN
Network, Inc. from July 2001 until the completion of the Reorganization in
July 2003 and as Chief Executive Officer and President of GPN Network,
Inc. from August 2001 until the completion of the Reorganization in July
2003.
EMPLOYMENT AGREEMENTS
On December 16, 2002, we entered into an employment agreement with our
President and CEO, Michael K. Wilhelm, for a period of three years terminating
on December 16, 2005. The employment agreement calls for a salary at the rate of
$125,000 per annum for the first year, $175,000 for the second year, and
$250,000 for the third year. This agreement also provides for the following
various bonus incentives:
i) A quarterly discretionary bonus based upon our performance in the
previous quarter. This discretionary bonus will be in the form of
stock options.
ii) A quarterly five-year warrant to purchase up to 4,490 shares of our
common stock at 75% of the fair market value of the stock on the
date the warrant is granted.
iii) At such time as Mr. Wilhelm introduces a financial partner to our
company through which we raise at least $1,500,000 in equity or debt
financing, he shall be granted a five-year warrant to purchase
224,490 shares (post reverse-split) of our common stock.
On February 15, 2005, we entered into an employment agreement with John N.
Fermanis, our Chief Financial Officer. The employment agreement expires on
December 31, 2007, unless terminated earlier pursuant to the terms of the
agreement. Under the terms of the employment agreement, Mr. Fermanis is entitled
to a base salary of $60,000 until the company completed a funding of $500,000 or
more which occurred on March 4, 2005, at which time the base salary was
increased to $85,000 until December 31, 2005. Thereafter, the second year salary
will be $98,000 per annum and the third year will be $112,000 per annum.
Severance provisions include two months salary for Termination For Cause and six
months salary for Constructive Termination. This agreement also provides for the
following various bonus incentives:
i) A quarterly discretionary bonus based upon our performance in the
previous quarter. This discretionary bonus will be in the form of
stock options.
ii) A quarterly five-year warrant to purchase up to 12,500 shares of our
common stock at 75% of the fair market value of the stock on the
date the warrant is granted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
We did not grant stock options to any of the Named Executive Officers
during the year ended December 31, 2004.
AGGREGATE OPTION EXERCISED IN FISCAL 2004 AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised any stock options during
the year ended December 31, 2004. As of March 31, 2005 none of the Named
Executive Officers held stock options.
STOCK OPTIONS
-46-
We did not issue options to any of our employees during the first fiscal
quarter ended March 31, 2005. Further, we did not issue options to any of our
employees during the years ended December 31, 2003 and 2004.
2003 STOCK OPTION, DEFERRED STOCK AND RESTRICTED STOCK PLAN
We adopted the 2003 Stock Option, Deferred Stock and Restricted Stock Plan
(the "Plan") which authorizes the Board of Directors in accordance with the
terms of the Plan, among other things, to grant incentive stock options, as
defined by Section 422(b) of the Internal Revenue Code, nonstatutory stock
options (collectively, the "Stock Options") and awards of restricted stock and
deferred stock and to sell shares of common stock of the Company ("Common
Stock") pursuant to the exercise of such stock options for up to an aggregate of
3,600,000 shares . The options will have a term not to exceed ten years from the
date of the grant. On May 20, 2005, our Board of Directors granted 150,000
discretionary incentive stock options to our Chief Executive Officer, Michael K.
Wilhelm, per his employment agreement. The options have an exercise price of
$0.40 and a term of ten years.
We granted, prior to the merger with ImmuneRegen BioSciences, Inc.,
options to purchase 63,212 shares of our common stock at a weighted average
exercise price of $25.00 per share to certain employees and consultants that are
exercisable over various periods through March 2010. These stock options were
granted outside of our 2003 Stock Option, Deferred Stock and Restricted Stock
Plan.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2004 regarding
compensation plans (including individual compensation arrangements) under which
equity securities of our company are authorized for issuance. All share
information included in this table has been adjusted to reflect a 2-for-1
forward stock split of our common stock that was effected in April 2004.
Number of securities remaining
Number of Securities to be Weighted- average available for future issuance
issued upon exercise of exercise price of under equity compensation plans
outstanding options, warrants outstanding options, (excluding securities reflected in
and rights warrants and rights column (a)
Plan Category (a) (b) (c)
------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders 0(1) N/A 445,996(3)
Equity compensation plans
not approved by security
holders .................... 17,729,422(2) $ 0.49 --
---------- -------
Total ...................... 17,729,42 445,996
========== =======
----------
(1) Represents stock options outstanding under our 2003 Stock Option, Deferred
Stock and Restricted Stock Plan.
(2) Represents 17,666,210 stock purchase warrants at a weighted average price
of $0.49 and 63,212, options at a weighted average exercise price of
$20.00.
(3) Represents 445,996 shares are available for future issuance under our 2003
Stock Option, Deferred Stock and Restricted Stock as of the date hereof.
-47-
WARRANTS
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
-------------------------------- ------------------------------------------
Weighted Average Weighted Average
Number Remaining Contractual Weighted Average Number Remaining Contractual
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Life (Years)
--------------------------------------------------------------------------------------------------------------------------------
$0.05-0.10 480,698 4.60 $ 0.05-0.10 480,698 4.60
0.125-0.70 778,511 4.46 0.125-0.70 778,511 4.46
0.25-0.56 15,498,021 4.68 0.25-0.56 15,498,021 4.68
1.00 741,400 2.98 1.00 741,400 2.98
2.00 167,580 4.51 2.00 167,580 4.51
---------- -------- ---------- ------
17,666,210 4.59 17,666,210 4.59
Transactions involving warrants are summarized as follows:
The following table summarizes the changes in warrants outstanding issued
to non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Weighted Average
Number of Shares Price Per Share
(post-split) (post-split)
-----------------------------------------
Outstanding at January 1, 2003 26,938 $0.84
Granted 805,572 0.89
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2003 832,510 0.89
Granted 16,833,699 0.47
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2004 17,666,210 $0.49
A description of our warrant arrangements and issuances is included in our
financial statements for the year ended December 31, 2004 under "Note H - Stock
Options and Warrants," These financial statements were included in our annual
report on Form 10-KSB for the year ended December 31, 2004, as originally filed
on April 19, 2005.
The estimated value of the compensatory warrants granted to non-employees
in exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2004
------------
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75%
Expected stock price volatility 163% to 262%
Expected dividend payout --
Expected option life-years (a)
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
IMMUNEREGEN BIOSCIENCES, INC.
ImmuneRegen BioSciences, Inc. is a wholly-owned subsidiary of IR
BioSciences Holdings, Inc. IR BioSciences Holdings, Inc. and ImmuneRegen
BioSciences, Inc. have interlocking executive positions and share common
ownership.
IMMUNEREGEN BIOSCIENCES ASIA PTE. LTD.
ImmuneRegen BioSciences Asia PTE. LTD., a Singaporean company, is an
affiliate of IR BioSciences Holdings, Inc. Approximately 99% of the company is
owned equally between our Chief Executive Officer and Chairman, Michael K.
Wilhelm, and our Chief Research Scientist and Director, Mark Witten. IR
BioSciences Holdings, Inc. holds less than 1% ownership in the company. For the
three month period ended March 31, 2005, we incurred expenses totaling
approximately $47,795 on a Singapore-based consultant. For the period of
inception (October 30, 2002) to March 31, 2005, we incurred expenses totaling
approximately $92,745, $91,102 on a Singapore-based consultant and $1,700 on
travel regarding corporate development and the attendance of symposiums and
conferences.
OFFICE LEASE
During the period from December 1, 2002 through August 31, 2004, the
Company leased office space from an entity controlled by the Company's Chief
Executive Officer under a sub-let agreement. The rental cost of $2,734 per month
was passed through to the Company at the same rental rate charged by the
facility's primary landlord.
INONE CONTRACT
We have entered into a series of contracts with InOne Advertising &
Design, Inc. ("InOne"). At the time of the initiation of the contracts, InOne
employed the spouse of Michael Wilhelm, the Company's CEO. These contracts
include (i) a three-year agreement dated January 13, 2003 whereby InOne will
design and create certain corporate identity and marketing materials in exchange
for 72,000 shares (post split) of our common stock and $15,000. This Agreement
also provides that InOne will bill us on an hourly basis for additional
services, as well as a $100,000 termination fee if the agreement is terminated
as a result of a merger or acquisition of the Company; (ii) an Agreement dated
March 14, 2003 whereby InOne will design, create, maintain, and host our website
for one year in exchange for 140,000 shares (post split) of our common stock and
$4,200; (iii) an Agreement dated December 30, 2003 whereby InOne will name and
design a logo for our new product for SARS application in exchange for $5,000
and a warrant to purchase 20,000 shares (post-split) of tour common stock at a
price of $0.125; (iv) an Agreement dated December 31, 2003 whereby InOne will
name and design a logo for our new product for ARDS application in exchange for
$5,000 and a warrant to purchase 20,000 shares (post-split) of our common stock
at a price of $0.125.
At December 31, 2004, InOne no longer employs or has any business
relationship with the spouse of Mr. Wilhelm.
The amounts due InOne at December 31, 2004 and 2003 are $2,700 and
$19,565, respectively.
RELATED PARTY LOANS
In October 2003, we were loaned $30,000 by Gerald Witten, the father of
one of our founders. Pursuant to the terms of this transaction, we provided this
lender with a warrant to purchase 15,000 shares of our common stock at a price
of $2.00 per share. The original duration of the loan was 180 days and was
extended to one year. The interest rate was 8% per annum. This loan was repaid
in October 2004.
In October 2003, we were loaned $40,000 by Foresight Capital Corporation,
a company controlled by Michael Wilhelm, our President and CEO. Pursuant to the
terms of this transaction, we provided this lender with a warrant to purchase
20,000 shares of our common stock at a price of $2.00 per share. The loan was
payable upon funding of $150,000 in debt or equity and bore interest at 8% per
annum. This loan was repaid in October 2004.
In December 2003, we were loaned $20,000 by Carol Kraft, the mother-in-law
of Michael Wilhelm, our President and CEO. Pursuant to the terms of this
transaction, we provided this lender with a warrant to purchase
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10,000 shares of our common stock at a price of $2.00 per share. The original
duration of the loan was 180 days and was extended to one year. The interest
rate was 8% per annum. This loan was repaid in October 2004.
As of August 15, 2004, we had accrued payables due to our President and
CEO, Michael Wilhelm, of $109,374. In connection with our completed private
offering in October 2004, $89,500 of such amount was converted into 716,000
shares of common stock and warrants to purchase 358,000 shares of common stock.
LICENSE AGREEMENT
In December 2002, we entered into a royalty-free license agreement with
David Harris and Mark Witten, who are our two founders and largest shareholders.
Under the terms of the license agreement, Messrs. Harris and Witten granted to
us an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by them. Our obligations under
this agreement include (i) reasonable efforts to protect any licensed patents or
other associated property rights; (ii) reasonable efforts to maintain
confidentiality of any proprietary information; (iii) upon the granting by the
U. S. Food and Drug Administration to us the right to market a product, we will
maintain a broad form general liability and product liability insurance.
CONSULTING AGREEMENTS
On December 16, 2002 we entered into consulting agreements with David
Harris and Mark Witten, who were our two founders and research scientists. The
consulting agreements are on a month-to-month basis. Under the terms of these
agreements, Messrs. Harris and Witten agreed to place at the disposal of us
their judgment and expertise in the area of acute lung injury. In consideration
for these services, we agreed to pay each of them a non-refundable fee of $5,000
per month.
Pursuant to consulting agreements entered into with David Harris and Mark
Witten, who are our two founders and chief research scientists, during the
period from October 30, 2002 (inception) to December 31, 2002, we accrued $5,000
in consulting fees. During the period from January 1, 2003 to December 31, 2003,
we accrued an additional $120,000 in consulting fees. We had accrued payables
collectively due to Drs. Harris and Witten of $125,000 and $5,000 as of December
31, 2003 and 2002, respectively. In connection with our recently completed
private offering in October 2004, $90,500 of such amount owed to Dr. Witten
converted into 724,000 shares of our common stock and warrants to purchase
362,000 shares of common stock. In October 2004, because Dr. Harris had not
taken an active role in the management of the Company, he agreed that he would
forgive the amount accrued to him under the Consulting agreement of $107,500.
The Company accounted for the transaction as a forgiveness of indebtedness under
FAS No. 140 during the period ended December 31, 2004.
DUE TO RELATED PARTIES
Pursuant to consulting agreements entered into with David Harris and Mark
Witten, who are our two founders and chief research scientists, during the
period from October 30, 2002 (inception) to December 31, 2002, we accrued $5,000
in consulting fees. During the period from January 1, 2003 to December 31, 2003,
we accrued an additional $120,000 in consulting fees. We had accrued payables
collectively due to Drs. Harris and Witten of $125,000 and $5,000 as of December
31, 2003 and 2002, respectively. In connection with our recently completed
private offering in October 2004, $90,500 of such amount owed to Dr. Witten
converted into 724,000 shares of our common stock and warrants to purchase
362,000 shares of common stock. In October 2004, because Dr. Harris had not
taken an active role in the management of the Company, he agreed that he would
forgive the amount accrued to him under the Consulting agreement of $107,500.
The Company accounted for the transaction as a forgiveness of indebtedness under
FAS No. 140 during the period ended December 31, 2004.
As of August 15, 2004, we had accrued payables due to our President and
CEO, Michael Wilhelm, of $109,374. In connection with our recently completed
private offering in October 2004, $89,500 of such amount was converted into
716,000 shares of common stock and warrants to purchase 358,000 shares of common
stock.
-50-
OUTSTANDING LOANS
In October 2003, we were loaned $30,000 by Gerald Witten, the father of
one of our founders. Pursuant to the terms of this transaction, we provided this
lender with a warrant to purchase 15,000 shares of our common stock at a price
of $2.00 per share. The original duration of the loan was 180 days and was
extended to one year. The interest rate was 8% per annum. This loan was repaid
in October 2004.
In October 2003, we were loaned $40,000 by Foresight Capital Corporation,
a company controlled by Michael Wilhelm, our President and CEO. Pursuant to the
terms of this transaction, we provided this lender with a warrant to purchase
20,000 shares of our common stock at a price of $2.00 per share. The loan was
payable upon funding of $150,000 in debt or equity and bore interest at 8% per
annum. This loan was repaid in October 2004.
In December 2003, we were loaned $20,000 by Carol Kraft, the mother-in-law
of Michael Wilhelm, our President and CEO. Pursuant to the terms of this
transaction, we provided this lender with a warrant to purchase 10,000 shares of
our common stock at a price of $2.00 per share. The original duration of the
loan was 180 days and was extended to one year. The interest rate was 8% per
annum. This loan was repaid in October 2004.
As of August 15, 2004, we had accrued payables due to our President and
CEO, Michael Wilhelm, of $109,374. In connection with our completed private
offering in October 2004, $89,500 of such amount was converted into 716,000
shares of common stock and warrants to purchase 358,000 shares of common stock.
-51-
PRINCIPAL AND SELLING STOCKHOLDERS
This prospectus relates to the resale from time to time of up to a total
of 57,786,607 shares of common stock by the selling stockholders, comprising:
o 48,934,894 shares of our common stock that were issued to selling
stockholders pursuant to transactions exempt from registration under
the Securities Act of 1933; and
o 8,851,713 shares of common stock underlying warrants that were
issued to selling stockholders pursuant to transactions exempt from
registration under the Securities Act of 1933.
o The total number of shares of common stock offered for resale by the
selling stockholders includes 3,228,400 shares and 1,271,200
five-year warrants with an exercise price of $0.50 to be issued in
connection with a penalty clause regarding the registerance of
shares sold in our Private Offering in October 2004. For each 30-day
period beyond 90-days following the second closing date (October 26,
2004), we have agreed to issue to the holders of units sold in the
Private Offering an additional 2% a month, or in aggregate 461,200
shares and 181,600 warrants until such a time as this Registration
Statement is made effective ("Registration Penalty"). We have
accrued these shares.
The following table sets forth certain information regarding the selling
stockholders and the beneficial ownership of our common stock as to (1) each
person known to us to beneficially own more than five percent of our common
stock, (2) each director, (3) our Named Executive Officers, (4) all directors
and executive officers as a group and (5) the shares offered by them in this
prospectus. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission, or SEC. In computing the number of
shares beneficially owned by a selling stockholder and the percentage of
ownership of that selling stockholder, shares of common stock underlying shares
of convertible preferred stock, options or warrants held by that selling
stockholder that are convertible or exercisable, as the case may be, within 60
days of June 30, 2005 are included. Those shares, however, are not deemed
outstanding for the purpose of computing the percentage ownership of any other
selling stockholder. Each selling stockholder's percentage of ownership in the
following table is based upon 73,032,226 shares of common stock outstanding as
of June 30, 2005.
Except as described below, none of the selling stockholders within the
past three years has had any material relationship with us or any of our
affiliates:
o Michael Wilhelm has served as our company's Chief Executive Officer
since December 2002 and on our Board of Directors since November
2002;
o Mark Witten has served as a research scientist for our company since
December 2002 and on our Board of Directors since November 2002;
o Theodore Staahl has served on our Board of Directors since April
2003;
o CDM Group, Synergos, Inc., Spelling Communications, Stratum
Consulting Group, LLC, Debra Gessner, and Michael Caridi have
provided services to our company within the past three years, and we
agreed to issue shares of our common stock and warrants to purchase
additional shares of our common stock to each of them in exchange
for the settlement of outstanding indebtedness; and,
o Steven J. Scronic, our company's former Secretary, is a control
party of Stratum Consulting Group, LLC.
The term "selling stockholders" also includes any transferees, pledges,
donees, or other successors in interest to the selling stockholders named in the
table below. To our knowledge, subject to applicable community property laws,
each person named in the table has sole voting and investment power with respect
to the shares of common stock set forth opposite such person's name.
-52-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Named Executive Officers and Directors: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Michael K. Wilhelm
11007 N. Ridgeview Ct.
Fountain Hills, AZ 85268 7,829,146(2) 10.3% 1,254,000(2) 6,575,146(2) 8.7%
Mark L. Witten
7032 E. Rosewood St.
Tucson, AZ 85710-1236 9,721,138(3) 13.0% 1,086,000(3) 8,635,138 11.6%
John N. Fermanis
11375 E. Sahuaro Dr., #2041
Scottsdale, AZ 85259 159,165(4) * 41,665(4) 117,500 *
Theodore Staahl
1329 Spanos Court
Suite A-1
Modesto, CA 95356 3,489,464(5) 4.7% 2,350,000(5) 1,139,464(5) 1.5%
All directors and executive
officers as a group (4 persons) 21,198,913(6) 27.6% 4,731,665(6) 16,467,248(6) 21.5%
OWNERS OF 5% OR MORE:
---------------------
David Harris
1501 N Campbell Ave
Dept B1M Build 90 U of A
Tucson, AZ 85721 5,106,138(7) 6.9% 0 5,106,138(7) 6.9%
-53-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Wayne Adams
4845 Campo Ct.
Coral Gables, FL 33146 336,000(8) * 336,000(8) 0 *
David Benadum
13960 Fox Trail Dr.
Holland, MI 49424 134,400(36) * 134,400(36) 0 *
Delaware Charter Guarantee Trust Co.
F/B/O ML Bond Dental MP-Money Purch
Keogh/FBO
Betty C. Bond**
601 S. Main St.
Gretna, VA 24557 134,400(9) * 134,400(9) 0 *
Delaware Charter Guarantee Trust Co.
F/B/O ML Bond Dental MP-Money Purch
Keogh/FBO
Michael L. Bond**
601 S. Main St.
Gretna, VA 24557 134,400(9) * 134,400(9) 0 *
Michael L. Bond
601 S. Main St.
Gretna, VA 24557 268,800(10) * 268,800(10) 0 *
David Briskie
15006 Beltway Dr.
Addison, TX 75001 336,000(37) * 336,000(37) 0 *
Edward L. Chant
226 Edward Street
Suite #2
Aurora Ontario L4G 3S8
Canada 672,000(38) * 672,000(38) 0 *
-54-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Jerry Chitwood
3276 Lexington Rd.
Richmond, KY 40475 134,400(9) * 134,400(9) 0 *
Keith H. Cooper
5840 De Claire Ct.
Atlanta, GA 30328 268,800(39) * 268,800(39) 0 *
Raymond B. Cromer
873 Westtown Rd.
West Chester, PA 19382 134,400(9) * 134,400(9) 0 *
Sherida Downer &
Paul Downer JT WROS
546 Merimont Blvd.
Auburn AL 36830 201,600(40) * 201,600(40) 0 *
John R. Durant
1867 S. Ashe Ct.
Auburn, AL 36830 268,800(39) * 268,800(39) 0 *
Matt Earl
5120 Aihama Dr.
Woodland Hills, CA 91364 134,400(36) * 1 34,400(36) 0 *
Gary Ecklar
1630 N. Broadway
Lexington, KY 40505 806,400(13) 1.1% 806,400(13) 0 *
Robert Lee England IV
3 Montcrest Dr.
Birmingham, AL 35213 134,400(36) * 134,400(36) 0 *
Roger Erickson
850 S. Boulder Hwy. 222
Henderson, NV 89015 403,200(41) * 403,200(41) 0 *
-55-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Delaware Charter Guarantee &
Trust Co.
F/P/O Roger Erickson**
SEP IRA
850 S. Boulder Hwy. 222
Henderson, NV 89015 268,800(39) * 268,800(39) 0 *
Arturo L. Filippe
1300 N. Portrero Grande Dr. S.
San Gabriel, CA 91770 134,400(36) * 134,400(36) 0 *
Flagship Mortgage Co.
c/o Brian Shannon**
30 East Padonia Rd.
Ste 207
Timonium, MD 21093 134,400(9) * 134,400(9) 0 *
William L. Fox & Lynne Fox JT WROS
450 Music Mountain Rd.
Falls Village, CT 06031 672,000(38) * 672,000(38) 0 *
Delaware Charter G&T Co.
Trust Co. F/B/O
Anthony Gentile** IRA
7076 Via Quito
Pleasanton, CA 94566 336,000(8) * 336,000(8) 0 *
Myron Gerber
84 Gifford St. #33
New Bedford, MA 02744 268,800(10) * 268,800(10) 0 *
Gummersbach LTD
Lisa Marshall
22 Victoria St.
Hamilton, Bermuda HMF 12 672,000(38) * 672,000(38) 0 *
-56-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Steven Gurewitsch
930 5th Ave.
Apt. 3-G
New York, NY 10021 537,600(42) * 537,600(42) 0 *
Jack Ham Revocable Living
Trust Dtd.
