FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2006
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
COMMISSION FILE NUMBER: 033-05384
IR BIOSCIENCES HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 13-3301899
------------------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4021 N. 75th Street, Suite 201, Scottsdale, Arizona 85251
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (480) 922-3926
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
--- ---
The number of shares outstanding of Registrant's common stock as of May 1, 2006
was 69,536,319.
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements:
Consolidated Balance Sheet as of
March 31, 2006 (unaudited) ................................F-1
Consolidated Statement of Losses for the
three months ended March 31, 2006 and 2005, and for
the period of inception (October 30, 2002) to
March 31, 2006 (unaudited).................................F-2
Consolidated Statement of Stockholders' Equity
(Deficit)from date of inception (October 30,
2002) to March 31, 2006 (unaudited).................F-3 to F-6
Consolidated Statements of Cash Flows for the three
months ended March 31, 2006 and 2005, and for the
period of inception (October 30, 2002) to
March 31, 2006 (unaudited) .........................F-7 to F-8
Notes to Consolidated Financial Statements ................F-9
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation ..............................3
Item 3. Controls and Procedures .....................................9
PART II OTHER INFORMATION
Item 1. Legal Proceedings ..........................................10
Item 2. Unregistered Sale of Equity Securities
and Use of Proceeds ........................................10
Item 3. Defaults Upon Senior Securities ............................11
Item 4. Submission of Matters to a Vote of Securities Holders ......11
Item 5. Other Information...........................................11
Item 6. Exhibits....................................................11
Signatures..................................................11
2
ITEM 1. FINANCIAL INFORMATION
The accompanying notes are an integral part of these condensed consolidated
financial statements.
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet as of March 31, 2006
(Unaudited)
March 31,
2006
-------------
Assets
Current assets
Cash and cash equivalents $ 6,154
Prepaid services and other current assets 17,007
-------------
Total current assets 23,161
Deposits and other assets 2,260
Furniture and equipment, net of accumulated
depreciation of $5,803 (See Note 1) 18,760
-------------
Total assets $ 44,181
=============
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities (See Note 3) 707,859
Cash advance from related party (See Note 5) 50,000
Warrant portion of penalty for late registration
of shares - with registration rights (See note 4) 476,662
Common stock portion of penalty for late
Registration of shares (See note 4) 2,186,549
--------------
Total current liabilities 3,421,070
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; 69,536,319 shares issued
and outstanding at March 31, 2006 (See Note 6) 69,535
Additional paid-in capital (See Note 6) 9,515,216
Deficit Accumulated during the Development Stage (12,961,640)
-------------
Total stockholder's deficit (3,376,889)
-------------
Total liabilities and stockholders' deficit $ 44,181
=============
The accompanying notes are an integral part of these
consolidated financial statements.
F-1
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Losses
For the three months ended March 31, 2006 and 2005,
And for the period of inception
(October 30, 2002) to March 31, 2006
(Unaudited)
Cumulative
from Inception
For the Three For the Three (October 30,
Months Ended Months Ended 2002) to
March 31,2006 March 31,2005 March 31, 2006
------------- ------------- -------------
Operating expenses:
Selling, general and administrative expenses $ 561,144 $ 838,520 $ 8,685,445
Merger fees and costs -- -- 350,000
Financing cost -- -- 90,000
Impairment of intangible asset -- -- 6,393
------------ ------------ ------------
Total operating expenses 561,144 838,520 9,131,838
------------ ------------ ------------
Operating loss (561,144) (838,520) (9,131,838)
Other expense:
Cost of penalty for late registration of shares 555,973 -- 3,192,688
(Gain) Loss from marking to market - warrant portion
of penalty for late registration of shares (6,868) -- (267,515)
(Gain) Loss from marking to market - stock portion
of penalty for late registration of shares 52,423 -- (261,962)
Interest (income) expense, net (166) 977 1,166,591
------------ ------------ ------------
Total other (income) expense 601,362 977 3,829,802
------------ ------------ ------------
Loss before income taxes (1,162,506) (839,497) (12,961,640)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (1,162,506) $ (839,497) $(12,961,640)
============ ============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.01) $ (0.32)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 69,475,429 62,863,440 41,136,973
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to March 31, 2006
(Unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders in conjunction with fourth quarter
notes payable issued October through
December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the 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-3
