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DIVIDEND POLICY

 

Our board of directors determines any payment of dividends. We utilize our assets to develop our business and, consequently, we have never paid a dividend and does not expect to pay dividends in the foreseeable future. Any future decision with respect to dividends will depend on future earnings, operations, capital requirements and availability, restrictions in future financing agreements and other business and financial considerations.

Recent Sales of Unregistered Securities

In April 2006, we sold an aggregate of 310,000 shares to five accredited investors in a private placement with the shares sold at $0.25 per share for gross proceeds of $77,500. The issuance of shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

In September 2006, we sold 150,000 units, with each unit consisting of 2 shares of common stock and one warrant with an exercise price of $1 per share to Kleen Capital, A.G for gross proceeds of $100,000. The issuance of shares upon conversion of the notes was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

In October 2006, holders of convertible pay in kind note converted their notes into an aggregate of 7,050,285 shares of common stock. The convertible notes were issued in March 2004 with a maturity date of December 31, 2004, later extended to December 31, 2005. Detachable warrants were also granted to the note holders exercisable at an aggregate of 6,391,876 shares at an exercise price of $0.155 per share. Holders included Richard Salvador, our President and CEO ($75,000 in principal), Michael Strage, our Vice President for Business Development ($25,000 in principal) and George Gould, our former Vice President and General Counsel ($25,000 in principal). The issuance of shares upon conversion of the notes was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

In March 2007, we began a private placement of up to 5 million units for $1.00 per unit, with each unit consisting of two shares and one warrant to purchase a shares of common stock for $1.00 per share. In 2007 we sold 39,000 units (78,000 shares and 39,000 warrants) at $0.50 per share and 8,000 units (16,000 shares and 8,000 warrants) at $0.65 per share for an aggregate amount of $34,690, net of expenses of $14,710. The issuance of shares and warrants was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

In March and April 2007, we issued convertible notes to seven unrelated parties for gross proceeds of $85,000. The convertible notes began to accrue annual interest on the outstanding principal 60 days after the date of the note at a rate of 6%, with a maturity date of June 30, 2007. The notes were convertible into shares of common stock at $0.35 per share. On July 5, 2007 the holders of these convertible notes converted the notes into an aggregate of 242,859 shares of common stock. The issuance of shares upon conversion of the notes was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

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In December 2007, we sold 169,262 shares at $0.50 per share in a private placement for $68,860 in cash, net of expenses of $18,271, to two unrelated investors. The issuance of shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

THE FOLLOWING PLAN OF OPERATIONS SECTION SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED ON PAGES F-1 THROUGH F-27 FOLLOWING THE SIGNATURE PAGES OF THIS ANNUAL REPORT. THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND INVOLVE A HIGH DEGREE OF RISK AND UNCERTAINTY. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACTS, INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS FORM 10-KSB ARE FORWARD-LOOKING STATEMENTS. IN ADDITION, WHEN USED IN THIS DOCUMENT, THE WORDS “ANTICIPATE,” “ESTIMATE,” “PROJECT,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS DUE TO RISKS AND UNCERTAINTIES THAT EXIST IN OUR OPERATIONS. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS INCLUDING AMONG OTHERS, THE RISK THAT OUR PRODUCT DEVELOPMENT PROGRAMS WILL NOT PROVE SUCCESSFUL, THAT WE WILL NOT BE ABLE TO OBTAIN FINANCING TO COMPLETE ANY FUTURE PRODUCT DEVELOPMENT, THAT OUR PRODUCTS WILL NOT PROVE COMPETITVE IN THEIR MARKETS SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED OR PROJECTED.

ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS INCLUDED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GIVE ANY ASSURANCES THAT THESE EXPECTATIONS WILL PROVE TO BE CORRECT. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS TO SUCH FORWARD-LOOKING STATEMENTS THAT MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.

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The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto appearing in Part I, Item 1.

Company Overview

AngioGenex is an early stage biotechnology company focused on the discovery and development of compounds useful for the diagnosis and treatment of cancer. Our proprietary technology is based on the research work of Dr. Robert Benezra and his collegues at Memorial Sloan Kettering Cancer Center, who established the role of the Id (inhibition of differentiation) genes and corresponding Id proteins in the formation of new blood vessels (angiogenesis) required for tumor growth and metastasis. This intellectual property includes the exclusive worldwide rights to certain patent pending Id based anti-angiogenesis anti-cancer biotechnology that we acquired in 2000 from the Sloan Kettering Institute for Cancer Research and subsequently from sponsored research. In addition, our intellectual property includes molecules that were generated as a result of in-house screening and out-sourced contract research concerning organic molecules that appear to inhibit the Id related process responsible for the formation of new blood vessels and consequent tumor growth, as well as other “know-how” and trade secrets which resulted from other out-sourced research.

Our therapeutic focus is on the identification and development of orally active molecules capable of inhibiting Id activity and preventing the formation of blood vessels that support the growth of cancerous tumors. In addition, we have sponsored other research on the modulation of Id genes and proteins that may be useful in the treatment of non-oncological diseases, such as age related macular degeneration and diabetic retinopathy, in which a surplus in the growth of blood vessels is an important part of the underlying pathology of such diseases.