3/22/00
Jack Ham** Trustee
3143 Marcus Pointe Blvd.
Pensicola, FL 32505 268,800(39) * 268,800(39) 0 *
William J. Kathol
7220 S. 141st
Omaha, NE 68138 672,000(38) * 672,000(38) 0 *
Reichert, Wenner, Koch, &
Provinzino
Profit Sharing Plan
F/B/O John Koch**
501 St. Germain
St. Cloud, MN 56302 201,600(40) * 201,600(40) 0 *
Robert Koch
1825 Eye St. N.W.
Ste 1100
Washington, DC 20006 268,800(10) * 268,800(10) 0 *
Peter J. Lawrence
5 Landsdowne Crescent
London W11 2NH
United Kingdom 403,200(41) * 403,200(41) 0 *
David Lind
267 Dedham St.
Norfolk, MA 02056 336,000(37) * 336,000(37) 0 *
-57-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Lind Family Investments LP Barry Lind**,
General Partner Philip Lind**, Limited
Partner 1000 West Washington St.
Suite #502
Chicago, IL 60607 134,400(9) * 134,400(9) 0 *
Barry Lind Revocable Trust
Barry Lind** Trustee U/A/D 12/19/1989
1000 West Washington St.
Suite #502
Chicago, IL 60607 806,400(13) 1.1% 806,400(13) 0 *
Randall K. Lowry, Jr.
14511 Falling Creek Dr.
Houston, TX 77014 672,000(38) * 672,000(38) 0 *
Mike Marr
3577 Fruitville Ave.
Oakland, CA 94602 268,800(10) * 268,800(10) 0 *
Glen Miskiewicz
48 Par-La-Ville Rd.
Apt. 724
Hamilton, HM11
Bermuda 672,000(38) * 672,000(38) 0 *
MSB Family Trust
D/T/D 6/25/93
Michael Blechman** TTEE 295
Shadowood Ln.
Northfield, IL 60093 604,800(16) * 604,800(16) 0 *
Daniel Navarro Jr. &
Richard Navarro JT WROS
2036 Highway 35 N.
South Amboy, NJ 08879 134,400(44) * 134,400(44) 0 *
-58-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
David R. Nichols &
Angela S. Nichols
Revocable Trust 1993
David Nichols and
Angela Nichols** TTEES
2250 Applewood Ln.
Camarillo, CA 93012 672,000(38) * 672,000(38) 0 *
Michael O'Brien
1575 Professional Way
P.O. Box 2737
Auburn, AL 36831 201,600(40) * 201,600(40) 0 *
Nelson Pan
985 Main St.
Melrose, MA 02176 201,600(40) * 201,600(40) 0 *
Prahalathan Rajasekaran**
c/o Jupiter Asset Management
1 Grosvenor Place
London SW1X 7JJ
England 403,200(41) * 403,200(41) 0 *
The Richardson Family Trust
D/T/D
07/19/90
Dennis L. Richardson &
Evette Richardson** TTEES
537 Ocampo Dr.
Pacific Palisades, CA 90272 537,600(15) * 537,600(15) 0 *
Barry Saxe
35 McDaniel Rd.
Shady, NY 12409 2,112,800(17) 2.9% 2,112,800(17) 0 *
Jody R. Saxe &
Richard Saxe JT WROS
3 West Ledge Rd.
Marblehead, MA 01945 134,400(36) * 134,400(36) 0 *
-59-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Lawrence M. Silver
225 West Hubbard
Suite #600
Chicago, IL 60610 470,400(18) * 470,400(18) 0 *
Delaware Charter Guarantee Trust Co.
F/B/O
Richard S. Simms** II Keogh Plan
5951 S. Middlefield Rd.
Ste. 105
Littleton, CO 80123 134,400(9) * 134,400(9) 0 *
John Spiziri
5 Nettie Lane
Lancaster, PA 17603 134,400(36) * 134,400(36) 0 *
Charles D. Stadterman
5620 Elgin St.
Pittsburgh, PA 15206 201,600(40) * 201,600(40) 0 *
William S. Tyrrell
Dogwood Townhouses #A12
4601 Henry Hudson Parkway
Bronx, NY 10471 806,400(13) 1.1% 806,400(13) 0 *
Peter T. White
122 Wilsondale St.
Westwood, MA 02090 336,000(37) * 336,000(37) 0 *
Robert Wilner
787 King St.
Rye Brook, NY 10573 537,600(43) * 537,600(43) 0 *
Olen C. Wilson
2404 Teckla Blvd.
Amarillo, TX 79106 201,600(40) * 201,600(40) 0 *
Tad Wilson
877 Maple Dr.
Spencer, IN 47460 134,400(36) * 134,400(36) 0 *
-60-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Jonathan H. Witherspoon
730 Yorkshire Road
Winston Salem, NC 27106 134,400(36) * 134,400(36) 0 *
Alan J. Young
1750 Braeside Avenue
Northbrook, IL 60062 470,400(18) * 470,400(18) 0 *
Roger Bouchard
32 Walnut Road
Rocky Hill, CT 06067 994,625(19) 1.4% 842,291(19) 152,334(19) *
John Dann
895 Moraga Road, Suite 7
Lafayette, CA 94549 1,274,958(48) 1.8% 1,183,125(48) 91,833 *
Donn Fassero
600 Coffee Road
Modesto, CA 95355 607,771(49) * 557,771(49) 50,000 *
Jerome French
1600 N. Foliage Dr.
Wichita, KS 67206 1,653,229(20) 2.3% 1,528,229(20) 125,000 *
Jeffrey Friedman
12074 Broadway Terrace
Oakland, CA 94611 2,894,518(21) 4.0% 2,596,468(21) 298,050(21) *
Steven Moore
1026 Rodeo Rd.
Pebble Beach, CA 93953 1,365,242(50) 1.9% 1,215,242(50) 150,000(50) *
Daniel P. Neri
308 Bordeaux Lane
Cary, NC 27511 457,334(22) * 407,334(22) 50,000(22) *
Warren Stout
800 E. Colorado Blvd., Suite 450
Pasadena, CA 91101 1,267,838(51) 1.7% 1,117,838(51) 150,000 *
-61-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Stephen Walker
5829 Niwot Road
Longmont, CO 80503 41,162(52) * 39,912(52) 1,250 *
CDM Group
Jerry Teich**
3541 East Broadway Rd.
Phoenix, AZ 85040 102,564(24) * 102,564(24) 0 *
Jerry Teich
3541 East Broadway Rd.
Phoenix, AZ 85040 75,113(53) * 67,613(53) 7,500 *
Synergos, Inc.
Jaye Thompson and J.T. Thompson**
2202 Timberloch Place, Suite 230
The Woodlands, TX 77380 839,091(25) 1.2% 839,091(25) 0 *
Spelling Communications
Daniel Spelling**
2211 Corinth Avenue, Suite 210
Los Angeles, CA 89064 300,532(26) * 300,532(26) 0 *
Daniel Spelling**
2211 Corinth Avenue, Suite 210
Los Angeles, CA 89064 60,000(54) * 40,000(54) 20,000 *
Stratum Consulting Group, LLC
Steve Scronic**
11442 E. Aster Drive
Scottsdale, AZ 85259 268,800(27) * 268,800(27) 0 *
Steve Scronic
7575 E. Indian Bend Rd. #2107
Scottsdale, AZ 85250 357,987(55) * 282,679(55) 75,308 *
Sloane M. Miles
10660 E. Mercer Dr.
Scottsdale, AZ 85259 136,000 * 116,000 20,000 *
-62-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Debra Gessner
9331 E. Calle de Valle
Scottsdale, AZ 85255 270,000(56) * 270,000(56) 0 *
Richard Ackner
14643 Drafthorse Ln.
Wellington, FL 33414 134,400(36) * 134,400(36) 0 *
Jason J. Aiello &
Rachel Aiello JT WROS
714 Willowbrook Rd.
Staten Island, NY 10314 134,400(9) * 134,400(9) 0 *
Richard B. Aronson
11 Lawrence Ln.
Lexington, MA 02421 134,400(36) * 134,400(36) 0 *
Richard E. Beattie
101 Graystone Farm Rd.
White Hall, MD 21161 268,800(39) * 268,800(39) 0 *
John J. Bender
2803 S. 22nd St.
LaCrosse, WI 54601 134,400(36) * 134,400(36) 0 *
Lester B. Boelter
50 Shady Oak Ct.
Winona, MN 55987 1,008,000(29) 1.4% 1,008,000(29) 0 *
Elliot Braun
3775 Park Ave.
Edison, NJ 08820 336,000(37) * 336,000(37) 0 *
Robert Burkhardt
2615 Kingston Point
Fort Wayne, IN 46815 268,800(10) * 268,800(10) 0 *
William Crowell &
Patricia Crowell JT WROS
9045 E. Havasupia Dr.
Scottsdale, AZ 85255 134,400(36) * 134,400(36) 0 *
-63-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Edward Duffy
178 Hanson Ln.
New Rochelle, NY 10804 134,400(9) * 134,400(9) 0 *
Franz Family Trust
D/T/D 8/16/02
David Franz & Nicole Franz** TTEES
5553 Wellesley Dr.
Calabasas, CA 91302 134,400(36) * 134,400(36) 0 *
Bernie Gallas
5200 N. Diversey Blvd. #204
Milwaukee, WI 53217 201,600(40) * 201,600(40) 0 *
William M. Goldstein
787 Trethanny Ln.
Wayne, PA 19087 168,000(30) * 168,000(30) 0 *
Mark Hellner
900 West Olive
Merced, CA 95348 537,600(43) * 537,600(43) 0 *
Michael Hennessy
686 Bowman Rd.
Chamberburg, PA 17201 134,400(36) * 134,400(36) 0 *
Joel Katz**
c/o American Business
1205 Northern Blvd.
Manahasset, NY 11030 336,000(37) * 336,000(37) 0 *
Michael Kramm &
Doris Kramm JT WROS
39 Rugen Dr.
Harrington Pk., NY 07640 134,400(9) * 134,400(9) 0 *
Indy S. Kullar
3-8699 10th Ave.
Burnaby, BC V3N259
Canada 201,600(40) * 201,600(40) 0 *
-64-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
David Bruce Laughton
12065 Beaufait Ave.
Northridge, CA 91326 134,400(36) * 134,400(36) 0 *
Myron A. Leon
2806 Saklan Indian Dr.
Walnut Creek, CA 94595 134,400(9) * 134,400(9) 0 *
Dwight E. Long
406 Belle Glen Ln.
Brentwood, TN 37027 403,200(41) * 403,200(41) 0 *
George F. McCabe Jr. Family Trust
DTD 2/11/98
George F. McCabe** TTEE
926 Hawk Landing
Frontland Park, FL 34731 336,000(37) * 336,000(37) 0 *
James L. McCormack
3355 Fruitvale Rd.
Lincoln, CA 95648 134,400(36) * 134,400(36) 0 *
John Kevin McCrary
4520 Red Fox Rd.
Fort Collins, CO 80526 134,400(36) * 134,400(36) 0 *
E. Scott Millbury
Southshore Dr.
Millbury Lane
Rangely, ME 04970 134,400(36) * 134,400(36) 0 *
John Richard Miller
29 Bishop Kirk Place
Oxford, OX27HJ
UK 672,000(38) * 672,000(38) 0 *
Sanford J. Miller &
Babette D. Miller JT WROS
7606 Forsyth Blvd.
St. Louis, MO 63105 336,000(37) * 336,000(37) 0 *
-65-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Enrico Monaco
2230 Ocean Ave.
Brooklyn, NY 11229 201,600(40) * 201,600(40) 0 *
James Mulryan &
Maureen Mulryan JT WROS
9925 S. Bell Ave.
Chicago, IL 60643 134,400(36) * 134,400(36) 0 *
Allen Notowitz
2710 Victoria Mnr.
San Carlos, CA 94070 134,400(36) * 134,400(36) 0 *
Paul B. Poulsen &
Kathleen J. Poulsen JT WROS
215 Alvarado Ave.
Los Angeles, CA 94022 268,800(39) * 268,800(39) 0 *
Progressive Ins. Services, Inc.
Money Purchase Pension Plan
Russell E. Davis** TTEE
205 E. Reynolds Rd.
Lexington, KY 40571 134,400(36) * 134,400(36) 0 *
Palangat Radhakrishnan &
Devika Radhakrishnan JT WROS
115 White Ave.
New Hyde Pk., NY 11040 336,000(37) * 336,000(37) 0 *
Frank Restivo
1311 S. Hidden Valley Dr.
W. Covina, CA 91791 134,400(36) * 134,400(36) 0 *
Delaware Charter Guaranty & Trust Co.
FBO Stanley Riggins** IRA
1349 Biltmore Drive
Charlotte, NC 28207 134,400(36) * 134,400(26) 0 *
-66-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Paul Sallwasser &
Teri Sallwasser JT WROS
301 Windmill Palm Ave.
Plantation, FL 33324 268,800(10) * 268,800(10) 0 *
Ronald S. Sheldon Self Directed
Profit Sharing Plan & Trust
Ronald S. Sheldon** TTEE
1488 Old Barn Lane
Highland Pk., IL 60035 268,800(39) * 268,800(39) 0 *
Delaware Charter Guarantee & Trust Co.
FBO Stanley Sides** IRA
631 Walker Ferry Rd.
Alexander City, AL 35010 268,800(39) * 268,800(39) 0 *
Claire Spooner
111 Seaview Ct.
Neptune, NJ 07753 134,400(36) * 134,400(36) 0 *
Henry Steinberg
934 Southern Drive
Franklin Sq., NY 02038 134,400(36) * 134,400(36) 0 *
Daniel C. Strum
95 Upper Hampden Rd.
Monson, MA 01057 268,800(39) * 268,800(39) 0 *
Frank Sylva
450 Sylva Lane
Lakeport, CA 95453 134,400(44) * 134,400(44) 0 *
Michael Van Petten
5113 Rolling Fairway Dr.
Valrilo, FL 33594 134,400(36) * 134,400(36) 0 *
John Wechsler
159 Bedford Rd.
Greenwich, CT 06831 168,000(23) * 168,000(23) 0 *
-67-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Michael Kulick, MD
Profit Shared Plan
Michael Kulick, MD
450 Sutter, Suite 2620
San Francisco, CA 94118 1,122,020(57) 1.5% 922,020(57) 200,000 *
Michael Caridi
32 Cutler Road
Greenwich, CT 06831 444,778(58) * 120,000(58) 324,778 *
Salvatore Clark
P.O. Box 317
Deer Park, NY 11729 246,400(59) * 246,400(59) 0 *
Antonio Coladonato
2526 Harway Ave.
Brooklyn, NY 11214 5,600(60) * 5,600(60) 0 *
Kris Destefano
2 Manchester Drive
Bethpage, NY 11714 207,200(61) * 207,200(61) 0 *
Kristina Fasullo
77 Claradon Lane
Staten Island, NY 10305 5,600(60) * 5,600(60) 0 *
Alan Ferraro
7201 4th Avenue
Apt. #C-14
Brooklyn, NY 11209 184,800(62) * 184,800(62) 0 *
William Christopher Frasco
532 Nugent Ave.
Staten Island, NY 10305 112,000(63) * 112,000(63) 0 *
Steven Markowitz
c/o Joseph Stevens & Co., Inc.
59 Maiden Lane
32nd Fl.
New York, NY 10038 672,700(64) * 672,700(64) 0 *
-68-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Matthew S. Menies
52 Beach Road
Massapequa, NY 11758 140,000(65) * 140,000(65) 0 *
Fabio Migliaccio
658 Henry Street
Brooklyn, NY 11231 224,000(66) * 224,000(66) 0 *
Dina Mondelli
1 74th Street
Apt. #2S
Brooklyn, NY 11209 5,600(60) * 5,600(60) 0 *
Peter Orthos
52 Stone Hill Drive S.
Manhasset, NY 11030 224,000(66) * 224,000(66) 0 *
Alexander Orthos & Peter Orthos
JT WROS 52 Stone Hill Drive S.
Manhasset, NY 11030 1,496,600(67) 2.1% 1,496,600(67) 0 *
George Paxinos
32043 46th Street
Astoria, NY 11103 95,200(68) * 95,200(68) 0 *
Robert Petrozzo
20 Woods Lane
East Hampton, NY 11937 380,800(69) * 380,800(69) 0 *
James Rathgeber
14 Richboyrne Lane
Melville, NY 11747 459,200(70) * 459,200(70) 0 *
Joseph Sorbara
4 Windham Court
Muttontown, NY 11545 672,700(71) * 672,700(71) 0 *
-69-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Edward Taylor
6415 Boulevard East
West New York, NJ 07093 52,500(72) * 52,500(72) 0 *
Andrea Todaro
55 92nd Street
Apt. #2F
Brooklyn, NY 11209 22,400(73) * 22,400(73) 0 *
Drew Tranchina
178-15 69th Ave.
Fresh Meadows, NY 11365 61,600(74) * 61,600(74) 0 *
Louis John Ventre
1339 85th Street
Brooklyn, NY 11228 112,000(63) * 112,000(63) 0 *
Westrock Advisors
Ed Taylor**
230 Park Ave.
Suite #934
New York, NY 10169 17,500(32) * 17,500(32) 0 *
Jeffrey Blake Woolf
80 Park Ave.
Apt. #7F
New York, NY 10016 89,600(75) * 89,600(75) 0 *
SBM Certificate Company
Eric Westbury
5101 River Road, Suite 101
Bethesda, MD 20816 900,000(33) 1.2% 900,000(33) 0 *
Professional Traders Fund LLC
Marc Swickle and Howard Berger**
1400 Old Country Road, Suite 206
Westbury, NY 11590 366,420(34) * 366,420(34) 0 *
-70-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Don Jackler
246 E 51st Street, Suite 8
New York, NY 10022 700,000 * 700,000 0 *
Chris Messalas
c/o Clayton Dunning
40 Wall Street 31st floor
New York, NY 10005 250,000 * 250,000 0 *
Robert C. Lau
c/o Clayton Dunning
40 Wall Street 31st floor
New York, NY 10005 166,290 * 166,290 0 *
Kenneth E. Sidler
c/o Clayton Dunning
40 Wall Street 31st floor
New York, NY 10005 69,945 * 69,945 0 *
Ava Proudian
c/o Clayton Dunning
40 Wall Street 31st floor
New York, NY 10005 13,765 * 13,765 0 *
Dian Griesel
11 Stone Street, 4th Floor
New York, NY 10004 300,000(76) * 300,000(76) 0 *
John Alderson
Hunter World Markets, Inc.
9300 Wilshire Blvd
Suite 600
Beverly Hills, CA 90212 200,000(77) * 200,000(77) 0 *
Carol & Jesse Kahn Revocable Trust
P.O. Box 5213
Carmel, CA 93921 39,062 * 39,062 0 *
-71-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Gerald Witten
206 S. Union St.
Emporia, KS 66801-4830 87,616(79) * 27,616(79) 60,000(79) *
Simon S. Wong
2370 N. Emerald Lake Court
Tucson, AZ 85749 122,689 * 20,000 102,689 *
Michael Barreras
6750 W. Gelding Road
Peoria, AZ 85381 53,727(80) * 19,288(80) 34,439 *
Carol Kraft**
225 Ruth Ave.
Idaho Falls, ID 83401 81,414(81) * 31,414(81) 50,000(81) *
Stuart Quan
1501 N. Campbell Avenue
Tuscon, AZ 85724-0001 8,700(85) * 8,000(85) 700 *
Janet Neal
5712 Chenault Dr
Modesto, CA 95356 5,118 * 5,118 0 *
Lynn Pont
7537 Del Cielo Way
Modesto, CA 95356 5,118 * 5,118 0 *
Pam Rozycki
999 Country Club Dr.
Modesto, CA 95356 5,118 * 5,118 0 *
Kylie Allison**
11007 N Ridgeview Ct
Fountain Hills, AZ 65268 3,592 * 3,592 0 *
Bonnie Hahn
710 S. Stout St.
Blackfoot, ID 83221 86,092(88) * 3,592(88) 82,500 *
-72-
Percentage of
Shares of
Number of Percentage of Number of Shares Common Stock
Shares of Shares of Common Number of of Common Stock Beneficially
Common Stock Stock Shares of Beneficially Owned After
Beneficially Beneficially Common Stock Owned After Completion of
Owned Prior to Owned Prior to Registered for Completion of the Offering
Other Selling Stockholders: Offering the Offering Sale Hereby the Offering (1) (1)
--------------------------------------- -------------- ---------------- -------------- ---------------- -------------
Kimberly Wilhelm**
11007 N Ridgeview Ct
Fountain Hills, AZ 65268 314,226(89) * 253,226(89) 61,000 *
Hallie Wilhelm**
11007 N Ridgeview Ct
Fountain Hills, AZ 65268 3,592 * 3,592 0 *
Hannah Wilhelm**
11007 N Ridgeview Ct
Fountain Hills, AZ 65268 3,592 * 3,592 0 *
Klaus Wilhelm & Renate Wilhelm JTWROS
8733 Elm Leaf Ct
Port Richey, FL 34668 3,592 * 3,592 0 *
Eric Hopkins
3183-F Airway Ave. # 122
Costa Mesa, CA 92626 10,140(90) * 10,140(90) 0 *
John G. Nesbett
11 Stone Street, 4th Floor
New York, NY 10004 50,000 * 50,000 0 *
Rick Cheng
1910 S. Michigan Avenue, #406
Chicago, IL 60616 25,000(91) * 25,000(91) 0 *
Shawn Valukas
900 W. Eric #B
Chicago, IL 60632 25,000(91) * 25,000(91) 0 *
Value Management Research AG
Attn: Kevin Devine, CEO
Campus Kronberg 7
D-61476 Kronberg im Taunus
Germany 232,153(78) * 232,153(78) 0 *
-73-
----------
* Less than 1 percent.
** Beneficial owner(s) based information provided to us by the selling
stockholder.
(1) Represents the amount of shares that will be held by the selling
stockholders after completion of this offering based on the assumption
that all shares registered for sale hereby will be sold. However, the
selling stockholders may offer all, some or none of the shares pursuant to
this prospectus, and to our knowledge there are currently no agreements,
arrangements or understanding with respect to the sale of any of the
shares that may be held by the selling stockholders after completion of
this offering.
(2) Includes 5,628,718 shares underlying warrants that are currently
exercisable, 3,840,000 of which represent warrants, exercisable at prices
ranging from $0.005 to $0.25, to purchase shares held by David T. Harris.
Includes 1,788,718 shares underlying warrants exercisable at prices
ranging from $0.25 to $2.00. Includes 150,000 stock purchase options at a
$0.40 strike price. Also includes 20,000 shares held by Michael K Wilhelm
that underlie currently exercisable warrants held by one individual.
(3) Includes 712,000 shares underlying warrants that are currently exercisable
at prices ranging from $0.125 to $0.50. Includes 163,000 shares held by
Mark L. Witten that underlie currently exercisable warrants held by 6
individuals.
(4) Includes 41,665 common shares which have been accrued. These shares to be
issued per Mr. Fermanis's employment agreement. Includes 17,500 shares
underlying warrants that are currently exercisable at prices ranging from
$0.25 to $0.41.
(5) Includes 93,300 common shares which have been accrued. These shares are
being issued in conjunction with the conversion of an outstanding
convertible promissory note in September 2003. Includes 203,000 shares
underlying warrants that are currently exercisable at prices ranging from
$0.038 to $1.00, 17,500 of which represent warrants to purchase shares
held by David T. Harris and 17,500 of which represent warrants to purchase
shares held by Mark L. Witten.
