UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(X) Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2005.
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 33-05384
IR BIOSCIENCES HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 13-3301899
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4021 N. 75th Street, Suite 201, Scottsdale, AZ 85251
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(Address of Principal Executive Offices) (Zip Code)
(480) 922-3926
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(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $ 0.001 PAR VALUE PER SHARE
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(Title of class)
Check whether the issuer is not required to file reports pursuant to Section 13
or Section 15(d) of the Exchange Act. [ ].
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB/A or any amendment to this Form 10-KSB/A. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State issuer's revenues for its most recent fiscal year: $ 0
The aggregate market value of the Registrant's issued and outstanding shares of
common stock held by non-affiliates of the Registrant as of March 24, 2006
(based on the average of the bid and asked prices as reported by the NASD OTC
Bulletin Board as of that date) was approximately $21,208,577.
The number of shares outstanding of Registrant's Common Stock, par value $0.001
as of March 24, 2006: 69,536,319.
Documents Incorporated by reference: The information required by Part III of
Form 10-KSB incorporated by reference from the Registrant's definitive proxy
statement on Schedule 14A that will be filed no later than the end of the
120-day period following the Registrant's fiscal yearend, or, if the
Registrant's definitive proxy statement is not filed within that time, the
information will be filed as part of an amendment to this Annual Report on Form
10-KSB/A, not later than the end of the 120-day period.
Transitional Small Business Disclosure Format Yes No X
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EXPLANATORY PARAGRAPH
We are filing this amendment to Form 10-KSB for the fiscal year ended December
31, 2005, filed with the Securities and Exchange Commission on March 28, 2006,
to correct the following typographical errors:
(1) The filing date of Russell Bedford Stefanou Mirchandani LLP's Report of
Independent Registered Public Accounting Firm
(2) The inclusion of two (2) reconciling items in the 2005 Consolidated
Statements of Cash Flows that were dropped in the conversion of the file to
EDGAR format
(3) The inclusion of two (2) items in Footnote D, Accounts Payable and Accrued
Liabilities , to the financial statements that were dropped in the conversion of
the file to EDGAR format
For ease of reference, this Form 10-KSB/A is being re-filed in its entirety with
this Form 10-KSB/A.
TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business............................................ 4
Item 2. Description of Property............................................37
Item 3. Legal Proceedings..................................................37
Item 4. Submission of Matters to a Vote of Security Holders................37
PART II
Item 5. Market for Registrant's Common Stock, Related Stockholder
Matters............................................................38
Item 6. Management's Discussion and Analysis or Plan of Operation..........39
Item 7. Financial Statements......................................F-1 to F-25
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure................ 48
Item 8A. Controls and Procedures............................................48
Item 8B. Other Information.................................................48
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...........................49
Item 10. Executive Compensation.............................................50
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.........................53
Item 12. Certain Relationships and Related Transactions.....................55
Item 13. Exhibits...........................................................58
Item 14. Principal Accountant Fees and Services.............................63
FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-KSB/A CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. IN PARTICULAR, STATEMENTS ABOUT OUR
EXPECTATIONS, BELIEFS, PLANS, OBJECTIVES, ASSUMPTIONS OR FUTURE EVENTS OR
PERFORMANCE ARE CONTAINED OR INCORPORATED BY REFERENCE IN THIS REPORT. WE HAVE
BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS ABOUT FUTURE
EVENTS. WHILE WE BELIEVE THESE EXPECTATIONS ARE REASONABLE, SUCH FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, MANY OF WHICH ARE
BEYOND OUR CONTROL. THE ACTUAL FUTURE RESULTS FOR IR BIOSCIENCES HOLDINGS, INC.
MAY DIFFER MATERIALLY FROM THOSE DISCUSSED HERE FOR VARIOUS REASONS, INCLUDING
THOSE DISCUSSED IN THIS REPORT UNDER THE HEADING "RISK FACTORS," PART II, ITEM 6
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" AND
ELSEWHERE THROUGHOUT THIS ANNUAL REPORT. GIVEN THESE RISKS AND UNCERTAINTIES,
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE MADE ONLY
AS OF THE DATE HEREOF. WE DO NOT UNDERTAKE AND SPECIFICALLY DECLINE ANY
OBLIGATION TO UPDATE ANY SUCH STATEMENTS OR TO PUBLICLY ANNOUNCE THE RESULTS OF
ANY REVISIONS TO ANY OF SUCH STATEMENTS TO REFLECT FUTURE EVENTS OR
DEVELOPMENTS. WHEN USED IN THE REPORT, UNLESS OTHERWISE INDICATED, "WE," "OUR,"
"US," THE "COMPANY" OR "IMMUNEREGEN" REFERS TO IR BIOSCIENCES HOLDINGS, INC. AND
ITS SUBSIDIARY, IMMUNEREGEN BIOSCIENCES, INC.
3
PART I
ITEM 1. DESCRIPTION OF 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 potential therapeutics for a
number of applications. All therapeutics in development are based on Sar9, Met
(O2)11-Substance P, an analog of the naturally occurring human neuropeptide
Substance P. This neuropeptide can be found throughout the body, including in
the airways of humans and many other species. We use the generic name Homspera
to refer to the synthetic Sar9, Met (O2)11-Substance P peptide. All of our
research and development efforts are early, pre-clinical stage and Homspera has
only undergone exploratory studies to evaluate its biological activity in small
animals.
Currently, the majority of our development efforts are centered on two
potential therapeutic applications for the active ingredient in Homspera.
Radilex is being formulated specifically for the potential treatment of acute
exposure to radiation. Viprovex is being formulated specifically for potential
applications relating to the treatment of maladies caused by exposure to various
chemical and biological agents. We are currently sponsoring ongoing pre-clinical
studies in these areas, specifically two mouse radiation studies on the efficacy
of Radilex in treating acute radiation exposure and a rodent study on the
efficacy of Viprovex in treating exposure to anthrax. We are designing the
protocols for additional radiation studies in mice using Radilex. Additionally,
we are designing the protocols for an avian flu study in mice using Viprovex.
Both studies have institutions with facilities committed to perform them when,
and if, protocols and funding are finalized.
To date we have submitted preliminary study data to the U.S. Food and
Drug Administration (FDA) and have been issued two Pre-Investigational New Drug
(PIND) numbers, one for the potential use of Radilex in the treatment of acute
radiation syndrome and the other for the potential use of Viprovex in the
treatment of avian influenza. In addition, we have recently submitted a PIND
data package for the use of Viprovex in the potential treatment of chemical
exposure. We intend to file final radiation study data from mice with the FDA
within six months, and at this time we will request a meeting with the FDA
regarding the authorization of a large animal study protocol to test the
efficacy of Radilex as a potential treatment for acute radiation syndrome. Also
within the next six to twelve months, we plan to submit an Investigational New
Drug (IND) application for the potential use of Viprovex in treating Acute
Respiratory Distress Syndrome (ARDS).
We have filed patent applications and provisional patent applications,
where applicable, in many jurisdictions, inside and outside of the United
States, for the use of the active ingredient Sar9, Met (O2)11-Substance P in
applications that we are researching. We own two issued U.S. and two issued
foreign patents and two pending Patent Cooperation Treaty (PCT) applications,
seven pending U.S. provisional patent applications and 16 pending foreign
provisional patent applications.
Our current potential drug candidates, Radilex and Viprovex and other
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.
Neither Radilex nor Viprovex nor our technologies utilizing Homspera have yet
been tested in humans. There is no guarantee that regulatory authorities will
ever permit human testing of Radilex, Viprovex or any other potential products
derived from Homspera. Even if human testing is permitted, none of Radilex,
Viprovex or any other potential drug candidates, if any, derived from Homspera
may be successfully developed or shown to be safe or effective.
The results of our pre-clinical studies and clinical trials may not be
indicative of future clinical trial results. A commitment of substantial
resources to conduct time-consuming research, pre-clinical studies and clinical
trials will be required if we are to develop any commercial applications using
Homspera or any derivatives thereof. Delays in planned patient enrollment in our
future clinical trials may result in increased costs, program delays or both.
None of our potential applications or technologies may prove to be safe or
effective in clinical trials. Approval of the FDA, or other regulatory
approvals, including export license permissions, may not be obtained and even if
successfully developed and approved, our potential applications may not achieve
market acceptance. Any potential applications resulting from our programs may
not be successfully developed or commercially available for a number of years,
if at all.
To date, we have not obtained regulatory approval for or commercialized
any applications using Homspera or any of its derivatives. We have incurred
significant losses since our inception and we expect to incur annual losses for
at least the next three years as we continue with our drug research and
development efforts.
4
COMPANY HISTORY
We were originally incorporated in the State of 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. In
January 1992, we effected a 1-for-6.3 reverse stock split of our common stock.
We changed our name to InnoTek, Inc. in November 1992. 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., adopted our current business model
and thereafter changed our name to IR BioSciences Holdings, Inc. 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 EVENTS
On December 13, 2005 the Board granted 1,000 discretionary incentive
stock options to an employee. The options have an exercise price of $0.31 and a
term of five years.
On August 10, 2005, we entered into a new employment agreement with our
President and Chief Executive Officer, Michael K. Wilhelm. The employment
agreement calls for a salary at the rate of $275,000 per annum and provides for
bonus incentives. Our Board of Directors granted 103,030 discretionary incentive
stock options to our Chief Executive Officer, Michael K. Wilhelm, per this new
employment agreement. The options have an exercise price of $0.33 and a term of
five years.
In June 2005, we issued 80,000 shares of common stock pursuant to the
exercise of a warrant at a price of $0.05 per share.
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 $0.44 and a term
of five years.
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.
On December 9, 2004 we filed for trademarks with US Patent and
Trademark Office (USPTO) for Homspera, Radilex and Viprovex. Federal trademark
applications are pending. As of the date of this report, no similar registered
or pending marks have been found which would bar registration.
In October 2004, we completed a private placement, whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors. Each unit was
sold for $10,000 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. We issued in the private placement an aggregate of
19,600,000 shares of our common stock and warrants to purchase 9,800,000 shares
of our common stock. In consideration of the investment, we granted to each
investor certain registration rights and anti-dilution rights. We agreed to
register these shares along with the shares underlying these warrants within
ninety days from the closing date of the transaction, or we would incur a
penalty equivalent to an additional 2% of the shares and warrants to be
registered for every 30 days that we fail to complete this registration. This
penalty amounts to an aggregate of 461,200 shares and 181,600 warrants per 30
day period until such a time as a registration statement that includes these
shares and warrants is made effective. As of December 31, 2005, we are required
to issue an additional 5,242,307 shares of common stock and warrants to purchase
an additional 2,064,187 shares of common stock. At the time these liabilities
were incurred, the shares were valued at $1,991,923 and the warrants were valued
at $638,838. The shares were valued at the market price of the Company's common
stock at the time the liabilities were incurred. The warrants were valued
utilizing the Black-Scholes valuation model. The aggregate amount of $2,630,761
was charged to operations as cost of Penalty for late registration of shares
during the year ended December 31, 2005.
5
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 $157,218, we issued to the creditors the
following: (a) a number of shares of our common stock determined by dividing the
$157,218 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 1,257,746 shares of common stock and
warrants to purchase 628,873 shares of common stock. Under the terms of the
settlement agreement, the creditors released us from all claims, known or
unknown, relating to the $157,218 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 an amount between $0.075 and $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 October 2004 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.
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 noteholder. Consideration of $100.00 was
paid by us to the noteholder. Under the terms of the agreement, the noteholder
released us from all claims, known or unknown, relating to the amount owed.
Effective December 17, 2004, Eric Hopkins resigned from his position as
our Chief Financial Officer. Effective December 22, 2004, our Board of Directors
appointed John N. Fermanis to serve as our Chief Financial Officer. 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.
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. Effective December 22, 2004, our board of
directors appointed Michelle R. Laroche to serve as our Corporate Secretary.
APPLICATIONS IN DEVELOPMENT
SUBSTANCE P AND HOMSPERA (Sar9, Met (O2)11-Substance P)
-------------------------------------------------------
Substance P, discovered in 1931, is a naturally occurring small (1348 D
molecular weight) peptide of 11 amino acids that is found throughout the body.
Relevant to our current studies, Substance P is localized to the nerves in the
airways of many species, including humans. It is believed to be 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.
In an attempt to find a commercially viable Substance P analog with
similar or expanded capabilities, scientists, including our co-founders, Drs.
Mark Witten and David Harris, working in the area of Substance P and pulmonary
function developed a Substance P analog (Sar9, Met (O2)11-Substance P). In the
opinion of management, this compound has been shown to have Neurokinin-1 (NK1)
receptor specificity, which has become the basis for our research and
development efforts. Homspera is the name by which we refer to the chemical
Sar9, Met (O2)11-Substance P in the context of our research and development.
6
Radilex and Viprovex
--------------------
The majority of our development efforts are centered on two drug
candidates formulated from Homspera, Radilex and Viprovex. The active
ingredient, Homspera, is chemically equivalent in both Radilex and Viprovex. As
they are used in differing indications and the formulations and dosing regimens
may ultimately also differ, we have created trade names to more easily
differentiate the two potential applications with respect to their development
and potential future market opportunities. Radilex is the name of the
preparation being tested to potentially protect against radiation exposure.
Viprovex is the name of the anti-viral preparation for indications to
potentially protect against exposure to various chemical and biological agents.
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Trade names for different
Chemical Name and Amino Acid Sequence Generic Name formulations / indications
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Sar9, Met (O2)11-Substance P Arg-Pro-Lys-Pro-Gln-Gln-Phe- Homspera Radilex Viprovex
Phe-Sar-Leu-Met(O2)-NH2
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Applications
Our potential applications are based on various formulations of
Homspera. We currently have potential applications at various stages of
pre-clinical development. Our initial pre-clinical applications are in acute
radiation syndrome (Radilex) and infectious disease and chemical exposure
(Viprovex.)
The basis for our development of potential uses of Homspera is derived
from observations made during research funded by the Air Force Office of
Scientific Research in early 1994 by our co-founders Dr. Mark Witten and Dr.
David Harris. During this research it was observed that the exposure of animals
to jet fuel (JP-8) resulted in pathological changes in the lungs and immune
systems of those exposed. In the opinion of management, these studies further
showed that the administration of Sar9, Met(O2)11-Substance P prevented and
reversed the effects of JP-8 jet fuel exposure in the lungs, as well as
protected and regenerated the immune system. It is our opinion that, based on
the results of these studies, Homspera directly treats the effects of toxic
exposure on living cells by inhibiting cell apoptosis (cell-initiated death
process). We continue to explore the multiple potential capabilities of Sar9,
Met (O2)11-Substance P and to better understand the mechanisms by which this
compound can potentially provide protection against gamma radiation, respiratory
viruses and various chemical and biological agents.
As traditional efficacy studies would require healthy human volunteers
to be exposed to the potentially lethal agents or pathogens, which cannot be
done, we intend to apply for approval based upon a new rule adopted by the FDA
in 2002, titled "Approval of New Drugs When Human Efficacy Studies Are Not
Ethical or Feasible" (Code of Federal Regulations, Title 21, Part 314, Subpart
I), which is also referred to as the "animal efficacy rule." Pursuant to this
new rule, in situations where it would be unethical to conduct traditional Phase
II and Phase III efficacy studies in humans, as is the case with our
applications relating to the treatment of maladies caused by exposure to high
level gamma radiation and various chemical and biological agents, the FDA will
review new drugs for approval on the basis of safety in humans and efficacy in
relevant animal models. Through development under this paradigm, management
believes near-term development opportunities may exist and development costs are
lessened compared to the more traditional drug development model, as Phase II
and Phase III of the FDA required drug approval process are not required. Under
either scenario, we will not have marketable applications unless and until our
drug candidates complete all required safety studies and clinical trials and
receive FDA approval in the United States or approval by regulatory agencies
outside of the United States.
7
The table below illustrates our current product candidates and their
stage of development within the FDA approval process.
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Product Candidate Pharmacological Animal Pre-Clinical
Identification Safety Mechanistic Phase I Phase II* Phase III*
----------------------------------------------------------------------------------------------------------
Acute Radiation
Syndrome
Radilex In-progress Planned In-progress
Infectious disease
Viprovex In-progress Planned In-progress
Chemical exposure
Viprovex In-progress
----------
* In development under the animal efficacy rule Phase II and Phase III are
potentially not required.
To date we have been issued two Pre-Investigational New Drug (PIND)
numbers by the U.S. Food & Drug Administration (FDA) - one for the use of
Radilex in the treatment of acute radiation syndrome and one for the use of
Viprovex in the treatment of avian influenza. In addition, we have recently
submitted a PIND for the use of Viprovex in the treatment of chemical exposure.
We expect to file a final radiation study using data collected from our mice
studies with the FDA within six months. At this time we will request a meeting
regarding the establishment of the protocols necessary for a large animal study
to test the efficacy of Radilex as a potential treatment for acute radiation
syndrome. Also within the next twelve months, we expect to submit an
Investigational New Drug (IND) application for the use of Viprovex in
potentially treating Acute Respiratory Distress Syndrome (ARDS).
RADILEX
To date we have sponsored five studies and co-sponsored three radiation
studies all of which were conducted utilizing rodents to determine dose response
to radiation, the maximum efficacious dose of Radilex, the impact on survival
and to distinguish survival response between aerosol delivery versus intra
muscular delivery. In each of these studies mice were exposed to varying levels
of radiation. In the opinion of management, these studies have demonstrated in
C57BL/6 mouse model studies that Radilex-treated mice exhibited survival rates
of up to 50% at 90 days post-radiation exposure to an otherwise lethal dose of
whole body ionizing radiation. Additionally, it was observed that these mice had
normal immune system function at the 90-day post-radiation time point compared
to longitudinal control mice. Thus far, in our opinion, the results from our
sponsored and co-sponsored rodent studies using Radilex demonstrate efficacy in
treating acute radiation syndrome when administered via an inhaler device
without requiring any prophylactic treatment. If these results can be reproduced
in further studies, including large animal studies, we believe that our
treatment could potentially increase an individual's chance of survival in the
event of exposure to radiation.
Currently, we are sponsoring additional pre-clinical studies on mice to
confirm the potential efficacy of Radilex in treating acute radiation syndrome.
In parallel with these studies we are also determining the protocols that we
believe will allow us to initiate large animal clinical trials that will be
necessary for establishing efficacy per the animal efficacy rule. Assuming
adequate funding is available to us, we expect these large animal 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 also be
needed to support a New Drug Application (NDA).
Prior to our formation, initial studies were conducted using Homspera
(now Radilex) under the direction of our co-founders, Dr. Mark Witten and Dr.
David Harris. These studies are summarized below.
o Mouse radiation study number one was an initial pilot study
using C57BL/6 male mice sponsored by the Air Force Office of
Scientific Research (AFOSR). This study was initiated at the
University of Arizona College of Medicine, Tucson, Arizona on
September 24, 2002. This study attempted to identify an LD50
value, that is, the dose of radiation after which 50% of the
mice will die, for subsequent standardization of exposure. The
study found that, in the opinion of the lead scientists, the
dose rate being delivered in the model system was so great
that an LD50 value could not be determined, therefore lower
doses were to be explored in subsequent studies.
8
o Mouse radiation study number two was a pilot study sponsored
by the AFOSR. This study was initiated at the University of
Arizona College of Medicine, Tucson, Arizona on January 24,
2003. This study lowered the radiation dosage (from 10 Gy to 9
Gy) and administered now Radilex via aerosol administration to
determine if the drug had efficacy by increasing survival time
from the potentially lethal dose of radiation. The lead
scientists believe that this study demonstrated that Radilex
treatment after 9 Gy radiation may have efficacy against acute
radiation syndrome and that the radiation exposed, Radilex
treated mice lived an average of two days longer than
untreated, radiation exposed mice.
Our sponsored and co-sponsored studies completed to date, as well as
current and planned studies with regard to the development of Radilex are
summarized below.
o Pilot mouse radiation study number 3, co-sponsored by us, was
performed at the University of Arizona College of Medicine,
Tucson, Arizona, starting on April 10, 2003. The study was
intended to determine if Radilex treatment would prolong life
in C57BL/6 male mice exposed to a single total body
irradiation 7.75 Gy dose of Gamma radiation. In the opinion of
management, this study demonstrated that a treatment of a 50
micromolar dose of Radilex kept 25% of the mice alive until 37
days after radiation until the experiment was terminated. The
U.S. Food & Drug Administration and the National Cancer
Institute utilize a 30-day survival time limit to determine
recovery from acute radiation syndrome.
o Pilot mouse radiation study number 4, co-sponsored by us was
initiated at the University of Arizona College of Medicine,
Tucson, Arizona on June 16, 2003. This study was conducted to
analyze whether higher concentrations of Radilex treatment
would prolong life in C57BL/6 male mice exposed to a single
total body dose of lethal radiation. In the opinion of
management, this study demonstrated that the treatment at the
higher concentration level was not efficacious in increasing
mouse survival time from a potentially lethal dose of gamma
radiation.
o Pilot mouse radiation study number 5, sponsored by the AFOSR
and co-sponsored by us was initiated at the University of
Arizona College of Medicine, Tucson, Arizona on July 11, 2003.
This study was designed to confirm radiation lethality and
Radilex efficacy of Radilex in preventing lethality in mice.
In the opinion of management, this study, replicating pilot
radiation mouse study number 3, demonstrated efficacy in
increasing mouse survival from a potentially lethal dose of
radiation. 50% of radiation-exposed, Radilex-treated mice
survived to 90 days post exposure when they were euthanized.
Further, in the opinion of management, results of the study
showed that when compared with non-irradiated mice, the
Radilex-treated, radiation-exposed mice showed no significant
differences in their immune system.
o Pilot mouse radiation study number 6, sponsored by us, was
initiated at the University of Arizona College of Medicine,
Tucson, Arizona on June 28, 2004. This study was initiated at
the request of the US FDA to determine efficacy in treating
radiation exposure with Radilex by intramuscular injection,
rather than inhalation.