AngioGenex has out-licensed its rights to develop Id-based prognostics and diagnostics to BioCheck, Inc., a leading producer of clinical diagnostic assays. In June 2004 AngioGenex signed a Development and Marketing Agreement with BioCheck under which AngioGenex assigned BioCheck the exclusive rights to develop and market cancer prognostic and diagnostics in return for royalties and milestone payments. Pursuant to this sub-license BioCheck has been developing monoclonal antibodies for all four Id proteins (Id1, Id2, Id3, and Id4) for use in standard enzyme linked immunoassay or ELISA type assay tests and for kits for the detection of the proteins in tumors and other tissues. The sale of monoclonal antibodies to the Id proteins by BioCheck has begun to generate revenue for BioCheck.

 

Since commencement of operations in 1999, our efforts have been principally devoted to in-licensing our intellectual property, research and development activities, entering into collaborative agreements, recruiting management personnel and advisors, and raising capital.

 

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Our current business strategy is to concentrate our financial resources primarily on the further development of our proprietary potential anti-cancer lead drug compounds.

 

Product Research and Development Plans

For the year ended December 31, 2007 we spent $64,834 on research and development as compared to $64,974 for the year ended December 31, 2006. The decrease was due to cost of experiments and availability of working capital.

Our current plan of operation for the next 12 months primarily involves out-sourced contract research and development activities on the design of more potent and efficient Id protein inhibitors based on two organic molecules which have exhibited anti-Id protein properties. Given sufficient capital resources, we plan to continue to test these organic molecules in established animal tumor models for their ability to block blood vessel formation and inhibit tumor growth. This testing as well as further refinement of the structure of active molecules is expected to result in the identification of a lead therapeutic drug compound. The lead compound would then be subjected to further testing in animals to obtain preliminary knowledge of its properties including safety. After the receiving promising preliminary data on the lead compound, it would be subjected to the more stringent tests required to complete the FDA requirements for an IND (Investigational New Drug Application). Such additional research and testing necessary for an IND application will require significant capital expenditures of approximately $1.5 million and will only be possible if we raise additional capital through equity financings.

We intend to contract out substantially all of the research and development work on our potential anti-cancer lead drug compounds. No employees were hired in 2007. We do not expect to hire employees during the next twelve months unless we raise substantial additional capital in the range of $5 million.

Our actual research and development and related activities may vary significantly from current plans depending on numerous factors, including changes in the costs of such activities from current estimates, the results of our research and development programs, technological advances, determinations as to commercial viability and the status of competitive products. The focus and direction of our operations will also be dependent on the establishment of our collaborative arrangements with other companies, the availability of financing and other factors. We expect our development costs to increase as any future lead anti-cancer drug compound or compounds enter the later stages of development.

 

Liquidity and Capital Resources

Since inception, we have financed our operations through the private placement of equity and debt securities, as well as loans from certain of our officers and directors. During the first quarter of 2007 we received net proceeds of $12,930 from a private placement of shares and warrants and proceeds of $85,000 from the issuance of convertible notes to unrelated parties, the principal amount of such notes were converted into shares in July 2007. In March 2007 a private placement was initiated in Europe pursuant to which units composed of two shares at $0.50 per share and one five year warrant exercisable at $1.00 per share were offered. During the period ended December 31, 2007, we sold 39,000 units (78,000 shares and 39,000 warrants) at $0.50 per share and 8,000 units (16,000 shares and 8,000 warrants) at $0.65 per share for an aggregate amount of $34,690, net of expenses of $14,710. In December 2007, we sold 169,262 shares at $0.50 per share in a private placement for $68,860 in cash, net of expenses of $18,271.

 

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As of December 31, 2007, we had $45,406 in cash and cash equivalents as compared to $4,386 as of December 31, 2006. We do not have any available lines of credit. Since inception we have financed our operations from private placements of equity securities and loans from shareholders and officers.

 

Net cash used in operating activities during the fiscal year ended December 31, 2007 was $157,530 resulting in a net loss of $319,569, after taking into account significant non-cash charges for operating expenses during the quarter and other adjustments. We pay no rent to Murray and Josephson CPAs LLC, whose principal is Martin Murray, a director and our Chief Financial Officer, Secretary and Treasurer, for the use of office space for file keeping and other business purposes.

Net cash from financing activities for the fiscal year ended December 31, 2007 was $198,550.

We are pursuing potential equity financing that may generate additional capital for us. We may need to raise additional capital or generate additional revenue to complete our development. We cannot assure you that we will generate sufficient additional capital or revenues, if any, to fund our operations beyond the twelve month period ending September 30, 2008, that any future equity financings will be successful, or that other potential financings through bank borrowings, debt or equity offerings, or otherwise, will be available on acceptable terms or at all.

 

As of December 31, 2007, our current liabilities exceeded our current assets by $371,566. We anticipate that our minimum cash requirements to continue as a going concern for the next twelve months will be at least $70,000.

We plan to finance our needs principally from the following:

·	our existing capital resources and interest earned on that capital;

·	royalty income, if any, from licensed product sales by BioCheck, Inc.;

·	annual minimum royalty payments from BioCheck if aggregate royalty income received by AngioGenex during the twelve months ending in the second quarter of 2009 is less than $50,000;

 

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·	through future private placement financing.