(6) Includes 134,965 common shares that have been accrued. Includes 150,000
common stock purchase warrants issued to Michael K. Wilhelm per his
employment agreement. Includes 6,596,218 shares underlying warrants that
are currently exercisable at prices ranging from $0.005 to $1.00, and
3,875,000 of which are underlying warrants to purchase shares held by
David T. Harris. Includes an aggregate of 386,000 shares held by Michael,
K. Wilhelm, Mark L. Witten and David T. Harris that underlie currently
exercisable warrants held by 9 individuals.
(7) Includes 3,840,000 shares held by David T. Harris that underlie currently
exercisable warrants held by Michael K. Wilhelm a and an additional
163,000 shares held by Mr. Harris that underlie currently exercisable
warrants held by 7 individuals.
(8) Includes 100,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 24,000 common shares and 12,000 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty.
(9) Includes 40,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 9,600 common shares and 4,800 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty. Barry Lind is the General Partner and control
person of Lind Family Investments LP. Brian Shannon is the control person
of Flagship Mortgage Co.
(10) Includes 80,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 19,200 common shares and 9,600 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty.
(11) Not used.
(12) Not used
(13) Includes 240,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 57,600 common shares and 28,800 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty.
(14) Not used.
(15) Includes 160,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 38,400 common shares and 19,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty.
(16) Includes 180,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 43,200 common shares and 21,600 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty.
(17) Includes 115,200 common shares and 57,600 common stock purchase warrants
that are currently exercisable at $0.50 that have been accrued due to
Registration Penalty.
(18) Includes 140,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 33,600 common shares and 16,800 common stock purchase
warrants that are currently exercisable at $0.50 that have been accrued
due to Registration Penalty.
(19) Includes 367,264 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00, 8,000 of which represent warrants
to purchase shares held by Mark L. Witten and 8,000 of which represent
warrants to purchase shares held by David T. Harris.
(20) Includes 634,410 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
(21) Includes 40,000 shares that have been accrued pending issuance. Includes
1,038,540 shares underlying warrants that are currently exercisable at
prices ranging from $0.09 to $2.00, 62,750 of which represent warrants to
purchase shares held by Mark L. Witten and 62,750 of which represent
warrants to purchase shares held by David T. Harris.
-74-
(22) Includes 50,000 shares underlying warrants that are currently exercisable,
25,000 at a price of $1.00, 12,500 of which represent warrants to purchase
shares held by Mark L. Witten and 12,500 of which represent warrants to
purchase shares held by David T. Harris.
(23) Includes 50,000 shares underlying warrants that are currently exercisable.
Includes 12,000 common shares and 6,000 common stock purchase warrants
that are currently exercisable that have been accrued due to Registration
Penalty.
(24) Includes 34,188 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 7,500 shares underlying warrants that are
currently exercisable held by the owner of CDM Group. Jerry Teich is the
control person of CDM Group.
(25) Includes 279,697 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 20,000 shares underlying warrants that are
currently exercisable held by the shareholders of Synergos, Inc, Jaye
Thompson and J.T. Thompson. Jaye Thompson is the control person of
Synergos, Inc.
(26) Includes 95,388 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 40,000 shares and 20,000 shares underlying
warrants that are currently exercisable held by the owner of Spelling
Communications. Daniel Spelling is the control person of Spelling
Communications.
(27) Includes 89,600 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 301,048 shares and 26,939 shares underlying
warrants that are currently exercisable held by the owner of Stratum
Consulting Group, LLC. Steven J. Scronic is the control person of Stratum
Consulting Group, LLC.
(28) Not used.
(29) Includes 72,000 common shares and 36,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(30) Includes 12,000 common shares and 6,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(31) Not used.
(32) Includes 1,875 common shares that have been accrued due to Registration
Penalty. Dan Hunter is the Chief Operating Officer and control person of
Westrock Advisors.
(33) Eric Westbury is the control person of SBM Certificate Company.
(34) Mark Swickle and Howard Berger are the control persons of Professional
Traders Fund LLC.
(35) Not used.
(36) Includes 9,600 common shares and 4,800 common stock purchase warrants that
are currently exercisable at a price of $0.50 that have been accrued due
to Registration Penalty.
(37) Includes 24,000 common shares and 12,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(38) Includes 48,000 common shares and 24,000 common stock purchase warrants at
a price of $0.50 that are currently exercisable that have been accrued due
to Registration Penalty Lisa Marshall is the President and control person
of Gummersback LTD.
(39) Includes 19,200 common shares and 9,600 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(40) Includes 14,400 common shares and 7,200 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(41) Includes 28,800 common shares and 14,400 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(42) Includes 65,000 shares underlying warrants that are currently exercisable
at a price of $0.50. Includes 38,400 common shares and 19,200 common stock
purchase warrants that are currently exercisable at a price of $0.50 that
have been accrued due to Registration Penalty.
(43) Includes 38,400 common shares and 19,200 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been accrued
due to Registration Penalty.
(44) Includes 20,000 shares underlying warrants that are currently exercisable
at a price of $0.50. Includes 9,600 common shares and 4,800 common stock
purchase warrants that are currently exercisable at a price of $0.50 that
have been accrued due to Registration Penalty.
(45) Not used.
(46) Not used.
(47) Not used.
(48) Includes 486,208 shares underlying warrants that are currently exercisable
at prices ranging from $0.25 to $0.50.
(49) Includes 235,924 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
(50) Includes 75,000 shares underlying warrants that are currently exercisable
at prices ranging from $0.50 to $1.00, 37,500 of which represent warrants
to purchase shares held by Mark L. Witten and 37,500 of which represent
warrants to purchase shares held by David T. Harris.
(51) Includes 522,613 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
(52) Includes 14,554 shares underlying warrants that are currently exercisable
at prices ranging from $0.35 to $0.50.
(53) Includes 67,613 common shares that have been accrued. Includes 7,500
shares underlying warrants that are currently exercisable at prices
ranging from $0.09 to $2.00. Jerry Teich is the control person of CDM
Group.
(54) Includes 20,000 shares underlying warrants that are currently exercisable
at a price of $1.00. Daniel Spelling is the control person of Spelling
Communications.
-75-
(55) Includes 26,939 shares underlying warrants that are currently exercisable
at $0.278 per share. Steven J. Scronic is the control person of Stratum
Consulting Group, LLC.
(56) Includes 90,000 shares underlying warrants that are currently exercisable
at a price of $0.50 per share.
(57) Includes 507,340 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
(58) Includes 364,778 shares underlying warrants that are currently exercisable
at prices ranging from $0.125 to $0.50.
(59) Includes 26,400 common shares that have been accrued due to Registration
Penalty.
(60) Includes 600 common shares that have been accrued due to Registration
Penalty.
(61) Includes 22,200 common shares that have been accrued due to Registration
Penalty.
(62) Includes 19,800 common shares that have been accrued due to Registration
Penalty.
(63) Includes 12,000 common shares that have been accrued due to Registration
Penalty.
(64) Includes 72,075 common shares that have been accrued due to Registration
Penalty.
(65) Includes 15,000 common shares that have been accrued due to Registration
Penalty.
(66) Includes 24,000 common shares that have been accrued due to Registration
Penalty.
(67) Includes 160,350 common shares that have been accrued due to Registration
Penalty.
(68) Includes 10,200 common shares that have been accrued due to Registration
Penalty.
(69) Includes 40,800 common shares that have been accrued due to Registration
Penalty.
(70) Includes 49,200 common shares that have been accrued due to Registration
Penalty.
(71) Includes 10,200 common shares that have been accrued due to Registration
Penalty.
(72) Includes 5,625 common shares that have been accrued due to Registration
Penalty.
(73) Includes 2,400 common shares that have been accrued due to Registration
Penalty.
(74) Includes 6,600 common shares that have been accrued due to Registration
Penalty.
(75) Includes 9,600 common shares that have been accrued due to Registration
Penalty.
(76) Includes 100,000 common shares that have been accrued.
(77) Includes 200,000 shares underlying warrants that are currently exercisable
at a price of $0.125 per share.
(78) Includes 232,153 common shares which have been accrued.
(79) Includes 60,000 shares underlying warrants that are currently exercisable,
30,000 exercisable at $1.00, 15,000 of which represent warrants to
purchase shares held by David T. Harris and 15,000 of which represent
warrants to purchase shares held by Mark L. Witten.
(80) Includes 19,288 common shares which have been accrued.
(81) Includes 13,454 common shares which have been accrued. Includes 50,000
shares underlying warrants that are currently exercisable, 30,000 of which
are exercisable at prices ranging between $0.25 and $1.00, 10,000 of which
represent warrants to purchase shares held by David T. Harris and 10,000
of which represent warrants to purchase shares held by Mark L. Witten.
(82) Not used.
(83) Not used.
(84) Not used.
(85) Includes 700 shares underlying warrants that are currently exercisable at
$1.00 per share.
(86) Not used.
(87) Not used.
(88) Includes 82,500 shares underlying warrants that are currently exercisable
at prices ranging between $0.05 and $2.00.
(89) Includes 61,000 shares underlying warrants that are currently exercisable
at prices between $0.25 and $1.00.
(90) Includes 10,000 shares underlying warrants that are currently exercisable
at a price of $2.00 per share. (91) Includes 25,000 shares underlying
warrants that are currently exercisable at a price of $0.038.
We will not receive any of the proceeds from the sale of the shares by
the selling stockholders. We have agreed to bear expenses incurred by the
selling stockholders, up to a maximum limit of $15,000, that relate to the
registration of the shares being offered and sold by the selling stockholders,
including the Securities and Exchange Commission registration fee and legal,
accounting, printing and other expenses of this offering.
-76-
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 100,000,000 shares of common stock, $0.001 par
value per share, and 10,000,000 shares of preferred stock, $0.001 par value per
share. The following description of our capital stock does not purport to be
complete and is governed by and qualified by our certificate of incorporation
and bylaws, which are included as exhibits to the registration statement of
which this prospectus forms a part, and by the provisions of applicable Delaware
law.
COMMON STOCK
As of May 31, 2005, we had 69,063,275 shares of common stock outstanding,
which were held of record and beneficially by approximately 520 stockholders. We
also have accrued common shares pending issuance of 740,551. Additionally, in
regard to the penalty for delayed registration we have accrued 3,228,400 common
shares for issuance. As of May 31, 2005, there were 16,218,951 shares of common
stock underlying outstanding warrants, and options to purchase 63,212 shares of
common stock had been granted or were outstanding outside our 2003 Stock Option,
Deferred Stock and Restricted Stock Plan. 150,000 options had been granted or
were outstanding under our 2003 Stock Option, Deferred Stock and Restricted
Stock Plan; 445,996 shares remain available for issuance under this plan.
The holders of our common stock are entitled to one (1) vote per share on
all matters submitted to a vote of our stockholders. In addition, such holders
are entitled to receive ratably such dividends, if any, as may be declared from
time to time by our Board of Directors out of funds legally available therefore.
No dividends may be paid on the common stock until all accrued but unpaid
dividends on the shares of our preferred stock have been paid. In the event of
the dissolution, liquidation or winding up of our company, the holders of common
stock are entitled to share ratably in all assets remaining after payment of all
liabilities of our company and the preference amount distributable to the
holders of the shares of preferred stock. The holders of common stock do not
have any subscription, redemption or conversion rights, nor do they have any
preemptive or other rights to acquire or subscribe for additional, unissued or
treasury shares.
Pursuant to our bylaws, except for any matters which pursuant to Delaware
law require a greater percentage vote for approval, the holders of a majority of
the outstanding shares of common stock, if present in person or by proxy, are
sufficient to constitute a quorum for the transaction of business at meetings of
our stockholders. Except as to any matters which pursuant to Delaware law
require a greater percentage vote for approval, the affirmative vote of the
holders of a majority of the shares of common stock present in person or by
proxy at any meeting (provided a quorum is present) is sufficient to authorize,
affirm or ratify any act or action, including the election of our Board of
Directors.
The holders of the common stock do not have cumulative voting rights.
Accordingly, the holders of more than half of the outstanding shares of common
stock can elect all of the directors to be elected in any election, if they
choose to do so. In such event, the holders of the remaining shares of common
stock would not be able to elect any directors. Our Board of Directors is
empowered to fill any vacancies on the Board created by the resignation, death
or removal of directors.
In addition to voting at duly called meetings at which a quorum is present
in person or by proxy, Delaware law and our bylaws provide that stockholders may
take action without the holding of a meeting by written consent or consents
signed by the holders of a majority of the outstanding shares of our capital
stock entitled to vote thereon. Prompt notice of the taking of any action
without a meeting by less than unanimous consent of the stockholders will be
given to those stockholders who do not consent in writing to the action. The
purposes of this provision are to facilitate action by stockholders and to
reduce the corporate expense associated with special meetings of stockholders.
MARKET PRICE OF OUR COMMON STOCK
The price of our common stock has been volatile in the past and will
likely continue to fluctuate in the future. The stock market in general and the
market for shares of life science companies in particular have
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experienced extreme stock price fluctuations. In some cases, these fluctuations
have been unrelated to the operating performance of the affected companies. Many
companies in the life science and related industries have experienced dramatic
volatility in the market prices of their common stock. We believe that a number
of factors, both within and outside our control, could cause the price of our
common stock to fluctuate, perhaps substantially. Factors such as the following
could have a significant adverse impact on the market price of our common stock:
o Our ability to obtain additional financing and, if available, the
terms and conditions of the financing;
o Our financial position and results of operations;
o The results of preclinical studies and clinical trials by us, our
collaborators or our competitors;
o Concern as to, or other evidence of, the safety or efficacy of our
proposed products or our competitors' products;
o Announcements of technological innovations or new products by us or
our competitors;
o U.S. and foreign governmental regulatory actions;
o Actual or anticipated changes in drug reimbursement policies;
o Developments with our collaborators, if any;
o Developments concerning patent or other proprietary rights of us or
our competitors (including litigation);
o Status of litigation;
o Period-to-period fluctuations in our operating results;
o Changes in estimates of our company's performance by any securities
analysts;
o New regulatory requirements and changes in the existing regulatory
environment;
o Market conditions for life science stocks in general.
o The issuance of new equity securities pursuant to a future offering;
o Changes in interest rates;
o Competitive developments, including announcements by competitors of
new products or services or significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;
o Variations in quarterly operating results;
o Change in financial estimates by securities analysts;
o The depth and liquidity of the market for our common stock;
o Investor perceptions of our company and the technologies industries
generally; and
o General economic and other national conditions.
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PREFERRED STOCK
Under our certificate of incorporation, shares of our preferred stock may,
without any action by our stockholders, be issued by our Board of Directors from
time to time in one or more series for such consideration and with such relative
rights, privileges and preferences as the Board may determine. Accordingly, our
Board of Directors has the power, without stockholder approval, to fix the
dividend rate and to establish the provisions, if any, relating to voting
rights, redemption rate, sinking fund, liquidation preferences and conversion
rights for any series of preferred stock (subject to the preferences of the
shares of common stock offered hereby) issued in the future, which could
adversely affect the voting power or other rights of the holders of common
stock.
Our Board of Directors' authority to issue preferred stock provides a
convenient vehicle in connection with possible acquisitions and other corporate
purposes, but could have the effect of making it more difficult for a person or
group to gain control of our company. As of the date of the prospectus, there
are no shares of preferred stock outstanding, and we do not have present plans
to issue any shares of preferred stock or designate any series of preferred
stock.
STOCK OPTIONS
As of April 3, 2005, there were 150,000 outstanding stock options at a
weighted average exercise price of $0.40 per share under our 2003 Stock Option,
Deferred Stock and Restricted Stock Plan and 445,996 shares were reserved for
future grant under our 2003 Stock Option, Deferred Stock and Restricted Stock
Plan. There were outstanding stock options to purchase an additional 63,212
shares of our common stock that were granted outside of our 2003 Stock Option,
Deferred Stock and Restricted Stock Plan at a weighted average exercise price of
$25.00 per share.
WARRANTS
As of May 31, 2005, there were outstanding warrants to purchase 16,218,951
shares of our common stock with exercise prices ranging from $0.05 to $2.00 per
share.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, with certain exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior, did own 15% or more
of the corporation's voting stock. These provisions may have the effect of
delaying, deferring or preventing a change in control of us without further
action by our stockholders.
Our certificate of incorporation and bylaws contain provisions that could
have the effect of discouraging potential acquisition proposals or making a
tender offer or delaying or preventing a change in control of our company,
including changes a stockholder might consider favorable. In particular, our
certificate of incorporation and bylaws, as applicable, among other things,
will:
o provide our board of directors with the ability to alter our bylaws
without stockholder approval;
o provide that special meetings of stockholders can only be called by
our Board of Directors or by a committee of our Board of Directors
that has been duly designated by the Board and whose powers and
authority included the power to call such meetings;
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o provide for an advance notice procedure with regard to the
nomination of candidates for election as directors and with regard
to business to be brought before a meeting of stockholders;
o provide that vacancies on our board of directors may be filled by a
majority of directors in office, although less than a quorum; and
o allow us to issue up to 10,000,000 shares of preferred stock with
rights senior to those of the common stock and that otherwise could
adversely affect the rights and powers, including voting rights, of
the holders of common stock. In some circumstances, this issuance
could have the effect of decreasing the market price of our common
stock, as well as having the anti-takeover effects discussed above.
Such provisions may have the effect of discouraging a third-party from
acquiring us, even if doing so would be beneficial to our stockholders. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of our board of directors and in the policies formulated by
them, and to discourage some types of transactions that may involve an actual or
threatened change in control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited acquisition proposal and to
discourage some tactics that may be used in proxy fights. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure our
company outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. However, these provisions could have the effect of discouraging
others from making tender offers for our shares that could result from actual or
rumored takeover attempts. These provisions also may have the effect of
preventing changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent for our common stock is Stalt, Inc., located at 671 Oak
Grove Avenue, Suite C, Menlo Park , California 94025.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 31, 2005, we had outstanding 72,571,026 shares of common stock.
RULE 144
All of the 48,934,894 shares registered in this offering will be and
3,225,200 shares issued under our 2003 Stock Option, Deferred Stock, and
Restricted Stock plan are freely tradable without restriction or further
registration under the Securities Act of 1933. As of May 31, 2005, we also have
outstanding an additional 20,407,732 shares of common stock outstanding that
were issued and sold in reliance on exemptions from the registration
requirements of the Securities Act of 1933. If shares are purchased by our
"affiliates" as that term is defined in Rule 144 under the Securities Act of
1933, their sales of shares would be governed by the limitations and
restrictions that are described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of our common
stock for at least one year, including any person who may be deemed to be an
"affiliate" (as the term "affiliate" is defined under the Securities Act of
1933), would be entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of:
o 1% of the number of shares of common stock then outstanding, which
as of May 31, 2005 would equal approximately 725,710 shares; or
o the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on Form 144
with respect to such sale.
Sales under Rule 144 are also governed by other requirements regarding the
manner of sale, notice filing and the availability of current public information
about us. Under Rule 144, however, a person who is not, and for
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the three months prior to the sale of such shares has not been, an affiliate of
the issuer is free to sell shares that are "restricted securities" which have
been held for at least two years without regard to the limitations contained in
Rule 144. The selling stockholders will not be governed by the foregoing
restrictions when selling their shares pursuant to this prospectus.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144.
PLAN OF DISTRIBUTION
The selling stockholders, and any of their pledgees, assignees and
successors-in-interest, may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
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o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; or
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
Broker-dealers engaged by the selling stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each selling stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein, the
selling stockholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may, after the date of this prospectus, also sell shares of our
common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn may
sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholders has
informed us that it does not have any agreement or understanding, directly or
indirectly, with any person to distribute our common stock.
We are required to pay certain fees and expenses incurred by us incident
to the registration of the shares. We have agreed to indemnify the selling
stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within the
meaning of the Securities Act, they will be subject to the prospectus delivery
requirements of the Securities Act. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 under the Securities Act
may be sold under Rule 144 rather than under this prospectus. Each selling
stockholder has advised us that they have not entered into any agreements,
understandings or arrangements with any underwriter or broker-dealer regarding
the sale of the resale shares. There is no underwriter or coordinating broker
acting in connection with the proposed sale of the resale shares by the selling
stockholders.
We agreed to keep this prospectus effective until the earlier of (i) the
date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale
-82-
in the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock by the selling stockholders or any other
person. We will make copies of this prospectus available to the selling
stockholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale.
DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under Section 145 of the General Corporation Law of the State of Delaware,
we can indemnify our directors and officers against liabilities they may incur
in such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). Our certificate of incorporation provides that,
pursuant to Delaware law, our directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to us and our stockholders.
This provision in the certificate of incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of nonmonetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to us or our stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of the law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of our directors to the fullest
extent permitted by the Delaware General Corporation Law. Our bylaws further
provide that our Board of Directors has sole discretion to indemnify our
officers and other employees. We may limit the extent of such indemnification by
individual contracts with our directors and executive officers, but have not
done so. We are required to advance, prior to the final disposition of any
proceeding, promptly on request, all expenses incurred by any director or
executive officer in connection with that proceeding on receipt of an
undertaking by or on behalf of that director or executive officer to repay those
amounts if it should be determined ultimately that he or she is not entitled to
be indemnified under our bylaws or otherwise. We are not, however, required to
advance any expenses in connection with any proceeding if a determination is
reasonably and promptly made by our Board of Directors by a majority vote of a
quorum of disinterested Board members that (a) the party seeking an advance
acted in bad faith or deliberately breached his or her duty to us or our
stockholders and (b) as a result of such actions by the party seeking an
advance, it is more likely than not that it will ultimately be determined that
such party is not entitled to indemnification pursuant to the applicable
sections of our bylaws.
We have been advised that in the opinion of the Securities and Exchange
Commission, insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
-83-
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for us by Kirkpatrick & Lockhart Nicholson Graham LLP, Los Angeles,
California.
EXPERTS
The financial statements appearing in this Prospectus and Registration
Statement have been audited by Russell Bedford Stefanou Mirchandani LLP,
independent accountants; to the extent and for the periods indicated in their
report appearing elsewhere herein, and are included in reliance upon such report
and upon the authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933 for the shares of common
stock in this offering. This prospectus does not contain all of the information
in the registration statement and the exhibits and schedule that were filed with
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule that were filed with the registration statement. Statements contained
in this prospectus about the contents of any contract or any other document that
is filed as an exhibit to the registration statement are not necessarily
complete, and we refer you to the full text of the contract or other document
filed as an exhibit to the registration statement. A copy of the registration
statement and the exhibits and schedules that were filed with the registration
statement may be inspected without charge at the Public Reference Room
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee. Information regarding the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC. The address of the
site is www.sec.gov.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, and in accordance with the Securities
Exchange Act of 1934, we file annual, quarterly and special reports, and other
information with the Securities and Exchange Commission. These periodic reports,
and other information are available for inspection and copying at the regional
offices, public reference facilities and website of the Securities and Exchange
Commission referred to above.