The test subjects consisted of 300 mice separated into three
groups of 100. Each group was exposed to different levels of
radiation - 7 Gy, 8 Gy (lethal dose) and 9 Gy (lethal dose) -
and consisted of 25 male subjects treated with Radilex, 25
female subjects treated with Radilex, and the corresponding
control subjects. Each mouse was given a single dose of
radiation, and then all non-control mice received a dose of
Radilex by direct muscle injection on a daily basis for 60
consecutive days.
In the opinion of management, based on the findings of the
study, direct muscle injection was observed to be less
effective at similar dosing parameters. We believe this
finding may be due to a difference of neurokinin receptors in
the lungs of the mice to those in the skeletal muscle, as
Radilex is believed to be a neurokinin-1 receptor agonist.
Past research has shown the predominant neurokinin receptor in
the lungs is the neurokinin-1 receptor, whereas, the
predominant neurokinin receptor in rodent skeletal muscle was
demonstrated to be the neurokinin-2 receptor.
9
Furthermore, while conducting this study, scientists believe
that they witnessed potential wound healing properties of
Radilex. During the testing, some of the subjects developed
open wounds from natural causes. At the end of the 60-day
study, the injuries of the control group remained, while the
wounds of the Radilex treated mice had healed. We have filed a
provisional patent for the use of Radilex in the promotion of
wound healing. If additional funding becomes available in the
future, we may look to further study this potential use of
Radilex.
o Pilot mouse radiation study number 7, sponsored by
ImmuneRegen, was initiated at the University of Arizona
College of Medicine, Tucson, Arizona on November 20, 2004.
This study 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. In the opinion of management, this study may have been
confounded by the fact that the mice spent their first 7 days
post-exposure in Biolevel 2 conditions which maintains a lower
bacterial load, masking the immunocompromised subjects'
vulnerability to elements that would impact study results.
o A blood profile study sponsored by us was conducted at the
University of Arizona College of Medicine, Tucson, Arizona
beginning on August 25, 2005. This was an exploratory pilot
study to demonstrate protection of C57BL/6 mice from
neutropenia and thrombocytopenia (decreases in systemic
neutrophils and platelets, respectively) and lethality
following a single dosage of gamma radiation of 8.25 Gy. In
the opinion of management, efficacy was demonstrated, as the
treated mice trended toward restored blood and platelet cell
numbers with normalized pathology of bone marrow compared to
the control group. Although the study demonstrated efficacy,
we were unable to demonstrate mechanistic effects due to an
inability to collect enough blood for adequate study.
o On January 9, 2006, based on these studies and other
pre-clinical observations, we sponsored a radiation
sensitivity animal model study using C57BL/6 mice at the
University of Arizona College of Medicine, Tucson. We designed
this radiation study to further the proof of concept for the
formulation of Sar9, Met (O2)11-Substance P with either a TFA
salt or HCl salt. We expect this study to be completed by
April 2006.
o We have finalized the protocols for what we believe will be
our final phase of rodent studies. Based on these protocols we
are currently sponsoring a radiation study on mice. This study
commenced on February 28, 2006 and is being conducted at Oak
Ridge National Laboratory. This study was designed to follow
the AFRRI model for radiation sickness. The purpose of this
study is to provide confirmation evidence supporting the
efficacy of Radilex as a treatment to a lethal dose of
radiation exposure. Several factors are being evaluated in
this study, including dosage, route of administration, and the
need for, and extent of, required pretreatment. In our
opinion, if these studies are deemed successfully completed,
under the current animal efficacy rule, we will qualify to
move to studies in large animals. We estimate the initial
study of this phase of rodent studies will be concluded within
90 days of initiation at a cost of approximately $90,000.
On January 14, 2004, we received a Pre-Investigational New Drug
Application (PIND) number for the use of Radilex (PIND No. 63,255) in the
treatment of acute radiation syndrome. We are currently inserting new data and
summarizing recent study results. We expect to file an updated PIND submission
for the use of Radilex in the treatment of acute radiation syndrome with this
new data to the FDA's Department of Counterterrorism within the next 120 days.
If desirable results are achieved, we anticipate filing the results of the Oak
Ridge National Laboratory study with the FDA's Department of Counterterrorism
within the next 6 to 9 months. At such time, we would request a meeting with the
FDA to establish a protocol for a Radilex study on primates.
VIPROVEX
We are also researching the efficacy of Viprovex as a potential
treatment for exposure to various chemical agents, including formalin, and
biological agents, including influenza and anthrax, as well as a potential
treatment for acute respiratory distress syndrome (ARDS). Based on past
research, the active ingredient in Viprovex (Sar9, Met (O2)11-Substance P), in
the opinion of management, plays an important role during early responses of the
lungs to various substances, including, what we believe to be a blocking of the
inflammatory cascade that potentially leads to the destruction of lung tissue.
10
To date, we have only conducted limited preclinical studies with regard
to the development of Viprovex. In the opinion of management, preliminary
results from pilot studies reveal the potential effects of Viprovex on the
immune system, including protection and replenishment, increased cytokines
(TNF(alpha), interferon-gamma) that reflect system activation, enhanced
phagocytotic activity, potential dendritic cell/T cell activation, inhibition of
apoptosis and increased T cell mitogenesis. It is the opinion of management that
these results may underlie the potential ability of Viprovex to enhance flu
therapies, minimize the respiratory impact of influenza infection and augment
the capability of vaccination to induce a protective immune response.
Prior to our formation, initial studies were conducted using Homspera
(now Viprovex) under the direction of our co-founder and Director, Dr. Mark
Witten. These studies were the basis for our research and development efforts. A
series of initial studies were conducted on the efficacy of Homspera (now
Viprovex) in treating JP-8 jet fuel induced immunotoxicity in mice. Mice were
administered a dose of JP-8 jet fuel to develop a chemically-induced AIDS with
the near total destruction of all immune system cells. In the opinion of
management, aerosol treatment with Viprovex directly stimulated the production
of immune system cells which remained viable after Viprovex treatment.
Pilot studies to date and current studies with regard to the
development of Viprovex are summarized below.
o In September 2003, a third party pilot study was conducted at
the University of Arizona, Arizona Health Sciences Center,
Lung Injury Laboratory using Homspera (now Viprovex) as a
potential treatment for mice infected with the LP-BM5 murine
leukemia retrovirus. In the mice infected with the LP-BM5
murine leukemia retrovirus, it is the opinion of management
that Viprovex treatment caused a seven-fold increase in spleen
interferon-gamma production and a significant increase in
spleen T-cell mitogenesis. Based on these findings, it is the
opinion of management that the administration of exogenous
interferon-gamma has potential efficacy, suggesting that
increased endogenous production may enhance protection against
some respiratory viruses.
o In October 2003 the AFOSR sponsored preliminary studies with
the Hong Kong influenza virus (A/Hong Kong/8/68) at the
University of Arizona, Arizona Health Sciences Center, Lung
Injury Laboratory. These studies demonstrated, in the opinion
of management, that in mice exposed to the irritant JP-8 jet
fuel and then inoculated with the Hong Kong respiratory virus
(HKV), the elevated levels of inflammatory cells in their
lungs were reduced in animals also treated with Viprovex. In
contrast to hydrocarbon-weakened control animals exposed to
the virus, animals also treated with Viprovex did not develop
the clinical symptoms of viral infection, the increases in
alveolar macrophages and neutrophils in broncho-alveolar
lavage fluid, and the loss of ciliated epithelium (the latter
as determined by electron microscopy). Treated animals also
had lower levels of leukotriene B4 than animals not treated
with Viprovex. Elevated LTB4 would attract the inflammatory
cells, particularly neutrophils, which would follow infection
with virus. Electron micrographs showed no virus particles in
the Viprovex-treated animals, in contrast to the HKV/JP-8
controls, suggesting, in our opinion, that Viprovex actually
prevented viral replication and pathology, perhaps by
stimulating the pulmonary alveolar macrophages to actively
phagocytose the virus more effectively. Without virons in the
lungs, there would be no need to mount an immune response.
Based on the results of this study, it is the opinion of
management that Viprovex may be used to enable the body's own
immune system to naturally fight off flu strains. Thereby,
opening up the possibility that Viprovex could be used either
as a stand alone treatment or as an adjunct to a vaccine or
other therapy. Further, based on the results from this study
we are pursuing government and military collaborations to test
Viprovex on treating avian influenza (H5N1).
o We co-sponsored an asthma pilot study in February, 2005
initiated at the University of Arizona by Dr. Mark Witten. The
pilot study was to determine if Viprovex is effaceable in
blocking the development of airway hyperactivity. Twenty-three
male C57BL/6 mice, seven of which were controls, were exposed
to cigarette/cigar smoke to induce an "asthma-like"
bronchoconstrictive condition. The mice were divided into
cigar or cigarette smoking groups and half of each received a
daily aerosol treatment of Viprovex. Dr. Witten then
administered one hour smoke exposure for five days a week for
three consecutive weeks. In the opinion of management, the
results indicated that Viprovex treatments could be utilized
to attenuate the development of airway hyperactivity after
toxic exposure to either cigarette or cigar smoke.
11
o A third party formalin pilot study in rats was initiated at
the University of Arizona College of Medicine, Tucson, Arizona
sponsored by Dr. Witten on August 22, 2005. This study was
designed to determine if aerosolized Viprovex would be
efficacious in attenuating lung injury after chemical
(formalin) exposure. The data collected from the study was
given to us by Dr. Witten and, in the opinion of management,
indicates that Viprovex treatment before formalin exposure to
the lungs greatly attenuated the lung injury normally induced
by formalin as evidenced by electron micrographs and
lethality. Based on these results, as additional research and
development funding is made available to us we plan to conduct
additional studies on the use of Viprovex as a treatment for
chemical exposure, to include chemicals such as formalin and
ricin.
o We are sponsoring a series of studies with Hyperion
Biotechnology Inc. at their laboratory facilities located at
Brooks City-Base in San Antonio, Texas with the cooperation of
the U.S. Air Force School of Aerospace Medicine (USAFSAM). We
designed these studies based on our opinion that Viprovex may
block the inflammatory cascade that can lead to the
destruction of lung tissue and our conjecture that Viprovex
may have a similar effect on combating exposure to anthrax
spores.
These studies are being conducted in hope of determining the
efficacy of Viprovex in treating exposure to anthrax bacilli.
The purpose of these studies is to determine if Viprovex will
reduce the mortality rate of an active infection of pulmonary
anthrax. These tests will also look for efficacy of Viprovex
as a preventive to pulmonary anthrax sickness.
The first of these studies was initiated in October 2005.
Logistical considerations related to number of animals
requiring exposure and performance of a full Viprovex
dose-response curve within specified time limits following
anthrax exposure required the experiment be performed in two
sections, and it is incomplete at this time. The second half
of the full dose-ranging experiment began in February, 2006.
On November 29, 2005 we applied for a PIND from the Department of
Health and Human Services (HHS) for the use of Viprovex in the treatment of
avian influenza. The PIND number for the use of Viprovex in treating avian flu
was issued on December 19, 2005 (PIND No. 73,709). We expect to continue to
investigate the efficacy of Viprovex in the treatment of avian influenza, with
the goal of submitting an application for an IND under the animal efficacy rule
within the next 12 to 18 months.
Based on the results of this formalin pilot study in rats, we applied
for a PIND from the HHS for the use of Viprovex in treating chemical exposure on
November 28, 2005. As we await PIND status, we intend to plan additional studies
to further our research and development activities as it relates to this
indication.
Based on data from early initial and subsequent studies indicating the
potential use of Viprovex in treating chemically induced ARDS, we plan to submit
an IND application to the FDA for the treatment of the effects of ARDS using
Viprovex within the next 12 to 18 months.
Due to our liquidity and limited cash available our spending on
research and development activities in 2004 and 2005 was limited. We spent
approximately $113,731 and $150,091 in 2005 and 2004, respectively, in research
and development activities related to the development of Radilex and Viprovex as
protectants against the effects of chemical, biological, radiological and
nuclear threats. From our inception in October 2002, we have spent $306,794 in
research and development activities. These costs only include the manufacture
and delivery of our drug by third party manufacturers and payments to Contract
Research Organizations for consulting related to our studies and costs of
performing such studies. Significant costs relating to research and development,
such as consulting fees for Drs. Witten and Siegel among others, have been
classified in consulting fees for consistency of financial reporting.
If we are successful in obtaining additional funding through grants or
investment capital, we anticipate that during the next 12 months we will
increase our research and development spending to a total of approximately
$3,500,000 in an effort to further develop Radilex and Viprovex. This research
and development cost estimate includes a radiation study on large animals, which
we estimate will cost up to $2,500,000 depending on the choice of contractor,
additional animal pharmacology studies, formulation and animal safety/toxicity
studies, as well as, small pilot pharmacological studies exploring possible
additional indications. If we are unable to raise additional capital, our
research and development activities may be lessened.
12
The preliminary results of our pre-clinical studies using Radilex or
Viprovex may not be indicative of results that will be obtained from subsequent
studies or from more extensive trials. Further, our pre-clinical or clinical
trials may not be successful, and we may not be able to obtain the required
regulatory approvals in a timely fashion, or at all. See "Risk Factors."
POTENTIAL FUTURE PIPELINE APPLICATIONS
During our research and development efforts, we may, from time to time,
observe results that may lead to other potential applications using Homspera. At
the time of such an observation, we may design studies to further evaluate the
use for the indication. If these further studies support our initial
observations, we may file provisional patent applications for the use of
Homspera with the hope of protecting future development rights until we have the
ability to design additional studies and protocols and perform research with
regard to such applications.
To date, we have filed use patent applications in multiple
jurisdictions, inside and outside of the U.S., for use of the active ingredient
in Homspera for: ameliorating or preventing damage caused by cigarette smoke,
for treating patients with SARS (Severe Acute Respiratory Syndrome) or ARDS
(Acute Respiratory Distress Syndrome) or to prevent those exposed to their
causative agents, for inducing new hair growth or retarding hair loss, for
reducing certain ageing effects, such as interrupted sleep patterns, residual
muscle pain, short term memory loss, diminished visual accommodation, decreased
muscle strength, and arthritic pain, for stimulating wound healing in a
radiation-exposed mammal, for treating asthma, for treating skin diseases, in
particular, eczema, psoriasis, acne, and basal cell carcinoma, for
prophylactically treating domestic fowl to prevent respiratory infections, and
for maintaining or inducing hair color. To date, our development activities in
these areas have been limited to only small pilot exploratory studies in order
to observe and collect data that would justify filing use patent applications.
In the future, we may choose to conduct additional research and development to
further our observations in these areas.
DEVELOPMENT PROGRAM
Use of Contract Research Organizations (CRO)
--------------------------------------------
It is understood that extensive time and money is spent developing new
drug applications by the time they are approved by required regulatory agencies
for use on the market. In order to efficiently and expeditiously navigate the
research, development and regulatory approval process in hopes of bringing our
applications to market, our development program relies on the use of Contract
Research Organizations (CRO's).
CRO's are independent laboratories, registered with the FDA, that
provide contract services to the pharmaceutical industry. These CRO's offer
broad therapeutic expertise, advanced technologies and extensive resources for
drug discovery and drug and device development, and in some instances partnering
opportunities. In the opinion of management, using these outside organizations
helps to maximize our flexibility and minimize our one-time costs in outsourcing
very expensive programs to those companies that maintain the necessary
infrastructure to perform these cost-effectively according to internationally
recognized standards. Further, as product demands change, we believe that this
structure will allow us to move our resources to more appropriate contract
research or development or formulation or manufacturing facilities without
incurring loss of time or money on outdated projects and programs. As we move
our candidate products into FDA-compliant animal safety testing, we expect to
contract with specialty groups, organizations or companies that meet regulatory
requirements and have adequate and appropriate technical capabilities, rather
than develop and maintain an animal use and care facility ourselves that is
compliant with current Good Laboratory Practices.
In September, 2003, we contracted with Synergos, Inc. of The Woodlands,
Texas, a CRO, to represent us in all FDA communications and to contact and
interact with the FDA on our behalf. Likewise, in October, 2003 we contracted
with Huntingdon Life Sciences of East Millstone, New Jersey to conduct a two
week inhalation toxicity study of Homspera in rats. Further studies on
analytical techniques, toxicology and formulation of Homspera were conducted by
AppTec Laboratory Services of San Jose, California starting in November, 2003
through August, 2005.
GRANTS
From time to time, we may apply for governmental grants and respond to
formal requests from the government for additional information, thereby possibly
allowing us to be included as a candidate for potential future grants. The
submission of grants by us is summarized below.
In May, 2003 we applied for a grant with the Department of Health and
Human Services (DHHS), solicitation Number 266-01-SARS, Treatment from the
National Institute of Allergy and Infectious Diseases. The agency was seeking
potential treatments for the SARS virus infection. Our proposal called for
$771,000 to research Viprovex (then Homspera) as a potential treatment for SARS.
Our application for grant funding was not accepted.
13
On September 20, 2004 we submitted a grant application to the DHHS in
response to its Request for Application (RFA) entitled Biodefense Countermeasure
Development: Project Bioshield. Our proposal called for $1,500,000 to study
Radilex (then Homspera) as a countermeasure for radiation exposure. Our
application for grant funding was not accepted.
In October 2004, the DHHS released a Request for Information (RFI)
regarding potential therapeutics for the treatment for acute radiation syndrome,
entitled Therapeutics to Treat Neutropenia and Thrombocytopenia associated with
Acute radiation Syndrome. We notified the DHHS of our intent to submit in
December 2004. In June 2005, the terms of the RFI were changed by the DHHS and a
Request for Proposal (RFP) was issued. Although we intended to apply for the
RFP, no proposal was submitted as we believed that our technology did not meet
the specific criteria under the new terms of the RFP.
On March 11, 2005, we submitted a final response to an invitation to
participate in the Canadian Defense Ministry's "Universal Protectants Proposal"
respective to the use of Radilex for potentially treating the negative effects
of acute radiation syndrome and/or other health threats, such as anthrax, that
may result from chemical, biological, radiological and nuclear (CBRN) terrorist
threats. The goal of this program was to find a "universal" treatment for these
CBRN threats. The proposal is under the auspices of the Ottawa and Suffield
provincial branches of the Canadian Defense Ministry's research and development
program, the CBRN Research and Technology Initiative. We responded to this
initiative as we believe Radilex may have the potential to be a candidate as a
universal protectant against maladies caused by chemical, biological,
radiological and nuclear (CBRN) attacks. We are led to this conclusion because
in management's opinion the methods of action of Radilex do not simply
neutralize the attacking agent, but actually increase immune system activity,
thereby allowing the body's own immune system to attack and overcome the CBRN
agent. This program was abandoned by the Canadian government for budgetary
reasons prior to the acceptance of any companies into the study.
On October 11, 2005 we submitted a grant proposal for the US Army
Research Office's Broad Agency Announcement (BAA) W911NF-05-R-0011. The purpose
of the BAA was to develop new technologies for the Department of Defense's
Chemical and Biological Defense Transformational Medical Technologies Initiative
Fund. We signed a letter of intent with Battelle Laboratories Medical Research
and Evaluation Facility in West Jefferson, Ohio to conduct the Bio-level III
containment studies with Viprovex and avian influenza if our proposal is
accepted. The amount of funding sought in the grant proposal was approximately
$1,000,000. Our application for grant funding was not accepted.
On January 6, 2006, we applied for a grant offered by the Defense
Threat Reduction Agency (DTRA), solicitation number DTRA01-06-BAA-01. The
objective of our grant proposal, entitled "Advanced Proteomic Analysis of
Putative Universal Protectant Mechanisms of a Biologically Active Synthetic
Peptide," is: (i) to identify biomarkers for further defining our previous
observations relating to Radilex/Viprovex-modulated resistance to chemical,
biological and radiological stress and (ii) developing a model of mechanistic
pathways for potential chemical, biological and radiological injury protection.
We have entered into an agreement with Pacific Northwest National Laboratory
(PNNL) for this research if our application is accepted. The research involved
would be performed through the National Institute of Health (NIH)-funded
Proteomics Research Resource of Integrative Biology at PNNL. The funding sought
for this grant application is $2,325,000. As of March 20, 2006, the awarding of
the grants is still pending.
On January 31, 2006 we submitted a response to sources sought notice
W9113M-06-S-0002 issued by the Department of Defense (DoD). The purpose of this
announcement was to identify companies that believe they have a viable candidate
for drugs that can be expeditiously developed and will provide a safe and
effective countermeasure against radiation injury. We are anticipating a formal
RFP to be issued by the DoD. As of March 20, 2006, an RFP is still pending.
On February 7, 2006 we submitted a grant proposal to the Defense
Advanced Research Projects Agency's (DARPA) Broad Agency Announcement (BAA)
BAA-05-19. The purpose of the BAA was to develop new technologies for DARPA's
Defense Science Office (DSO) program. The specific aim for us in this grant was
the development of defense against weapons of mass destruction: technologies to
render biological, chemical, nuclear, or radiation attacks against the U.S.
military harmless. More specifically, we focused on medical countermeasures
against both known and unknown pathogens and infectious disease, accelerated
manufacture of biologics, including vaccines and immune modifiers, and medical
countermeasures against radiation exposure. We proposed collaboration with
Pacific Northwest National Laboratory (PNNL) in Richland, Washington in which
studies would be conducted to explore the mechanism of Sar(9), Met
(O2)(11)-Substance P to mitigate or prevent mortality/morbidity resulting from
exposure to inhaled viruses, chemical toxicants and whole body radiation.
Through multiplexed cytokine analysis and evaluation of the proteomic
modifications induced by Sar(9), Met (O2)(11)-Substance P, we hoped to identify
common pathogenesis pathways for use of our compound as a universal protectant.
Our application for grant funding was not accepted.
Correspondence with the Food and Drug Administration(FDA), National Institute of
Health(NIH) and other government agencies
The following is a chronological summary of our correspondence with the
U.S. Food and Drug Administration (FDA), the National Institutes of Health (NIH)
and other government agencies.