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to March 31, 2006
(Unaudited)
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-4
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to March 31, 2006
(Unaudited)
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-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 March 31, 2006
(Unaudited)
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)
------------ ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2005 69,436,319 69,435 9,465,501 (2,760) (11,799,134) (2,266,958)
------------ ----------- ----------- ------------ ----------- -----------
Issuance of 100,000 shares of common stock
in March 2006 to an officer,
previously accrued 100,000 100 41,316 -- -- 41,416
Value of warrants issued to advisory
committee in March 2006 for services -- -- 8,399 -- -- 8,399
Amortization of deferred comp for the
three months ended March 31, 2006 -- -- -- 2,760 -- 2,760
Loss for the three months ended
March 31, 2006 -- -- -- -- (1,162,506) (1,162,506)
------------ ----------- ----------- ------------ ----------- -----------
Balance at March 31, 2006 69,536,319 69,535 9,515,216 -- (12,961,640) (3,376,889)
============ =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the three months ended March 31, 2006 and
2005, and for the period of inception (October 30, 2002)
to March 31, 2006
(Unaudited)
Cumulative
For the Three For the Three from Inception
Months Ended Months Ended (October 30,
March 31, March 31, 2002) to
2006 2005 March 31, 2006
--------------- --------------- --------------
Cash flows from operating activities:
Net loss $ (1,162,506) $ (839,497) $ (12,961,640)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash compensation 11,159 299,943 3,932,012
Cost of penalty for late registration of shares -
stock portion 456,588 -- 2,448,511
Cost of penalty for late registration of shares -
warrant portion 105,339 -- 744,177
(Gain) loss from marking to market - stock portion
of penalty for late registration of shares 52,423 -- (261,962)
(Gain) loss from marking to market - warrant portion
of penalty for late registration of shares (12,822) -- (267,515)
Impairment of intangible asset -- -- 6,393
Interest expense -- 977 156,407
Amortization of discount on notes payable -- -- 1,006,935
Depreciation and amortization 1,941 402 31,159
Changes in operating assets and liabilities:
Prepaid services and other assets 7,500 (372) 10,734
Accounts payable and accrued expenses 247,147 (12,424) 903,100
----------------- ----------------- ------------------
Net cash used in operating activities (293,231) (550,971) (4,251,689)
Cash flows from investing activities:
Acquisition of property and equipment (16,475) -- (24,562)
----------------- ----------------- ------------------
Net cash used in investing activities (16,475) -- (24,562)
Cash flows from financing activities:
Proceeds from notes payable 50,000 -- 1,283,500
Principal payments on notes payable and demand loans -- (10,000) (264,997)
Shares of stock sold for cash -- 1,190,857 3,259,902
Proceeds from exercise of warrant -- -- 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 50,000 1,180,857 4,282,405
Net increase (decrease) in cash and cash equivalents (259,706) 629,886 6,154
Cash and cash equivalents at beginning of period 265,860 970,114 --
----------------- ----------------- ------------------
Cash and cash equivalents at end of period $ 6,154 $ 1,600,000 $ 6,154
================= ================= ==================
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the three months ended March 31, 2006 and
2005, and for the period of inception (October 30, 2002)
to March 31, 2006
(Unaudited)
Cumulative
For the Three For the Three from Inception
Months Ended Months Ended (October 30,
March 31, March 31, 2002) to
2006 2005 March 31, 2006
--------------- --------------- -----------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 220 $ -- $ 43,773
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 $ -- $ -- $ 2,925,286
=============== =============== ===========
Common stock issued in exchange for previously incurred
debt and accrued interest $ -- $ -- $ 1,060,594
=============== =============== ===========
Common stock issued as interest $ -- $ -- $ 36,000
=============== =============== ===========
Amortization of beneficial conversion feature $ -- $ -- $ 223,269
=============== =============== ===========
Stock options and warrants issued in exchange for services
rendered $ -- $ 137,049 $ 772,381
=============== =============== ===========
Debt and accrued interest forgiveness from note holders $ -- $ -- $ 36,785
=============== =============== ===========
Common stock issued in satisfaction of amounts due to an
Officer and a Director $ -- $ -- $ 180,000
=============== =============== ===========
Common stock issued in satisfaction of accounts payable $ -- $ -- $ 157,219
=============== =============== ===========
Common stock issued for deferred compensation to a
Consultant accrued in March 2005 $ -- $ 32,500 $ 2,630,761
=============== =============== ===========
Amortization of deferred compensation $ 2,760 $ -- $ 202,486
=============== =============== ===========
Fair value of common stock and warrants in connection
with the late filing of registration statement $ 555,973 $ -- $ 3,186,734