-84-
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.............F-2
CONSOLIDATED FINANCIAL STATEMENTS
PAGE NO.
--------
Consolidated Balance Sheet at December 31, 2004.....................F-3
Consolidated Statements of Losses for the two years ended
December 31, 2004 and 2003 and the period
October 30, 2002 (Date of Inception) through
December 31, 2004...........................................F-4
Consolidated Statements of Stockholders' Equity for the period
October 30, 2002 (Date of Inception) through
December 31, 2004...........................................F-5 to F-7
Consolidated Statements of Cash Flows for the two years ended
December 31, 2004 and 2003 and the period October 30, 2002
(Date of Inception) through December 31, 2004...............F-8 to F-9
Notes to Consolidated Financial Statements..........................F-10 to F-26
Consolidated Balance Sheet as of March 31, 2005 (unaudited).........F-27
Consolidated Statements of Operations for the three months ended
March 31, 2005 and 2004 (unaudited).........................F-28
Consolidated Statements of Stockholders' Equity (Deficit) from the
date of inception (October 30,2002) to March 31, 2005
(unaudited).................................................F-29 to F-32
Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004 (unaudited).........................F-33 to F-34
Notes to Consolidated Financial Statements for the three months
ended March 31, 2005 and 2004 (unaudited)...................F-35 to F-44
F-1
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board of Directors
IR Biosciences Holdings, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of I R Biosciences
Holdings, Inc., development stage company, (the "Company") as of December 31,
2004 and the related consolidated statements of losses, stockholders' equity,
and cash flows for the two years December 31, 2004 and 2003 and the period
October 30, 2002 (date of inception) through December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IR
Biosciences Holdings, Inc. , a development stage company, as of December 31,
2004 , and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003 and for the period October 30, 2002 (date of
inception) through December 31, 2004 , in conformity with accounting principles
generally accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
New York, New York
March 4, 2005
F-2
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
December 31,
2004
-----------
Assets
Current assets
Cash and cash equivalents $ 970,114
Prepaid services and other current assets 6,713
-----------
Total current assets 976,827
Licensed proprietary rights, net 7,320
Furniture and equipment, net 6,500
-----------
Total assets $ 990,647
===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable, net of discount 75,993
Accounts payable and accrued liabilities 307,301
-----------
Total current liabilities 383,294
Commitments and Contingencies
Stockholders' Equity Preferred stock, 0.001 par value:
10,000,000 shares authorized, no shares issued and outstanding 0
Common stock, $0.001 par value; 100,000,000 shares authorized;
62,423,388 shares issued and outstanding at December 31, 2004 62,423
Additional paid-in capital 7,922,943
Deferred compensation (169,986)
Deficit accumulated during the Development Stage (7,208,027)
Total stockholder's equity 607,353
-----------
Total liabilities and stockholders' equity $ 990,647
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Losses
Cumulative from
For the Twelve For the Twelve Inception
Months Ended Months Ended (October 30, 2002)
December 31, December 31, to December 31,
2004 2003 2004
------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses $ 4,498,390 $ 1,045,776 $ 5,589,884
Merger fees and costs 0 350,000 350,000
Financing cost 0 90,000 90,000
------------ ------------ ------------
Total operating expenses 4,498,390 1,485,776 6,029,884
Operating loss (4,498,390) (1,485,776) (6,029,884)
Other expense:
Interest expense 807,017 370,926 1,178,143
------------ ------------ ------------
Total other expense 807,017 370,926 1,178,143
Loss before income taxes (5,305,407) (1,856,702) (7,208,027)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (5,305,407) $ (1,856,702) $ (7,208,027)
============ ============ ============
Net loss per share - basic and diluted $ (0.16) $ (0.09) $ (0.28)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 33,510,168 21,317,292 25,698,261
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of
Stockholders' Equity (Deficit) From Date of
Inception (October 30, 2002) to December 31, 2004
Common Stock Additional
------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in conjunction
with fourth quarter notes payable issued
October through
December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders in
conjunction with fourth quarter
notes payable issued October
through
December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the twelve month period ended
December 31, 2003 -- -- -- -- (1,856,702) (1,856,702)
----------- ----------- ----------- ----------- ----------- -----------
F-5
Common Stock Additional
------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2003 23,431,300 23,431 1,035,441 -- (1,902,620) (843,748)
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a
consultant for services rendered in
January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62
per share for services rendered in
February 2004 40,000 40 24,760 (24,800) -- --
Shars issued to a consultant at $0.40 per
share for services rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- --
Shares issued to a consultant at $0.50 per
share for services rendered in March 2004 500,000 500 249,500 (250,000) -- --
Shares sold for cash at $0.15 per share
in March, 2004 8,000 8 1,192 -- -- 1,200
Shares issued at $0.50 per share to
consultants for services rendered in
March 2004 20,000 20 9,980 -- -- 10,000
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 2,000 2 798 -- -- 800
Shares issued to consultants at $0.32 per
share for services rendered in March 2004 91,600 92 29,220 -- -- 29,312
Shares to be issued to consultant at $0.41 per
share in April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- (82,000)
Shares granted pursuant to the New Senior Note
Agreement in April 2004 600,000 600 149,400 (150,000) -- --
Shares issued to officer at $0.32 per share for
services rendered in April 2004 200,000 200 63,800 -- -- 64,000
Conversion of note payable to common stock at
$0.10 per share in May 2004 350,000 350 34,650 -- -- 35,000
Beneficial Conversion Feature associated with
note payable in May 2004 -- -- 35,000 -- -- 35,000
Issuance of warrants to officers and founder
for services rendered in May 2004 -- -- 269,208 -- -- 269,208
Shares to a consultant at $0.20 per share as a
due dilligence fee in May 2004 125,000 125 24,875 -- -- 25,000
Shares issued to a consultant at $1.00 per
share for services to be rendered over
twelve months beginning May 2004 500,000 500 499,500 (500,000) -- --
Benefial Conversion Feature associated with
notes payable issued in June 2004 -- -- 3,000 -- -- 3,000
Issuance of warrants to note holders in April,
May, and June 2004 -- -- 17,915 -- -- 17,915
Issuance of warrants to employees and
consultants for services rendered in
April through June 2004 -- -- 8,318 -- -- 8,318
Shares issued in July to a consultant at
$0.10 for services to be rendered through
July 2005 250,000 250 24,750 (25,000) -- --
Shares issued to a consultant in July and
September at $0.41 per share for services
to be rendered through April 2005 200,000 200 81,800 -- -- 82,000
Shares issued to a consultant in September at
$0.12 to $0.22 for services rendered
through September 2004 127,276 127 16,782 -- -- 16,909
Shares issued in July to September 2004 as
interest on note payable 300,000 300 35,700 -- -- 36,000
Issuance of warrants with notes payable in
July and August 2004 -- -- 72,252 -- -- 72,252
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of
Stockholders' Equity (Deficit) From Date of
Inception (October 30, 2002) to December 31, 2004 (continued)
Common Stock Additional
------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Accrued deferred compensation in August 2004
to a consultant for 100,000 shares at $0.10
per share, committed but unissued -- -- -- (10,000) -- (10,000)
Shares issued in August 2004 at $0.14 to a
consultant for services to be performed
through October 2004 100,000 100 13,900 (14,000) -- --
Shares issued in August 2004 at $0.125 per
share for conversion of $30,000 demand loan 240,000 240 29,760 -- -- 30,000
Shares issued in August 2004 at $0.16 per
share to a consultant for services provided 125,000 125 19,875 -- -- 20,000
Shares issued to employees at $0.16 to
$0.25 per share 48,804 49 8,335 -- -- 8,384
Commitment to issue 100,000 shares of stock to
a consultant at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- (23,000)
Sale of stock for cash in Ocober at $0.125 per
share, net of costs of $298,155 18,160,000 18,160 1,345,763 -- -- 1,363,923
Value of warrants issued with sale of common
stock in October, net of costs -- -- 607,922 -- -- 607,922
Issuance of warrant to officer in October -- -- 112,697 -- -- 112,697
Issuance of stock to investment bankers in
October 2004 for commissions earned 4,900,000 4,900 (4,900) -- -- --
Conversion of accounts payable to stock in
October at $0.125 per share 1,257,746 1,258 107,382 -- -- 108,640
Value of warrants issued with accounts
payable conversions -- -- 48,579 -- -- 48,579
Conversion of demand loan to stock in October
at $0.11 per share 93,300 93 10,170 -- -- 10,263
Forgiveness of notes payable in October 2004 -- -- 36,785 -- -- 36,785
Issuance of stock to officer and director at
$0.125 per share in October for conversion
of liability 1,440,000 1,440 122,493 -- -- 123,933
Value of warrants issued with officer and
director conversion of liabilities -- -- 56,067 -- -- 56,047
Conversion of debt and accrued interest to
common stock at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- 424,217
Value of warrants issued with conversion
of debt -- -- 191,111 -- -- 191,111
Conversion of note payable in October into
common stock at $0.075 per share 67,613 68 4,932 -- -- 5,000
Issuance of warrants to note holders in
October 2004 -- -- 112,562 -- -- 112,562
Value of shares issued to CFO as compensation 100,000 100 34,900 -- -- 35,000
Value of warrants issued to members of
advisory committees in in November
and December -- -- 16,348 -- -- 16,348
Beneficial conversion feature associated with
notes payable -- -- 124,709 -- -- 124,709
Shares issued in error to be cancelled (9,002) (9) 9 -- -- --
Amortization of deferred compensation through
December 31, 2004 -- -- -- 2,729,454 -- 2,729,454
Loss for the twelve months ended
December 31, 2004 -- -- -- -- (5,305,407) (5,305,407)
---------- ----------- ---------- ---------- ----------- -----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) (7,208,027) 607,353
========== =========== ========== ========== =========== ===========
F-7
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
Cumulative
from Inception
For the Twelve For the Twelve (October 30,
Months Ended Months Ended 2002) to
December 31, December 31, December 31,
2004 2003 2004
----------- ----------- ---------------
Cash flows from operating activities:
Net loss $(5,305,407) $(1,856,702) $(7,208,027)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Non-cash compensation 3,284,577 114,641 3,400,000
Interest expense 83,776 68,624 152,400
Amortization of discount on notes payable 704,633 302,302 1,006,935
Depreciation and amortization 13,255 12,685 26,017
Changes in operating assets and liabilities:
Prepaid services and other assets 29,130 (35,842) (6,712)
Accounts payable and accrued expenses 148,854 397,402 555,042
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,041,182) (996,890) (2,074,345)
Cash flows from investing activities:
Acquisition of property and equipment (4,783) (3,304) (8,087)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,783) (3,304) (8,087)
Cash flows from financing activities:
Net proceeds from notes payable 32,500 1,186,000 1,233,500
Principal payments on notes payable -- (250,000) (250,000)
Shares of stock sold for cash 1,973,045 65,000 2,069,046
Officer repayment of amounts paid on behalf of officer -- 19,880 19,880
Cash paid on behalf of officer -- (19,880) (19,880)
Cash paid on amount due to officer -- (22,427) (22,427)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,005,545 978,573 3,030,119
Net increase in cash and cash equivalents 959,580 (21,621) 947,687
Cash and cash equivalents at beginning of period 10,534 32,155 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 970,114 $ 10,534 $ 970,114
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows (continued)
Non-cash investing and financing activities:
Cumulative
from Inception
For the Twelve For the Twelve (October 30,
Months Ended Months Ended 2002) to
December 31, December 31, December 31,
2004 2003 2004
----------- ----------- --------------
Supplemental Disclosures of Cash Flow Information:
Acquisition and Capital Restructure:
Assets acquired $ -- $ -- $ --
Liabilities assumed -- (120,799) (120,799)
Common stock retained -- (2,369) (2,369)
Adjustment to additional paid in capital -- 123,168 123,168
Organization costs -- 350,000 350,000
------------ ------------ -----------
Total consideration paid $ -- $ 350,000 $ 350,000
============ ============ ===========
Cash paid during the period for interest $ 54 $ 41,793 $ 41,847
============ ============ ===========
Cash paid during the period for taxes $ -- $ -- $ --
============ ============ ===========
Commmon stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
============ ============ ===========
Common stock issued in exchange for services $ 2,878,006 $ 37,280 $ 2,915,286
============ ============ ===========
Common stock issued in exchange for previously incurred
debt and accrued interest $ 695,591 $ 300,000 $ 995,591
============ ============ ===========
Common stock issued in exchange as interest $ 36,000 $ -- $ 36,000
============ ============ ===========
Amortization of beneficial conversion feature $ 162,709 $ 60,560 $ 223,269
============ ============ ===========
Stock options and warrants issued in exchange for
services rendered $ 406,571 $ 85,861 $ 492,432
============ ============ ===========
Debt and accrued interest forgiveness from
note holders $ 36,785 $ -- $ 36,785
============ ============ ===========
Common stock issued in satisfaction of
accounts payable $ 157,219 $ -- $ 157,219
============ ============ ===========
Common stock issued in satisfaction of
amounts due to an Officer and a Director $ 180,000 $ -- $ 180,000
============ ============ ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Nature of Business
------------------
IR Biosciences Holdings Inc. ("Company") formerly GPN Network, Inc. ("GPN") is
currently a development stage company under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company, which was
incorporated under the laws of the State of Delaware on October 30, 2002, is a
biotechnology company and plans to develop and market applications utilizing
modified substance P, a naturally occurring immunomodulator. From its inception
through the date of these financial statements, the Company has recognized
minimal revenues and has incurred significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ImmuneRegen BioSciences, Inc.. Significant
intercompany transactions have been eliminated in consolidation.
Acquisition and Corporate Restructure
-------------------------------------
On July 20, 2003 ImmuneRegen Biosciences Inc. ("ImmuneRegen")entered into an
Agreement of Plan and Merger ("Agreement") with GPN Network, Inc. ("GPN") an
inactive publicly registered shell corporation with no significant assets or
operations. In accordance with SFAS No. 141, the Company was the acquiring
entity. While the transaction is accounted for using the purchase method of
accounting, in substance the Agreement is a recapitalization of the Company's
capital structure.
For accounting purposes, the Company has accounted for the transaction as a
reverse acquisition and the Company shall be the surviving entity. The total
purchase price and carrying value of net assets acquired was $0. From July 2001
until the date of the Agreement the Company was inactive. The Company did not
recognize goodwill or any intangible assets in connection with the transaction.
Effective with the Agreement, all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 21,063,170 (post-split) shares of GPN common stock. The
value of the stock that was issued was the historical cost of GPN's net tangible
assets, which did not differ materially from their fair value.
Effective with the Agreement, GPN changed its name to IR Biosciences Holdings
Inc.
The accompanying financial statements present the historical financial
condition, results of operations and cash flows of the Company prior to the
merger with GPN.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
F-10
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
--------------------------
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
Long-lived Assets
-----------------
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted undercounted cash flows. Should an impairment in value be indicated,
the carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to sell.
Income Taxes
------------
The Company has implemented the provisions on Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
that income tax accounts be computed using the liability method. Deferred taxes
are determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws.
Net Loss Per Common Share
-------------------------
The Company computes earnings per share under Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS 128). Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the year. Dilutive common
stock equivalents consist of shares issuable upon conversion of convertible
notes and the exercise of the Company's stock options and warrants (calculated
using the treasury stock method). During 2004, 2003 and 2002, common stock
equivalents are not considered in the calculation of the weighted average number
of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share.
Liquidity
---------
As shown in the accompanying financial statements, the Company has incurred a
net loss of $7,208,027 from its inception through December 31, 2004. The
Company's has net working capital of $593,533, with cash and cash equivalents of
$970,114 of this amount as of December 31, 2004.
F-11
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
------------------------
The Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. Total expenditures on
research and product development for the years 2004, 2003, and the period from
October 30, 2002 (date of inception) to December 31, 2004 were $150,091, $42,972
and $193,063, respectively.
Concentrations of Credit Risk
-----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. There is
no allowance for doubtful accounts established as of December 31, 2004.
Comprehensive Income
---------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
Stock Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise
F-12
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION (CONTINUED)
------------------------------------
price of the related option. The Company has adopted the annual disclosure
provisions of SFAS No. 148 in its financial reports for the year ended December
31, 2004 and 2003 and for subsequent periods. The Company did not issue any
stock-based employee compensation during the years ended December 31, 2004 and
2003.
SEGMENT INFORMATION
-------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
The Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States of America. The
estimated fair values approximate their carrying value because of the short-term
maturity of these instruments or the stated interest rates are indicative of
market interest rates.
PROPERTY AND EQUIPMENT
-----------------------
Property and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
WEBSITE DEVELOPMENT COSTS
-------------------------
The Company recognizes website development costs in accordance with Emerging
Issue Task Force ("EITF") No. 00-02, "Accounting for Website Development Costs."
As such, the Company expenses all costs incurred that relate to the planning and
post implementation phases of development of its website. Direct costs incurred
in the development phase are capitalized and recognized over the estimated
useful life of two years. The Company follows the policy of charging costs
associated with repair or maintenance for the website to expenses incurred.
ADVERTISING
-----------
The Company follows the policy of charging the costs of advertising to expenses
incurred. The Company has not incurred any advertising costs during the years
ended December 31, 2004 or 2003, or for the period from October 30, 2002
(inception) through December 31, 2004.
F-13
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
-----------------
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In November 2004, the Financial Accounting Standards Board (FASB) issued
SFAS151, Inventory Costs- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges" This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of this
Statement will have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152. This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for
F-14
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
-----------------------------------------
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. Under SFAS 153, if a nonmonetary exchange of similar
productive assets meets a commercial-substance criterion and fair value is
determinable, the transaction must be accounted for at fair value resulting in
recognition of any gain or loss. SFAS 153 is effective for nonmonetary
transactions in fiscal periods that begin after June 15, 2005. The Company does
not anticipate that the implementation of this standard will have a material
impact on its financial position, results of operations or cash flows.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
The Company's property and equipment at December 31, 2004 consists of the
following:
2004
-------
Office Equipment $6,665
Office Fixtures and Furniture 1,423
-------
8,088
Accumulated Depreciation (1,588)
-------
$6,500
=======
Depreciation expense included as a charge to income amounted to $1,078, $510,
and $1,588 for the years ended December 31, 2004 and 2003 and from inception to
December 31, 2004, respectively.
NOTE C - INTANGIBLE ASSETS
The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets,
whereby the Company periodically tests its intangible assets for impairment. On
an annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets will be tested for impairment, and
write-downs to be included in results from operations may be necessary.
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan . Consideration
for this license was the issuance of 16,612,276 shares (post-split) of the
Company's restricted common, valued at the shares' par value of $0.001 per
share, aggregating $ 9,250. These proprietary rights are being amortized over
the term of the license agreement, or ten years.
The costs and accumulated amortization of intangible assets at December 31 are
summarized as follows:
2004
--------
Technology License $9,250
Website 22,500
Less: accumulated amortization (24,430)
--------
Intangible assets, net $7,320
========
Amortization expense included as a charge to income amounted to $12,177 and
$12,175 and $24,430 for the years ended December 31, 2004 and 2003, and the
period from inception to December 31, 2004, respectively.
F-15
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE D - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2004 are as follows:
2004
--------
Accounts payable & accrued liabilities $292,190
Accrued interest 8,946
Accrued payroll and payroll taxes 6,165
--------
Total $307,301
========
NOTE E - RELATED-PARTY TRANSACTIONS
CONSULTING AGREEMENTS
---------------------
On December 16, 2002, the Company entered into consulting agreements (the
"Consulting Agreements") with its two founders and chief research scientists
(the "Consultants"). The Consulting Agreements were on a month-to-month basis.
Under the terms of the Consulting Agreements, the Consultants agreed to place at
the disposal of the Company their judgment and expertise in the area of acute
lung injury. In consideration for these services, the Company agreed to pay each
consultant a non-refundable fee of $5,000 per month, which shall accrue until
such time as the Company raises at least $2,000,000 in equity or debt financing,
at which time such accrued amount will become due and payable. Pursuant to the
Consulting Agreements, during the period from January 1, 2003 to December 31,
2003, the Company accrued $120,000 in consulting fees. During the period from
January 1, 2004 to December 31, 2004, the Company accrued an additional $90,000
in consulting fees. The amounts due the Consultants at December 31, 2003 was
$125,000 and was included in accounts payable and accrued expenses.
In October 2004, the Company achieved the threshold amount of $2,000,000 in
equity or debt financing (see Note I). As of October, 2004, the aggregate
amounts due the Consultants under the Consulting Agreements was $215,000.
In October, 2004, one of the Consultants elected to exchange 724,000 shares of
the Company's common stock and a warrant to purchase an additional 362,000
(post-split) shares of common stock at an exercise price of $0.50 (post-split)
in exchange for $90,500 of the $107,500 of the previously accrued and unpaid
fees due him under the Consulting Agreement, and the balance of $17,000 was paid
to the consultant. At December 31, 2004, there is no balance due to the
Consultant.
In October 2004, because the remaining Consultant had not taken an active role
in the management of the Company, he agreed that would forgive the amount
accrued to him under the Consulting agreement of $107,500. The Company accounted
for the transaction as a forgiveness of indebtedness under FAS No. 140 during
the period ended December 31, 2004.
PROPRIETARY RIGHTS AGREEMENT
----------------------------
In December 2002, the Company entered into a royalty-free license agreement (the
"License Agreement") with its two founders and largest shareholders (the
"Licensors"). Under the terms of the License Agreement, the Licensors grant to
the Company an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by the Licensors. The Company's
obligations under the License Agreement include (i) reasonable efforts to
protect any licensed patents or other associated property rights; (ii)
reasonable efforts to maintain confidentiality of any proprietary information;
(iii) upon the granting by the U. S. Food and Drug Administration to the Company
the right to market a product, the
F-16
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE E - RELATED-PARTY TRANSACTIONS (CONTINUED)
PROPRIETARY RIGHTS AGREEMENT (CONTINUED)
----------------------------------------
Company will maintain a broad form general liability and product liability
insurance (see Note C).
OFFICE LEASE
------------
During the period from December 1, 2002 through August 31, 2004, the Company
leased office space from an entity controlled by the Company's Chief Executive
Officer under a sub-let agreement . The rental cost of $2,734 per month was
passed through to the Company at the same rental rate charged by the facility's
primary landlord.
In July 2004, the Company leased a new office facility from a third party (see
Note J).