As mentioned above, we may generate revenue from BioCheck from royalties on sales of licensed products or from minimum annual royalty payments under our license agreement. The sale of monoclonal antibodies to the Id proteins by BioCheck has begun to generate revenue, upon which we will receive royalty payments. As of December 31, 2007 we recognized royalty revenue and recorded a receivable of $50,000 based on the minimum annual royalty that BioCheck was obligated to pay us during the twelve months ending in the second quarter of 2008. We agreed to an alternative arrangement with BioCheck by which it has met its minimum annual royalty payment obligation for the twelve months ending in the second quarter of 2008 by providing proprietary antibodies to contract research organizations at which we are undertaking ongoing research as well as to Dr. Robert Benezra’s lab at Memorial Sloan Kettering Cancer Center for research related to our intellectual property. Under this arrangement, in addition, BioCheck has undertaken to provide additional antibodies to those parties at our request of AngioGenex and BioCheck is testing cancer samples from Dr. Robert Benezra’s lab with proprietary antibodies and making data from those tests available to us. If we do not receive at least $50,000 in royalty payments from the sales of licensed products by BioCheck during the twelve months ending in the second quarter of 2009, BioCheck will be obligated to make a minimum royalty payment to us representing the difference between royalty payments actually paid and $50,000. We cannot at this time assure you that additional revenues will be generated in fiscal year 2008, if at all.

The current rate of our cash usage raises substantial doubt about our ability to continue as a going concern, absent any new sources of significant cash flows. We believe that we have sufficient capital resources to finance our plan of operation for at least the next six months. However, this is a forward-looking statement, and there may be changes that could consume available resources before such time. Our long term capital requirements and the adequacy of our available funds will depend on many factors, including the eventual reporting company costs, public relations fees, patent costs for filing, prosecuting, maintaining and defending our patent rights, among others.

We do not currently have sufficient capital resources to finance our plan of operation through the third quarter of 2008. We will need to raise additional capital during the third quarter of 2008 in order to fund our plan of operation through 2008. Our long term capital requirements and the adequacy of our available funds will depend on many factors, including our reporting company costs, patent costs for filing, prosecuting, maintaining and defending our patent rights, among others.

We will need to raise substantial additional capital through equity or debt financings or generate additional revenue to complete our development of lead anti-cancer drug compounds. We cannot assure you that we will generate sufficient additional capital or revenues, if any, to fund our operations through 2008, that any future equity financings will be successful, or that other potential financings through equity offerings, or otherwise, will be available on acceptable terms or at all. Having insufficient funds may require us to delay, scale back, or eliminate some or all of our development programs, relinquish some or even all rights to product candidates at an earlier stage of development, or renegotiate less favorable terms that we would otherwise. If we are unable to raise additional capital during the third quarter 2008 we may have to further curtail or cease operations.

 

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Critical Accounting Policies and Estimates.

This discussion and analysis of our financial condition and results of operations are based on our financial statements that have been prepared under accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. We have disclosed all significant accounting policies in note 2 to the financial statements included in our Form 10-KSB. Our critical accounting policies are:

Revenue recognition: Royalties will be recognized as revenue when the amounts are contractually earned, fixed and determinable, and there is substantial probability of collection.

Research, development costs: Research and development costs are expensed as incurred.

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 reporting period. Actual results could differ from those estimates.

Off Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Lawsuit

In July 2006, Comparative BioSciences Inc. (“CompBio”), a company that we had previously hired to breed and house a colony of its proprietary “Id-Knockout” mice, sued us in state court in California claiming approximately $200,000 in unpaid invoices. We removed the case from state court to federal court and responded to CompBio’s claims by pointing to over charges from a) keeping a colony of mice much larger than we specifically requested, b) continuing to breed and house the mice for several years after we had demanded that CompBio cease performing any work or incurring any charges. Our response also included counter-claims for CompBio’s breach of contract, as well as a number of business torts arising out of their refusal to return the proprietary mice to us so that we could perform important anti-cancer experiments as part of our drug development program and business plan. At a hearing on December 22, 2006, the judge granted our request for injunctive relief in the form of the return of our proprietary experimental mice. However the judge ruled that CompBio would only be required to return our proprietary Id-knockout mice if we first posted a bond for $200,000, which we have not posted to date. On November 6, the parties agreed to a disposition of the suit under a stipulated judgment and settlement agreement pursuant to which: CompBio must return the laboratory mice and all scientific data from the research, CompBio agrees to forego all intellectual property rights in the mice and in the research, that it acknowledges belong to us, and we agreed to pay the CompBio $55,000 in installments over a 5-year period. We have made a $10,000 payment to CompBio pursuant to the settlement agreement. The stipulated judgment and settlement agreement was filed with the court on November 15, 2007

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E. Risks and Uncertainties

RISKS AND UNCERTAINTIES

Risks Related to Our Business

 

We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The following discussion highlights some of these risks and others are discussed elsewhere in this report.

We will need to raise additional capital to fund our general and administrative expenses, and if we are unable to raise such capital, we will have to curtail or cease operations.

Our product development programs and the potential commercialization of our product candidates require substantial working capital, including expenses for in house and third party testing. Our future working capital needs will depend on many factors, including:

·	the progress and magnitude of our product development programs,

·	the scope and results of product development testing,

·	the costs under current and future license agreements for our product candidates, including the costs of obtaining and maintaining patent protection for our product candidates,

·	the costs of acquiring any technologies or additional product candidates,

·	the rate of technological advances,

·	the commercial potential of our product candidates,

·	the magnitude of our administrative and legal expenses, including office and research development facilities rent, and

·	the costs of establishing third party arrangements for manufacturing.

·	the amount of revenues we may generate from our license agreement with BioCheck, Inc..

We have incurred negative cash flow from operations since we incorporated and we may not generate positive cash flow from our operations within the next several years. Therefore, we will need additional future financings in order to carry out our plan of operations beyond the next six months.

 

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We may not be able to obtain adequate financing to fund our operations and any additional financing we obtain may be on terms that are not favorable to us. In addition, any future financings could substantially dilute our stockholders. If adequate funds are not available we will be required to delay, reduce or eliminate one or more of our product development programs, to enter into new collaborative arrangements on terms that are not favorable to us (i.e., the collaborative arrangements could result in the transfer to third parties of rights that we consider valuable), or to cease operations altogether.

