FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 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 May 23, 2005
was 69,024,166.
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
March 31, 2005 (unaudited) ................................F-1
Condensed Consolidated Statement of Operations for the
three months ended March 31, 2005 and 2004, and for the
period of inception (October 30, 2002) to March 31, 2005 ..F-2
Condensed Consolidated Statement of Stockholders'
Equity From date of inception (October 30, 2002) to
March 31, 2005 ............................................F-3
Condensed Consolidated Statement of Cash Flows for the
three months ended March 31, 2005 and 2004, and for the
period of inception (October 30, 2002) to March 31, 2005 ..F-7
Notes to Condensed Consolidated Financial Statements ......F-9
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation ..............................3
Item 3. Controls and Procedures ....................................20
PART II OTHER INFORMATION
Item 1. Legal Proceedings ..........................................21
Item 2. Changes in Securities and Use of Proceeds ..................21
Item 3. Defaults Upon Senior Securities ............................21
Item 4. Submission of Matters to a Vote of Securities Holders ......21
Item 5. Other Information...........................................21
Item 6. Exhibits....................................................21
Signatures..................................................22
2
ITEM 1. FINANCIAL INFORMATION
The accompanying notes are an integral part of these condensed consolidated
financial statements.
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheet as of March 31, 2005
(Unaudited)
March 31,
2005
-----------
Assets
Current assets
Cash and cash equivalents $ 1,600,000
Prepaid services and other current assets 7,085
-----------
Total current assets 1,607,085
Licensed proprietary rights, net 7,088
Furniture and equipment, net 6,330
-----------
Total assets $ 1,620,503
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities 341,210
Current portion of notes payable, net of discount 66,970
-----------
Total current liabilities 408,180
Commitments and Contingencies
Stockholders' Equity
Preferred stock, 0.001 par value;
10,000,000 shares authorized, no shares
issued and outstanding --
Common stock, $0.001 par value; 100,000,000 shares
authorized; 69,024,166 shares issued and outstanding 69,024
Additional paid-in capital 9,244,248
Deferred compensation (53,425)
Deficit Accumulated during the Development Stage (8,047,524)
-----------
Total stockholder's equity 1,212,323
-----------
Total liabilities and stockholders' equity $ 1,620,503
===========
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 ended March 31, 2005 and 2004,
And for the period of inception
(October 30, 2002) to March 31, 2005
(Unaudited)
Cumulative
from Inception
For the Three For the Three (October 30,
Months Ended Months Ended 2002) to
March 31,2005 March 31,2004 March 31, 2005
------------- ------------- -------------
Operating expenses:
Selling, general and
administrative expenses $ 838,520 $ 931,074 $ 6,428,404
Merger fees and costs 0 0 350,000
Financing cost 0 0 90,000
------------ ------------ ------------
Total operating expenses 838,520 931,074
6,868,404
Operating loss (838,520) (931,074) (6,868,404)
Other expense:
Interest expense 977 304,078 1,179,120
------------ ------------ ------------
Total other expense 977 304,078 1,179,120
Loss before income taxes (839,497) (1,235,152) (8,047,524)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (839,497) $ (1,235,152) $ (8,047,524)
============ ============ ============
Net loss per share - basic and diluted $ (0.01) $ (0.05) $ (0.27)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 62,863,440 24,845,493 29,486,331
============ ============ ============
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 Stockholders' Equity
For the period from inception (October 30, 2002) to March 31, 2005
(unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in
conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders
in conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the 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)
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 Stockholders' Equity
For the period from inception (October 30, 2002) to March 31, 2005
(unaudited)(continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a
consultant for services rendered in
January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62
per share for services rendered in
February 2004 40,000 40 24,760 (24,800) -- --
Shars issued to a consultant at $0.40 per
share for services rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- --
Shares issued to a consultant at $0.50 per
share for services rendered in March 2004 500,000 500 249,500 (250,000) -- --
Shares sold for cash at $0.15 per share
in March, 2004 8,000 8 1,192 -- -- 1,200
Shares issued at $0.50 per share to
consultants for services rendered in
March 2004 20,000 20 9,980 -- -- 10,000
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 2,000 2 798 -- -- 800