INONE CONTRACT
--------------
The Company has entered into a series of contracts with InOne Advertising &
Design, Inc. ("InOne"). At the time of the initiation of the contracts, InOne
employed the spouse of the Company's Chief Executive Officer. These contracts
include (i) a three-year agreement dated January 13, 2003 whereby InOne will
design and create certain corporate identity and marketing materials in exchange
for 72,000 shares (post split) of the Company's common stock and $15,000. This
Agreement also provides that InOne will bill the Company on an hourly basis for
additional services, as well as a $100,000 termination fee if the agreement is
terminated as a result of a merger or acquisition of the Company; (ii) an
Agreement dated March 14, 2003 whereby InOne will design, create, maintain, and
host the Company's website for one year in exchange for 140,000 shares (post
split) of the Company's common stock and $4,200; (iii) an Agreement dated
December 30, 2003 whereby InOne will name and design a logo for the Company's
new product for SARS application in exchange for $5,000 and a warrant to
purchase 20,000 shares (post-split) of the Company's common stock at a price of
$0.125; (iv) an Agreement dated December 31, 2003 whereby InOne will name and
design a logo for the Company's new product for ARDS application in exchange for
$5,000 and a warrant to purchase 20,000 shares (post-split) of the Company's
common stock at a price of $0.125.
At December 31, 2004, InOne no longer employs or has any business relationship
with the spouse of the Company's Chief Executive officer, and InOne is no longer
considered a related party to the Company.
The amounts due InOne at December 31, 2004 and 2003 are $2,700 and $19,565,
respectively.
Notes payable to related parties at December 31, 2004 consists of the following:
2004
-------
Promissory notes payable and accrued interest of
$12,093 to Company shareholders, interest at 6%
per annum, unsecured; The Company is
in default under these agreements $65,993
Less: current portion (65,993)
-------
$ --
=======
F-17
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE F - NOTES PAYABLE
Notes payable at December 31, 2004 consists of the following:
2004
--------
Convertible note payable, interest at 8% per annum,
due in August 2004; Noteholder has the option, with
the consent of the Company, to convert unpaid note
principal together with accrued and unpaid interest
to the Company's common stock at a price equal to
$.835 per share, under certain terms and conditions.
In addition, the Company granted the noteholder a
warrant to acquire 26,938 shares of the Company's
common stock at a price equal to $0.835 per share.
The Company is in default under this note agreement. $ 10,000
Less: current portion (10,000)
--------
$ --
========
At December 31, 2003, the Company had outstanding 17 notes payable in the
aggregate amount of $713,171. During the twelve months ended December 31, 2004,
the Company entered into 14 other note agreements in the aggregate amount of
$575,100. The Company repaid principal in the amount of $572,600 under these
notes, and converted principal in the amount of $638,500 plus accrued interest
of $57,091 into 7,445,062 shares of common stock. Two of these notes in the
aggregate amount of $35,000 plus accrued interest of $1,885 were forgiven for
consideration of $100 during the twelve months ended December 31, 2004.
NOTE G - CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, par
value $0.001 per share. No shares of preferred stock have been issued as of
December 31, 2004. The company has authorized 100,000,000 shares of common
stock, with a par value of $.001 per share. In July, 2003 a one for twenty
reverse stock split of the Company's common stock was effected . On April 6,
2004, the Company effected a 2 for 1 forward split of its common stock. Total
authorized shares and par value remain the unchanged. Accordingly, the effect of
the reverse and subsequent forward split has been presented in the accompanying
financial statement and footnote disclosures. As of December 31, 2004, the
Company has 62,423,388 shares of common stock issued and outstanding.
During the period ended December 31, 2002, the Company issued an aggregate of
1,459,188 shares of common stock to employees and consultants for services in
the amount of $ 9,782. All valuations of common stock issued for services were
based upon the value of the services rendered, which did not differ materially
from the fair value of the Company's common stock during the period the services
were rendered. In addition, the Company issued 16,612,276 shares of common stock
to its founders in exchange for a proprietary license charged to operations,
valued at $ 9,250 (see Note C) . The Company also issued an aggregate of 185,578
shares of common stock in exchange for $ 31,001, net of costs and fees.
During the year ended December 31, 2003, the Company issued an aggregate of
267,594 shares of common stock to consultants for services in the amount of
$37,280. All valuations of common stock issued for services were based upon the
value of the services rendered, which did not differ materially from the fair
value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 2,155,104 shares of common stock in
exchange for $ 300,000 of previously incurred debt. The Company also issued an
aggregate of 383,430 shares of common stock in exchange for $ 65,000 net of
F-18
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE G - CAPITAL STOCK (CONTINUED)
costs and fees. In July, 2003, the Company issued 2,368,130 in connection with
the Company's acquisition and merger with GPN Network, Inc. (see Note A.)
During the year ended December 31, 2004, the Company issued an aggregate of
5,481,280 shares of common stock to consultants for services in the amount of
$2,877,872. All valuations of common stock issued for services were based upon
the value of the services rendered, which did not differ materially from the
fair value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 300,000 shares of common stock as with
a fair value of $36,000 as interest on a note payable. In addition, in
conjunction with a private placement of stock (see below), the Company issued
6,855,062 shares of common stock in exchange for $ 630,591 of previously
incurred debt and accrued interest. In addition, the Company issued 590,000
shares of common stock in in exchange for $65,000 of previously issued debt.
Total debt exchanged for stock during the year ended December 31, 2004 was
$695,591 of debt and interest for 7,745,062 shares of common stock. The Company
also sold an aggregate of 18,160,000 shares of common stock in exchange for $
1,971,045 cash, net of costs and fees. The Company also sold 8,000 shares of
common stock for $1,200. The Company also issued an aggregate of 4,900,000
shares of common stock to its investment bankers as fees. The Company also
issued 1,257,746 shares of common stock in settlement of $157,219 of accounts
payable. In addition, the Company issued an aggregate 1,440,000 shares of common
stock to an officer and a director in satisfaction $180,000 of liabilities.
PRIVATE PLACEMENT OF COMMON STOCK
---------------------------------
In October 2004, the Company completed a private placement of its common stock
(the "Private Placement") whereby the Company sold an aggregate of $2,450,000
worth of units (each a "Unit" and collectively, the "Units") to accredited
investors (as defined by Rule 501 under the Securities Act of 1933, as amended)
(the transaction is referred to herein as the "Private Placement"). The Company
received proceeds of $1,971,845 after costs of the issuance of $298,155.
Included in the $2,450,000 sale was conversion of $180,000 of accrued salary and
consulting fees due to an officer and an director of the Company. The number of
shares of common stock issued pursuant to the Private Placement was 19,600,000,
along with warrants to purchase an additional 9,080,000 shares, plus warrants to
purchase an additional 720,000 shares issued to the officer and director. The
Company also issued an additional 4,900,000 shares of common stock to its
investment banker as commission. The investment bankers did not acquire any
warrants pursuant to this transaction.
Pursuant to the terms of the Private Placement, each Unit was sold for $10,000
(the "Unit Price") and consisted of the following:
(a) a number of shares (the "Shares") of common stock of the
Registrant, par value $0.001 per share (the "Common Stock"), determined by
dividing: (i) the Unit Price by (ii) $0.125; and
(b) a warrant (each a "Warrant" and collectively, the "Warrants") to
purchase, at any time prior to the fifth (5th) anniversary following the date of
issuance of the Warrant, a number of shares of Common Stock equal to fifty
percent (50%) of the number of Shares included within the Unit, at a price equal
to fifty cents ($0.50) per share of Common Stock. A form of the Warrant is
attached hereto as Exhibit 4.1.
In consideration of the investment, the Company granted to each investor certain
registration rights and anti-dilution rights. The Company is obligated to file a
registration statement for the shares of common stock issued in the private
placement and shares of common stock underlying the warrants issued in the
private placement within 30 days of the final closing date of October 26, 2004,
or November 25, 2004. The Company is also obligated to effectuate the
registration statement within 90 days of the final closing date of October 26,
2004, or January 24, 2005. Failure to meet either of these deadlines results in
the Company subject to a penalty of a 2% increase in the number of shares to be
registered, or 461,200 shares and warrants to purchase an additional 181,600
shares, for every 30 day period beyond the deadline date. The Company filed a
registration statement on November 24, 2004. However, at March 7, 2005, the
registration statement has not yet been deemed effective by the Securities and
Exchange Commission. Accordingly, at April 3, 2005, the Company has accrued a
penalty of two 30-day periods, or 922,400 shares and warrants to purchase an
additional 363,200 shares. If the Company fails to complete a registration by
April 24, 2005, an additional penalty of 461,200 shares and warrants to purchase
181,600 shares will be incurred.
F-19
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE G - CAPITAL STOCK
Private Placement of Common Stock (continued)
---------------------------------------------
Also in October 2004, the Company converted certain notes payable with an
aggregate principal amount of $573,500 plus accrued interest of $57,091 for a
total of $630,328 into Units with terms identical to those provided to investors
in the Private Placement. The number of shares of common stock issued via these
note conversions was 6,855,062 along with warrants to purchase an additional
3,427,531 shares (see Note H).
Also in October 2004, the Company entered into a settlement agreements with
certain creditors whereby for full and complete satisfaction of claims totaling
an aggregate of $157,219 the Company issued Units with terms identical to those
provided to investors in the Private Placement. The number of shares of common
stock issued via these creditor conversions was 1,257,746, along with warrants
to purchase an additional 628,873 shares.
NOTE H - STOCK OPTIONS AND WARRANTS
Employee Stock Options
----------------------
The Company has adopted the 2003 Stock Option, Deferred Stock and Restricted
Stock Plan (the "Plan") which authorizes the Board of Directors in accordance
with the terms of the Plan, among other things, to grant incentive stock
options, as defined by Section 422(b) of the Internal Revenue Code, nonstatutory
stock options (collectively, the "Stock Options") and awards of restricted stock
and deferred stock and to sell shares of common stock of the Company ("Common
Stock") pursuant to the exercise of such stock options for up to an aggregate of
6,465,316 shares . The options will have a term not to exceed ten years from the
date of the grant. There have been no options granted under this Plan.
Through December 31, 2002, GPN had granted pre-merger stock options to certain
employees and consultants which are exercisable over various periods through
March 2010. These stock options are currently held by the Company outside of the
Plan.
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------------------------
Weighted Average Weighted Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
---------------------------------------------------------- ----------------------------------------------
$25.00 63,212 5.25 $25.00 63,212 $25.00
Transactions involving stock options issued to employees are summarized as
follows:
F-20
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
EMPLOYEE STOCK OPTIONS (CONTINUED)
----------------------------------
Weighted Average
Number of Shares Price Per Share
------------------------------------
Outstanding at January 1, 2003 63,212 $25.00
Granted (as restated) --
Exercised --
Canceled or expired --
------
Outstanding at December 31, 2003 63,212 25.00
Granted --
Exercised --
Canceled or expired --
------
Outstanding at December 31, 2004 63,212 $25.00
====== ======
The Company did not issue options to employees during the years ended December
31, 2003 and 2004.
Warrants
--------
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
---------------------------------------------------- ------------------------------------------------
Weighted Average Weighed Weighted Average
Number Remaining Average Remaining
Exercise Outstanding Contractual Life Exercise Number Contractual Life
Prices (Years) Price Exercisable (Years)
----------------------------------------------------- ------------------------------------------------
$0.05-0.10 480,698 4.60 $0.05-0.10 480,698 4.60
0.125-0.70 778,511 4.46 0.125-0.70 778,511 4.46
0.25-0.56 15,498,021 4.68 0.25-0.56 15,498,021 4.68
1.00 741,400 2.98 1.00 741,400 2.98
2.00 167,580 4.51 2.00 167,580 4.51
---------- ----- ---------- ----
17,666,210 4.59 17,666,210 4.59
========== ===== ========== ====
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
(post-split) Price Per Share
(POST-SPLIT)
---------------- ------------------
Outstanding at January 1, 2003 26,938 $ .84
Granted 805,572 .89
Exercised --
Canceled or expired --
---------- --------
Outstanding at December 31, 2003 832,510 .89
Granted 16,833,699 .47
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2004 17,666,210 $ .49
========== ========
F-21
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants (continued)
--------------------
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2004 2003
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75% 2.375%
Expected stock price volatility 163% to 262% 312%
Expected dividend payout -- --
Expected option life-years (a) 5 5
(a) The expected option life is based on contractual expiration dates.
The amount of the expense charged to operations for compensatory warrants
granted in exchange for services was $406,571 and $85,861 during the years ended
December 31, 2004 and 2003, respectively.
The Company also capitalized financing costs of $184,814 and $397,394 for
warrants granted in connection with placement of convertible debentures for the
years ended December 31, 2004 and 2003, respectively. The unamortized financing
costs were written off as of December 31, 2003 commensurate with the conversion
of the debentures.
At December 31, 2002, the Company had outstanding warrants to purchase 26,939
shares (post-split) of common stock at $0.835 per share (post-split).
During the twelve months ended December 31, 2003, the Company issued warrants to
purchase 169,572 shares (post-split) of common stock at prices ranging from
$0.125 to $1.00 per share (post-split) to eight service providers. The Company
valued the warrants using the Black-Scholes calculation model, and the warrants
were deemed to have a combined value of $85,860. This amount was charged to
expense on the Company's financial statements for the twelve months ending
December 31, 2003.
In October 2003, pursuant to the Amended Note agreements, the Company issued the
Amended Note Warrants to purchase 245,000 shares (post-split) of its common
stock at a price of $1.00 per share (post-split). The Company valued the Amended
Note Warrants using the Black-Scholes calculation model, and the warrants were
deemed to have a combined value of $189,937. This amount was recorded as a
discount to the Amended Notes and an addition to paid-in capital, and was
charged to expense over the term of the notes, or 180 days. During the twelve
months ended December 31, 2003, the Company recognized $84,169 of expense in
relation to these warrants. During the twelve months ended December 31, 2004,
the remaining $105,768 was charged to operations.
In October, November, and December 2003, pursuant to the Fourth Quarter Note
agreements, the Company issued the Fourth Quarter Company Warrants to purchase
391,000 shares (post-split) of its common stock at a price of $1.00 per share
(post-split).
As an additional incentive to investors in the Secured Convertible Promissory
Notes, the Company provided five-year warrants (the "Secured Note Warrants") to
purchase that number of shares of common stock equal to one-half the initial
principal amount of the Secured Convertible Promissory Notes. For example, an
investor who purchased a $10,000 Secured Convertible Promissory Note would
receive a warrant to purchase 8,979 shares (post-split) of common stock. The
exercise price of the Secured Note Warrants is equal to 60% of the price per
share paid by investors in a future equity financing (the "Reorganization
Financing"). The Secured Note Warrants are not considered granted until the
completion of the Reorganization Financing. In accordance with EITF 00-27,
because the Reorganization Financing had not occurred at December 31, 2003, the
Company ascribed no value to the Secured Note Warrants at December 31, 2003. At
the time of the first closing of the Private Placement in October 2004, warrants
to purchase a total of 444,490 shares (post-split) of common stock at $0.075 per
share (post-split) were issued under the Secured Note Warrants. The value of
these warrants was computed utilizing the Black-Scholes valuation model, and the
total value of these warrants, or $112,562 was charged to operations during the
twelve months ended December 31, 2004.
F-22
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants (continued)
--------------------
The Company has outstanding warrants to purchase 250,000 shares of common stock
at $0.30 per share which were issued in 2002 by its predecessor company GPN
Network.
In April through June 2004, the Company issued warrants to purchase 32,500
shares (post-split) at price ranging from $0.25 to $2.00 to consultants for
services performed. The Company valued these warrants using the Black-Scholes
valuation model, and charged the amount of $8,318 to operations during the
twelve months ended December 31, 2004.
In May 2004, the Company issued a warrant to its president and a warrant to a
director, each warrant to purchase 500,000 shares (post-split) of common stock
at a price of $0.25 per share (post-split). The warrants were issued as
performance bonuses. The Company valued these warrants using the Black-Scholes
model, and charged the amount of $134,604 for each warrant, or a total of
$269,208, to operations during the twelve months ended December 31, 2004.
In October 2004, the Company issued a warrant to its president to purchase
448,980 shares (post-split) at a price of $0.125 per share (post-split) as a
performance bonus for achieving certain objectives. The Company valued this
warrant using the Black-Scholes valuation model, and charged the amount of
$112,697 to operations during the twelve months ended December 31, 2004.
In November and December 2004, the Company issued a warrant to purchase 50,000
shares (post-split) of its common stock at a price of $0.125 per share
(post-split) and a warrant to purchase 10,000 shares (post-split) of its common
stock at a price of $0.075 per share (post-split) to two members of its advisory
boards. The Company valued these warrants using the Black-Scholes valuation
model, and charged the aggregate amount of $16,348 to operations during the
twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 9,080,000 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the investors in its private placement of equity securities. The Company
allocated $607,922 of the total proceeds of $1,971,845 to the warrants, and
charged this amount to additional paid-in capital during the twelve months ended
December 31, 2004.
In October 2004, the Company issued warrants to purchase an aggregate of 720,000
shares (post-split) of its common stock at a price of $0.50 per share
(post-split) to the an officer and a director for converting a total of $180,000
of amounts owed to these individuals for accrued salary and accrued consulting
fees. The Company allocated $56,067 of the total proceeds of $180,000 to the
warrants, and charged this amount to additional paid-in capital during the
twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 3,347,076 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the convertible note holders who invested its private placement of equity
securities via conversion of their notes. The Company allocated $191,111 of the
total amount converted of $615,328 to the warrants, and charged this amount to
additional paid-in capital during the twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 628,873 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the vendors who invested in its private placement of equity securities via
conversion of amounts owed to them by the Company. The Company allocated $48,579
of the total amount converted of $157,219 to the warrants, and charged this
amount to additional paid-in capital during the twelve months ended December 31,
2004.
In April through June 2004, the Company issued warrants to purchase 77,500
shares (post-split) of its common stock at prices ranging from $0.25 to $2.00
F-23
per share (post-split) to certain investors as additional incentive under notes
payable agreements. The Company valued these warrants using the Black-Scholes
model, and charged the amount of $17,915 to additional paid-in capital during
the twelve months ended December 31, 2004.
In July and August 2004, the Company issued warrants to purchase 744,280 shares
(post-split) of its common stock at prices ranging from $0.05 to $2.00 per share
(post-split) to certain investors as additional incentive under notes payable
agreements. The Company valued these warrants using the Black-Scholes model, and
charged the amount of $72,252 to additional paid-in capital during the twelve
months ended December 31, 2004.
NOTE I - COMMITMENTS AND CONTINGENCIES
Office Leases
-------------
The Company lease office space under a short term agreement, expiring in
September 2005. Rent expense amounted to $31,369 for the years ended December
31, 2003, $41,051 for the year ended December 31, 2004, and $75,154 for the
period from October 30, 2002 (inception) through December 31, 2004.
F-24
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE I - COMMITMENTS AND CONTINGENCIES (CONTINUED)
EMPLOYMENT AND CONSULTING AGREEMENTS
------------------------------------
The Company has employment agreements with all of its President and Chief
Executive Officer. In addition to salary and benefit provisions, the agreements
include non-disclosure and confidentiality provisions for the protection of the
Company's proprietary information.
The Company has consulting agreements with outside contractors to provide
marketing and financial advisory services. The Agreements are generally for a
term of 12 months from inception and renewable automatically from year to year
unless either the Company or Consultant terminates such engagement by written
notice.
The Company has a three-year contract for the period January 2003 to January
2006 with its advertising and design agency. This contract stipulates that there
will be a minimum guaranteed annual fee for consultation, planning, creative and
account service of $100,000 for each of the three years of the contract if
termination of the contract is the result of a merger or acquisition of the
Company. The contract was not terminated upon the GPN Merger Agreement.
LITIGATION
----------
On December 13, 2001, service of process was effectuated upon GPN with regard to
a fee agreement between GPN and Silver and Deboskey, a Professional Corporation
located in Denver, Colorado. On November 27, 2002, judgment was entered in favor
of Silver & Deboskey in the amount of $28,091 and the amount of the judgment is
included in accounts payable at December 31, 2004.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its financial position,
results of operations or liquidity.
OBLIGATION TO REGISTER SHARES
-----------------------------
In October 2004, the Company sold shares of its common stock to investors in a
private placement transaction. The Company is obligated to file a registration
statement for the shares of common stock issued in the private placement and
shares of common stock underlying the warrants issued in the private placement
within 30 days of the final closing date of October 26, 2004, or November 25,
2004. The Company is also obligated to effectuate the registration statement
within 90 days of the final closing date of October 26, 2004, or January 24,
2005. Failure to meet either of these deadlines results in the Company subject
to a penalty of a 2% increase in the number of shares to be registered, or
461,200 shares and warrants to purchase an additional 181,600 shares, for every
30 day period beyond the deadline date. The Company filed a registration
statement on November 24, 2004. However, at March 7, 2005, the registration
statement has not yet been deemed effective by the Securities and Exchange
Commission. Accordingly, at April 3, 2005, the Company has accrued a penalty of
two 30-day periods, or 922,400 shares and warrants to purchase an additional
363,200 shares. If the Company fails to complete a registration by April 24,
2005, an additional penalty of 461,200 shares and warrants to purchase 181,600
shares will be incurred.
NOTE J - INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary
F-25
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE J - INCOME TAXES (CONTINUED)
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.
For income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $7,200,000 which expire through 2023, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carryforward is approximately $2,400,000. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, because in the opinion of management based upon the earning history of
the Company, it is more likely than not that the benefits will not be realized.
Components of deferred tax assets as of December 31, 2004 are as follows:
Non Current:
Net operating loss carryforward $ 2,400,000
Valuation allowance (2,400,000)
-----------
Net deferred tax asset $ --
===========
NOTE K - LOSSES PER COMMON SHARE
The following table presents the computations of basic and dilutive loss per
share:
For the Period From
October 30, 2002
(Date of Inception)
2004 2003 Through December 31, 2004
------------------------------------------------------
Net loss available to common shareholders $ (5,305,407) $ (1,856,702) $ (7,208,027)
============ ============ ============
Basic and fully diluted loss per share $ (0.16) $ (0.09) $ (0.28)
============ ============ ============
Weighted average common shares outstanding 33,510,168 21,317,292 25,698,261
============ ============ ============
Net loss per share is based upon the weighted average of shares of common stock
outstanding. In June , 2003 a .897960946 for one (1) reverse stock split of the
Company's common stock was effected (See Note A). Accordingly, all historical
weighted average share and per share amounts have been restated to reflect the
reverse stock split.
On April 6, 2004, the Company effected a 2 for 1 forward split of its common
stock. Accordingly, the effect of the forward split has been presented in the
accompanying financial statement and footnote disclosures.
NOTE L - SUBSEQUENT EVENTS
In January, 2005, the Company made a tender offer to temporarily reduce the
exercise price of certain warrants issued in October, 2004 from $0.50 to $0.20
per share. The tender offer expired on March 4, 2005. We accepted for exercise a
total of 6,600,778 warrants validly tendered and not withdrawn pursuant to the
terms of the tender offer, which represents approximately 48% of the aggregate
13,780,449 warrants that were available in the tender offer. The Company raised
net proceeds of $1,211,000 via the tender offer.