We have no products currently available for sale and we may never be successful in developing products suitable for commercialization.

Some of our product candidates are at an early stage of development and all of our product candidates will require expensive and lengthy testing and regulatory clearances. None of our product candidates have been approved by regulatory authorities. We have no products available for sale. There can be no assurance that our research will lead to the discovery of any commercially viable battery chargers or power generation devices. There are many reasons that we may fail in our efforts to develop commercially viable product candidates, including that:

We have a limited operating history. We have a large accumulated deficit and may never become profitable.

AngioGenex is a development stage company that has generated no revenues and a loss of $4,109,483 from March 31, 1999 (inception) to December 31, 2007. Management expects to incur significant operating losses for the foreseeable future. AngioGenex may not be able to validate and market products in the future that will generate significant revenues. In addition, any revenues that AngioGenex may generate may be insufficient for AngioGenex to become profitable. In particular, there are no assurances that AngioGenex can:

·	raise sufficient capital in the public and/or private markets;

·	obtain the regulatory approvals necessary to commence selling its therapeutic drugs or diagnostic products in the U.S., Europe or elsewhere;

·	develop and manufacture drugs in a manner that enables AngioGenex to be profitable and meets regulatory, strategic partner and customer requirements;

·	develop and maintain relationships with key vendors and strategic partners that will be necessary to optimize the market value of the drugs AngioGenex plans to develop

·	respond effectively to competitive pressures; or

·	recruit and build a management team to accomplish AngioGenex's business plan.

If AngioGenex is unable to accomplish these goals, its business is unlikely to succeed.

 

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AngioGenex has a limited product and technology portfolio at the current time.

AngioGenex does not have any products in clinical trials. Although its products might ultimately show effectiveness against multiple disease states, AngioGenex has validated its technology only in animal models.

There can be no assurance that any of AngioGenex's other product ideas will be successfully developed, prove to be safe and efficacious in clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable costs or be successfully marketed.

There can be no assurance that any programs or technologies that AngioGenex might license in or acquire in the future will be successfully developed, prove to be safe and efficacious in clinical trials, meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable costs or be successfully marketed.

We must obtain governmental approval for each of our product candidates.

The development, production and marketing of AngioGenex's potential

products are subject to extensive regulation by government authorities in the United States and most other developed countries. The process of obtaining approval from the Food and Drug Administration (FDA) in the United States requires conducting extensive pre-clinical and clinical testing.

AngioGenex has limited experience in, and limited resources available for, regulatory activities. Failure to comply with applicable regulations can, among other things, result in non-approval, suspensions of regulatory approvals, fines, product seizures and recalls, operating restrictions, injunctions and criminal prosecution.

Any of the following events can occur and, if any did occur, any one could have a material adverse effect on AngioGenex's business, financial conditions and results of operations:

·	difficulty in securing centers to conduct trials;

·	difficulty in enrolling patients in conformity with required protocols or projected timelines;

·	unexpected adverse reactions by patients or a temporary suspension or complete ban on trials of AngioGenex's products due to adverse side effects;

·	clinical trials may not yield sufficiently conclusive results for regulatory agencies to approve the use of AngioGenex's lead product, other products in development, or any other products AngioGenex may acquire or in-license;

·	there can be delays, sometimes long delays, in obtaining approval for its product candidates;

 

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·	the rules and regulations governing product candidates can change during the review process, which can result in the need to spend time and money for further testing or review;

·	if approval for commercialization is granted, it is possible the authorized use will be more limited than we believe is necessary for commercial success, or that approval may be conditioned on completion of further clinical trials or other activities; and

·	once granted, approval can be withdrawn, or limited, if previously unknown problems arise with AngioGenex's human-use product or data arising from its use.

These and other factors could delay marketing approval from the FDA or cause AngioGenex to fail to receive any approval from the FDA or other governmental authorities. Trials are expensive, time-consuming and difficult to design and implement.

Human clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. Further, the medical, regulatory and commercial environment for pharmaceutical products changes quickly and often in ways that we may not be able to accurately predict. The clinical trial process is also time- consuming, and we do not know whether planned clinical trials will begin on time or whether AngioGenex will complete any of its clinical trials on schedule or all. Significant delays may adversely affect AngioGenex's financial results and the commercial prospects for potential products or any other products AngioGenex may acquire or in-license, and delay the ability to become profitable. Product development costs and collaborators will increase if AngioGenex has delays in testing or approvals or if AngioGenex needs to perform more or larger clinical trials than planned. Furthermore, as failure can occur at any stage of the trials, we could encounter problems that cause AngioGenex to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:

·	changes to applicable regulatory requirements;

·	unforeseen safety issues;

·	determination of dosing issues;

·	lack of effectiveness in the clinical trials;

·	slower than expected rates of patient recruitment;

·	inability to monitor patients adequately during or after treatment;

·	inability or unwillingness of medical investigators to follow AngioGenex's clinical protocols;

·	inability to maintain a supply of the investigational drug in sufficient quantities to support the trials; and

·	suspension or termination of clinical trials for various reasons, including noncompliance with regulatory requirements or changes in the clinical care protocols and standards of care within the institutions in which AngioGenex's trials take place.