=============== =============== ===========
Gain from marking to market -- stock portion of
penalty for late registration of shares $ 52,423 $ -- $ (261,962)
=============== =============== ===========
Gain from marking to market -- warrant portion of
penalty for late registration of shares $ (6,868) $ -- $ (261,561)
=============== =============== ===========
Impairment of intangible asset $ -- $ -- $ 6,393
=============== =============== ===========
Issuance of stock to officer, previously accrued $ 41,416 $ -- $ 41,416
=============== =============== ===========
Value of warrants issued to members of advisory board $ 8,399 $ -- $ 8,399
=============== =============== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the three-month periods ended March 31, 2006 and
2005 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2006. The unaudited condensed consolidated financial
statements should be read in conjunction with the December 31, 2005 financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB filed with the Securities and Exchange Commission on March 28, 2006 and
Form 10-KSB/A filed with the Securities and Exchange Commission on March 31,
2006.
Business and basis of presentation
----------------------------------
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 Homspera(TM), a proprietary compound that is derived from
homeostatic substance P, a naturally occurring peptide. Currently, the majority
of our development efforts are centered around two drug candidates derived from
Homspera, Radilex(TM) and Viprovex(TM). Radilex has been formulated specifically
for the potential treatment of acute exposure to radiation. Viprovex was
formulated specifically for applications relating to the potential treatment of
maladies caused by exposure to various chemical and biological agents. Our
research and development efforts are at a very early stage and Radilex and
Viprovex have only undergone pre-clinical testing in mice. From its inception
through the date of these financial statements, the Company has recognized no
revenues and has incurred significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, ImmuneRegen BioSciences, Inc. Significant
intercompany transactions have been eliminated in consolidation.
Reclassification
----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
F-9
Stock based compensation
------------------------
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised),
"Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R) we accounted for stock option grant in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(the intrinsic value method), and accordingly, recognized compensation expense
for stock option grants.
Under the modified prospective approach, SFAS 123(R) applies to new awards and
to awards that were outstanding on January 1, 2006 that are subsequently
modified, repurchased or cancelled. Under the modified prospective approach,
compensation cost recognized in the first quarter of fiscal 2006 includes
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123, and compensation cost for
all share-based payments granted subsequent to January 1, 2006 based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). Prior periods were not restated to reflect the impact of adopting the
new standard.
As a result of adopting SFAS 123(R) on January 1, 2006, for the three months
ended March 31, 2006, there was no effect on our income before taxes and net
income as there were no stock options granted during the quarter, and there were
no outstanding but unvested options or grants at December 31, 2005.
Interim financial statements
----------------------------
The accompanying balance sheet as of March 31, 2006, the statements of
operations for the three months ended March 31, 2006 and 2005, and for the
period of inception (October 30, 2002) to March 31, 2006, and the statements of
cash flows for three months ended March 31, 2006 and 2005, and from the period
of inception (October 30, 2002) to March 31, 2006 are unaudited. These unaudited
interim financial statements include all adjustments (consisting of normal
recurring accruals), which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the periods presented.
Interim results are not necessarily indicative of the results to be expected for
a full year.
Use of estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
F-10
Long-lived assets
-----------------
The Company accounts for its long-lived assets under the provision of Statements
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets 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
undiscounted 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.
Prepaid services and other current assets
------------------------------------------
Prepaid services and other current assets consist of prepaid insurance in the
amount of $17,007.
Deposits and other assets
-------------------------
Deposits and other assets consist of a deposit on leased office space in the
amount of $2,260.
Furniture and equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Laboratory equipment 3 years
Furniture 7 years
The amounts depreciated for the three months ended March 31, 2006 and 2005 were
$1,941 and $170, respectively. The amount depreciated from the date of inception
(October 30, 2002) through March 31, 2006 was $5,803.