F-26
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheet as of March 31, 2005
(Unaudited)
March 31,
2005
-----------
Assets
Current assets
Cash and cash equivalents $ 1,600,000
Prepaid services and other current assets 7,085
-----------
Total current assets 1,607,085
Licensed proprietary rights, net 7,088
Furniture and equipment, net 6,330
-----------
Total assets $ 1,620,503
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities 341,210
Current portion of notes payable, net of discount 66,970
-----------
Total current liabilities 408,180
Commitments and Contingencies
Stockholders' Equity
Preferred stock, 0.001 par value;
10,000,000 shares authorized, no shares
issued and outstanding --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 69,024,166 shares issued and outstanding 69,024
Additional paid-in capital 9,244,248
Deferred compensation (53,425)
Deficit Accumulated during the Development Stage (8,047,524)
-----------
Total stockholder's equity 1,212,323
-----------
Total liabilities and stockholders' equity $ 1,620,503
===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-27
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Operations For the three
months ended March 31, 2005 and 2004,
And for the period of inception
(October 30, 2002) to March 31, 2005
(Unaudited)
Cumulative
from Inception
For the Three For the Three (October 30,
Months Ended Months Ended 2002) to
March 31,2005 March 31,2004 March 31, 2005
------------- ------------- -------------
Operating expenses:
Selling, general and
administrative expenses $ 838,520 $ 931,074 $ 6,428,404
Merger fees and costs 0 0 350,000
Financing cost 0 0 90,000
------------ ------------ ------------
Total operating expenses 838,520 931,074 6,868,404
Operating loss (838,520) (931,074) (6,868,404)
Other expense:
Interest expense 977 304,078 1,179,120
------------ ------------ ------------
Total other expense 977 304,078 1,179,120
Loss before income taxes (839,497) (1,235,152) (8,047,524)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (839,497) $ (1,235,152) $ (8,047,524)
============ ============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.05) $ (0.27)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 62,863,440 24,845,493 29,486,331
============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-28
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity For the
period from inception (October 30, 2002) to March 31, 2005
(unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in conjunction
with fourth quarter notes payable issued
October through December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders in
conjunction with fourth quarter notes payable
issued October through December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the twelve month period ended
December 31, 2003 -- -- -- -- (1,856,702) (1,856,702)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 23,431,300 23,431 1,035,441 -- (1,902,620) (843,748)
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-29
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity For the
period from inception (October 30, 2002) to March 31, 2005
(unaudited)(continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a
consultant for services rendered in
January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62
per share for services rendered in
February 2004 40,000 40 24,760 (24,800) -- --
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- --
Shares issued to a consultant at $0.50 per
share for services rendered in March 2004 500,000 500 249,500 (250,000) -- --
Shares sold for cash at $0.15 per share
in March, 2004 8,000 8 1,192 -- -- 1,200
Shares issued at $0.50 per share to
consultants for services rendered in
March 2004 20,000 20 9,980 -- -- 10,000
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 2,000 2 798 -- -- 800
Shares issued to consultants at $0.32 per
share for services rendered in March 2004 91,600 92 29,220 -- -- 29,312
Shares to be issued to consultant at $0.41 per
share in April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- (82,000)
Shares granted pursuant to the New Senior Note
Agreement in April 2004 600,000 600 149,400 (150,000) -- --
Shares issued to officer at $0.32 per share for
services rendered in April 2004 200,000 200 63,800 -- -- 64,000
Conversion of note payable to common stock at
$0.10 per share in May 2004 350,000 350 34,650 -- -- 35,000
Beneficial Conversion Feature associated with
note payable in May 2004 -- -- 35,000 -- -- 35,000
Issuance of warrants to officers and founder
for services rendered in May 2004 -- -- 269,208 -- -- 269,208
Shares to a consultant at $0.20 per share as a
due dilligence fee in May 2004 125,000 125 24,875 -- -- 25,000
Shares issued to a consultant at $1.00 per
share for services to be rendered over
twelve months beginning May 2004 500,000 500 499,500 (500,000) -- --
Benefial Conversion Feature associated with
notes payable issued in June 2004 -- -- 3,000 -- -- 3,000
Issuance of warrants to note holders in April,
May, and June 2004 -- -- 17,915 -- -- 17,915
Issuance of warrants to employees and
consultants for services rendered in
April through June 2004 -- -- 8,318 -- -- 8,318
Shares issued in July to a consultant at
$0.10 for services to be rendered through
July 2005 250,000 250 24,750 (25,000) -- --
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-30
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity For the
period from inception (October 30, 2002) to March 31, 2005
(unaudited)(continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Shares issued to a consultant in July and
September at $0.41 per share for services
to be rendered through April 2005 200,000 200 81,800 -- -- 82,000
Shares issued to a consultant in September at
$0.12 to $0.22 for services rendered
through September 2004 127,276 127 16,782 -- -- 16,909
Shares issued in July to September 2004 as
interest on note payable 300,000 300 35,700 -- -- 36,000
Issuance of warrants with notes payable in
July and August 2004 -- -- 72,252 -- -- 72,252
Accrued deferred compensation in August 2004
to a consultant for 100,000 shares at $0.10
per share, committed but unissued -- -- -- (10,000) -- (10,000)
Shares issued in August 2004 at $0.14 to a
consultant for services to be performed
through October 2004 100,000 100 13,900 (14,000) -- --
Shares issued in August 2004 at $0.125 per
share for conversion of $30,000 demand loan 240,000 240 29,760 -- -- 30,000
Shares issued in August 2004 at $0.16 per
share to a consultant for services provided 125,000 125 19,875 -- -- 20,000
Shares issued to employees at $0.16 to
$0.25 per share 48,804 49 8,335 -- -- 8,384
Commitment to issue 100,000 shares of stock to
a consultant at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- (23,000)
Sale of stock for cash in Ocober at $0.125 per
share, net of costs of $298,155 18,160,000 18,160 1,345,763 -- -- 1,363,923
Value of warrants issued with sale of common
stock in October, net of costs -- -- 607,922 -- -- 607,922
Issuance of warrant to officer in October -- -- 112,697 -- -- 112,697
Issuance of stock to investment bankers in
October 2004 for commissions earned 4,900,000 4,900 (4,900) -- -- --
Conversion of accounts payable to stock in
October at $0.125 per share 1,257,746 1,258 107,382 -- -- 108,640
Value of warrants issued with accounts
payable conversions -- -- 48,579 -- -- 48,579
Conversion of demand loan to stock in October
at $0.11 per share 93,300 93 10,170 -- -- 10,263
Forgiveness of notes payable in October 2004 -- -- 36,785 -- -- 36,785
Issuance of stock to officer and director at
$0.125 per share in October for conversion
of liability 1,440,000 1,440 122,493 -- -- 123,933
Value of warrants issued with officer and
director conversion of liabilities -- -- 56,067 -- -- 56,047
Conversion of debt and accrued interest to
common stock at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- 424,217
Value of warrants issued with conversion
of debt -- -- 191,111 -- -- 191,111
Conversion of note payable in October into
common stock at $0.075 per share 67,613 68 4,932 -- -- 5,000
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-31
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity For the
period from inception (October 30, 2002) to March 31, 2005
(unaudited)(continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Issuance of warrants to note holders in
October 2004 -- -- 112,562 -- -- 112,562
Value of shares issued to CFO as compensation 100,000 100 34,900 -- -- 35,000
Value of warrants issued to members of
advisory committees in in November
and December -- -- 16,348 -- -- 16,348
Beneficial conversion feature associated with
notes payable -- -- 124,709 -- -- 124,709
Shares issued in error to be cancelled (9,002) (9) 9 -- -- --
Amortization of deferred compensation through
December 31, 2004 -- -- -- 2,729,454 -- 2,729,454
Loss for the twelve months ended
December 31, 2004 -- -- -- -- (5,305,407) (5,305,407)
----------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) (7,208,027) 607,353
Sale of shares of common stock for
cash at $0.20 per share in March
2005 for warrant exercise, net
of costs 6,600,778 6,601 1,184,256 1,190,857
Value of warrants issued to members
of advisory committees 137,049 137,049
Accrued Deferred compensation
In February, 2005 to a consultant
For 50,000 shares at $0.65 per
share. Committed but unissued. (32,500) (32,500)
Amortization of deferred
compensation for three months
ended March 31, 2005 149,061 149,061
Loss for the three months ended
March 31, 2005 (839,497) (839,497)
----------- ----------- ----------- ---------- ----------- ----------
69,024,166 $ 69,024 $ 9,244,248 $ (53,425) $(8,047,524) $1,212,323
=========== =========== =========== ========== =========== ==========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-32
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows For the three
months ended March 31, 2005 and
2004, And for the period of inception (October 30, 2002)
to March 31, 2005
(Unaudited)
Cumulative
For the Three For the Three from Inception
Months Ended Months Ended (October 30,
March 31, March 31, 2002) to
2005 2004 March 31, 2005
----------- ----------- --------------
Cash flows from operating activities:
Net loss $ (839,497) $(1,235,152) $(8,047,524)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Non-cash compensation 299,943 688,027 3,699,943
Interest expense 977 953 153,377
Amortization of discount on notes payable 0 287,241 1,006,935
Depreciation and amortization 402 11,651 26,419
Changes in operating assets and liabilities: --
Prepaid services and other assets (372) 23,543 (7,084)
Accounts payable and accrued expenses (12,424) 89,558 542,618
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (550,971) (134,179) (2,625,316)
Cash flows from investing activities:
Acquisition of property and equipment 0 0 (8,087)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES 0 0 (8,087)
Cash flows from financing activities:
Proceeds from notes payable -- 150,000 1,233,500
Principal payments on notes payable and demand loans (10,000) (15,000) (260,000)
Shares of stock sold for cash 1,190,857 1,200 3,259,903
Officer repayment of amounts paid on his behalf 19,880
Cash paid on behalf of officer (19,880)
Cash paid on amount due to officer --
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,180,857 136,200 4,233,403
Net increase in cash and cash equivalents 629,886 2,021 1,600,000
Cash and cash equivalents at beginning of period 970,114 10,534 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,600,000 $ 12,555 $ 1,600,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest: $ -- $ 953 $ 41,847
=========== =========== ===========
Taxes: $ -- $ -- $ --
=========== =========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-33
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows For the three
months ended March 31, 2005 and
2004, And for the period of inception (October 30, 2002)
to March 31, 2005
(Unaudited)
Cumulative
For the Three For the Three from Inception
Months Ended Months Ended (October 30,
March 31, March 31, 2002) to
2005 2004 March 31, 2005
----------- ----------- -----------
Non-cash investing and financing activities:
Acquisition and capital restructure: $ -- $ -- $ --
Assets acquired -- -- --
Liabilities assumed -- -- (120,799)
Common stock retained -- -- (2.369)
Adjustment to additional paid-in capital -- -- 123,168
Organization costs -- -- 350,000
------------ ------------ -----------
Total consideration paid $ -- $ -- $ 350,000
============ ============ ===========
Common stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
============ ============ ===========
Common stock issued in exchange for services $ -- $ 2,878,006 $ 2,915,286
============ ============ ===========
Common stock issued in exchange for previously incurred
debt and accrued interest $ -- $ 695,591 $ 995,591
============ ============ ===========
Common stock issued in exchange as interest $ -- $ 36,000 $ 36,000
============ ============ ===========
Amortization of beneficial conversion feature $ -- $ 162,709 $ 223,269
============ ============ ===========
Stock options and warrants issued in exchange for
services rendered $ 137,049 $ 406,571 $ 629,481
============ ============ ===========
Debt and accrued interst forgiveness from note holders $ -- $ 36,785 $ 36,875
============ ============ ===========
Common stock issued in satisfaction of accounts payable $ -- $ 157,219 $ 157,219
============ ============ ===========
Common stock issued in satisfaction of amounts due
to an Officer and a Director $ -- $ 180,000 $ 180,000
============ ============ ===========
Deferred compensation to a consultant accrued in
March 2005 $ 32,500 $ -- $ 32,500
============ ============ ===========
F-34
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the three-month periods ended March 31, 2005 and
2004 are not necessarily indicative of the results that may be expected for the
years ended December 31, 2005. The unaudited condensed consolidated financial
statements should be read in conjunction with the December 31, 2004 financial
statements and footnotes thereto included in the Company's Securities and
Exchange Commission Form 10-KSB.
Business and Basis of Presentation
----------------------------------
IR BioSciences Holdings, Inc. ("Company") formerly GPN Network, Inc. ("GPN") is
currently a development stage company under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company, which was
incorporated under the laws of the State of Delaware on October 30, 2002, is a
biopharmaceutical company. Through our wholly owned subsidiary, ImmuneRegen
BioSciences, Inc., we are engaged in the research and development of health
enhancing and potential life saving products. Our product development is focused
around Homspera(TM), a proprietary compound that is derived from homeostatic
substance P, a naturally occurring peptide. Our focus is on the research and
development of products that we believe will treat the suppression of the body's
immune system caused by exposure to various forms of radiation, toxic inhalants
and viral infectious diseases. Currently, the majority of our efforts are in the
research and development of Radilex(TM), a compound derived from Homspera, as a
countermeasure to the effects of radiological and nuclear threats. From its
inception through the date of these financial statements, the Company has
recognized minimal revenues and has incurred significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ImmuneRegen BioSciences, Inc. Significant
intercompany transactions have been eliminated in consolidation.
Reclassification
----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
Stock Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options
F-35
is measured as the excess, if any, of the fair market value of the Company's
stock at the date of the grant over the exercise price of the related option.
The Company has adopted the annual disclosure provisions of SFAS No. 148 in its
financial reports for the year ended December 31, 2002 and for the subsequent
periods.
Interim Financial Statements
----------------------------
The accompanying balance sheet as of March 31, 2005, the statements of
operations for the three months ended March 31, 2005 and 2004, and for the
period of inception (October 30, 2002) to March 31, 2005, and the statements of
cash flows for three months ended March 31, 2005 and 2004, and from the period
of inception (October 30, 2002) to March 31, 2005 are unaudited. These unaudited
interim financial statements include all adjustments (consisting of normal
recurring accruals), which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the periods presented.
Interim results are not necessarily indicative of the results to be expected for
a full year.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
Prepaid Services and Other Current Assets
-----------------------------------------
Prepaid services and other current assets consist of (i) outside services that
the Company has paid for in advance in the amount of $2,525; (ii) salary advance
to an employee of $2,300; and (iii) deposits of $2,260.
Licensed Proprietary Rights
---------------------------
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan. These
proprietary rights are being amortized over the term of the license agreement,
or ten years. The amount amortized during the three months ended March 31, 2005
and 2004 was $232 during each period.
Furniture and Equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
The amounts depreciated for the three months ended March 31, 2005 and 2004 were
$170 and 169, respectively. The amount depreciated from the date of inception
(October 30, 2002) through March 31, 2005 was $1,758.
NOTE 2 - RELATED PARTY TRANSACTIONS
Proprietary Rights Agreement
----------------------------
In December 2002, the Company entered into a royalty-free license agreement (the
"License Agreement") with its two founders and largest shareholders (the
"Licensors"). Under the terms of the License Agreement, the Licensors grant to
the Company an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by the Licensors. The Company's
F-36
obligations under the License Agreement include (i) reasonable efforts to
protect any licensed patents or other associated property rights; (ii)
reasonable efforts to maintain confidentiality of any proprietary information;
(iii) upon the granting by the U. S. Food and Drug Administration to the Company
the right to market a product, the Company will maintain a broad form general
liability and product liability insurance.
Consulting Agreements
---------------------
On December 16, 2002, the Company entered into consulting agreements (the
"Consulting Agreements") with its two founders and chief research scientists
(the "Consultants"). The Consulting Agreements were on a month-to-month basis.
Under the terms of the Consulting Agreements, the Consultants agreed to place at
the disposal of the Company their judgment and expertise in the area of acute
lung injury. In consideration for these services, the Company agreed to pay each
consultant a non-refundable fee of $5,000 per month, which shall accrue until
such time as the Company raises at least $2,000,000 in equity or debt financing
at which time such accrued amount will become due and payable. Pursuant to the
Consulting Agreements, during the period from January 1, 2003 to December 31,
2003, the Company accrued $120,000 in consulting fees. During the period from
January 1, 2004 to December 31, 2004, the Company accrued an additional $90,000
in consulting fees. The amounts due the Consultants at December 31, 2003 was
$125,000 and was included in accounts payable and accrued expenses.
In October 2004, the Company achieved the threshold amount of $2,000,000 in
equity or debt financing (see Note I). As of October, 2004, the aggregate
amounts due the Consultants under the Consulting Agreements was $215,000.
In October, 2004, one of the Consultants elected to exchange 724,000 shares of
the Company's common stock and a warrant to purchase an additional 362,000
(post-split) shares of common stock at an exercise price of $0.50 (post-split)
in exchange for $90,500 of the $107,500 of the previously accrued and unpaid
fees due him under the Consulting Agreement, and the balance of $17,000 was paid
to the consultant. At December 31, 2004, there is no balance due to the
Consultant.
In October 2004, because the remaining Consultant had not taken an active role
in the management of the Company, he agreed that would forgive the amount
accrued to him under the Consulting agreement of $107,500. The Company accounted
for the transaction as a forgiveness of indebtedness under FAS No. 140 during
the period ended December 31, 2004.
During the three months ended March 31, 2005 and 2004, the Company accrued
$19,000 and $30,000, respectively, in consulting fees payable to the Company's
founders.
Employment Agreements
---------------------
Pursuant to our employment agreement with Michael Wilhelm, our President and
Chief Executive Officer, dated December 16, 2002, we paid a salary of $125,000
and $175,000 to Mr. Wilhelm during the first and second years of his employment,
respectively. Thereafter we paid, and will continue to pay, through the term of
Mr. Wilhelm's employment, an annual salary of $250,000. Mr. Wilhelm's salary is
payable in regular installments in accordance with the customary payroll
practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief Financial
Officer, dated February 15, 2005, we paid a salary of $60,000 until the company
completed a financing of $500,000 or more. This occurred on March 4, 2005 when
the company completed a Tender Offer for warrants totaling $1,190,857 net of
fees. From March 4, 2005, until December 31, 2005, we will pay an annual salary
of $85,000. Thereafter, we will pay an annual salary of $98,000 for the second
year ending December 31, 2006 and an annual salary of $112,000 for the third
year ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our company.
NOTE 3 - DEBT
During the three months ended March 31, 2005, the Company repaid a note payable
in the amount of $10,000. At March 31, 2005, the Company had outstanding two
unsecured notes payable to Company shareholders in the aggregate amount of
$66,970. Interest accrues at 6% per annum. Accrued interest at March 31, 2005 is
$9,923. These notes were in default at March 31, 2005.
F-37
NOTE 4 - EQUITY
Common Stock
------------
On January 24, 2005, the Company made a tender offer to certain of the Company's
shareholders whereby the exercise price of certain warrants issued in October
2004 (the "Warrants") would be reduced from $0.50 to $0.20 per share. In March
2005, 6,600,778 shares of common stock were sold pursuant to this offer for
aggregate proceeds of $1,320,156 less costs of $129,300.
Warrants
--------
In January through March 2005, the Company issued warrants to purchase 268,033
shares at prices ranging from $0.125 to $1.00 to consultants for services
performed. The Company valued these warrants using the Black-Scholes valuation
model, and charged the amount of $137,049 to operations during the three months
ended March 31, 2005.
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
--------------------------------- --------------------------------
Weighted Average Weighed Weighted Average
Remaining Average Remaining
Exercise Number Contractual Life Exercise Number Contractual Life
Prices Outstanding (Years) Price Exercisable (Years)
---------------------------------------------------------------------------------------------------------
$0.05-0.10 480,698 4.35 $0.05-0.10 480,698 4.35
0.125-0.70 782,411 4.21 0.125-0.70 782,411 4.21
0.25-0.56 9,147,932 4.31 0.25-0.56 9,147,932 4.31
1.00 754,844 2.73 1.00 754,844 2.73
2.00 167,580 4.27 2.00 167,580 4.27
---------- ----- ---------- ----
11,333,465 4.20 11,333,465 4.20
========== ===== ========== ====
Transactions involving warrants are summarized as follows:
Weighted Average
Number of Shares Price Per Share
(post-split) (post-split)
--------------- ---------------
Outstanding at January 1, 2005 17,666,210 $ .49
Granted 268,033 .48
Exercised (6,600,778) .50
Canceled or expired -- --
---------- --------
Outstanding at March 31, 2005 11,333,465 $ .47
========== ========
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2005
----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75%
Expected stock price volatility 154% to 163%
Expected dividend payout --
Expected option life-years (a) 3
F-38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Special Note Regarding Forward-looking Statements
-------------------------------------------------
Some of the statements under "Risk Factors," "Business" and elsewhere in this
Quarterly Report on Form 10-QSB constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our 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 such forward-looking
statements. Such factors include, among other things, those described under
"Risk Factors" and elsewhere in this Quarterly Report on Form 10-QSB.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this report.
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
Overview
--------
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical company.
Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we are
engaged in the research and development of health enhancing and potential life
saving products. Our product development is focused around Homspera(TM), a
proprietary compound that is derived from homeostatic substance P, a naturally
occurring peptide. Our focus is on the research and development of products that
we believe will treat the suppression of the body's immune system caused by
exposure to various forms of radiation, toxic inhalants and viral infectious
diseases. Currently, the majority of our efforts are in the research and
development of Radilex(TM), a compound derived from Homspera, as a
countermeasure to the effects of radiological and nuclear threats.
In our studies to date, we have witnessed Homspera and Radilex to have high
anti-inflammatory and immunostimulatory properties. We believe the compound is
well-suited for treating the damaging effects of radiation injury when given
shortly after total body exposure to radiation. We have generated a large amount
of data in rodent animal models and toxicology studies relating to the activity
and safety of both Homspera and Radilex. To date we have completed seven mouse
studies in which Radilex was administered after exposure to lethal doses of
radiation. In these studies we witnessed survival rates of up to 50% of the
exposed mice.
We own or have obtained a license to 4 issued U.S. and foreign patents and 24
pending U.S. and foreign patent applications. As we continue our research and
development efforts we will look to add to our portfolio of patents and
trademarks.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2005
Revenue
-------
We are in the development stage and have no revenue.
Sales, General, and Administrative Expenses
-------------------------------------------
Sales, general, and administrative expenses ("SG&A") were $838,520 for the three
months ended March 31, 2005, an decrease of $92,554 or approximately 10%
compared to SG&A of $931,074 during the three months ended
F-39
March 31, 2004. For the three months ended March 31, 2005, this amount consisted
primarily of non-cash compensation issued to consultants of $299,943, legal and
accounting fees of $161,806, other consulting fees of $117,739, payroll and
related costs of $77,574, and research and development expenses of $65,849.
The Company expects SG&A to increase during the coming twelve months as we
continue to utilize non-cash compensation in order to conserve cash, we build
out the Company's infrastructure, and continue to develop the Company's line of
potential products.
Interest Expense
----------------
Interest expense was $977 for the three months ended March 31, 2005, a decrease
of $303,101 or approximately 99% compared to interest expense of $304,078 for
the three months ended March 31, 2004. Interest expense was dramatically reduced
because the Company paid or converted to equity most of its outstanding debt
during the three months ended December 31, 2004.
The Company expects interest expense to remain at low levels during the coming
twelve months.
