UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Amendment No. 1)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2004.
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER: 33-05384
IR BIOSCIENCES HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 13-3301899
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4021 N. 75th Street, Suite 201, Scottsdale, AZ 85251
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(Address of Principal Executive Offices) (Zip Code)
(480) 922-3926
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(Issuer's Telephone Number, including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:
COMMON STOCK, $ 0.001 PAR VALUE PER SHARE
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(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES NO X
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $ 0
The aggregate market value of the Registrant's issued and outstanding shares of
common stock held by non-affiliates of the Registrant as of April 3, 2005 (based
on the average of the bid and asked prices as reported by the NASD OTC Bulletin
Board as of that date) was approximately $20,377,554.
The number of shares outstanding of Registrant's Common Stock, par value $0.001
as of April 3, 2005: 70,074,188.
Documents Incorporated by reference: The information required by Part III of
Form 10-KSB incorporated by reference from the Registrant's definitive proxy
statement on Schedule 14A, or, if the Registrant's definitive proxy statement is
not filed within that time, the information will be filed as part of an
amendment to this Annual Report on Form 10-KSB/A, not later than the end of the
120-day period.
Transitional Small Business Disclosure Format Yes No X
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TABLE OF CONTENTS
Page
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PART I
Item 1. Description of Business.............................................3
Item 2. Description of Property............................................29
Item 3. Legal Proceedings..................................................29
Item 4. Submission of Matters to a Vote of Security Holders................29
PART II
Item 5. Market for Common Equity, Related Stockholder Matters..............29
Item 6. Management's Discussion and Analysis or Plan of Operation..........31
Item 7. Financial Statements......................................F-1 to F-25
Item 8. Changes in and Disagreements with Accountants......................39
Item 8A. Controls and Procedures............................................39
Item 8B. Other Information.................................................39
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act...........................40
Item 10. Executive Compensation.............................................40
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.........................40
Item 12. Certain Relationships and Related Transactions.....................40
Item 13. Exhibits...........................................................40
Item 14. Principal Accountant Fees and Services.............................43
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FORWARD-LOOKING STATEMENTS
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. IN PARTICULAR, STATEMENTS ABOUT OUR
EXPECTATIONS, BELIEFS, PLANS, OBJECTIVES, ASSUMPTIONS OR FUTURE EVENTS OR
PERFORMANCE ARE CONTAINED OR INCORPORATED BY REFERENCE IN THIS REPORT. WE HAVE
BASED THESE FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS ABOUT FUTURE
EVENTS. WHILE WE BELIEVE THESE EXPECTATIONS ARE REASONABLE, SUCH FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, MANY OF WHICH ARE
BEYOND OUR CONTROL. THE ACTUAL FUTURE RESULTS FOR IR BIOSCIENCES HOLDINGS, INC.
MAY DIFFER MATERIALLY FROM THOSE DISCUSSED HERE FOR VARIOUS REASONS, INCLUDING
THOSE DISCUSSED IN THIS REPORT UNDER THE HEADING "RISK FACTORS," PART II, ITEM 6
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" AND
ELSEWHERE THROUGHOUT THIS ANNUAL REPORT. GIVEN THESE RISKS AND UNCERTAINTIES,
YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING
STATEMENTS. THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT ARE MADE ONLY
AS OF THE DATE HEREOF. WE DO NOT UNDERTAKE AND SPECIFICALLY DECLINE ANY
OBLIGATION TO UPDATE ANY SUCH STATEMENTS OR TO PUBLICLY ANNOUNCE THE RESULTS OF
ANY REVISIONS TO ANY OF SUCH STATEMENTS TO REFLECT FUTURE EVENTS OR
DEVELOPMENTS. WHEN USED IN THE REPORT, UNLESS OTHERWISE INDICATED, "WE," "OUR,"
"US," THE "COMPANY" OR "IMMUNEREGEN" REFERS TO IR BIOSCIENCES HOLDINGS, INC. AND
ITS SUBSIDIARY, IMMUNEREGEN BIOSCIENCES, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
IR BioSciences Holdings, Inc., a development-stage biopharmaceutical
company, is engaged in the research, development and commercialization of
important life saving, health-enhancing products and therapies. Product
development is focused around Homspera(TM), our proprietary compound that is
derived from homeostatic substance P, a naturally occurring peptide within the
body. The Company's initial area of focus is on the development of products that
we believe will treat the suppression of the body's immune system caused by
exposure to various forms of radiation, toxic inhalants and viral infectious
diseases.
Our company, IR BioSciences Holdings, Inc., is a Delaware corporation
and, until July 2001, was engaged in the business of assisting unaffiliated
early-stage development and small to mid-sized emerging growth companies with
financial and business development services, including raising capital in
private and public offerings. During 2001, we failed to meet our revenue
targets. On July 27, 2001, a majority interest in our company was acquired by a
private investor, and we installed new management and adopted a new business
plan. The immediate action taken regarding this new business plan was to
discontinue our then current operations effective July 27, 2001.
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On July 2, 2003, our company and ImmuneRegen Biosciences, Inc., a
privately-held Delaware corporation ("ImmuneRegen"), entered into and
consummated an Agreement and Plan of Merger (the "Merger"). In accordance with
the Merger, on July 2, 2003, we acquired ImmuneRegen in exchange for 10,531,585
shares of our common stock. The transaction contemplated by the Agreement was
intended to be a "tax-free" reorganization pursuant to the provisions of Section
351 and 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. On August
29, 2003, the Registrant's name was changed from GPN Network, Inc. to IR
BioSciences Holdings, Inc.
CORPORATE STRUCTURE
IR BioSciences Holdings is a publicly-traded entity and has one
wholly-owned subsidiary: ImmuneRegen BioSciences, Inc. ImmuneRegen BioSciences,
Inc. is a Delaware Corporation, and was incorporated on October 30, 2002.
Currently, all of our Company's operations are conducted by ImmuneRegen
BioSciences, Inc.
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GENERAL
OVERVIEW
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Our principal development efforts through our wholly owned subsidiary,
ImmuneRegen BioSciences, Inc., are currently centered around a class of drug
candidates based on Homspera(TM), a synthesized, modified analog of Substance P,
a naturally occurring peptide. Currently, the majority of our efforts are in the
research and development of Radilex(TM), a compound derived from Homspera. Our
current efforts are focused on potential uses of Radilex as a possible
therapeutic in response to toxic radiological or nuclear exposure. Our research
and development efforts are at a very early stage and Radilex has only undergone
pre-clinical testing in mice. Currently, we own or have obtained a license to 4
issued U.S. and foreign patents and 24 pending U.S. and foreign patent
applications.
Our patents and continued substance P research are derived from
discoveries made during research studies funded by the Air Force Office of
Scientific Research in early 1991 by our Chief Scientific Officer and Director,
Dr. Mark Witten.
In December 2002 we entered into consulting agreements on a
month-to-month basis with Dr. Mark Witten and Dr. David Harris, who are our two
founders and largest shareholders. Under the terms of these agreements, Drs.
Witten and Harris agree to place at the disposal of us their judgment and
expertise in the area of acute lung injury. In consideration for these services,
we agreed to pay each of Drs. Witten and Harris a non-refundable fee of $5,000
per month. The company and Dr. Harris agreed to terminate the consulting
agreement for Dr. Harris in March 2005.
In December 2002, we entered into a royalty-free license agreement with
Drs. Witten and Harris. Under the terms of the license agreement, Drs. Harris
and Witten granted to us an exclusive license to use and sublicense certain
patents, medical applications, and other technologies developed by them. Our
obligations under this agreement include (i) reasonable efforts to protect any
licensed patents or other associated property rights; (ii) reasonable efforts to
maintain confidentiality of any proprietary information; (iii) upon the granting
by the U. S. Food and Drug Administration to us the right to market a product, ,
we will, for so long as we sell any product or medical application which
incorporates or utilizes the patents, medical applications, and other
technologies developed by Drs. Witten and Harris, maintain in full force and
effect policies of general liability insurance (with Broad Form General
Liability and Product Liability endorsements) with limits of not less than
$1,000,000 per occurrence and $1,000,000 annual aggregate. The license agreement
will terminate ten years after the date of the expiration of the last patent
issued or issuing with respect to the licensed patents, medical applications,
and other technologies.
In February 2005, Drs. Witten and Harris executed assignment documents
in which for good and valuable consideration patents and patents applications
developed by them are assigned to ImmuneRegen BioSciences, Inc.
Our principal offices are located at 4021 North 75th Street, Suite 201,
Scottsdale, Arizona 85251 and our telephone number is (480) 922-3926. We are
incorporated in Delaware. We maintain a website at www.immuneregen.com. The
reference to our worldwide web address does not constitute incorporation by
reference of the information contained on our website.
RECENT EVENTS
In October 2004, we completed a private placement, whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors (the "Private
Placement"). Each unit was sold for $10,000 (the "Unit Price") and consisted of
(a) a number of shares of our common stock determined by dividing the Unit Price
by $0.125, and (b) a warrant to purchase, at any time prior to the fifth
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to fifty percent (50%) of the number of shares included
within the unit, at a price equal to $0.50 per share of common stock. We issued
in the Private Placement an aggregate of 27,560,897 shares of our common stock
and warrants to purchase 13,780,449 shares of our common stock. In consideration
of the investment, we granted to each investor certain registration rights and
anti-dilution rights.
Further to the Private Placement, we entered into a settlement
agreement with certain creditors whereby for full and complete satisfaction of
claims totaling an aggregate of $157,219 (the "Claim Amount"), we issued to the
creditors the following: (a) a number of shares of our common stock determined
by dividing the Claim Amount by $0.125, and (b) warrants to purchase, at any
time prior to the fifth anniversary following the date of issuance of the
warrant, a number of shares of our common stock equal to fifty percent (50%) of
the number of shares described above, at a price equal to $0.50 per share of
common stock. The warrants are identical to the warrants issued in the Private
Placement. Pursuant to the settlement we issued an aggregate of 1,257,746 shares
of common stock and warrants to purchase 628,873 shares of common stock. Under
the terms of the settlement agreement, the creditors released us from all
claims, known or unknown, relating to the Claim Amount.
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Pursuant to the terms of a placement agency agreement, dated September
3, 2004, by and between us and Joseph Stevens & Co., Inc., we issued 4,900,000
shares of our common stock to Joseph Stevens & Co., Inc. or its designees, upon
the closing of the Private Placement. The shares were issued as consideration
for the services of Joseph Stevens & Co., Inc. as our placement agent in the
Private Placement.
We also previously issued convertible promissory notes in the aggregate
principal amount of $558,500. Immediately upon the closing of the Private
Placement, and in accordance with the terms of the promissory notes, all
outstanding principal and accrued interest converted into 6,703,151 shares of
our common stock.
Effective December 17, 2004, Eric Hopkins resigned from his position as
our Chief Financial Officer.
Effective December 22, 2004, Steven J. Scronic resigned from his
position as our Corporate Secretary.
Our board of directors appointed John N. Fermanis to serve as our Chief
Financial Officer, effective as of December 22, 2004. Our Board resolved to
issue 100,000 shares of registered common stock to Mr. Fermanis for his
acceptance of this position.
Our board of directors appointed Michelle R. Laroche to serve as our
Corporate Secretary, effective as of December 22, 2004.
We also previously issued convertible promissory notes in the aggregate
principal amount of $35,000. On December 24, 2004 all outstanding principal and
accrued interest was forgiven by the noteholder. Consideration of $100.00 was
paid by us to the noteholder. Under the terms of the agreement, the noteholder
released us from all claims, known or unknown, relating to the amount owed.
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.
HOMSPERA AND SUBSTANCE P
Substance P (SP) is a naturally occurring small (1348 D molecular
weight) peptide of 11 amino acids that is localized to the nerves in the airways
of several species, including humans. It is a member of the tachykinin family of
neuropeptides, which are widely distributed in the peripheral and central
nervous systems and have direct, receptor-mediated actions on most tissues and
organs.
Homspera is a propriety compound that is derived from Substance P and
Radilex is a propriety compound derived from Homspera.
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PRODUCTS IN DEVELOPMENT
RADILEX(TM)
We are currently focusing our research and development efforts on
Radilex as a potential therapeutic for exposure to lethal doses of radiation. As
traditional efficacy studies would require healthy human volunteers to be
exposed to potentially lethal effects of radiation, Radilex is being developed
pursuant to a new rule enacted by the U.S. Food and Drug Administration (FDA)
under which approval may be granted solely on the basis of proof of efficacy in
relevant animal species and proof of safety in humans.
To date we have completed seven radiation studies using Radilex on mice
to determine dose response to radiation, the maximum efficacious dose, the
impact on survival and to distinguish survival response between aerosol versus
intra muscular delivery. In each of these studies mice were exposed to varying
levels of radiation. In the fifth study we determined that Radilex aerosol
treatment at a dose of 50 iM can induce a survival rate of 50% in mice at 90
days post-radiation exposure to an administered lethal (7.75 Gy) dose of
radiation. Further, it was observed that these mice had normal immune system
function at the 90-day post-radiation time point compared to longitudinal
control mice. In June 2004 we performed our sixth study, conducted at the
request of the Division of Counter-Terrorism of the U.S. Food and Drug
Administration to determine the optimum delivery method. In this study a 2iM
dose of Radilex in a 0.05mL solution was delivered daily via muscle injection.
In the study we observed that delivery by aerosol was superior methodology over
direct muscle injection for the administration of Radilex. In our seventh mouse
study, we increased the dosage to 75iM and held the mice in a Biolevel II
facility with a low bacterial load. At 17 days post-exposure we observed a one
hundred percent survival rate in the mice given Radilex.
Currently, we are finalizing the protocols for an eighth mouse study.
We are designing this study to further proof of concept, as well as obtaining
the optimum dosing regime, drug dosage levels and delivery method. This study
will evaluate the possible survival impact of Radilex following exposure to
various gamma radiation levels; to further validate the effects of Radilex on
PARP-1 levels/expression following irradiation; to determine Radilex levels in
major organs; to determine the impact of Radilex on survival when administered
12, 24 and 36 hours following colbalt radiation exposure; and, to validate and
compare survival rates of aerosol versus intra muscular delivery. We expect this
study to begin within the next 60 days.
-7-
We are also finalizing the protocols that we believe will allow us to
initiate large animal trials that will be necessary for establishing efficacy.
We expect these studies to begin within the next 12 to 18 months. In conjunction
with this, we are establishing protocols for toxicology and human safety studies
that will be needed to support a New Drug Application (NDA).
We are also researching the efficacy of Radilex as a treatment for
exposure to various chemical and biological agents.
RESEARCH AND DEVELOPMENT
We have spent approximately $150,091 and $42,972 in 2004 and 2003,
respectively, in research and development activities. From our inception in
October 2002, we have spent $193,063 in research and development activities.
COMPETITION
The biotechnology and pharmaceutical industries are intensely
competitive. We have numerous competitors in the United States and elsewhere.
Because we are pursuing potentially large markets, our competitors include major
multinational pharmaceutical companies, specialized biotechnology firms and
universities and other research institutions. Several of these entities have
already successfully marketed and commercialized products that will compete with
our products, assuming that our products gain regulatory approval. Competitors
such as Hollis-Eden Pharmaceuticals, Inc. have developed or are developing
products for treating aspects of severe acute radiation injury. Companies such
as VaxGen, Inc., Acambis plc and Emergent BioSolutions have developed or are
developing vaccines against infectious diseases, including anthrax.
Many of our competitors have greater financial and other resources,
larger research and development staffs and more effective marketing and
manufacturing organizations than we do. In addition, academic and government
institutions have become increasingly aware of the commercial value of their
research findings. These institutions are now more likely to enter into
exclusive licensing agreements with commercial enterprises, including our
competitors, to develop and market commercial products.
Our competitors may succeed in developing or licensing technologies and
drugs that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates before we do. If competing drug candidates prove to be more effective
or less costly than our drug candidates, our drug candidates, even if approved
for sale, may not be able to compete successfully with our competitors' existing
products or new products under development. If we are unable to compete
successfully, we may never be able to sell enough products at a price sufficient
to permit us to generate profits.
We believe that due to the global political environment that time to
market is critical in the discovery of an effective countermeasure to radiation
exposure and other biological and chemical threats. New developments in areas in
which we are conducting our research and development are expected to continue at
a rapid pace in both industry and academia.
If our product candidates and compounds are successfully developed and
approved, we will face competition based on the safety and effectiveness of our
products and compounds, the timing and scope of regulatory approvals,
availability of manufacturing, sales, marketing and distribution capabilities,
reimbursement coverage, price and patent position. There can be no assurance
that our competitors will not develop more effective or more affordable
technology or products, or achieve earlier patent protection, product
development or product commercialization than us. Accordingly, our competitors
may succeed in commercializing products more rapidly or effectively than us,
which could have a material adverse effect on our business, financial condition
and results of operations.
GOVERNMENTAL REGULATION
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Our technologies are subject to extensive government regulation,
principally by the U.S. Food and Drug Administration and state and local
authorities in the United States and by comparable agencies in foreign
countries. Governmental authorities in the United States extensively regulate
the pre-clinical and clinical testing, safety, efficacy, research, development,
manufacturing, labeling, storage, record-keeping, advertising, promotion,
export, marketing and distribution, among other things, of pharmaceutical
products under various federal laws including the Federal Food, Drug and
Cosmetic Act, or FFDCA, and under comparable laws by the states and in most
foreign countries.