In addition, AngioGenex or the FDA may suspend the clinical trials at any time if it appears that AngioGenex are exposing participants to unacceptable health risks or if the FDA finds deficiencies in any Investigational New Drug Applications ("IND") or the conduct of these trials. A number of companies in the biotechnology and drug development industries have suffered significant setbacks in advanced clinical trials despite promising results in earlier trials. In the end, AngioGenex may be unable to develop marketable products.

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The results of our future clinical trials may not support the product candidate claims.

Even if AngioGenex's clinical trials are completed as planned, their results may not support the product-candidate claims, or the FDA or government authorities may not agree with the conclusions regarding such results. Success in preclinical testing and early clinical trials does not ensure that will be successful, and the results from any later clinical trials may not replicate the results of prior clinical trials and pre- clinical testing. The clinical trial process may fail to demonstrate that product candidates are safe for humans and effective for indicated uses. This failure would cause us to abandon a product candidate and may delay development of other product candidates. Any delay in, or termination of, AngioGenex's clinical trials will delay the filing of the NDAs with the FDA and, ultimately, AngioGenex's ability to commercialize its product candidates and generate product revenues.

Delays in patient enrollment for clinical trials could increase costs and delay regulatory approvals.

The rate of completion of AngioGenex's clinical trials will depend on the rate of patient enrollment. There may be substantial competition to enroll patients in clinical trials for AngioGenex's product and any other products AngioGenex may develop or in-license. This competition has delayed the clinical trials of other biotechnology and drug development companies in the past. In addition, recent improvements in existing drug therapy may make it more difficult for us to enroll patients in the clinical trials as the patient population may choose to enroll in clinical trials sponsored by other companies or choose alternative therapies. Delays in patient enrollment can result in increased development costs and delays in regulatory approvals.

AngioGenex's lead product candidate requires several additional processes before it is ready for an initial IND filing with the FDA; we may not successfully perform such processes, or the results from such processes may not support the filing of an IND.

The industry is highly competitive, so, even if AngioGenex's products ultimately get approved by the FDA, the success depends on management's ability to sustain competitive advantages.

The pharmaceutical, biopharmaceutical and biotechnology industries are very competitive, fast moving and intense, and expected to be increasingly so in the future. Other larger and well funded companies have developed and are developing drugs that, if not similar in type to AngioGenex's drugs, are designed to address the same patient or subject population. Therefore, AngioGenex's lead product, other products in development, or any other products AngioGenex may acquire or in-license may not be the best, the safest, the first to market, or the most economical to make or use. If a competitor's product is better than AngioGenexs', for whatever reason, then AngioGenex could make less money from sales, if Angiogenex is able to generate sales at all.

 

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There are many reasons why a competitor might be more successful than AngioGenex, including:

·	Most competitors have greater financial resources and can afford more technical and development setbacks than we can.

·

Most competitors have been in the drug-discovery and drug-development business longer than we have. They have greater experience than us in critical areas like clinical testing, obtaining regulatory approval, and sales and marketing. This experience and their name recognition give them a competitive advantage over AngioGenex.

·

Some competitors may have a better patent position protecting their technology than AngioGenex has or will have to protect its technology. If AngioGenex cannot use AngioGenex's proprietary rights to prevent others from copying AngioGenex's technology or developing similar technology, then AngioGenex's competitive position will be harmed.

·

Some companies with competitive technologies may move through stages of development, approval, and marketing faster than we do. If a competitor receives FDA approval before AngioGenex, then it will be authorized to sell its products before AngioGenex can sell its products. The first company "to market" often has a significant advantage over latecomers; a second-place position could result in less-than-anticipated sales.

·	The recent completion of the sequencing of the human genome may result in an acceleration of competing products due to enhanced information about disease states and the factors that contribute to the disease.

If AngioGenex is unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market any products we may develop, we may not be able to generate product revenue.

We do not currently have an organization for the sales, marketing and distribution of pharmaceutical products. In order to market any products that may be approved by the FDA, management must build sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. In addition, our management has no experience in developing, training or managing a sales force and will incur substantial additional expenses in doing so. The cost of establishing and maintaining a sales force may exceed its cost effectiveness. Furthermore, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. Our marketing and sales efforts may be unable to compete successfully against these companies. If our management is unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable.

 

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We do not have any manufacturing facilities and expect to rely on one or more third-party manufacturers to properly manufacture any products we may develop or in-license and may not be able to quickly replace manufacturing capacity without the use of a third party's manufacturing facilities as a result of a fire, natural disaster (including an earthquake), equipment failure or other difficulty, or if such facilities are deemed not in compliance with the GMP requirements, and the noncompliance could not be rapidly rectified.

Our inability or reduced capacity to have any products we may develop or in-license manufactured would prevent us from successfully commercializing our proposed products. Our dependence upon third parties for the manufacture of its proposed products may adversely affect our profit margins and our ability to develop and deliver proposed products on a timely and competitive basis. Any delays in formulation and manufacturing objectives may cause a delay in our clinical program, and could have an adverse effect on any potential sales or profits.

We could occasionally become subject to commercial disputes that might harm our business by distracting our management from the operation of the business, by increasing expenses and, if we do not prevail, it is subject to potential monetary damages and other remedies.

From time to time we can become engaged in disputes regarding its commercial transactions. These disputes could result in monetary damages or other remedies that could adversely impact of its financial position or operations. Even if we prevail in these disputes, they may distract our management from operating the business and the cost of defending these disputes would reduce operating results.

We may be subject to product liability claims. The development, manufacture, and sale of pharmaceutical products would expose us to the risk of significant losses resulting from product liability claims. Although management intends to obtain and maintain product liability insurance to offset some of this risk, we may be unable to secure such insurance or we may not cover certain potential claims.