NOTE 2 - RELATED PARTY TRANSACTIONS
Proprietary rights agreements
-----------------------------
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. The resignation of Dr. Witten as a consultant to our company in February
2006 does not have any impact upon the terms of the proprietary rights
agreement.
F-11
Consulting agreements
---------------------
During the three months ended March 31, 2006, the Company paid the amount of
$5,000 to Dr. Witten as consulting fees. At March 31, 2006, the Company owes the
amount of $2,847 to Dr. Harris for accrued consulting fees.
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.
Employment agreements
---------------------
Pursuant to our employment agreement with John Fermanis, our Chief Financial
Officer, dated February 15, 2005, Mr. Fermanis' salary increased from $85,000 to
$98,000 per annum effective January 1, 2006. Also pursuant to Mr. Fermanis'
employment agreement, 100,000 shares of the Company's common stock were earned
during the twelve months ended December 31, 2005. The Company charged the amount
of $41,416 to operations during the year ended December 321, 2005. These shares
were issued to Mr. Fermanis in March 2006.
Cash Advance
------------
In March 2006, the Company received a cash advance in the amount of $50,000 from
a Director. The Company anticipates converting this advance to a note payable
during the three months ending June 30, 2006. See note 5.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------
Accounts payable and accrued liabilities consisted of the following at March 31,
2006:
Accounts payable and accrued liabilities $ 644,124
Accounts payable - shell company 34,926
Insurance financing payable 13,500
Interest payable 9,262
State income tax payable 3,200
Consulting fees payable 2,847
--------
$ 707,859
========
NOTE 4 - PENALTY FOR LATE REGISTRATION OF SHARES
During the three months ended March 31, 2006, the Company accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 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. The
Company charged to operations $456,588 and $105,339, respectively, during the
three months ended March 31, 2006 representing the fair value of these shares
and warrants, respectively. During the three months ended March 31, 2006, the
Company also marked to market the value of the 5,423,307 shares and warrants to
purchase an additional 2,064,187 shares which were outstanding at December 31,
2005. This resulted in a charged to operations of $52,423 and a credit to
operations of $6,868 for these previously outstanding shares and warrants,
respectively. At March 31, 2006, the Company had obligations to issue an
aggregate of 6,625,907 shares and warrants to purchase an additional 2,608,987
shares, respectively.
F-12
NOTE 5 - CASH ADVANCE
In March 2006, the Company received a cash advance from a director in the amount
of $50,000. This advance bears interest at the rate of 12% per annum. During the
three months ended March 31, 2006, the Company accrued interest in the amount
$164 on this advance. The Company anticipates converting this advance to a note
payable during the quarter ending June 30, 2006.
NOTE 6 - EQUITY
Common stock
------------
In March 2006, the Company issued 100,000 shares of common stock to its Chief
Financial Officer. These shares had been earned, and were accrued, during the
year ended December 31, 2005.
Warrants
--------
During the three months ended March 31, 2006, the Company issued warrants to
purchase 61,500 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 $8,399 to operations
during the three months ended March 31, 2006.
Warrants outstanding do not include the warrants to be issued pursuant to the
penalty for late registration of shares - see Note 4.
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 3.14 $.05-.10 519,780 3.14
.125-.22 936,819 3.21 .125-.22 936,819 3.21
.25-.56 9,271,405 3.32 .25-.56 9,271,405 3.32
1.00 903,811 1.88 1.00 903,811 1.88
2.00 46,550 2.97 2.00 46,550 2.97
----------- ------------ ----------- -----------
11,678,365 3.19 11,678,365 3.19
=========== ============ =========== ===========
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
(post-split) Price Per Share
(post-split)
--------------- ------------------
Outstanding at December 31, 2005 11,616,865 .46
Granted 61,500 .67
Exercised -- --
Canceled or expired -- --
---------- --------
Outstanding at March 31, 2006 11,678,365 .46
========== ========
F-13
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 4.5% 3.75%
Expected stock price volatility 75% 93% to 179%
Expected dividend payout -- --
Expected option life-years (a) 3 3 to 5
Options
-------
There were no options granted during the three months ended March 31, 2006.