Domestic Regulation
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In the United States, the FDA, under the FFDCA, the Public Health
Service Act and other federal statutes and regulations, subject pharmaceutical
and biologic products to rigorous review. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve our
marketing applications or allow us to manufacture or market our products or
product candidates, and we may be criminally prosecuted. The FDA also has the
authority to discontinue or suspend manufacture or distribution, require a
product withdrawal or recall or revoke previously granted marketing
authorizations, if we fail to comply with regulatory standards or if we
encounter problems following initial marketing.
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FDA Approval Process
--------------------
To obtain approval of a new product from the FDA, we must, among other
requirements, submit data demonstrating the product's safety and efficacy, as
well as, detailed information and reports on the manufacture and composition of
the product candidate. In most cases, this entails extensive laboratory tests,
pre-clinical and clinical trials. This testing and the preparation of necessary
applications and processing of those applications by the FDA are expensive and
typically take many years to complete. The FDA may deny our applications or may
not act quickly or favorably in reviewing these applications, and we may
encounter significant difficulties or costs in our efforts to obtain FDA
approvals that could delay or preclude us from marketing any products we may
develop. The FDA also may require post-marketing testing and surveillance to
monitor the effects of approved products or place conditions on any approvals
that could restrict the commercial applications of these products. Regulatory
authorities may withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems following initial marketing. With respect
to patented products or technologies, delays imposed by the governmental
approval process may materially reduce the period during which we will have the
exclusive right to exploit the products or technologies.
The FDA does not apply a single regulatory scheme to human tissues and
the products derived from human tissue. On a case-by-case basis, the FDA may
choose to regulate such products as transplanted human tissue, medical devices
or biologics. A fundamental difference in the treatment of products under these
classifications is that the FDA generally permits human tissue for
transplantation to be commercially distributed without marketing approval. In
contrast, products regulated as medical devices or biologics usually require
such approval.
The process required by the FDA before a new drug or biologic may be
marketed in the United States generally involves the following:
o completion of pre-clinical laboratory tests or trials and
formulation studies;
o submission to the FDA of an IND for a new drug or biologic, which
must become effective before human clinical trials may begin;
o performance of adequate and well-controlled human clinical trials
to establish the safety and efficacy of the proposed drug or
biologic for its intended use; and,
o submission and approval of a New Drug Application, or NDA, for a
drug, or a BLA for a biologic.
-10-
Pre-clinical tests include laboratory evaluation of product chemistry
formulation and stability, as well as studies to evaluate toxicity. In view of
the nature of our product candidates and our prior clinical experience with our
product candidates, we concluded that it was reasonably safe to initiate
clinical trials and that the clinical trials would be adequate to further assess
both the safety and efficacy of our product candidates. The results of
pre-clinical testing, together with manufacturing information and analytical
data, are submitted to the FDA as part of an IND application. The FDA requires a
30-day waiting period after the filing of each IND application before clinical
trials may begin, in order to ensure that human research subjects will not be
exposed to unreasonable health risks. At any time during this 30-day period or
at any time thereafter, the FDA may halt proposed or ongoing clinical trials, or
may authorize trials only on specified terms. The IND application process may
become extremely costly and substantially delay development of our products.
Moreover, positive results of pre-clinical tests will not necessarily indicate
positive results in clinical trials.
The sponsor typically conducts human clinical trials in three
sequential phases, which may overlap. These phases generally include the
following:
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Phase I: The product is usually first introduced into healthy
humans or, on occasion, into patients, and is tested for
safety, dosage tolerance, absorption, distribution, excretion
and metabolism.
Phase II: The product is introduced into a limited patient population to:
o assess its efficacy in specific, targeted indications;
o assess dosage tolerance and optimal dosage; and,
o identify possible adverse effects and safety risks.
Phase III: These are commonly referred to as pivotal studies. If a
product is found to have an acceptable safety profile and to
be potentially effective in Phase II clinical trials, new
clinical trials will be initiated to further demonstrate
clinical efficacy, optimal dosage and safety within an
expanded and diverse patient population at geographically-
dispersed clinical study sites.
If the FDA does ultimately approve the product, it may require
post-marketing testing, including potentially expensive Phase IV studies, to
monitor its safety and effectiveness.
Clinical trials must meet requirements for Institutional Review Board,
or IRB, oversight, informed consent and the FDA's Good Laboratory Practices.
Prior to commencement of each clinical trial, the sponsor must submit to the FDA
a clinical plan, or protocol, accompanied by the approval of the committee
responsible for overseeing clinical trials at one of the clinical trial sites.
The FDA and the IRB at each institution at which a clinical trial is being
performed may order the temporary or permanent discontinuation of a clinical
trial at any time if it believes that the clinical trial is not being conducted
in accordance with FDA requirements or presents an unacceptable risk to the
clinical trial patients.
The sponsor must submit to the FDA the results of the pre-clinical and
clinical trials, together with, among other things, detailed information on the
manufacturing and composition of the product, in the form of an NDA, or, in the
case of a biologic, a BLA. Once the submission has been accepted for filing, the
FDA has 180 days to review the application and respond to the applicant. The
review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the BLA to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved, but the FDA is not bound by the recommendation of an advisory
committee.
It is possible that our product candidates will not successfully
proceed through this approval process or that the FDA will not approve them in
any specific period of time, or at all. The FDA may deny or delay approval of
applications that do not meet applicable regulatory criteria, or if the FDA
determines that the clinical data do not adequately establish the safety and
efficacy of the product. Satisfaction of FDA pre-market approval requirements
for a new biologic is a process that may take several years and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. The FDA reviews these applications and, when and if it
decides that adequate data are available to show that the product is both safe
and effective and that other applicable requirements have been met, approves the
drug or biologic for marketing. Government regulation may delay or prevent
marketing of potential products for a considerable period of time and impose
costly procedures upon our activities. Success in early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from
clinical activities is not always conclusive and may be susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. Upon
approval, a product candidate may be marketed only for those indications
approved in the BLA or NDA and may be subject to labeling and promotional
requirements or limitations, including warnings, precautions, contraindications
and use limitations, which could materially impact profitability. Once approved,
the FDA may withdraw the product approval if compliance with pre- and
post-market regulatory standards is not maintained or if safety, efficacy or
other problems occur after the product reaches the marketplace.
-12-
The FDA may, during its review of an NDA or BLA, ask for additional
test data. If the FDA does ultimately approve the product, it may require
post-marketing testing, including potentially expensive Phase IV studies, to
monitor the safety and effectiveness of the product. In addition, the FDA may,
in some circumstances, impose restrictions on the use of the product, which may
be difficult and expensive to administer and may require prior approval of
promotional materials.
Ongoing FDA Requirements
------------------------
Before approving an NDA or BLA, the FDA will inspect the facilities at
which the product is manufactured and will not approve the product unless the
manufacturing facilities are in compliance with the FDA's current Good
Manufacturing Practices, or cGMP, requirements which govern the manufacture,
holding and distribution of a product. Manufacturers of biologics also must
comply with the FDA's general biological product standards. Following approval,
the FDA periodically inspects drug and biologic manufacturing facilities to
ensure continued compliance with the cGMP requirements. Manufacturers must
continue to expend time, money and effort in the areas of production, quality
control, record keeping and reporting to ensure full compliance with those
requirements. Failure to comply with these requirements subjects the
manufacturer to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product, voluntary recall of product, withdrawal of
marketing approval or civil or criminal penalties. Adverse experiences with the
product must be reported to the FDA and could result in the imposition of
marketing restrictions through labeling changes or market removal. Product
approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems concerning safety or efficacy of the product occur
following approval.
The labeling, advertising, promotion, marketing and distribution of a
drug or biologic product also must be in compliance with FDA and FTC
requirements which include, among others, standards and regulations for
direct-to-consumer advertising, industry-sponsored scientific and educational
activities, and promotional activities involving the internet. The FDA and FTC
have very broad enforcement authority, and failure to abide by these regulations
can result in penalties, including the issuance of a Warning Letter directing
the company to correct deviations from regulatory standards, a requirement that
future advertising and promotional materials be pre-cleared by the FDA and
enforcement actions that can include seizures, injunctions and criminal
prosecution.
Manufacturers are also subject to various laws and regulations
governing laboratory practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances in connection with
their research. In each of the above areas, the FDA has broad regulatory and
enforcement powers, including the ability to levy fines and civil penalties,
suspend or delay issuance of approvals, seize or recall products and deny or
withdraw approvals.
HIPAA Requirements
------------------
Other federal legislation may affect our ability to obtain certain
health information in conjunction with our research activities. The Health
Insurance Portability and Accountability Act of 1996, or HIPAA, mandates, among
other things, the adoption of standards designed to safeguard the privacy and
security of individually identifiable health information. In relevant part, the
U.S. Department of Health and Human Services, or HHS, has released two rules to
date mandating the use of new standards with respect to such health information.
The first rule imposes new standards relating to the privacy of individually
identifiable health information. These standards restrict the manner and
circumstances under which covered entities may use and disclose protected health
information so as to protect the privacy of that information. The second rule
released by HHS establishes minimum standards for the security of electronic
health information. While we do not believe we are directly regulated as a
covered entity under HIPAA, the HIPAA standards impose requirements on covered
entities conducting research activities regarding the use and disclosure of
individually identifiable health information collected in the course of
conducting the research. As a result, unless they meet these HIPAA requirements,
covered entities conducting clinical trials for us may not be able to share with
us any results from clinical trials that include such health information.
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In addition to the statutes and regulations described above, we are
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations.
SECURITIES LAWS
Because our common stock is publicly traded, we are subject to a
variety of rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded. These entities, including the SEC, the
Public Company Accounting Oversight Board and the NASD OTC Bulletin Board, have
recently issued new requirements and regulations and are currently developing
additional regulations and requirements in response to recent laws enacted by
Congress, most notably the Sarbanes-Oxley Act of 2002. As certain rules are not
yet finalized, we do not know the level of resources we will have to commit in
order to be in compliance. Our compliance with current and proposed rules is
likely to require the commitment of significant financial and managerial
resources. As a result, our management's attention might be diverted from other
business concerns, which could negatively affect our business.
MANUFACTURING
We do not have, and do not intend to establish, manufacturing
facilities to produce Radilex or any future products. We have used and expect to
continue to use third party manufacturers to obtain synthetic peptides. We
believe a synthesized version of substance P is readily available at low cost
from several life science and technology companies that provide biochemical and
organic chemical products used in scientific and genomic research,
biotechnology, pharmaceutical development and the diagnosis of disease and
chemical manufacturing. We believe that the synthetic substance P and other
materials necessary to produce Homspera and Radilex are readily available from
various sources, and several suppliers are capable of supplying such in both
clinical and commercial quantities. We have established relationships to fulfill
our near-term production needs and we have had extensive discussions to fulfill
any future commercial production needs.
The manufacture of our product candidates or any future products,
whether done by outside contractors as planned or internally, will be subject to
rigorous regulations, including the need to comply with the FDA's current Good
Manufacturing Practice (GMP) standards. As part of obtaining FDA approval for
each product, each of the manufacturing facilities must be inspected, approved
by and registered with the FDA. In addition to obtaining FDA approval of the
prospective manufacturer's quality control and manufacturing procedures,
domestic and foreign manufacturing facilities are subject to periodic inspection
by the FDA and/or foreign regulatory authorities.
DISTRIBUTION
If Radilex receives approval from the FDA, we will attempt to
commercialize the product. Upon such approval, we intend to use our best efforts
to market Radilex as a treatment to the damaging effects of radiation injury
that result after exposure to total body irradiation, and possibly as a
universal protectant against exposure to various biological and chemical
threats. We intend to offer for sale the product to various governmental
agencies at the local, state and federal levels, both domestically and outside
the United States.
Prior to FDA approval, Radilex may become eligible for purchase by the
U.S. government. Project BioShield legislation contains provisions enabling the
HHS to begin purchasing new medical countermeasures for the Strategic National
Stockpile in advance of formal FDA approval. This provision, known as an
Emergency Use Authorization, has already been implemented for other development
stage medical countermeasures to weapons of mass destruction. In that Radilex
may have efficacy in the treatment of the life-threatening effects of radiation
exposure, we believe there may be strong interest by government agencies to
stockpile Radilex if it is successfully developed.
PATENTS
We currently own or have obtained a license to two issued U.S. patents
and six pending U.S. patents applications. We also currently own or have
obtained two issued foreign patents and two pending foreign patent applications.
Our issued patents and patent applications primarily cover the methods whereby
Homspera is used in improving pulmonary function and stimulating the immune
system. We are in the process of pursuing several other patent applications.
We believe that patents, trademarks, copyrights and other proprietary
rights are important to our business. We also rely on trade secrets, know-how,
continuing technological innovations and licensing opportunities to develop and
maintain our competitive position. We seek to protect our intellectual property
rights by a variety of means, including obtaining patents, maintaining trade
secrets and proprietary know-how, and technological innovation to operate
without infringing on the proprietary rights of others and to
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prevent others from infringing on our proprietary rights. Our policy is to seek
to protect our proprietary position by, among other methods, actively seeking
patent protection in the United States and foreign countries.
Our success depends in part on our ability to maintain our proprietary
position through effective patent claims and their enforcement against our
competitors. Although we believe our patents and patent applications provide a
competitive advantage, the patent positions of companies like ours are generally
uncertain and involve complex legal and factual questions. We do not know
whether any of our patent applications will result in the issuance of any
patents. Our issued patents, those that may be issued in the future or those
acquired by us, may be challenged, invalidated or circumvented, and the rights
granted under any issued patent may not provide us with proprietary protection
or competitive advantages against competitors with similar technology. In
particular, we do not know if competitors will be able to design variations on
our treatment methods to circumvent our current and anticipated patent claims.
Furthermore, competitors may independently develop similar technologies or
duplicate any technology developed by us. Because of the extensive time required
for the development, testing and regulatory review of a potential product, it is
possible that, before any of our products can be commercialized or marketed, any
related patent claim may expire or remain in force for only a short period
following commercialization, thereby reducing the advantage of the patent.
Our commercial success will depend in part on our ability to operate
without infringing upon the patents and proprietary rights of third parties. It
is uncertain whether the issuance of any third party patents would require us to
alter our products or technology, obtain licenses or cease certain activities.
Our failure to obtain a license to technology that we may require to discover,
develop or commercialize our future products may have a material adverse impact
on us. One or more third-party patents or patent applications may conflict with
patent applications to which we have rights. Any such conflict may substantially
reduce the coverage of any rights that may issue from the patent applications to
which we have rights. If third parties prepare and file patent applications in
the United States that also claim technology to which we have rights, we may
have to participate in interference proceedings in the USPTO to determine
priority of invention.
Our rights to the US Patent Nos. 5,945,508 and 5,998,376 have certain
limitations with respect to the University of Arizona and the United States Air
Force.
Our agreements with the University of Arizona outline very specific
rights in regard to our sponsored-supported projects. In accordance with our
sponsored-supported project agreements, The University of Arizona retains the
right to use data developed during these projects for non-commercial purposes,
including teaching, research and education. ImmuneRegen BioSciences, Inc.
retains the rights to trade secrets, inventions, developments and discoveries as
limited by the University of Arizona's employment contracts in effect at the
time the Intellectual Property was created. Further to this point, the principal
investigator at the University of Arizona, Dr. Mark Witten, is a consultant to
ImmuneRegen BioSciences, and, under the terms of his consulting agreement,
ImmuneRegen BioSciences, Inc. retains rights to any developments or discoveries
that he may make in the course of working for us.
The United States Air Force has reserved a non-exclusive license to the
patents in connection with Air Force grant F49620-94-1-0297 and may, under
certain conditions, have commensurate or additional license rights under the
Bayh-Dole Act.
In December 2002 we entered into consulting agreements on a
month-to-month basis with Dr. Mark Witten and Dr. David Harris, who are our two
founders and largest shareholders. Under the terms of these agreements, Drs.
Witten and Harris agree to place at the disposal of us their judgment and
expertise in the area of acute lung injury. In consideration for these services,
we agree to pay each of Drs. Witten and Harris a non-refundable fee of $5,000
per month. In March 2005, Dr. Harris resigned as consultant to the Company and
its subsidiaries.
In December 2002, we entered into a royalty-free license agreement with
Drs. Witten and Harris. Under the terms of the license agreement, Drs. Harris
and Witten granted to us an exclusive license to use and sublicense certain
patents, medical applications, and other technologies developed by them. Our
obligations under this agreement include (i) reasonable efforts to protect any
licensed patents or other associated property rights; (ii) reasonable efforts to
maintain confidentiality of any proprietary information; (iii) upon the granting
by the U. S. Food and Drug Administration to us the right to market a product, ,
we will, for so long as we sell any product or medical application which
incorporates or utilizes the patents, medical applications, and other
technologies developed by Drs. Witten and Harris, maintain in full force and
effect policies of general liability insurance (with Broad Form General
Liability and Product Liability endorsements) with limits of not less than
$1,000,000 per occurrence and $1,000,000 annual aggregate. The license agreement
will terminate ten years after the date of the expiration of the last patent
issued or issuing with respect to the licensed patents, medical applications,
and other technologies.
In February 2005, Drs. Witten and Harris executed assignment documents
in which for good and valuable consideration patents and patents applications
developed by them are assigned to ImmuneRegen BioSciences, Inc.
We may collaborate in the future with other entities on research,
development and commercialization activities. Disputes may arise about
inventorship and corresponding rights in know-how and inventions resulting from
the joint creation or use of intellectual property by us and our collaborators,
partners, licensors and consultants. As a result, we may not be able to maintain
our proprietary position.
EMPLOYEES
As of December 31, 2004, we had five total employees, four contract
employees and one full-time employee. Our sole full time employee is our Chief
Executive Officer, Michael K. Wilhelm,. None of our employees are covered by a
collective bargaining agreement.