On October 16, 2003, Jennifer L. Wike of Synergos, Inc., our Contract
Research Organization (CRO), spoke with Sandy Barnes, FDA Project Manager. Ms.
Barnes inquired as to whether our ARDS Pre-IND meeting package was ready to be
sent to the FDA. Further, she informed us that she had put ImmuneRegen on their
meeting agenda for two possible dates in November 2003. Twelve copies of the
meeting information package were subsequently sent to the FDA by the Company.
14
On October 30, 2003, Jennifer L. Wike returned a call to Dr. Ray
Anthracite, FDA Medical Reviewer. Dr. Anthracite had called to further inquire
about the amino acid comprising the structure of Sar9,Met(O2)11-SubstanceP. Dr.
Anthracite confirmed that he is the medical reviewer for our potential product;
however, he could not confirm a date for the Pre-IND teleconference. He did
state that the agency had an internal meeting for our potential product set for
November 5, 2003.
On November 4, 2003, Jaye Thompson, Ph.D. of Synergos, Inc. received a
call from Cheryl Turner of the FDA Division of Counterterrorism (DCT). Ms.
Turner stated that the division wanted to have an introductory call with the
Company. A date of November 17, 2003 at 2:00PM EST was selected. We were
informed that Mary Purucker, MD, Division Director, DCT would be present for the
meeting and that despite the delays in contacting us, her division was
interested in the potential of Sar9, Met (O2)11-Substance P for treating acute
radiation syndrome (ARS).
On November 17, 2003 we and regulatory consultants from Synergos, Inc.
engaged in a teleconference with representatives from the FDA's Division of
Counterterrorism (DCT) to discuss the development of Homspera for use in the
event of a radiological terrorist event. Although the counterterrorism group
could not comment upon the specifics of the planned studies, they indicated that
development of this product would be regulated according to the provisions of
the animal efficacy rule. They also indicated that, with submission of
appropriate toxicity data, the selected animal model would be acceptable.
On January 14, 2004, we received a communication from Ryan Barraco, FDA
Consumer Safety Officer via facsimile confirming a meeting date of March 12,
2004 at 1:30PM EST in Rockville, MD in relation to a Pre-IND meeting to discuss
Homspera and the potential of a derivative to have potential efficacy in the
treatment of acute radiation syndrome. The confirmation also stated that the
agency required receipt of 33 hard copies and one disk of the company's
background package no later than February 13, 2004.
Also on January 14, 2004 the company received a fax from Cheryl Turner,
FDA Division of Counter-Terrorism with a summary of the Pre-IND meeting that was
held on November 17, 2003 to determine the appropriate division for submitting
"Homspera for Treatment of Acute Radiation Syndrome (ARS)."
On February 18, 2004 our Pre-IND 63,255 (Treatment of ARS) Meeting
Package was sent to Ryan Barraco of the FDA for use in the corresponding meeting
set for March 12, 2004.
On March 12, 2004, we met with representatives of the FDA regarding
Radilex to discuss pre-clinical studies that will need to be completed prior to
submission of a marketing application, other requirements for product approval
and the study design of the proposed post-marketing study. The representatives
from the FDA suggested that we perform additional studies using specific
guidelines, i.e. number of mice, gender of mice, range of radiation dosage and
additional potential methods of administration. The representatives also
suggested that the company develop a "response team" that can be rapidly
deployed to an incident site to help in implementation, conduct and data
acquisition of the proposed study.
On October 21, 2004 Dr. Helen Quill of the National Institute of Health
(NIH) contacted us to request that Homspera's mechanisms of action were needed
in conjunction with a Request for Information (RFI) submission. These were
subsequently electronically sent to Dr. Quill on November 1, 2004.
On January 11, 2005, we received a meeting confirmation from Ryan
Barraco, FDA Consumer Safety Officer via fax. A meeting date of February 17,
2005 at 11:30AM EST in Rockville, MD was set in relation to Pre-IND 63,255 for
Radilex (Homspera). The confirmation letter also stated that the agency required
receipt of 18 hard copies and one electronic copy of our background package no
later than January 20, 2005.
15
On February 15, 2005 we received a fax from Ryan Barraco, FDA Consumer
Safety Officer, regarding responses from the FDA to our questions in the
background package.
On February 22, 2005 our representatives met with members of the NIH to
discuss: the potential use of Viprovex in an anthrax model; conducting further
studies under an AFRRI model using Radilex for a treatment for acute radiation
syndrome; as well as, additional pharmacokinetic and dose-timing research.
On July 1, 2005 Mui Erkun, Director of Procurement, Department of
Homeland Security (DHS), contacted us to request a meeting regarding our
potential therapeutics with interest in assisting the company with communication
to government officials and or agencies.
On September 6, 2005 Michael Wilhelm, our CEO, and Dr. Hal Siegel, our
Director of Product Development and Regulatory Affairs met with the Department
of Homeland Security in Washington, DC. They met with Drs. Vitko and Pilai in
order to discuss our potential therapeutics and efficacy. Also discussed was our
request for support. Both doctors indicated interest, but mentioned that until
the Chief Medical Officer, Jeff Runge, took office with DHS the office would
only be focused on consequence management involving logistical preparation and
detection, not therapeutics.
On September 21, 2005 Michael Wilhelm, Dr. Hal Siegel and Dr. Mark
Witten presented to Armed Forces Radiobiology Research Institute (AFRRI) at
their offices in Bethesda, Maryland. They presented their findings of possible
efficacy in treating acute radiation syndrome with Radilex. We mentioned that we
have used survival as an end point to the lethal exposure in our studies.
Further, we reported our observations that we believe that the best form of
administration of our potential therapeutic is via inhalation. AFRRI researchers
confirmed that a study using the preexisting AFRRI rodent radiation model as a
guide needs to be completed.
On December 19, 2005 we received a letter via US Mail from the
Department of Health and Human Services (DHHS) thanking us for our Avian Flu
Pre-IND Submission. A Pre-IND number was assigned (73,709). The letter stated
that a panel of experts is further reviewing our submission and will assemble a
letter with comments/advice to be sent out to us within the next several weeks.
COLLABORATORS AND CONTRACTORS
We have fostered and managed relationships with other laboratories
working in related areas of research and government agencies who are interested
in learning more of our applications, and perhaps helping to bring them to
commercialization. Collaborators and Contractors who we have already worked with
or are implementing a program are described below.
o We have sponsored or co-sponsored six mouse radiation studies
and co-sponsored one inhalation study at the University of
Arizona College of Medicine, Tucson, Arizona since January,
2005. Additionally, we are currently sponsoring a radiation
study which began on January 9, 2006. In addition, the Air
Force Office of Scientific Research, AFOSR, has sponsored
additional studies at the University of Arizona College of
Medicine utilizing Homspera Radilex and Viprovex.
o Hyperion Biotechnology Inc. performs research programs in the
areas of probiotics, biomarker discovery, infectious disease
and human performance enhancement. We have contracted a series
of anthrax studies with Hyperion testing Viprovex as a
treatment to anthrax infection. These studies are conducted by
Hyperion at its research facility located on the U.S. Air
Force School of Aerospace Medicine (USAFSAM) campus in Brooks
City-Base in San Antonio, Texas.
o St. Joseph's Hospital and Medical Center (Phoenix, Arizona)
has performed assays on Homspera for us on a sub-contracting
basis.
o Battelle Memorial Institute's Medical Research and Evaluation
Facility (MREF) (Columbus, Ohio) has issued a letter of intent
to support us in our testing of Homspera as an Avian Influenza
therapeutic in mice. The letter of intent was included in a
grant application we submitted to the Army Research Office in
October, 2005 in response to their Broad Agency Announcement
Grant # W911NF-05-R-0010 for therapeutics against
bio-terrorism.
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o Pacific Northwest National Laboratory (Redmond, Washington)
has issued a letter of intent to support us in our testing of
Homspera as a Universal Protectant therapeutic. The letter of
intent was included in a grant application we submitted to the
Defense Threat Reduction Agency (DTRA) in January, 2006 in
response to their Broad Agency Announcement, Grant #
DTRA01-06-BAA-01 for therapeutics against bio-terrorism.
o We have contracted with Oak Ridge National Laboratory (Oak
Ridge, Tennessee)to conduct Proof of Concept mouse radiation
studies that began in February, 2006 and to help facilitate
additional pre-clinical and future clinical trials with regard
to determining the potential efficacy of Radilex as a
treatment for acute radiation syndrome.
ADVISORY BOARDS AND CONSULTANTS
To assist us in the research and development of our various applications
we make use of outside consultants and advisory boards.
Consultants
We currently contract three outside consultants related to the research and
development, including regulatory affairs, of our potential products.
Hal Siegel, Ph.D., through his consulting company, Siegel Consultancy,
provides strategic and tactical expertise to life science companies, helping
them meet FDA requirements from pre-clinical studies through the regulatory
submission process and into the post-approval marketplace. He has over a decade
of experience delivering scientific, clinical and regulatory compliance
assistance as well as submission preparation and management services to life
sciences client companies developing drugs, therapeutic biologics, combination
products, traditional devices and in vitro diagnostic products. His degrees are
from Rensselaer Polytechnic Institute and SUNY Buffalo (Ph.D., Biochemical
Pharmacology). Our contract with Siegel Consultancy, signed on March 16, 2005,
calls for the consultant to provide initial and ongoing product development,
quality control compliance, regulatory consulting and submission preparation as
needed. Compensation is at an hourly rate and includes reimbursement for travel
and documented expenses. There is no set termination date with this contract.
Kelly McQueen, MD, MPH, PLLC was engaged on July 29, 2005 for a term of
three months to provide comprehensive public health consulting and act as
liaison with United States military services to pursue collaborative research in
the area of infectious diseases and upper respiratory illnesses. Kelly McQueen
is a practicing anesthesiologist and public health consultant in Phoenix,
Arizona. She currently works with the United States (U.S.) Army and the US
Northern Combatant Command on Infectious Disease, Disaster Planning and other
public health projects. She also teaches infectious disease threat management
and treatment for the International Committee for the Red Cross (ICRS) course on
Health Emergencies in Large Populations (HELP). Ms. McQueen's contract with us
provides for cash compensation on an hourly basis and reimbursement for travel
and expenses. We have mutually agreed to extend the contract at the same terms
on a month by month basis.
Dr. Jack Caravelli, Ph.D. was contracted on November 5, 2005 to provide
advisory services in support of ImmuneRegen's initiative to commercialize
radiation sickness treatments, bio-defense applications and countermeasures. He
is presently a senior Advisor for the Threat Reduction Cooperation with the
Office of Policy at the U.S. Department of Energy (D.O.E.). Dr. Caravelli's
contract calls for cash compensation at an hourly rate and reimbursement for any
related travel and expenses. The initial contract had a term of two months and
we have mutually agreed to extend the contract at the same terms on a month by
month basis.
Advisory Board
--------------
We currently have three advisory boards: Drug Development, Oncology &
Dermatology and Bioterrorism Preparedness. Advisory board members are appointed
for one-year terms by our management. For services rendered, members of our
advisory boards are compensated on a quarterly basis in common stock purchase
warrants.
The Drug Development and Oncology & Dermatology Boards were formed to
educate and provide direction with regard to the development of applications
using Homspera in the areas of expertise of the various advisory board members.
The following individuals comprise our Drug Development Advisory Board:
Moshe Arditi, M.D., Senior Advisor: Director, Division of Pediatric
Infectious Diseases, Cedars-Sinai Medical Center, Los Angeles, CA,
Mr. Ralph Di Libero, Associate Advisor: Vice President, European Sales
and Marketing, PolyPeptide Laboratories A/S in Denmark
K.A. Kelly McQueen, M.D., MPH, Associate Advisor: Anesthesiologist and
Public Health Consultant; Infectious Disease and Disaster Planning for
U.S. Army and US Northern Combatant Command
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Hal Siegel, Ph.D., Associate Advisor: Principal and Founder,
Scientific, Clinical, and Regulatory Compliance, Siegel Consulting
Simon Wong, M.D., MPH, Associate Advisor: Research Assistant Professor,
University of Arizona Health Science Center, Department of Pediatrics.
The following individuals comprise our Oncology & Dermatology Advisory Board:
Dr. John Dann, M.D., D.D.S., Senior Advisor
Dr. Jeffery Friedman, M.D., Senior Advisor: Diplomat, American Board of
Cosmetic Surgery, American Board of Otolaryngology Head and Neck
Surgery, Fellow of the American Academy of Cosmetic Surgery
Elizabeth Ceilley Hyslop, M.D., Associate Advisor: Clinical
Practitioner, Durango Cancer Center.
The Bioterrorism Preparedness Advisory Board, was formed at the
suggestion of the U.S. Food and Drug Administration's (FDA) Division of
Counterrorism (DCT) to develop a "response team" that can be rapidly deployed to
an incident site in the event of a biological or radiological attack to help in
implementation, conduct and data acquisition. As there are several first
responder teams already in place, we opted to concentrate on forming a group to
discuss logistics and coordination between agencies and these first responder
groups in the event of an attack. We have attempted to appoint knowledgeable
military and private citizens that possess first hand experience in combat
casualty and mass trauma scenarios, including preparation for a bioterrorist
attack and/or medical or scientific expertise. The following individuals
comprise our Bioterrorism Preparedness Advisory Board:
James R. Campbell, PhD, M.P.H, Senior Advisor: Commanding Officer of
the Office of Naval Research Global, United States NAVY, Medical Corps,
(Ret.), Manager for Biosecurity and Biodefense, in the National
Security Directorate at the Pacific Northwest National Laboratory.
The Honorable Asa Hutchinson, J.D. Senior Advisor: former Under
Secretary for Border and Transportation Security at the Department of
Homeland Security, Partner and chair of Venable LLP's Homeland Security
Group.
Dennis E. Amundson, D.O., Senior Advisor: Captain, United States Navy,
Medical Corps, Naval Medical Center, San Diego, Pulmonary Medicine
Moshe Arditi, M.D., Senior Advisor: Director, Division of Pediatric
Infectious Diseases, Cedars-Sinai Medical Center, Los Angeles, CA
Mr. Michael Caridi, Senior Advisor: Chairman, MAJIC Development Group,
SRC Industries Inc. and Protection Plus Security Consultants, Inc.
Paul Carlton, M.D., Senior Advisor: Lt. General, USAF, Medical Corps,
(Ret.), Director, Homeland Security for The Health Science Center The
Texas A&M University System, Former USAF Surgeon General
Mr. Ralph Di Libero, Associate Advisor: Former-Vice President, European
Sales and Marketing, PolyPeptide Laboratories A/S in Denmark
William Hoehn, Ph.D., Associate Advisor: Visiting Professor, Georgia
Tech, Sam Nunn School of International Affairs, Center for
International Strategy, Technology, and Policy
Col. Kerrie Lindberg (Ret.), Associate Advisor: Colonel, USAF, Nurse
Corps, (Ret.), Former Director, Defense Institute for Medical
Operations (DIMO), Brooks City-Base, Texas
Mr. Michael Deutsch, Associate Advisor: Homeland Security Liaison,
Principal, Immediate Solutions, LLC
Additionally, as part of the process of researching a deployment plan
and keeping the Bioterrorism Preparedness Advisory Board current with recent
events, our management has met with several congressional leaders responsible
for legislation relating to Homeland Security, including the office of Senator
Joseph Lieberman and the office of House Representative J.D. Hayworth to have
the opportunity to ascertain their viewpoints on emerging preparedness.
Additionally, in February 2005, management met with the New York State Office of
Public/Homeland Security (NYSOPS), the agency responsible for detection,
identification, response, prevention and recovery for a terrorist act or threat
in New York State.
MANUFACTURING
Management expects that Radilex and Viprovex will ultimately have
distinct formulations and dosing regimens, however, at this early stage of
development, the formulations used are identical. We do not have, and do not
intend to establish, manufacturing facilities to produce Homspera, Radilex or
Viprovex or any potential products, if any, derived from Homspera. We have used
and expect to continue to use third party manufacturers to obtain synthetic
Sar9, Met (O2)11-Substance P. We believe Sar9, Met (O2)11-Substance P is readily
available at low cost from several life science and technology companies that
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provide biochemical and organic chemical products used in scientific and genomic
research, biotechnology, pharmaceutical development and the diagnosis of disease
and chemical manufacturing. Further, we believe that the Sar9, Met
(O2)11-Substance P is readily available from various sources, and several
suppliers are capable of supplying such in both clinical and initial commercial
quality and quantities.
To date, we have acquired Sar9, Met (O2)11-Substance P (Homspera),
which is the active ingredient in experimental formulations of Radilex and
Viprovex from three different manufacturers. These are Sigma Aldrich, Inc. of
Dallas Texas, PolyPeptide Laboratories A/S of Hillerod, Denmark and C S Bio
Company Inc. of Menlo Park, California. Since we are only purchasing research
quantities of the drug at this time, we have not entered into any contracts or
agreements with any third party manufacturers, other than standard
non-disclosure agreements.
The manufacture of Radilex, Viprovex or any potential products, if any,
derived from Homspera, 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 (cGMP) 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.
PATENTS AND PROPRIETARY RIGHTS
Patents and other proprietary rights are essential to our business. We
file patent applications to protect our technologies, inventions, and
improvements to our inventions that we consider important to the development of
our business. We also rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
our competitive position.
The active ingredient in Homspera, Radilex and Viprovex is the compound
Sar9, Met (O2)11-Substance P. The intellectual property owned by us, as further
described below, is for the various potential uses of Sar9, Met (O2)11-Substance
P. Additionally, we are in the process of pursuing several other use patent
applications based on the use of Homspera.
We currently hold issued patents in the U.S. for use of Sar9, Met
(O2)11-Substance P, the active ingredient in Homspera, Radilex, and Viprovex for
inhibiting tumor growth and/or metastasis in cancer patients and for stimulating
the immune system of immunocompromised individuals such as Acute Radiation
Syndrome victims. Similar patent rights are held in Europe and Australia. In the
latter two regions, we also have been issued patent rights for use of the active
ingredient in Homspera, Radilex and Viprovex for stimulating the maturation of a
juvenile immune system, for stimulating an immune response to a viral or
bacterial infection, and for reducing the risk of cancer.
We have also filed patent applications in many jurisdictions, inside
and outside of the U.S., for use of the active ingredient in Homspera, Radilex,
and Viprovex for ameliorating or preventing damage caused by cigarette smoke;
for treating patients with SARS (Severe Acute Respiratory Syndrome) or ARDS
(Acute Respiratory Distress Syndrome) or to prevent these conditions in those
exposed to putative causative agents; for inducing new hair growth or retarding
hair loss; for reducing certain aging effects, such as interrupted sleep
patterns, residual muscle pain, short term memory loss, diminished visual
accommodation, decreased muscle strength, and arthritic pain; for stimulating
wound healing in a radiation-exposed mammal; for treating asthma; for treating
skin diseases, in particular, eczema, psoriasis, acne, and basal cell carcinoma;
for prophylactically treating domestic fowl to prevent respiratory infections,
and for maintaining or inducing hair color. Because these applications have not
yet been granted, the rights in these subject matters remain potential.
The following is a list of the registered patents and provisional
patent applications in our portfolio. All of the inventor rights for all patents
and all patent applications listed have been assigned to us by the inventors,
Dr. Mark Witten and/or Dr. David Harris. Some of our research has been or is
being funded by the Air Force Office of Scientific Research and has been or is
being conducted at the University of Arizona. We have received waivers of rights
to the invention from the United States Air Force and the University of Arizona
in regard to patent and patent applications for Substance P Treatment for
Immunostimulation. We are expecting to receive similar waivers from the United
States Air Force and the University of Arizona for the remaining patent
applications in our intellectual property portfolio. In total, our patent
portfolio consists of two issued U.S. and two issued foreign patents and two
pending Patent Cooperation Treaty (PCT) applications, seven pending U.S.
applications and 16 pending foreign patent applications. The assignment
documents are included as Exhibits.
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Registered Patents:
-------------------
Title Serial No.
----- ----------
Substance P Treatment for Immunostimulation US 5,945,508 Substance P Treatment
for Immunostimulation US 5,998,376 Substance P Treatment for Immunostimulation
Australia 737201 Substance P Treatment for Immunostimulation European 0957930
PATENTS PENDING:
Title Serial No.
----- ----------
Acute Respiratory Syndromes US 10/553232
Acute Respiratory Syndromes Europe (Application number TBA)
Acute Respiratory Syndromes Singapore (Application number TBA)
Acute Respiratory Syndromes Vietnam 1-2005-015
Amelioration of Effects of Cigarette Smoke US 10/645,839
Amelioration of Effects of Cigarette Smoke Singapore 2005 01072-3
Amelioration of Effects of Cigarette Smoke Vietnam 1-2005-00215
Amelioration of Effects of Cigarette Smoke Japan 2004-532943
Amelioration of Effects of Cigarette Smoke European Union 3791722.6
Amelioration of Effects of Cigarette Smoke Canada -2496447
Anti-Aging Effects of Substance P PCT/US05/13113
Inducing and Maintaining Hair Color PCT/US05/13112
Method to Promote Wound Healing US 60/622,015
Prevention of Respiratory Diseases in Fowl US 60/641153
Prevention of Respiratory Diseases in Fowl Singapore 200500467-6
Prevention of Respiratory Infection in Fowl Vietnam 1-2005-00599
Prevention of Respiratory Infection in Fowl Thailand 097659
Stimulation of Hair Growth US 10/539/734
Substance P Treatment for Immunostimulation Canada 2,261,885
Treatment of Asthma US 60/667,062
Treatment of Asthma Singapore 200504104-1
Treatment of Skin Diseases US 60/642,996
Treatment of Skin Diseases Vietnam 1-2005-00598
Treatment of Skin Diseases Thailand 098080
Treatment of Skin Diseases Singapore 200500466-8
Our rights to the US Patent Nos. 5,945,508 and 5,998,376, Substance P
Treatment for Immunostimulation, have certain limitations with respect to the
University of Arizona and the United States Air Force as described below. If
patents are issued for any of our pending patent applications, the same
limitations would most likely apply.