Shares issued to consultants at $0.32 per
share for services rendered in March 2004 91,600 92 29,220 -- -- 29,312
Shares to be issued to consultant at $0.41 per
share in April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- (82,000)
Shares granted pursuant to the New Senior Note
Agreement in April 2004 600,000 600 149,400 (150,000) -- --
Shares issued to officer at $0.32 per share for
services rendered in April 2004 200,000 200 63,800 -- -- 64,000
Conversion of note payable to common stock at
$0.10 per share in May 2004 350,000 350 34,650 -- -- 35,000
Beneficial Conversion Feature associated with
note payable in May 2004 -- -- 35,000 -- -- 35,000
Issuance of warrants to officers and founder
for services rendered in May 2004 -- -- 269,208 -- -- 269,208
Shares to a consultant at $0.20 per share as a
due dilligence fee in May 2004 125,000 125 24,875 -- -- 25,000
Shares issued to a consultant at $1.00 per
share for services to be rendered over
twelve months beginning May 2004 500,000 500 499,500 (500,000) -- --
Benefial Conversion Feature associated with
notes payable issued in June 2004 -- -- 3,000 -- -- 3,000
Issuance of warrants to note holders in April,
May, and June 2004 -- -- 17,915 -- -- 17,915
Issuance of warrants to employees and
consultants for services rendered in
April through June 2004 -- -- 8,318 -- -- 8,318
Shares issued in July to a consultant at
$0.10 for services to be rendered through
July 2005 250,000 250 24,750 (25,000) -- --
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 Stockholders' Equity
For the period from inception (October 30, 2002) to March 31, 2005
(unaudited)(continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Shares issued to a consultant in July and
September at $0.41 per share for services
to be rendered through April 2005 200,000 200 81,800 -- -- 82,000
Shares issued to a consultant in September at
$0.12 to $0.22 for services rendered
through September 2004 127,276 127 16,782 -- -- 16,909
Shares issued in July to September 2004 as
interest on note payable 300,000 300 35,700 -- -- 36,000
Issuance of warrants with notes payable in
July and August 2004 -- -- 72,252 -- -- 72,252
Accrued deferred compensation in August 2004
to a consultant for 100,000 shares at $0.10
per share, committed but unissued -- -- -- (10,000) -- (10,000)
Shares issued in August 2004 at $0.14 to a
consultant for services to be performed
through October 2004 100,000 100 13,900 (14,000) -- --
Shares issued in August 2004 at $0.125 per
share for conversion of $30,000 demand loan 240,000 240 29,760 -- -- 30,000
Shares issued in August 2004 at $0.16 per
share to a consultant for services provided 125,000 125 19,875 -- -- 20,000
Shares issued to employees at $0.16 to
$0.25 per share 48,804 49 8,335 -- -- 8,384
Commitment to issue 100,000 shares of stock to
a consultant at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- (23,000)
Sale of stock for cash in Ocober at $0.125 per
share, net of costs of $298,155 18,160,000 18,160 1,345,763 -- -- 1,363,923
Value of warrants issued with sale of common
stock in October, net of costs -- -- 607,922 -- -- 607,922
Issuance of warrant to officer in October -- -- 112,697 -- -- 112,697
Issuance of stock to investment bankers in
October 2004 for commissions earned 4,900,000 4,900 (4,900) -- -- --
Conversion of accounts payable to stock in
October at $0.125 per share 1,257,746 1,258 107,382 -- -- 108,640
Value of warrants issued with accounts
payable conversions -- -- 48,579 -- -- 48,579
Conversion of demand loan to stock in October
at $0.11 per share 93,300 93 10,170 -- -- 10,263
Forgiveness of notes payable in October 2004 -- -- 36,785 -- -- 36,785
Issuance of stock to officer and director at
$0.125 per share in October for conversion
of liability 1,440,000 1,440 122,493 -- -- 123,933
Value of warrants issued with officer and
director conversion of liabilities -- -- 56,067 -- -- 56,047
Conversion of debt and accrued interest to
common stock at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- 424,217
Value of warrants issued with conversion
of debt -- -- 191,111 -- -- 191,111
Conversion of note payable in October into
common stock at $0.075 per share 67,613 68 4,932 -- -- 5,000
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 Stockholders' Equity
For the period from inception (October 30, 2002) to March 31, 2005
(unaudited)(continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit 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) 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 committees 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 three months
ended March 31, 2005 149,061 149,061
Loss for the three months ended
March 31, 2005 (839,497) (839,497)
----------- ----------- ----------- ------------ ----------- -----------
69,024,166 $ 69,024 $ 9,244,248 $ (53,425) $(8,047,524) $1,212,323
=========== =========== =========== ============ =========== ===========
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 Cash Flows
For the three months ended March 31, 2005 and
2004, And for the period of inception (October 30, 2002)
to March 31, 2005