Net Loss
--------
For the reasons above, the net loss for the three months ended March 31, 2005
was $839,497, a decrease of $395,655 or 32% compared to a net loss of $1,235,152
for the three months ended March 31, 2004.
The Company expects losses to increase during the coming twelve months. The
Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as we move our line of potential
products through the testing and approval phases, and as we build out our
corporate infrastructure.
PLAN OF OPERATIONS
We expect to continue to incur increasing operating losses for the foreseeable
future, primarily due to our continued research and development activities
attributable to new and existing products and general and administrative
activities.
Product Research and Development
--------------------------------
We spent approximately $65,849 and $21,382 for the first quarters ending March
31, 2005 and 2004, respectively, in research and development activities related
to the development of Radilex as a universal protectant against the effects of
chemical, biological, radiological and nuclear threats. Due to our liquidity and
limited cash available, our spending on research and development activities was
limited. From our inception in October 2002, we have spent $258,912 in research
and development activities. These costs include the manufacture and delivery of
our drug by third party manufacturers, payments to Contract Research
Organizations ("CRO") for consulting related to our studies and costs of
performing such studies.
We anticipate that during the next 12 months we will increase our research and
development activities by approximately $450,000 to a total of approximately
$600,000 in an effort to further develop Radilex as a universal protectant
against chemical, biological, radiological and nuclear threats. The drug
development, clinical trial and regulatory process is lengthy, expensive and
uncertain and subject to numerous risks including, without limitation, the
following risks discussed under "Risk Factors" - "All Our Applications Are All
Derived From The Use Of Homspera. If Homspera Is Found To Be Unsafe Or
Ineffective, Our Business Would Be Materially Harmed.," "If We Fail To
Successfully Develop And Commercialize Products, We Will Have To Cease
Operations.;" and, "The Lengthy Product Approval Process And Uncertainty Of
Government Regulatory Requirements May Delay Or Prevent Us From Commercializing
Proposed Products."
F-40
Our major research and development projects include:
Development of Radilex as a Countermeasure to the Effects of Radiological and
Nuclear Threats.
--------------------------------------------------------------------------------
Because of the high anti-inflammatory and immunostimulatory properties of
Radilex that we have witnessed, we believe the compound is well-suited for
treating the damaging effects of radiation injury when given shortly after
exposure to total body irradiation. We have generated a large amount of data in
rodent animal models relating to the activity and safety of Radilex.
We are currently preparing the protocols for our eighth mouse study in which we
will further validate our prior studies by collecting additional data as
requested by the FDA and NIH. We expect to begin the eighth study within the
next 120 days. We estimate that the study will be completed within 3 months upon
commencement at an estimated cost of $100,000. Upon completion of the
aforementioned study we will prepare the protocols necessary for a non-human
primate study to test the efficacy of Radilex as a treatment to acute radiation
sickness. We expect this study to begin within the next twelve months. We
believe that preliminary results will be available within 90 days from beginning
of study, with analysis within an additional 60 to 90 days. We have budgeted
approximately $310,000 for expenses related to this study in our fiscal year
ending December 31, 2005. We expect an additional $450,000 will be required to
complete this study in 2006.
If we are successful in completing the study and achieve the desired results, we
will submit the necessary documentation to the FDA and other regulatory agencies
for approval. We believe that Radilex can be developed and approval granted
under Project BioShield, if so, we believe that the approval process will be
significantly shortened and less costly. If approval for Radilex is granted in a
timely manner, we expect to begin to commercialize our product immediately
thereafter. We are anticipating revenues from the sale of Radilex beginning in
calendar year 2007 as a treatment to the effects caused by irradiation.
If product development or approval does not occur as scheduled our time to reach
market will be lengthened and our costs will likely increase. Additionally, we
may be requested to expand our findings to gather additional data or we may not
achieve the desired results. If so, we may have to design new protocols and
conduct additional studies. This will increase our costs and delay the time to
market for Radilex. Any of these occurrences would have a material negative
impact on our business and our liquidity as it may cause us to seek additional
capital sooner than expected and allow our competitors to successfully enter the
market ahead of us.
Development of Radilex as a Countermeasure to the Effects of Chemical and
Biological Threats.
--------------------------------------------------------------------------------
We are currently continuing to research the efficacy of Radilex as a universal
protectant to be used also as a treatment for exposure to various chemical and
biological threats. We have generated data in preclinical studies indicating
that Radilex could potentially be used in treating respiratory failure caused by
exposure to various chemical and biological agents, such as anthrax, ricin
poisoning and other poisonous inhalants, as well as, infectious diseases such as
avian flu and SARS. We are continuing to design and perform studies for the
further development of Radilex for these applications. We have budgeted
approximately $35,000 for studies related to the use of Radilex as a treatment
for exposure to various chemical and biological threats. We anticipate
additional studies to begin in the third or fourth quarters of calendar 2005 and
continue on an ongoing basis over the next three years. If we are successful in
achieving desirable results, we intend to design the protocols and begin studies
for these indications, when capital is available. As we have only collected
preliminary data and additional studies are required, we cannot predict when, if
ever, a viable treatment can be commercialized. If we do not observe significant
results or we lack the capital to further the development, we may abandon such
research and development efforts; thereby limiting our future potential
revenues.
F-41
Development of Homspera in the Promotion of Wound Healing.
----------------------------------------------------------
We have observed in early preclinical studies that Homspera may have an effect
in promoting or accelerating wound healing. Within the next three months we plan
to begin preclinical studies to determine if Homspera could become a candidate
for further development as a compound used in wound healing. We believe that
such an application would have a large potential market and would share
synergies with potential uses for Radilex as a universal protectant. We expect
to begin studies regarding the use of Homspera in the promotion of wound healing
in the third quarter of calendar 2005. We do not have any research and
development expenses associated with the use of Homspera in wound healing in
2004 or 2003, as our observations were generated while conducting our radiation
studies. We have budgeted approximately $60,000 for the costs of such studies
over the next twelve months. We anticipate the completion of such studies within
eight months of commencement of the studies. If we achieve desirable results, we
will design the protocols and begin studies for these indications, when capital
is available. As we have only collected preliminary data and additional studies
are required, we cannot predict when, if ever, a viable product can be
commercialized. If we do not observe significant results or we lack the capital
to further the development, we may abandon such research and development
efforts; thereby limiting our future potential revenues.
We will need to generate significant revenues from product sales and or related
royalties and license agreements to achieve and maintain profitability. Through
March 31, 2005, we had no revenues from any product sales, royalties or
licensing fees, and have not achieved profitability on a quarterly or annual
basis. Our ability to achieve profitability depends upon, among other things,
our ability to develop products, obtain regulatory approval for products under
development and enter into agreements for product development, manufacturing and
commercialization. Moreover, we may never achieve significant revenues or
profitable operations from the sale of any of our products or technologies.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements made in the fiscal quarter ended
March 31, 2005.
REVENUES
We have not generated any revenues from operations from our inception. We
believe we will begin earning revenues from operations during calendar year 2007
as we transition from a development stage company to that of an active growth
and acquisition stage company.
COSTS AND EXPENSES
From our inception through March 31, 2005, we have incurred losses of
$8,047,524. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had current assets of $1,607,085 consisting of cash of
$1,600,000 and other current assets of $7,085. At March 31, 2005, we also had
current liabilities of $408,180, consisting of accounts payable and accrued
liabilities of $341,210 and notes payable of $66,970. This resulted in net
working capital at March 31, 2005 of $1,198,905. During the three months ended
March 31, 2005, the Company used cash in operating activities of ($550,971).
From the date of inception (October 30, 2002) to March 31, 2005, the Company has
had a net loss of ($8,047,524) and has used cash of ($2,625,316) in operating
activities.
The Company currently has no revenue. There is no guarantee that our business
model will be successful, or that we will be able to generate sufficient revenue
to fund future operations. As a result, we expect our operations to continue to
use net cash, and that we will be required to seek additional debt or equity
financings during the coming quarters. Since inception, the Company has financed
its operations through debt and equity financing. While we have raised capital
to meet our working capital and financing needs in the past, additional
financing is required in order to meet our current and projected cash flow
deficits from operations and development of our product line. We met our cash
requirements from our inception through March 31, 2005 via the private placement
of $3,259,903 of our common stock, $973,500 from the issuance of notes payable,
F-42
net of repayments and $1,190,857, net of costs, from the exercise of common
stock purchase warrants.
In January 2005, we made a tender offer to temporarily reduce the exercise price
of certain warrants issued in October 2004 from $0.50 to $0.20 per share. The
tender offer expired on March 4, 2005. We accepted for exercise a total of
6,600,778 warrants validly tendered and not withdrawn pursuant to the terms of
the tender offer, which represents approximately 48% of the aggregate 13,780,449
warrants that were subject to the offer. We raised an aggregate of $1,190,857
from the tender offer, net of costs.
Since our inception, we have been seeking additional third-party funding. During
such time, we have retained a number of different investment banking firms to
assist us in locating available funding; however, we have not yet been
successful in obtaining any of the long-term funding needed to make us into a
commercially viable entity. During the period from October 2004 to March 2005,
we were able to obtain financing of $3,770,156 from a series of private
placements of our securities. Included in this amount was the conversion of
$180,000 of accrued salary and consulting fees due to an officer and a director
of the company. These private placements of our securities resulted in net
proceeds to us of $3,162,711. Based on our current plan of operations all of our
current funding is expected to be depleted by the end of January 2006. Although
we are continuing with our efforts to obtain funding to maintain our operations,
we cannot assure you that we will be successful or that any funding we receive
will be received timely or on commercially reasonable terms. Due to our working
capital deficiency, and if we do not receive adequate financing, we will be
unable to pay our vendors, lenders and other creditors if we cease our
operations, since the net realizable value of our non-current assets will not
generate adequate cash. We currently have no commitments for financing. There is
no guarantee that we will be successful in raising the funds required.
In the event that we are successful in obtaining third-party funding, we do not
expect to generate a positive cash flow from our operations for at least several
years, if at all, due to anticipated expenditures for research and development
activities, administrative and marketing activities, and working capital
requirements and expect to continue to attempt to raise further capital through
one or more further private placements.
While we have successfully raised capital to meet our working capital and
financing needs in the past through debt and equity financings, additional
financing will be required in order to implement our business plan and to meet
our current and projected cash flow deficits from operations and development.
There can be no assurance that we will be able to consummate future debt or
equity financings in a timely manner on a basis favorable to us, or at all. If
we are unable to raise needed funds, we will not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. A material shortage of capital will
require us to take drastic steps such as reducing our level of operations,
disposing of selected assets or seeking an acquisition partner. We believe that
we have sufficient capital resources to meet projected cash flow deficits
through the end of December 2005. However, if thereafter, we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, this would have a material adverse effect on our business,
results of operations, liquidity and financial condition.
During the three months ended March 31, 2005, the Company paid a note payable in
the amount of $10,000. At March 31, 2005, the Company had outstanding two
unsecured notes payable to Company shareholders in the aggregate amount of
$66,970. Interest accrues at 6% per annum. Accrued interest at March 31, 2005 is
$9,923. These notes were in default at March 31, 2005.
Pursuant to our employment agreement with Michael Wilhelm, our President and
Chief Executive Officer, dated December 16, 2002, we paid a salary of $125,000
and $175,000 to Mr. Wilhelm during the first and second years of his employment,
respectively. Thereafter we paid, and will continue to pay, through the term of
Mr. Wilhelm's employment, an annual salary of $250,000. Mr. Wilhelm's salary is
payable in regular installments in accordance with the customary payroll
practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief Financial
Officer, dated February 15, 2005, we paid a salary of $60,000 until the company
completed a financing of $500,000 or more. This occurred on March 4, 2005 when
the company completed a Tender Offer for warrants totaling $1,190,856 net of
fees. From March 4, 2005, until December 31, 2005, we will pay an annual salary
of $85,000. Thereafter, we will pay an annual salary of $98,000 for the second
F-43
year ending December 31, 2006 and an annual salary of $112,000 for the third
year ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our company.
On December 16, 2002 we entered into a consulting agreement on a month-to-month
basis with Dr. Mark Witten, our chief research scientist and director. Under the
terms of this agreement, Dr. Witten agrees to place at the disposal of us his
judgment and expertise in the area of acute lung injury. In consideration for
these services, we agree to pay Dr. Witten a non-refundable fee of $5,000 per
month. Under the terms of our consulting agreement with Dr. Mark Witten, he is
to receive a non-refundable fee equal to $5,000 per month. The consulting
agreement is on a month-to-month basis.
Acquisition or Disposition of Plant and Equipment
-------------------------------------------------
We did not dispose or acquire any significant property, plant or equipment
during the first quarter ended March 31, 2005.
We do not anticipate the sale of any significant property, plant or equipment
during the next twelve months.
F-44
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of Delaware,
we can indemnify our directors and officers against liabilities they may incur
in such capacities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). Our certificate of incorporation provides that,
pursuant to Delaware law, our directors shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to us and our stockholders.
This provision in the certificate of incorporation does not eliminate the duty
of care, and in appropriate circumstances equitable remedies such as injunctive
or other forms of nonmonetary relief will remain available under Delaware law.
In addition, each director will continue to be subject to liability for breach
of the director's duty of loyalty to us or our stockholders, for acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of the law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under Delaware law. The provision also does not
affect a director's responsibilities under any other law, such as the federal
securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of our directors to the fullest
extent permitted by the Delaware General Corporation Law. Our bylaws further
provide that our Board of Directors has sole discretion to indemnify our
officers and other employees. We may limit the extent of such indemnification by
individual contracts with our directors and executive officers, but have not
done so. We are required to advance, prior to the final disposition of any
proceeding, promptly on request, all expenses incurred by any director or
executive officer in connection with that proceeding on receipt of an
undertaking by or on behalf of that director or executive officer to repay those
amounts if it should be determined ultimately that he or she is not entitled to
be indemnified under our bylaws or otherwise. We are not, however, required to
advance any expenses in connection with any proceeding if a determination is
reasonably and promptly made by our Board of Directors by a majority vote of a
quorum of disinterested Board members that (a) the party seeking an advance
acted in bad faith or deliberately breached his or her duty to us or our
stockholders and (b) as a result of such actions by the party seeking an
advance, it is more likely than not that it will ultimately be determined that
such party is not entitled to indemnification pursuant to the applicable
sections of our bylaws.
We also have directors' and officers' liability insurance.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, payable by the Registrant
relating to the sale of common stock being registered. All amounts are estimates
except the SEC registration fee.
SEC registration fee ............................................$ 1,463
Printing and engraving expenses ................................. 5,000
Legal fees and expenses ......................................... 85,000
Accounting fees and expenses .................................... 50,000
Transfer agent and registrar's fees and expenses ................ 2,000
Miscellaneous expenses .......................................... 6,537
--------
Total...................................................$150,000
========
The Registrant has agreed to bear expenses incurred by the selling
stockholders, up to a maximum limit of $15,000, that relate to the registration
of the shares of common stock being offered and sold by the selling
stockholders. All such expenses in excess of $15,000 will be borne by the
selling stockholders in proportion to the number of shares being registered by
each stockholder.
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, we have issued unregistered securities to the
persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof and/or Regulation D promulgated thereunder. All recipients had
adequate access, through their relationships with us, to information about us.
In January 2002, we sold to Todd M. Ficeto, who was the sole director and
officer of GPN Network, Inc., 2,500,000 units at $0.06 per unit for an aggregate
purchase price of $150,000. Each unit sold included two shares of our common
stock and one five-year warrant to purchase one share of our common stock at
$0.03 per share. The sale of the units resulted in the issuance of 5,000,000
shares of our common stock and warrants exercisable for an additional 2,500,000
shares of our common stock. The securities were offered and sold in reliance
upon exemption from registration pursuant to Section 4(2) of the Securities Act
and Rule 506 promulgated thereunder.
On January 20, 2003, the Company entered into a $15,000 Convertible
Promissory Note bearing 8% interest per month with an accredited individual
investor. The principal on the note was subsequently repaid. On March 31, 2005
in accordance with the terms of the Promissory Note, accrued interest of
$2,410.96 was converted into 19,288 shares of our common stock releasing the
Company from any further obligation under the Note. These shares have been
accrued pending issuance. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note and the shares. The investor
represented to the Company that the investor was purchasing the securities for
the investor's own account and not with a present view towards the distribution
thereof. In addition, each investor acknowledged and agreed that the note and
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On June 11, 2003, the Company entered into a $50,000 Convertible
Promissory Note bearing 10% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement (see below). Immediately upon the closing of the
Private Placement, and in accordance with the terms of the Promissory Note, all
outstanding principal and accrued interest converted into 746,108 shares of our
common stock along with five-year warrants to purchase an additional 373,054
shares of common stock at $.50 per share releasing the Company from any further
obligation under the Note. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note. The investor represented to
the Company that the investor was purchasing the Note for the investor's own
account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the Note and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On June 11, 2003, the Company entered into a $50,000 Convertible
Promissory Note bearing 10% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 745,225 shares of our common stock
along with five-year warrants to purchase an additional 372,613 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On June 13, 2003, the Company entered into a $100,000 Convertible
Promissory Note bearing 10% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, 50% of the outstanding
principal was paid back in cash and 50% of the principal and accrued interest
converted into 614,680 shares of our common stock along with five-year warrants
to purchase an additional 307,340 shares of common stock at $.50 per share
releasing the Company from any further obligation under the Note. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the Note. The investor represented to the Company that the investor was
purchasing the Note for the investor's own account and not with a present view
towards the distribution thereof. In addition, the investor acknowledged and
agreed that the Note and the underlying securities had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On June 16, 2003, the Company entered into a $20,000 Convertible
Promissory Note bearing 10% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 297,722 shares of our common stock
along with five-year warrants to purchase an additional 148,861 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On July 20, 2003, we entered into and consummated an agreement and plan of
merger, pursuant to which we acquired ImmuneRegen BioSciences, Inc
("ImmuneRegen") in a reverse merger, which resulted in the issuance of 2,368,130
shares of our common stock. Pursuant to the terms of the merger, the
stockholders of ImmuneRegen were issued shares of our common stock exchange for
their shares in ImmuneRegen. The securities were issued to less than 35
purchasers and in reliance upon exemption from registration pursuant to Section
4(2) of the Securities Act and Rule 506 promulgated thereunder. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the securities. The stockholders were also provided with access to our SEC
filings, including the Company's annual reports on Form 10-KSB and its quarterly
reports on Form 10-QSB.
In May and June 2003, ImmuneRegen BioSciences, Inc. had sold and issued
eight secured convertible promissory notes in the aggregate principal amount of
$495,000 that were due 120 days from the date of issuance. When the notes were
due, three were paid and five were exchanged for 8% amended secured convertible
notes ("Amended Notes") in the aggregate principal amount of $245,000 in October
2003. The five accredited investors who received the Amended Notes were also
issued five-year warrants to purchase a total of 245,000 shares of our common
stock at an exercise price of $1.00 per share. The securities were offered and
sold in reliance upon exemption from registration pursuant to Section 4(2) of
the Securities Act and Rule 506 promulgated thereunder. No general solicitation
or advertising was undertaken in connection with the offer and sale of the
securities. Each investor represented to the Company that the investor was
purchasing the securities for the investor's own account and not with a present
view towards the distribution thereof. In addition, each investor acknowledged
and agreed that the securities and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements.
On September 9, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 272,711 shares of our common stock
along with five-year warrants to purchase an additional 136,356 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 9, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 371,847 shares of our common stock
along with five-year warrants to purchase an additional 185,924 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 23, 2003, the Company entered into a $125,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 1,359,511 shares of our common
stock along with five-year warrants to purchase an additional 679,756 shares of
common stock at $.50 per share releasing the Company from any further obligation
under the Note. No general solicitation or advertising was undertaken in
connection with the offer and sale of the Note. The investor represented to the
Company that the investor was purchasing the Note for the investor's own account
and not with a present view towards the distribution thereof. In addition, the
investor acknowledged and agreed that the Note and the underlying securities had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 25, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 271,787 shares of our common stock
along with five-year warrants to purchase an additional 135,894 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On September 29, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 271,556 shares of our common stock
along with five-year warrants to purchase an additional 135,778 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In October through December 2003, we sold and issued ten 8% secured
convertible promissory notes ("Fourth Quarter Notes") in the aggregate principal
amount of $391,000 that were due 180 days from the date of issuance. The ten
accredited investors who received the Fourth Quarter Notes were also issued
five-year warrants to purchase a total of 391,000 shares of our common stock at
an exercise price of $1.00 per share. The securities were offered and sold in
reliance upon exemption from registration pursuant to Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder. No general solicitation or
advertising was undertaken in connection with the offer and sale of the Fourth
Quarter Notes. Each investor represented to the Company that the investor was
purchasing the Fourth Quarter Notes for the investor's own account and not with
a present view towards the distribution thereof. In addition, each investor
acknowledged and agreed that the Fourth Quarter Notes and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
In October 2003 through December 2003, we issued, in exchange for
accounting, marketing, business consulting, investor relations and public
relations services valued at approximately $85,861, five-year warrants to eight
investors for the purchase of an aggregate of 169,572 shares of our common stock
at exercise prices ranging from $0.25 to $2.00 per share. The securities were
offered and sold in reliance upon exemption from registration pursuant to
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder. The
investors were financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the securities.
Each investor also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the securities, including the
Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the securities. Each
investor represented to the Company that the investor was purchasing the
securities for the investor's own account and not with a present view towards
the distribution thereof. In addition, each investor acknowledged and agreed
that the securities had not been registered under the Securities Act and may not
be offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
On November 10, 2003, the Company entered into a $50,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 538,374 shares of our common stock
along with five-year warrants to purchase an additional 269,187 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently
registered and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On November 18, 2003, the Company entered into a $16,000 Convertible
Promissory Note bearing 8% interest for a term of 220 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, $5,000 of the
outstanding principal was paid back in cash and the remaining $11,000 of the
principal plus accrued interest converted into 129,886 shares of our common
stock along with five-year warrants to purchase an additional 64,943 shares of
common stock at $.50 per share releasing the Company from any further obligation
under the Note. No general solicitation or advertising was undertaken in
connection with the offer and sale of the Note. The investor represented to the
Company that the investor was purchasing the Note for the investor's own account
and not with a present view towards the distribution thereof. In addition, the
investor acknowledged and agreed that the Note and the underlying securities had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On December 12, 2003, the Company entered into a $20,000 Convertible
Promissory Note bearing 8% interest per month with an accredited investor, the
mother-in-law Of our Chief Executive Officer. The principal on the note was
subsequently repaid. On October 15, 2004 in accordance with the terms of the
Promissory Note, accrued interest of $1,354.52 was converted into 13,454 shares
of our common stock releasing the Company from any further obligation under the
Note. These shares have been accrued pending issuance. No general solicitation
or advertising was undertaken in connection with the offer and sale of the
securities. The investor represented to the Company that the investor was
purchasing the securities for the investor's own account and not with a present
view towards the distribution thereof. In addition, the investor acknowledged
and agreed that the securities had not been registered under the Securities Act
and may not be offered or sold unless subsequently registered and/or offered,
sold or transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In January 2004, we entered into a 12% senior secured promissory note
("Senior Note") that had a term of 90 days. As an additional incentive to enter
into the Senior Note, we issued 600,000 shares of our common stock to the note
holder, and such shares were valued at $600,000. In April 2004, the Senior Note
was paid and we entered into a new 12% senior secured promissory note ("New
Senior Note") that had a term of 90 days. As an additional incentive to enter
into the New Senior Note, we issued another 600,000 shares of our common stock
to the note holder, and such shares were also valued at $600,000. The note
holders were financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the securities.