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 principal
investigator at the University of Arizona, Dr. Mark Witten, was a consultant to
ImmuneRegen BioSciences, and, under the terms of his consulting agreement,
ImmuneRegen BioSciences, Inc. retains rights to any developments or discoveries
that he made in the course of working for us.
As a result of governmental funding, the U.S. Government has certain
rights in the technology developed with such funds. These rights include a
non-exclusive, paid-up, worldwide license under such inventions for any
governmental purpose. In addition, the government has the right to require us to
grant an exclusive license under any of such inventions to a third party if the
government determines that: (i) adequate steps have not been taken to
commercialize such inventions, (ii) such action is necessary to meet public
health or safety needs, or (iii) such action is necessary to meet requirements
for public use under federal regulations.
In this regard, the United States Air Force has reserved a
non-exclusive license to the patents (US Patent Nos. 5,945,508 and 5,998,376) 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. Those rights are set forth in 35 USC 202(c)(4) and 37 CFR 401.9 and 14(a).
Under the federal Bayh Dole Act, a party which acquires an exclusive
license for an invention that was partially funded by a federal research grant
is subject to the following government rights: (i) products using the invention
which are sold in the U.S. are to be manufactured substantially in the U.S.
unless a waiver is obtained; (ii) the government may force the granting of a
license to a third party who will make and sell the needed product if the
licensee does not pursue reasonable commercialization of a needed product using
the invention; and (iii) the U.S. Government may use the invention for its own
needs.
20
Moreover, besides the rights that have been granted to the U.S.
Government, the validity and breadth of claims in medical technology patents
involve complex legal and factual questions and, therefore, may be highly
uncertain. No assurance can be given that any patents based on pending patent
applications or any future patent applications by us will be issued, that the
scope of any patent protection will exclude competitors or provide competitive
advantages to us, that any of the patents that have been or may be issued to us
will be held valid if subsequently challenged or that others will not claim
rights in or ownership of the patents and other proprietary rights held by us.
Furthermore, there can be no assurance that others have not developed or will
not develop similar products, duplicate any of our products or design around any
patents that have been or may be issued to us. Since patent applications in the
U.S. are maintained in secrecy until shortly before a patent's issuance, we also
cannot be certain that others did not first file applications for inventions
covered by our pending patent applications, nor can we be certain that we will
not infringe any patents that may be issued to others on such applications.
We also rely on trade secrets and unpatentable know-how that we seek to
protect, in part, by confidentiality agreements. It is our policy to require our
employees, consultants, contractors, manufacturers, outside scientific
collaborators and sponsored researchers and other advisors to execute
confidentiality agreements upon the commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with us is to be kept confidential and not disclosed
to third parties except in specific limited circumstances. We also require
signed confidentiality or material transfer agreements from any company that is
to receive our confidential information. In the case of employees, consultants
and contractors, the agreements generally provide that all inventions conceived
by the individual while rendering services to us shall be assigned to us as our
exclusive property. There can be no assurance, however, that these agreements
will not be breached, that we would have adequate remedies for any breach, or
that our trade secrets or unpatentable know-how will not otherwise become known
or be independently developed by competitors.
Our potential success will also depend in part on our ability to
develop commercially viable products without infringing the proprietary rights
of others. We have not conducted freedom of use patent searches and no assurance
can be given that patents do not exist or could not be filed which would have an
adverse affect on our ability to market our products or maintain our competitive
position with respect to our products. If our technology components, devices,
designs, products, processes or other subject matter are claimed under other
existing U.S. or foreign patents, or are otherwise protected by third party
proprietary rights, we may be subject to infringement actions. In such event, we
may challenge the validity of such patents or other proprietary rights or we may
be required to obtain licenses from such companies in order to develop,
manufacture or market our products. There can be no assurances that we would be
able to obtain such licenses or that such licenses, if available, could be
obtained on commercially reasonable terms. Furthermore, the failure to either
develop a commercially viable alternative or obtain such licenses could result
in delays in marketing our proposed products or the inability to proceed with
the development, manufacture or sale of products requiring such licenses, which
could have a material adverse affect on our business, financial condition and
results of operations. If we are required to defend ourselves against charges of
patent infringement or to protect our proprietary rights against third parties,
substantial costs will be incurred regardless of whether we are successful. Such
proceedings are typically protracted with no certainty of success. An adverse
outcome could subject us to significant liabilities to third parties and force
us to curtail or cease our development and sale of our products and processes.
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.
RESEARCH AND LICENSE AGREEMENTS
Our patents and continued research on Sar9, Met (O2)11-Substance P are
derived from discoveries made during research studies funded by the Air Force
Office of Scientific Research in early 1994 by our Director, Dr. Mark Witten. 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 agreed to pay each of Drs.
Witten and Harris a non-refundable fee of $5,000 per month. We and Dr. Harris
agreed to terminate the consulting agreement for Dr. Harris in March 2005. In
January 2006, the company received correspondence from Dr. Witten stating that
he would terminate his consulting contract if his specific requirements were not
met. We subsequently accepted his termination effective February 1, 2006.
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
21
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, for so long as we sell any product or medical application which
incorporates or utilizes the patents, medical applications, and other
technologies developed by Drs. Witten and Harris, maintain in full force and
effect policies of general liability insurance (with Broad Form General
Liability and Product Liability endorsements) with limits of not less than
$1,000,000 per occurrence and $1,000,000 annual aggregate. The license agreement
will terminate ten years after the date of the expiration of the last patent
issued or issuing with respect to the licensed patents, medical applications,
and other technologies. The resignation of Dr. Harris as a director of our
company in December 2004 and as a consultant in March 2005 does not have any
impact upon the terms of the license agreement. The resignation of Dr. Witten as
a consultant to our company in February 2006 does not have any impact upon the
terms of the license agreement.
In February 2005, Drs. Witten and Harris executed assignment documents
in which, for good and valuable consideration, patent applications and patents
developed by them were assigned to ImmuneRegen BioSciences, Inc. The assignment
documents included all of the patents and patent applications which were
included in and covered by the Licensing Agreement, as amended. Drs. Witten and
Harris have also assigned all proprietary technology developed at ImmuneRegen
subsequent to the execution of the February 2005 assignment documents.
GOVERNMENTAL REGULATION
Our research and development activities and the manufacturing and
marketing of our applications are subject to the laws and regulations of
governmental authorities in the U.S. and other countries in which our
applications may be potentially marketed. Specifically, in the U.S., the FDA,
among other activities, regulates new product approvals to establish safety and
efficacy of these applications. 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. Governments in other countries have similar
requirements for testing and marketing. In the U.S., in addition to meeting FDA
regulations, we are also subject to other federal laws as well as certain state
laws.
REGULATORY PROCESS IN THE UNITED STATES
In the United States, the FDA, under the Federal Food, Drug, and
Cosmetic Act (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.
Approval of new pharmaceutical (and biological) products is a lengthy
procedure leading from development of a new product through pre-clinical and
clinical testing. This process takes a number of years and the expenditure of
significant resources. There can be no assurance that our product candidates
will ultimately receive regulatory approval.
Regardless of how our product candidates are regulated, the FFDCA and
other Federal statutes and regulations govern or influence the research,
testing, manufacture, safety, labeling, storage, record-keeping, approval,
distribution, use, product reporting, advertising and promotion of such
products. Noncompliance with applicable requirements can result in civil
penalties, recall, injunction or seizure of products, refusal of the government
to approve or clear product approval applications or to allow us to enter into
government supply contracts, withdrawal of previously approved applications and
criminal prosecution.
PRODUCT APPROVAL IN THE UNITED STATES
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
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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 Biologics License Application, or BLA, for a
biologic.
Pre-clinical tests include laboratory evaluation of product chemistry,
formulation and stability, as well as studies to evaluate toxicity. 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 statistically significant clinical efficacy,
optimal dosage and safety within an expanded and diverse
patient population at geographically-dispersed clinical
study sites.
As described above, for several of the product opportunities we are
pursuing, we may apply for approval based upon a new rule adopted by the FDA in
2002, titled "Approval of New Drugs When Human Efficacy Studies Are Not Ethical
or Feasible" (Code of Federal Regulations, Title 21, Part 314, Subpart I), which
is also referred to as the "animal efficacy rule." Pursuant to this new rule, in
situations where it would be unethical to conduct traditional Phase II and Phase
III efficacy studies in humans, as is the case with our applications relating to
the treatment of maladies caused by exposure to various chemical and biological
agents, the FDA will review new drugs for approval on the basis of safety in
humans and efficacy in relevant animal models.
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.
23
Clinical trials must meet requirements for Institutional Review Board,
or IRB, oversight, informed consent and the FDA's Good Clinical 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 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.
24
Manufacturers are also subject to various state and Federal laws and
regulations governing laboratory practices (specifically, the requirement for
certain studies to comply with current Good 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.
Some of our drug candidates may need to be administered using
specialized drug delivery systems. We may rely on drug delivery systems that are
already approved to deliver drugs like ours to similar physiological sites or,
in some instances, we may need to modify the design or labeling of the legally
available device for delivery of our product candidate. In such an event, the
FDA may regulate the product as a combination product or require additional
approvals or clearances for the modified device. Further, to the extent the
delivery device is owned by another company, we would need that company's
cooperation to implement the necessary changes to the device and to obtain any
additional approvals or clearances. Obtaining such additional approvals or
clearances, and cooperation of other companies, when necessary, could
significantly delay, and increase the cost of obtaining, marketing approval,
which could reduce the commercial viability of a drug candidate.
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 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.
SECURITIES LAWS
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 Securities
and Exchange Commission, 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.
DISTRIBUTION
If Radilex or Viprovex receives approval from the FDA, we will attempt
to commercialize these applications. Upon such approval, if Radilex we intend to
use our best efforts to market it as a treatment to the damaging effects of
radiation injury that result after exposure to total body irradiation. If
Viprovex, we intend to use our best efforts to market it as a medical
countermeasure to the effects of exposure to various biological and chemical
agents. We intend to offer for sale these applications to various governmental
agencies at the local, state and federal levels, both domestically and
potentially outside the United States.
Prior to FDA approval, Radilex and Viprovex 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
25
for other development stage medical countermeasures to weapons of mass
destruction. In that our studies, in the opinion of management, indicate that
Radilex may have efficacy in the treatment of the life-threatening effects of
radiation exposure and Viprovex to exposure to various biological and chemical
agents, we believe there may be interest by government agencies to stockpile
Radilex and/or Viprovex if it is successfully developed. However, there is no
assurance that any of such orders will be forthcoming and we have received no
indication from Project BioShield or any other agency that it intends to
purchase any quantities of Radilex or Viprovex.
COMPETITIVE ENVIRONMENT
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 Amgen Inc., Hollis-Eden Pharmaceuticals, Inc. and Akorn, Inc. have
developed or are developing products for treating aspects of severe acute
radiation 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 the potential products 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 of our
potential products at a price sufficient to permit us to generate profits.
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. It is due to these reasons that we
believe that competition will be driven by time to market.
If our proposed product candidates are successfully developed and
approved, we will face competition based on the safety and effectiveness of our
proposed products, the timing and scope of regulatory approvals, availability of
manufacturing, sales, marketing and distribution capabilities, reimbursement
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.
EMPLOYEES
From our inception through the period ended December 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 costs 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.
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.
26
RISK FACTORS
IN EVALUATING OUR BUSINESS, YOU SHOULD CONSIDER THE FOLLOWING
DISCUSSIONS OF RISKS, IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS REPORT
AS WELL AS OUR OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
ANY OF THE FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE HAVE LIMITED CASH RESOURCES, AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY
PROFITABLE AND EXPECT TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
As of December 31, 2005, we had a working capital deficit of
$2,273,444. This amount consists of cash of $265,860 and current assets of
$24,507, accounts payable of $243,703, accrued current liabilities of $258,426
and an accrued current liability of $2,061,683 related to a penalty for the late
registration of the securities sold in our October 2004 private placement. We
anticipate settling this late registration penalty in additional shares of
common stock and warrants to purchase additional shares of common stock. If this
non-cash liability were to be removed from our working capital position as of
December 31, 2005, we would have a working capital deficit of $211,761. We have
incurred a substantial net loss for the period from our inception in October
2002 to December 31, 2005, and are currently experiencing negative cash flow. We
expect to continue to experience negative cash flow and operating losses through
at least 2009 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 do not believe we will begin earning revenues from
operations until the calendar year 2009 as we transition from a development
stage company. We have incurred operating losses since our inception. Our net
loss for the fiscal year ended December 31, 2005 was $4,591,107. As of December
31, 2005, we had an accumulated deficit of $11,799,134.
OUR INDEPENDENT OUTSIDE AUDITORS HAVE RAISED SUBSTANTIAL DOUBT ABOUT OUR ABILITY
TO CONTINUE AS A GOING CONCERN.
Our independent certified public accountants have stated in their report
included in this Form 10-KSB/A that the Company has incurred a net loss and
negative cash flows from operations of $4,591,107 and $1,884,113, respectively,
for the year ended December 31, 2005, and a lack of operational history, among
other matters, that raise substantial doubt about its ability to continue as a
going concern, which contemplates, among other things, the realization of assets
and satisfaction of liabilities in the normal course of business. The effect of
this going concern would materially and adversely affect our ability to raise
capital, our relationship with potential suppliers and customers, and have other
unforeseen effects.
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.
Based on our current plans, we believe our existing financial
resources, and interest earned thereon, will be sufficient to meet our operating
expenses and capital requirements through March 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 estimate that we
will require approximately $5 million over the next 12 months in order to
finance our research and development efforts, fund operating expenses, pursue
regulatory clearances and prosecute and defend our intellectual property rights.
We may seek such additional funding through public or private financing or
through collaborative arrangements with strategic partners.
You should be aware that in the future:
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 March 2006. Our working capital deficit as of December 31,
2005 was $211,761 net of the accrual of securities pursuant to the penalty
27
provision of our October 2004 private placement. 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 any 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.
WE HAVE DEFERRED, AND MAY CONTINUE TO DEFER, PAYMENT OF SOME OF OUR OBLIGATIONS,
WHICH MAY ADVERSELY AFFECT OUR ABILITY TO OBTAIN GOODS AND SERVICES IN THE
FUTURE.
We estimate that we will require approximately $5 million to meet our
expenses for the next 12 months. Until such time, if at all, as we receive
adequate funding, we intend to defer payment of all of our obligations that are
capable of being deferred. Such deferment has resulted in the past, and may
result in the future, in some vendors demanding cash payment for their goods and
services in advance, and other vendors refusing to continue to do business with
us, which may adversely affect our ability to obtain goods and services in the
future, or to do so on favorable terms.
WE WILL NEED TO CONDUCT SIGNIFICANT ADDITIONAL RESEARCH, PRECLINICAL TESTING AND
CLINICAL TESTING AND EXPECT TO INCUR LOSSES AS WE RESEARCH, DEVELOP AND SEEK
REGULATORY APPROVALS FOR OUR POTENTIAL PRODUCTS.
All of our research and development efforts are early, pre-clinical
stage and Homspera has only undergone exploratory studies to evaluate its
biological activity in small animals. We will need to conduct significant
additional research, pre-clinical testing and clinical testing before we can
file applications with the FDA for approval of our product candidates. To date
we have not yet made applications with the FDA or any other governmental
regulatory agency for approval for our drug candidates, nor have we been in a
position to seek such approval. Until such time as we are able to file a New
Drug Application (NDA),and it is subsequently approved, we will not be able to
market or manufacture any products.
If our potential 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. In addition, to
compete effectively, any 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.
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. We currently anticipate that a significant portion
of any revenue would be derived from Radilex and Viprovex; however, the size and
extent of such revenues, if any, 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.
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 any potential drug candidate would function as intended
in large animal studies or 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;
28
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.
IF WE DO NOT OBTAIN GOVERNMENT REGULATORY APPROVAL FOR OUR PRODUCTS, WE CANNOT
SELL OUR PRODUCTS AND WE WILL NOT GENERATE REVENUES.
Our principal development efforts are currently centered on Radilex and
Viprovex, which are potential drug candidates derived from Homspera. All drug
candidates require U.S. Food and Drug Administration ("FDA") and foreign
government approvals before they can be commercialized. These regulations change
from time to time and new regulations may be adopted. Our research and
development efforts for our drug candidates are at a very early stage; they have
not been, and may not be, approved for commercial sale by the FDA or any other
governmental regulatory agency. We may incur significant additional operating
losses over the next several years as we fund development, clinical testing and
other expenses while seeking regulatory approval. To date we have conducted
limited pre-clinical studies of our potential drug candidates using various
small animal models; significant additional trials are required, and we may not
be able to demonstrate that these drug candidates are safe or effective. If we
are unable to demonstrate the safety and effectiveness of a particular drug
candidate to the satisfaction of regulatory authorities, the drug candidate will
not obtain required government approval. If we do not receive FDA or foreign
approvals for our products, we will not be able to sell our potential products
and will not generate revenues. Even if we receive regulatory approval of a
potential product, such approval may impose limitations on the indicated uses
for which we may market the product, which may limit our ability to generate
significant revenues.
ALL OUR APPLICATIONS ARE DERIVED FROM THE USE OF HOMSPERA. IF HOMSPERA IS FOUND
TO BE UNSAFE OR INEFFECTIVE, OUR BUSINESS WOULD BE MATERIALLY HARMED.
Our current potential drug candidates, Radilex and Viprovex, are
derived from Homspera. In addition, we plan to utilize Homspera in the
development of any future products we market. If these current or future product
candidates 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 current potential drug candidates, Radilex and
Viprovex, will require significant additional research and development efforts
and regulatory approvals prior to potential commercialization in the future. We
cannot guarantee that we will ever obtain any regulatory approvals of Homspera.
We currently are focusing our core competencies on the development of Radilex
and Viprovex although there may be no assurance that we will be successful in so
doing.
Our current potential drug candidates, Radilex, Viprovex and our
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.
Neither Radilex nor Viprovex nor our technologies utilizing Homspera have yet
been tested in large animals or humans. Regulatory authorities may not permit
large animal or human testing of Radilex, Viprovex or any other potential
products derived from Homspera. Even if large animal or human testing is
permitted, none of Radilex, Viprovex or any other potential drug candidate, if
any, derived from Homspera may be successfully developed or shown to be safe or
effective.
The results of our pre-clinical studies may not be indicative of future
pre-clinical or clinical trial results. A commitment of substantial resources to
conduct time-consuming research, pre-clinical 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 or technologies may prove to be safe or
effective in clinical trials. Approval of 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 potential 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
29
could interrupt, limit, delay or abort the development of any of our proposed
products or, if previously approved, necessitate their withdrawal from the
market.
THE MARKET FOR TREATING ASPECTS OF ACUTE RADIATION SYNDROME AND EXPOSURE TO
VARIOUS CHEMICAL AND BIOLOGICAL AGENTS IS UNCERTAIN AND IF WE ARE UNABLE TO
SUCCESSFULLY COMMERCIALIZE RADILEX OR VIPROVEX, WE WILL NOT RECOGNIZE A
SIGNIFICANT PORTION OF OUR FUTURE REVENUES, IF ANY.
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, radiological or biological agents has been
low. Accordingly, even if Radilex, our current drug candidate to treat aspects
of acute radiation syndrome (ARS) and Viprovex, our drug candidate to treat
exposure to various biological agents, are approved by the FDA, we cannot
predict with any certainty the size of the markets for them, if any. The
potential market for Radilex and Viprovex 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.
To date, although we have filed formal responses to governmental
grants, Request for Information (RFI) and Request for Proposal (RFP) for
therapeutics to treat ARS and exposure to various chemical and biological
agents, none have resulted in funding, stockpiling orders or a commitment to
purchase our potential products, if any. Additionally, we cannot guarantee that
our response to any future RFI, RFP or other grant will result in stockpiling
orders or a commitment to purchase our potential products, if any.
Any decision by the U.S. Government to enter into a commitment to
purchase Radilex or Viprovex 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 or Viprovex is approved by regulatory authorities, we
cannot guarantee that we will receive any stockpiling orders for Radilex or
Viprovex, that any such order would be profitable to us or that Radilex or
Viprovex 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, AND
THEREFORE ADVERSELY AFFECT THE TIMING AND LEVEL OF FUTURE REVENUES, IF ANY.
The process of obtaining FDA and other regulatory approvals is time
consuming, expensive and difficult to design and implement. Our current drug
candidates, Radilex and Viprovex, will have to undergo clinical trials and the
marketing and manufacturing of these drug candidates, if any, will be subject to
rigorous testing procedures. Our research and development efforts are at a very
early stage and Radilex and Viprovex have only undergone pre-clinical testing in
mice. We may not be able to obtain the necessary approvals for clinical trials,
manufacturing or marketing of Radilex and Viprovex or any other potential
products, if any, derived from Homspera. Moreover, any 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 Radilex, Viprovex or any
other potential products, if any, derived from Homspera, 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;
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.
Additionally, the FDA's policies may change and additional government
regulations may be enacted which could prevent or delay regulatory approval of
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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.
Even if human clinical trials of Radilex, Viprovex or any other
potential products, if any, derived from Homspera are initiated and successfully
completed, the FDA may not approve any of them 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 potential 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 Radilex or
Viprovex as "treatment" protocols. The FDA may not determine that Radilex or
Viprovex meet all of the FDA's criteria for use of an investigational drug for
treatment use. Even if Radilex or Viprovex are allowed for treatment use, third
party payers may not provide reimbursement for the costs of treatment with any
of them. The FDA also may not consider Radilex or Viprovex 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 FAIL TO OBTAIN APPROVAL FROM FOREIGN REGULATORY AUTHORITIES, WE WILL NOT
BE ALLOWED TO MARKET OR SELL OUR POTENTIAL PRODUCTS IN OTHER COUNTRIES, WHICH
WOULD ADVERSELY AFFECT OUR LEVELS OF FUTURE REVENUES, IF ANY.