The following table summarizes the changes in stock options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company.
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 4.00 $25.00 63,212 4.00
0.31 1,000 4.70 0.31 1,000 4.70
0.33 103,030 4.36 0.33 103,030 4.36
0.44 150,000 4.09 0.44 150,000 4.09
------- -------
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, 2005 317,242 $ 5.30
Granted -- --
Exercised -- --
Expired -- --
---------------- ----------------
Outstanding at March 31, 2006 317,242 $ 5.30
================ ================
F-14
Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------
During the three months ended March 31, 2006, the Company accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 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. The
Company charged to operations $456,588 and $105,339, respectively, during the
three months ended March 31, 2006 representing the fair value of these shares
and warrants, respectively. During the three months ended March 31, 2006, the
Company also marked to market the value of the 5,423,307 shares and warrants to
purchase an additional 2,064,187 shares which were outstanding at December 31,
2005. This resulted in a charged to operations of $52,423 and a credit to
operations of $12,822 for these previously outstanding shares and warrants,
respectively. At March 31, 2006, the Company had obligations to issue an
aggregate of 6,625,907 shares and warrants to purchase an additional 2,608,987
shares, respectively.
The Company anticipates to complete the registration of these shares during the
quarter ended June 30, 2006. If the Company is able to complete the registration
within this timeframe it will incur an obligation to issue approximately
1,214,493 additional shares and 478,213 additional warrants at an aggregate cost
of approximately $500,000 will be incurred. There is no guarantee that the
Company will be able to complete the registration within the anticipated
timeframe.
NOTE 7 - SUBSEQUENT EVENTS
Effective April 13, 2006, the Company entered into an unsecured Senior
Promissory Note in the amount of $500,000. Following the payment of commissions
and expenses, the Company received net proceeds of approximately $439,875. The
outstanding principal amount of the Note, plus interest at the rate of 12% per
annum, is payable in cash on or before the earlier of (i) April 12, 2007 or (ii)
the date upon which the Company sells any of its equity or debt securities in a
financing transaction, or a series of financings, with gross proceeds equal to
$1,000,000; provided, however, that a subsequent financing transaction will not
include (x) issuances of common stock to employees, (y) the exercise of any
options to purchase shares of common stock that are outstanding as of the date
hereof, or (z) the grant, issuance or exercise of options or common stock under
the Company's stock, option, deferred stock and restricted stock plan for the
purpose of satisfying the Company's payables. In an event of default, as defined
in the note, the note shall become immediately due and payable, and during the
continuation of an event of default, the Company must pay interest on the note
in an amount equal to 2% per month until the event of default is cured or
waived.
F-15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Special Note Regarding Forward-looking Statements
Some of the statements under "Risk Factors," "Business" and elsewhere in this
Quarterly Report on Form 10-QSB constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those described under
"Risk Factors" and elsewhere in this Quarterly Report on Form 10-QSB and in the
"Risk Factors" section of our annual report on Form 10-KSB filed with the
Securities and Exchange Commission on March 28, 2006 and Form 10-KSB/A filed
with the Securities and Exchange Commission on March 31, 2006.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this report.
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
Overview
--------
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of 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 potential treatment of acute
exposure to radiation. Viprovex is being formulated specifically for
applications relating to the potential treatment of maladies caused by exposure
3
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 mouse 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.
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 large animals or humans. There is no guarantee that regulatory
authorities will ever permit large animal or human testing of Radilex, Viprovex
or any other potential products derived from Homspera. Even if such 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.
4
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.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2006 AND MARCH
31, 2005
Revenue
-------
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.
Sales, General, and Administrative Expenses
-------------------------------------------
Sales, general, and administrative expenses ("SG&A") were $561,144 for
the three months ended March 31, 2006, a decrease of $277,376 or approximately
33% compared to SG&A of $838,520 during the three months ended March 31, 2005.
The decrease is primarily due to lower costs of non-cash compensation. For the
three months ended March 31, 2006, this amount consisted primarily of officer
compensation of $93,250, research and development of $111,516, legal and
accounting fees of $195,697, other consulting fees of $53,117, payroll and
related costs of $28,685, public relations and marketing of $22,616, and
non-cash compensation costs of $8,399.