We may not be able to afford to obtain product liability insurance due to rising costs in insurance premiums in recent years. If our management is able to secure insurance coverage, we may be faced with a successful claim in excess of our product liability coverage that could result in a material adverse impact on our business. If insurance coverage is too expensive or is unavailable, we may be forced to self-insure against product-related claims. Without insurance coverage, a successful claim against us and any defense costs incurred in defending us may have a material adverse impact on operations.

 

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As a result of our limited operating history, we may not be able to correctly estimate the future operating expenses, which could lead to cash shortfalls. 

AngioGenex was incorporated in 1999 and has only a limited operating history from which to evaluate its business. We have generated only $50.000 in revenues to date, and $464,688 in other income and we have not received FDA approval for marketing any of its product candidates. Failure to obtain FDA approval for its products would have a material adverse effect on our ability to continue operating. Accordingly, these prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in an early stage of development. We may not be successful in addressing such risks, and the failure to do so could have an adverse effect on the business, operating results and financial condition.

Because of this limited operating history and because of the emerging nature of the markets in which we compete, if the historical financial data is of limited value in estimating future operating expenses. Our budgeted expense levels are affected based on our expectations concerning future revenues. However, our ability to generate any revenues beyond grants depends largely on receiving marketing approval from the FDA. Moreover, if FDA approval is obtained, the size of any future revenues depends on the choices and demand of individuals, which are difficult to forecast accurately. We may be unable to adjust its operations in a timely manner to compensate for any unexpected shortfall in revenues. Accordingly, a significant shortfall in demand for its products could have an immediate and material adverse effect on the business, results of operations, and financial condition.

Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and no one should not rely on the past results as any indication of our future performance. Our quarterly and annual expenses are likely to increase substantially over the next several years, and revenues from the SBIR grants may not continue at the current levels. Our operating results in future quarters may fall below expectations. Any of these events could adversely impact business prospects and make it more difficult to raise additional equity capital at an acceptable price per share. Each of the risk factors listed in this "Risk Factors" section may affect our operating results.

 

Our business and its industry are constantly changing and evolving over time. Furthermore, we compete in an unpredictable industry and regulatory environment. Our ability to succeed depends on its ability to compete in this fluctuating market. As such, the actual operating results may differ substantially from projections.

 

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We may be unable to maintain an effective system of internal controls and accurately report its financial results or prevent fraud, which may cause current and potential stockholders to lose confidence in our financial reporting and adversely impact the business and the ability to raise additional funds in the future.

 

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud, if we cannot provide reliable financial reports or prevent fraud, its operating results and reputation could be harmed as a result, causing stockholders and/or prospective investors to lose confidence in management and making it more difficult for us to raise additional capital in the future.

In-licensing of drug-development programs could result in operating difficulties, dilution and other harmful consequences.

We may seek to in- license certain technologies, but have only limited experience in these types of transactions. From time-to- time, management may engage in discussions regarding in-licensing or certain technologies management believes critical to our business. Any one of these transactions could have a material effect on our financial condition and operating results.

If we lose the services of key management personnel, we may not be able to execute our business strategy effectively.

Our future success depends in a large part upon the continued service of key members of its senior management team. In particular, Richard Salvador, CEO, William Garland, Ph.D., and COO and Vice President of R&D, are critical to our overall management as well as the development of the technology, the culture and the strategic direction for our company. All of the executive officers and key employees are at-will employees, and we do not maintain any key-person life insurance policies. Any loss of management or key personnel could materially harm the business.

We rely on highly skilled personnel and, if unable to retain or motivate key personnel or hire additional qualified personnel, we may not be able to grow effectively.

Our performance is largely dependent on the talents and efforts of highly skilled individuals. The future success depends on the continuing ability to identify, hire, develop, motivate, and retain highly skilled personnel for all areas of the organization. Competition in the industry for qualified employees is intense and it is likely that certain competitors will directly target some of our employees. The continued ability to compete effectively depends on the ability to retain and motivate existing employees.

Management may also need to hire additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing and sales and marketing. We compete for qualified individuals with numerous biopharmaceutical companies and other emerging entrepreneurial companies, as well as universities and research institutions. Competition for such individuals is intense, and may not be able to successfully recruit or retain such personnel. Attracting and retaining qualified personnel will be critical to our success.

 

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Our future profitability is uncertain.

 

We cannot predict our ability to increase our revenues or achieve profitability. We may be required to increase our research and development expenses in order to develop potential new products. As evidenced by the substantial net losses during and 2007 and 2006, losses and expenses may increase and fluctuate from quarter to quarter. There can be no assurance that we will ever achieve profitable operations.

We may not successfully manage any experienced growth. 

Our success will depend upon the expansion of its operations and the effective management of any such growth, which will place a significant strain on management and on administrative, operational, and financial resources. To manage any such growth, management must expand the facilities, augment it's operational, financial and management systems, and hire and train additional qualified personnel. If management is unable to manage its growth effectively, its business would be harmed.

Our drug-development programs depend upon third-party researchers who are outside our control.