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RISK FACTORS
IN EVALUATING OUR BUSINESS, YOU SHOULD CONSIDER THE FOLLOWING
DISCUSSIONS OF RISKS, IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS REPORT
AS WELL AS OUR OTHER PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
ANY OF THE FOLLOWING RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION, RESULTS OF OPERATIONS AND PROSPECTS.
WE HAVE LIMITED CASH RESOURCES, AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY
PROFITABLE AND EXPECT TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
As of December 31, 2004, our working capital totaled approximately
$593,533. We have incurred a substantial net loss for the period from our
inception in October 2002 to December 31, 2005, and are currently experiencing
negative cash flow. We expect to continue to experience negative cash flow and
operating losses through at least 2007 and possibly thereafter. As a result, we
will need to generate significant revenues to achieve profitability.
WE MAY FAIL TO BECOME AND REMAIN PROFITABLE OR WE MAY BE UNABLE TO FUND OUR
CONTINUING LOSSES, IN WHICH CASE OUR BUSINESS MAY FAIL.
We are focused on product development and have not generated any
revenue to date. We have incurred operating losses since our inception. Our net
loss for fiscal year 2004 was $(5,305,407). As of December 31, 2004, we had an
accumulated deficit of $ (7,208,027).
We currently have no product candidates for sale in the United States,
and we cannot guarantee that we will ever have marketable products in the United
States. We must demonstrate that our product candidates satisfy rigorous
standards of safety and efficacy before the U.S. Food and Drug Administration
("FDA") and other regulatory authorities in the United States and abroad will
approve the products for commercial marketing. We will need to conduct
significant additional research, preclinical testing and clinical testing before
we can file applications with the FDA for approval of our product candidates. In
addition, to compete effectively, our future products must be easy to use,
cost-effective and economical to manufacture on a commercial scale. We may not
achieve any of these objectives.
We expect to incur losses as we research, develop and seek regulatory
approvals for our products. If our products fail in clinical trials or do not
gain regulatory approval, or if our products do not achieve market acceptance,
we will not be profitable. If we fail to become and remain profitable, or if we
are unable to fund our continuing losses, our business may fail,
OUR OPERATING EXPENSES ARE UNPREDICTABLE, WHICH MAY ADVERSELY AFFECT OUR
BUSINESS, OPERATIONS AND FINANCIAL CONDITION.
-16-
As a result of our limited operating history and because of the
emerging nature of the markets in which we will compete, our financial data is
of limited value in planning future operating expenses. To the extent our
operating expenses precede or are not rapidly followed by increased revenue, our
business, results of operations and financial condition may be materially
adversely affected. Our expense levels will be based in part on our expectations
concerning future revenues. A significant portion of our revenue is anticipated
to be derived from Homspera; however the size and extent of such revenues are
wholly dependent upon the choices and demand of individuals, which are difficult
to forecast accurately. We may be unable to adjust our operations in a timely
manner to compensate for any unexpected shortfall in revenues. Further, business
development and marketing expenses may increase significantly as we expand our
operations.
IF OUR PLAN IS NOT SUCCESSFUL OR MANAGEMENT IS NOT EFFECTIVE, THE VALUE OF OUR
COMMON STOCK MAY DECLINE.
Our operating subsidiary, ImmuneRegen BioSciences, Inc., was founded in
October 2002. As a result, we are a development stage company with a limited
operating history that makes it impossible to reliably predict future growth and
operating results. Our business and prospects must be considered in light of the
risks and uncertainties frequently encountered by companies in their early
stages of development. In particular, we have not demonstrated that we can:
o ensure that our products function as intended in human clinical
applications;
o obtain the regulatory approvals necessary to commercialize
products that we may develop in the future;
o manufacture, or arrange for third-parties to manufacture, future
products in a manner that will enable us to be profitable;
o establish many of the business functions necessary to operate,
including sales, marketing, administrative and financial
functions, and establish appropriate financial controls;
o make, use, and sell future products without infringing upon third
party intellectual property rights; or
o respond effectively to competitive pressures.
We cannot be sure that we will be successful in meeting these
challenges and addressing these risks and uncertainties. If we are unable to do
so, our business will not be successful.
-17-
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 for at least the next 12 months. However, changes in
our research and development plans or other events affecting our operating
expenses may result in the expenditure of such cash before that time. We may
require substantial additional funds in order to finance our drug discovery and
development programs, fund operating expenses, pursue regulatory clearances,
develop manufacturing, marketing and sales capabilities, and prosecute and
defend our intellectual property rights. We may seek additional funding through
public or private financing or through collaborative arrangements with strategic
partners.
You should be aware that in the future:
o we may not obtain additional financial resources when necessary
or on terms favorable to us, if at all; and
o any available additional financing may not be adequate.
If we cannot raise additional funds when needed, or on acceptable terms,
we will not be able to continue to develop our drug candidates.
We require substantial working capital to fund our operations. Since we
do not expect to generate significant revenues in the foreseeable future, in
order to fund operations, we will be completely dependent on additional debt and
equity financing arrangements. There is no assurance that any financing will be
sufficient to fund our capital expenditures, working capital and other cash
requirements for the next 12 months. Our working capital as of December 31, 2004
was $(593,533) No assurance can be given that any such additional funding will
be available or that, if available, can be obtained on terms favorable to us. If
we are unable to raise needed funds on acceptable terms, we will not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. A material
shortage of capital will require us to take drastic steps such as reducing our
level of operations, disposing of selected assets or seeking an acquisition
partner. If cash is insufficient, we will not be able to continue operations.
ALL OUR APPLICATIONS ARE ALL DERIVED FROM THE USE OF HOMSPERA. IF HOMSPERA IS
FOUND TO BE UNSAFE OR INEFFECTIVE, WE WOULD HAVE NO POTENTIAL SOURCE OF REVENUES
AND MAY BE REQUIRED TO CEASE OPERATIONS.
All our potential applications are derived from the use of Homspera. In
addition, we expect to utilize Homspera in the development of any future
products we market. If these current or future Homspera-based products are found
to be unsafe or ineffective due to the use of Homspera, we may have to modify or
cease production of the products. As all of our applications utilize or will
utilize Homspera, any findings that Homspera is unsafe or ineffective would
severely harm our Homspera-based business operations, since all of our primary
revenue sources would be negatively affected by such findings. In such an event,
we may be required to cease operations.
We will need to conduct significant additional research, preclinical testing and
clinical testing before we can file applications with the FDA for approval of
our product candidates.
To date we have not yet made applications with the FDA or any other
governmental regulatory agency for approval for our product candidates. Until
such as time as our New Drug Application (NDA) is filed and subsequently
approved, we will not be able to market products domestically.
We are currently conducting initial formulation studies in conjunction
with ongoing animal and laboratory studies expanding our understanding of the
mechanisms by which Radilex and Homspera exert their beneficial effects. Once a
formulation is chosen, stability and initial toxicity studies will be done to
support initial primate studies and the filing on an Investigational New Drug
Application (IND). Formulation, stability and ongoing animal studies are
expected to be completed over the next six to twelve months at an estimated
costs of $300,000, enabling the IND filing within the next nine to twelve
months. Human safety studies and animal efficacy studies in primates, at an
estimated cost of $2 to $2.5 million, are expected to support filing of a New
Drug Application (NDA) in 24 to 36 months months.
IF WE FAIL TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS, WE WILL HAVE TO
CEASE OPERATIONS.
Our failure to develop and commercialize products successfully will
cause us to cease operations. Our potential therapies utilizing Homspera will
require significant additional research and development efforts and regulatory
approvals prior to potential commercialization in the future. We cannot
guarantee that we, or our corporate collaborators, if any, will ever obtain any
regulatory approvals of Homspera. We currently are focusing our core
competencies on Homspera although there may be no assurance that we will be
successful in so doing.
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Our therapies and technologies utilizing Radilex and Homspera is at
early stages of development and may not be shown to be safe or effective and may
never receive regulatory approval. Our technologies utilizing Radilex and
Homspera have not yet been tested in humans. Regulatory authorities may not
permit human testing of potential products based on these technologies. Even if
human testing is permitted, any potential products based on Homspera may not be
successfully developed or shown to be safe or effective.
The results of our preclinical studies and clinical trials may not be
indicative or future clinical trial results. A commitment of substantial
resources to conduct time-consuming research, preclinical studies and clinical
trials will be required if we are to develop any products. Delays in planned
patient enrollment in our clinical trials may result in increased costs, program
delays or both. None of our potential products may prove to be safe or effective
in clinical trials. Approval of the Unites States Food and Drug Administration,
the FDA, or other regulatory approvals, including export license permissions,
may not be obtained and even if successfully developed and approved, our
potential products may not achieve market acceptance. Any products resulting
from our programs may not be successfully developed or commercially available
for a number of years, if at all.
Moreover, unacceptable toxicity or side effects could occur at any time
in the course of human clinical trials or, if any products are successfully
developed and approved for marketing, during commercial use of any of our
proposed products. The appearance of any unacceptable toxicity or side effects
could interrupt, limit, delay or abort the development of any of our proposed
products or, if previously approved, necessitate their withdrawal from the
market.
THE MARKET FOR TREATING ACUTE RADIATION SYNDROME IS UNCERTAIN AND IF WE ARE
UNABLE TO SUCCESSFULLY COMMERCIALIZE RADILEX, WE WILL NOT RECOGNIZE A
SIGNIFICANT PORTION OF OUR PLANNED REVENUES.
We do not believe any drug has ever been approved and commercialized
for the treatment of severe acute radiation injury. In addition, the incidence
of large-scale exposure to nuclear or radiological events has been low.
Accordingly, even if Radilex, our lead drug candidate to treat Acute Radiation
Syndrome (ARS), is approved by the FDA, we cannot predict with any certainty the
size of this market. The potential market for Radilex is largely dependent on
the size of stockpiling orders, if any, procured by the U.S. and foreign
governments. While a number of governments have historically stockpiled drugs to
treat indications such as smallpox, anthrax exposure, plague, tularemia and
certain long-term effects of radiation exposure, we are unaware of any
significant stockpiling orders for drugs to treat ARS. While we have filed a
formal response to the U.S. Department of Health and Human Services Request for
Information (RFI) for therapeutics to treat ARS, at least one other company has
responded to this RFI, and we cannot guarantee that our response to this RFI
will result in a U.S. Department of Health and Human Services Request for
Proposal (RFP) or any stockpiling orders. A decision by the U.S. Government to
enter into a commitment to purchase Radilex prior to FDA approval is largely out
of our control. Our development plans and timelines may vary substantially
depending on whether we receive such a commitment and the size of such
commitment, if any. In addition, even if Radilex is approved by regulatory
authorities, we cannot guarantee that we will receive any stockpiling orders for
Radilex, that any such order would be profitable to us or that Radilex will
achieve market acceptance by the general public.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS, AND
THEREFORE ADVERSELY AFFECT THE TIMING AND LEVEL OF FUTURE REVENUES, IF ANY.
The process of obtaining FDA and other regulatory approvals is time
consuming, expensive and difficult to design and implement. Clinical trials are
required and the marketing and manufacturing of our applications are subject to
rigorous testing procedures. Significant delays in clinical trials will impede
our ability to commercialize our applications and generate revenue and could
significantly increase our development costs. The commencement and completion of
clinical trials for our Homspera-based applications or any of our applications
could be delayed or prevented by a variety of factors, including:
o delays in obtaining regulatory approvals to commence a study;
o delays in identifying and reaching agreement on acceptable
terms with prospective clinical trial sites;
o delays in the enrollment of patients;
o lack of efficacy during clinical trials; or,
o unforeseen safety issues.
Even if marketing approval from the FDA is received, the FDA may impose
post-marketing requirements, such as:
o labeling and advertising requirements, restrictions or
limitations, including the inclusion of warnings, precautions,
contra-indications or use limitations that could have a
material impact on the future profitability of our
applications;
o testing and surveillance to monitor our future products and
their continued compliance with regulatory requirements;
o submitting products for inspection and, if any inspection
reveals that the product is not in compliance, prohibiting the
sale of all products;
o suspending manufacturing; or
o withdrawing marketing clearance.
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Additionally, the FDA's policies may change and additional government
regulations may be enacted, which could prevent or delay regulatory approval of
our applications. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are not able to maintain
regulatory compliance, we might not be permitted to market our future products
and our business could suffer..
Even if human clinical trials of Radilex and Homspera are initiated
and successfully completed, the FDA may not approve Radilex and Homspera for
commercial sale. We may encounter significant delays or excessive costs in our
efforts to secure necessary approvals. Regulatory requirements are evolving and
uncertain. Future United States or foreign legislative or administrative acts
could also prevent or delay regulatory approval of our products. We may not be
able to obtain the necessary approvals for clinical trials, manufacturing or
marketing of any of our products under development. Even if commercial
regulatory approvals are obtained, they may include significant limitations on
the indicated uses for which a product may be marketed.
The FDA has not designated expanded access protocols for Radilex and
Homspera as "treatment" protocols. The FDA may not determine that Radilex and
Homspera meets all of the FDA's criteria for use of an investigational drug for
treatment use. Even if Radilex and Homspera are allowed for treatment use, third
party payers may not provide reimbursement for the costs of treatment with
Radilex and Homspera. The FDA also may not consider Radilex and Homspera to be
an appropriate candidate for accelerated approval, expedited review or fast
track designation.
IF WE FAIL TO OBTAIN APPROVAL FROM FOREIGN REGULATORY AUTHORITIES, WE WILL NOT
BE ALLOWED TO MARKET OR SELL OUR PRODUCTS IN OTHER COUNTRIES, WHICH WOULD
ADVERSELY AFFECT OUR LEVELS OF FUTURE REVENUES, IF ANY.
Marketing any drug products outside of the United States will subject
us to numerous and varying foreign regulatory requirements governing the design
and conduct of human clinical trials and marketing approval. Additionally, our
ability to export drug candidates outside the United States on a commercial
basis will be subject to the receipt from the FDA of export permission, which
may not be available on a timely basis, if at all.
-20-
Approval procedures vary among countries and can involve additional
testing, and the time required to obtain approval may differ from that required
to obtain FDA approval. Foreign regulatory approval processes include all of the
risks associated with obtaining FDA approval set forth above, and approval by
the FDA does not ensure approval by the health authorities of any other country.
CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR
APPLICATIONS, WHICH COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.
Prior to receiving approval to commercialize any of our applications or
therapies, we must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA and other regulatory
authorities in the United States and abroad, that our applications are both safe
and effective. We will need to demonstrate our applications' efficacy and
monitor their safety throughout the process. If any future clinical trials are
unsuccessful, our business and reputation would be harmed and our stock price
would be adversely affected.
All of our applications are prone to the risks of failure inherent in
biologic development. The results of early-stage clinical trials of our
applications do not necessarily predict the results of later-stage clinical
trials. Applications in later-stage
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clinical trials may fail to show desired safety and efficacy traits despite
having progressed through initial clinical testing. Even if we believe the data
collected from clinical trials of our applications is promising, this data may
not be sufficient to support approval by the FDA or any other U.S. or foreign
regulatory approval. Preclinical and clinical data can be interpreted in
different ways. Accordingly, FDA officials could interpret such data in
different ways than we do, which could delay, limit or prevent regulatory
approval. The FDA, other regulatory authorities, or we may suspend or terminate
clinical trials at any time. Any failure or significant delay in completing
clinical trials for our applications, or in receiving regulatory approval for
the sale of any products resulting from our applications, may severely harm our
business and reputation.
DELAYS IN THE CONDUCT OR COMPLETION OF OUR PRECLINICAL OR CLINICAL STUDIES OR
THE ANALYSIS OF THE DATA FROM OUR PRECLINICAL OR CLINICAL STUDIES MAY RESULT IN
DELAYS IN OUR PLANNED FILINGS FOR REGULATORY APPROVALS, OR ADVERSELY AFFECT OUR
ABILITY TO ENTER INTO COLLABORATIVE ARRANGEMENTS.
We may encounter problems with some or all of our completed or ongoing
studies that may cause us or regulatory authorities to delay or suspend our
ongoing studies or delay the analysis of data from our completed or ongoing
studies. If the results of our ongoing and planned studies for our drug
candidates are not available when we expect or if we encounter any delay in the
analysis of the results of our studies for our drug candidates:
o we may not have the financial resources to continue research and
development of any of our drug candidates; and,
o we may not be able to enter into collaborative arrangements
relating to any drug candidate subject to delay in regulatory
filing.
Any of the following reasons, among others, could delay or suspend the
completion of our ongoing and future studies:
o delays in enrolling volunteers;
o interruptions in the manufacturing of our drug candidates or
other delays in the delivery of materials required for the
conduct of our studies;
o lower than anticipated retention rate of volunteers in a trial;
o unfavorable efficacy results;
o serious side effects experienced by study participants relating
to the drug candidate;
o new communications from regulatory agencies about how to conduct
these studies; or
o failure to raise additional funds.
IF THE MANUFACTURERS OF OUR PRODUCTS DO NOT COMPLY WITH CURRENT GOOD
MANUFACTURING PRACTICES REGULATIONS, OR CANNOT PRODUCE THE AMOUNT OF PRODUCTS WE
NEED TO CONTINUE OUR DEVELOPMENT, WE WILL FALL BEHIND ON OUR BUSINESS
OBJECTIVES.
Manufacturers producing our drug candidates must follow current Good
Manufacturing Practices, or GMP, regulations enforced by the FDA and foreign
equivalents. If a manufacturer of our drug candidates does not conform to the
GMP regulations and cannot be brought up to such a standard, we will be required
to find alternative manufacturers that do conform. This may be a long and
difficult process, and may delay our ability to receive FDA or foreign
regulatory approval of our products.