The Company expects SG&A to increase during the coming twelve months as
we continue to build out the Company's infrastructure and to develop the
Company's line of potential products.
Interest (Income)/Expense (net)
-------------------------------
Interest (Income) was $(166) for the three months ended March 31, 2006, a
decrease of $1,143 or approximately 117% compared to interest expense of $977
for the three months ended March 31, 2005. Interest expense was reduced because
the Company paid all of its outstanding debt during the twelve months ended
December 31, 2005.
The Company expects interest expense to remain at low levels during the coming
twelve months.
Net Loss
--------
For the reasons stated above, our net loss for the three months ended
March 31, 2006 was $1,162,506, or $0.02 per share an increase of $323,009 or 38%
compared to a net loss of $839,497 for the three months ended March 31, 2005.
Our independent certified public accountants have stated in their
report included in SEC 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 three months ended March 31, 2006, we accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 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 March 31, 2006, we are required to issue an additional 6,625,907 shares of
common stock and warrants to purchase an additional 2,724,000 shares of common
stock. At the time these liabilities were incurred, the shares were valued at
$2,448,511 and the warrants were valued at $744,177. 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 $557,930 was charged to operations as cost of penalty
for late registration of shares during the three months ended March 31, 2006.
The shares and warrants were re-valued at March 31, 2006, and the result of this
re-valuation was to increase the value of the shares by $52,423 and to decrease
the value of the warrants by $6,868. These decreases were credited to other
(income) expense during the three months ended March 31, 2006. At March 31,
2006, the fair value of the common stock issuable under the penalty for late
registration of shares is $2,186,549, and the fair value of the warrants
issuable under the penalty for late registration of shares is $476,662. These
amounts appear as current liabilities on the Company's condensed consolidated
balance sheet at March 31, 2006.
We anticipate to complete the registration of these shares during the
quarter ended June 30, 2006. If we are able to complete the registration within
this timeframe, we will incur an obligation to issue approximately 1,214,493
additional shares and 478,213 additional warrants at an aggregate cost of
approximately $500,000 will be incurred. There is no guarantee that we will be
able to complete the registration within the anticipated timeframe.
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.
Product Research and Development
--------------------------------
We incurred an expense of $111,516 for the three months ended March 31,
2006 in research and development activities related to the development of
Radilex and Viprovex versus an expense of $65,849 for the three months ended
March 31, 2005. 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 $418,310 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.
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. 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.
5
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. 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.
We have prepared the protocols for what we believe will be our final
phase of rodent studies for a radiation sensitivity study on mice 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.
-----------------------------------------------------------------------
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.
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 the fiscal quarter ended
March 31, 2006.
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.
COSTS AND EXPENSES
From our inception through March 31, 2006, we have incurred losses of
$12,961,640. These expenses were associated principally with equity-based
compensation to employees and consultants, cost of penalty for late registration
of shares, product development costs and professional services.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2006, we had current assets of $23,161 consisting of cash
of $6,154 and other current assets of $17,007. At March 31, 2006, we also had
current liabilities of $3,421,070, consisting of accounts payable and accrued
liabilities of $707,859, notes payable of $50,000 and accrued cost of penalty
for late registration of shares of $2,663,211. This resulted in net working
capital deficit at March 31, 2006 of $3,397,909. During the three months ended
March 31, 2006, the Company used cash in operating activities of $293,231. From
the date of inception (October 30, 2002) to March 31, 2006, the Company has had
a net loss of $12,961,640 and has used cash of $4,251,689 in operating
activities.
We have never generated 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 March 31, 2006 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 $1,018,503 was received from the issuance of notes payable, net of
repayments.
6
In March 2006 the Company received a cash advance from a Director, an
accredited investor, in the amount of $50,000. This advance bears interest at
the rate of 12% per annum. During the three months ended March 31, 2006 the
Company accrued interest in the amount of $164 on this advance. The Company
anticipates converting this advance to a note payable during the quarter ending
June 30, 2006.