We depend upon independent investigators and collaborators, such as universities, medical institutions, and clinical research organizations to conduct pre-clinical and clinical trials under agreements. These collaborators are not our employees, and management cannot control the amount or timing of resources that they devote to our programs. These investigators may not assign as great a priority to the programs or pursue them as diligently as we would if it were undertaking such programs. If outside collaborators fail to devote sufficient time and resources to our drug-development programs, or if their performance is substandard, the approval of our FDA applications, if any, and the introduction of new drugs, if any, will be delayed. These collaborators may also have relationships with other commercial entities, some of whom may compete with us. If our collaborators assist the competitors at our expense, any competitive position would be harmed. If conflicts arise with our collaborators, they may act in their self-interests, which may be adverse to our interests. Conflicts may arise in our collaborations due to one or more of the following:

·	disputes with respect to payments that we believe are due under a collaboration agreement;

·	disagreements with respect to ownership of intellectual property rights;

·	unwillingness on the part of a collaborator to keep us informed regarding the progress of its development and commercialization activities, or to permit public disclosure of these activities;

·	delay of a collaborator's development or commercialization efforts with respect to drug candidates; or

·	termination or non-renewal of the collaboration.

In addition, with our collaborations, we may be required to agree not to conduct independently, or with any third party, any research that is competitive with the research conducted under our collaborations. Our collaborations may have the effect of limiting the areas of research that management may pursue, either alone or with others. Our collaborators, however, may be able to develop, either alone or with others, products in related fields that are competitive with the products or potential products that are the subject of these collaborations.

 

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RISKS RELATED TO OUR INTELLECTUAL PROPERTY

Our intellectual property rights are valuable, and its inability to protect them could reduce the value of our products, services and brand. Our patents, trademarks, trade secrets, copyrights and other intellectual property rights are critically important assets.

Events outside of management's control could jeopardize our ability to protect its intellectual property rights. For example, effective intellectual property protection may not be available in every country in which the products and services are distributed. In addition, the efforts management has taken to protect its intellectual property rights may not be sufficient or effective. Any significant impairment of its intellectual property rights could harm its business or its ability to compete. Protecting our intellectual property rights is costly and time consuming, and the unauthorized use of ourintellectual property could cause these costs to rise significantly and materially affect the operating results.

While our goal is to obtain patent protection for its innovations, they may not be patentable or management may choose not to protect certain innovations that later turn out to be important for its business.

Even if we do obtain protection for its potential innovations, the scope of protection gained may be insufficient or a patent issued may be deemed invalid or unenforceable, as the issuance of a patent is not conclusive as to its validity or as to the enforceable scope of the claims of the patent. The patenting process, enforcement of issued patents, and defense against claims of infringement are inherently costly and risky. We may not have the financial resources to defend its patents, thereby reducing our competitive position and its business prospects. Specific risks associated with the patent process include the following:

·

The United States or foreign patent offices may not grant patents of meaningful scope based on the applications we have already filed and those we intend to file. If our current patents do not adequately protect its drug molecules and the indications for their use, then management will not be able to prevent imitation and any product may not be commercially viable.

·

Some of the issued patents we now license may be determined to be invalid. If we have to defend the validity of its patents the costs of such defense could be substantial, and there is no guarantee of a successful outcome. In the event any of the patents in-licensed is found to be invalid, we may lose its competitive position and may not be able to receive royalties for products covered in part or whole by that patent under license agreements.

 

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·

In addition, changes in or different interpretations of patent laws in the United States and foreign countries may permit others to use discoveries or to develop and commercialize technology and products without providing any compensation to us. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws and those countries may lack adequate rules and procedures for defending the intellectual property rights. For example, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans, and in these countries patent protection may not be available at all to protect

Although we try to avoid infringement, there is the risk that patented technology owned by another person or entity and/or that we may be sued for infringement.

For example, U.S. patent applications are confidential while pending in the Patent and Trademark Office, and patent offices in foreign countries often publish patent applications for the first time six months or more after filing. Further, we may not be aware of published or granted conflicting patent rights. Any conflicts resulting from patent applications and patents of others could significantly reduce the coverage of its patents and limit its ability to obtain meaningful patent protection. In addition, defending or indemnifying a third party against a claim of infringement can involve lengthy and costly other legal actions, and there can be no guarantee of a successful outcome.

Our management also seeks to maintain certain intellectual property as trade secrets. The secrecy of this information could be compromised by third parties, or intentionally or accidentally disclosed to others by our employees, which may cause us to lose any competitive advantage we enjoy from maintaining these trade secrets.

We are, and may in the future be, subject to intellectual property rights claims, which are costly to defend, which could require us to pay damages, and which could limit our ability to use certain technologies in the future. 

Companies in the pharmaceutical, biopharmaceutical and biotechnology industries own large numbers of patents, copyrights,trademarks, and trade secrets and frequently enter into litigation based on allegations of infringement or other violations by others of intellectual property rights. As our products get closer to commercialization, there is greater possibility that we may become subject to an infringement claim based on use of the technology such that we would be unable to continue using the technology without obtaining a license or settlement from third parties.

Any intellectual property claims, whether merited or not, could be time- consuming and expensive to litigate and could us to divert critical management and financial resources to the resolution of such claims. We may not be able to afford the costs of litigation. Any legal action against us or our collaborators could lead to:

 

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·	payment of damages, potentially treble damages, if we are found to have willfully infringed a party's patent rights;

·	injunctive or other equitable relief that may effectively block the ability to further develop, commercialize and sell products; or

·	we or our collaborators having to enter into license arrangements that may not be available on commercially acceptable terms, if at all.

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information and may not adequately protect our intellectual property.

Because we operates in the highly technical field of drug discovery and development, we rely in part on trade secret protection in order to protect the proprietary technology and processes. However, trade secrets are difficult to protect. we enter into confidentiality and intellectual property assignment agreements with corporate partners, employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements generally require that the other party keep confidential and not disclose to third parties all confidential information developed by the party or made known to the party during the course of the party's relationship with us. These agreements also generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time consuming and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain trade secret protection could adversely affect our competitive position.