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 our potential 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.
CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR POTENTIAL
DRUG CANDIDATES, THE EFFECT OF WHICH COULD PREVENT OR SIGNIFICANTLY DELAY
REGULATORY APPROVAL AND THEREFORE ADVERSELY AFFECT THE TIMING AND LEVEL OF
FUTURE REVENUES, IF ANY.
Prior to receiving approval to commercialize Radilex, Viprovex or any
other potential products, if any, derived from Homspera, 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 they are both safe and effective. We will need to demonstrate
such potential products' 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. Pre-clinical 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 PRE-CLINICAL OR CLINICAL STUDIES OR
THE ANALYSIS OF THE DATA FROM OUR PRE-CLINICAL OR CLINICAL STUDIES MAY RESULT IN
DELAYS IN OUR PLANNED FILINGS FOR REGULATORY APPROVALS OR ADVERSELY AFFECT OUR
ABILITY TO ENTER INTO COLLABORATIVE ARRANGEMENTS.
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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,
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.
The manufacture of our product candidates or any future products,
whether done by outside contractors as planned or internally, must comply with
current Good Manufacturing Practices, or cGMP, regulations enforced by the FDA
and foreign equivalents. If a manufacturer of our drug candidates does not
conform to the cGMP 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 such
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, WHICH
WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
The manufacturing process of Radilex, Viprovex or any other potential
products, if any, derived from Homspera 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 and we have not
manufactured any of the limited quantities of Radilex and Viprovex used in our
studies to date. We may not successfully arrange for contract manufacturing of
Radilex, Viprovex or any other potential products, if any, derived from Homspera
in production quantities and this could prevent us from commercializing products
or limit our profitability from any such proposed products.
WE RELY ON THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE OF RADILEX, VIPROVEX
AND HOMSPERA. OUR INABILITY TO MANUFACTURE RADILEX, VIPROVEX AND 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 Radilex, Viprovex and Homspera 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, if any.
Further, contract manufacturers must also operate in compliance with the cGMP
requirements; failure to do so could result in, among other things, the
disruption of our proposed product supplies. Our planned 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.
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For the manufacture of Radilex, Viprovex and Homspera, we obtain
synthetic peptides from third party manufacturers. 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 Radilex,
Viprovex and Homspera are readily available from various sources, and several
suppliers are capable of supplying Homspera 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 RADILEX, VIPROVEX AND
HOMSPERA WHICH WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
Our ability to earn any revenue on Radilex, Viprovex or any other
potential products, if any, derived from Homspera 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 Radilex, Viprovex or any other potential products,
if any, derived from Homspera. Third-party payers are increasingly challenging
the prices of medical products and services. If purchasers or users of Radilex,
Viprovex or any such other potential products, if any, derived from Homspera 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 RADILEX, VIPROVEX OR ANY OTHER
POTENTIAL PRODUCT, IF ANY, DERIVED FROM HOMSPERA, THE EFFECT OF WHICH WOULD
PREVENT US FROM SUCCESSFULLY COMMERCIALIZING ANY PROPOSED PRODUCT AND ADVERSELY
AFFECT OUR LEVEL OF FUTURE REVENUE, IF ANY.
Our ability to market and commercialize Radilex, Viprovex or any other
potential product, if any, derived from Homspera depends on the acceptance of
potential drug candidates based on 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 potential drug candidates based on Homspera, we may not be able to
successfully commercialize any proposed products or generate revenue.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY OR COSTS WHICH
WOULD ADVERSELY IMPART OUR FUTURE OPERATING RESULTS AND DIVERT FUNDS FROM THE
OPERATION OF OUR BUSINESS.
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.
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS, THE
EFFECT OF WHICH COULD ADVERSELY AFFECT ANY COMPETITIVE ADVANTAGE WE MAY HAVE.
We own two issued U.S. and two issued foreign patents and two pending
Patent Cooperation Treaty (PCT) applications, seven pending U.S. provisional
patent applications and 16 pending foreign provisional 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
33
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 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, WHICH WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
Although we believe our proprietary technology to be protected and our
patents enforceable, the failure to obtain meaningful patent protection for our
potential 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 that contain claims applicable to
our potential products. Patents we are not aware of may adversely affect our
ability to develop and commercialize any potential 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 potential 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 potential 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 proprietary 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.
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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 USPTO 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 potential 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.
FAILURE TO COMPLY WITH ENVIRONMENTAL LAWS OR REGULATIONS COULD EXPOSE US TO
SIGNIFICANT LIABILITY OR COSTS WHICH WOULD ADVERSELY IMPACT OUR OPERATING
RESULTS AND DIVERT FUNDS FROM THE OPERATION OF OUR BUSINESS 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. Our research and development
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, IR BioSciences Holdings,
Inc. or 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. We
currently maintain a key-man insurance policy for $1,000,000, payable to the
company, on his life. While we have entered into employment agreements with Mr.
Wilhelm, the loss of any of his services would be detrimental to us and could
have a material adverse effect on our business, financial condition and results
of operations.
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 ownership
discouraging a potential acquirer from making a tender offer or otherwise
attempting to obtain control of our business, even if such a transaction would
be beneficial to other stockholders.
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 OTCBB
to securities of issuers that are current in their reports filed with the
Securities and Exchange Commission. The effect on the OTCBB 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.
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
35
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 58,194,009 shares of our common stock are being registered with
the SEC in a Form SB-2 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.
The 366,420 shares of our common stock, and 450,000 shares of our
common stock issuable upon warrants presently issued and outstanding as of the
date hereof are held by promoters of our prior company, GPN Networks, Inc., or
such promoters' affiliates and assignees, or their transferees. It should be
noted that because GPN Network, Inc. was a "blank check" company as that term is
defined under the Securities Act, these shares may not be sold by these
promoters or their affiliates and assignees, or their transferees, pursuant to
Rule 144 of the Securities Act. The position of the staff of the Division of
Corporation Finance of the Securities and Exchanges Commission is that any such
resale transaction under Rule 144 would appear to be designed to distribute or
redistribute such shares to the public without coming within the registration
requirements of the Securities Act. Therefore, these promoters or their
affiliates and assignees, or their transferees, can only resell the shares they
hold as of the date hereof through a registration statement filed under the
Securities Act. All of these shares are being registered hereunder.
THERE IS NO CAP ON THE SHARES AND WARRANTS WE MAY ISSUE PURSUANT TO THE DELAYED
REGISTRATION PENALTY PROVISION UNDER THE OCTOBER 2004 PRIVATE PLACEMENT, WHICH
MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR STOCK.
Under the October 2004 private placement, we agreed to register the
shares sold in the transaction, along with the shares underlying the warrants
sold within ninety days from the closing date of the private placement. If these
securities were not so registered, we would incur a penalty equivalent to an
additional 2% of the shares and warrants to be registered for every 30 days that
we failed to complete the registration. Through March 20, 2006, we have accrued
6,456,800 shares and 2,542,400 warrants pursuant to this penalty provision. No
cap exists to limit the penalty for failure to register the shares and warrants
in the October 2004 private placement. Accordingly, the amount of additional
equity securities we issue pursuant to the delayed registration penalty may
adversely affect the market price of our common stock and the rights of our
stockholders may be substantially reduced. Moreover, as of the date of this
report, our authorized capital consists of 100,000,000 shares of common stock.
As of March 20, 2006, we have fully diluted 90,633,160 shares of common stock
outstanding. Therefore, because no cap exists to limit the issuance of penalty
shares, we may not have a sufficient number of authorized shares available for
the settlement of the registration penalty. As a result, the investors entitled
to these shares may take legal or other action against us, which may cause us to
pay substantial damages and adversely affect our business.
OUR COMMON STOCK IS CONSIDERED A "PENNY STOCK," AND IS SUBJECT TO ADDITIONAL
SALE AND TRADING REGULATIONS THAT MAY MAKE IT MOVE DIFFICULT TO SELL.
Our common stock is considered to be a "penny stock" since it does not
qualify for one of the exemptions from the definition of "penny stock" under
Section 3a51-1 of the Securities Exchange Act for 1934 as amended (the "Exchange
Act"). Our common stock is a "penny stock" because it meets one or more of the
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following conditions (i) the stock trades at a price less than $5.00 per share;
(ii) it is NOT traded on a "recognized" national exchange; (iii) it is NOT
quoted on the Nasdaq Stock Market, or even if so, has a price less than $5.00
per share; or (iv) is issued by a company that has been in business less than
three years with net tangible assets less than $5 million.
The principal result or effect of being designated a "penny stock" is
that securities broker-dealers participating in sales of our common stock will
be subject to the "penny stock" regulations set forth in Rules 15-2 through
15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires
broker-dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain a manually signed
and dated written receipt of the document at least two business days before
effecting any transaction in a penny stock for the investor's account. Moreover,
Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any
investor for transactions in such stocks before selling any penny stock to that
investor. This procedure requires the broker-dealer to (i) obtain from the
investor information concerning his or her financial situation, investment
experience and investment objectives; (ii) reasonably determine, based on that
information, that transactions in penny stocks are suitable for the investor and
that the investor has sufficient knowledge and experience as to be reasonably
capable of evaluating the risks of penny stock transactions; (iii) provide the
investor with a written statement setting forth the basis on which the
broker-dealer made the determination in (ii) above; and (iv) receive a signed
and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.
ITEM 2. DESCRIPTION OF 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, 2007. Our rent expense
is $2,320 per month in year one and will increase to $2,380 in year two. 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.
ITEM 3. 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 was subsequently settled in full for a cash payment of
$35,107 paid on August 2, 2005 releasing us from all obligations under the
judgment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2005.
37
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is approved for quotation on the NASD OTC Bulletin
Board under the symbol "IRBO". 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.
2006
----------------------------------
High Low
-------------- --------------
1st Quarter (through March 24, 2006) $ 0.35 $ 0.20
2005
----------------------------------
High Low
-------------- --------------
1st Quarter $ 1.00 $ 0.33
2nd Quarter 0.52 0.26
3rd Quarter 0.48 0.28
4th Quarter 0.52 0.19
2004
---------------------------------
High Low
-------------- --------------
1st Quarter $ 1.00 $ 0.32
2nd Quarter 0.51 0.11
3rd Quarter 0.19 0.09
4th Quarter 0.40 0.15
On March 24, 2006, the closing price of our common stock as reported by
the OTC Bulletin Board was $0.31 per share. There were approximately 520
shareholders of record and beneficial stockholders of our common stock as of
March 10, 2006. We have not paid any dividends on our common stock since
inception and do not intend to do so in the foreseeable future.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended December 31, 2005, the Company issued
warrants to purchase 62,467 shares of common stock at prices ranging from $0.125
to $1.00 per share. Pursuant to the terms of their respective agreement with us,
these warrants were granted to current members of the Bioterrorism Advisory
Board, Drug Development Advisory Board and the Oncology and Dermatology Advisory
Board for participation during the quarter ended December 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.
During the fiscal year ended December 31, 2005, the Company accrued the
issuance of 5,242,307 shares of common stock and warrants to purchase an
additional 2,064,187 shares of common stock pursuant to a penalty calculation
with regard to the late registration of shares sold in a private placement in
October 2004.
DIVIDENDS AND DISTRIBUTIONS
We have not paid any cash dividends to date. We intend to retain our
future earnings, if any, and we do not anticipate paying cash dividends on our
common stock in the foreseeable future.
38
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. SEE "FORWARD-LOOKING STATEMENTS" ABOVE. THIS
DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS REPORT.
This annual report on Form 10-KSB/A 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 report. 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 ANNUAL REPORT 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 ANNUAL REPORT.
OVERVIEW
We were originally incorporated in the State of 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. In
January 1992, we effected a 1-for-6.3 reverse stock split of our common stock.
We changed our name to InnoTek, Inc. in November 1992. 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., adopted our current business model
and thereafter changed our name to IR BioSciences Holdings, Inc. 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 potential therapeutics for a
number of applications. All potential therapeutics in development are based on
Sar9, Met (O2)11-Substance P, an analog of the naturally occurring human
neuropeptide Substance P. This neuropeptide can be found throughout the body,
including in the airways of humans and many other species. We use the generic
name Homspera to refer to the synthetic Sar9, Met (O2)11-Substance P peptide.
All of our research and development efforts are early, pre-clinical stage and
Homspera has only undergone exploratory studies to evaluate its biological
activity in small animals.
Currently, the majority of our development efforts are centered on two
potential therapeutic applications for the active ingredient in Homspera.
Radilex is being formulated specifically for the treatment of acute exposure to
radiation. Viprovex is being formulated specifically for applications relating
to the treatment of maladies caused by exposure to various chemical and
39
biological agents. We are currently sponsoring ongoing pre-clinical studies in
these areas, specifically two mouse radiation studies on the efficacy of Radilex
in treating acute radiation exposure and a study on the efficacy of Viprovex in
treating exposure to anthrax. In addition, we have designed the protocols for
additional radiation studies in mice using Radilex and an avian flu study in
mice using Viprovex. Both studies have institutions with facilities committed to
perform them when, and if, protocols and funding are finalized.
To date we have submitted preliminary study data to the U.S. Food and
Drug Administration (FDA) and have been issued two Pre-Investigational New Drug
(PIND) numbers, one for use of Homspera (now Radilex) in the treatment of acute
radiation syndrome and the other for use of Viprovex in the treatment of avian
influenza. In addition, we have recently submitted a PIND data package for the
use of Viprovex in the treatment of chemical exposure. We intend to file final
radiation study data from mice with the FDA within six months, and at that time
we plan to request a meeting with the FDA regarding the authorization of a large
animal study protocol to test the efficacy of Radilex as a treatment for acute
radiation syndrome. Also within the next six months, we plan to submit an
Investigational New Drug (IND) application for the use of Viprovex in treating
Acute Respiratory Distress Syndrome (ARDS)
We have filed patent applications and provisional patent applications,
where applicable, in many jurisdictions, inside and outside of the United
States, for the use of the active ingredient Sar9, Met (O2)11-Substance P in
applications that we are researching. We own two issued U.S. and two issued
foreign patents and two pending Patent Cooperation Treaty (PCT) applications,
seven pending U.S. provisional patent applications and 16 pending foreign
provisional patent applications.
Our current potential drug candidates, Radilex and Viprovex and other
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.
Neither Radilex nor Viprovex nor our technologies utilizing Homspera have yet
been tested in humans. There is no guarantee that regulatory authorities will
ever permit human testing of Radilex, Viprovex or any other potential products
derived from Homspera. Even if human testing is permitted, none of Radilex,
Viprovex or any other potential drug candidates, if any, derived from Homspera
may 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 commercial applications using
Homspera or any derivates thereof. Delays in planned patient enrollment in our
clinical trials may result in increased costs, program delays or both. None of
our potential applications may prove to be safe or effective in clinical trials.
Approval of the FDA or other regulatory approvals, including export license
permissions, may not be obtained and even if successfully developed and
approved, our potential applications may not achieve market acceptance. Any
applications resulting from our programs may not be successfully developed or
commercially available for a number of years, if at all.
As traditional efficacy studies would require healthy human volunteers
to be exposed to the potentially lethal agents or pathogens, this cannot be
done. Therefore, we may apply for approval based upon a new rule adopted by the
FDA in 2002, titled "Approval of New Drugs When Human Efficacy Studies Are Not
Ethical or Feasible" (Code of Federal Regulations, Title 21, Part 314, Subpart
I), which is also referred to as the "animal efficacy rule." Pursuant to this
new rule, in situations where it would be unethical to conduct traditional Phase
II and Phase III efficacy studies in humans, as is the case with our
applications relating to the treatment of maladies caused by exposure to high
level gamma radiation and various chemical and biological agents, the FDA will
review new drugs for approval on the basis of safety in humans and efficacy in
relevant animal models. Through development under this paradigm, management
believes near-term development opportunities may exist and development costs are
lessened compared to the more traditional drug development model, as Phase II
and Phase III of the FDA required drug approval process are not required. Under
either scenario, we will not have marketable applications unless and until our
drug candidates complete all required safety studies and clinical trials and
receive FDA approval in the United States or approval by regulatory agencies
outside of the United States.
Prior to FDA approval, Radilex and Viprovex may become eligible for
purchase by the U.S. government. Project BioShield legislation contains
provisions enabling the U.S. Department of Health and Human Services, or 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 our
studies, in the opinion of management, indicate that Radilex may have efficacy
in the treatment of the life-threatening effects of radiation exposure and
Viprovex to exposure to various biological and chemical agents, we believe there
may be interest by government agencies to stockpile Radilex and/or Viprovex if
it is successfully developed. However, there is no assurance that any of such
orders will be forthcoming and we have received no indication from Project
BioShield or any other agency that it intends to purchase any quantities of
Radilex or Viprovex.
40
To date, we have not obtained regulatory approval for or commercialized
any applications using Homspera or any of its derivatives. We have incurred
significant losses since our inception and we expect to incur annual losses for
at least the next 3 years as we continue with our drug discovery and development
efforts.
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 State of 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.
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 Radilex, Viprovex or any other proposed product, if
any, derived from Homspera and general and administrative activities.
Due to our liquidity and limited cash available our spending on
research and development activities in 2004 and 2005 was limited. We spent
approximately $113,731 and $150,091 in 2005 and 2004, respectively, in research
and development activities related to the development of Radilex and Viprovex as
potential protectants against the effects of chemical, biological, radiological
and nuclear threats. From our inception in October 2002, we have spent $306,794
in research and development activities. These costs only include the manufacture
and delivery of our drug by third party manufacturers and payments to Contract
Research Organizations for consulting related to our studies and costs of
performing such studies. Significant costs relating to research and development,
such as consulting fees for Drs. Witten and Seigel, among others, have been
classified in consulting fees for consistency of financial reporting.
We anticipate that during the next 12 months we will increase our
research and development spending to a total of approximately $3,500,000 in an
effort to further develop Radilex and Viprovex. 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, and therefore adversely
affect the timing and level of future revenues, if any."
PRODUCT RESEARCH AND DEVELOPMENT
We incurred an expense of $113,731 for the year ended December 31, 2005
in research and development activities related to the development of Radilex and
Viprovex versus an expense of $150,091 for the year ended December 31, 2004. 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 $306,794 in research and development activities. These costs only include
the manufacture and delivery of our drug by third party manufacturers and
payments to Contract Research Organizations for consulting related to our
studies and costs of performing such studies. Significant costs relating to
research and development, such as consulting fees for Drs. Witten and Seigel,
among others, have been classified in consulting fees for consistency of
financial reporting.
If we are successful in obtaining additional funding through grants or
investment capital, we anticipate that during the next 12 months we will
increase our research and development spending to a total of approximately
$3,500,000 in an effort to further develop Radilex, as a medical countermeasure
against radiological threats, and Viprovex, as a protectant against threats from
various biological agents. The research and development cost includes a
radiation study on large animals, which we estimate will cost up to $2,500,000
depending on the choice of contractor, additional animal pharmacology studies,
formulation and animal safety/toxicity studies, as well as, small pilot
pharmacological studies exploring possible additional indications. If we are
unable to raise additional capital, our research and development activities may
be lessened. The drug development, clinical trial and regulatory process is
lengthy, expensive and uncertain and subject to numerous risks.
We intend to apply to the FDA for approval for the use of Radilex for
the treatment of acute radiation syndrome and for approval for the use of
Viprovex for the treatment of maladies caused by chemical and biological
exposure based upon the "animal efficacy rule." We believe near-term development
opportunities may exist and development costs could potentially be lessened
compared to the more traditional drug development model, as Phase II and Phase
III of the FDA required drug approval process are not required. Even if we are
able to develop this potential application under the animal efficacy rule, we
will not have marketable applications unless and until our drug candidates
complete all required safety studies and clinical trials and receive FDA
41
approval in the United States or approval by regulatory agencies outside of the
United States. If we are successful in completing the study and achieve the
desired results, we intend to submit the necessary documentation to the FDA and
other regulatory agencies for approval. If approval for Radilex and/or Viprovex
is granted, we expect to begin efforts to commercialize our product, if any,
immediately thereafter. If approved, we are anticipating revenues from the sale
of Radilex and Viprovex, if any, beginning in calendar year 2009.
We will need to generate significant revenues from product sales and or
related royalties and license agreements to achieve and maintain profitability.
Through December 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 potential products or
technologies.
Our major research and development projects include:
Research and Development of Radilex in Radiological Exposure
Applications.
------------------------------------------------------------
We have commenced initial testing of Radilex to record its potential
therapeutic effects on the treatment of toxic radiation exposure. Our current
and past studies are based on initial studies conducted by our co-founders, Drs.
Mark Witten and David Harris. Subsequently, we have sponsored and/or
co-sponsored six radiation studies on rodents. In addition, we are currently
sponsoring two ongoing radiation studies, one at the University of Arizona and
one at Oak Ridge National Laboratory.
We prepared the protocols for what we believe will be our final phase
of rodent studies for a radiation sensitivity study on rodents to be conducted
at the Oak Ridge National Laboratory in which we will attempt to further
validate our prior studies. This study commenced on February 28, 2006. We
estimate that the study will be completed within 3 months at an estimated cost
of $90,000. 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 potential treatment to acute radiation sickness. We expect this
study to begin within the next 12 to 18 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 expect up to an additional $2,500,000
will be required to complete this study. We estimate the completion of this
study will be in 18 to 24 months.
If product development or approval does not occur as scheduled our time
to reach market will be lengthened and our costs will substantially 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 as a possible therapeutic for radiation exposure.
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.
Research and Development of Viprovex in Chemical and Biological
Exposure Applications.