We also rely on our manufacturers to supply us with a sufficient quantity
of our drug candidates to conduct clinical trials. If we have difficulty in the
future obtaining our required quantity and quality of supply, we could
experience significant delays in our development programs and regulatory
process.
-22-
OUR LACK OF COMMERCIAL MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
EXPERIENCE MAY PREVENT US FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS, WHICH
WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
The manufacturing process of our proposed products is expected to
involve a number of steps and requires compliance with stringent quality control
specifications imposed by us and by the FDA. We have no experience in the sales,
marketing and distribution of pharmaceutical or biotechnology products. We have
not manufactured any of our products in commercial quantities. We may not
successfully make the transition from manufacturing clinical trial quantities to
commercial production quantities or be able to arrange for contract
manufacturing and this could prevent us from commercializing products or limit
our profitability from our products.
WE RELY ON THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE OF RADILEX AND
HOMSPERA. OUR INABILITY TO MANUFACTURE RADILEX AND HOMSPERA, AND OUR DEPENDENCE
ON SUCH MANUFACTURERS, MAY DELAY OR IMPAIR OUR ABILITY TO GENERATE REVENUES, OR
ADVERSELY AFFECT OUR PROFITABILITY.
We may enter into arrangements with contract manufacturing companies in
order to meet requirements for our products or to attempt to improve
manufacturing efficiency. If we choose to contract for manufacturing services,
we may encounter costs, delays and/or other difficulties in producing, packaging
and distributing our clinical trials and finished product. Further, contract
manufacturers must also operate in compliance with the GMP requirements; failure
to do so could result in, among other things, the disruption of our product
supplies. Our potential dependence upon third parties for the manufacture of our
proposed products may adversely affect our profit margins and our ability to
develop and deliver proposed products on a timely and competitive basis.
For the manufacture of the applications under development, we obtain
synthetic peptides from third party manufacturers. A synthesized version of
Homspera is readily available at low cost from several life science and
technology companies that provide biochemical and organic chemical products and
kits used in scientific and genomic research, biotechnology, pharmaceutical
development and the diagnosis of disease and chemical manufacturing. If any of
these proposed manufacturing operations prove inadequate, there may be no
assurance that any other arrangements may be established on a timely basis or
that we could establish other manufacturing capacity on a timely basis.
Although, we believe that the synthetic substance P and other materials
necessary to produce Radilex and Homspera are readily available from various
sources, and several suppliers are capable of supplying substance P in both
clinical and commercial quantities, our dependence on such manufacturers, may
delay or impair our ability to generate revenues, or adversely affect our
profitability.
ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING RADILEX AND HOMSPERA,
WHICH WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
Our ability to earn sufficient revenue on Radilex and Homspera or any
other proposed products will depend in part on the extent to which reimbursement
for the costs of such products and related treatments will be available from
government health administration authorities, private health coverage insurers,
managed care organizations and other organizations. Failure to obtain
appropriate reimbursement may prevent us from successfully commercializing
Radilex and Homspera or any proposed products. Third-party payers are
increasingly challenging the prices of medical products and services. If
purchasers or users of Radilex and Homspera or any such other proposed products
are not able to obtain adequate reimbursement for the cost of using such
products, they may forego or reduce their use. Significant uncertainty exists as
to the reimbursement status of newly approved health care products and whether
adequate third party coverage will be available.
THE MEDICAL COMMUNITY MAY NOT ACCEPT AND UTILIZE RADILEX AND HOMSPERA, THE
EFFECT OF WHICH WOULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING THE PRODUCT
AND ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUE, IF ANY.
Our ability to market and commercialize Radilex and Homspera depends
on the acceptance and utilization of Homspera by the medical community. We will
need to develop commercialization initiatives designed to increase awareness
about us and Homspera among targeted audiences, including public health
activists and community-based outreach groups in addition to the investment
community. Currently, we have not
-23-
developed any such initiatives. Without such acceptance of Homspera, the product
upon which we expect to be substantially dependent, we may not be able to
successfully commercialize Homspera or generate revenue.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY OR COSTS,
WHICH WOULD ADVERSELY IMPART OUR FUTURE OPERATING RESULTS AND DIVERT FUNDS FROM
THE OPERATION OF OUR BUSINESS.
We face an inherent business risk of exposure to product liability and
other claims and lawsuits in the event that the development or use of our
technology or prospective products is alleged to have resulted in adverse
effects. We may not be able to avoid significant liability exposure. We may not
have sufficient insurance coverage and we may not be able to obtain sufficient
coverage at a reasonable cost. An inability to obtain product liability
insurance at acceptable cost or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of our products.
A product liability claim could hurt our financial performance. Even if we
avoids liability exposure, significant costs could be incurred that could hurt
our financial performance.
-24-
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS, THE
EFFECT OF WHICH COULD ADVERSELY AFFECT ANY COMPETITIVE ADVANTAGE WE MAY HAVE.
We own or have obtained a license to 4 issued U.S. and foreign patents
and 8 pending U.S. and foreign patent applications. Our success will depend in
part on our ability to obtain additional United States and foreign patent
protection for our drug candidates and processes, preserve our trade secrets and
operate without infringing the proprietary rights of third parties. We place
considerable importance on obtaining patent protection for significant new
technologies, products and processes.
Our long-term success largely depends on our ability to market
technologically competitive processes and products. If we fail to obtain or
maintain these protections we may not be able to prevent third parties from
using our proprietary rights. Our currently pending or future patent
applications may not result in issued patents. In the United States, patent
applications are confidential until patent applications are published or the
patent is issued, and because third parties may have filed patent applications
for technology covered by our pending patent applications without us being aware
of those applications, our patent applications may not have priority over any
patent applications of others. In addition, our issued patents may not contain
claims sufficiently broad to protect us against third parties with similar
technologies or products or provide us with any competitive advantage. If a
third party initiates litigation regarding our patents, and is successful, a
court could revoke our patents or limit the scope of coverage for those patents.
Legal standards relating to the validity of patents covering
pharmaceutical and biotechnology inventions and the scope of claims made under
such patents are still developing. In some of the countries in which we intend
to market our products, pharmaceuticals are either not patentable or have only
recently become patentable. Past enforcement of intellectual property rights in
many of these countries has been limited or non-existent. Future enforcement of
patents and proprietary rights in many other countries may be problematic or
unpredictable. Moreover, the issuance of a patent in one country does not assure
the issuance of a similar patent in another country. Claim interpretation and
infringement laws vary by nation, so the extent of any patent protection is
uncertain and may vary in different jurisdictions.
The U.S. Patent and Trademark Office, commonly referred to as the
USPTO, and the courts have not consistently treated the breadth of claims
allowed in biotechnology patents. If the USPTO or the courts begin to allow
broader claims, the incidence and cost of patent interference proceedings and
the risk of infringement litigation will likely increase. On the other hand, if
the USPTO or the courts begin to allow narrower claims, the value of our
proprietary rights may be limited. Any changes in, or unexpected interpretations
of the patent laws may adversely affect our ability to enforce our patent
position.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.
OUR PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT BE ENFORCEABLE AND THE PATENTS
AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT US FROM COMMERCIALIZING
PRODUCTS.
Although we believe our inventions to be protected and our patents
enforceable, the failure to obtain meaningful patent protection products and
processes would greatly diminish the value of our potential products and
processes.
In addition, whether or not our applications are issued, or issued with
limited coverage, others may receive patents, which contain claims applicable to
our products. Patents we are not aware of may adversely affect our ability to
develop and commercialize products.
-25-
The patent positions of biotechnology and pharmaceutical companies are
often highly uncertain and involve complex legal and factual questions.
Therefore, the breadth of claims allowed in biotechnology and pharmaceutical
patents cannot be predicted. We also rely upon non-patented trade secrets and
know how, and others may independently develop substantially equivalent trade
secrets or know how. We also rely on protecting our proprietary technology in
part through confidentiality agreements with our current and former corporate
collaborators, employees, consultants and certain contractors. These agreements
may be breached, and we may not have adequate remedies for any such breaches.
Litigation may be necessary to defend against claims of infringement, to enforce
our patents or to protect trade secrets. Litigation or other disputes regarding
patents and other proprietary rights may be expensive, cause delays in bringing
products to market and harm our ability to operate. In addition, litigation
could result in substantial costs and diversion of management efforts regardless
of the results of the litigation. An adverse result in litigation could subject
us to significant liabilities to third parties, require disputed rights to be
licensed or require us to cease using certain technologies.
Our products could infringe on the intellectual property rights of
others, which may cause us to engage in costly litigation and, if not
successful, could cause us to pay substantial damages and prohibit us from
selling our products. Because patent applications in the United States are not
publicly disclosed until the patent application is published or the patent is
issued, applications may have been filed which relate to products similar to
those offered by us. We may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties.
If our products violate third-party proprietary rights, we cannot
assure you that we would be able to arrange licensing agreements or other
satisfactory resolutions on commercially reasonable terms, if at all. Any claims
made against us relating to the infringement of third-party propriety rights
could result in the expenditure of significant financial and managerial
resources and injunctions preventing us from developing and commercializing our
products. Such claims could severely harm our financial condition and ability to
compete.
In addition, if another party claims the same subject matter or subject
matter overlapping with the subject matter that we have claimed in a United
States patent application or patent, we may decide or be required to participate
in interference proceedings in the United States Patent and Trademark Office in
order to determine the priority of invention. Loss of such an interference
proceeding would deprive us of patent protection sought or previously obtained
and could prevent us from commercializing our products. Participation in such
proceedings could result in substantial costs, whether or not the eventual
outcome is favorable. These additional costs could adversely affect our
financial results.
FAILURE TO COMPLY WITH ENVIRONMENTAL LAWS OR REGULATIONS COULD EXPOSE US TO
SIGNIFICANT LIABILITY OR COSTS WHICH WOULD ADVERSELY IMPART OUR OPERATING
RESULTS AND DIVERT FUNDS FROM THE OPERATION OF OUR BUSINESS AND HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS.
We may be required to incur significant costs to comply with current or
future environmental laws and regulations. Although we do not currently
manufacture commercial quantities of our proposed products, we do produce
limited quantities of these products for our clinical trials. Our research and
development and manufacturing processes involve the controlled storage, use and
disposal of hazardous materials, biological hazardous materials and radioactive
compounds. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of these
materials and some waste products. Although we believe that our safety
procedures for handling and disposing of these materials comply with the
standards prescribed by these laws and regulations, the risk of contamination or
injury from these materials cannot be completely eliminated. In the event of an
incident, ImmuneRegen BioSciences, Inc. could be held liable for any damages
that result, and any liability could exceed our resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.
-26-
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF A
KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS.
The execution of our present business plan depends on the continued
services of Michael K. Wilhelm, our Chief Executive Officer and President, Mark
L. Witten, Ph.D., our acting Chief Scientific Officer. We do not currently
maintain key-man insurance on their lives. While we have entered into employment
agreements with each of them, the loss of any of their services would be
detrimental to us and could have a material adverse effect on our business,
financial condition and results of operations.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL OUR
BUSINESS AND MAY MAKE DECISIONS THAT ARE NOT IN OUR BEST INTERESTS.
Our officers, directors and principal stockholders, and their
affiliates, in the aggregate, own over a majority of the outstanding shares of
our common stock. As a result, such persons, acting together, have the ability
to substantially influence all matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets, and to control
our management and affairs. Accordingly, such concentration of ownership may
have the effect of delaying, deferring or preventing a change in discouraging a
potential acquirer form making a tender offer or otherwise attempting to obtain
control of our business, even if such a transaction would be beneficial to other
stockholders.
TRADING IN OUR SECURITIES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS THAT
COULD ADVERSELY AFFECT YOUR INVESTMENT.
The market prices for securities of life sciences companies, particularly
those that are not profitable, have been highly volatile, especially recently.
Publicized events and announcements may have a significant impact on the market
price of our common stock. For example:
o biological or medical discoveries by competitors;
o public concern about the safety of our drug candidates;
o delays in the conduct or analysis of our preclinical or clinical
studies;
o unfavorable results from preclinical or clinical studies;
o unfavorable developments concerning patents or other proprietary
rights; or
o unfavorable domestic or foreign regulatory developments;
-27-
may have the effect of temporarily or permanently driving down the price of our
common stock. In addition, the stock market from time to time experiences
extreme price and volume fluctuations which particularly affect the market
prices for emerging and life sciences companies, such as ours, and which are
often unrelated to the operating performance of the affected companies. For
example, our stock price has ranged from $0.09 to $1.00 between January 1, 2004
and April 3, 2005.
These broad market fluctuations may adversely affect the ability of a
stockholder to dispose of his shares at a price equal to or above the price at
which the shares were purchased. In addition, in the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against that company. Any
litigation against our company, including this type of litigation, could result
in substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our business, financial condition and
results of operations.
A LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK AND THUS ADVERSELY AFFECT THE VALUE OF ANY INVESTMENT
IN OUR COMMON STOCK.
Our common stock is currently traded on a limited basis on the OTC
Bulletin Board (the "OTCBB") under the symbol "IRBO". The OTCBB is an
inter-dealer, Over-The-Counter market that provides significantly less liquidity
than the NASDAQ Stock Market. Quotes for stocks included on the OTCBB are not
listed in the financial sections of newspapers as are those for the NASDAQ Stock
Market. Therefore, prices for securities traded solely on the OTCBB may be
difficult to obtain and holders of common stock may be unable to resell their
securities at or near their original offering price or at any price.
The NASD has enacted recent changes that limit quotations on the OTC
Bulletin Board to securities of issuers that are current in their reports filed
with the Securities and Exchange Commission. The effect on the OTC Bulletin
Board of these rule changes and other proposed changes cannot be determined at
this time.
The quotation of our common stock on the OTCBB does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent
years such market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of many smaller companies like us.
Our common stock is thus subject to this volatility.
SALES OR ISSUANCES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND YOUR RIGHTS IN US MAY BE REDUCED.
Certain of our stockholders have the right to register securities for
resale that they hold pursuant to registration rights agreements. We expect to
continue to incur product development and selling, general and administrative
costs, and in order to satisfy our funding requirements, we will need to sell
additional equity securities, which may be subject to similar registration
rights. The sale or the proposed sale of substantial amounts of our common stock
in the public markets may adversely affect the market price of our common stock.
On November 24, 2004, we filed a registration statement on Form SB-2 to register
shares of our common stock that may be sold from time to time by the selling
stockholders named therein.
-28-
The registration and subsequent sales of shares of our common stock will likely
have an adverse effect on the market price of our common stock.
From time to time, certain stockholders of our company may be eligible
to sell all or some of their shares of common stock by means of ordinary
brokerage transactions in the open market pursuant to Rule 144, promulgated
under the Act ("Rule 144"), subject to certain limitations. In general, pursuant
to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has
satisfied a one-year holding periods may, under certain circumstances, sell
within any three-month period a number of securities which does not exceed the
greater of 1% of the then outstanding shares of our common stock or the average
weekly trading volume of the class during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of
securities, without any limitations, by a non-affiliate of our company who has
satisfied a two-year holding period. Any substantial sale of our common stock
pursuant to Rule 144 or pursuant to any resale prospectus may have an adverse
effect on the market price of our securities.
Our stockholders may experience substantial dilution and a reduction in
the price that they are able to obtain upon sale of their shares. Also, any new
equity securities issued, including any new series of preferred stock authorized
by our board of directors, may have greater rights, preferences or privileges
than our existing common stock. To the extent stock is issued or options and
warrants are exercised, holders of our common stock will experience further
dilution. In addition, as in the case of the warrants, in the event that any
future financing should be in the form of, be convertible into or exchangeable
for, equity securities and upon the exercise of options and warrants, security
holders may experience additional dilution.
-29-
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. SEE "FORWARD-LOOKING STATEMENTS" ABOVE. THIS
DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES INCLUDED ELSEWHERE IN THIS REPORT.
This annual report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Please note that the
safe harbor for forward-looking statements under the Securities Act of 1933 and
the Securities Exchange Act do not apply to our company. Our actual results
could differ materially from those set forth as a result of general economic
conditions and changes in the assumptions used in making such forward-looking
statements. The following discussion and analysis of our financial condition and
results of operations should be read together with the audited consolidated
financial statements and accompanying notes and the other financial information
appearing else where in this report. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS ANNUAL REPORT ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS MAY BE IDENTIFIED BY THE USE OF CERTAIN FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "BELIEVE," OR
COMPARABLE TERMINOLOGY THAT INVOLVES RISKS OR UNCERTAINTIES. ACTUAL FUTURE
RESULTS AND TRENDS MAY DIFFER MATERIALLY FROM HISTORICAL AND ANTICIPATED
RESULTS, WHICH MAY OCCUR AS A RESULT OF A VARIETY OF FACTORS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, FACTORS DISCUSSED IN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SET
FORTH BELOW, AS WELL AS IN "RISK FACTORS" SET FORTH HEREIN. EXCEPT FOR OUR
ONGOING OBLIGATION TO DISCLOSE MATERIAL INFORMATION AS REQUIRED BY FEDERAL
SECURITIES LAWS, WE DO NOT INTEND TO UPDATE YOU CONCERNING ANY FUTURE REVISIONS
TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING
AFTER THE DATE OF THIS ANNUAL REPORT.