(Unaudited)
Cumulative
For the Three For the Three from Inception
Months Ended Months Ended (October 30,
March 31, March 31, 2002) to
2005 2004 March 31, 2005
----------- ----------- -----------
Cash flows from operating activities:
Net loss $ (839,497) $(1,235,152) $(8,047,524)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Non-cash compensation 299,943 688,027 3,699,943
Interest expense 977 953 153,377
Amortization of discount on notes payable 0 287,241 1,006,935
Depreciation and amortization 402 11,651 26,419
Changes in operating assets and liabilities: --
Prepaid services and other assets (372) 23,543 (7,084)
Accounts payable and accrued expenses (12,424) 89,558 542,618
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (550,971) (134,179) (2,625,316)
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 -- 150,000 1,233,500
Principal payments on notes payable and demand loans (10,000) (15,000) (260,000)
Shares of stock sold for cash 1,190,857 1,200 3,259,903
Officer repayment of amounts paid on his behalf 19,880
Cash paid on behalf of officer (19,880)
Cash paid on amount due to officer --
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,180,857 136,200 4,233,403
Net increase in cash and cash equivalents 629,886 2,021 1,600,000
Cash and cash equivalents at beginning of period 970,114 10,534 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,600,000 $ 12,555 $ 1,600,000
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest: $ -- $ 953 $ 41,847
=========== =========== ===========
Taxes: $ -- $ -- $ --
=========== =========== ===========
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 three months ended March 31, 2005 and
2004, And for the period of inception (October 30, 2002)
to March 31, 2005
(Unaudited)
Cumulative
For the Three For the Three from Inception
Months Ended Months Ended (October 30,
March 31, March 31, 2002) to
2005 2004 March 31, 2005
----------- ----------- -----------
Non-cash investing and financing activities:
Acquisition and capital restructure: $ -- $ -- $ --
Assets acquired -- -- --
Liabilities assumed -- -- (120,799)
Common stock retained -- -- (2.369)
Adjustment to additional paid-in capital -- -- 123,168
Organization costs -- -- 350,000
----------- ----------- -----------
Total consideration paid $ -- $ -- $ 350,000
=========== =========== ===========
Common stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
=========== =========== ===========
Common stock issued in exchange for services $ -- $ 2,878,006 $ 2,915,286
=========== =========== ===========
Common stock issued in exchange for previously incurred
debt and accrued interest $ -- $ 695,591 $ 995,591
=========== =========== ===========
Common stock issued in exchange as interest $ -- $ 36,000 $ 36,000
=========== =========== ===========
Amortization of beneficial conversion feature $ -- $ 162,709 $ 223,269
=========== =========== ===========
Stock options and warrants issued in exchange for services
rendered $ 137,049 $ 406,571 $ 629,481
=========== =========== ===========
Debt and accrued interst forgiveness from note holders $ -- $ 36,785 $ 36,875
=========== =========== ===========
Common stock issued in satisfaction of accounts payable $ -- $ 157,219 $ 157,219
=========== =========== ===========
Common stock issued in satisfaction of amounts due
to an Officer and a Director $ -- $ 180,000 $ 180,000
=========== =========== ===========
Deferred compensation to a consultant accrued in
March 2005 $ 32,500 $ -- $ 32,500
=========== =========== ===========
F-8
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 three-month periods ended March 31, 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 Securities and
Exchange Commission Form 10-KSB.
Business and Basis of Presentation
----------------------------------
IR BioSciences Holdings, Inc. ("Company") formerly GPN Network, Inc. ("GPN") is
currently a development stage company under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company, which was
incorporated under the laws of the State of Delaware on October 30, 2002, is a
biopharmaceutical company. Through our wholly owned subsidiary, ImmuneRegen
BioSciences, Inc., we are engaged in the research and development of health
enhancing and potential life saving products. Our product development is focused
around Homspera(TM), a proprietary compound that is derived from homeostatic
substance P, a naturally occurring peptide. Our focus is on the research and
development of products that we believe will treat the suppression of the body's
immune system caused by exposure to various forms of radiation, toxic inhalants
and viral infectious diseases. Currently, the majority of our efforts are in the
research and development of Radilex(TM), a compound derived from Homspera, as a
countermeasure to the effects of radiological and nuclear threats. From its
inception through the date of these financial statements, the Company has
recognized minimal revenues and has incurred significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ImmuneRegen BioSciences, Inc. Significant
intercompany transactions have been eliminated in consolidation.
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
F-9
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.
Interim Financial Statements
----------------------------
The accompanying balance sheet as of March 31, 2005, the statements of
operations for the three months ended March 31, 2005 and 2004, and for the
period of inception (October 30, 2002) to March 31, 2005, and the statements of
cash flows for three months ended March 31, 2005 and 2004, and from the period
of inception (October 30, 2002) to March 31, 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.
Prepaid Services and Other Current Assets
-----------------------------------------
Prepaid services and other current assets consist of (i) outside services that
the Company has paid for in advance in the amount of $2,525; (ii) salary advance
to an employee of $2,300; and (iii) deposits of $2,260.
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 March 31, 2005
and 2004 was $232 during each period.
Furniture and Equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
The amounts depreciated for the three months ended March 31, 2005 and 2004 were
$170 and 169, respectively. The amount depreciated from the date of inception
(October 30, 2002) through March 31, 2005 was $1,758.
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 property rights; (ii)
F-10
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 was
$125,000 and was included in accounts payable and accrued expenses.
In October 2004, the Company achieved the threshold amount of $2,000,000 in
equity or debt financing (see Note I). As of October, 2004, the aggregate
amounts due the Consultants under the Consulting Agreements was $215,000.
In October, 2004, one of the Consultants elected to exchange 724,000 shares of
the Company's common stock and a warrant to purchase an additional 362,000
(post-split) shares of common stock at an exercise price of $0.50 (post-split)
in exchange for $90,500 of the $107,500 of the previously accrued and unpaid
fees due him under the Consulting Agreement, and the balance of $17,000 was paid
to the consultant. At December 31, 2004, there is no balance due to the
Consultant.
In October 2004, because the remaining Consultant had not taken an active role
in the management of the Company, he agreed that would forgive the amount
accrued to him under the Consulting agreement of $107,500. The Company accounted
for the transaction as a forgiveness of indebtedness under FAS No. 140 during
the period ended December 31, 2004.
During the three months ended March 31, 2005 and 2004, the Company accrued
$19,000 and $30,000, respectively, in consulting fees payable to the Company's
founders.
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 three months ended March 31, 2005, the Company repaid a note payable
in the amount of $10,000. At March 31, 2005, the Company had outstanding two
unsecured notes payable to Company shareholders in the aggregate amount of
$66,970. Interest accrues at 6% per annum. Accrued interest at March 31, 2005 is
$9,923. These notes were in default at March 31, 2005.
F-11
NOTE 4 - EQUITY
Common Stock
------------
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.
Warrants
--------
In January through March 2005, the Company issued warrants to purchase 268,033
shares 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 to operations during the three months
ended March 31, 2005.
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)
---------------------------------------------------------------------------------------------------------
$0.05-0.10 480,698 4.35 $0.05-0.10 480,698 4.35
0.125-0.70 782,411 4.21 0.125-0.70 782,411 4.21
0.25-0.56 9,147,932 4.31 0.25-0.56 9,147,932 4.31
1.00 754,844 2.73 1.00 754,844 2.73
2.00 167,580 4.27 2.00 167,580 4.27
---------- ----- ---------- ----
11,333,465 4.20 11,333,465 4.20
========== ===== ========== ====
F-12
Transactions involving warrants are summarized as follows:
Weighted Average
Number of Shares Price Per Share
(post-split) (post-split)
--------------- ---------------
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
========== ========
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 3.75%
Expected stock price volatility 154% to 163%
Expected dividend payout --
Expected option life-years (a) 3
F-13
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, 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
--------
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 health enhancing and potential life
saving products. Our product development is focused around Homspera(TM), a
proprietary compound that is derived from homeostatic substance P, a naturally
occurring peptide. Our focus is on the research and development of products that
we believe will treat the suppression of the body's immune system caused by
exposure to various forms of radiation, toxic inhalants and viral infectious
diseases. Currently, the majority of our efforts are in the research and
development of Radilex(TM), a compound derived from Homspera, as a
countermeasure to the effects of radiological and nuclear threats.