-----------------------------------------------------------------------
We are sponsoring a series of studies with Hyperion Biotechnology Inc.
at their laboratory facilities located at Brooks City-Base in San Antonio, Texas
with the cooperation of the U.S. Air Force School of Aerospace Medicine
(USAFSAM). The first of these studies was initiated in October 2005. Logistical
considerations related to number of animals requiring exposure and performance
of a full Viprovex dose-response curve within specified time limits following
anthrax exposure required the experiment be performed in two sections, and it is
incomplete at this time. The second half of the full dose-ranging experiment
began in February, 2006. We estimate that the study will be completed within 3
months at an estimated cost of $51,450. If we are successful in achieving
desirable results against anthrax, we intend to design the protocols and begin
further studies for this and other 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 anthrax 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.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements made in 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
2009 as we transition from a development stage company.
42
COSTS AND EXPENSES
From our inception through December 31, 2005, we have incurred losses
of $11,799,134. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
NET LOSS
--------
For the reasons stated above, our net loss for the twelve months ending
December 31, 2005 was $4,591,107, or $0.07 per shares. For the period of
inception (October 30, 2002) through December 31, 2005, our net loss was
$11,799,134, or $0.30 per share. We expect that losses will continue through the
period ending December 31, 2009.
Our independent certified public accountants have stated in their
report included in this Form 10-KSB/A that we have incurred a net loss and
negative cash flows from operations of $4,591,107 and $1,884,113, respectively,
for the year ended December 31, 2005. This loss, in addition to a lack of
operational history, raises substantial doubt about our ability to continue as a
going concern. In the absence of significant revenue and profits, and since we
do not expect to generate significant revenues in the foreseeable future, we, in
order to fund operations, 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 for the fiscal year ending December 31, 2006. 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.
Penalties for Late Registration
-------------------------------
During the fiscal year December 31, 2005, we accrued the issuance of
5,242,307 shares of common stock and warrants to purchase an additional
2,064,187 shares of common stock pursuant to a penalty calculation with regard
to the late registration of shares sold in a private placement in October 2004.
In October 2004, we completed a private placement sale of shares of our
common stock and warrants to purchase additional shares of common stock. We
issued in the private placement an aggregate of 19,600,000 shares of our common
stock and warrants to purchase 9,800,000 shares of our common stock. We agreed
to register these shares along with the shares underlying these warrants within
ninety days from the closing date of the transaction, or we would incur a
penalty equivalent to an additional 2% of the shares and warrants to be
registered for every 30 days that we fail to complete this registration. This
penalty amounts to an aggregate of 461,200 shares and 181,600 warrants per 30
day period until such a time as this registration statement is made effective.
As of December 31, 2005, we are required to issue an additional 5,242,307 shares
of common stock and warrants to purchase an additional 2,064,187 shares of
common stock. At the time these liabilities were incurred, the shares were
valued at $1,991,923 and the warrants were valued at $638,838. The shares were
valued at the market price of the Company's common stock at the time the
liabilities were incurred. The warrants were valued utilizing the Black-Scholes
valuation model. The aggregate amount of $2,630,761 was charged to operations as
cost of Penalty for late registration of shares during the year ended December
31, 2005. The shares and warrants were re-valued at December 31,2005, and the
result of this re-valuation was to decrease the value of the shares by $314,385
and to decrease the value of the warrants by $254,693. These decreases were
credited to other (income) expense during the year ended December 31, 2005. At
December 31, 2005, the fair value of the common stock issuable under the penalty
for late registration of shares is $1,677,538, and the fair value of the
warrants issuable under the penalty for late registration of shares is $384,145.
These amounts appear as current liabilities on the Company's condensed
consolidated balance sheet at December 31, 2005.
We anticipate completing the registration of these shares during the
quarter ended June 30, 2006, but expect that an obligation to issue
approximately 2,136,893 additional shares and 841,413 additional warrants at an
aggregate cost of approximately $840,000 will be incurred. There is no guarantee
that we will be able to complete the registration within the anticipated
timeframe.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2005, we had current assets of $290,367 consisting of
cash of $265,860 and prepaid services of $24,507. Also, at December 31, 2005, we
had current liabilities of $2,563,811, consisting of accounts payable and
accrued liabilities of $2,563,811. This resulted in a working capital deficit of
$2,273,444. During the twelve months ended December 31, 2005, we used cash in
43
operating activities of $1,884,113. From the date of inception (October 30,
2002) to December 31, 2005, we had a net loss of $11,799,134 and used cash of
$3,958,458 in operating activities. We met our cash requirements from our
inception through December 31, 2005 via the private placement of $3,263,902 of
our common stock and $968,503 from the issuance of notes payable, net of
repayments. In October 2004, we completed a private placement whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors. Each unit was
sold for $10,000 and consisted of (a) a number of shares of our common stock
determined by dividing the unit price of $10,000 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. We issued an aggregate of 19,600,000 shares
of our common stock and warrants to purchase 9,800,000 shares of our common
stock in this private placement. In consideration of the investment, we granted
to each investor certain registration rights and anti-dilution rights.
We currently have 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, we have financed our
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 December 31, 2005 via the private placement of
$3,263,902 net of costs of our common stock, $1,194,856 of this was from the
exercise of common stock purchase warrants net of costs. An additional $968,503
was received 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
$1,190,856 from the tender offer, net of costs.
During the year ended December 31, 2005, we repaid two notes payable,
$14,997 in cash and $65,003 by converting into 232,153 shares of common stocks
at $0.28 per share pursuant to the terms of the promissory note dated September
26, 2001. The first note which accrued interest at 8% was repaid in full for
$4,998 ($3,900 principal & $1,097 accrued interest) on April 11, 2005, releasing
us 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
original terms of the note.
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.
On June 13, 2005, we issued 80,000 shares of common stock for cash of
$4,000 pursuant to the exercise of a warrant at $0.05 per share.
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 an amount between $0.075 and $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 through August 10, 2005, an annual
salary of $250,000. On August 10, 2005, we entered into a new employment
agreement with Mr. Wilhelm. The new employment agreement calls for a salary at
the rate of $275,000 per annum and provides for bonus incentives. Mr. Wilhelm's
salary is payable in regular installments in accordance with the customary
payroll practices of our company.
44
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 $1,211,000
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 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 agreed to pay Dr. Witten a non-refundable fee of $5,000 per month. In January
2006, the company received correspondence from Dr. Witten stating that he would
terminate his consulting contract if his specific requirements were not met. We
subsequently accepted his termination effective February 1, 2006.
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
September 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
$3,162,702). Based on our current plan of operations all of our current funding
is expected to be depleted by the end of March 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 potential 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
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 $5 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 for the year ended December 31, 2005. We do not anticipate the
acquisition of any significant property, plant or equipment during the next 12
months.
Number of Employees
-------------------
From our inception through the period ended December 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.
45
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 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 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
46
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 it's
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.
47
ITEM 7. FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2005 AND 2004
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
IR BIOSCIENCES HOLDINGS, INC.
F-1
IR Biosciences Holdings, Inc.
Index to Financial Statements
Page No.
--------
Report of Independent Registered Certified Public Accounting Firm............F-3
Consolidated Balance Sheet at December 31, 2005..............................F-4
Consolidated Statements of Losses for the two years ended
December 31, 2005 and 2004 and the period October 30, 2002
(Date of Inception) through December 31, 2005................................F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the period
October 30, 2002 (Date of Inception) through December 31, 2005........F-6 to F-9
Consolidated Statements of Cash Flows for the two years ended
December 31, 2005 and 2004 and the period October 30, 2002
(Date of Inception) through December 31, 2005.......................F-10 to F-11
Notes to Consolidated Financial Statements..........................F-12 to F-25
F-2
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 IR BioSciences
Holdings, Inc. a development stage company as of December 31, 2005 and the
related consolidated statements of losses, deficiency in stockholders' equity,
and cash flows for the years ended December 31, 2005 and 2004 and the period
October 22, 2002 (date of inception) through December 31, 2005. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the financial statements based upon
our audits.
We have conducted our audits in accordance with auditing standards of the Public
Company Accounting Oversight Board (PCAOB) (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
misstatement. 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 financial statements referred to above present fairly, in
all material respects, the financial position of IR BioSciences Holdings, Inc. a
development stage company at December 31, 2005 and the results of its operations
and its cash flows for the years ended December 31, 2005 and 2004, and the
period October 22, 2002 (date of inception) through December 31, 2005 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in the Note A to the accompanying
financial statements, the Company is in the development stage and has not
established a source of revenues. This raises substantial doubt about the
company's ability to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
New York, New York
March 24, 2006*
*Adjusted for typographical error
F-3
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
December 31,
2005
-------------
Assets
Current assets
Cash and cash equivalents $ 265,860
Prepaid services and other current assets 24,507
-------------
Total current assets 290,367
Deposits and other assets 2,260
Furniture and equipment, net of accumulated
depreciation of $3,862 4,226
-------------
Total assets $ 296,853
=============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities 502,128
Warrant portion of penalty for late registration
of shares - with registration rights (See note E) 384,145
Commom stock portion of penalty for late
Registration of shares (See note E) 1,677,538
--------------
Total current liabilities 2,563,811
Commitments and Contingencies --
Stockholders' deficit
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; 69,436,319 shares issued
and outstanding at December 31, 2005 69,435
Additional paid-in capital 9,465,501
Deferred compensation (2,760)
Deficit Accumulated during the Development Stage (11,799,134)
-------------
Total stockholder's deficit (2,266,958)
-------------
Total liabilities and stockholders' deficit $ 296,853
=============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Losses
For the Period
For the For the October 30,
Year Ended Year Ended 2002 to
December 31, December 31, December 31,
2005 2004 2005
------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses $ 2,534,417 $ 4,498,390 $ 8,124,301
Merger fees and costs -- -- 350,000
Financing cost -- -- 90,000
Impairment of intangible asset 6,393 -- 6,393
------------ ------------ ------------
Total operating expenses 2,540,810 4,498,390 8,570,694
------------ ------------ ------------
Operating loss (2,540,810) (4,498,390) (8,570,694)
Other expense:
Cost of penalty for late registration of shares 2,630,761 -- 2,630,761
Gain from marking to market - warrant portion
of penalty for late registration of shares (254,693) -- (254,693)
Gain from marking to market - stock portion
of penalty for late registration of shares (314,385) -- (314,385)
Interest (income) expense, net (11,386) 807,017 1,166,757
------------ ------------ ------------
Total other (income) expense (2,050,297) 807,017 3,228,440
------------ ------------ ------------
Loss before income taxes (4,591,107) (5,305,407) (11,799,134)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (4,591,107) $ (5,305,407) $(11,799,134)
============ ============ ============
Net loss per share - basic and diluted $ (0.07) $ (0.16) $ (0.30)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 67,691,598 33,510,168 38,934,503
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
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, 2005
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 year 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
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, 2005
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 diligence 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) -- --
Beneficial 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
F-7
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, 2005
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
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 in October 2004 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 October 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, 2004 -- -- 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 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 year 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
=========== =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
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, 2005
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Sale of shares of common stock for cash at
$0.20 per share in Mar 2005 for warrant
exercise, net of costs 6,600,778 6,600 1,184,256 -- -- 1,190,856
Value of warrants issued to members
of advisory committees in March 2005 -- -- 137,049 -- -- 137,049
Deferred compensation in Feb 2005 to a
consultant for 50,000 shares of stock at
$0.65 per share. -- -- -- (32,500) -- (32,500)
Warrants exercised at $0.05 per share
in June 2003 80,000 80 3,920 -- -- 4,000
Value of warrants issued to members of
advisory committee in June 2005 -- -- 70,781 -- -- 70,781
Value of warrants issued to investors and
service providers in June 2005 -- -- 32,991 -- -- 32,991
Issuance of 232,153 shares of common
stock in July 2005 for conversion of
notes payable 232,153 232 64,771 -- -- 65,003
Issuance of 100,000 shares of common stock
in August 2005 to a consultant for
services provided 100,000 100 9,900 -- -- 10,000
Value of warrants issued to advisory
committee in September 2005 for services -- -- 20,491 -- -- 20,491
Amortization of deferred comp for the
twelve months ended December, 2005 -- -- -- 199,726 -- 199,726
Value of warrants issued in October
and December 2005 to investors and
service providers -- -- 18,399 -- -- 18,399
Loss for the year ended
December 31, 2005 -- -- -- -- (4,591,107) (4,591,107)
------------ ----------- ----------- ------------ ----------- -----------
69,436,319 69,435 9,465,501 (2,760) (11,799,134) (2,266,958)
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Period
For the Year Ended For the Year Ended October 30, 2002 to
December 31, 2005 December 31, 2004 December 31, 2005
----------------- ----------------- ------------------
Cash flows from operating activities:
Net loss $ (4,591,107) $ (5,305,407) $ (11,799,134)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash compensation 520,853 3,284,577 3,920,853
Cost of penalty for late registration of shares -
stock portion 1,991,923 -- 1,991,923
Cost of penalty for late registration of shares -
warrant portion 638,838 -- 638,838
(Gain) loss from marking to market - stock portion
of penalty for late registration of shares (314,385) -- (314,385)
(Gain) loss from marking to market - warrant portion
of penalty for late registration of shares (254,693) -- (254,693)
Impairment of intangible asset 6,393 -- 6,393
Interest expense 4,007 83,776 156,407
Amortization of discount on notes payable -- 704,633 1,006,935
Depreciation and amortization 3,201 13,255 29,218
Changes in operating assets and liabilities:
Prepaid services and other assets 9,946 29,130 3,234
Accounts payable and accrued expenses 100,911 148,854 655,953
----------------- ----------------- ------------------
Net cash used in operating activities (1,884,113) (1,041,182) (3,958,458)
Cash flows from investing activities:
Acquisition of property and equipment -- (4,783) (8,087)
----------------- ----------------- ------------------
Net cash used in investing activities -- (4,783) (8,087)
Cash flows from financing activities:
Proceeds from notes payable -- 32,500 1,233,500
Principal payments on notes payable and demand loans (14,997) -- (264,997)
Shares of stock sold for cash 1,190,856 1,973,045 3,259,902
Proceeds from exercise of warrant 4,000 -- 4,000
Officer repayment of amounts paid on his behalf -- -- 19,880
Cash paid on behalf of officer -- -- (19,880)
----------------- ----------------- ------------------
Net cash provided by financing activities 1,179,859 2,005,545 4,232,405
Net increase (decrease) in cash and cash equivalents (704,254) 959,580 265,860
Cash and cash equivalents at beginning of period 970,114 10,534 --
----------------- ----------------- ------------------
Cash and cash equivalents at end of period $ 265,860 $ 970,114 $ 265,860
================= ================= ==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows (continued)
For the Period
For the Year Ended For the Year Ended October 30, 2002 to
December 31, 2005 December 31, 2004 December 31, 2005
----------------- ----------------- ------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,706 $ 54 $ 43,553
Taxes $ - $ - $ -
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 $ 10,000 $ 2,878,006 $ 2,925,286
================= ================= ==================
Common stock issued in exchange for previously incurred
debt and accrued interest $ 65,003 $ 695,591 $ 1,060,594
================= ================= ==================
Common stock issued 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 $ 279,949 $ 406,571 $ 772,381
================= ================= ==================
Debt and accrued interest forgiveness from note holders $ - $ 36,785 $ 36,785
================= ================= ==================
Common stock issued in satisfaction of amounts due to an
Officer and a Director $ - $ 180,000 $ 180,000
================= ================= ==================
Common stock issued in satisfaction of accounts payable $ - $ 157,219 $ 157,219
================= ================= ==================
Amortization of deferred compensation $ 199,726 $ - $ 199,726
================= ================= ==================
Fair value of common stock and warrants in connection
with the late filing of registration statement $ 2,630,761 $ - $ 2,630,761
================= ================= ==================
Gain from marking to market - stock portion of
penalty for late registration of shares $ 314,385 $ - $ 314,385
================= ================= ==================
Gain from marking to market - warrant portion of
penalty for late registration of shares $ 254,693 $ - $ 254,693
================= ================= ==================
Impairment of intangible asset $ 6,393 $ - $ 6,393
================= ================= ==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2005
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. (the "Company," "we," or "us") 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 potential therapeutics for a number of applications. All
therapeutics in development are based on Sar9, Met (O2)11-Substance P, an analog
of the naturally occurring human neuropeptide Substance P. This neuropeptide can
be found throughout the body, including in the airways of humans and many other
species. We use the generic name Homspera to refer to the synthetic Sar9, Met
(O2)11-Substance P peptide. All of our research and development efforts are
early, pre-clinical stage and Homspera has only undergone exploratory studies to
evaluate its biological activity in small animals.
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.
Going Concern
-------------
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements during the years ended December 31, 2005 and 2004, the
Company incurred losses from operations of $ 4,591,107 and $ 5,305,407,
respectively. In addition, its current liabilities exceed its current assets by
$2,273,444 as of December 31, 2005. These factors among others may indicate that
the Company will be unable to continue as a going concern for a reasonable
period of time.
In order to address our capital requirements, we intend to seek to raise
additional cash for working capital purposes through the public or private sales
of debt or equity securities, the procurement of advances on contracts or
licenses, funding from joint-venture or strategic partners, debt financing or
short-term loans, or a combination of the foregoing. We may also seek to
satisfy indebtedness without any cash outlay through the private issuance of
debt or equity securities. There can be no assurance the Company will be
successful in its effort to secure additional equity financing.
If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.
The accompanying consolidated financial statements do not include any
adjustments that might result should the Company be unable to continue as a
going concern.
F-12
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.
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 2005, 2004 and 2003, common stock
equivalents were 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 anet
loss of $11,799,134 from its inception through December 31, 2005. The Company
incurred a net loss of $ 4,591,107 and $ 5,305,407 from operations during the
years ended December 31, 2005 and 2004, respectively. The Company's has a net
working capital deficit of $2,273,444 with cash and cash equivalents of $265,860
at December 31, 2005.
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 2005, 2004, and the period from
October 30, 2002 (date of inception) to December 31, 2005 were $113,731,
$150,091 and $306,794, respectively.
F-13
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, 2005.
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 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, 2005 and 200
and for subsequent periods.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. The Company's pro forma
information was as follows:
Twelve months ended
December 31,
2005 2004
----------- -----------
Net loss, as reported $(4,591,107) $(5,305,407)
Compensation recognized under
under APB 25 -- --
Compensation recognized under
SFAS 123 (83,150) --
----------- -----------
Pro forma net loss $(4,674,257) $(5,305,407)
=========== ===========
Pro forma loss per share $ (0.07) $ (0.16)
=========== ===========
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.
F-14
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, 2005 or 2004.
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 May 2005, the FASB issued FASB Statement No. 154, ("FAS 154"), "Accounting
Changes and Error Corrections." FAS 154 establishes retrospective application as
the required method for reporting a change in accounting principle in the
absence of explicit transition requirements specific to the newly adopted
accounting principle. FAS 154 also provides guidance for determining whether
retrospective application of a change in accounting principle is impracticable
and for reporting a change when retrospective application is impracticable. FAS
154 becomes effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. We do not expect the adoption of
FAS 154 to have a material impact on our financial position, cash flows or
results of operations.
In December 2004, the FASB issued FASB Statement No. 123(R), ("FAS 123(R)"),
"Share-Based Payment," which is a revision of FASB Statement No. 123 ("FAS
123"), "Accounting for Stock-Based Compensation." FAS 123(R) supersedes APB
Opinion No. 25, (APB 25), "Accounting for Stock Issued to Employees," and amends
FASB Statement No. 95, "Statement of Cash Flows." FAS 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values at the
date of grant and to record that cost as compensation expense over the period
during which the employee is required to perform service in exchange for the
award (generally over the vesting period of the award). Excess tax benefits, as
defined by FAS 123(R), will be recognized as an addition to common stock. In
April 2005, the SEC adopted a new rule that amends the compliance dates for FAS
123(R). In accordance with the new rule, we are required to implement FAS 123(R)
at the beginning of our fiscal year that begins January 1, 2006. The
Commission's new rule does not change the accounting required by FAS 123(R); it
changes only the dates of compliance.
In November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3,
"Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards." The alternative transition method includes simplified methods
to establish the beginning balance of the additional paid-in capital pool ("APIC
pool") related to the tax effects of employee share-based compensation, and to
determine the subsequent impact on the APIC pool and consolidated statements of
cash flows of the tax effects of employee share-based compensation awards that
are outstanding upon adoption of SFAS 123(R). An entity may make a one-time
election to adopt the transition method described in this guidance and may take
F-15
up to one year from the later of its initial adoption of SFAS 123(R) or the
effective date of this guidance, which was November 11, 2005. We are in the
process of determining whether to adopt the alternative transition method
provided in FAS 123(R)-3 for calculating the tax effects of share-based
compensation pursuant to SFAS 123(R).
Effective January 1, 2006, we will adopt FAS 123(R) using the modified
prospective transition method, which provides for certain changes to the method
for valuing share-based compensation. The valuation provisions of FAS 123(R)
apply to new awards and to awards that are outstanding at the effective date and
subsequently modified or cancelled. Estimated compensation expense for awards
outstanding at January 1, 2006 will be recognized over the remaining service
period using the compensation cost calculated for pro forma disclosure purposes
under FAS 123. In accordance with the modified prospective transition method,
our statements of operations for periods prior to January 1, 2006 will not be
restated to reflect the impact of FAS 123(R).
Our calculation of share-based compensation expense in future periods will be
calculated using the Black-Scholes option valuation model and will include the
portion of share-based payment awards that is ultimately expected to vest during
the period and therefore will be adjusted to reflect estimated forfeitures. SFAS
123(R) requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. In our pro forma information required under SFAS 123 for the periods
prior to 2006, we accounted for forfeitures as they occurred. For share awards
granted after January 1, 2006, expenses will be amortized under the
straight-line attribution method. For share awards granted prior to 2006,
expenses are amortized under the straight-line single option method prescribed
by SFAS 123. We expect that our adoption of FAS 123(R) in 2006 will have a
material impact on our results of operations and net loss per share.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
The Company's property and equipment at December 31, 2005 consists of the
following:
Office Equipment $6,665
Office Fixtures and Furniture 1,423
-------
8,088
Accumulated Depreciation (3,862)
-------
$4,226
=======
Depreciation expense included as a charge to income amounted to $2,274, $1,078,
and $3,862 for the years ended December 31, 2005 and 2004 and from inception to
December 31, 2005, 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:
2005
--------
Technology License $ 9,250
Website 22,500
Less: accumulated amortization (25,357)
Impairment of intangible asset ( 6,393)
--------
Intangible assets, net $ -
========
Amortization expense included as a charge to income amounted to $927, $12,177,
and $25,357 for the years ended December 31, 2005 and 2004, and the period from
inception to December 31, 2005, respectively. In December 2005, the Company
determined it was necessary to record an impairment charge related to our
intangible asset totaling $6,393 , which was charged to operations during the
year ended December 31, 2005.