OVERVIEW
We were originally incorporated in Delaware in June 1985 under the name
Vocaltech, Inc. to develop, design, manufacture and market products utilizing
proprietary speech-generated tactile feedback devices. We completed our initial
public offering of our securities in October 1987. We changed our name to
InnoTek, Inc. in November 1992. In January 1992, we effected a 1-for-6.3 reverse
stock split of our common stock. In December 1994, we acquired all of the
outstanding stock of InnoVisions, Inc., a developer and marketer of skin
protective products, discontinued our prior operations in their entirety and
changed our name to DermaRx Corporation. In April 2000, we effected a reverse
merger with a subsidiary of Go Public Network, Inc., which was engaged in
assisting early-stage development and emerging growth companies with financial
and business development services. We changed our name to GoPublicNow.com, Inc.,
effected a 1-for-5 reverse stock split and discontinued our prior operations in
their entirety. In November 2000, we changed our name to GPN Network, Inc. In
July 2001, we discontinued
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the operations of GPN Network, Inc. in their entirety and began looking for
appropriate merger partners. Our objective became the acquisition of an
operating company with the potential for growth in exchange for our securities.
In July 2003, we effected a reverse merger with ImmuneRegen BioSciences, Inc.
and adopted our current business model. In July 2003, we effected a 1-for-20
reverse stock split, and in April 2004, we effected a 2-for-1 stock split.
ImmuneRegen BioSciences, Inc. was incorporated in October 2002; all information
contained herein refers to the operations of ImmuneRegen BioSciences, Inc., our
wholly-owned operational subsidiary.
GENERAL
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of Homspera(TM), a proprietary
compound that is derived from homeostatic substance P, a naturally occurring
peptide. Currently, the majority of our efforts are in the research and
development of Radilex(TM), a compound derived from Homspera, our current
efforts are focused on potential uses of Radilex as a possible therapeutic in
response to toxic radiological or nuclear exposure. Our research and development
efforts are at a very early stage and Radilex has only undergone pre-clinical
testing in mice. Currently, we own or have obtained a license to 4 issued U.S.
and foreign patents and 24 pending U.S. and foreign patent applications. We own
or have obtained a license to 4 issued U.S. and foreign patents and 24 pending
U.S. and foreign patent applications
PLAN OF OPERATIONS
We expect to continue to incur increasing operating losses for the
foreseeable future, primarily due to our continued research and development
activities attributable to new and existing products and general and
administrative activities.
Due to our liquidity and limited cash available our spending on
research and development activities in 2003 and most of 2004 was limited. We
spent approximately $150,091 and $42,972 in 2004 and 2003, respectively, in
research and development activities related to the development of Radilex as a
universal protectant against the effects of chemical, biological, radiological
and nuclear threats. From our inception in October 2002, we have spent $193,063
in research and development activities. These costs include the manufacture and
delivery of our drug by third party manufacturers, payments to Contract Research
Organizations ("CRO") for consulting related to our studies and costs of
performing such studies.
We anticipate that during the next 12 months we will increase our
research and development activities by approximately $450,000 to a total of
approximately $600,000 in an effort to further develop Radilex as a universal
protectant against chemical, biological, radiological and nuclear threats. The
drug development, clinical trial and regulatory process is lengthy, expensive
and uncertain and subject to numerous risks.
-31-
Our major research and development projects include:
Research and development of Radilex.
We are currently preparing the protocols for our eighth mouse study in
which we will further validate our prior studies by collecting additional data
as requested by the FDA and NIH. We expect to begin the eighth study within the
next 60 days. We estimate that the study will be completed within 3 months upon
commencement at an estimated cost of $70,000. Upon completion of the
aforementioned study we will prepare the protocols necessary for a non-human
primate study to test the efficacy of Radilex as a treatment to acute radiation
sickness. We expect this study to begin within the next twelve months. We
believe that preliminary results will be available within 90 days from beginning
of study, with analysis within an additional 60 to 90 days. We have budgeted
approximately $100,000 for expenses related to this study in our fiscal year
ending December 31, 2005. We expect an additional $1,500,000 will be required to
complete this study in 2006.
If we are successful in completing the study and achieve the desired results, we
intend to submit the necessary documentation to the FDA and other regulatory
agencies for approval. If approval for Radilex is granted, we expect to begin
efforts to commercialize our product immediately thereafter. We are anticipating
revenues from the sale of Radilex beginning in calendar year 2008 as a treatment
to the effects caused by irradiation.
If product development or approval does not occur as scheduled our time to reach
market will be lengthened and our costs will 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 Homspera in chemical and biological exposure
applications.
--------------------------------------------------------------------------------
We are planning to conduct preliminary research and development on the efficacy
of Homspera as a potential treatment for toxic chemical and biological exposure.
We estimate approximately $100,000 for such studies related to the use of
Homspera in these areas over the next twelve months. If we are successful in
achieving desirable results, we intend to design the protocols and begin studies
for these indications, when capital is available. As we have only collected
preliminary data and additional studies are required, we cannot predict when, if
ever, a viable treatment can be commercialized. If we do not observe significant
results or we lack the capital to further the development, we may abandon such
research and development efforts; thereby limiting our future potential
revenues.
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Research and development of Homspera in wound healing applications.
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Within the next twelve months we plan to begin preclinical studies to
determine if Homspera could become a compound that would be used in wound
healing. We do not have any research and development expenses associated with
the use of Homspera in wound healing in 2004 or 2003. We have budgeted
approximately $60,000 for the costs of such studies over the next twelve months.
We anticipate the completion of such studies within eight months of commencement
of the studies. If we achieve desirable results, we will design the protocols
and begin studies for these indications, when capital is available. As we have
only collected preliminary data and additional studies are required, we cannot
predict when, if ever, a viable product can be commercialized. If we do not
observe significant results or we lack the capital to further the development,
we may abandon such research and development efforts; thereby limiting our
future potential revenues.
We will need to generate significant revenues from product sales and or
related royalties and license agreements to achieve and maintain profitability.
Through December 31, 2004, we had no revenues from any product sales, royalties
or licensing fees, and have not achieved profitability on a quarterly or annual
basis. Our ability to achieve profitability depends upon, among other things,
our ability to develop products, obtain regulatory approval for products under
development and enter into agreements for product development, manufacturing and
commercialization. Moreover, we may never achieve significant revenues or
profitable operations from the sale of any of our products or technologies.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements made in 2004.
REVENUES
We have not generated any revenues from operations from our inception.
We believe we will begin earning revenues from operations during calendar year
2008 as we transition from a development stage company to that of an active
growth and acquisition stage company.
COSTS and EXPENSES
From our inception through December 31, 2004, we have incurred losses
of $7,208,027. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2004, we had current assets of $976,827 consisting of
cash of $970,114 and prepaid services of $6,713. Also, at December 31, 2004, we
had current liabilities of $383,294, consisting of notes payable net of discount
of $75,993 and accounts payable and accrued liabilities of $307,301. This
resulted in working capital of $593,533. During the twelve months ended December
31, 2004, we used cash in operating activities of $1,041,182. From the date of
inception (October 30, 2002) to December 31, 2004, we had a net loss of
$7,208,027 and used cash of $2,074,345 in operating activities. We met our cash
requirements from our inception through December 31, 2004 via the private
placement of $2,069,046 of our common stock and $983,500 from the issuance of
notes payable, net of repayments. In October 2004, we completed a private
placement whereby we sold an aggregate of $2,450,000 worth of units to
accredited investors. Each unit was sold for $10,000 and consisted of (a) a
number of shares of our common stock determined by dividing the unit price of
$10,000 by $0.125, and (b) a warrant to purchase, at any time prior to the fifth
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to fifty percent (50%) of the number of shares included
within the unit, at a price equal to $0.50 per share of common stock. We issued
an aggregate of 27,560,897 shares of our common stock and warrants to purchase
13,780,449 shares of our common stock in this private placement. In
consideration of the investment, we granted to each investor certain
registration rights and anti-dilution rights.
-33-
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
$1,211,000 from the tender offer, net of costs.
Since our inception, we have been seeking additional third-party
funding. During such time, we have retained a number of different investment
banking firms to assist us in locating available funding; however, we have not
yet been successful in obtaining any of the long-term funding needed to make us
into a commercially viable entity. During the period from October 2004 to March
2005, we were able to obtain financing of $3,590,136 from a series of private
placements of our securities (which resulted in net proceeds to us of
$3,182,845). All of our current funding is expected to be depleted by the end of
January, 2006. Although we are continuing with our efforts to obtain funding to
maintain our operations , we cannot assure you that we will be successful or
that any funding we receive will be received timely or on commercially
reasonable terms. Due to our working capital deficiency, and if we do not
receive adequate financing, we will be unable to pay our vendors, lenders and
other creditors if we cease our operations, since the net realizable value of
our non-current assets will not generate adequate cash. We currently have no
commitments for financing. There is no guarantee that we will be successful in
raising the funds required.
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.
While we have successfully raised capital to meet our working capital
and financing needs in the past through debt and equity financings, additional
financing will be required in order to implement our business plan and to meet
our current and projected cash flow deficits from operations and development.
There can be no assurance that we will be able to consummate future debt or
equity financings in a timely manner on a basis favorable to us, or at all. If
we are unable to raise needed funds, we will not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. A material shortage of capital will
require us to take drastic steps such as reducing our level of operations,
disposing of selected assets or seeking an acquisition partner.
By adjusting our operations and development to the level of
capitalization, we believe that we have sufficient capital resources to meet
projected cash flow deficits through the next twelve months. However, if
thereafter, we are not successful in generating sufficient liquidity from
operations or in raising sufficient capital resources, this would have a
material adverse effect on our business, results of operations, liquidity and
financial condition.
At December 31, 2004, we were in default on one note of $53,900 plus
accrued interest of $12,093. Another note for $10,000 was outstanding on
December 31, 2004 but was subsequently repaid. Fifteen notes in the aggregate
amount of $558,500 plus accrued interest of $56,757 were converted to equity in
October 2004. We are negotiating revised terms which may include converting to
equity on the note in default at December 31, 2004 in the aggregate amount of
$53,900 plus accrued interest of $12,093.
Pursuant to our employment agreement with Michael Wilhelm, our
President and Chief Executive Officer, dated December 16, 2002, we paid a salary
of $125,000 and $175,000 to Mr. Wilhelm during the first and second years of his
employment, respectively. Thereafter we paid, and will continue to pay, through
the term of Mr. Wilhelm's employment, an annual salary of $250,000. Mr.
Wilhelm's salary is payable in regular installments in accordance with the
customary payroll practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief
Financial Officer, dated February 15, 2005, we paid a salary of $60,000 until
the company completed a financing of $500,000 or more. This occurred on March 4,
2005 when the company completed a Tender Offer for warrants totaling $1,211,000
net of fees. From March 4, 2005, until December 31, 2005, we will pay an annual
salary of $85,000. Thereafter, we will pay an annual salary of $98,000 for the
second year ending December 31, 2006 and an annual salary of $112,000 for the
third year ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our company.
Under the terms of our consulting agreement with Dr. Mark Witten, one
of our founders, we will pay to Dr. Witten a non-refundable fee equal to $5,000
per month.
-34-
Acquisition or Disposition of Plant and Equipment
-------------------------------------------------
We do not anticipate the sale of any significant property, plant or
equipment during the next twelve months. We do not anticipate the acquisition of
any significant property, plant or equipment during the next 12 months.
Number of Employees
-------------------
From our inception through the period ended December 31, 2004, we have relied on
the services of outside consultants for services and currently have 3 full time
employees. 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 12
months, other than the addition of one senior level appointment to the position
of Senior Vice President of Scientific Development. As we continue to expand, we
will incur additional cost for personnel. This projected increase in personnel
is dependent upon our generating revenues and obtaining sources of financing.
There is no guarantee that we will be successful in raising the funds required
or generating revenues sufficient to fund the projected increase in the number
of employees.
CRITICAL ACCOUNTING POLICY
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires us
to make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on various
other assumptions we believe to be reasonable under the circumstances. Future
events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policy involve the most complex, difficult and subjective
estimates and judgments:
o stock-based compensation
Stock-Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS
No. 123 - Accounting for Stock-Based Compensation, providing alternative methods
of voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2003.
We elected to continue to account for stock-based compensation plans
using the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
the provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.
From its inception, the Company has incurred significant costs in
connection with the issuance of equity- based compensation, which is comprised
primarily of our common stock and warrants to acquire our common stock, to
non-employees. The Company anticipates continuing to incur such costs in order
to conserve its limited financial resources. The determination of the
volatility, expected term and other assumptions used to determine the fair value
of equity based compensation issued to non-employees under SFAS 123 involves
subjective judgment and the consideration of a variety of factors, including our
historical stock price, option exercise activity to date and the review of
assumptions used by comparable enterprises.
We account for equity based compensation, issued to non-employees in
exchange for goods or services , in accordance with the provisions of SFAS No.
123 and EITF No. 96-18, "Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".
-35-
Recent Accounting Pronouncements
--------------------------------
In April 2003, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 149, Amendment of Statement No. 133 on Derivative
Instruments and Hedging Activities. SFAS 149 amends SFAS No. 133 to provide
clarification on the financial accounting and reporting of derivative
instruments and hedging activities and requires that contracts with similar
characteristics be accounted for on a comparable basis. The provisions of SFAS
149 are effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The adoption of
SFAS 149 did not have a material impact on the Company's results of operations
or financial position.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity. SFAS
150 establishes standards on the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
provisions of SFAS 150 are effective for financial instruments entered into or
modified after May 31, 2003 and to all other instruments that exist as of the
beginning of the first interim financial reporting period beginning after June
15, 2003. The adoption of SFAS 150 did not have a material impact on the
Company's results of operations or financial position.
In December 2003, the FASB issued a revision of SFAS No. 132,
"Employers' Disclosures About Pensions And Other Postretirement Benefits." This
pronouncement, SFAS No. 132-R, expands employers' disclosures about pension
plans and other post-retirement benefits, but does not change the measurement or
recognition of such plans required by SFAS No. 87, No. 88, and No. 106. SFAS No.
132-R retains the existing disclosure requirements of SFAS No. 132, and requires
certain additional disclosures about defined benefit post-retirement plans.
Except as described in the following sentence, SFAS No. 132-R is effective for
foreign plans for fiscal years ending after June 15, 2004; after the effective
date, restatement for some of the new disclosures is required for earlier annual
periods. Some of the interim-period disclosures mandated by SFAS No. 132-R (such
as the components of net periodic benefit cost, and certain key assumptions) are
effective for foreign plans for quarters beginning after December 15, 2003;
other interim-period disclosures will not be required for the Company until the
first quarter of 2005. Since the Company does not have any defined benefit
post-retirement plans, the adoption of this pronouncement did not have any
impact on the Company's results of operations or financial condition.
In November 2004, the Financial Accounting Standards Board (FASB)
issued SFAS 151, Inventory Costs-- an amendment of ARB No. 43, Chapter 4. This
Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter
4, previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs may
be so abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This Statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not believe the
adoption of this Statement will have any immediate material impact on the
Company. In December 2004, the FASB issued SFAS No.152, "Accounting for Real
-36-
Estate Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
("SFAS 152) The amendments made by Statement 152 This Statement amends FASB
Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of
Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to real
estate time-sharing transactions. The accounting for those operations and costs
is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. with
earlier application encouraged. The Company does not anticipate that the
implementation of this standard will have a material impact on its financial
position, results of operations or cash flows. On December 16, 2004, the
Financial Accounting Standards Board ("FASB") published Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-Based Payment ("SFAS 123R").
SFAS 123R requires that compensation cost related to share-based
payment transactions be recognized in the financial statements. Share-based
payment transactions within the scope of SFAS 123R include stock options,
restricted stock plans, performance-based awards, stock appreciation rights, and
employee share purchase plans. The provisions of SFAS 123R are effective as of
the first interim period that begins after June 15, 2005. Accordingly, the
Company will implement the revised standard in the third quarter of fiscal year
2005. Currently, the Company accounts for its share-based payment transactions
under the provisions of APB 25, which does not necessarily require the
recognition of compensation cost in the financial statements. Management is
assessing the implications of this revised standard, which may materially impact
the Company's results of operations in the third quarter of fiscal year 2005 and
thereafter. On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions (" SFAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
-37-
ITEM 7. FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 2004 AND 2003
FORMING A PART OF ANNUAL REPORT
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
IR BIOSCIENCES HOLDINGS, INC.
F-1
IR Biosciences Holdings, Inc.
Index to Financial Statements
Page No.