Effective April 13, 2006, we entered into an unsecured Senior
Promissory Note in the amount of $500,000. Following the payment of commissions
and expenses, we received net proceeds of approximately $439,875. The
outstanding principal amount of the Note, plus interest at the rate of 12% per
annum, is payable in cash on or before the earlier of (i) April 12, 2007 or (ii)
the date upon which the Company sells any of its equity or debt securities in a
financing transaction, or a series of financings, with gross proceeds equal to
$1,000,000; provided, however, that a subsequent financing transaction will not
include (x) issuances of common stock to our employees, (y) the exercise of any
options to purchase shares of our common stock that are outstanding as of the
date hereof, or (z) the grant, issuance or exercise of options or our common
stock under our stock, option, deferred stock and restricted stock plan for the
purpose of satisfying the Company's payables. In an event of default, as defined
in the note, the note shall become immediately due and payable, and during the
continuation of an event of default, we must pay interest on the note in an
amount equal to 2% per month until the event of default is cured or waived.
In January 2005, we made a tender offer to temporarily reduce the
exercise price of certain warrants issued in October 2004 from $0.50 to $0.20
per share. The tender offer expired on March 4, 2005. We accepted for exercise a
total of 6,600,778 warrants validly tendered and not withdrawn pursuant to the
terms of the tender offer, which represents approximately 48% of the aggregate
13,780,449 warrants that were subject to the offer. We raised an aggregate of
$1,190,857 from the tender offer, net of costs.
Pursuant to our employment agreement with Michael Wilhelm, our
President and Chief Executive Officer, dated December 16, 2002, we paid an
annual 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.
Pursuant to our employment agreement with John Fermanis, our Chief
Financial Officer, dated February 15, 2005, we paid an annual 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 paid 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
December 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
$3,263,902). Based on our current plan of operations all of our current funding
is expected to be depleted by the end of June 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.
7
Acquisition or Disposition of Plant and Equipment
-------------------------------------------------
We did not dispose or acquire any significant property, plant or
equipment during the first quarter ended March 31, 2006. We do not anticipate
the sale of any significant property, plant or equipment during the next twelve
months.
Number of Employees
-------------------
From our inception through the period ended March 31, 2006, we have
relied on the services of outside consultants for services and currently have
four full-time employees. Our full-time employees are Michael K. Wilhelm, our
Chief Executive Officer; John Fermanis, our Chief Financial Officer; and, the
third and fourth serve in administrative roles. 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.
Trends, Risks and Uncertainties
-------------------------------
We have sought to identify what we believe to be the most significant
risks to our business, but we cannot predict whether, or to what extent, any of
such risks may be realized nor can we guarantee that we have identified all
possible risks that might arise. Investors should carefully consider all of such
risk factors before making an investment decision with respect to our Common
Stock.
RISK FACTORS
Other than with respect to the following risk factors, which have been updated
and restated in their entirety below, there have been no material changes from
the risk factors disclosed in the "Risk Factors" section of our the "Risk
Factors" section of our annual report on Form 10-KSB filed with the Securities
and Exchange Commission on March 28, 2006 and Form 10-KSB/A filed with the
Securities and Exchange Commission on March 31, 2006.
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 March 31, 2006, we had a working capital deficit of $3,397,909.
This amount consists of cash of $6,154 and current assets of $17,007, accounts
payable and accrued current liabilities of $707,859, including notes payable
$50,000 and an accrued current liability of $2,663,211 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 March 31, 2006, we would have a working capital deficit of
$734,698. We have incurred a substantial net loss for the period from our
inception in October 2002 to March 31, 2006, 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 three months ended March 31, 2006 was $1,162,506. As of March 31,
2006, we had an accumulated deficit of $12,961,640.
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 on Form 10-KSB/A that the Company had 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 our 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 June 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.
8
In addition, we entered into an unsecured Senior Promissory Note in the
amount of $500,000 in April 2006. The outstanding principal amount of the Note,
plus interest at the rate of 12% per annum, is due on or before the earlier of
(i) April 12, 2007 or (ii) the date upon which we sell any of our equity or debt
securities in a financing transaction, or a series of financings, with gross
proceeds equal to $1,000,000, excluding certain issuances. Our actions are
restricted by the terms of the Note, which may have a material adverse effect on
our operations and capital raising ability. Under the terms of the note, we
would not be able to raise more than $1,000,000, if we were otherwise able to do
so, unless we were able to repay the Note upon such financing. In addition, the
note prevents us from (i) increasing the base salary of any officer more than 5%
per year unless required to do so by an outstanding employment agreement, (ii)
pay any dividends, (iii) incur indebtedness which is senior or pari passu to the
Note, (iv) sell account receivables, (v) expend more than $100,000 in any fiscal
year for capital expenditures, or (vi) advance money to or invest in any firm,
corporation or other person, except in certain enumerated situations.