F-16
NOTE D - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2005 are as follows:
Common stock portion of penalty for late
registration of shares $1,677,538
Warrant portion of penalty for late
registration of shares - with
registration rights 384,145
Accounts payable & accrued liabilities 475,030
Insurance contract payable 18,000
Accrued interest 9,098
----------
Total $2,563,811
==========
NOTE E - PENALTY FOR LATE REGISTRATION OF SHARES
During the fiscal year December 31, 2005, the Company accrued the issuance of
5,242,307 shares of common stock and warrants to purchase an additional
2,064,187 shares of common stock pursuant to a penalty calculation with regard
to the late registration of shares sold in a private placement in October 2004.
In October 2004, we completed a private placement sale of shares of our common
stock and warrants to purchase additional shares of common stock. We issued in
the private placement an aggregate of 19,600,000 shares of our common stock and
warrants to purchase 9,800,000 shares of our common stock. We agreed to register
these shares along with the shares underlying these warrants within ninety days
from the closing date of the transaction, or we would incur a penalty equivalent
to an additional 2% of the shares and warrants to be registered for every 30
days that we fail to complete this registration. This penalty amounts to an
aggregate of 461,200 shares and 181,600 warrants per 30 day period until such a
time as this registration statement is made effective. As of December 31, 2005,
we are required to issue an additional 5,242,307 shares of common stock and
warrants to purchase an additional 2,064,187 shares of common stock. At the time
these liabilities were incurred, the shares were valued at $1,991,923 and the
warrants were valued at $638,838. The shares were valued at the market price of
the Company's common stock at the time the liabilities were incurred. The
warrants were valued utilizing the Black-Scholes valuation model. The aggregate
amount of $2,630,761 was charged to operations as cost of Penalty for late
registration of shares during the year ended December 31, 2005.
The shares and warrants were re-valued at December 31,2005, and the result of
this re-valuation was to decrease the value of the shares by $314,385 and to
decrease the value of the warrants by $254,693. These decreases were credited to
other (income) expense during the year ended December 31, 2005. At December 31,
2005, the fair value of the common stock issuable under the penalty for late
registration of shares is $1,677,538, and the fair value of the warrants
issuable under the penalty for late registration of shares is $384,145. These
amounts appear as current liabilities on the Company's condensed consolidated
balance sheet at December 31, 2005.
As the liability for these penalty shares and warrants must be settled by the
delivery of registered shares and the delivery of the registered shares is not
controlled by the Company, pursuant to EITF 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock", the net value of the shares and warrants at the date of issuance was
recorded as a liability on the balance sheet and the change in fair value
from the date of issuance to December 31, 2005 has been included in other
income (expense). Upon the registration statement being declared effective,
the fair value of the warrant on that date will be reclassified to equity.
We anticipate completing the registration of these shares during the quarter
ended June 30, 2006, but expect that an obligation to issue approximately
2,136,893 additional shares and 841,413 additional warrants at an aggregate cost
of approximately $840,000 will be incurred during the period January 1, 2006 to
June 30, 2006.
NOTE F - RELATED-PARTY TRANSACTIONS
Employment Agreements
---------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER:
On August 10, 2005, the Company entered into a new employment agreement with its
President and Chief Executive Officer, Michael K. Wilhelm. The employment
agreement calls for a salary at the rate of $275,000 per annum. The salary will
be subject to adjustment of at least 10% per year at the end of each year. The
registrant also agreed to defend and indemnify, to the fullest extent permitted
by the registrant's certificate of incorporation and bylaws and the Delaware
General Corporation Law, Mr. Wilhelm and hold him harmless against any liability
that he incurs within the scope of his employment under the agreement. The
agreement also provides for the following various bonus incentives:
i) A target incentive bonus in cash and/or stock if the Company consummates
a transaction with any unaffiliated third party such as an equity or debt
financing, acquisition, merger , strategic partnership or other similar
transaction.
ii) A one time grant of an option to purchase 2,000,000 shares of the
Company's common stock at an exercise price equal to the fair market value per
share on the date option is granted.
In connection with Mr. Wilhelm's new employment agreement, the Company also
entered into a change of control agreement and a severance agreement with him on
August 10, 2005.
Under the change of control agreement, Mr. Wilhelm shall be entitled to a
continuation of his base salary for a period of 18 months following an
involuntary termination, which means, at any time within that period which is
one-year from the change of control date (including such date), the termination
of the employment of Mr. Wilhelm (i) by the Company without cause or (ii) due to
F-17
constructive termination, as such terms are defined in the change of control
agreement. Further, in the event of an involuntary termination, the agreement
provides that the registrant shall pay Mr. Wilhelm a lump sum amount in cash,
equal to the sum of (i) any unpaid incentive compensation which has been
allocated or awarded to Mr. Wilhelm for a completed fiscal year or other
measuring period preceding the date of involuntary termination under any annual
or long-term incentive plan and which, as of the date of involuntary
termination, is contingent only upon the continued employment of Mr. Wilhelm to
a subsequent date, and (ii) a pro rata portion to the date of involuntary
termination of the aggregate value of all contingent incentive compensation
awards to Mr. Wilhelm for all then uncompleted periods under any such plan.
Further, 100% of the unvested portion of each outstanding stock option granted
to Mr. Wilhelm shall be accelerated so that they become immediately exercisable
upon the date of involuntary termination.
Under the severance agreement, Mr. Wilhelm shall be entitled to a continuation
of his base salary for a period of 18 months following an involuntary
termination, which means the termination of the employment of Mr. Wilhelm (i) by
the Company without cause or (ii) due to constructive termination, as such terms
are defined in the severance agreement. Further, in the event of an involuntary
termination, the agreement provides that the registrant shall pay Mr. Wilhelm an
amount equal to the amount of executive incentive pay (bonus) that he would have
received for the year in which the involuntary termination occurred had he met
one hundred percent (100%) of the target for such incentive pay. Also, under
this agreement, 100% of the unvested portion of each outstanding stock option
granted to Mr. Wilhelm shall be accelerated so that they become immediately
exercisable upon the date of involuntary termination.
CHIEF FINANCIAL OFFICER:
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 the Company.
Mr. Fermanis also receives 100,000 shares of the Company's common stock, which
are earned at the rate of 1/12 or 8,333 per month beginning January 2005. The
Company charges to operations the market value of these shares as of the first
day of each month. For the twelve months ended December 31, 2005, the Company
charged $41,416 to operations for the issuance of 100,000 shares to Mr.
Fermanis. This amount is carried in accrued liabilities at December 31, 2005.
Proprietary Rights Agreement
----------------------------
In December 2002, the Company entered into a royalty-free license agreement with
its two founders and largest shareholders. 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 Company 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, patent applications and patents developed
by them were assigned to ImmuneRegen BioSciences, Inc. The assignment documents
included all of the patents and patent applications which were included in and
covered by the licensing agreement, as amended. Drs. Witten and Harris have also
assigned all proprietary technology developed at ImmuneRegen subsequent to the
execution of the February 2005 assignment documents.
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 I).
F-18
Notes Payable
-------------
During the twelve months ended December 31, 2005, the Company converted notes
payable and accrued interest to Company shareholders in the aggregate amount of
$65,003 into 232,153 shares of the Company's common stock at a price of $0.28
per share (see Note G).
NOTE G - NOTES PAYABLE
During the year ended December 31, 2005, the Company settled in full three (3)
notes payable aggregating $80,000. Payment was made by converting one (1) note
in the amount of $65,003 into 232,153 shares of the Company's common stock, and
by paying cash in the amount of $14,997 in satisfaction of the remaining two (2)
notes. The Company has no notes payable outstanding at December 31, 2005.
NOTE H - 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, 2005, the
Company has 69,436,319 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
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 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
F-19
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.
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. As of the date of the
financial statements, the registration statement has not been deemed effective
and as a result, the Company has incurred penalties in the amount of $2,061,683
representing the obligation to issue an additional 5,242,307 shares of common
stock and warrants to purchase an additional 2,064,187 shares of common stock at
a price of $0.50 per share.
The accrued penalties in connection with the issuance of the shares of common
stock is included in accounts payable and accrued expenses at December 31, 2005.
In conjunction with raising capital through the private placement of our common
stock, the Company issued a warrant that has registration rights for the
underlying shares. As the contract must be settled by the delivery of
registered shares and the delivery of the registered shares is not controlled by
the Company, pursuant to EITF 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", the
net value of the 9,800,000 warrants and an additional 2,064,187 penalty warrants
at their respective dates of issuance has been recorded as a warrant liability
on the balance sheet ($638,838) and the change in fair value from the date of
issuance to December 31, 2005 has been included in other income (expense). The
assumptions used in the Black Scholes model are as follows: (1) dividend yield
of 0%; (2) expected volatility of 79%, (3) risk-free interest rate of 4.5%, and
(4) expected life of 5 years. Upon the registration statement being declared
effective, the fair value of the warrant on that date will be reclassified to
equity.
For the year ended December 31, 2005 the change in fair value of the warrant
issued with registration rights decreased by approximately $254,693 to $384,145
at December 31, 2005 and is recognized in other income (expense).
October 2004, the Company converted certain notes payable with an aggregate
principal amount of $558,500 plus accrued interest of $56,757 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 6,694,149 along with warrants to purchase an additional
3,347,076 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.
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.
In June 2005, the Company issued 80,000 shares of common stock pursuant to the
Exercise of a warrant at a price of $0.05 per share.
In July 2005, the Company issued 232,153 shares of common stock at a price of
$0.28 per share pursuant to the conversion of a note payable (see Note F.)
In August 2005, the Company issued 100,000 shares of common stock pursuant to an
agreement with a service provider. The fair value of these shares of $10,000 was
amortized over the life of the contract, from July 2004 to July 2005.
NOTE I - 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.
F-20
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 Weighted
Average Weighted Average
Remaining Average Remaining
Exercise Number Contractual Exercise Number Contractual
Prices Outstanding Life (years) Price Exercisable Life (years)
-------- ----------- ------------ --------- ----------- ------------
$25.00 63,212 4.24 $25.00 63,212 4.24
0.31 1,000 4.95 0.31 1,000 4.95
0.33 103,030 4.61 0.33 103,030 4.61
0.44 150,000 4.34 0.44 150,000 4.34
------- -------
317,242 317,242
======= =======
Transactions involving stock options issued to employees are summarized as
follows:
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at December 31, 2003 63,212 25.00
Granted -- --
Exercised -- --
Canceled or expired -- --
------- ------
Outstanding at December 31, 2004 63,212 $25.00
Granted 254,030 0.39
Exercised -- --
Canceled or expired -- --
------- ------
Outstanding at December 31, 2005 317,242 $ 5.30
======= ======
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 Weighted
Average Weighted Average
Remaining Average Remaining
Exercise Number Contractual Exercise Number Contractual
Prices Outstanding Life (years) Price Exercisable Life (years)
-------- ----------- ------------ --------- ----------- ------------
$ .05-.10 519,780 3.38 $.05-.10 519,780 3.38
.125-.21 911,819 3.46 .125-.21 911,819 3.46
.25-.56 9,271,405 3.57 .25-.56 9,271,405 3.57
1.00 867,311 2.08 1.00 867,311 2.08
2.00 46,550 3.21 2.00 46,550 3.21
----------- ------------ ----------- -----------
11,616,865 3.44 11,616,865 3.44
=========== ============ =========== ===========
F-21
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
(post-split) Price Per Share
(post-split)
--------------- ------------------
Outstanding at January 1, 2004 832,510 $ .82
Granted 16,831,199 .47
Exercised (6,600,778) .50
Canceled or expired -- --
---------- --------
Outstanding at December 31, 2004 11,062,931 .48
Granted 757,464 .44
Exercised (80,000) .05
Canceled or expired (123,530) 2.00
---------- --------
Outstanding at December 31, 2005 11,616,865 $ .46
========== ========
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 2004
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75% 3.75%
Expected stock price volatility 93% to 179% 163% to 262%
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 $279,711 and $406,571 during the years
ended December 31, 2005 and 2004, respectively.
The Company also capitalized financing costs of $0 and $397,394 for warrants
granted in connection with placement of convertible debentures for the years
ended December 31, 2005 and 2004, respectively.
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
F-22
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.
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
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.
During the three months ended March 31, 2005, the Company issued warrants to
purchase 268,033 shares of common stock 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 twelve months ended December 31, 2005.
F-23
During the three months ended June 30, 2005, the Company issued warrants to
purchase 366,814 shares of common stock at prices ranging from $0.038 to $1.00
per share to consultants and advisory board members. The Company also cancelled
warrants to purchase 123,530 shares of common stock at a price of $2.00 per
share. The Company valued these issuance and cancellations using the
Black-Scholes valuation model, and charged the amount of $103,772 to operations
during the twelve months ended December 31, 2005.
Also during the three months ended June 30, 2005, warrants to purchase 80,000
shares of common stock at a price of $0.05 per share were exercised.
During the three months ended September 30, 2005, the Company issued warrants to
purchase 77,250 shares of common stock at prices ranging from $0.125 to $1.00
per share to consultants and advisory board members. The Company valued these
warrants using the Black-Scholes valuation model, and charged the amount of
$20,491 to operations during the twelve months ended December 31, 2005.
In October and December 2005, the Company issued warrants to purchase 62,467
shares of common stock at prices ranging from $0.125 to $1.00 to consultants and
advisory board members for services provided. The Company valued these warrants
using the Black-Scholes valuation model, and charged the amount of $18,399 to
operations during the twelve months ended December 31, 2005.
NOTE J - COMMITMENTS AND CONTINGENCIES
Office Leases
-------------
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, 2007. Our rent expense is $2,320 per
month in year one and will increase to $2,380 in year two. 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.
Rent expense amounted to $27,785 for the years ended December 31, 2005, $41,051
for the year ended December 31, 2004, and $102,939 for the period from October
30, 2002 (inception) through December 31, 2005.
Employment and Consulting Agreements
------------------------------------
The Company has employment agreements with all of its President and Chief
Executive Officer (See Note F). 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 also has a
severance agreement and a change of control agreement in place with its
President and Chief Executive Officer.
The Company also has an employment agreement with its Chief Financial Officer
which provide salary and benefit provisions.
The Company has consulting agreements with outside contractors to provide
marketing and financial and scientific 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 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 was subsequently settled in full for a cash payment of $35,107 paid
on August 2, 2005 releasing us from all obligations under the judgment.
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.
F-24
NOTE K - 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 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 $4,970,000 which expire through 2026, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carryforward is approximately $1,740,000. 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, 2005 are as follows:
Non Current:
Net operating loss carryforward $1,740,000
Valuation allowance (1,740,000)
-----------
Net deferred tax asset $ --
===========
NOTE L - 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) Through
2005 2004 December 31, 2005
------------ ------------- ------------------
Net loss available to
common shareholders $ (4,591,107) (5,305,407) $(11,799,134)
============ ============ =============
Basic and fully diluted
loss per share $ (0.07) $ (0.16) $ (0.30)
============ ============ ============
Weighted average common
shares outstanding 67,691,598 33,510,168 38,934,503
============ ============ ============
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.
At December 31, 2005 and 2004, there were 11,680,077 and 11,380,173,
respectively, shares of common stock issuable subject to stock options and
warrants. These shares were excluded from the computation of diluted net loss
per share as their effect was antidilutive. If we had reported net income, the
calculation of these per share amounts would have included the dilutive effect
of these common stock equivalents using the treasury stock method.
NOTE M - SUBSEQUENT EVENTS
On March 10, 2006 we issued to our Chief Financial Officer, John N. Fermanis,
100,000 registered common stock per the terms of his employment agreement.
From the period of January 1, 2005 to March 20, 2005, we accrued the issuance of
1,214,493 shares of common stock and warrants to purchase an additional 478,213
shares of common stock pursuant to a penalty calculation with regard to the late
registration of shares sold in a private placement in October 2004. As of March
20, 2005, we are required to issue an additional 6,456,800 shares of common
stock and additional warrants to purchase 2,542,400 shares of common stock
pursuant to the late registration penalty.
F-25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
-------------------------------------------------
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure.
As of the end of the period covered by this Annual Report, we conducted
an evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, of our disclosure controls and
procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in enabling the
Company to record, process, summarize and report information required to be
included in the Company's periodic SEC filings within the required time period.
Our management is in the process of identifying deficiencies with
respect to our disclosure controls and procedures and implementing corrective
measures, which include the establishment of new internal policies related to
financial reporting.
Changes in internal controls
----------------------------
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended
December 31, 2005 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 8B. OTHER INFORMATION
None.
48
PART III
ITEM 9. DIRECTORS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT
Our directors and executive officers are:
Name Age Position
--------------------------------------------------------------------------------
Michael K. Wilhelm 38 President, Chief Executive Officer and Director
John N. Fermanis 52 Chief Financial Officer
Mark L. Witten, Ph.D. 52 Director
Theodore E. Staahl, M.D. 61 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.
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. Dr. Staahl devotes on average 3 hours per week to our business.
MARK L. WITTEN, PH.D., DIRECTOR. Dr. Witten has served on our Board of
Directors since July 2003 and has served on the Board of Directors for
ImmuneRegen BioSciences, Inc. since November 2002. Dr. Witten served as a
research scientist for ImmuneRegen BioSciences, Inc. from July 2003 to February
2006. 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 devotes on
average 3 hours per week to our business.
There are no family relationships among the directors and executive officers.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities to file with
the SEC initial reports of ownership and reports of changes in ownership of
Common Stock and other equity securities of the Company. Officers, directors,
and greater than ten percent stockholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file. To the
49
Company's knowledge, based solely on review of the copies of such reports
furnished to us during the fiscal year ended December 31, 2005, all Section
16(a) filing requirements applicable to the Company's officers, directors and
greater than ten percent stockholders were satisfied by such persons.
COMMITTEES OF THE BOARD OF DIRECTORS
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.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
earned by our Chief Executive Officer and each of the other executive officers
who served during the year ended December 31, 2005, and whose annual salary and
bonus during the fiscal years ended December 31, 2003, 2004 and 2005 exceeded
$100,000 (the "Named Executive Officers").
ANNUAL COMPENSATION
-------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)
-----------------------------------------------------------------------------------------------------------
Michael K. Wilhelm(1) 2005 275,000 28,870(2)
Chief Executive Officer and President 2004 175,000 247,301(3)
2003 125,000 0
John N. Fermanis 2005 161,416(5) 4,590(6)
Chief Financial Officer (4) 2004 0 0
2003 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, 2004 and 2005.
(2) Reflects the value of 80,811 warrants granted to Michael K. Wilhelm as
performance bonuses per his employment agreement. In May 2005, the Company
issued a warrant to Mr. Wilhelm to purchase 80,811 shares (post-split) of
common stock at a price of $0.30 per share (post-split). The Company
valued these warrants using the Black-Scholes model, and charged the
amount of $28,870 to operations during the twelve months ended December
31, 2005.
(3) 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 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.
(4) John N. Fermanis served as Chief Financial Officer from December 2004.
(5) Reflects the value of 100,000 shares of common stock issued to John N.
Fermanis in the three months ended March 31, 2005 as part of compensation
per his employment agreement. For the twelve months ended December 31,
2005, the Company charged $35,000 to operations for the issuance of these
100,000 shares to Mr. Fermanis.
Also reflects the value of an additional 100,000 shares of common stock
issued to John N. Fermanis as part of compensation per his employment
agreement. The shares were earned at the rate of 1/12 or 8,333 per month
beginning January 2005. The Company charged to operations the market value
of these shares as of the first day of each month. For the twelve months
ended December 31, 2005, the Company charged $41,416 to operations for the
issuance of 100,000 shares to Mr. Fermanis.
50
(6) Reflects the value of 12,500 warrants granted to John N. Fermanis as
performance bonuses per his employment agreement. In May 2005, the Company
issued a warrant to Mr. Fermanis to purchase 12,500 shares of common stock
at a price of $0.31 per share. The Company valued these warrants using the
Black-Scholes model, and charged the amount of $4,590 to operations during
the twelve months ended December 31, 2005.
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 consulting agreements 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. This contract was terminated effective
February 1, 2006.
EMPLOYMENT AGREEMENTS
On August 10, 2005, we entered into a new employment agreement with our
President and Chief Executive Officer, Michael K. Wilhelm. The employment
agreement calls for a salary at the rate of $275,000 per annum. The salary will
be subject to adjustment of at least 10% per year at the end of each year. We
also agreed to defend and indemnify, to the fullest extent permitted by our
certificate of incorporation and bylaws and the Delaware General Corporation
Law, Mr. Wilhelm and hold him harmless against any liability that he incurs
within the scope of his employment under the agreement. The agreement also
provides for the following various bonus incentives:
(i) A target incentive bonus in cash and/or stock if we consummate
a transaction with any unaffiliated third party such as an
equity or debt financing, acquisition, merger , strategic
partnership or other similar transaction.
(ii) A one time grant of an incentive option to purchase 103,030
shares of the Company's Common Stock, at an exercise price
equal to the fair market value per share on the date option is
granted and a nonstatutory option to purchase 1,896,970 shares
at such time that the Company's 2003 Stock Plan is amended to
authorize additional shares.