--------
Report of Independent Registered Certified Public Accounting Firm............F-3
Consolidated Balance Sheet at December 31, 2004..............................F-4
Consolidated Statements of Losses for the two years ended December 31, 2004 and
2003 and the period October 30, 2002
(Date of Inception) through December 31, 2004................................F-5
Consolidated Statements of Stockholders' Equity for the period October 30, 2002
(Date of Inception) through December 31, 2004........F-6 to F-7
Consolidated Statements of Cash Flows for the two years ended December 31, 2004
and 2003 and the period October 30, 2002
(Date of Inception) through December 31, 2004.........................F-8 to F-9
Notes to Consolidated Financial Statements..........................F-10 to F-25
F-2
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board of Directors
I R Biosciences Holdings, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of I R Biosciences
Holdings, Inc., development stage company, (the "Company") as of December 31,
2004 and the related consolidated statements of losses, stockholders' equity,
and cash flows for the two years December 31, 2004 and 2003 and the period
October 30, 2002 (date of inception) through December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IR
Biosciences Holdings, Inc. , a development stage company, as of December 31,
2004 , and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003 and for the period October 30, 2002 (date of
inception) through December 31, 2004 , in conformity with accounting principles
generally accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
New York, New York
March 4, 2005
F-3
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
December 31,
2004
-----------
Assets
Current assets
Cash and cash equivalents $ 970,114
Prepaid services and other current assets 6,713
-----------
Total current assets 976,827
Licensed proprietary rights, net 7,320
Furniture and equipment, net 6,500
-----------
Total assets $ 990,647
===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable, net of discount 75,993
Accounts payable and accrued liabilities 307,301
-----------
Total current liabilities 383,294
Commitments and Contingencies
Stockholders' Equity
Preferred stock, 0.001 par value:
10,000,000 shares authorized, no shares issued and outstanding 0
Common stock, $0.001 par value; 100,000,000 shares authorized;
62,423,388 shares issued and outstanding at December 31, 2004 62,423
Additional paid-in capital 7,922,943
Deferred compensation (169,986)
Deficit accumulated during the Development Stage (7,208,027)
Total stockholder's equity 607,353
-----------
Total liabilities and stockholders' equity $ 990,647
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Losses
Cumulative from
For the Twelve For the Twelve Inception
Months Ended Months Ended (October 30, 2002)
December 31, December 31, to December 31,
2004 2003 2004
------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses $ 4,498,390 $ 1,045,776 $ 5,589,884
Merger fees and costs 0 350,000 350,000
Financing cost 0 90,000 90,000
------------ ------------ ------------
Total operating expenses 4,498,390 1,485,776 6,029,884
Operating loss (4,498,390) (1,485,776) (6,029,884)
Other expense:
Interest expense 807,017 370,926 1,178,143
------------ ------------ ------------
Total other expense 807,017 370,926 1,178,143
Loss before income taxes (5,305,407) (1,856,702) (7,208,027)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (5,305,407) $ (1,856,702) $ (7,208,027)
============ ============ ============
Net loss per share - basic and diluted $ (0.16) $ (0.09) $ (0.28)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 33,510,168 21,317,292 25,698,261
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of
Stockholders' Equity (Deficit) From Date of
Inception (October 30, 2002) to December 31, 2004
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in
conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders
in conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the twelve month period ended
December 31, 2003 -- -- -- -- (1,856,702) (1,856,702)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2003 23,431,300 23,431 1,035,441 -- (1,902,620) (843,748)
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a
consultant for services rendered in
January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62
per share for services rendered in
February 2004 40,000 40 24,760 (24,800) -- --
Shars issued to a consultant at $0.40 per
share for services rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- --
Shares issued to a consultant at $0.50 per
share for services rendered in March 2004 500,000 500 249,500 (250,000) -- --
Shares sold for cash at $0.15 per share
in March, 2004 8,000 8 1,192 -- -- 1,200
Shares issued at $0.50 per share to
consultants for services rendered in
March 2004 20,000 20 9,980 -- -- 10,000
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 2,000 2 798 -- -- 800
Shares issued to consultants at $0.32 per
share for services rendered in March 2004 91,600 92 29,220 -- -- 29,312
Shares to be issued to consultant at $0.41 per
share in April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- (82,000)
Shares granted pursuant to the New Senior Note
Agreement in April 2004 600,000 600 149,400 (150,000) -- --
Shares issued to officer at $0.32 per share for
services rendered in April 2004 200,000 200 63,800 -- -- 64,000
Conversion of note payable to common stock at
$0.10 per share in May 2004 350,000 350 34,650 -- -- 35,000
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of
Stockholders' Equity (Deficit) From Date of
Inception (October 30, 2002) to December 31, 2004 (continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Beneficial Conversion Feature associated with
note payable in May 2004 -- -- 35,000 -- -- 35,000
Issuance of warrants to officers and founder
for services rendered in May 2004 -- -- 269,208 -- -- 269,208
Shares to a consultant at $0.20 per share as a
due dilligence fee in May 2004 125,000 125 24,875 -- -- 25,000
Shares issued to a consultant at $1.00 per
share for services to be rendered over
twelve months beginning May 2004 500,000 500 499,500 (500,000) -- --
Benefial Conversion Feature associated with
notes payable issued in June 2004 -- -- 3,000 -- -- 3,000
Issuance of warrants to note holders in April,
May, and June 2004 -- -- 17,915 -- -- 17,915
Issuance of warrants to employees and
consultants for services rendered in
April through June 2004 -- -- 8,318 -- -- 8,318
Shares issued in July to a consultant at
$0.10 for services to be rendered through
July 2005 250,000 250 24,750 (25,000) -- --
Shares issued to a consultant in July and
September at $0.41 per share for services
to be rendered through April 2005 200,000 200 81,800 -- -- 82,000
Shares issued to a consultant in September at
$0.12 to $0.22 for services rendered
through September 2004 127,276 127 16,782 -- -- 16,909
Shares issued in July to September 2004 as
interest on note payable 300,000 300 35,700 -- -- 36,000
Issuance of warrants with notes payable in
July and August 2004 -- -- 72,252 -- -- 72,252
Accrued deferred compensation in August 2004
to a consultant for 100,000 shares at $0.10
per share, committed but unissued -- -- -- (10,000) -- (10,000)
Shares issued in August 2004 at $0.14 to a
consultant for services to be performed
through October 2004 100,000 100 13,900 (14,000) -- --
Shares issued in August 2004 at $0.125 per
share for conversion of $30,000 demand loan 240,000 240 29,760 -- -- 30,000
Shares issued in August 2004 at $0.16 per
share to a consultant for services provided 125,000 125 19,875 -- -- 20,000
Shares issued to employees at $0.16 to
$0.25 per share 48,804 49 8,335 -- -- 8,384
Commitment to issue 100,000 shares of stock to
a consultant at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- (23,000)
Sale of stock for cash in Ocober at $0.125 per
share, net of costs of $298,155 18,160,000 18,160 1,345,763 -- -- 1,363,923
Value of warrants issued with sale of common
stock in October, net of costs -- -- 607,922 -- -- 607,922
Issuance of warrant to officer in October -- -- 112,697 -- -- 112,697
Issuance of stock to investment bankers in
October 2004 for commissions earned 4,900,000 4,900 (4,900) -- -- --
Conversion of accounts payable to stock in
October at $0.125 per share 1,257,746 1,258 107,382 -- -- 108,640
Value of warrants issued with accounts
payable conversions -- -- 48,579 -- -- 48,579
Conversion of demand loan to stock in October
at $0.11 per share 93,300 93 10,170 -- -- 10,263
Forgiveness of notes payable in October 2004 -- -- 36,785 -- -- 36,785
Issuance of stock to officer and director at
$0.125 per share in October for conversion
of liability 1,440,000 1,440 122,493 -- -- 123,933
Value of warrants issued with officer and
director conversion of liabilities -- -- 56,067 -- -- 56,047
Conversion of debt and accrued interest to
common stock at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- 424,217
Value of warrants issued with conversion
of debt -- -- 191,111 -- -- 191,111
Conversion of note payable in October into
common stock at $0.075 per share 67,613 68 4,932 -- -- 5,000
Issuance of warrants to note holders in
October 2004 -- -- 112,562 -- -- 112,562
Value of shares issued to CFO as compensation 100,000 100 34,900 -- -- 35,000
Value of warrants issued to members of
advisory committees in in November
and December -- -- 16,348 -- -- 16,348
Beneficial conversion feature associated with
notes payable -- -- 124,709 -- -- 124,709
Shares issued in error to be cancelled (9,002) (9) 9 -- -- --
Amortization of deferred compensation through
December 31, 2004 -- -- -- 2,729,454 -- 2,729,454
Loss for the twelve months ended
December 31, 2004 -- -- -- -- (5,305,407) (5,305,407)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) (7,208,027) 607,353
=========== =========== =========== ============ =========== ===========
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
Cumulative
from Inception
For the Twelve For the Twelve (October 30,
Months Ended Months Ended 2002) to
December 31, December 31, December 31,
2004 2003 2004
----------- ----------- --------------
Cash flows from operating activities:
Net loss $(5,305,407) $(1,856,702) $(7,208,027)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Non-cash compensation 3,284,577 114,641 3,400,000
Interest expense 83,776 68,624 152,400
Amortization of discount on notes payable 704,633 302,302 1,006,935
Depreciation and amortization 13,255 12,685 26,017
Changes in operating assets and liabilities:
Prepaid services and other assets 29,130 (35,842) (6,712)
Accounts payable and accrued expenses 148,854 397,402 555,042
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,041,182) (996,890) (2,074,345)
Cash flows from investing activities:
Acquisition of property and equipment (4,783) (3,304) (8,087)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,783) (3,304) (8,087)
Cash flows from financing activities:
Net proceeds from notes payable 32,500 1,186,000 1,233,500
Principal payments on notes payable -- (250,000) (250,000)
Shares of stock sold for cash 1,973,045 65,000 2,069,046
Officer repayment of amounts paid on behalf of officer -- 19,880 19,880
Cash paid on behalf of officer -- (19,880) (19,880)
Cash paid on amount due to officer -- (22,427) (22,427)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,005,545 978,573 3,030,119
Net increase in cash and cash equivalents 959,580 (21,621) 947,687
Cash and cash equivalents at beginning of period 10,534 32,155 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 970,114 $ 10,534 $ 970,114
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows (continued)
Non-cash investing and financing activities:
Cumulative
from Inception
For the Twelve For the Twelve (October 30,
Months Ended Months Ended 2002) to
December 31, December 31, December 31,
2004 2003 2004
----------- ----------- --------------
Supplemental Disclosures of Cash Flow Information:
Acquisition and Capital Restructure:
Assets acquired $ - $ - $ -
Liabilities assumed - (120,799) (120,799)
Common stock retained - (2,369) (2,369)
Adjustment to additional paid in capital - 123,168 123,168
Organization costs - 350,000 350,000
----------- ----------- --------------
Total consideration paid $ - $ 350,000 $ 350,000
=========== =========== ==============
Cash paid during the period for interest $ 54 $ 41,793 $ 41,847
=========== =========== ==============
Cash paid during the period for taxes $ -- $ -- $ --
=========== =========== ==============
Commmon stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
=========== =========== ==============
Common stock issued in exchange for services $ 2,878,006 $ 37,280 $ 2,915,286
=========== =========== ==============
Common stock issued in exchange for previously incurred
debt and accrued interest $ 695,591 $ 300,000 $ 995,591
=========== =========== ==============
Common stock issued in exchange as interest $ 36,000 $ -- $ 36,000
=========== =========== ==============
Amortization of beneficial conversion feature $ 162,709 $ 60,560 $ 223,269
=========== =========== ==============
Stock options and warrants issued in exchange for
services rendered $ 406,571 $ 85,861 $ 492,432
=========== =========== ==============
Debt and accrued interest forgiveness from
note holders $ 36,785 $ -- $ 36,785
=========== =========== ==============
Common stock issued in satisfaction of
accounts payable $ 157,219 $ -- $ 157,219
=========== =========== ==============
Common stock issued in satisfaction of
amounts due to an Officer and a Director $ 180,000 $ -- $ 180,000
=========== =========== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Nature of Business
------------------
IR Biosciences Holdings Inc. ("Company") formerly GPN Network, Inc. ("GPN") is
currently a development stage company under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company, which was
incorporated under the laws of the State of Delaware on October 30, 2002, is a
biotechnology company and plans to develop and market applications utilizing
modified substance P, a naturally occurring immunomodulator. From its inception
through the date of these financial statements, the Company has recognized
minimal revenues and has incurred significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ImmuneRegen BioSciences, Inc.. Significant
intercompany transactions have been eliminated in consolidation.
Acquisition and Corporate Restructure
-------------------------------------
On July 20, 2003 ImmuneRegen Biosciences Inc. ("ImmuneRegen")entered into an
Agreement of Plan and Merger ("Agreement") with GPN Network, Inc. ("GPN") an
inactive publicly registered shell corporation with no significant assets or
operations. In accordance with SFAS No. 141, the Company was the acquiring
entity. While the transaction is accounted for using the purchase method of
accounting, in substance the Agreement is a recapitalization of the Company's
capital structure.
For accounting purposes, the Company has accounted for the transaction as a
reverse acquisition and the Company shall be the surviving entity. The total
purchase price and carrying value of net assets acquired was $0. From July 2001
until the date of the Agreement the Company was inactive. The Company did not
recognize goodwill or any intangible assets in connection with the transaction.
Effective with the Agreement, all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 21,063,170 (post-split) shares of GPN common stock. The
value of the stock that was issued was the historical cost of GPN's net tangible
assets, which did not differ materially from their fair value.
Effective with the Agreement, GPN changed its name to IR Biosciences Holdings
Inc.
The accompanying financial statements present the historical financial
condition, results of operations and cash flows of the Company prior to the
merger with GPN.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
F-10
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
--------------------------
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
Long-lived Assets
-----------------
The Company 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.
Income Taxes
------------
The Company has implemented the provisions on Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
that income tax accounts be computed using the liability method. Deferred taxes
are determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws.
Net Loss Per Common Share
-------------------------
The Company computes earnings per share under Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS 128). Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the year. Dilutive common
stock equivalents consist of shares issuable upon conversion of convertible
notes and the exercise of the Company's stock options and warrants (calculated
using the treasury stock method). During 2004, 2003 and 2002, common stock
equivalents are not considered in the calculation of the weighted average number
of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share.
Liquidity
---------
As shown in the accompanying financial statements, the Company has incurred a
net loss of $7,208,027 from its inception through December 31, 2004. The
Company's has net working capital of $593,533, with cash and cash equivalents of
$970,114 of this amount as of December 31, 2004.
F-11
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
------------------------
The Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. Total expenditures on
research and product development for the years 2004, 2003, and the period from
October 30, 2002 (date of inception) to December 31, 2004 were $150,091, $42,972
and $193,063, respectively.
Concentrations of Credit Risk
-----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. There is
no allowance for doubtful accounts established as of December 31, 2004.
Comprehensive Income
---------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
Stock Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise
F-12
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation (continued)
------------------------------------
price of the related option. The Company has adopted the annual disclosure
provisions of SFAS No. 148 in its financial reports for the year ended December
31, 2004 and 2003 and for subsequent periods. The Company did not issue any
stock-based employee compensation during the years ended December 31, 2004 and
2003.
Segment Information
-------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States of America. The
estimated fair values approximate their carrying value because of the short-term
maturity of these instruments or the stated interest rates are indicative of
market interest rates.
Property and Equipment
-----------------------
Property and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
Website Development Costs
-------------------------
The Company recognizes website development costs in accordance with Emerging
Issue Task Force ("EITF") No. 00-02, "Accounting for Website Development Costs."
As such, the Company expenses all costs incurred that relate to the planning and
post implementation phases of development of its website. Direct costs incurred
in the development phase are capitalized and recognized over the estimated
useful life of two years. The Company follows the policy of charging costs
associated with repair or maintenance for the website to expenses incurred.
Advertising
-----------
The Company follows the policy of charging the costs of advertising to expenses
incurred. The Company has not incurred any advertising costs during the years
ended December 31, 2004 or 2003, or for the period from October 30, 2002
(inception) through December 31, 2004.
F-13
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
-----------------
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
New Accounting Pronouncements
-----------------------------
In November 2004, the Financial Accounting Standards Board (FASB) issued
SFAS151, Inventory Costs- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges" This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of this
Statement will have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152. This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for
F-14
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements (continued)
-----------------------------------------
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. Under SFAS 153, if a nonmonetary exchange of similar
productive assets meets a commercial-substance criterion and fair value is
determinable, the transaction must be accounted for at fair value resulting in
recognition of any gain or loss. SFAS 153 is effective for nonmonetary
transactions in fiscal periods that begin after June 15, 2005. The Company does
not anticipate that the implementation of this standard will have a material
impact on its financial position, results of operations or cash flows.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
The Company's property and equipment at December 31, 2004 consists of the
following:
2004
-------
Office Equipment $6,665
Office Fixtures and Furniture 1,423
-------
8,088
Accumulated Depreciation (1,588)
-------
$6,500
=======
Depreciation expense included as a charge to income amounted to $1,078, $510,
and $1,588 for the years ended December 31, 2004 and 2003 and from inception to
December 31, 2004, respectively.
NOTE C - INTANGIBLE ASSETS
The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets,
whereby the Company periodically tests its intangible assets for impairment. On
an annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets will be tested for impairment, and
write-downs to be included in results from operations may be necessary.
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan . Consideration
for this license was the issuance of 16,612,276 shares (post-split) of the
Company's restricted common, valued at the shares' par value of $0.001 per
share, aggregating $ 9,250. These proprietary rights are being amortized over
the term of the license agreement, or ten years.
The costs and accumulated amortization of intangible assets at December 31 are
summarized as follows:
2004
--------
Technology License $9,250
Website 22,500
Less: accumulated amortization (24,430)
--------
Intangible assets, net $7,320
========
Amortization expense included as a charge to income amounted to $12,177 and
$12,175 and $24,430 for the years ended December 31, 2004 and 2003, and the
period from inception to December 31, 2004, respectively.
F-15
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE D - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2004 are as follows:
2004
--------
Accounts payable & accrued liabilities $292,190
Accrued interest 8,946
Accrued payroll and payroll taxes 6,165
--------
Total $307,301
========
NOTE E - RELATED-PARTY TRANSACTIONS
Consulting Agreements
---------------------
On December 16, 2002, the Company entered into consulting agreements (the
"Consulting Agreements") with its two founders and chief research scientists
(the "Consultants"). The Consulting Agreements were on a month-to-month basis.
Under the terms of the Consulting Agreements, the Consultants agreed to place at
the disposal of the Company their judgment and expertise in the area of acute
lung injury. In consideration for these services, the Company agreed to pay each
consultant a non-refundable fee of $5,000 per month, which shall accrue until
such time as the Company raises at least $2,000,000 in equity or debt financing,
at which time such accrued amount will become due and payable. Pursuant to the
Consulting Agreements, during the period from January 1, 2003 to December 31,
2003, the Company accrued $120,000 in consulting fees. During the period from
January 1, 2004 to December 31, 2004, the Company accrued an additional $90,000
in consulting fees. The amounts due the Consultants at December 31, 2003 was
$125,000 and was included in accounts payable and accrued expenses.
