FORM 10-QSB/A
(Amendment No. 1)
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2005
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
COMMISSION FILE NUMBER: 033-05384
IR BIOSCIENCES HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3301899
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4021 N. 75th Street, Suite 201, Scottsdale, Arizona 85251
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (480) 922-3926
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of Registrant's common stock as of August 1,
2005 was 69,336,319.
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet as of
June 30, 2005 (unaudited)..................................... F-1
Condensed Consolidated Statement of Operations for
the three months and six months ended June 30, 2005
and 2004, and for the period of inception
(October 30, 2002) to June 30, 2005........................... F-2
Condensed Consolidated Statement of Deficiency in
Stockholders' Equity from date of inception
(October 30, 2002) to June 30, 2005........................... F-3
Condensed Consolidated Statement of Cash Flows for the
six months ended June 30, 2005 and 2004, and for the
period of inception (October 30, 2002) to June 30, 2005....... F-8
Notes to Condensed Consolidated Financial Statements.......... F-10
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation................................ 3
PART II OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds... 19
Item 6. Exhibits...................................................... 20
Signatures.................................................... 21
2
ITEM 1. FINANCIAL INFORMATION
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheet as of June 30, 2005
(Unaudited)
June 30,
2005
------------
Assets
Current assets
Cash and cash equivalents 1,141,986
Prepaid services and other current assets 8,713
------------
Total current assets 1,150,699
Licensed proprietary rights, net 6,856
Furniture and equipment, net 5,762
------------
Total assets $ 1,163,317
============
Liabilities and Deficiency in Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities 1,843,088
------------
Total current liabilities 1,843,088
Commitments and Contingencies
Deficiency in 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; 69,104,166 shares issued and outstanding
at June 30, 2005 69,104
Additional paid-in capital 9,351,940
Deferred compensation (30,862)
Common stock subscribed 65,003
Deficit Accumulated during the Development Stage (10,134,956)
------------
Total deficiency in stockholder's equity (679,771)
------------
Total liabilities and deficiency in stockholder's equity $ 1,163,317
============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-1
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of
Operations For the three months and six months
ended June 30, 2005 and 2004,
And for the period of inception
(October 30, 2002) to June 30, 2005
(Unaudited)
For the For the
Three Three Cumulative from
Months Months For the Six For the Six Inception (October
Ended June Ended June Months Ended Months Ended 30, 2002) to
30, 2005 30, 2004 June 30, 2005 June 30, 2004 June 30, 2005
------------ ------------ ------------ ------------ ------------
Revenues $ -- $ -- $ -- $ -- $ --
Operating expenses:
Selling, general and
administrative expenses 593,835 1,574,415 1,432,355 2,505,489 7,022,239
Merger fees and costs 0 0 0 0 350,000
Financing cost 1,493,256 0 1,493,256 0 1,583,256
------------ ------------ ------------ ------------ ------------
Total operating expenses 2,087,091 1,574,415 2,925,611 2,505,489 8,955,495
Operating loss (2,087,091) (1,574,415) (2,925,611) (2,505,489) (8,955,495)
Other expense:
Interest (income) expense 341 131,737 1,318 435,815 1,179,461
------------ ------------ ------------ ------------ ------------
Total other expense 341 131,737 1,318 435,815 1,179,461
Loss before income taxes (2,087,432) (1,706,152) (2,926,929) (2,941,304) (10,134,956)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (2,087,432) $ (1,706,152) $ (2,926,929) $ (2,941,304) $(10,134,956)
============ ============ ============ ============ ============
Net loss per share -
basic and diluted $ (0.03) $ (0.06) $ (0.04) $ (0.11) $ (0.31)
============ ============ ============ ============ ============
Weighted average shares outstanding
basic and diluted 69,039,111 27,474,445 65,968,335 26,163,266 33,181,714
============ ============ ============ ============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-2
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to June 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage 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
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-3
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to June 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
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) -- -- --
Shares issued to a consultant
at $0.40 per share for services
rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- -- --
Shares issued to a consultant
at $0.50 per share for services
rendered in March 2004 500,000 500 249,500 (250,000) -- -- --
Shares sold for cash at $0.15
per share in March, 2004 8,000 8 1,192 -- -- -- 1,200
Shares issued at $0.50 per
share to consultants for
services rendered in March 2004 20,000 20 9,980 -- -- -- 10,000
Shares issued to a consultant
at $0.40 per share for services
rendered in March 2004 2,000 2 798 -- -- -- 800
Shares issued to consultants at
$0.32 per share for services
rendered in March 2004 91,600 92 29,220 -- -- -- 29,312
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-4
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to June 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Shares to be issued to
consultant at $0.41 per share in
April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- -- (82,000)
Shares granted pursuant to the
New Senior Note Agreement
in April 2004 600,000 600 149,400 (150,000) -- -- --
Shares issued to officer at
$0.32 per share for services
rendered in April 2004 200,000 200 63,800 -- -- -- 64,000
Conversion of Note Payable to
common stock at $0.10 per share
in May 2004 350,000 350 34,650 -- -- -- 35,000
Beneficial Conversion Feature
associated with note payable in
May 2004 -- -- 35,000 -- -- -- 35,000
Issuance of warrants to officers
and founder for services
rendered in May 2004 -- -- 269,208 -- -- -- 269,208
Shares to a consultant at $0.20
per share as a due diligence fee
in May 2004 125,000 125 24,875 -- -- -- 25,000
Shares issued to a consultant at
$1.00 per share for services
to be rendered over twelve
months beginning May 2004 500,000 500 499,500 (500,000) -- -- --
Beneficial Conversion Feature
associated with notes payable
issued in June 2004 -- -- 3,000 -- -- -- 3,000
Issuance of warrants to note
holders in April, May, and June 2004 -- -- 17,915 -- -- -- 17,915
Issuance of warrants to
employees and consultants for
services rendered in April
through June 2004 -- -- 8,318 -- -- -- 8,318
Shares issued in July to a
consultant at $0.10 for services
to be rendered through July 2005 250,000 250 24,750 (25,000) -- -- --
Shares issued to a consultant in
July and September at $0.41 per
share for services to be rendered
through April 2005 200,000 200 81,800 -- -- -- 82,000
Shares issued to a consultant in
September at $0.12 to $0.22 for
services rendered through September
2004 127,276 127 16,782 -- -- -- 16,909
Shares issued in July to
September 2004 as interest on
note payable 300,000 300 35,700 -- -- -- 36,000
Issuance of warrants with notes
payable in July and August 2004 -- -- 72,252 -- -- -- 72,252
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-5
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company) Condensed Consolidated Statement of
Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to June 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Accrued deferred compensation in
August 2004 to a consultant for
100,000 shares at $0.10 per share,
committed but unissued -- -- -- (10,000) -- -- (10,000)
Shares issued in August 2004 at
$0.14 to a consultant for
services to be performed
through October 2004 100,000 100 13,900 (14,000) -- -- --
Shares issued in August 2004 at
$0.125 per share for conversion
of $30,000 demand loan 240,000 240 29,760 -- -- -- 30,000
Shares issued in August 2004 at
$0.16 per share to a consultant
for services provided 125,000 125 19,875 -- -- -- 20,000
Shares issued to employees at
$0.16 to $0.25 per share 48,804 49 8,335 -- -- -- 8,384
Commitment to issue 100,000
shares of stock to a consultant
at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- -- (23,000)
Sale of stock for cash in
October at $0.125 per share, net
of costs of $298,155 18,160,000 18,160 1,345,763 -- -- -- 1,363,923
Value of warrants issued with
sale of common stock in October,
net of costs -- -- 607,922 -- -- -- --
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 -- -- -- 56,067
Conversion of debt and accrued
interest to common stock
at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- -- 424,217
Value of warrants issued with
conversion of debt -- -- 191,111 -- -- -- 191,111
Conversion of note payable in
October into common stock at
$0.075 per share 67,613 68 4,932 -- -- -- 5,000
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-6
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in
Stockholders' Equity For the period from inception
(October 30, 2002) to June 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During The
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Issuance of warrants to note
holders in October 2004 -- -- 112,562 -- -- -- 112,562
Value of shares issued to CFO as
compensation 100,000 100 34,900 -- -- -- 35,000
Value of warrants issued to
members of advisory committees in
in November and December -- -- 16,348 -- -- -- 16,348
Beneficial conversion feature
associated with notes payable -- -- 124,709 -- -- -- 124,709
Shares issued in error to be
cancelled (9,002) (9) -- -- -- -- --
Amortization of deferred
compensation through
December 31, 2004 -- -- -- 2,729,454 -- -- 2,729,454
Loss for the twelve months ended
December 31, 2004 -- -- -- -- -- (5,305,407) (5,305,407)
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) -- (7,208,027) 607,353
=========== =========== =========== ============ =========== =========== ===========
Sale of shares of common stock
for cash at $0.20 per share
in March 2005 for warrant
exercise, net of costs 6,600,778 6,601 1,184,256 -- -- -- 1,190,857
Value of warrants issued to members
of advisory committee in March 2005 -- -- 137,049 -- -- -- 137,049
Accrued deferred compensation in
February, 2005 to a consultant
for 50,000 shares at $0.65 per
share. Committed but unissued -- -- -- (32,500) -- -- (32,500)
Amortization of deferred
compensation for the three months
ended March 31, 2005 -- -- -- 149,061 -- -- 149,061
Warrants exercised at $0.05
per share 80,000 80 3,920 -- -- -- 4,000
Value of warrants issued to
members of advisory committees
in June 2005 -- -- 70,781 -- -- -- 70,781
Value of warrants issued to
investors and service providers -- -- 32,991 -- -- -- 32,991
Amortization of deferred
compensation for the three months
ended June 30, 2005 -- -- -- 22,563 -- -- 22,563
Conversion of notes payable into
232,153 common stock not yet issued -- -- -- -- 65,003 -- 65,003
Loss for the six months ended
June 30, 2005 -- -- -- -- -- (2,926,929) (2,926,929)
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at June 30, 2005 69,104,166 69,104 9,351,940 (30,862) 65,003 (10,134,956) (679,771)
========== =========== =========== ============ =========== =========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-7
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30, 2005 and 2004,
And for the period of inception (October 30, 2002)
to June 30, 2005
(Unaudited)
Cumulative from
Inception
For the Six For the Six (October 30,
Months Ended Months Ended 2002) to June 30,
June 30, 2005 June 30, 2004 2005
---------------- --------------- -------------------
Cash flows from operating activities:
Net loss $ (2,926,929) $ (2,941,304) $(10,134,956)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Non-cash compensation 426,279 1,912,027 3,826,279
Interest expense 4,007 37,545 156,407
Amortization of discount on notes payable 0 399,222 1,006,935
Depreciation and amortization 1,202 12,053 27,219
Changes in operating assets and liabilities: --
Prepaid services and other assets (2,000) 31,043 (8,712)
Accounts payable and accrued expenses 1,489,453 243,931 2,044,495
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (1,007,988) (305,483) (3,082,333)
Cash flows from investing activities:
Acquisition of property and equipment 0 0 (8,087)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES 0 0 (8,087)
Cash flows from financing activities:
Proceeds from notes payable -- 442,957 1,233,500
Principal payments on notes payable and demand loans (14,997) (174,000) (264,997)
Shares of stock sold for cash 1,190,857 31,200 3,259,903
Proceeds from exercised of warrants 4,000 4,000 4,000
Officer repayment of amounts paid on his behalf 19,800
Cash paid on behalf of officer (19,800)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,179,860 300,157 4,232,406
Net increase in cash and cash equivalents 171,872 (5,326) 1,141,986
Cash and cash equivalents at beginning of period 970,114 10,534 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,141,986 $ 5,208 $ 1,141,986
============ ============ ============
Supplemental disclosure of cash flow information:
Acquisition and capital restructure:
Assets acquired $ -- $ -- $ --
Liabilities assumed -- -- (120,799)
Common stock retained -- -- (2,369)
Adjustment to additional paid-in capital -- -- 123,168
Organization costs -- -- 350,000
------------ ------------ ------------
Total consideration paid $ -- $ -- $ 350,000
============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-8
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
For the six months ended June 30, 2005 and
2004, And for the period of inception (October
30, 2002) to June 30, 2005
(Unaudited)
Cash paid during the period for:
Interest $ 1,486 $ 4,553 44,286
============ ============ ============
Taxes $ -- $ -- $ --
============ ============ ============
Common stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
============ ============ ============
Common stock issued in exchange for services $ -- $ 2,095,240 $ 2,915,286
============ ============ ============
Common stock issued in exchange for previously incurred
debt and accrued interest $ 65,003 $ 35,000 $ 1,060,594
============ ============ ============
Common stock issued in exchange as interest $ -- $ -- $ 36,000
============ ============ ============
Amortization of beneficial conversion feature $ -- $ -- $ 223,269
============ ============ ============
Stock options and warrants issued in exchange for
services rendered $ 249,821 $ 742,253
============ ============ ============
Debt and accrued interest forgiveness from note holders $ -- $ 36,875
============ ============ ============
Common stock issued in satisfaction of accounts payable $ -- $ 29,132 $ 157,219
============ ============ ============
Common stock issued in satisfaction of amounts due
to an Officer and a Director $ -- $ -- $ 180,000
============ ============ ============
Amortization of deferred compensation $ 171,624 $ 171,624
============ ============
Fair Value of common stock and warrants payable in
connection with late filing of registration statement $ 1,493,256 $ 1,493,256
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-9
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the six-month periods ended June 30, 2005 and 2004
are not necessarily indicative of the results that may be expected for the years
ended December 31, 2005. The unaudited condensed consolidated financial
statements should be read in conjunction with the December 31, 2004 financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB filed with the Securities and Exchange Commission on April 19, 2005.
Business and basis of presentation
----------------------------------
IR BioSciences Holdings, Inc. (the "Company," "we," or "us") formerly GPN
Network, Inc. ("GPN") is currently a development stage company under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7. The
Company, which was incorporated under the laws of the State of Delaware on
October 30, 2002, is a biopharmaceutical company. Through our wholly owned
subsidiary, ImmuneRegen BioSciences, Inc., we are engaged in the research and
development of Homspera(TM), a proprietary compound that is derived from
homeostatic substance P, a naturally occurring peptide. Currently, the majority
of our development efforts are centered around a class of drug candidates
derived from Homspera, Radilex(TM) and Viprovex(TM). Radilex has been formulated
specifically for the indication of acute exposure to radiation. Viprovex was
formulated specifically for applications relating to the treatment of various
chemical agents, such as exposure to formalin, and biological agents, such as
infectious disease and other Class A pathogens. Our research and development
efforts are at a very early stage and Radilex and Viprovex have only undergone
pre-clinical testing in mice. From its inception through the date of these
financial statements, the Company has recognized no revenues and has incurred
significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, ImmuneRegen BioSciences, Inc. Significant
intercompany transactions have been eliminated in consolidation.
Reclassification
----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
Stock based compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123,"Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended December 31, 2002 and for
the subsequent periods.
F-10
Interim financial statements
----------------------------
The accompanying balance sheet as of June 30, 2005, the statements of operations
for the six months ended June 30, 2005 and 2004, and for the period of inception
(October 30, 2002) to June 30, 2005, and the statements of cash flows for six
months ended June 30, 2005 and 2004, and from the period of inception (October
30, 2002) to June 30, 2005 are unaudited. These unaudited interim financial
statements include all adjustments (consisting of normal recurring accruals),
which, in the opinion of management, are necessary for a fair presentation of
the results of operations for the periods presented. Interim results are not
necessarily indicative of the results to be expected for a full year.
Use of estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
Long-lived assets
-----------------
The Company accounts for its long-lived assets under the provision of Statements
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset.
Prepaid services and other current assets
-----------------------------------------
Prepaid services and other current assets consist of (i) salary advance to an
employee of $2,300; (ii) deposits of $2,260; and (iii) prepaid consulting fees
of $4,153.
Licensed proprietary rights
---------------------------
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan. These
proprietary rights are being amortized over the term of the license agreement,
or ten years. The amount amortized during the three months ended June 30, 2005
and 2004 was $232 during each period. The amount amortized during the six months
ended June 30, 2005 and 2004 was $464 during each period. The Company amortized
$2,394 for the period from October 30, 2002 (inception) to June 30, 2005.
Furniture and equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment
areas follows:
Computer equipment 3 years
Furniture 7 years
The amounts depreciated for the three months ended June 30, 2005 and 2004 were
$568 and $170, respectively. The amounts depreciated for the six months ended
June 30, 2005 and 2004 were $738 and $340, respectively. The amount depreciated
from the date of inception (October 30, 2002) through June 30, 2005 was $2,326.
NOTE 2 - RELATED PARTY TRANSACTIONS
Proprietary rights agreement
----------------------------
In December 2002, the Company entered into a royalty-free license agreement (the
"License Agreement") with its two founders and largest shareholders (the
"Licensors"). Under the terms of the License Agreement, the Licensors grant to
the Company an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by the Licensors. The Company's
obligations under the License Agreement include (i) reasonable efforts to
protect any licensed patents or other associated
F-11
property rights; (ii) reasonable efforts to maintain confidentiality of any
proprietary information; (iii) upon the granting by the U. S. Food and Drug
Administration to the Company the right to market a product, the Company will
maintain a broad form general liability and product liability insurance.
Consulting agreements
---------------------
On December 16, 2002, the Company entered into consulting agreements (the
"Consulting Agreements") with its two founders and chief research scientists
(the "Consultants"). The Consulting Agreements were on a month-to-month basis.
Under the terms of the Consulting Agreements, the Consultants agreed to place at
the disposal of the Company their judgment and expertise in the area of acute
lung injury. In consideration for these services, the Company agreed to pay each
consultant a non-refundable fee of $5,000 per month, which shall accrue until
such time as the Company raises at least $2,000,000 in equity or debt financing
at which time such accrued amount will become due and payable. Pursuant to the
Consulting Agreements, during the period from January 1, 2003 to December 31,
2003, the Company accrued $120,000 in consulting fees. During the period from
January 1, 2004 to December 31, 2004, the Company accrued an additional $90,000
in consulting fees. The amounts due the Consultants at December 31, 2003 were
$125,000 and were 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. As of October 2004, the aggregate amounts due the
Consultants under the Consulting Agreements were $215,000.
In October, 2004, one of the Consultants elected to exchange 724,000 shares of
the Company's common stock and a warrant to purchase an additional 362,000
(post-split) shares of common stock at an exercise price of $0.50 (post-split)
in exchange for $90,500 of the $107,500 of the previously accrued and unpaid
fees due him under the Consulting Agreement, and the balance of $17,000 was paid
to the consultant. At December 31, 2004, there is no balance due to the
Consultant.
In October 2004, because the remaining Consultant had not taken an active role
in the management of the Company, he agreed that would forgive the amount
accrued to him under the Consulting agreement of $107,500. The Company accounted
for the transaction as a forgiveness of indebtedness under FAS No. 140 during
the period ended December 31, 2004.
During the three months ended June 30, 2005, the Company paid $17,000 in
consulting fees to the Consultant, and charged this amount to operations; during
the three months ended June 30, 2004, the Company accrued the amount of $15,000
in consulting fees payable to the Company's Founders. During the six months
ended June 30, 2005, the Company paid a total of $43,000 to the Consultant,
charging $17,000 of this amount to operations and the remaining $26,000 against
the accrued liability; also during the six months ended June 30, 2005, the
Company accrued an additional $19,000 in consulting fees due to the Consultant.
At June 30, 2005, there is a prepaid asset of $4,153 relating to these fees.
During the six months ended June 30, 2004, the Company accrued $60,000 in
consulting fees payable to the Consultants.
Employment agreements
---------------------
Pursuant to our employment agreement with Michael Wilhelm, our President and
Chief Executive Officer, dated December 16, 2002, we paid a salary of $125,000
and $175,000 to Mr. Wilhelm during the first and second years of his employment,
respectively. Thereafter we paid, and will continue to pay, through the term of
Mr. Wilhelm's employment, an annual salary of $250,000. Mr. Wilhelm's salary is
payable in regular installments in accordance with the customary payroll
practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief Financial
Officer, dated February 15, 2005, we paid a salary of $60,000 until the company
completed a financing of $500,000 or more. This occurred on March 4, 2005 when
the company completed a Tender Offer for warrants totaling $1,190,857 net of
fees. From March 4, 2005, until December 31, 2005, we will pay an annual salary
of $85,000. Thereafter, we will pay an annual salary of $98,000 for the second
year ending December 31, 2006 and an annual salary of $112,000 for the third
year ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our company.
NOTE 3 - DEBT
During the six months ended June 30, 2005, the Company paid three notes payable
in the aggregate amount of $80,000. Payment was made by cash in the amount of
$14,997, and by converting a note with a balance of $65,003 into 232,153 shares
of the Company's common stock at a price of $0.28 per share. These shares were
issued subsequent to June 30, 2005.
NOTE 4 - EQUITY
Common stock
------------
F-12
On January 24, 2005, the Company made a tender offer to certain of the Company's
shareholders whereby the exercise price of certain warrants issued in October
2004 (the "Warrants") would be reduced from $0.50 to $0.20 per share. In March
2005, 6,600,778 shares of common stock were sold pursuant to this offer for
aggregate proceeds of $1,320,156 less costs of $129,300.
In June 2005, the Company issued 80,000 shares of common stock pursuant to the
Exercise of a warrant at a price of $0.05 per share.
Warrants
--------
During the three months ended March 31, 2005, the Company issued warrants to
purchase 268,033 shares of common stock at prices ranging from $0.125 to $1.00
to consultants for services performed. The Company valued these warrants using
the Black-Scholes valuation model, and charged the amount of $137,049 six months
ended June 30, 2005.
During the three months ended June 30, 2005, the Company issued warrants to
purchase 366,814 shares of common stock at prices ranging from $0.038 to $1.00
per share. The Company also cancelled warrants to purchase 123,530 shares of
common stock at a price of $2.00 per share. The Company valued these issuance
and cancellations using the Black-Scholes valuation model, and charged the
amount of $32,991 to operations during the six months ended June 30, 2005.
Also during the three months ended June 30, 2005, warrants to purchase 80,000
shares of common stock at a price of $0.05 per share were exercised.
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
--------------------------------- --------------------------------
Weighted Average Weighed Weighted Average
Remaining Average Remaining
Exercise Number Contractual Life Exercise Number Contractual Life
Prices Outstanding (Years) Price Exercisable (Years)
---------------------------------------------------------------------------------------------------------
$0.01-0.10 519,780 3.89 $0.01-0.10 519,780 3.89
0.125-0.21 878,669 3.99 0.125-0.21 878,669 3.99
0.25-0.50 9,254,406 4.08 0.25-0.50 9,254,406 4.08
1.00 794,844 2.51 1.00 794,844 2.51
2.00 49,050 3.74 2.00 49,050 3.74
---------- ----- ---------- ----
11,496,749 3.95 11,496,749 3.95
========== ===== ========== ====
Transactions involving warrants are summarized as follows:
Weighted Average
Number of Shares Price Per Share
--------------- ---------------
Outstanding at January 1, 2005 17,666,210 $ .49
Granted 268,033 .48
Exercised (6,600,778) .50
Canceled or expired -- --
---------- --------
Outstanding at March 31, 2005 11,333,465 $ .47
Granted 366,814 .32
Exercised (80,000) .05
Cancelled or expired (123,530) 2.00
---------- -----------
Outstanding at June 30, 2005 11,496,749 $0.45
========== ===========
F-13
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2005
----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.69% to 3.85%
Expected stock price volatility 129% to 163%
Expected dividend payout --
Expected option life-years (a) 3 to 5
Additional shares issuable in connection with late filing of registration
statement
-------------------------------------------------------------------------------
In October 2004, the Company completed a private placement sale of shares of its
common stock and warrants to purchase additional shares of common stock. The
Company agreed to register these shares along with the shares underlying these
warrants within ninety days from the closing date of the transaction, or the
Company would incur a penalty equivalent to an additional 2% of the shares and
warrants to be registered for every 30 days that the Company fails to complete
this registration. This penalty amounts to an aggregate of 461,200 shares and
181,600 warrants per 30 day period until such a time as this registration
Statement is made effective. As of June 30, 2005, the Company is required to
issue additional 2,413,613 shares of common stock and warrants to purchase an
additional 950,373 shares of common stock. These shares have been valued at the
market price of the common stock at the time each 30 day period, for a total of
$1,109,032 at June 30, 2005; the warrants have been valued at $384,224 at June
30, 2005 utilizing the Black-Scholes valuation model. The total value of the
common stock and warrants issuable pursuant to this late filing penalty at June
30, 2005 is $1,493,256. This amount was charged to finance cost during the three
months ended June 30, 2005 and are included in accrued liabilities at June 30,
2005.
The Company anticipates completing the registration of these shares during the
quarter ended September 30, 2005, but expects that an obligation to issue
approximately 815,000 additional shares and 325,000 additional warrants at an
aggregate cost of approximately $335,000 will be incurred.
NOTE 5 - SUBSEQUENT EVENTS
In July 2005, the Company issued 232,153 shares of its common stock pursuant to
the conversion of $65,003 of debt in June 2005. See Note 3.
F-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Special Note Regarding Forward-looking Statements
Some of the statements under "Risk Factors," "Business" and elsewhere in this
Quarterly Report on Form 10-QSB constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those described under
"Risk Factors" and elsewhere in this Quarterly Report on Form 10-QSB.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this report.
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
Overview
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical company.
Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we are
engaged in the research and development of Homspera(TM), a proprietary compound
that is derived from homeostatic substance P, a naturally occurring peptide.
Currently, the majority of our efforts are focused on the research and
development of potential uses of Radilex(TM), a compound derived from Homspera,
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. We own or have obtained a license
to 2 issued U.S. and 2 issued foreign patents and 5 pending Patent Cooperation
Treaty (PCT) applications, 6 pending U.S. applications and 15 pending foreign
patent applications.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2005
Revenue
-------
We are in the development stage and have no revenue.
Sales, general, and administrative expenses
-------------------------------------------
Sales, general, and administrative expenses ("SG&A") were $593,835 for the three
months ended June 30, 2005, a decrease of $980,580 or approximately 62% compared
to SG&A of $1,574,415 during the three months ended June 30, 2004. The decrease
is primarily due to lower costs of non-cash compensation. For the three months
ended June 30, 2005, this amount consisted primarily of non-cash compensation
issued to consultants of $136,845, legal and accounting fees of $167,218, other
consulting fees of $73,621, payroll and related costs of $96,413, and contract
labor costs of $19,670.
The Company expects SG&A to increase during the coming twelve months as we
continue to utilize non-cash compensation in order
3
to conserve cash, build out the Company's infrastructure, and continue to
develop the Company's line of potential products.
Late filing of registration statement
-------------------------------------
In October 2004, the Company completed a private placement sale of shares of its
common stock and warrants to purchase additional shares of common stock. The
Company agreed to register these shares along with the shares underlying these
warrants within ninety days from the closing date of the transaction, or the
Company would incur a penalty equivalent to an additional 2% of the shares and
warrants to be registered for every 30 days that the Company fails to complete
this registration. This penalty amounts to an aggregate of 461,200 shares and
181,600 warrants per 30 day period until such a time as this registration
statement is made effective. As of June 30, 2005, the Company is required to
issue additional 2,413,613 shares of common stock and warrants to purchase an
additional 950,373 shares of common stock. These shares have been valued at the
market price of the common stock at the time each 30 day period, for a total of
$1,109,032 at June 30, 2005; the warrants have been valued at $384,224 at June
30, 2005 utilizing the Black-Scholes valuation model. The total value of the
common stock and warrants issuable pursuant to this late filing penalty at June
30, 2005 is $1,493,256. This amount was charged to finance cost during the three
months ended June 30, 2005 and are included in accrued liabilities at June 30,
2005.
The Company anticipates completing the registration of these shares during the
quarter ended December 31, 2005, but expects that an obligation to issue
approximately 2,659,587 additional shares and 1,047,227 additional warrants.
Interest income / expense
-------------------------
Interest expense (net) for the three months ended June 30, 2005 was $341, a
decrease of $131,396 compared to interest expense (net) of $131,737 for the
three months ended June 30, 2004. The decrease is due to a decrease in debt
along with an increase cash balances.
Net loss
--------
For the reasons above, primarily lower SG&A expenses and lower interest expenses
offset by the late registration penalty, the net loss for the three months ended
June 30, 2005 was $2,087,432, an increase of $381,280 or 22% compared to a net
loss of $1,706,152 for the three months ended June 30, 2004.
The Company expects losses to increase during the coming twelve months. The
Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as we move our line of potential
products through the testing and approval phases, and as we build out our
corporate infrastructure.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2005
Revenue
-------
We are in the development stage and have no revenue.
Selling, general and administrative expenses
--------------------------------------------
Selling, general and administrative expenses were $1,432,355 for the six months
ended June 30, 2005 which is a decrease of $1,073,134 or 43% compared to SG&A of
$2,505,489 for the six months ended June 30, 2004. The decrease is primarily due
to lower costs of non-cash compensation. This expense is primarily comprised of
non-cash compensation of $436,778, legal and accounting fees of $329,024,
payroll and related costs of $155,085, consulting fees of $191,360, public
relation and marketing of $64,884, and contract labor of $42,162.
Late filing of registration statement
-------------------------------------
In October 2004, the Company completed a private placement sale of shares of its
common stock and warrants to purchase additional shares of common stock. The
Company agreed to register these shares along with the shares underlying these
warrants within ninety days from the closing date of the transaction, or the
Company would incur a penalty equivalent to an additional 2% of the shares and
warrants to be registered for every 30 days that the Company fails to complete
this registration. This penalty amounts to an aggregate of 461,200 shares and
181,600 warrants per 30 day period until such a time as this registration
Statement is made effective. As of June 30, 2005, the Company is required to
issue additional 2,413,613 shares of common stock and warrants to purchase an
additional 950,373 shares of common stock. These shares have been valued at the
market price of the common stock at the time each 30 day period, for a total of
$1,109,032 at June 30, 2005; the warrants have been valued at $384,224 at June
30, 2005 utilizing the Black-Scholes valuation model. The total value of the
common stock and warrants issuable pursuant to this late filing penalty at June
30,
4
2005 is $1,493,256. This amount was charged to finance cost during the three
months ended June 30, 2005 and are included in accrued liabilities at June 30,
2005.
The Company anticipates completing the registration of these shares during the
quarter ended December 31, 2005, but expects that an obligation to issue
approximately 2,659,587 additional shares and 1,047,227 additional warrants.
Interest expense (net)
----------------------
Interest expense was $1,318 for the six months ended June 30, 2005, a decrease
of $434,497 compared to interest expense of $435,815 for the six months ended
June 30, 2004. The decrease is due to a decrease in debt along with an increase
cash balances.
Net loss
--------
For the reasons above, primarily lower SG&A expenses and lower interest expenses
offset by the late registration penalty, the net loss for the six months ended
June 30, 2005 was $2,926,929, a decrease of $14,375 or 1% compared to a net loss
of $2,941,304 for the six months ended June 30, 2004.
PLAN OF OPERATION
We expect to continue to incur increasing operating losses for the foreseeable
future, primarily due to our continued research and development activities
attributable to new and existing products and general and administrative
activities.
Product Research and Development
We received a credit of $65,849 for laboratory studies in May, 2005 resulting in
net expense of $(40,430) for the three months ended June 30, 2005 versus an
expense of $61,807 for the three months ended June 30, 2004 in research and
development activities related to the development of Radilex as a universal
protectant against the effects of chemical, biological, radiological and nuclear
threats. Due to our liquidity and limited cash available, our spending on
research and development activities was limited. From our inception in October
2002, we have spent $218,103 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.
If we are successful in obtaining additional funding through grants or
investment capital, we anticipate that during the next 12 months we will
increase our research and development activities by approximately $450,000 to a
total of approximately $600,000 in an effort to further develop Radilex and
Viprovex, excluding a radiation study on primates which we estimate will cost
$1,500,000. If we are unable to raise additional capital, our research and
development activities may be lessened. The drug development, clinical trial and
regulatory process is lengthy, expensive and uncertain and subject to numerous
risks.
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 120 days. We estimate that the study will be completed within 3 months upon
commencement at an estimated cost of $100,000. Upon completion of the
aforementioned study we will prepare the protocols necessary for a non-human
primate study to test the efficacy of Radilex as a treatment to acute radiation
sickness. We expect this study to begin within the next twelve months. We
believe that preliminary results will be available within 90 days from beginning
of study, with analysis within an additional 60 to 90 days. We have budgeted
approximately $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.
5
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 VIPROVEX IN CHEMICAL AND BIOLOGICAL EXPOSURE
APPLICATIONS.
------------------------------------------------------------------------
We are currently continuing to conduct preliminary research and development on
the efficacy of Viprovex as a potential treatment for toxic chemical and
biological exposure. Our initial testing has been limited to early preclinical
studies on rodent models. We estimate approximately $120,000 for additional
studies related to the use of Viprovex in these areas over the next twelve
months. We anticipate additional studies to begin in the fourth quarter of
calendar 2005 and continue on an ongoing basis over the next three years. If we
are successful in achieving desirable results, we intend to design the protocols
and begin studies for these indications, when capital is available. As we have
only collected preliminary data and additional studies are required, we cannot
predict when, if ever, a viable treatment can be commercialized. If we do not
observe significant results or we lack the capital to further the development,
we may abandon such research and development efforts; thereby limiting our
future potential revenues.
Research and development of Homspera in Wound Healing Applications.
Within the next six months we plan to begin preclinical studies to determine if
Homspera could become a compound that would be used in wound healing. We expect
to begin studies in the fourth quarter of calendar 2005. We do not have any
research and development expenses associated with the use of Homspera in wound
healing in 2004 or 2003. 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
June 30, 2005, we had no revenues from any product sales, royalties or licensing
fees, and have not achieved profitability on a quarterly or annual basis. Our
ability to achieve profitability depends upon, among other things, our ability
to develop products, obtain regulatory approval for products under development
and enter into agreements for product development, manufacturing and
commercialization. Moreover, we may never achieve significant revenues or
profitable operations from the sale of any of our products or technologies.
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 June 30, 2005, we have incurred losses of
$10,134,956. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
6
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2005, we had current assets of $1,150,699 consisting of cash of
$1,141,986 and other current assets of $8,713. At June, 2005, we also had
current liabilities of $1,843,088, consisting of accounts payable and accrued
liabilities of $349,832 and the cost of the late filing of the registration
statement with the SEC of $1,493,256. This resulted in net working deficit at
June 30, 2005 of $692,389. During the six months ended June 30, 2005, the
Company used cash in operating activities of $1,007,988. From the date of
inception (October 30, 2002) to June 30, 2005, the Company has had a net loss of
$10,134,956 and has used cash of $3,082,333 in operating activities.
The Company currently has no revenue. There is no guarantee that our business
model will be successful, or that we will be able to generate sufficient revenue
to fund future operations. As a result, we expect our operations to continue to
use net cash, and that we will be required to seek additional debt or equity
financings during the coming quarters. Since inception, the Company has financed
its operations through debt and equity financing. While we have raised capital
to meet our working capital and financing needs in the past, additional
financing is required in order to meet our current and projected cash flow
deficits from operations and development of our product line. We met our cash
requirements from our inception through June 30, 2005 via the private placement
of $3,263,903 of our common stock including $1,194,857, net of costs, from the
exercise of common stock purchase warrants and $968,503 from the issuance of
notes payable, net of repayments.
In January 2005, we made a tender offer to temporarily reduce the exercise price
of certain warrants issued in October 2004 from $0.50 to $0.20 per share. The
tender offer expired on March 4, 2005. We accepted for exercise a total of
6,600,778 warrants validly tendered and not withdrawn pursuant to the terms of
the tender offer, which represents approximately 48% of the aggregate 13,780,449
warrants that were subject to the offer. We raised an aggregate of $1,190,857
from the tender offer, net of costs.
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 June 2005, we
were able to obtain financing of $3,770,156 from a series of private placements
of our securities. Included in this amount was the conversion of $180,000 of
accrued salary and consulting fees due to an officer and a director of the
company. These private placements of our securities resulted in net proceeds to
us of $3,162,711. Based on our current plan of operations all of our current
funding is expected to be depleted by the end of January 2006. Although we are
continuing with our efforts to obtain funding to maintain our operations, we
cannot assure you that we will be successful or that any funding we receive will
be received timely or on commercially reasonable terms. Due to our working
capital deficiency, and if we do not receive adequate financing, we will be
unable to pay our vendors, lenders and other creditors if we cease our
operations, since the net realizable value of our non-current assets will not
generate adequate cash. We currently have no commitments for financing. There is
no guarantee that we will be successful in raising the funds required.
In the event that we are successful in obtaining third-party funding, we do not
expect to generate a positive cash flow from our operations for at least several
years, if at all, due to anticipated expenditures for research and development
activities, administrative and marketing activities, and working capital
requirements and expect to continue to attempt to raise further capital through
one or more further private placements.
While we have successfully raised capital to meet our working capital and
financing needs in the past through debt and equity financings, additional
financing will be required in order to implement our business plan and to meet
our current and projected cash flow deficits from operations and development.
There can be no assurance that we will be able to consummate future debt or
equity financings in a timely manner on a basis favorable to us, or at all. If
we are unable to raise needed funds, we will not be able to develop or enhance
our products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. A material shortage of capital will
require us to take drastic steps such as reducing our level of operations,
disposing of selected assets or seeking an acquisition partner. We believe that
we have sufficient capital resources to meet projected cash flow deficits
through the end of December 2005. However, if thereafter, we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, this would have a material adverse effect on our business,
results of operations, liquidity and financial condition. While we have raised
capital to meet our working capital and financing needs in the past, additional
financing is required in order to meet our current and projected cash flow
deficits from operations and development of our product line.
During the six months ended June 30, 2005, the Company paid off two notes
payable, $14,997 in cash and $65,003 by converting into 232,153 shares of common
stocks at $0.28 per share. These shares of common stocks were issued subsequent
to June 30, 2005.
Pursuant to our employment agreement with Michael Wilhelm, our President and
Chief Executive Officer, dated December 16, 2002, we paid a salary of $125,000
and $175,000 to Mr. Wilhelm during the first and second years of his employment,
respectively. Thereafter we paid, and will continue to pay, through the term of
Mr. Wilhelm's employment, an annual salary of $250,000. Mr.
7
Wilhelm's salary is payable in regular installments in accordance with the
customary payroll practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief Financial
Officer, dated February 15, 2005, we paid a salary of $60,000 until the company
completed a financing of $500,000 or more. This occurred on March 4, 2005 when
the company completed a Tender Offer for warrants totaling $1,190,856 net of
fees. From March 4, 2005, until December 31, 2005, we will pay an annual salary
of $85,000. Thereafter, we will pay an annual salary of $98,000 for the second
year ending December 31, 2006 and an annual salary of $112,000 for the third
year ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our company.
On December 16, 2002 we entered into a consulting agreement on a month-to-month
basis with Dr. Mark Witten, our chief research scientist and director. Under the
terms of this agreement, Dr. Witten agrees to place at the disposal of us his
judgment and expertise in the area of acute lung injury. In consideration for
these services, we agree to pay Dr. Witten a non-refundable fee of $5,000 per
month. Under the terms of our consulting agreement with Dr. Mark Witten, he is
to receive a non-refundable fee equal to $5,000 per month. The consulting
agreement is on a month-to-month basis.
Acquisition or disposition of plant and equipment
-------------------------------------------------
We did not dispose or acquire any significant property, plant or equipment
during the second quarter ended June 30, 2005.
We do not anticipate the sale of any significant property, plant or equipment
during the next twelve months.
Number of employees
-------------------
From our inception through the period ended June 30, 2005, we have relied on the
services of outside consultants for services and currently have five total
employees, one contract employee and four 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 twelve months, other than the
addition of one senior level appointment to the position of Senior Vice
President of Scientific Development. As we continue to expand, we will incur
additional cost for personnel. This projected increase in personnel is dependent
upon our generating revenues and obtaining sources of financing. There is no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected increase in the number of employees.
Trends, risks and uncertainties
-------------------------------
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
RISK FACTORS
The actual results of the combined company may differ materially from those
anticipated in these forward-looking statements. The Registrant and ImmuneRegen
will operate as a combined company in a market environment that is difficult to
predict and that involves significant risks and uncertainties, many of which
will be beyond the combined company's control. Additional risks and
uncertainties not presently known, or that are not currently believed to be
important to you, if they materialize, also may adversely affect the combined
company.
WE HAVE LIMITED CASH RESOURCES, AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY
PROFITABLE AND EXPECT TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
We have incurred a substantial net loss for the period from our inception in
October 2002 to June 30, 2005, and are currently experiencing negative cash
flow. We expect to continue to experience negative cash flow and operating
losses through at least 2008 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 June 30, 2005, we had an accumulated
deficit of $ 10,134,956.
We currently have no product candidates for sale in the United States, and we
cannot guarantee that we will ever have marketable products in the United
States. We must demonstrate that our product candidates satisfy rigorous
standards of safety and efficacy before the U.S. Food and Drug Administration
("FDA") and other regulatory authorities in the United States and abroad will
approve the products for commercial marketing. We will need to conduct
significant additional research, preclinical testing and clinical testing before
we can file applications with the FDA for approval of our product candidates. In
addition, to compete effectively, our future products must be easy to use,
cost-effective and economical to manufacture on a commercial scale. We may not
achieve any of these objectives.
We expect to incur losses as we research, develop and seek regulatory approvals
for our products. If our products fail in clinical trials or do not gain
regulatory approval, or if our products do not achieve market acceptance, we
will not be profitable. If we fail to become and remain profitable, or if we are
unable to fund our continuing losses, our business may fail.
OUR OPERATING EXPENSES ARE UNPREDICTABLE, WHICH MAY ADVERSELY AFFECT OUR
BUSINESS, OPERATIONS AND FINANCIAL CONDITION.
As a result of our limited operating history and because of the emerging nature
of the markets in which we will compete, our financial data is of limited value
in planning future operating expenses. To the extent our operating expenses
precede or are not rapidly followed by increased revenue, our business, results
of operations and financial condition may be materially adversely affected. Our
expense levels will be based in part on our expectations concerning future
revenues. A significant portion of our revenue is anticipated
8
to be derived from Radilex, Viprovex and 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.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS. IF WE
CANNOT RAISE NEEDED ADDITIONAL CAPITAL IN THE FUTURE, WE WILL BE REQUIRED TO
CEASE OPERATIONS.
As of June 30, 2005, our cash and cash equivalents totaled approximately
$1,141,986. Based on our current plans, we believe these financial resources,
and interest earned thereon, will be sufficient to meet our operating expenses
and capital requirements at least through January 31, 2006. However, changes in
our research and development plans or other events affecting our operating
expenses may result in the expenditure of such cash before that time. We may
require substantial additional funds in order to finance our drug discovery and
development programs, fund operating expenses, pursue regulatory clearances,
develop manufacturing, marketing and sales capabilities, and prosecute and
defend our intellectual property rights. We may seek additional funding through
public or private financing or through collaborative arrangements with strategic
partners.
You should be aware that in the future:
o we may not obtain additional financial resources when necessary or on
terms favorable to us, if at all; and,
o any available additional financing may not be adequate.
If we cannot raise additional funds when needed, or on acceptable terms, we will
not be able to continue to develop our drug candidates. We require substantial
working capital to fund our operations. Since we do not expect to generate
significant revenues in the foreseeable future, in order to fund operations, we
will be completely dependent on additional debt and equity financing
arrangements. There is no assurance that any financing will be sufficient to
fund our capital expenditures, working capital and other cash requirements
beyond January 31, 2006. Our working capital as of June 30, 2005 was a deficit
of $691,542. 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
9
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 our 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 manufacture products.
Our research and preclinical testing is currently directed in
developing products candidates based on our proprietary compound, Homspera. We
have demonstrated in early preclinical studies evidence that may suggest that
Homspera may be used to treat the suppression of the body's immune system caused
by exposure to various forms of radiation, toxic inhalants and viral infectious
diseases. As a research and development company, we may, from time to time,
pursue the development of other products based on discoveries made during our
studies. To differentiate from these other potential future applications, we are
developing specific candidates under the name Radilex as a potential treatment
for maladies caused by exposure to various forms of radiation, and Viprovex, as
a potential treatment to various toxic inhalants and viral infectious diseases.
We are currently conducting formulation, toxicity and stability studies
on Homspera, Radilex and Viprovex. We anticipate that these studies will be
completed in 9 to 12 months.
Also in conjunction with these studies, we plan to begin a rodent study
using Radilex. We expect the study to be completed within 9 to 12 months. In
parallel with the rodent study, we intend to begin our preparations for the
filing of an Investigational New Drug Application (IND). We expect the IND to be
filed with the FDA within the next 12 to 16 months. At the conclusion of the
rodent study, we anticipate commencing a study in non-human primates. We expect
this study to be completed within 16 to 20 months. Based on positive study
results, we expect to file a New Drug Application (NDA) with the FDA within the
next 36 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, or more
specifically Radilex and Viprovex, will require significant additional research
and development efforts and regulatory approvals prior to potential
commercialization in the future. We cannot guarantee that we, or our corporate
collaborators, if any, will ever obtain any regulatory approvals of Homspera. We
currently are focusing our core competencies on the development of Radilex and
Viprovex although there may be no assurance that we will be successful in so
doing.
Our therapies and technologies utilizing Radilex, Viprovex and Homspera are at
early stages of development and may not be shown to be safe or effective and may
never receive regulatory approval. Our technologies utilizing Radilex, Viprovex
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 ASPECTS OF ACUTE RADIATION SYNDROME AND EXPOSURE TO
VARIOUS BIOLOGICAL AGENTS IS UNCERTAIN AND IF WE ARE UNABLE TO SUCCESSFULLY
COMMERCIALIZE RADILEX OR VIPROVEX, WE WILL NOT RECOGNIZE A SIGNIFICANT PORTION
OF OUR FUTURE REVENUES, IF ANY
We do not believe any drug has ever been approved and commercialized for the
treatment of severe acute radiation injury. In addition, the incidence of
large-scale exposure to nuclear, radiological or biological agents has been low.
Accordingly, even if Radilex, our leading drug candidate to treat aspects of
Acute Radiation Syndrome (ARS) and Viprovex, our leading candidate to treat
exposure to various biological agents, are approved by the FDA, we cannot
predict with any certainty the size of this market. The potential market for
Radilex and Viprovex is largely dependent on the size of stockpiling orders, if
any, procured by the U.S. and foreign governments. While a number of governments
have historically stockpiled drugs to treat indications such as smallpox,
anthrax exposure, plague, tularemia and certain long-term effects of radiation
exposure, we are unaware of any significant stockpiling orders for drugs to
treat ARS. 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
or Viprovex prior to FDA approval is largely out of our control. Our development
plans and timelines may vary substantially depending on whether we receive such
a commitment and the size of such commitment, if any. In addition, even if
Radilex or Viprovex is approved by regulatory authorities, we cannot guarantee
that we will receive any stockpiling orders for Radilex or Viprovex, that any
such order would be profitable to us or that Radilex or Viprovex will achieve
market acceptance by the general public.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS, AND
THEREFORE ADVERSELY AFFECT THE TIMING AND LEVEL OF FUTURE REVENUES, IF ANY.
10
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.
11
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,
Viprovex and Homspera are initiated and successfully completed, the FDA may not
approve Radilex, Viprovex 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, Viprovex and
Homspera as "treatment" protocols. The FDA may not determine that Radilex,
Vaporvex and Homspera meet all of the FDA's criteria for use of an
investigational drug for treatment use. Even if Radilex, Viprovex and Homspera
are allowed for treatment use, third party payers may not provide reimbursement
for the costs of treatment with Radilex, Viprovex and Homspera. The FDA also may
not consider Radilex, Viprovex 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.
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 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.
12
Any of the following reasons, among others, could delay or suspend the
completion of our ongoing and future studies:
o delays in enrolling volunteers;
o interruptions in the manufacturing of our drug candidates or other
delays in the delivery of materials required for the conduct of our
studies;
o lower than anticipated retention rate of volunteers in a trial;
o unfavorable efficacy results;
o serious side effects experienced by study participants relating to the
drug candidate;
o new communications from regulatory agencies about how to conduct these
studies; or
o failure to raise additional funds.
IF THE MANUFACTURERS OF OUR PRODUCTS DO NOT COMPLY WITH CURRENT GOOD
MANUFACTURING PRACTICES REGULATIONS, OR CANNOT PRODUCE THE AMOUNT OF PRODUCTS WE
NEED TO CONTINUE OUR DEVELOPMENT, WE WILL FALL BEHIND ON OUR BUSINESS
OBJECTIVES.
Manufacturers producing our drug candidates must follow current Good
Manufacturing Practices, or GMP, regulations enforced by the FDA and foreign
equivalents. If a manufacturer of our drug candidates does not conform to the
GMP regulations and cannot be brought up to such a standard, we will be required
to find alternative manufacturers that do conform. This may be a long and
difficult process, and may delay our ability to receive FDA or foreign
regulatory approval of our products.
We also rely on our manufacturers to supply us with a sufficient quantity of our
drug candidates to conduct clinical trials. If we have difficulty in the future
obtaining our required quantity and quality of supply, we could experience
significant delays in our development programs and regulatory process.
OUR LACK OF COMMERCIAL MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
EXPERIENCE MAY PREVENT US FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS, 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. We may not successfully arrange for
contract manufacturing of our products in production quantities 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, VIPROVEX
AND HOMSPERA. OUR INABILITY TO MANUFACTURE RADILEX, VIPROVEX AND HOMSPERA, AND
OUR DEPENDENCE ON SUCH MANUFACTURERS, MAY DELAY OR IMPAIR OUR ABILITY TO
GENERATE REVENUES, OR ADVERSELY AFFECT OUR PROFITABILITY.
We may enter into arrangements with contract manufacturing companies in order to
meet requirements for 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 substance P is
readily available at low cost from several life science and technology companies
that provide biochemical and organic chemical products and kits used in
scientific and genomic research, biotechnology, pharmaceutical development and
the diagnosis of disease and chemical manufacturing. If any of these proposed
manufacturing operations prove inadequate, there may be no assurance that any
other arrangements may be established on a timely basis or that we could
establish other manufacturing capacity on a timely basis. Although, we believe
that the synthetic substance P and other materials necessary to produce Radilex,
Viprovex 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, VIPROVEX AND
HOMSPERA, WHICH WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
13
Our ability to earn sufficient revenue on Radilex, Viprovex 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, Viprovex 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, Viprovex 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, VIPROVEX 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, Viprovex 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 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 are 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.
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.
14
We own or have obtained a license to 2 issued U.S. and 2 issued foreign patents
and 5 pending Patent Cooperation Treaty (PCT) applications, 6 pending U.S.
applications and 15 pending 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.
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.
The patent positions of biotechnology and pharmaceutical companies are often
highly uncertain and involve complex legal and factual questions. Therefore, the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. We also rely upon non-patented trade secrets and know how, and others
may independently develop substantially equivalent trade secrets or know how. We
also rely on protecting our proprietary technology in part through
confidentiality agreements with our current and former corporate collaborators,
employees, consultants and certain contractors. These agreements may be
breached, and we may not have adequate remedies for any such breaches.
Litigation may be necessary to defend against claims of infringement, to enforce
our patents or to protect trade secrets. Litigation could result in substantial
costs and diversion of management efforts regardless of the results of the
litigation. An adverse result in litigation could subject us to significant
liabilities to third parties, require disputed rights to be licensed or require
us to cease using certain technologies.
Our products could infringe on the intellectual property rights of others, which
may cause us to engage in costly litigation and, if not
15
successful, could cause us to pay substantial damages and prohibit us from
selling our products. Because patent applications in the United States are not
publicly disclosed until the patent application is published or the patent is
issued, applications may have been filed which relate to services similar to
those offered by us. We may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties.
If our products violate third-party proprietary rights, we cannot assure you
that we would be able to arrange licensing agreements or other satisfactory
resolutions on commercially reasonable terms, if at all. Any claims made against
us relating to the infringement of third-party propriety rights could result in
the expenditure of significant financial and managerial resources and
injunctions preventing us from providing services. Such claims could severely
harm our financial condition and ability to compete. In addition, if another
party claims the same subject matter or subject matter overlapping with the
subject matter that we have claimed in a United States patent application or
patent, we may decide or be required to participate in interference proceedings
in the United States Patent and Trademark Office in order to determine the
priority of invention. Loss of such an interference proceeding would deprive us
of patent protection sought or previously obtained and could prevent us from
commercializing our products. Participation in such proceedings could result in
substantial costs, whether or not the eventual outcome is favorable. These
additional costs could adversely affect our financial results.
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, IR BioSciences Holdings,
Inc. or ImmuneRegen BioSciences,Inc. could be held liable for any damages that
result, and any liability could exceed our resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF A
KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS.
The execution of our present business plan depends on the continued services of
Michael K. Wilhelm, our Chief Executive Officer and President, 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.
16
TRADING IN OUR SECURITIES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS THAT
COULD ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK AND THUS ADVERSELY AFFECT
THE VALUE OF ANY INVESTMENT IN OUR COMMON STOCK.
The market prices for securities of life sciences companies, particularly those
that are not profitable, have been highly volatile, especially recently.
Publicized events and announcements may have a significant impact on the market
price of our common stock. For example:
o biological or medical discoveries by competitors;
o public concern about the safety of our drug candidates;
o delays in the conduct or analysis of our preclinical or clinical
studies;
o unfavorable results from preclinical or clinical studies;
o unfavorable developments concerning patents or other proprietary
rights; or
o unfavorable domestic or foreign regulatory developments;
may have the effect of temporarily or permanently driving down the price of our
common stock. In addition, the stock market from time to time experiences
extreme price and volume fluctuations which particularly affect the market
prices for emerging and life sciences companies, such as ours, and which are
often unrelated to the operating performance of the affected companies. For
example, our stock price has ranged from $0.09 to $1.00 between January 1, 2004
and August 1, 2005.
These broad market fluctuations may adversely affect the ability of a
stockholder to dispose of his shares at a price equal to or above the price at
which the shares were purchased. In addition, in the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against that company. Any
litigation against our company, including this type of litigation, could result
in substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our business, financial condition and
results of operations.
A LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK.
Our common stock is currently traded on a limited basis on the OTC Bulletin
Board (the "OTCBB") under the symbol "IRBO". The OTCBB is an inter-dealer,
Over-The-Counter market that provides significantly less liquidity than the
NASDAQ Stock Market. Quotes for stocks included on the OTCBB are not listed in
the financial sections of newspapers as are those for the NASDAQ Stock Market.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their securities at
or near their original offering price or at any price.
The NASD has enacted recent changes that limit quotations on the OTC Bulletin
Board to securities of issuers that are current in their reports filed with the
Securities and Exchange Commission. The effect on the OTC Bulletin Board of
these rule changes and other proposed changes cannot be determined at this time.
The quotation of our common stock on the OTCBB does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent
years such market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of many smaller companies like us.
Our common stock is thus subject to this volatility.
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
17
proposed sale of substantial amounts of our common stock in the public markets
may adversely affect the market price of our common stock. We expect that an
aggregate of 57,786,607 shares of our common stock will be registered with the
SEC in the registration statement. The registration and subsequent sales of such
shares of common stock may 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.
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PART II - OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 28, 2001, the Company entered into a $50,000 Convertible Promissory
Note bearing 8% interest per month with an accredited investor. in accordance
with the terms of the Promissory Note, the outstanding principal and accrued
interest was converted into 232,153 shares of our common stock releasing the
Company from any further obligation under the Note. No general solicitation or
advertising was undertaken in connection with the offer and sale of the Note and
the shares. The investor represented to the Company that the investor was
purchasing the securities for the investor's own account and not with a present
view towards the distribution thereof. In addition, each investor acknowledged
and agreed that the note and the shares had not been registered under the
Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder. in accordance with the terms of the Promissory Note, the
outstanding principal and accrued interest was converted into 232,153 shares of
our common stock releasing the Company from any further obligation under the
Note. No general solicitation or advertising was undertaken in connection with
the offer and sale of the Note and the shares. The investor represented to the
Company that the investor was purchasing the securities for the investor's own
account and not with a present view towards the distribution thereof. In
addition, each investor acknowledged and agreed that the note and the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
The Company accrued the issuance of 219,161 common stock purchase warrants
during the three months ended June 30, 2005. The exercise prices of these
warrants range from $0.125 to $1.00 per share. Pursuant to the term of his
employment agreement, our Chief Executive Officer, is to receive 80,811
warrants. Pursuant to the term of his employment agreement, our Chief Financial
Officer, is to receive 12,500 warrants. The warrants expire five years after
date of issuance. For assignment of patents, we accrued the issuance of 50,000
warrants to our Director and Chief Scientific Officer. The warrants expire five
years after date of issuance. Pursuant to the terms of their respective
agreement with us, 75,850 of these warrants are to be granted to current members
of the Bioterrorism Advisory Board, Drug Development Advisory Board and the
Oncology and Dermatology Advisory Board for participation during the first
quarter ended June 30, 2005. The warrants expire three years after date of
issuance. The warrants will bear a restrictive legend regarding the sale or
transfer of such or the underlying securities. The warrants were issued in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder. There
were less than 35 investors and each investor had such knowledge and experience
in financial and business matters that the investor was capable of evaluating
the merits and risks of investing in the warrants. Each investor was also
provided with access to our Exchange Act reports including our annual report on
Form 10-KSB and our quarterly reports on Form 10-QSB.
On June 13, 2005, the Company issued 80,000 shares of common stock for cash of
$4,000 pursuant to the exercise of a warrant at $0.05 per share. On April 15,
2004, the Company entered into a $5,000 Convertible Promissory Note bearing 12%
interest for a term of 60 days to an individual investor. The term of the Note
was extended to June 30, 2004. As additional incentive to the extension of the
note, the investor was issued 5-year warrants to purchase up to 40,000 shares of
common stock at $0.05 per share. The term of the Note was again extended to
October 16, 2004, the closing date of the Private Placement. As additional
incentive to the extension of the note, the investor was issued 5-year warrants
to purchase up to 40,000 shares of common stock at $0.05 per share. Immediately
upon the closing of the Private Placement, and in accordance with the terms of
the Promissory Note, the principal of $5,000 and $299.56 of accrued interest was
repaid to the investor releasing the Company from any further obligation under
the warrants. The investor was financially able to bear the economic risk of the
investment and capable of evaluating the merits and risks of the acquisition of
the warrants. The investor also had received and reviewed all information
necessary or appropriate for deciding whether to purchase the shares, including
the Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the warrants. The investor
represented to the Company that the investor was purchasing the warrants for the
investor's own account and not with a present view towards the distribution
thereof. In addition, the investor acknowledged and agreed that the warrants and
the underlying securities had not been registered under the Securities Act and
may not be offered or sold unless subsequently registered and/or offered, sold
or transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
During the three months ended June 30, 2005, the Company accrued the issuance of
2,413,613 shares of common stock and warrants to purchase an additional 950,373
shares of common stock pursuant to a penalty calculation with regard to the late
registration of shares sold in a private placement in October 2004.
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ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Item 601(b)(31)
of Regulation S-B, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item 601(b)(31)
of Regulation S-B, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certifications of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
32.2 Certifications of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.*
o * This exhibit shall not be deemed "filed" for purposes of Section 18 of
the Securities Exchange Act of 1934 or otherwise subject to the liabilities
of that section, nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the Securities Exchange Act of
1934, whether made before or after the date hereof and irrespective of any
general incorporation language in any filings.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 16, 2005.
IR BioSciences Holdings, Inc.
By: /s/ Michael K. Wilhelm
----------------------------------
Michael K. Wilhelm
President, Chief Executive Officer
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