In connection with Mr. Wilhelm's new employment agreement, we also
entered into a change of control agreement and a severance agreement with him on
August 10, 2005. Under the change of control agreement, Mr. Wilhelm shall be
entitled to a continuation of his base salary for a period of 18 months
following an involuntary termination, which means, at any time within that
period which is one-year from the change of control date (including such date),
the termination of the employment of Mr. Wilhelm (i) by us without cause or (ii)
due to constructive termination, as such terms are defined in the change of
control agreement. Further, in the event of an involuntary termination, the
agreement provides that we shall pay Mr. Wilhelm a lump sum amount in cash,
equal to the sum of (i) any unpaid incentive compensation which has been
allocated or awarded to Mr. Wilhelm for a completed fiscal year or other
measuring period preceding the date of involuntary termination under any annual
or long-term incentive plan and which, as of the date of involuntary
termination, is contingent only upon the continued employment of Mr. Wilhelm to
a subsequent date, and (ii) a pro rata portion to the date of involuntary
termination of the aggregate value of all contingent incentive compensation
awards to Mr. Wilhelm for all then uncompleted periods under any such plan.
Further, 100% of the unvested portion of each outstanding stock option granted
to Mr. Wilhelm shall be accelerated so that they become immediately exercisable
upon the date of involuntary termination.
Under the severance agreement, Mr. Wilhelm shall be entitled to a
continuation of his base salary for a period of 18 months following an
involuntary termination, which means the termination of the employment of Mr.
Wilhelm (i) by us without cause or (ii) due to constructive termination, as such
terms are defined in the severance agreement. Further, in the event of an
involuntary termination, the agreement provides that we shall pay Mr. Wilhelm an
amount equal to the amount of executive incentive pay (bonus) that he would have
received for the year in which the involuntary termination occurred had he met
one hundred percent (100%) of the target for such incentive pay. Also, under
this agreement, 100% of the unvested portion of each outstanding stock option
granted to Mr. Wilhelm shall be accelerated so that they become immediately
exercisable upon the date of involuntary termination.
51
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.
STOCK OPTIONS
We issued 253,030 stock options to our Chief Executive Officer, Michael
Wilhelm, during the fiscal year ended December 31, 2005.
OPTIONS GRANTED IN THE YEAR ENDED DECEMBER 31, 2005
The following table sets forth information concerning individual grants
of stock options in 2005 to the Named Executive Officers:
Individual Grants
-------------------------------------------------------- Potential Realizable
Value at Assumed
Number of Annual Rates of Stock
Securities Percent of Price Appreciation
Underlying Total Options Exercise or for Option Term(1)
Options Granted to Base Price Expiration
Name Granted Employees Per Share Date 5% 10%
--------------------------------------------------------------------------------------------- -------------
Michael K. Wilhelm 103,030 40.6% $ 0.33 8/10/10 $ 9,394 $ 20,757
150,000 59.0 0.44 5/20/10 18,235 40,294
(1) In order to comply with the rules of the SEC, we are including the gains or
"option spreads" that would exist for the respective options we granted to
the Named Executive Officers. We calculated these gains by assuming an
annual compound stock price appreciation of 5% and 10% from the date of the
option grant until the termination date of the option, which is the fifth
anniversary of the grant date. These gains do not represent our estimate or
projection of the future price of the ordinary shares.
OPTIONS EXERCISES AND OPTIONS VALUES FOR YEAR ENDED DECEMBER 31, 2005
The following table sets forth information concerning option exercises in 2005
and option values as of December 31, 2005 to the Named Executive Officers:
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End at Fiscal Year-End (1)
Acquired --------------------------------------------------------------------
on Value
Name Exercise Realized Exercisable Un-exercisable Exercisable Un-exercisable
----------------------------------------------------------------------------------------------------------
Michael K. -- $ -- 253,030 -- $ -- $ --
Wilhelm
(1) The value of unexercised "in-the-money" options is based on a price per
share of $0.32, which was the price of a share as quoted on the OTC Bulletin
Board at the close of business on December 31, 2005, minus the exercise
price, multiplied by the number of shares underlying the option.
52
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.
At December 31, 2005, an aggregate of 254,030 stock options were
outstanding under the Plan at prices ranging from $0.31 to $0.44 per share. At
such date, there were 201,996 stock options available for grant. Further, the
Board approved a one time grant of an incentive option to our Chief Executive
Officer to purchase 1,896,970 shares at the fair market value per share on the
date the option is granted. The options shall be granted at such time that the
Company's 2003 Stock Plan is amended to authorize additional shares.
During the fiscal year ended December 31, 2005, 150,000 discretionary
incentive stock options were granted to our Chief Executive Officer, Michael K.
Wilhelm, per his employment agreement. The options have an exercise price of
$0.44 and a term of five years. Additionally, the Board approved a one time
grant of an incentive option to our Chief Executive Officer to purchase 103,030
shares of the Company's Common Stock. The options have an exercise price of
$0.33 and a term of five years. Further, our Board of Directors approved a one
time grant of a nonstatutory option to purchase 1,896,970 shares at the fair
market value per share on the date the option to our Chief Executive Officer,
Michael K. Wilhelm. These warrants will be granted such time that the Company's
2003 Stock Plan is amended to authorize additional shares.
Through December 31, 2003, we had 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of our common stock as of March 10, 2006 by: (i) all those known by IR
BioSciences Holdings, Inc. to be beneficial owners of more than five percent of
its common stock, (ii) each director and executive officer of IR BioSciences
Holdings, Inc., and (iii) all executive officers and directors of IR BioSciences
Holdings, Inc. as a group. Unless indicated below, the address for each listed
stockholder is c/o IR BioSciences Holdings, Inc., 4021 North 75th Street, Suite
201, Scottsdale, Arizona 85251.
Name Beneficial Ownership (1) % of Shares (2)
--------------------------------------------------------------------------------
Michael K. Wilhelm 8,132,814(3) 11.4
John N. Fermanis 117,500(4) *
Mark L. Witten 9,501,138(5) 13.5
Theodore Staahl 3,489,464(6) 5.0
David T. Harris 5,066,138 7.3
All executive officers and
directors as a group (4 persons) 21,240,916(7) 29.3
========== ====
* Less than one percent.
1. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In general, a person who has voting
power or investment power with respect to securities is treated as
beneficial owner of those securities. Common shares subject to options
and warrants currently exercisable or exercisable within 60 days of March
10, 2006 count as outstanding for computing the percentage beneficially
owned by the person holding these options or warrants.
2. Percentages are based on 69,536,319 shares of common stock outstanding as
of March 20, 2006.
3. Includes 1,788,718 shares of common stock underlying warrants and 253,030
shares of common stock underlying options that are currently exercisable
or exercisable within 60 days of March 10, 2006. Includes 4,066,138
shares of common stock purchase warrants issued to Foresight Capital
Partners, a company controlled by Michael Wilhelm that are currently
exercisable or exercisable within 60 days of March 10, 2006.
4. Includes 17,500 shares of common stock underlying warrants that are
currently exercisable or exercisable within 60 days of March 10, 2006.
Includes 100,000 shares of Common Stock that have been approved by the
Board of Directors for issuance; however, have not yet been issued.
53
5. Includes 712,000 shares of common stock underlying warrants that are
currently exercisable or exercisable within 60 days of March 10, 2006.
6. Includes 238,000 shares of common stock underlying warrants that are
currently exercisable or exercisable within 60 days of March 10, 2006.
Includes 93,300 shares of Common Stock that have been approved by the
Board of Directors for issuance; however, have not yet been issued.
7. Includes 2,721,218 shares of common stock underlying warrants and 253,030
shares of common stock underlying options that are currently exercisable
or exercisable within 60 days of March 10, 2006. Includes 4,101,138
shares of common stock underlying third party warrants that are currently
exercisable or exercisable within 60 days of March 10, 2006.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2005
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 available for
Number of Securities to be Weighted- average future issuance under equity
issued upon exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a)
(a) (b) (c)
-----------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders........ 254,030(1) $0.39 201,966(3)
Equity compensation
plans not approved by
security holders........ 11,680,077(2) $0.59 --
Total................... 11,934,107 201,966
========== =======
(1) Represents 254,030 stock options at a weighted average price of $0.39
outstanding under our 2003 Stock Option, Deferred Stock and Restricted Stock
Plan.
(2) Represents 11,616,865 stock purchase warrants at a weighted average price of
$0.46 and 63,212, options at a weighted average exercise price of $25.00.
(3) Represents 201,996 shares are available for future issuance under our 2003
Stock Option, Deferred Stock and Restricted Stock as of the date hereof.
Further, the Board approved a one time grant of an incentive option to our
Chief Executive Officer, Michael K. Wilhelm, to purchase 1,896,970 shares
at the fair market value per share on the date the option is granted. The
options shall be granted at such time that the Company's 2003 Stock Plan is
amended to authorize additional shares.
WARRANTS
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.
Number of Shares Weighted Average
(post-split) Price Per Share
(post-split)
--------------- ------------------
Outstanding at January 1, 2004 832,510 $ .82
Granted 16,831,199 .47
Exercised (6,600,778) .50
Canceled or expired -- --
---------- --------
Outstanding at December 31, 2004 11,062,931 .48
Granted 757,464 .44
Exercised (80,000) .05
Canceled or expired (123,530) 2.00
---------- --------
Outstanding at December 31, 2005 11,616,865 $ .46
========== ========
A description of our warrant arrangements and issuances are included in
our financial statements for the year ended December 31, 2005 under "Note I -
Stock Options and Warrants,"
54
ITEM 12. 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. ("ImmuneRegen Asia"), a
Singaporean company, is an affiliate of IR BioSciences Holdings, Inc.
Approximately 94% of the company is owned equally between our Chief Executive
Officer and Chairman, Michael K. Wilhelm, and our Director, Mark Witten. IR
BioSciences Holdings, Inc. holds less than 1% ownership in the company. For the
three month period ended December 31, 2005, we incurred no expenses. For the
period of inception (October 30, 2002) to December 31, 2005, we incurred
expenses totaling approximately $133,781, $114,660 on a Singapore-based
consultant and $19,121 on travel regarding corporate development and the
attendance of symposiums and conferences.
In November 2003, based on observations made during early preclinical
animal model studies we approached Ever Progressing System PTE LTD ("EPS"), a
Singapore based contract research organization (CRO), in an attempt to increase
our market presence, attract potential funding sources for our research and
development efforts and to identify and receive governmental grants. EPS advised
us that a presence in Singapore would be desirable if we wanted to pursue such
efforts in Singapore and elsewhere in Asia.
Acting on their advice, we incorporated, under the Singapore Companies
Act, ImmuneRegen Asia on June 5, 2004 and retained a Singapore-based consultant
to assist us in (i) the development and set-up of our Singapore corporation;
(ii) increasing our visibility in Asia through attendance of conferences,
meetings, symposiums, etc.; (iii) reaching out to contacts in various
governmental organizations; and, (iv) contact bankers, institutional and private
sources of funds for start-up costs, research and development and working
capital related to ImmuneRegen Asia.
Between November 2003 and January 2005, we held discussions with the
Economic Development Board of Singapore ("EDB") to assist in establishing a
research and development and clinical trials presence in Singapore. In October
2004, our Singapore-based consultant and representatives of ImmuneRegen
BioSciences, Inc. met with several members of Thailand's Department of Disease
Control, Ministry of Public Health in Bangkok. Also in October 2004, our
Singapore-based consultant met with various departments of the Philippines
Department of Health in Manila.
By April 2005, our efforts to further discussions with the EDB and
other governmental agencies and to secure adequate funding had proven
unsuccessful. At that time our Board of Directors opted to terminate the
Singapore-based consultant, dissolve ImmuneRegen Asia and focus solely on our
United States operations. We have since abandoned all discussions with EPS the
EDB and other governments in Asia regarding our research and development
activities.
Dissolution of ImmuneRegen Asia of which we own less than a 1%
interest, has been initiated pursuant to the requirements of Section 344 of the
Singapore Companies Act. ImmuneRegen Asia has not conducted any business since
its creation in May 2004, and is expected to satisfy the requirements for
dissolution with completion of the process anticipated in the near future. Upon
adequate and sufficient showing to the Singapore Registrar of Companies,
ImmuneRegen Asia will be struck off the register of companies and the company
will be dissolved. Shareholder and Board approval have occurred and the required
documents are being filed with the registrar of companies in Singapore.
OFFICE LEASE
During the period from December 1, 2002 through August 31, 2004, the
Company leased office space from an entity controlled by the our 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
55
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 respiratory infectious diseases, such as SARS (Viprovex), 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; (iv) an Agreement dated December 31, 2003
whereby InOne will name and design a logo for Acute Radiation Syndrome (ARS)
medical countermeasure for radiation (Radilex) 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, 2005, InOne no longer employs or has any business
relationship with the spouse of Mr. Wilhelm.
The amounts due InOne at December 31, 2005 and 2004 are $0 and $2,700,
respectively.
RELATED PARTY LOANS
There were no loans to related parties entered into during the fiscal
year ended December 31, 2005. Additionally, there were no loans to related
parties outstanding at December 31, 2005.
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.
In February 2005, Drs. Witten and Harris executed assignment documents
in which, for good and valuable consideration, patent applications and patents
developed by them were assigned to ImmuneRegen BioSciences, Inc. The assignment
documents included all of the patents and patent applications which were
included in and covered by the licensing agreement, as amended. Drs. Witten and
Harris have also assigned all proprietary technology developed at ImmuneRegen
subsequent to the execution of the February 2005 assignment documents.
Neither the termination of Dr. Harris' consulting agreement in March
2005 nor the termination of Dr. Witten's consulting agreement in February 2006
have any impact on the license agreement.
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. In March 2005, Dr. Harris resigned as consultant to us and our
subsidiaries. In January 2006, the company received correspondence from Dr.
Witten stating that he would terminate his consulting contract if his specific
requirements were not met. We subsequently accepted his termination effective
February 1, 2006.
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. We
accounted for the transaction as a forgiveness of indebtedness under FAS No. 140
during the period ended December 31, 2004.
56
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. We
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.
OUTSTANDING LOANS
In January 2003, we were loaned $15,000 by an accredited investor.
Pursuant to the terms of this transaction, we provided this lender with a
warrant to purchase 26,939 shares of our common stock at a price $0.17 per
share. The interest rate was 8% per annum. The principal was repaid in March
2005. Interest owed of $2,410.96 was converted into 19,288 shares of common
stock per the term of the note.
Between August 2001 and April 2003 we were loaned money by our
President and Chief Executive Officer. We repaid the remaining balance in full
for $4,998 ($3,900 principal and $1,097 accrued interest) on April 11, 2005
releasing us from further obligations under the note.
In September 2001 , we were loaned $50,000 by an accredited investor.
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 original terms of the note.
57
ITEM 13. EXHIBITS
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).
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 (incorporated by reference
to exhibit 4.1 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on November 24, 2004).
58
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
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 (incorporated by reference to
exhibit 4.6 of the Registrant's registration statement on Form
SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on November 24, 2004).
10.1 Employment Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and Michael Wilhelm (incorporated by reference to exhibit 10.1
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on November 24, 2004).
10.2 Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and David Harris (incorporated by reference to exhibit 10.2 of
the Registrant's registration statement on Form SB-2 (File No.
333-120784) filed with the Securities and Exchange Commission
on November 24, 2004).
10.2(a) First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and David Harris (incorporated by reference to
exhibit 10.2(a) of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on November 24, 2004).
10.3 Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and Mark Witten (incorporated by reference to exhibit 10.3 of
the Registrant's registration statement on Form SB-2 (File No.
333-120784) filed with the Securities and Exchange Commission
on November 24, 2004).
10.3(a) First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and Mark Witten (incorporated by reference to
exhibit 10.3(a) of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on November 24, 2004).
59
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
10.4 License Agreement dated December 16, 2002 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, David
Harris and Mark Witten (incorporated by reference to exhibit
10.4 of the Registrant's registration statement on Form SB-2
(File No. 333-120784) filed with the Securities and Exchange
Commission on November 24, 2004).
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 (incorporated by
reference to exhibit 10.4(a) of the Registrant's registration
statement on Form SB-2 (File No. 333-120784) filed with the
Securities and Exchange Commission on November 24, 2004).
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 (incorporated by
reference to exhibit 10.4(b) of the Registrant's registration
statement on Form SB-2 (File No. 333-120784) filed with the
Securities and Exchange Commission on November 24, 2004).
10.4(c) Assignment Agreement dated February 23, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten (incorporated by reference to exhibit 10.4(c)
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on July 20, 2005).
10.4(d) Assignment Agreement dated February 23, 2005 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, David
Harris and Mark Witten (incorporated by reference to exhibit
10.4(d) of the Registrant's registration statement on Form
SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on July 20, 2005).
10.4(e) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten (incorporated by reference to exhibit 10.4(e)
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on November 16, 2005).
10.4(f) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten (incorporated by reference to exhibit 10.4(f)
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on February 22, 2006).
10.4(g) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten (incorporated by reference to exhibit 10.4(g)
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on November 16, 2005).
10.4(h) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten (incorporated by reference to exhibit 10.4(h)
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on November 16, 2005).
10.5 Lease Agreement dated July 1, 2004 between ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, and The
Clayton Companies (incorporated by reference to exhibit 10.5
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on November 24, 2004).
60
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
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).
10.11 Employment Agreement dated August 10, 2005 by and between the
Registrant and Michael K. Wilhelm (incorporated by reference
to exhibit 10.1 of the Registrant's quarterly report on Form
10-QSB for the three months ended September 30, 2005).
10.12 Change of Control Agreement dated August 10, 2005 by and
between the Registrant and Michael K. Wilhelm (incorporated by
reference to exhibit 10.2 of the Registrant's quarterly report
on Form 10-QSB for the three months ended September 30, 2005).
10.13 Severance Agreement dated November 7, 2005 by and between the
Registrant and Michael K. Wilhelm (incorporated by reference
to exhibit 10.3 of the Registrant's quarterly report on Form
10-QSB for the three months ended September 30, 2005).
10.14 Authorization for Regulatory Contact dated November 7, 2005
between Immuneregen BioSciences, Inc., a subsidiary of the
Registrant, and Synergos, Inc. (incorporated by reference to
exhibit 10.14 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on February 22, 2006).
10.15 Proforma invoice/quotation dated November 7, 2005 from
Sigma-Aldrich, Inc. to ImmuneRegen BioSciences, Inc., a
subsidiary of the Registrant (incorporated by reference to
exhibit 10.15 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on November 16, 2005).
61
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
10.16 Letter of acceptance dated October 2, 2003, from Huntingdon
Life Sciences to ImmuneRegen BioSciences, Inc., a subsidiary
of the Registrant (incorporated by reference to exhibit 10.16
of the Registrant's registration statement on Form SB-2 (File
No. 333-120784) filed with the Securities and Exchange
Commission on February 22, 2006).
10.17 Price Quotation dated June 27, 2003 received by ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant from AppTec
Laboratory Services (incorporated by reference to exhibit
10.17 of the Registrant's registration statement on Form SB-2
(File No. 333-120784) filed with the Securities and Exchange
Commission on February 22, 2006).
10.18 Consulting Agreement dated March 15, 2005 between ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant and Dr. Hal
Siegel, Ph.D. (Siegel Consultancy) (incorporated by reference
to exhibit 10.18 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on February 22, 2006).
10.19 Consulting Agreement dated November 3, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Dr. Jack Caravelli, Ph.D (incorporated by reference to
exhibit 10.19 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on February 22, 2006).
10.20 Consulting Agreement dated July 29, 2005 between ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant and Dr.
Kelly McQueen, MD, MPH (incorporated by reference to exhibit
10.20 of the Registrant's registration statement on Form SB-2
(File No. 333-120784) filed with the Securities and Exchange
Commission on February 22, 2006).
21.1 Subsidiaries of Registrant (incorporated by reference to
exhibit 21.1 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities and
Exchange Commission on November 24, 2004).
23.1 Consent of Russell Bedford Stefanou Mirchandani LLP
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302
of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32.2 Certifications of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
------------
* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
62
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to us by our auditors during
the fiscal years ended December 31, 2005 and December 31, 2004 for: (i) services
rendered for the audit of our annual financial statements and the review of our
quarterly financial statements, (ii) services by our auditor that are reasonably
related to the performance of the audit or review of our financial statements
and that are not reported as Audit Fees, (iii) services rendered in connection
with tax compliance, tax advice and tax planning, and (iv) all other fees for
services rendered.
December 31, 2005 December 31, 2004
--------------------------------------
(i) Audit Fees $67,000 $75,341
(ii) Audit Related Fees -- --
(iii) Tax Fees 10,000 --
(iv) All Other Fees -- --
------------------ -------
Total fees $77,000 $75,341
================== =======
AUDIT FEES. Consists of fees billed for professional services rendered for the
audit of the Company's consolidated financial statements and review of the
interim consolidated financial statements included in quarterly reports and
services that are normally provided by the Company's certifying accountant in
connection with statutory and regulatory filings or engagements.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS
We currently do not have a designated Audit Committee, and accordingly,
the our Board of Directors' policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
Pre-approval is generally provided for up to one year and any pre-approval is
detailed as to the particular service or category of services and is generally
subject to a specific budget. The independent auditors and management are
required to periodically report to our Board of Directors regarding the extent
of services provided by the independent auditors in accordance with this
pre-approval, and the fees for the services performed to date. The Board of
Directors may also pre-approve particular services on a case-by-case basis.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 29, 2006
IR BIOSCIENCES HOLDINGS, INC.
By: /s/ Michael K. Wilhelm
-------------------------------------------------
Michael K. Wilhelm
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael K. Wilhelm Chief Executive Officer, President and March 29, 2006
----------------------- Director (Principal Executive Officer)
Michael K. Wilhelm
/s/ John N. Fermanis Chief Financial Officer (Principal March 29, 2006
----------------------- Financial and Accounting Officer)
John N. Fermanis
/s/ Theodore E. Staahl Director March 29, 2006
-----------------------
Theodore E. Staahl, M.D.