In October 2004, the Company achieved the threshold amount of $2,000,000 in
equity or debt financing (see Note I). As of October, 2004, the aggregate
amounts due the Consultants under the Consulting Agreements was $215,000.
In October, 2004, one of the Consultants elected to exchange 724,000 shares of
the Company's common stock and a warrant to purchase an additional 362,000
(post-split) shares of common stock at an exercise price of $0.50 (post-split)
in exchange for $90,500 of the $107,500 of the previously accrued and unpaid
fees due him under the Consulting Agreement, and the balance of $17,000 was paid
to the consultant. At December 31, 2004, there is no balance due to the
Consultant.
In October 2004, because the remaining Consultant had not taken an active role
in the management of the Company, he agreed that would forgive the amount
accrued to him under the Consulting agreement of $107,500. The Company accounted
for the transaction as a forgiveness of indebtedness under FAS No. 140 during
the period ended December 31, 2004.
Proprietary Rights Agreement
----------------------------
In December 2002, the Company entered into a royalty-free license agreement (the
"License Agreement") with its two founders and largest shareholders (the
"Licensors"). Under the terms of the License Agreement, the Licensors grant to
the Company an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by the Licensors. The Company's
obligations under the License Agreement include (i) reasonable efforts to
protect any licensed patents or other associated property rights; (ii)
reasonable efforts to maintain confidentiality of any proprietary information;
(iii) upon the granting by the U. S. Food and Drug Administration to the Company
the right to market a product, the
F-16
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE E - RELATED-PARTY TRANSACTIONS (CONTINUED)
Proprietary Rights Agreement (continued)
---------------------------------------
Company will maintain a broad form general liability and product liability
insurance (see Note C).
Office Lease
------------
During the period from December 1, 2002 through August 31, 2004, the Company
leased office space from an entity controlled by the Company's Chief Executive
Officer under a sub-let agreement . The rental cost of $2,734 per month was
passed through to the Company at the same rental rate charged by the facility's
primary landlord.
In July 2004, the Company leased a new office facility from a third party (see
Note J).
InOne Contract
--------------
We have entered into a series of contracts with InOne Advertising & Design, Inc.
("InOne"). At the time of the initiation of the contracts, InOne employed the
spouse of Michael Wilhelm, the Company's CEO. These contracts include (i) a
three-year agreement dated January 13, 2003 whereby InOne will design and create
certain corporate identity and marketing materials in exchange for 72,000 shares
(post split) of our common stock and $15,000. This Agreement also provides that
InOne will bill us on an hourly basis for additional services, as well as a
$100,000 termination fee if the agreement is terminated as a result of a merger
or acquisition of the Company; (ii) an Agreement dated March 14, 2003 whereby
InOne will design, create, maintain, and host our website for one year in
exchange for 140,000 shares (post split) of our common stock and $4,200; (iii)
an Agreement dated December 30, 2003 whereby InOne will name and design a logo
for respiratory infectious diseases, such as SARS (Viprovex), in exchange for
$5,000 and a warrant to purchase 20,000 shares (post-split) of tour common stock
at a price of $0.125; (iv) an Agreement dated December 31, 2003 whereby InOne
will name and design a logo for Acute Radiation Syndrome (ARS) medical
countermeasure for radiation (Radilex) in exchange for $5,000 and a warrant to
purchase 20,000 shares (post-split) of our common stock at a price of $0.125.
At December 31, 2004, InOne no longer employs or has any business relationship
with the spouse of the Company's Chief Executive officer, and InOne is no longer
considered a related party to the Company.
The amounts due InOne at December 31, 2004 and 2003 are $2,700 and $19,565,
respectively.
Notes payable to related parties at December 31, 2004 consists of the following:
2004
-------
Promissory notes payable and accrued interest
of $12,093 to Company shareholders, interest at
6% per annum, unsecured; The Company is
in default under these agreements $65,993
Less: current portion (65,993)
-------
$ --
=======
F-17
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE F - NOTES PAYABLE
Notes payable at December 31, 2004 consists of the following:
2004
--------
Convertible note payable, interest at 8% per annum,
due in August 2004; Noteholder has the option, with
the consent of the Company, to convert unpaid note
principal together with accrued and unpaid interest
to the Company's common stock at a price equal to
$.835 per share, under certain terms and conditions.
In addition, the Company granted the noteholder a
warrant to acquire 26,938 shares of the Company's
common stock at a price equal to $0.835 per share.
The Company is in default under this note agreement. $ 10,000
Less: current portion (10,000)
--------
$ --
========
At December 31, 2003, the Company had outstanding 17 notes payable in the
aggregate amount of $713,171. During the twelve months ended December 31, 2004,
the Company entered into 14 other note agreements in the aggregate amount of
$575,100. The Company repaid principal in the amount of $572,600 under these
notes, and converted principal in the amount of $638,500 plus accrued interest
of $57,091 into 7,445,062 shares of common stock. Two of these notes in the
aggregate amount of $35,000 plus accrued interest of $1,885 were forgiven for
consideration of $100 during the twelve months ended December 31, 2004.
NOTE G - CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, par
value $0.001 per share. No shares of preferred stock have been issued as of
December 31, 2004. The company has authorized 100,000,000 shares of common
stock, with a par value of $.001 per share. In July, 2003 a one for twenty
reverse stock split of the Company's common stock was effected . On April 6,
2004, the Company effected a 2 for 1 forward split of its common stock. Total
authorized shares and par value remain the unchanged. Accordingly, the effect of
the reverse and subsequent forward split has been presented in the accompanying
financial statement and footnote disclosures. As of December 31, 2004, the
Company has 62,423,388 shares of common stock issued and outstanding.
During the period ended December 31, 2002, the Company issued an aggregate of
1,459,188 shares of common stock to employees and consultants for services in
the amount of $ 9,782. All valuations of common stock issued for services were
based upon the value of the services rendered, which did not differ materially
from the fair value of the Company's common stock during the period the services
were rendered. In addition, the Company issued 16,612,276 shares of common stock
to its founders in exchange for a proprietary license charged to operations,
valued at $ 9,250 (see Note C) . The Company also issued an aggregate of 185,578
shares of common stock in exchange for $ 31,001, net of costs and fees.
During the year ended December 31, 2003, the Company issued an aggregate of
267,594 shares of common stock to consultants for services in the amount of
$37,280. All valuations of common stock issued for services were based upon the
value of the services rendered, which did not differ materially from the fair
value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 2,155,104 shares of common stock in
exchange for $ 300,000 of previously incurred debt. The Company also issued an
aggregate of 383,430 shares of common stock in exchange for $ 65,000 net of
F-18
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE G - CAPITAL STOCK (CONTINUED)
costs and fees. In July, 2003, the Company issued 2,368,130 in connection with
the Company's acquisition and merger with GPN Network, Inc. (see Note A.)
During the year ended December 31, 2004, the Company issued an aggregate of
5,481,280 shares of common stock to consultants for services in the amount of
$2,877,872. All valuations of common stock issued for services were based upon
the value of the services rendered, which did not differ materially from the
fair value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 300,000 shares of common stock as with
a fair value of $36,000 as interest on a note payable. In addition, in
conjunction with a private placement of stock (see below), the Company issued
6,855,062 shares of common stock in exchange for $ 630,591 of previously
incurred debt and accrued interest. In addition, the Company issued 590,000
shares of common stock in in exchange for $65,000 of previously issued debt.
Total debt exchanged for stock during the year ended December 31, 2004 was
$695,591 of debt and interest for 7,745,062 shares of common stock. The Company
also sold an aggregate of 18,160,000 shares of common stock in exchange for $
1,971,045 cash, net of costs and fees. The Company also sold 8,000 shares of
common stock for $1,200. The Company also issued an aggregate of 4,900,000
shares of common stock to its investment bankers as fees. The Company also
issued 1,257,746 shares of common stock in settlement of $157,219 of accounts
payable. In addition, the Company issued an aggregate 1,440,000 shares of common
stock to an officer and a director in satisfaction $180,000 of liabilities.
Private Placement of Common Stock
---------------------------------
In October 2004, the Company completed a private placement of its common stock
(the "Private Placement") whereby the Company sold an aggregate of $2,450,000
worth of units (each a "Unit" and collectively, the "Units") to accredited
investors (as defined by Rule 501 under the Securities Act of 1933, as amended)
(the transaction is referred to herein as the "Private Placement"). The Company
received proceeds of $1,971,845 after costs of the issuance of $298,155.
Included in the $2,450,000 sale was conversion of $180,000 of accrued salary and
consulting fees due to an officer and an director of the Company. The number of
shares of common stock issued pursuant to the Private Placement was 19,600,000,
along with warrants to purchase an additional 9,080,000 shares, plus warrants to
purchase an additional 720,000 shares issued to the officer and director. The
Company also issued an additional 4,900,000 shares of common stock to its
investment banker as commission. The investment bankers did not acquire any
warrants pursuant to this transaction.
Pursuant to the terms of the Private Placement, each Unit was sold for $10,000
(the "Unit Price") and consisted of the following:
(a) a number of shares (the "Shares") of common stock of the
Registrant, par value $0.001 per share (the "Common Stock"), determined by
dividing: (i) the Unit Price by (ii) $0.125; and
(b) a warrant (each a "Warrant" and collectively, the "Warrants") to
purchase, at any time prior to the fifth (5th) anniversary following the date of
issuance of the Warrant, a number of shares of Common Stock equal to fifty
percent (50%) of the number of Shares included within the Unit, at a price equal
to fifty cents ($0.50) per share of Common Stock. A form of the Warrant is
attached hereto as Exhibit 4.1.
In consideration of the investment, the Company granted to each investor certain
registration rights and anti-dilution rights. The Company is obligated to file a
registration statement for the shares of common stock issued in the private
placement and shares of common stock underlying the warrants issued in the
private placement within 30 days of the final closing date of October 26, 2004,
or November 25, 2004. The Company is also obligated to effectuate the
registration statement within 90 days of the final closing date of October 26,
2004, or January 24, 2005. Failure to meet either of these deadlines results in
the Company subject to a penalty of a 2% increase in the number of shares to be
registered, or 461,200 shares and warrants to purchase an additional 181,600
shares, for every 30 day period beyond the deadline date. The Company filed a
registration statement on November 24, 2004. However, at March 7, 2005, the
registration statement has not yet been deemed effective by the Securities and
Exchange Commission. Accordingly, at April 3, 2005, the Company has accrued a
penalty of two 30-day periods, or 922,400 shares and warrants to purchase an
additional 363,200 shares. If the Company fails to complete a registration by
April 24, 2005, an additional penalty of 461,200 shares and warrants to purchase
181,600 shares will be incurred.
F-19
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE G - CAPITAL STOCK
Private Placement of Common Stock (continued)
---------------------------------------------
Also in October 2004, the Company converted certain notes payable with an
aggregate principal amount of $573,500 plus accrued interest of $57,091 for a
total of $630,328 into Units with terms identical to those provided to investors
in the Private Placement. The number of shares of common stock issued via these
note conversions was 6,855,062 along with warrants to purchase an additional
3,427,531 shares (see Note H).
Also in October 2004, the Company entered into a settlement agreements with
certain creditors whereby for full and complete satisfaction of claims totaling
an aggregate of $157,219 the Company issued Units with terms identical to those
provided to investors in the Private Placement. The number of shares of common
stock issued via these creditor conversions was 1,257,746, along with warrants
to purchase an additional 628,873 shares.
NOTE H - STOCK OPTIONS AND WARRANTS
Employee Stock Options
----------------------
The Company has adopted the 2003 Stock Option, Deferred Stock and Restricted
Stock Plan (the "Plan") which authorizes the Board of Directors in accordance
with the terms of the Plan, among other things, to grant incentive stock
options, as defined by Section 422(b) of the Internal Revenue Code, nonstatutory
stock options (collectively, the "Stock Options") and awards of restricted stock
and deferred stock and to sell shares of common stock of the Company ("Common
Stock") pursuant to the exercise of such stock options for up to an aggregate of
6,465,316 shares . The options will have a term not to exceed ten years from the
date of the grant. There have been no options granted under this Plan.
Through December 31, 2002, GPN had granted pre-merger stock options to certain
employees and consultants which are exercisable over various periods through
March 2010. These stock options are currently held by the Company outside of the
Plan.
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
---------------------------------------------------------- ----------------------------------------------
Weighted Average Weighted Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
---------------------------------------------------------- ----------------------------------------------
$25.00 63,212 5.25 $25.00 63,212 $25.00
Transactions involving stock options issued to employees are summarized as
follows:
F-20
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Employee Stock Options (continued)
----------------------------------
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at January 1, 2003 63,212 $25.00
Granted (as restated) --
Exercised --
Canceled or expired --
------
Outstanding at December 31, 2003 63,212 25.00
Granted --
Exercised --
Canceled or expired --
------
Outstanding at December 31, 2004 63,212 $25.00
====== ======
The Company did not issue options to employees during the years ended December
31, 2003 and 2004.
Warrants
--------
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
------------------------------------------------ ------------------------------------------------
Weighted Average Weighed Weighted Average
Number Remaining Average Remaining
Exercise Outstanding Contractual Life Exercise Number Contractual Life
Prices (Years) Price Exercisable (Years)
------------------------------------------------ ------------------------------------------------
$0.05-0.10 480,698 4.60 $0.05-0.10 480,698 4.60
0.125-0.70 778,511 4.46 0.125-0.70 778,511 4.46
0.25-0.56 15,498,021 4.68 0.25-0.56 15,498,021 4.68
1.00 741,400 2.98 1.00 741,400 2.98
2.00 167,580 4.51 2.00 167,580 4.51
---------- ----- ---------- ----
17,666,210 4.59 17,666,210 4.59
========== ===== ========== ====
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
(post-split) Price Per Share
(post-split)
--------------- ------------------
Outstanding at January 1, 2003 26,938 $ .84
Granted 805,572 .89
Exercised --
Canceled or expired --
---------- --------
Outstanding at December 31, 2003 832,510 .89
Granted 16,833,699 .47
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2004 17,666,210 $ .49
========== ========
F-21
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants (continued)
--------------------
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2004 2003
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75% 2.375%
Expected stock price volatility 163% to 262% 312%
Expected dividend payout -- --
Expected option life-years (a) 5 5
(a) The expected option life is based on contractual expiration dates.
The amount of the expense charged to operations for compensatory warrants
granted in exchange for services was $406,571 and $85,861 during the years ended
December 31, 2004 and 2003, respectively.
The Company also capitalized financing costs of $184,814 and $397,394 for
warrants granted in connection with placement of convertible debentures for the
years ended December 31, 2004 and 2003, respectively. The unamortized financing
costs were written off as of December 31, 2003 commensurate with the conversion
of the debentures.
At December 31, 2002, the Company had outstanding warrants to purchase 26,939
shares (post-split) of common stock at $0.835 per share (post-split).
During the twelve months ended December 31, 2003, the Company issued warrants to
purchase 169,572 shares (post-split) of common stock at prices ranging from
$0.125 to $1.00 per share (post-split) to eight service providers. The Company
valued the warrants using the Black-Scholes calculation model, and the warrants
were deemed to have a combined value of $85,860. This amount was charged to
expense on the Company's financial statements for the twelve months ending
December 31, 2003.
In October 2003, pursuant to the Amended Note agreements, the Company issued the
Amended Note Warrants to purchase 245,000 shares (post-split) of its common
stock at a price of $1.00 per share (post-split). The Company valued the Amended
Note Warrants using the Black-Scholes calculation model, and the warrants were
deemed to have a combined value of $189,937. This amount was recorded as a
discount to the Amended Notes and an addition to paid-in capital, and was
charged to expense over the term of the notes, or 180 days. During the twelve
months ended December 31, 2003, the Company recognized $84,169 of expense in
relation to these warrants. During the twelve months ended December 31, 2004,
the remaining $105,768 was charged to operations.
In October, November, and December 2003, pursuant to the Fourth Quarter Note
agreements, the Company issued the Fourth Quarter Company Warrants to purchase
391,000 shares (post-split) of its common stock at a price of $1.00 per share
(post-split).
As an additional incentive to investors in the Secured Convertible Promissory
Notes, the Company provided five-year warrants (the "Secured Note Warrants") to
purchase that number of shares of common stock equal to one-half the initial
principal amount of the Secured Convertible Promissory Notes. For example, an
investor who purchased a $10,000 Secured Convertible Promissory Note would
receive a warrant to purchase 8,979 shares (post-split) of common stock. The
exercise price of the Secured Note Warrants is equal to 60% of the price per
share paid by investors in a future equity financing (the "Reorganization
Financing"). The Secured Note Warrants are not considered granted until the
completion of the Reorganization Financing. In accordance with EITF 00-27,
because the Reorganization Financing had not occurred at December 31, 2003, the
Company ascribed no value to the Secured Note Warrants at December 31, 2003. At
the time of the first closing of the Private Placement in October 2004, warrants
to purchase a total of 444,490 shares (post-split) of common stock at $0.075 per
share (post-split) were issued under the Secured Note Warrants. The value of
these warrants was computed utilizing the Black-Scholes valuation model, and the
total value of these warrants, or $112,562 was charged to operations during the
twelve months ended December 31, 2004.
F-22
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants (continued)
--------------------
The Company has outstanding warrants to purchase 250,000 shares of common stock
at $0.30 per share which were issued in 2002 by its predecessor company GPN
Network.