Each note holder also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the securities, including the
Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the shares. The note holder
represented to the Company that the note holder was purchasing the securities
for the note holder's own account and not with a present view towards the
distribution thereof. In addition, the note holder acknowledged and agreed that
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the shares were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In February 2004, we issued 40,000 shares of our common stock at $0.62 per
share to a consultant that is an accredited investor in exchange for public
relations services to be provided through August 2004. The services were valued
at approximately $24,800. No general solicitation or advertising was undertaken
in connection with the offer and sale of the shares. The consultant represented
to the Company that the consultant was purchasing the securities for the
consultant's own account and not with a present view towards the distribution
thereof. In addition, the consultant acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the shares were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In March 2004, we sold and issued 8,000 shares of our common stock at
$0.15 per share for an aggregate purchase price of $1,200 to an investor. The
investor was financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the securities.
The investor also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the securities, including the
Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the shares. Each investor
represented to the Company that the investor was purchasing the securities for
the investor's own account and not with a present view towards the distribution
thereof. In addition, the investor acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In May 2004 we also issued 350,000 shares of our common stock to a note
holder upon conversion of a note payable in the principal amount of $35,000 plus
accrued interest. No general solicitation or advertising was undertaken in
connection with the offer and sale of the shares. The note holder represented to
the Company that the he was acquiring the shares for the his own account and not
with a present view towards the distribution thereof. In addition, the note
holder acknowledged and agreed that the shares had not been registered under the
Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the shares were
offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
In April 2004 extended a 90 day offer to purchase certain rights to our
patents for Homspera for $30,000 to an accredited investor. On August 17, 2004,
at the conclusion of the 90-day period, if not exercised, the option would
convert into common shares of stock and warrants. In accordance with the terms
of the option, upon expiration the $30,000 was converted into 240,000 shares of
our common stock along with five-year warrants to purchase an additional 120,000
shares of common stock at $.50 per share. No general solicitation or advertising
was undertaken in connection with the offer and sale of the securities. The
investor represented to the Company that the he was acquiring the shares for the
his own account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On May 6, 2004, the Company entered into a $2,500 Convertible Promissory
Note bearing 12% interest for a term of 160 days to an individual accredited
investor. The term was extended to October 16, 2004, the closing date of the
Private Placement. Immediately upon the closing of the Private Placement, and in
accordance with the terms of the Promissory Note, all outstanding principal and
accrued interest converted into 26,608 shares of our common stock along with
five-year warrants to purchase an additional 13,304 shares of common stock at
$.50 per share releasing the Company from any further obligation under the Note.
No general solicitation or advertising was undertaken in connection with the
offer and sale of the Note. The investor represented to the Company that the
investor was purchasing the Note for the investor's own account and not with a
present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On May 14, 2004, the Company entered into a $75,000 Convertible Promissory
Note bearing 12% interest for a term of 160 days to an individual accredited
investor. The term was extended to October 16, 2004, the closing date of the
Private Placement. Immediately upon the closing of the Private Placement, and in
accordance with the terms of the Promissory Note, all outstanding principal and
accrued interest converted into 788,750 shares of our common stock along with
five-year warrants to purchase an additional 394,375 shares of common stock at
$.50 per share releasing the Company from any further obligation under the Note.
No general solicitation or advertising was undertaken in connection with the
offer and sale of the Note. The investor represented to the Company that the
investor was purchasing the Note for the investor's own account and not with a
present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In May 2004, we issued five-year warrants to purchase 500,000 shares of
our common stock at an exercise price of $0.25 per share to each of one of our
founders and our Chief Executive Officer, Michael Wilhelm. The securities were
issued in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder.
In May 2004 we also issued 125,000 shares of our common stock at $0.20 per
share to a consultant as a due diligence fee. The consultant was financially
able to bear the economic risk of the investment and capable of evaluating the
merits and risks of the acquisition of the shares. The consultant also had
received and reviewed all information necessary or appropriate for deciding
whether to purchase the shares, including the Company's periodic SEC reports. No
general solicitation or advertising was undertaken in connection with the offer
and sale of the shares. The consultant represented to the Company that the
consultant was purchasing the securities for the consultant's own account and
not with a present view towards the distribution thereof. In addition, the
consultant acknowledged and agreed that the shares had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the shares were
offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
In May 2004 we also issued 500,000 shares of our common stock to a
consultant in exchange for business consulting services to be provided through
December 2004, and the stock price of $1.00 per share was determined as of the
date that we entered into the related consulting agreement in December 2003. The
consultant was financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the shares. The
consultant also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the shares, including the Company's
periodic SEC reports. No general solicitation or advertising was undertaken in
connection with the offer and sale of the shares. The consultant represented to
the Company that the consultant was purchasing the securities for the
consultant's own account and not with a present view towards the distribution
thereof. In addition, the consultant acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On June 18, 2004, the Company entered into a $10,000 Convertible
Promissory Note bearing 8% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 136,919 shares of our common stock
along with five-year warrants to purchase an additional 68,460 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered,
sold or transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In July 2004, we issued 250,000 shares of common stock at $0.10 per share
to an accredited entity in exchange for Investor and Public Relations services
to be provided though July, 2005. The services were valued at approximately
$25,000. No general solicitation or advertising was undertaken in connection
with the offer and sale of the shares. The consultant represented to the Company
that the consultant was purchasing the securities for the consultant'[s own
account and not with a present view towards the distribution thereof. In
addition, the consultant acknowledged and agreed that the shares had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from registration requirements. Therefore, the Company believes that
the shares were offered and sold in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities act of 1933, as amended, and Rule
506 promulgated thereunder.
In August 2004, we issued 100,000 shares of common stock at $0.14 per
share to an accredited consultant in exchange for Strategic Planning services to
be provided though October 2004. The services were valued at approximately
$14,000. No general solicitation or advertising was undertaken in connection
with the offer and sale of the shares. The consultant represented to the Company
that the consultant was purchasing the securities for the consultant'[s own
account and not with a present view towards the distribution thereof. In
addition, the consultant acknowledged and agreed that the shares had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from registration requirements. Therefore, the Company believes that
the shares were offered and sold in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities act of 1933, as amended, and Rule
506 promulgated thereunder.
In July and September of 2004, we issued a total of 200,000 shares of
common stock at $0.41 per share to an accredited consultant in exchange for
financial consulting services to be provided though April 2005. The services
were valued at approximately $82,000. No general solicitation or advertising was
undertaken in connection with the offer and sale of the shares. The consultant
represented to the Company that the consultant was purchasing the securities for
the consultant's own account and not with a present view towards the
distribution thereof. In addition, the consultant acknowledged and agreed that
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from registration requirements. Therefore,
the Company believes that the shares were offered and sold in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities act
of 1933, as amended, and Rule 506 promulgated thereunder.
On August 16, 2004, the Company entered into a $15,000 Convertible
Promissory Note bearing $500 interest per month for a term of 30 days to an
individual accredited investor. The term was extended to October 16, 2004, the
closing date of the Private Placement. Immediately upon the closing of the
Private Placement, and in accordance with the terms of the Promissory Note, all
outstanding principal and accrued interest converted into 131,467 shares of our
common stock along with five-year warrants to purchase an additional 65,734
shares of common stock at $.50 per share releasing the Company from any further
obligation under the Note. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note. The investor represented to
the Company that the investor was purchasing the Note for the investor's own
account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the Note and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On August 23, 2004, the Company entered into a $5,000 Convertible
Promissory Note bearing 8% interest per month to an individual accredited
investor. On October 26, 2004 in accordance with the terms of the Promissory
Note, principal of $5,000 and accrued interest of $71 was converted into 67,613
shares of our common stock releasing the Company from any further obligation
under the Note. These shares have been accrued pending
issuance. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In September 2004, we issued 127,276 shares of common stock at $0.12 -
$0.22 per share to an accredited consultant in exchange for financial consulting
services provided though September 2004. The services were valued at
approximately $16,909. No general solicitation or advertising was undertaken in
connection with the offer and sale of the shares. The consultant represented to
the Company that the consultant was purchasing the securities for the
consultant'[s own account and not with a present view towards the distribution
thereof. In addition, the consultant acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities act of 1933, as
amended, and Rule 506 promulgated thereunder
On September 26, 2004, the Company entered into a $30,000 Convertible
Promissory Note bearing 8% interest per month with the farther of one of our
Directors. The principal on the note was subsequently repaid. On January 28,
2005 in accordance with the terms of the Promissory Note, accrued interest of
$2,021.10 was converted into 27,616 shares of our common stock releasing the
Company from any further obligation under the Note. These shares have been
accrued pending issuance. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note. The investor represented to
the Company that the investor was purchasing the Note for the investor's own
account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the Note and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In October 2004, we completed a private placement, whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors (the "Private
Placement"). Each unit was sold for $10,000 (the "Unit Price") and consisted of
(a) a number of shares of our common stock determined by dividing the Unit Price
by $0.125, and (b) a warrant to purchase, at any time prior to the fifth
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to fifty percent (50%) of the number of shares included
within the unit, at a price equal to $0.50 per share of common stock. Thus, each
unit consisted of 80,000 shares of our common stock and a five-year warrant to
purchase an additional 40,000 shares of our common stock at an exercise price of
$0.50 per share. We issued an aggregate 27,560,897 shares of our common stock
and warrants to purchase 13,780,449 shares of our common stock in the Private
Placement. In consideration of the investment, we granted to each investor
certain registration rights and anti-dilution rights. The registration rights
provide, if the Registration Statement is not effective as of 90-days following
the second closing date (October 26, 2004), we must issue to the holders of
units sold in the Private Offering an additional 2% of their securities each
month. To date we are obligated to issue an aggregate of 3,228,400 shares and
1,271,200 warrants pursuant to this penalty provision.
Further to the Private Placement, we entered into a settlement agreement
with 8 creditors whereby for full and complete satisfaction of claims totaling
an aggregate of $158,017.25 (the "Claim Amount"), we issued to the creditors the
following: (a) a number of shares of our common stock determined by dividing the
Claim Amount by $0.125, and (b) warrants to purchase, at any time prior to the
fifth anniversary following the date of issuance of the warrant, a number of
shares of our common stock equal to fifty percent (50%) of the number of shares
described above, at a price equal to $0.50 per share of common stock. The
warrants are identical to the warrants issued in the Private Placement.
Pursuant to the terms of a placement agency agreement, dated September 3,
2004, by and between us and Joseph Stevens & Co., Inc., we issued 4,900,000
shares of our common stock to Joseph Stevens & Co., Inc. or its designees, upon
the closing of the Private Placement. The shares were issued as consideration
for the services of Joseph Stevens & Co., Inc. as our placement agent in the
Private Placement. There were 98 accredited investors who purchased units in the
Private Placement. The securities were offered and sold in reliance upon
exemption from registration pursuant to Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
In September 2004 we entered into a settlement agreement with one of our
Directors, Theodore Staahl, whereby for full and complete satisfaction of claims
totaling $10,263.01, we issued to our Director 93,300 shares of our common
stock, determined by dividing the amount owed by $0.11. Under the terms of the
settlement agreement, our Director released us from all claims, known or
unknown, relating to the amount owed. The securities were issued in reliance
upon exemptions from registration pursuant to Section 4(2) under the Securities
Act of 1933, as amended, and Rule 506 promulgated thereunder. The Director
qualified as an accredited investor (as defined by Rule 501 under the Securities
Act of 1933, as amended).
On November 18, 2004 we issued warrants to a member of our Bioterrorism
Preparedness Advisory Board to purchase, at any time prior to the third
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to 50,000, at a price equal to $0.125 per share of common
stock for advice on logistics, introductions to various organizations and
attendance of meetings. The securities were issued in reliance upon exemptions
from registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder. The investor qualified as an
accredited investor (as defined by Rule 501 under the Securities Act of 1933, as
amended).
On December 16, 2004 we issued warrants to a member of our Oncology and
Dermatology Advisory Board to purchase, at any time prior to the third
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to 10,000, at a price equal to $0.50 per share of common
stock for advice on potential oncology applications for Homspera. The securities
were issued in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. The investor qualified as an accredited investor (as defined by Rule
501 under the Securities Act of 1933, as amended).
In January 2005, we made a tender offer to temporarily reduce the exercise
price of certain warrants issued in October 2004 from $0.50 to $0.20 per share.
The tender offer expired on March 4, 2005. We accepted for exercise a total of
6,600,778 warrants validly tendered and not withdrawn pursuant to the terms of
the tender offer, which represents approximately 48% of the aggregate 13,780,449
warrants that were subject to the offer. The tender offer was made in reliance
upon exemption from registration pursuant to Sections 3(a)(9), which provide an
exemption for any security exchanged by the issuer with its existing security
holders where no commission or other remuneration is paid or given directly or
indirectly for soliciting such exchange. We did not pay or give any commission
or other remuneration to any person for soliciting the tender offer. The tender
offer also falls within Section 4(2) of the Securities Act since all the
investors were current holders of the warrants and received their securities
from the October 2004 private placement or from issuances in October 2004
pursuant to the terms of settlement agreements or convertible promissory notes.
These transactions were conducted under Section 4(2) and the rules and
regulations promulgated thereunder, including Regulation D.
In May 2005, we issued to our Chief Executive Officer, Michael Wilhelm,
per his employment agreement, 150,000 stock options at a weighted average
exercise price of $0.40 per share under our 2003 Stock Option, Deferred Stock
and Restricted Stock Plan. In May 2005, per his employment agreement we issued
100,000 shares of our common stock to our Chief Financial Officer, John
Fermanis. The securities were issued in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
The Company has accrued the issuance of 384,100 shares of common stock as
of May 31, 2005. Pursuant to the terms of their respective agreement with us,
41,665 of these shares are to be issued to our Chief Financial Officer and
114,464 are to be issued to consultants per agreements for the first quarter
2005. Also included is 127,971 shares relating to the conversion of convertible
notes. 100,000 of these shares are issued to two advisory board members. The
shares will bear a restrictive legend regarding the sale or transfer of such.
The shares were
issued in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. Our Chief Financial Officer and the consultants each qualifies as an
accredited investor (as defined by Rule 501 under the Securities Act of 1933, as
amended). No general solicitation or advertising was undertaken in connection
with the offer and sale of these shares.
The Company accrued the issuance of 359,921 common stock purchase warrants
during the three months ended March 31, 2005. The exercise prices of these
warrants range from $0.125 to $0.50 per share. The warrants expire three years
after date of issuance. Pursuant to the term of his employment agreement, our
Chief Executive Officer, is to receive 79,388 warrants. Pursuant to the term of
his employment agreement, our Chief Financial Officer, is to receive 12,500
warrants. Pursuant to the terms of their respective agreement with us, 268,033
of these warrants are to be granted to current members of the Bioterrorism
Advisory Board, Drug Development Advisory Board and the Oncology and Dermatology
Advisory Board for participation during the first quarter ended March 31, 2005.
The warrants will bear a restrictive legend regarding the sale or transfer of
such or the underlying securities. The warrants were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder. There were less than
35 investors and each investor had such knowledge and experience in financial
and business matters that the investor was capable of evaluating the merits and
risks of investing in the warrants. No general solicitation or advertising was
undertaken in connection with the offer and sale of these shares. Each investor
was also provided with access to our Exchange Act reports including our annual
report on Form 10-KSB and our quarterly reports on Form 10-QSB.
ITEM 27 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
2.1 Agreement and Plan of Merger dated July 2, 2003 among the
Registrant, GPN Acquisition Corporation and ImmuneRegen
BioSciences, Inc. (incorporated by reference to exhibit 2 of
the Registrant's current report on Form 8-k filed with the
Securities and Exchange Commission on July 7, 2003).
3.1 Certificate of Incorporation filed with the Delaware Secretary
of State on June 4, 1985 (incorporated by reference to exhibit
3.1 of the Registrant's annual report on Form 10-KSB for the
year ended December 31, 2001 filed with the Securities and
Exchange Commission on April 16, 2002).
3.1(a) Certificate of Amendment filed with the Delaware Secretary of
State on July 16, 1987 (incorporated by reference to exhibit
3.1(a) of the Registrant's annual report on Form 10-KSB for
the year ended December 31, 2001 filed with the Securities and
Exchange Commission on April 16, 2002).
3.1(b) Certificate of Amendment filed with the Delaware Secretary of
State on February 3, 1992 (incorporated by reference to
exhibit 3.1(b) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(c) Certificate of Amendment filed with the Delaware Secretary of
State on November 23, 1992 (incorporated by reference to
exhibit 3.1(c) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(d) Certificate of Amendment filed with the Delaware Secretary of
State on December 15, 1994 (incorporated by reference to
exhibit 3.1(d) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(e) Certificate of Amendment filed with the Delaware Secretary of
State on November 7, 1995 (incorporated by reference to
exhibit 3.1(e) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(f) Certificate of Amendment filed with the Delaware Secretary of
State on December 30, 1996 (incorporated by reference to
exhibit 3.1(f) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
3.1(g) Certificate of Amendment filed with the Delaware Secretary of
State on November 8, 2000 (incorporated by reference to
exhibit 3.1(h) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.2 Amended and Restated Bylaws of the Registrant dated as of
January 1, 2002 (incorporated by reference to exhibit 3(b) of
the Registrant's annual report on Form 10-KSB for the year
ended December 31, 2001 filed with the Securities and Exchange
Commission on April 16, 2002).
4.1* Specimen Common Stock Certificate.
4.2 2003 Stock Option, Deferred Stock and Restricted Stock Plan
(incorporated by reference to exhibit 4.1 of the Registrant's
registration statement on Form S-8 (file no. 333-113511) filed
with the Securities and Exchange Commission on March 11,
2004).
4.3 Form of Warrant by and between the Registrant and each of the
Investors or Creditors, as the case may be, who entered into
an Agreement filed as Exhibit 10.6, 10.7, 10.8 or 10.9
herewith (incorporated by reference to exhibit 4.1 of the
Registrant's current report on Form 8-K filed with the
Securities and Exchange Commission on October 19, 2004).
4.4 Form of Registration Rights (Annex A to Subscription
Agreement) by and between the Registrant and each of the
Investors who entered into the Agreements filed as Exhibits
10.6 and 10.8 herewith (incorporated by reference to exhibit
4.2 of the Registrant's current report on Form 8-K filed with
the Securities and Exchange Commission on October 19, 2004).
4.5+ Form of Anti-Dilution Rights (Annex B to Subscription
Agreement) by and between the Registrant and each of the
Investors who entered into the Agreements filed as Exhibits
10.6 and 10.8 herewith (incorporated by reference to exhibit
4.3 of the Registrant's current report on Form 8-K filed with
the Securities and Exchange Commission on October 19, 2004).
4.6+ Promissory Note issued from the Registrant to SBM Certificate
Company as of April 28, 2004.
5.1* Opinion of Kirkpatrick & Lockhart Nicholson Graham LLP
10.1+ Employment Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and Michael Wilhelm.
10.2+ Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and David Harris.
10.2(a)+ First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and David Harris.
10.3+ Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and Mark Witten.
10.3(a)+ First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and Mark Witten.
10.4+ License Agreement dated December 16, 2002 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, and Mark
Witten.
10.4(a)+ First Amendment to License Agreement dated December 20, 2002
among ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, David Harris and Mark Witten.
10.4(b)+ Second Amendment to License Agreement dated June 26, 2003
among ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, David Harris and Mark Witten.
10.4(c) Assignment Agreement dated February 23, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
10.4(d) Assignment Agreement dated February 23, 2005 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, David
Harris and Mark Witten.
10.5+ Lease Agreement dated July 1, 2004 between ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, and The
Clayton Companies.
10.6 Form of Subscription Agreement entered into as of October 13,
2004 between the Registrant and each of the Investors set
forth on the Schedule of Investors thereto (incorporated by
reference to exhibit 10.1 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 19, 2004).
10.7 Form of Settlement Agreement entered into as of October 13,
2004 between the Registrant and each of the Creditors set
forth on the Schedule of Creditors thereto (incorporated by
reference to exhibit 10.2 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 19, 2004).
10.8 Form of Subscription Agreement entered into as of October 26,
2004 between the Registrant and each of the Investors set
forth on the Schedule of Investors thereto (incorporated by
reference to exhibit 10.1 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 27, 2004).
10.9 Form of Settlement Agreement entered into as of October 26,
2004 between the Registrant and each of the Creditors set
forth on the Schedule of Creditors thereto (incorporated by
reference to exhibit 10.2 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 27, 2004).
10.10 Employment Agreement dated February 15, 2005 between the
Registrant and John N. Fermanis (incorporated by reference to
exhibit 10.10 of the Registrant's Amendment No. 1 on Form
10-K/A to its annual report for the year ended December 31,
2004).
21.1+ Subsidiaries of Registrant.
23.1 Consent of Russell Bedford Stefanou Mirchandani LLP.
23.2* Consent of Kirkpatrick & Lockhart Nicholson Graham LLP
(contained in Exhibit 5.1).
24.1+ Power of Attorney (included on signature page).
----------
+ Previously filed.
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All such schedules have been omitted because the information required to
be set forth therein is not applicable or is shown in the financial statements
or notes thereto.
ITEM 28 UNDERTAKINGS
The undersigned small business issuer hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from this form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act of 1933 as part of this registration statement
as of the time the Securities and Exchange Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in this registration
statement, and that offering of the securities at that time as the initial BONA
FIDE offering of those securities.
The undersigned small business issuer hereby undertakes with respect to
the securities being offered and sold in this offering:
(1) To file, during any period in which it offers or sells securities, a
post- effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
this registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(c) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat each
post- effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification by the undersigned small business issuer for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the undersigned small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, State of
Arizona, on the 19th day of July, 2005.
IR BioSciences Holdings, Inc.
By: /S/ MICHAEL K. WILHELM
-------------------------------------
Michael K. Wilhelm
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
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/s/ Michael K. Wilhelm Chief Executive Officer, President and July 19, 2005
------------------------ Director (Principal Executive Officer)
Michael K. Wilhelm
/s/ John N. Fermanis Chief Financial Officer (Principal Financial July 19, 2005
------------------------ and Accounting Officer)
John N. Fermanis
*
------------------------ Director and Research Scientist July 19, 2005
Mark L. Witten, Ph.D.
*
------------------------ Director July 19, 2005
Theodore E. Staahl, M.D.
*By: /s/ Michael K. Wilhelm
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Michael K. Wilhelm
Attorney in Fact