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 June 2006. Our working capital deficit as of March 31, 2006
was $734,698 net of the accrual of securities pursuant to the penalty 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.
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 April 28, 2006, we have accrued
6,918,000 shares and 2,724,000 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 April 28, 2006, we have fully diluted 91,396,465 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.
ITEM 3. CONTROLS AND PROCEDURES
(a) 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 Securities Exchange Act of 1934, as
amended (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.
9
As of the end of the period covered by this Quarterly 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 Rule 13a-15(e) or Rule 15d-15(e) of the Exchange
Act). Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of March 31, 2006, such disclosure controls and
procedures were effective in ensuring that required information will be
disclosed on a timely basis in our periodic reports filed under the Exchange
Act.
(b) 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 March 31, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. Please
refer to the Company's report on Form 10-K/A Amendment No. 1 for 2005 regarding
litigation and claims as of December 31, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 23, 2004, the Company entered into a $5,000 Convertible
Promissory Note bearing 8% interest per month to an individual accredited
investor. On October 26, 2004 in accordance with the terms of the Promissory
Note, principal of $5,000 and accrued interest of $71 was converted into 67,616
shares of our common stock releasing the Company from any further obligation
under the Note. From the date of the note's conversion, these shares were
accrued for by the Company and the certificate representing the shares was
issued in March 2006. No general solicitation or advertising was undertaken in
connection with the offer and sale of the Note. The investor represented to the
Company that the investor was purchasing the Note for the investor's own account
and not with a present view towards the distribution thereof. In addition, the
investor acknowledged and agreed that the Note and the underlying securities had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In March 2006, per his employment agreement we issued 100,000 shares of
our common stock to our Chief Financial Officer, John Fermanis. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the shares. The Company's Chief Financial Officer qualifies as an "accredited
investor" and acknowledged and agreed that the shares had not been registered
under the Securities Act and may not be offered or sold unless subsequently
registered and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. The securities were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder.
As of March 31, 2006 we have accrued the issuance of 230,096 shares of
common stock. Pursuant to the terms of their respective agreements with us
34,544 shares of common stock are to be issued to consultants. Also included is
182,366 shares relating to the conversion of convertible notes. The shares will
bear a restrictive legend regarding the sale or transfer of such. The shares
were issued in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. Our Chief Financial Officer and the consultants each qualifies as an
accredited investor (as defined by Rule 501 under the Securities Act of 1933, as
amended). No general solicitation or advertising was undertaken in connection
with the offer and sale of these shares.
During the three months ended March 31, 2006, we accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 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.
10
Subsequent to March 31, 2006 we have accrued the issuance of an additional
292,093 shares of common stock and warrants to purchase an additional 115,013
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
During the three months ended March 31, 2006 we have accrued the
issuance of 61,500 common stock purchase warrants to members of our Bioterrorism
Advisory Board, Drug Development Advisory Board and Oncology and Dermatology
Advisory Board for participation during the year. These warrants were issued
pursuant to the terms of their respective agreements with us. The exercise
prices of these warrants range from $0.125 to $1.00 per share. The warrants
expire three years after date of issuance. The warrants will bear a restrictive
legend regarding the sale or transfer of such or the underlying securities. The
warrants were issued in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. There were less than 35 investors and each investor had
such knowledge and experience in financial and business matters that the
investor was capable of evaluating the merits and risks of investing in the
warrants. No general solicitation or advertising was undertaken in connection
with the offer and sale of these shares. Each investor was also provided with
access to our Exchange Act reports including our annual report on Form 10-KSB
and our quarterly reports on Form 10-QSB.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
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.*
o * 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 5, 2006.
IR BioSciences Holdings, Inc.
By: /S/ Michael K. Wilhelm
-----------------------------------
Michael K. Wilhelm
President, Chief Executive Officer
11