In April through June 2004, the Company issued warrants to purchase 32,500
shares (post-split) at price ranging from $0.25 to $2.00 to consultants for
services performed. The Company valued these warrants using the Black-Scholes
valuation model, and charged the amount of $8,318 to operations during the
twelve months ended December 31, 2004.
In May 2004, the Company issued a warrant to its president and a warrant to a
director, each warrant to purchase 500,000 shares (post-split) of common stock
at a price of $0.25 per share (post-split). The warrants were issued as
performance bonuses. The Company valued these warrants using the Black-Scholes
model, and charged the amount of $134,604 for each warrant, or a total of
$269,208, to operations during the twelve months ended December 31, 2004.
In October 2004, the Company issued a warrant to its president to purchase
448,980 shares (post-split) at a price of $0.125 per share (post-split) as a
performance bonus for achieving certain objectives. The Company valued this
warrant using the Black-Scholes valuation model, and charged the amount of
$112,697 to operations during the twelve months ended December 31, 2004.
In November and December 2004, the Company issued a warrant to purchase 50,000
shares (post-split) of its common stock at a price of $0.125 per share
(post-split) and a warrant to purchase 10,000 shares (post-split) of its common
stock at a price of $0.075 per share (post-split) to two members of its advisory
boards. The Company valued these warrants using the Black-Scholes valuation
model, and charged the aggregate amount of $16,348 to operations during the
twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 9,080,000 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the investors in its private placement of equity securities. The Company
allocated $607,922 of the total proceeds of $1,971,845 to the warrants, and
charged this amount to additional paid-in capital during the twelve months ended
December 31, 2004.
In October 2004, the Company issued warrants to purchase an aggregate of 720,000
shares (post-split) of its common stock at a price of $0.50 per share
(post-split) to the an officer and a director for converting a total of $180,000
of amounts owed to these individuals for accrued salary and accrued consulting
fees. The Company allocated $56,067 of the total proceeds of $180,000 to the
warrants, and charged this amount to additional paid-in capital during the
twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 3,347,076 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the convertible note holders who invested its private placement of equity
securities via conversion of their notes. The Company allocated $191,111 of the
total amount converted of $615,328 to the warrants, and charged this amount to
additional paid-in capital during the twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 628,873 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the vendors who invested in its private placement of equity securities via
conversion of amounts owed to them by the Company. The Company allocated $48,579
of the total amount converted of $157,219 to the warrants, and charged this
amount to additional paid-in capital during the twelve months ended December 31,
2004.
In April through June 2004, the Company issued warrants to purchase 77,500
shares (post-split) of its common stock at prices ranging from $0.25 to $2.00
per share (post-split) to certain investors as additional incentive under notes
payable agreements. The Company valued these warrants using the Black-Scholes
model, and charged the amount of $17,915 to additional paid-in capital during
the twelve months ended December 31, 2004.
In July and August 2004, the Company issued warrants to purchase 744,280 shares
(post-split) of its common stock at prices ranging from $0.05 to $2.00 per share
(post-split) to certain investors as additional incentive under notes payable
agreements. The Company valued these warrants using the Black-Scholes model, and
charged the amount of $72,252 to additional paid-in capital during the twelve
months ended December 31, 2004.
NOTE I - COMMITMENTS AND CONTINGENCIES
Office Leases
-------------
The Company lease office space under a short term agreement, expiring in
September 2005. Rent expense amounted to $31,369 for the years ended December
31, 2003, $41,051 for the year ended December 31, 2004, and $75,154 for the
period from October 30, 2002 (inception) through December 31, 2004.
F-23
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE I - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment and Consulting Agreements
------------------------------------
The Company has employment agreements with all of its President and Chief
Executive Officer. In addition to salary and benefit provisions, the agreements
include non-disclosure and confidentiality provisions for the protection of the
Company's proprietary information.
The Company has consulting agreements with outside contractors to provide
marketing and financial advisory services. The Agreements are generally for a
term of 12 months from inception and renewable automatically from year to year
unless either the Company or Consultant terminates such engagement by written
notice.
The Company has a three-year contract for the period January 2003 to January
2006 with its advertising and design agency. This contract stipulates that there
will be a minimum guaranteed annual fee for consultation, planning, creative and
account service of $100,000 for each of the three years of the contract if
termination of the contract is the result of a merger or acquisition of the
Company. The contract was not terminated upon the GPN Merger Agreement.
Litigation
----------
On December 13, 2001, service of process was effectuated upon GPN with regard to
a fee agreement between GPN and Silver and Deboskey, a Professional Corporation
located in Denver, Colorado. On November 27, 2002, judgment was entered in favor
of Silver & Deboskey in the amount of $28,091 and the amount of the judgment is
included in accounts payable at December 31, 2004.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its financial position,
results of operations or liquidity.
Obligation to Register Shares
-----------------------------
In October 2004, the Company sold shares of its common stock to investors in a
private placement transaction. The Company is obligated to file a registration
statement for the shares of common stock issued in the private placement and
shares of common stock underlying the warrants issued in the private placement
within 30 days of the final closing date of October 26, 2004, or November 25,
2004. The Company is also obligated to effectuate the registration statement
within 90 days of the final closing date of October 26, 2004, or January 24,
2005. Failure to meet either of these deadlines results in the Company subject
to a penalty of a 2% increase in the number of shares to be registered, or
461,200 shares and warrants to purchase an additional 181,600 shares, for every
30 day period beyond the deadline date. The Company filed a registration
statement on November 24, 2004. However, at March 7, 2005, the registration
statement has not yet been deemed effective by the Securities and Exchange
Commission. Accordingly, at April 3, 2005, the Company has accrued a penalty of
two 30-day periods, or 922,400 shares and warrants to purchase an additional
363,200 shares. If the Company fails to complete a registration by April 24,
2005, an additional penalty of 461,200 shares and warrants to purchase 181,600
shares will be incurred.
NOTE J - INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary
F-24
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE J - INCOME TAXES (CONTINUED)
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.
For income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $7,200,000 which expire through 2023, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carryforward is approximately $2,400,000. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, because in the opinion of management based upon the earning history of
the Company, it is more likely than not that the benefits will not be realized.
Components of deferred tax assets as of December 31, 2004 are as follows:
Non Current:
Net operating loss carryforward $ 2,400,000
Valuation allowance (2,400,000)
-----------
Net deferred tax asset $ --
===========
NOTE K - LOSSES PER COMMON SHARE
The following table presents the computations of basic and dilutive loss per
share:
For the Period From
October 30, 2002
(Date of Inception)
2004 2003 Through December 31, 2004
------------ ------------- --------------------------
Net loss available to common shareholders $ (5,305,407) $ (1,856,702) $ (7,208,027)
============ ============ ============
Basic and fully diluted loss per share $ (0.16) $ (0.09) $ (0.28)
============ ============ ============
Weighted average common shares outstanding 33,510,168 21,317,292 25,698,261
============ ============ ============
Net loss per share is based upon the weighted average of shares of common stock
outstanding. In June , 2003 a .897960946 for one (1) reverse stock split of the
Company's common stock was effected (See Note A). Accordingly, all historical
weighted average share and per share amounts have been restated to reflect the
reverse stock split.
On April 6, 2004, the Company effected a 2 for 1 forward split of its common
stock. Accordingly, the effect of the forward split has been presented in the
accompanying financial statement and footnote disclosures.
NOTE L - SUBSEQUENT EVENTS
In January, 2005, the Company made a tender offer to temporarily reduce the
exercise price of certain warrants issued in October, 2004 from $0.50 to $0.20
per share. The tender offer expired on March 4, 2005. We accepted for exercise a
total of 6,600,778 warrants validly tendered and not withdrawn pursuant to the
terms of the tender offer, which represents approximately 48% of the aggregate
13,780,449 warrants that were available in the tender offer. The Company raised
net proceeds of $1,211,000 via the tender offer.
F-25
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 21, 2004, the Company terminated its relationship with
Stonefield Josephson, Inc. and engaged Russell Bedford Stefanou Merchandani, LLP
as the Company's independent certified public accountants. The decision to
change accountants was approved by the Company's Board of Directors. Stonefield
Josephson's report on the consolidated financial statements of ImmuneRegen
BioSciences, Inc. for the year ended December 31, 2002 did not contain an
adverse opinion or a disclaimer of opinion and was not modified or qualified as
to uncertainty, audit scope or accounting principles; however, such report
contained an explanatory paragraph relating to substantial doubt regarding the
uncertainty of the Company's ability to continue as a going concern.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures.
-------------------------------------------------
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our principal executive and financial officers, as appropriate to
allow timely decisions regarding required disclosure.
As of the end of the period covered by this Annual Report, we conducted
an evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer, of our disclosure controls and
procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures need improvement and were not
adequately effective as of December 31, 2004 to ensure timely reporting with the
Securities and Exchange Commission.
Our management is in the process of identifying deficiencies with
respect to our disclosure controls and procedures and implementing corrective
measures, which include the establishment of new internal policies related to
financial reporting.
Changes in internal controls
----------------------------
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended
December 31, 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 8B.
Effective December 22, 2004, David T. Harris, Ph.D. resigned from his
position as a member of the Board of Directors and as a consultant to
ImmuneRegen BioSciences, Inc.
Effective December 22, 2004, Steven J. Scronic resigned from his
position as our Corporate Secretary.
Our board of directors appointed Michelle Laroche to serve as our
Corporate Secretary, effective as of December 22, 2004. Ms. Laroche joined
ImmuneRegen in July of 2003 as Director of Operations. She plays a diverse role
in her current position; working on accounting, securities, contracts, and
office management. September of 2002 through June of 2003 Ms. Laroche worked
within the Credit Department of Mayo Clinic where her main focus was account
resolution in preparation for a major software
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conversion. From September of 1999 through August of 2002 Ms. Laroche held the
position of Executive Assistant at Foresight Capital Corporation where she
assisted in all aspects of client relations and office management. There are no
family relationships between Ms. Laroche and any of our directors or executive
officers. There have been no transactions between Ms. Laroche and the Company or
its subsidiary that is required to be reported pursuant to Item 404(a) of
Regulation S-B. Ms. Laroche does not have an employment agreement with us.
ITEM 13. EXHIBITS
EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
--------------------------------------------------------------------------------
2.1 Agreement and Plan of Merger dated July 2, 2003 among the
Registrant, GPN Acquisition Corporation and ImmuneRegen
BioSciences, Inc. (incorporated by reference to exhibit 2 of
the Registrant's current report on Form 8-k filed with the
Securities and Exchange Commission on July 7, 2003).
3.1 Certificate of Incorporation filed with the Delaware
Secretary of State on June 4, 1985 (incorporated by
reference to exhibit 3.1 of the Registrant's annual report
on Form 10-KSB for the year ended December 31, 2001 filed
with the Securities and Exchange Commission on April 16,
2002).
3.1(a) Certificate of Amendment filed with the Delaware Secretary
of State on July 16, 1987 (incorporated by reference to
exhibit 3.1(a) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
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EXHIBIT
NUMBER DESCRIPTION
--------------------------------------------------------------------------------
3.1(b) Certificate of Amendment filed with the Delaware Secretary
of State on February 3, 1992 (incorporated by reference to
exhibit 3.1(b) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(c) Certificate of Amendment filed with the Delaware Secretary
of State on November 23, 1992 (incorporated by reference to
exhibit 3.1(c) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(d) Certificate of Amendment filed with the Delaware Secretary
of State on December 15, 1994 (incorporated by reference to
exhibit 3.1(d) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(e) Certificate of Amendment filed with the Delaware Secretary
of State on November 7, 1995 (incorporated by reference to
exhibit 3.1(e) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(f) Certificate of Amendment filed with the Delaware Secretary
of State on December 30, 1996 (incorporated by reference to
exhibit 3.1(f) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(g) Certificate of Amendment filed with the Delaware Secretary
of State on November 8, 2000 (incorporated by reference to
exhibit 3.1(h) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.2 Amended and Restated Bylaws of the Registrant dated as of
January 1, 2002 (incorporated by reference to exhibit 3(b)
of the Registrant's annual report on Form 10-KSB for the
year ended December 31, 2001 filed with the Securities and
Exchange Commission on April 16, 2002).
4.1 Specimen Stock Certificate (incorporated by reference to
exhibit 4.1 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
4.2 2003 Stock Option, Deferred Stock and Restricted Stock Plan
(incorporated by reference to exhibit 4.1 of the
Registrant's registration statement on Form S-8 (File No.
333-113511) filed with the Securities and Exchange
Commission on March 11, 2004).
4.3 Form of Warrant by and between the Registrant and each of
the Investors or Creditors, as the case may be, who entered
into an Agreement filed as Exhibit 10.6, 10.7, 10.8 or 10.9
herewith (incorporated by reference to exhibit 4.1 of the
Registrant's current report on Form 8-K filed with the
Securities and Exchange Commission on October 19, 2004).
4.4 Form of Registration Rights (Annex A to Subscription
Agreement) by and between the Registrant and each of the
Investors who entered into the Agreements filed as Exhibits
10.6 and 10.8 herewith (incorporated by reference to exhibit
4.2 of the Registrant's current report on Form 8-K filed
with the Securities and Exchange Commission on October 19,
2004).
4.5 Form of Anti-Dilution Rights (Annex B to Subscription
Agreement) by and between the Registrant and each of the
Investors who entered into the Agreements filed as Exhibits
10.6 and 10.8 herewith (incorporated by reference to exhibit
4.3 of the Registrant's current report on Form 8-K filed
with the Securities and Exchange Commission on October 19,
2004).
4.6 Promissory Note issued from the Registrant to SBM
Certificate Company as of April 28, 2004 (incorporated by
reference to exhibit 4.6 of the Registrant's registration
statement on Form SB-2 (File No. 333-120784) filed with the
Securities and Exchange Commission on November 24, 2004).
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EXHIBIT
NUMBER DESCRIPTION
--------------------------------------------------------------------------------
10.1 Employment Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and Michael Wilhelm (incorporated by reference
to exhibit 10.1 of the Registrant's registration statement
on Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
10.2 Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and David Harris (incorporated by reference to
exhibit 10.2 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
10.2(a) First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and David Harris (incorporated by reference to
exhibit 10.2(a) of the Registrant's registration statement
on Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
10.3 Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and Mark Witten (incorporated by reference to
exhibit 10.3 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
10.3(a) First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and Mark Witten (incorporated by reference to
exhibit 10.3(a) of the Registrant's registration statement
on Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
10.4 License Agreement dated December 16, 2002 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, David
Harris and Mark Witten (incorporated by reference to exhibit
10.4 of the Registrant's registration statement on Form SB-2
(File No. 333-120784) filed with the Securities and Exchange
Commission on November 24, 2004).
10.4(a) First Amendment to License Agreement dated December 20, 2002
among ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, David Harris and Mark Witten (incorporated by
reference to exhibit 10.4(a) of the Registrant's
registration statement on Form SB-2 (File No. 333-120784)
filed with the Securities and Exchange Commission on
November 24, 2004).
10.4(b) Second Amendment to License Agreement dated June 26, 2003
among ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, David Harris and Mark Witten (incorporated by
reference to exhibit 10.4(b) of the Registrant's
registration statement on Form SB-2 (File No. 333-120784)
filed with the Securities and Exchange Commission on
November 24, 2004).
10.5 Lease Agreement dated July 1, 2004 between ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, and The
Clayton Companies (incorporated by reference to exhibit 10.5
of the Registrant's registration statement on Form SB-2
(File No. 333-120784) filed with the Securities and Exchange
Commission on November 24, 2004).
10.6 Form of Subscription Agreement entered into as of October
13, 2004 between the Registrant and each of the Investors
set forth on the Schedule of Investors thereto (incorporated
by reference to exhibit 10.1 of the Registrant's current
report on Form 8-K filed with the Securities and Exchange
Commission on October 19, 2004).
10.7 Form of Settlement Agreement entered into as of October 13,
2004 between the Registrant and each of the Creditors set
forth on the Schedule of Creditors thereto (incorporated by
reference to exhibit 10.2 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange
Commission on October 19, 2004).
10.8 Form of Subscription Agreement entered into as of October
26, 2004 between the Registrant and each of the Investors
set forth on the Schedule of Investors thereto (incorporated
by reference to exhibit 10.1 of the Registrant's current
report on Form 8-K filed with the Securities and Exchange
Commission on October 27, 2004).
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EXHIBIT
NUMBER DESCRIPTION
--------------------------------------------------------------------------------
10.9 Form of Settlement Agreement entered into as of October 26,
2004 between the Registrant and each of the Creditors set
forth on the Schedule of Creditors thereto (incorporated by
reference to exhibit 10.2 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange
Commission on October 27, 2004).
21.1 Subsidiaries of the Registrant (incorporated by reference to
exhibit 21.1 of the Registrant's registration statement on
Form SB-2 (File No. 333-120784) filed with the Securities
and Exchange Commission on November 24, 2004).
23.1 Consent of Russell Bedford Stefanou Mirchandani LLP
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
32.2 Certifications of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
-43-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on November 16, 2005
IR BIOSCIENCES HOLDINGS, INC.
By: /s/ Michael K. Wilhelm
-------------------------------------------------
Michael K. Wilhelm
President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Michael K. Wilhelm Chief Executive Officer, President and November 16, 2005
----------------------- Director (Principal Executive Officer)
Michael K. Wilhelm
/s/ John N. Fermanis Chief Financial Officer (Principal November 16, 2005
----------------------- Financial and Accounting Officer)
John N. Fermanis
/s/ Theodore E. Staahl Director November 16, 2005
-----------------------
Theodore E. Staahl, M.D.
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