Risks Related to Our Common Stock

 

Our common stock is traded on the OTCBB, our stock price is highly volatile, and you may not be able to sell your shares of our common stock at a price greater than or equal to the price you paid for such shares.

Our shares of common stock are currently traded on the Over the Counter Bulletin Board, or OTCBB. Stocks traded on the OTCBB generally have limited trading volume and exhibit a wide spread between bid and ask quotations. The market price of our common stock is extremely volatile. To demonstrate the volatility of our stock price, during 2007, our common stock traded as low as $0.31 per share and as high as $0.85 per share. This may impact an investor’s decision to buy or sell our common stock. As of December 31, 2007 there were approximately 223 holders of our common stock. Factors affecting our stock price include:

 

	·	our financial results;
	·	fluctuations in our operating results;

 

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	·	announcements of technological innovations or new commercial health care products or therapeutic products by us or our competitors;
	·	government regulation;
	·	developments in patents or other intellectual property rights;
	·	developments in our relationships with customers and potential customers; and
	·	general market conditions.

Furthermore, volatility in the stock price of other companies has often led to securities class action litigation against those companies. Any such securities litigation against us could result in substantial costs and divert management’s attention and resources, which could seriously harm our business and financial condition.

Our common stock may be subject to “penny stock” rules which may be detrimental to investors.

Our common stock may be, or may become, subject to the regulations promulgated by the SEC for “penny stock.” SEC regulation relating to penny stock is presently evolving, and the OTCBB may react to such evolving regulation in a way that adversely affects the market liquidity of our common stock. Penny stock currently includes any non-NASDAQ equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The regulations require that prior to any non-exempt buy/sell transaction in a penny stock, a disclosure schedule set forth by the SEC relating to the penny stock market must be delivered to the purchaser of such penny stock. This disclosure must include the amount of commissions payable to both the broker-dealer and the registered representative and current price quotations for the common stock. The regulations also require that monthly statements be sent to holders of penny stock that disclose recent price information for the penny stock and information of the limited market for penny stocks. These requirements may adversely affect the market liquidity of our common stock.

Sales of our common stock may require broker-dealers to make special suitability determinations regarding prospective purchasers.

Our common stock may be, or may become, subject to Rule 15g-1 through 15g-9 under the Exchange Act, which imposes certain sales practice requirements on broker-dealers which sell our common stock to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or an annual income exceeding $200,000 (or $300,000 together with their spouses)). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. Applicability of this rule would adversely affect the ability of broker-dealers to sell our common stock and purchasers of our common stock to sell their shares of such common stock. Accordingly, the market for our common stock may be limited and the value negatively impacted.

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Potential investors in the Registrant's common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be "penny stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii)reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of the Registrant's common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

If we fail to maintain the adequacy of our internal controls, our ability to provide accurate financial statements and comply with the requirements of the Sarbanes-Oxley Act of 2002 could be impaired, which could cause our stock price to decrease substantially.

We are continuing to take measures to address and improve our financial reporting and compliance capabilities and we are in the process of instituting changes to satisfy our obligations in connection with being a public company. We plan to obtain additional financial and accounting resources to support and enhance our ability to meet the requirements of being a public company. We will need to continue to improve our financial and managerial controls, reporting systems and procedures, and documentation thereof. If our financial and managerial controls, reporting systems or procedures fail, we may not be able to provide accurate financial statements on a timely basis or comply with the Sarbanes-Oxley Act of 2002 as it applies to us. Any failure of our internal controls or our ability to provide accurate financial statements could cause the trading price of our common stock to decrease substantially.

Our common shares are thinly traded and, if you are a holder of shares, you may be unable to sell at or near ask prices or at all if you need to convert your options, warrants or other convertible securities into common stock and sell your shares to raise money or otherwise desire to liquidate such shares.

We cannot predict the extent to which an active public market for our common stock will develop or be sustained. Our common shares have historically been sporadically or “thinly-traded” on the “Over-The-Counter Bulletin Board,” meaning that the number of persons interested in purchasing our common shares at or near bid prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company which is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.

 

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The market price for our common stock is particularly volatile given our status as a relatively small company with a small and thinly traded “float” and lack of current revenues that could lead to wide fluctuations in our share price. The price at which you convert your debentures into our common stock many be indicative of the price that will prevail in the trading market. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.

The market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities of shares by its shareholders may disproportionately influence the price of those shares in either direction. The price for its shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share price. Secondly, an investment in us is a speculative or “risky” investment due to our lack of revenues or profits to date and uncertainty of future market acceptance for current and potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.

Investors should be aware that, according to SEC Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the volatility of our share price.

 

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We do not anticipate paying any cash dividends.

We presently do not anticipate that we will pay any dividends on any of our capital stock in the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our board of directors. We presently intend to retain all earnings, if any, to implement our business plan; accordingly, we do not anticipate the declaration of any dividends in the foreseeable future.

ITEM 7. FINANCIAL STATEMENTS

The Audited Financial Statements for this Form 10-KSB appear on pages F-1 through F-27 following the signature page below.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 8A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

Our management, including our principal executive officer and our principal financial officer, has evaluated the effectiveness of our “disclosure controls and procedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) of the United States Securities Exchange Act of 1934, as amended), as of December 31, 2007. As described below in the Management’s Report on Internal Control over Financial Reporting, management has reported material weaknesses in the internal control over financial reporting as of December 31, 2007. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were not effective as of December 31, 2007 due to the reported material weakness.

 

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Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2007. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework.