FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------------
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2003
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.)
8655 East Via De Ventura, Suite E-155, Scottsdale, Arizona 85258
--------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (408) 922-3926
------------------------------
GPN Network, Inc.
----------------------------------------------------
(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 No X
------- -------
The number of shares outstanding of Registrant's common stock as of
December 15, 2003 was 11,715,650.
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of September 30, 2003 ...........3
Consolidated Statement of Operations for the three-month
period ended September 30, 2003................................4
Consolidated Statements of Operations for the nine-month
period ended September 30, 2003 and for the cumulative
period from inception (October 30, 2002) to
September 30, 2003.............................................5
Consolidated Statement of Stockholders' Equity (Deficit)
for the period from inception (October 30, 2002) to
September 30, 2003.............................................6
Consolidated Statement of Cash Flows for the nine-month
period ended September 30, 2003 and for the period from
inception (October 30, 2002) to September 30, 2003.............7
Notes to Consolidated Financial Statements.....................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................15
Item 3. Controls and Procedures.......................................28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................28
Item 2. Changes in Securities and Use of Proceeds.....................28
Item 3. Defaults Upon Senior Securities...............................29
Item 4. Submission of Matters to a Vote of Securities Holders.........29
Item 5. Other Information.............................................29
Item 6. Exhibits and Reports on Form 8-K..............................29
Signatures....................................................30
2
ITEM 1. FINANCIAL INFORMATION
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet (unaudited)
September 30,
2003
-------------
Assets
Current assets:
Cash and cash equivalents $ 33,915
Prepaid services 49,043
Due from officer 19,880
-------------
Total current assets 102,838
Property and equipment, net 2,965
Licensed proprietary rights, net 8,479
Capitalized website costs, net 14,063
-------------
Total assets $ 128,345
=============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities 368,863
Advances from third parties 265,000
Due to related party 4,555
Notes payable 366,677
-------------
Total current liabilities 1,005,095
Commitments and Contingencies -
Stockholders' deficit:
Preferred stock, 0.001 par value:
10,000,000 shares authorized,
no shares issue- and outstanding -
Common stock, $0.001 par value;
100,000,000 shares authorized;
11,715,650 shares issued and outstanding 11,716
Additional paid-in capital 375,775
Accumulated deficit (1,264,241)
-------------
Total stockholder's deficit (876,750)
-------------
Total liabilities and stockholders' deficit $ 128,345
=============
The accompanying notes are an integral part of these
consolidated financial statements.
3
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of Operations (unaudited)
For the Three-
Month Period
Ended
September 30,
2003
-------------
Revenue $ -
Operating expenses:
Selling, general and
administrative expenses 297,587
Merger fees and costs 350,000
Financing cost 90,000
-------------
Total operating expenses 737,587
Operating loss (737,587)
Other expense:
Interest expense (89,020)
-------------
Total other expense (89,020)
-------------
Loss before income taxes (826,607)
Provision for income taxes -
-------------
Net loss $ (826,607)
=============
Net loss per share - basic and diluted $ (0.07)
=============
Weighted average shares outstanding -
basic and diluted 11,689,909
=============
The accompanying notes are an integral part of these
consolidated financial statements.
4
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations (unaudited)
Cumulative Period
For the Nine- From Inception
Month Period (October 30, 2002)
Ended to
September 30, 2003 September 30, 2003
---------------- ------------------
Revenues $ - $ -
Operating expenses:
Selling, general and
administrative expenses 666,661 712,379
Merger fees and costs 350,000 350,000
Financing cost 90,000 90,000
---------------- ------------------
Total operating expenses 1,106,661 1,152,379
Operating loss (1,106,661) (1,152,379)
Other expense:
Interest expense (111,662) (111,862)
---------------- ------------------
Total other expense (111,662) (111,862)
Loss before income taxes (1,218,323) (1,264,241)
Provision for income taxes - -
---------------- ------------------
Net loss $ (1,218,323) $ (1,264,241)
================ ==================
Net loss per share - basic and diluted $ (0.12) $ (0.14)
================ ==================
Weighted average shares outstanding -
basic and diluted 10,302,440 8,805,113
================ ==================
The accompanying notes are an integral part of these
consolidated financial statements.
5
IR BioSciences Holdings, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity (Deficit)
For the Period From Inception (October 30, 2002) to September 30, 2003
Common Stock Additional
------------------------- Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ----------- ----------- -----------
Balance at October 30, 2002 (date of inception) - $ - $ - $ - $ - $ -
Shares of common stock issued to
founders for license of proprietary rights 8,306,138 8,306 944 - - 9,250
Shares of common stock issued to
founders for services rendered 702,655 703 79 - - 782
Shares of common stock issued to
consultants for services 26,939 27 8,973 (9,000) - -
Cash sale of common stock 92,789 92 30,909 - - 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 9,128,521 9,128 40,905 (9,000) (45,918) (4,885)
Shares granted to consultants for
services rendered (unaudited) 133,797 134 37,146 - - 37,280
Conversion of notes payable to
common stock (unaudited) 1,077,553 1,078 298,922 - - 300,000
Sale of shares of common stock
for cash (unaudited) 191,714 192 64,808 - - 65,000
Beneficial conversion feature associated
with convertible notes (unaudited) - - 55,000 - - 55,000
Amortization of deferred compensation (unaudited) - - - 9,000 - 9,000
Shares issued per Merger Agreement
(Note 1) (unaudited) 1,184,065 1,184 (126,588) - - (125,404)
Increase value of beneficial conversion
feature associated with
convertible notes (unaudited) - - 5,582 - - 5,582
Net loss for the nine-month period
ended September 30, 2003 (unaudited) - - - - (1,218,323) (1,218,323)
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2003 11,715,650 $ 11,716 $ 375,775 $ - $(1,264,241) $ (876,750)
----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of these consolidated financial statements.
6
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Nine- For the Period
Month Period From Inception
Ended (October 30, 2002)
September 30, to September 30,
2003 2003
--------------- -----------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (1,218,323) $ (1,264,241)
Adjustments to reconcile net to net cash used
in operating activities:
Non-cash compensation 19,779 20,561
Amortization of deferred compensation 9,000 9,000
Amortization of discount on notes payable 60,582 60,582
Depreciation and amortization 9,470 9,547
Changes in operating assets and liabilities:
Prepaid services (49,043) (49,043)
Accounts payable and accrued expenses 290,906 299,692
Cash paid on amount due to officer (22,427) -
Cash paid on behalf of officer (19,880) (19,880)
--------------- -----------------
Net cash used in operating activities (919,936) (933,782)
Cash flows from investing activities:
Acquisition of property and equipment (3,304) (3,304)
--------------- -----------------
Net cash used in investing activities (3,304) (3,304)
Cash flows from financing activities:
Proceeds from notes payable 795,000 810,000
Principal payments on notes payable (200,000) (200,000)
Proceeds from third party advances 265,000 265,000
Shares of stock issued for cash 65,000 96,001
--------------- -----------------
Net cash provided by financing activities 925,000 971,001
Net increase in cash and cash equivalents 1,760 33,915
Cash and cash equivalents at beginning of period 32,155 -
--------------- -----------------
Cash and cash equivalents at end of period $ 33,915 $ 33,915
=============== =================
Interest paid: $ 40,000 $ 40,000
Taxes paid: $ - $ -
The accompanying notes are an integral part of these
consolidated financial statements.
7
Non-cash investing and financing activities:
During March 2003, the Company issued 62,857 shares of its common stock with a
fair value of $17,500 (unaudited) to a service provider for website development.
In April 2003, the Company converted a note payable in the amount of $300,000
into 1,077,553 shares of its common stock (unaudited).
In June 2003, the Company recorded a beneficial conversion feature of its
convertible notes payable amount of $55,000 as a discount to notes payable and
an addition to paid-in capital (unaudited).
In July 2003, the Company effected a reverse stock split in the ratio of
..897960946 for one. The net effect was a reduction in the number of shares of
common stock outstanding of 1,196,748 (unaudited).
In July 2003, the Company completed the Merger with GPN Network, Inc. Pursuant
to the Merger, the Company assumed the following assets and liabilities of GPN
Network (unaudited): Net accounts payable of $65,097, due to related party of
$4,486, and note payable of $55,821 in exchange for $1,184,065 of the Company's
stock and $350,000 in cash. The Company expensed the $350,000 cash payment, and
recorded an increase of $1,184 for the par value of the common stock and a
decrease of $126,588 to additional paid-in capital.
In September 2003, the Company recorded an increase in the value of the
beneficial conversion feature of its convertible preferred notes payable in the
amount of $5,582 (unaudited).
The accompanying notes are an integral part of these
consolidated financial statements.
8
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of presentation
---------------------
These unaudited consolidated financial statements consist of the consolidated
financial statements of IR BioSciences Holdings, Inc. ("IRBH" or the
"Registrant") and those of its wholly-owned subsidiary ImmuneRegen BioSciences,
Inc. ("ImmuneRegen") (collectively, the "Company"). The unaudited consolidated
financial statements have been prepared by the Company pursuant to Regulation
S-B of the Securities and Exchange Commission. (See Merger Agreement section
below. The information furnished herein reflects all adjustments (consisting of
normal recurring accruals and adjustments) that are, in the opinion of
management, necessary to fairly present the operating results for the respective
periods. Certain information and footnote disclosures normally presented in
annual consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. These unaudited consolidated financial
statements should be read in conjunction with the audited financial statements
and footnotes for the fiscal years ended December 31, 2002 included on Form 8K/A
as filed with the Securities and Exchange Commission on December 23, 2003.
The unaudited results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
Nature of Business
------------------
The Company is currently in the development stage under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 7. The Company has a
December 31 year end. ImmuneRegen is a biotechnology company, and plans to
develop and market applications utilizing modified substance P, a naturally
occurring immunomodulator.
Merger Agreement
----------------
ImmuneRegen BioSciences, Inc., a private corporation, was formed on October 30,
2000 according to the laws of Delaware. On July 2, 2003, GPN Network, Inc. (the
"Registrant") and ImmuneRegen entered into and consummated an Agreement and Plan
of Merger (the "Merger"). In accordance with the Merger, on July 2, 2003, the
Registrant, through its wholly-owned subsidiary, GPN Acquisition Corporation, a
Delaware corporation ("Merger Sub"), acquired ImmuneRegen in exchange for
10,531,585 shares (post reverse-split) of the Registrant's common stock. The
transaction contemplated by the Agreement was intended to be a "tax-free"
reorganization pursuant to the provisions of Section 351 and 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended.
The stockholders of ImmuneRegen (aggregating approximately 40) owned
approximately 90% of the Registrant's common stock outstanding immediately after
the effective time of the Merger (excluding any additional shares issuable upon
outstanding options, warrants and other securities convertible into our common
stock).
Under Delaware law, the Registrant did not need to obtain the approval of its
stockholders to consummate the Merger, as the constituent corporations in the
merger were Merger Sub and ImmuneRegen, each of which are business entities
incorporated under the laws of Delaware. The Registrant is not a constituent
corporation in the Merger.
9
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For accounting purposes, this transaction was accounted for as a
recapitalization, since the stockholders of ImmuneRegen own a majority of the
issued and outstanding shares of common stock of the Registrant, and the
directors and executive officers of ImmuneRegen became the directors and
executive officers of the Registrant. No agreements exist among present or
former controlling stockholders of the Registrant or present or former members
of ImmuneRegen with respect to the election of the members of our board of
directors, and to the Registrant's knowledge, no other agreements exist which
might result in a change of control of the Registrant.
Going Concern
-------------
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern.
However, the Company has no established source of revenue. This matter raises
substantial doubt about the Company's ability to continue as a going concern.
These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management plans to take the following steps that it believes will be sufficient
to provide the Company with the ability to continue in existence: Management
intends to continue to raise additional financing through private debt or equity
financing or other means and interests that it deems necessary, with a view to
moving forward and sustaining a prolonged growth in its strategy phases. Also,
on July 2, 2003, the Company completed a merger (the "Merger") with GPN Network,
Inc., ("GPN") a publicly-traded company. The Company believes that its status as
a publicly-traded company will improve its chances of raising funds through
either equity or debt financings.
Interim Financial Statements
----------------------------
The accompanying balance sheet as of September 30, 2003, the statements of
operations for the three and nine-months ended September 30, 2003 and for the
period from inception to September 30, 2003, and the statements of cash flows
for the nine months ended September 30, 2003 and from the period of inception
(October 30, 2002) to September 30, 2003 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.
10
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Related Party Transactions
Due From Officer
----------------
During the period from January 1, 2003 to September 30, 2003, the Company
accrued the amount due under the CEO contract, and from time to time made
payments to the Chief Executive Officer. At September 30, 2003, the payments
made exceeded the accrual amount by $19,880, which is included in Due to
Officer.
Due to Related Party
--------------------
Pursuant to the Merger, the Company assumed a demand loan in the amount of
$4,486 to an individual who owns greater than 5% of the outstanding shares of
the Company's common stock. This loan bears interest at the rate of 6% per
annum, which is capitalized quarterly. During the three months ended September
30, 2003, interest in the amount of $69 was capitalized.
Consulting Fees Payable
-----------------------
Pursuant to the Consulting Agreements, during the period from January 1, 2003 to
September 30, 2003, the Company accrued $90,000 in consulting fees payable to
two of its founders.
3. Merger Escrow Account
At June 30, 2003, the Company held in an escrow account cash in the amount of
$350,000 which was being held pursuant to the Merger Agreement. These funds were
disbursed by the Company at the close of the Merger which occurred on July 2,
2003. $185,000 of these funds were disbursed in exchange for the merger shell,
GPN Network, Inc. and $165,000 of these funds were used to satisfy certain
outstanding liabilities of GPN. Both of these amounts were accounted for as
expenses of the Merger.
4. Prepaid Private Placement Fees
On May 28, 2003, the Company entered into a agreement (the "Private Placement
Agreement") with VMR Capital Markets, U.S. ("VMR") whereby VMR will act as the
agent for the Company in connection with the private placement of up to
$2,000,000 of the Company's common stock on a best efforts basis. The term of
the Private Placement Agreement is for a period of six months. Upon consummation
of a financing under the Private Placement Agreement, the Company will pay to
VMR a fee equal to 10% of the principal amount of any common stock sold in the
Private Placement. In addition, the Company will pay to VMR a non-accountable
expense allowance equal to 3% of the principal amount of stock sold in the
Private Placement. Pursuant to the terms of the Private Placement, the Company
also will paid to VMR a non-refundable advance of $90,000 on account for
expenses. At the expiration of the Private Placement Agreement on November 28,
2003, a transaction had not been consummated. Because the Company does not
expect to obtain any benefit from the $90,000 of prepaid expenses, this amount
was written off on the Company's financial statements for the three months
ending September 30, 2003.
11
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Advances From Third Parties
In September 2003, the Company received $265,000 in short-term advances from
third parties. These advances bear interest at the rate of 10% per annum, and
are payable upon demand. In October 2003, the Company converted these short-term
advances into convertible promissory notes (Note 8).
6. Notes Payable
In September 2003, the Company paid one of the Secured Convertible Promissory
Notes in the amount of $200,000 plus accrued interest of $40,000.
The Company assumed $55,821 of notes payable pursuant to the GPN transaction.
These loans bear interest at 6% per annum, which is capitalized quarterly.
During the three months ended September 30, 2003, interest in the amount of $856
was capitalized.
7. Stockholders' Deficit
Common Stock
------------
In July 2003, the Company issued 1,184,065 shares (post reverse-split) of its
common stock to the shareholders of GPN Network, Inc. under the terms of the
Merger Agreement (Note 1).
Reverse Stock Split
-------------------
On July 2, 2003, the Company's Board of Directors approved a 0.897960946 for
1.00 reverse-split of the Company's common stock. Immediately before the
reverse-split, there were 11,728,333 shares of the Company's common stock issued
and outstanding; immediately after the split, there were 10,531,585 of the
Company's common stock issued and outstanding.
Beneficial Conversion Feature
-----------------------------
During the nine months ended September 30, 2003, the Company issued debt
convertible into the Company's common stock. In accordance with EITF 00-27
"Application of EITF No.98-5 to Certain Convertible Instruments", the Company
calculated the value of the beneficial conversion feature ("BCF") inherent in
this debt and recorded the amount of $55,000 as a discount to the notes and as
an addition to additional paid-in capital. During the three months ended
September 30, 2003, the Company re-valued the BCF and recorded an additional
discount and addition to paid-in capital of $5,582. The entire discount of
$60,582 was amortized to interest expense during the nine months ended September
30, 2003.
12
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Subsequent Events
Repayment of Convertible Promissory Notes
-----------------------------------------
In October 2003, the Company repaid two of the Convertible Promissory Notes with
an aggregate principal amount of $50,000 plus accrued interest in the amount of
$863.
Extended Convertible Promissory Notes and Warrants
--------------------------------------------------
In October 2003, the Holders of the remaining five Secured Convertible
Promissory Notes with an aggregate principal amount of $245,000 agreed to extend
their loans to the Company by executing new notes (the "Extended Convertible
Notes"). The Extended Convertible Notes bear interest at the rate of 8% per
annum and have a term of 180 days. Should the Company, within the term of the
Extended Convertible Notes, achieve a sale of shares of common stock in which
the Company receives at least $500,000 in proceeds from investors (a "Qualified
Financing"), the Extended Convertible Notes will automatically convert into
shares of common stock of IR BioSciences Holdings, Inc. ("Parent"), the parent
of the Company, at a price per share equal to 60% of the issuance price per
share in the Qualified Financing. The Company also issued to the holders of the
Extended Convertible Notes a warrant to purchase the number of shares of common
stock of the Parent equal to the principal amount of the Extended Convertible
Note divided by two; for example, the holder of an Extended Convertible Note in
the principal amount of $20,000 would have a warrant to purchase 10,000 shares
of common stock. The exercise price of these warrants is $2.00 per share. The
Extended Convertible Notes also were executed in conjunction with a registration
rights agreement and a security agreement.
October Convertible Notes and Warrants
--------------------------------------
In September 2003, the Company received short term advances of $265,000 from
third-party investors. These advances earn interest at the rate of 10% per
annum. In October 2003, the Company converted these short-term advances into 6
new convertible promissory notes (the "October Convertible Notes" in the
aggregate principal amount of $265,000. The October Convertible Notes have a
term of 180 days, and bear interest at the rate of 10% per annum. If the Company
achieves a Qualified Financing, the October Convertible Notes will automatically
convert into shares of common stock of the Parent at a price per share equal to
80% of the issuance price per share in the Qualified Financing. The Company also
issued to the holders of the October Convertible Notes a warrant to purchase the
number of shares of common stock of the Parent equal to the principal amount of
the Extended Convertible Note divided by two; for example, the holder of an
Extended Convertible Note in the principal amount of $20,000 would have a
warrant to purchase 10,000 shares of common stock. The exercise price of these
warrants is $2.00 per share. In addition, two of the Company's founders each
provided the
13
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
holders of the October Convertible Notes with a warrant to purchase directly
from the founder 6,000 shares of common stock for each $12,500 in principal
amount of October Convertible Notes at an exercise price of $0.01 per share. For
example, if an investor in the October Convertible Notes loaned the Company the
principal amount of $20,000, they would receive warrants to purchase 10,000
shares of common stock from the Company, and in addition, warrants to purchase
6,000 shares of common stock from each of two of the Company's founders, for a
total of 22,000 shares. Though these warrants represent transactions directly
between the founder and the investor, there will be an impact to the Company's
statement of operations when these warrants are issued as they will be
considered an addition to paid-in capital of the Company and it is expected that
there will be a beneficial conversion value assigned to the warrant and
ultimately expensed through the Company's statement of operations.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS 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-Q 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-Q.
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, it 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
--------
Our company, IR BioSciences Holdings, Inc., is a Delaware corporation and, until
July 2001, was engaged in the business, through its subsidiaries, affiliates and
strategic alliances, of assisting unaffiliated early-stage development and small
to mid-sized emerging growth companies with financial and business development
services, including raising capital in private and public offerings. During
2001, due in large part to the decreased availability of investment capital to
our then target market of Internet related, small growth companies, we failed to
meet our revenue targets. On July 27, 2001, a majority interest in our company
was acquired by a private investor, and we installed new management and adopted
a new business plan. The immediate action taken regarding this new business plan
was to discontinue our then current operations effective July 27, 2001.
On July 2, 2003, our company and ImmuneRegen BioSciences, Inc., a privately-held
Delaware corporation ("ImmuneRegen"), entered into and consummated an Agreement
and Plan of Merger (the "Merger"). In accordance with the Merger, on July 2,
2003, we acquired ImmuneRegen in exchange for 10,531,585 shares of our common
stock. The transaction contemplated by the Agreement was intended to be a
"tax-free" reorganization pursuant to the provisions of Section 351 and
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. On August 29,
2003, the Registrant's name was changed from GPN Network, Inc. to IR BioSciences
Holdings, Inc.
ImmuneRegen is a biotechnology company engaged in the research and development
of applications utilizing modified Substance P, a naturally occurring
immunomodulator. Derived from homeostatic Substance P, ImmuneRegen has named its
proprietary compound "Homspera." Currently, ImmuneRegen holds two patents and
four provisional patents in the United States. Additionally, ImmuneRegen holds a
patent with the European Union and Australia and is seeking to extend its
patents into Canada and, possibly, Japan.
15
Our initial areas of focus will be in continuing development of several
applications for use in improving pulmonary function and stimulating the immune
system. These applications have been derived from research studies and positive
results from laboratory tests conducted by management over the past nine years.
With the assistance of our U.S. Food and Drug Administration ("FDA")
consultants, Synergos, Inc., we plan to apply for Investigational New Drug
("IND") approval from the FDA. Based on our past test results and continuing
studies, we believe that the IND may be activated, allowing us to begin human
clinical trials using the Homspera compound as a treatment for lung injury
caused by acute respiratory disease syndrome ("ARDS").
Our goal is to enter into overseas licensing and royalty agreements for its
applications while awaiting approval by the FDA in the Unites States. Once
approval has been obtained by the FDA, we hope to further expand our sales
efforts internationally and will attempt to begin to generate sales domestically
through the licensing and the direct sales of our products in the United States.
A goal is to strategically align ourself with larger pharmaceutical and other
biotechnology and medical research companies, which we believe may enhance our
ability to succeed in reaching the objectives of bringing its applications to
the marketplace. If FDA approval is granted, we intend to seek to establish
license agreements and relationships domestically that will bring Homspera to
those in need of it.
We have established a pilot manufacturing facility at our lab headquarters in
Tucson, Arizona for the production of immune-based therapies. We expect these
facilities to be adequate to supply limited clinical trial quantities for our
products under development. Additional manufacturing capacity will be needed for
commercial scale production, if these therapies are approved for commercial
sale.
For the manufacture of the applications under development, we obtain synthetic
peptides from third party manufacturers. We believe that 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. We believe
that the synthetic Substance P and other materials necessary to produce Homspera
are readily available from various sources, and several suppliers are capable of
supplying Substance P in both clinical and commercial quantities. These
suppliers also store and ship the product as well.
We expect that our products will use an inhaler (puffer) device to deliver
Homspera to the user. To develop, manufacture and test an inhaler device we hope
to partner with a drug development and chemical services company that offers
services ranging from pre-clinical and toxicology studies to clinical trial
support and manufacturing services. We believe that such a partnership may
enable us to decrease the time-to-market for our products and to increase our
productivity.
16
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2003
Revenue
-------
We are in the development stage and have no revenue.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses were $297,587 for the three months
ended September 30, 2003. This amount consisted primarily of legal and
accounting fees of $101,206, consulting fees of $61,290, officer wages of
$31,250, and public relations and marketing costs of $30,985. We expect these
costs to increase in the coming year as we continue to seek further financing
and as an administrative and operational infrastructure is built.
Merger fees and costs
---------------------
Merger fees and costs were $350,000, consisting of the $185,000 cost of the
merger shell corporation GPN and $165,000 paid to reduce certain liabilities of
GPN. The Company believes that all merger costs have been fully accrued during
the period ending September 30, 2003.
Financing Cost
--------------
Financing costs consist of $90,000 of non-refundable prepaid travel and road
show expenses. Management does not expect to obtain the benefit of these costs,
and they were fully written-off during the period ending September 30, 2003.
Interest expense
----------------
Interest expense was $89,020 for the three months ended September 30, 2003. This
amount consists of amortization of the beneficial conversion feature of notes
payable of $50,286 and interest on the notes payable and demand loans of
$38,744. The Company expects interest expense to increase in the next twelve
months if additional debt financing is secured. Such debt would likely to
contain beneficial conversion features which will contribute further to our
interest expense as the value of these beneficial conversion features is
amortized.
Net Loss
--------
For the reasons stated above, the Company had a net loss of ($826,607) or
($0.07) per share for the three months ended September 30, 2003. We expect
further losses for the foreseeable future until our products can be successfully
developed and marketed.
17
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2003
Revenue
-------
We are in the development stage and has no revenue.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses were $666,661 for the nine months
ended September 30, 2003. This amount consisted primarily of legal and
accounting fees of $174,758, consulting fees of $167,744, officer wages of
$93,750, public relations and marketing of $74,763, and contract labor of
$33,449. We expect these costs to increase in the coming year as we continue to
seek further financing and as an administrative and operational infrastructure
is built.
Merger fees and costs
---------------------
Merger fees and costs were $350,000 consisting of $185,000 cost of the merger
shell corporation GPN, and $165,000 paid to reduce certain liabilities of GPN.
The Company expects that the merger costs have been fully accrued.
Financing Cost
--------------
Financing costs consist of $90,000 of non-refundable prepaid travel and road
show expenses. Management does not expect to obtain the benefit of these costs,
and they were fully written-off during the period ending September 30, 2003.
Interest expense
----------------
Interest expense was $111,662 for the nine months ended September 30, 2003. This
amount consists of amortization of the beneficial conversion feature of notes
payable of $60,582 and interest on the notes payable and demand loans of
$51,080. The Company expects interest expense to increase in the next twelve
months if additional debt financing is secured. Such debt would likely to
contain beneficial conversion features which will contribute further to our
interest expense as the value of these beneficial conversion features is
amortized.
Net Loss
--------
For the reasons stated above, the Company had a net loss of ($1,218,323) or
($0.12) per share for the nine months ended September 30, 2003.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2003, we had current assets of $102,838, consisting of cash of
$33,915, prepaid services of $49,043, and a receivable from an officer of
$19,880. Also at September 30, 2003, we had current liabilities of $1,005,095,
consisting of accounts payable and accrued liabilities of $368,863, advances
from third parties of $265,000, notes payable due within twelve months of
$366,677, and due to related party of $4,555. This results in negative working
capital of ($902,257). During the nine months ended September 30, 2003, the
Company used cash in operating activities of ($919,936).
18
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. During the nine months ended September
30, 2003, we sold 1,269,269 (post reverse-split) shares of its common stock for
net proceeds of $365,000. We also issued notes payable and demand loans in the
aggregate amount of amount of $775,000. 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.
Risk Factors
------------
The actual results of our company may differ materially from those
anticipated in these forward-looking statements. We will operate in a market
environment that is difficult to predict and that involves significant risks and
uncertainties, many of which will be beyond our 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 AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY PROFITABLE, EXPECT TO INCUR
SIGNIFICANT EXPENSES IN THE NEAR FUTURE AND OUR AUDITORS HAVE INDICATED
UNCERTAINTY CONCERNING OUR ABILITY TO CONTINUE OPERATIONS AS A GOING CONCERN.
We have incurred substantial net losses and are currently experiencing negative
cash flow. We expect to continue to experience negative cash flow and operating
losses through at least 2004 and likely thereafter. Our independent certified
public accountant have noted that we have an accumulated deficit, so our ability
to continue as a going concern prior to the generation of significant revenue is
dependent upon obtaining additional financing for our planned operations. If we
fail to generate enough working capital, either from future equity or debt sales
or revenue from operations, our ability to expand and complete our business plan
will be materially affected, and you may lose all or substantially all of your
investment.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND MAY
BE UNABLE TO DO SO.
We require substantial working capital to fund our operations. Our working
capital requirements and cash flow provided by operating activities is expected
to vary from quarter to quarter depending on revenues, operating expenses,
capital expenditures and other factors. The cost, timing and amount of funds we
need cannot be precisely determined at this time and will be based on numerous
factors, including, but not limited to, approval by the U.S. Food and Drug
Administration and market acceptance of its products. To the extent that
existing resources and future earnings are insufficient to fund future
activities, we will need to raise additional funds through additional public or
private equity offerings of its securities or debt financings. No assurance can
be given that any such additional funding will be available or that, if
available, can be obtained on terms favorable to us. If we are unable to raise
needed funds on acceptable terms, we will not be able to develop or enhance our
products, take advantage of future opportunities or respond to competitive
pressures or unanticipated requirements. A material shortage of capital will
require us to take drastic steps such as reducing our level of operations,
disposing of selected assets or seeking an acquisition partner. If cash is
insufficient, we will not be able to continue operations.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE THE SUCCESS OF OUR
BUSINESS MODEL AND THE EFFECTIVENESS OF OUR MANAGEMENT. IF OUR PLAN IS NOT
SUCCESSFUL, OR MANAGEMENT IS NOT EFFECTIVE, THE VALUE OF OUR COMMON STOCK MAY
DECLINE.
19
ImmuneRegen, our operating subsidiary, was founded in October 2002. As a result,
we have a limited operating history on which you can base your evaluation of its
business and prospects. Our business and prospects must be considered in light
of the risks and uncertainties frequently encountered by companies in their
early stages of development. These risks and uncertainties include the
following:
o Our ability to raise additional funding and the amounts raised, if any;
o The time and costs involved in obtaining regulatory approvals;
o Continued scientific progress in our research and development programs;
o The scope and results of preclinical studies and clinical trials;
o The costs involved in filing, prosecuting and enforcing patent claims;
o Competing technological and market developments;
o Effective commercialization activities and arrangements;
o The costs of defending against and settling lawsuits; and
o Other factors not within our control or known to us.
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.
OUR FAILURE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS MAY CAUSE US TO
CEASE OPERATIONS.
Our failure to develop and commercialize products successfully may cause us to
cease operations. Our potential therapies utilizing Homspera will require
significant additional research and development efforts and regulatory approvals
prior to potential commercialization in the future. We cannot guarantee that we,
or our corporate collaborators, if any, will ever obtain any regulatory
approvals of Homspera. We are currently focusing our core competencies on
Homspera although there may be no assurance that we will be successful in so
doing.
Our therapies and technologies utilizing Homspera is at early stages of
development and may not be shown to be safe or effective and may never receive
regulatory approval. Our technologies utilizing Homspera has 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.
20
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 LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS.
Clinical testing, manufacture, promotion, export and sale of our proposed
products are subject to extensive regulation by numerous governmental
authorities in the United States, principally the FDA, and corresponding state
and foreign regulatory agencies. This regulation may delay or prevent us from
commercializing proposed products. Noncompliance with applicable requirements
can result in, among other things, fines, injunctions, seizure or recall of such
products, total or partial suspension of product manufacturing and marketing,
failure of the government to grant premarket approval, withdrawal of marketing
approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the required
preclinical studies and clinical testing, is lengthy and expensive. We may not
receive necessary FDA clearances for any of our potential products in a timely
manner, or at all. The length of the clinical trial process and the number of
patients the FDA will require to be enrolled in the clinical trials in order to
establish the safety and efficacy of our proposed products is uncertain.
Even if human clinical trials of Homspera are initiated and successfully
completed, the FDA may not approve 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.
In addition, a marketed product is subject to continual FDA review. Later
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market, as well as possible
civil or criminal sanctions.
Among the other requirements for regulatory approval is the requirement that
prospective manufacturers conform to the FDA's Good Manufacturing Practices, or
GMP, requirements. In complying with the FDA's GMP requirements, manufacturers
must continue to expend time, money and effort in production, record keeping and
quality control to assure that products meet applicable specifications and other
requirements. Failure to comply and maintain compliance with the FDA's GMP
requirements subjects manufacturers to possible FDA regulatory action and as a
result, may have a material adverse effect on us. Neither we, nor our contract
manufacturers, if any, may be able to maintain compliance with the FDA's GMP
requirements on a continuing basis. Failure to maintain compliance could have a
material adverse effect on us.
The FDA has not designated expanded access protocols for Homspera as "treatment"
protocols. The FDA may not determine that Homspera meets all of the FDA's
criteria for use of an investigational drug for treatment use. Even if Homspera
is allowed for treatment use, third party payers may not provide reimbursement
for the costs of treatment with Homspera. The FDA also may not consider Homspera
to be an appropriate candidate for accelerated approval, expedited review or
fast track designation.
21
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.
TECHNOLOGICAL CHANGE AND COMPETITION MAY RENDER OUR POTENTIAL PRODUCTS OBSOLETE.
The life science industry continues to undergo rapid change, and competition is
intense and is expected to increase. Competitors may succeed in developing
technologies and products that are more effective or affordable than any that we
are developing or that would render our technology and proposed products
obsolete or noncompetitive. Most of our competitors have substantially greater
experience, financial and technical resources and production, marketing and
development capabilities than us. Accordingly, some of our competitors may
succeed in obtaining regulatory approval for products more rapidly or
effectively than it, or technologies and products that are more effective and
affordable than any that we are developing.
OUR LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE MAY PREVENT IT
FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS.
We have not manufactured any of our products in commercial quantities. We may
not successfully make the transition from manufacturing clinical trial
quantities to commercial production quantities or be able to arrange for
contract manufacturing and this could prevent us from commercializing products
or limit our profitability from our products. Even if Homspera is successfully
developed and receives FDA approval, we have not demonstrated the capability to
manufacture Homspera in commercial quantities. We have not demonstrated the
ability to manufacture Homspera in large-scale clinical quantities. We expect to
rely on third parties for the final activation step of the Homspera
manufacturing process. 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.
WE HAVE NO EXPERIENCE IN THE SALES, MARKETING AND DISTRIBUTION OF PHARMACEUTICAL
OR BIOTECHNOLOGY PRODUCTS. THUS, OUR PROPOSED PRODUCTS MAY NOT BE SUCCESSFULLY
COMMERCIALIZED EVEN IF THEY ARE DEVELOPED AND APPROVED FOR COMMERCIALIZATION.
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. Moreover, it is expected that our
proposed products may be manufactured only in a facility that has undergone a
satisfactory inspection and certification by the FDA. For these reasons, we
would not be able to quickly replace our manufacturing capacity if we were
unable to use any manufacturing facilities as a result of a fire, natural
disaster (including an earthquake), equipment failure or other difficulty, or if
such facilities are deemed not in compliance with the GMP requirements, and the
noncompliance could not be rapidly rectified. Our inability or reduced capacity
to manufacture our proposed products would prevent us from successfully
commercializing its proposed products.
22
We may enter into arrangements with contract manufacturing companies in order to
meet requirements for its 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 its 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 its ability to
develop and deliver proposed products on a timely and competitive basis.
ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING HOMSPERA.
Our ability to earn sufficient revenue on 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 it from successfully commercializing Homspera or any
proposed products. Third-party payers are increasingly challenging the prices of
medical products and services. If purchasers or users of 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.
OUR SUCCESS MAY DEPEND UPON THE ACCEPTANCE OF HOMSPERA BY THE MEDICAL COMMUNITY.
Our ability to market and commercialize 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 it 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.
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 its technology
or prospective products is alleged to have resulted in adverse effects. We may
not be able to avoid significant liability exposure. We may not have sufficient
insurance coverage, and we may not be able to obtain sufficient coverage at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of its products. A product
liability claim would substantially affect our financial performance. Even if we
avoid liability exposure, significant costs could be incurred that could hurt
its financial performance.
IF WE FAIL TO ATTRACT AND RETAIN CONSULTANTS AND EMPLOYEES, OUR GROWTH COULD BE
LIMITED AND OUR COSTS COULD INCREASE, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL POSITION.
Our future success depends in large part upon our ability to attract and retain
highly skilled executive-level management and scientific personnel. The
competition in the scientific industry for such personnel is intense, and we
cannot be sure that we will be successful in attracting and retaining such
personnel. Most of our consultants and employees and several of our executive
officers began working for us recently, and all employees are subject to "at
will" employment. Most of our consultants and employees are not subject to
non-competition agreements. We cannot guarantee that we will be able to replace
any of our management personnel in the event their services become unavailable.
OUR PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT BE ENFORCEABLE AND THE PATENTS
AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT US FROM COMMERCIALIZING
PRODUCTS.
23
Although we believe our patents to be protected and 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 patents 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. In
addition, our trade secrets may otherwise become known or independently
discovered by our competitors. 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 AND SERVICES COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, WHICH MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF NOT
SUCCESSFUL, COULD CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM
SELLING OUR PRODUCTS OR SERVICING OUR CLIENTS.
We cannot be certain that our technology and other intellectual property does
not infringe upon the intellectual property rights of others. Authorship and
priority of intellectual property rights may be difficult to verify. Because
patent applications in the United States are not publicly disclosed until 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, it 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.
HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS COULD EXPOSE US TO SIGNIFICANT
COSTS.
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 its 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, we 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.
OUR STOCK PRICE IS VOLATILE AND COULD DECLINE IN THE FUTURE.
24
The price of our common stock has been volatile in the past and will likely
continue to fluctuate in the future. The stock market in general and the market
for shares of life science companies in particular have experienced extreme
stock price fluctuations. In some cases, these fluctuations have been unrelated
to the operating performance of the affected companies. Many companies in the
life science and related industries have experienced dramatic volatility in the
market prices of their common stock. We believe that a number of factors, both
within and outside our control, could cause the price of our common stock to
fluctuate, perhaps substantially. Factors such as the following could have a
significant adverse impact on the market price of our common stock:
o Our ability to obtain additional financing and, if available, the terms
and conditions of the financing;
o Our financial position and results of operations;
o The results of preclinical studies and clinical trials by our
collaborators or our competitors;
o Concern as to, or other evidence of, the safety or efficacy of our
proposed products or our competitors' products;
o Announcements of technological innovations or new products by us or our
competitors;
o U.S. and foreign governmental regulatory actions;
o Actual or anticipated changes in drug reimbursement policies;
o Developments with our collaborators, if any;
o Developments concerning patent or other proprietary rights of
ImmuneRegen or its competitors (including litigation);
o Status of litigation;
o Period-to-period fluctuations in our operating results;
o Changes in estimates of our performance by any securities analysts;
o New regulatory requirements and changes in the existing regulatory
environment;
o Market conditions for life science stocks in general.
THE SHARES OF OUR COMMON STOCK ARE SUBORDINATE TO THE RIGHTS OF OUR WHOLLY OWNED
OPERATING SUBSIDIARY'S EXISTING AND FUTURE CREDITORS.
We are a holding company and our only assets are the shares of capital stock of
our wholly owned operating subsidiary. As a holding company without independent
means of generating operating revenues, we depend upon dividends and other
payments from ImmuneRegen to fund our obligations and meet our cash needs. Our
expenses may include the salaries of our executive officers, insurance and
professional fees. Financial covenants under future loan agreements of
ImmuneRegen, or provisions of the Delaware law, may limit our ability to make
sufficient dividend or other payments to us to permit us to fund our obligations
or meet our cash needs, in whole or in part. By virtue of this holding-company
structure, the shares of our common stock are structurally junior in right of
payment to all existing and future liabilities of ImmuneRegen.
25
THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET.
Although our common stock trades on the NASD OTC Bulletin Board, a regular
trading market for the securities may not be sustained in the future. 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 OTC Bulletin Board is an inter-dealer, Over-The-Counter market that provides
significantly less liquidity than the NASD's automated quotation system (the
"NASDAQ Stock Market"). Quotes for stocks included on the OTC Bulletin Board 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 OTC Bulletin
Board 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. Market prices for our common stock will be influenced by a number of
factors, including:
o the issuance of new equity securities pursuant to a future offering;
o changes in interest rates;
o competitive developments, including announcements by competitors of new
products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o variations in quarterly operating results;
o change in financial estimates by securities analysts;
o the depth and liquidity of the market for our common stock;
o investor perceptions of our company and the technologies industries
generally; and
o general economic and other national conditions.
OUR COMMON STOCK COULD BE CONSIDERED A "PENNY STOCK."
Our common stock could be considered to be a "penny stock" if it meets one or
more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section
15(g) of the Securities Exchange Act of 1934, as amended. These include but are
not limited to the following: (i) the stock trades at a price less than five
dollars ($5.00) per share; (ii) it is NOT traded on a "recognized" national
exchange; (iii) it is NOT quoted on the NASDAQ Stock Market, or even if so, has
a price less than five dollars (5.00) per share; or (iv) is issued by a company
with net tangible assets less than $2,000,000, if in business more than a
continuous three years, or with average revenues of less than $6,000,000 for the
past three years. The principal result or effect of being designated a "penny
stock" is that securities broker-dealers cannot recommend the stock but must
trade in it on an unsolicited basis.
BROKER-DEALER REQUIREMENTS MAY AFFECT TRADING AND LIQUIDITY.
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's account.
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Potential investors in our common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be "penny
stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.
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.
SALES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK AND YOUR RIGHTS MAY BE REDUCED.
Certain of our stockholders have the right to hold securities registered
pursuant to registration rights agreements. The sale or the proposed sale of
substantial amounts of our equity securities or convertible debt securities may
adversely affect the market price of its common stock and its stockholders may
experience substantial dilution. Also, any new equity securities issued may have
greater rights, preferences or privileges than our existing common stock.
We can issue shares of preferred stock with rights superior to those of the
holders of our common stock. Such issuances can dilute the tangible net book
value of shares of our common stock.
Our Board of Directors is authorized to issue up to 10,000,000 shares of blank
check preferred stock with rights that are superior to the rights of the
stockholders of its common stock, at a purchase price substantially lower than
the market price of shares of our common stock without stockholder approval.
WE HAVE NO INTENTION TO PAY DIVIDENDS.
We have never declared or paid any dividends on its securities. We currently
intends to retain its earning for funding growth and, therefore, does not expect
to pay any dividends in the foreseeable future.
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ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The term "disclosure controls and procedures" refers to the controls and
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under Rules 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported within required time periods. As of the period covered
by this quarterly report on form 10-QSB (the "Evaluation Date"), we carried out
an evaluation under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the
Evaluation Date, such controls and procedures were effective in ensuring that
required information will be disclosed on a timely basis in our periodic reports
filed under the Exchange Act.
(b) Changes in internal controls
There were no significant changes to our internal controls or in other factors
that could significantly affect internal controls subsequent to the Evaluation
Date.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings and there are no material
legal proceedings pending with respect to our property. We are not aware of any
legal proceedings contemplated by any governmental authorities involving either
of us or our property. None of our directors, officers or affiliates is an
adverse party in any legal proceedings involving us or our subsidiaries, or has
an interest in any proceeding which is adverse to us or our subsidiaries.
Item 2. Changes in Securities and Use of Proceeds
On May 12, 2003, an aggregate of 376,420 shares (post reverse-split) of the
Registrant's Common Stock was sold and issued in a private offering pursuant to
Regulation D of the Securities Act of 1933 in exchange for the cancellation of
$75,284 of indebtedness.
On July 1, 2003, the Company issued five-year warrants to purchase 247,500
shares of common stock at a price per share equal to the price per share paid by
investors in a reorganization financing. At September 30, 2003, the
reorganization financing had not occurred and a price per share for these
warrants had not yet been determined.
On July 2, 2003, the Registrant effected a one-for-twenty reverse split of its
common stock, which reduced the number of shares of common stock issued and
outstanding from 23,681,297 immediately before the reverse split to 1,184,065
immediately after.
On July 2, 2003, the Registrant, through its wholly-owned subsidiary, GPN
Acquisition Corporation, acquired ImmuneRegen BioSciences, Inc. in exchange for
10,531,585 shares of the Registrant's common stock.
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Item 3. Defaults Upon Senior Securities
None.
Item 4: Submission of Matters to a Vote of Securities Holders
None.
Item 5: Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14(a).
32 Certification pursuant to U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On July 7, 2003, the Registrant filed a report on Form 8-K concerning a change
of control and the merger agreement between GPN Network and ImmuneRegen
BioSciences, Inc.
On July 14, 2003, the Registrant filed a report on Form 8-K concerning a change
in its certifying accountant.
On August 29, 2003, the Registrant filed a report on Form 8-K concerning its
name change to IR BioSciences Holdings, Inc.
On December 23, 2003, the Registrant filed a report on Form 8-K/A amending the
Form 8-K which was filed on July 7, 2003 to include the financial statements of
ImmuneRegen BioSciences, Inc.
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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 December 23, 2003.
IR BioSciences Holdings, Inc.
By: /s/ Michael Wilhelm
---------------------------------------
Michael Wilhelm
President, Chief Executive Officer
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