In our studies to date, we have witnessed Homspera and Radilex to have high
anti-inflammatory and immunostimulatory properties. We believe the compound is
well-suited for treating the damaging effects of radiation injury when given
shortly after total body exposure to radiation. We have generated a large amount
of data in rodent animal models and toxicology studies relating to the activity
and safety of both Homspera and Radilex. To date we have completed seven mouse
studies in which Radilex was administered after exposure to lethal doses of
radiation. In these studies we witnessed survival rates of up to 50% of the
exposed mice.
We own or have obtained a license to 4 issued U.S. and foreign patents and 24
pending U.S. and foreign patent applications. As we continue our research and
development efforts we will look to add to our portfolio of patents and
trademarks.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 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 $838,520 for the three
months ended March 31, 2005, an decrease of $92,554 or approximately 10%
compared to SG&A of $931,074 during the three months ended
3
March 31, 2004. For the three months ended March 31, 2005, this amount consisted
primarily of non-cash compensation issued to consultants of $299,943, legal and
accounting fees of $161,806, other consulting fees of $117,739, payroll and
related costs of $77,574, and research and development expenses of $65,849.
The Company expects SG&A to increase during the coming twelve months as we
continue to utilize non-cash compensation in order to conserve cash, we build
out the Company's infrastructure, and continue to develop the Company's line of
potential products.
Interest Expense
----------------
Interest expense was $977 for the three months ended March 31, 2005, a decrease
of $303,101 or approximately 99% compared to interest expense of $304,078 for
the three months ended March 31, 2004. Interest expense was dramatically reduced
because the Company paid or converted to equity most of its outstanding debt
during the three months ended December 31, 2004.
The Company expects interest expense to remain at low levels during the coming
twelve months.
Net Loss
--------
For the reasons above, the net loss for the three months ended March 31, 2005
was $839,497, a decrease of $395,655 or 32% compared to a net loss of $1,235,152
for the three months ended March 31, 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.
PLAN OF OPERATIONS
We expect to continue to incur increasing operating losses for the foreseeable
future, primarily due to our continued research and development activities
attributable to new and existing products and general and administrative
activities.
Product Research and Development
--------------------------------
We spent approximately $65,849 and $21,382 for the first quarters ending March
31, 2005 and 2004, respectively, in research and development activities related
to the development of Radilex as a universal protectant against the effects of
chemical, biological, radiological and nuclear threats. 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 $258,912 in research
and development activities. These costs include the manufacture and delivery of
our drug by third party manufacturers, payments to Contract Research
Organizations ("CRO") for consulting related to our studies and costs of
performing such studies.
We anticipate that during the next 12 months we will increase our research and
development activities by approximately $450,000 to a total of approximately
$600,000 in an effort to further develop Radilex as a universal protectant
against chemical, biological, radiological and nuclear threats. The drug
development, clinical trial and regulatory process is lengthy, expensive and
uncertain and subject to numerous risks including, without limitation, the
following risks discussed under "Risk Factors" - "All Our Applications Are All
Derived From The Use Of Homspera. If Homspera Is Found To Be Unsafe Or
Ineffective, Our Business Would Be Materially Harmed.," "If We Fail To
Successfully Develop And Commercialize Products, We Will Have To Cease
Operations.;" and, "The Lengthy Product Approval Process And Uncertainty Of
Government Regulatory Requirements May Delay Or Prevent Us From Commercializing
Proposed Products."
Our major research and development projects include:
Development of Radilex as a Countermeasure to the Effects of Radiological and
--------------------------------------------------------------------------------
Nuclear Threats.
---------------
Because of the high anti-inflammatory and immunostimulatory properties of
Radilex that we have witnessed, we believe the compound is well-suited for
treating the damaging effects of radiation injury when given shortly after
4
exposure to total body irradiation. We have generated a large amount of data in
rodent animal models relating to the activity and safety 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 $310,000 for expenses related to this study in our fiscal year
ending December 31, 2005. We expect an additional $450,000 will be required to
complete this study in 2006.
If we are successful in completing the study and achieve the desired results, we
will submit the necessary documentation to the FDA and other regulatory agencies
for approval. We believe that Radilex can be developed and approval granted
under Project BioShield, if so, we believe that the approval process will be
significantly shortened and less costly. If approval for Radilex is granted in a
timely manner, we expect to begin to commercialize our product immediately
thereafter. We are anticipating revenues from the sale of Radilex beginning in
calendar year 2007 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 likely 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. 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.
Development of Radilex as a Countermeasure to the Effects of Chemical and
--------------------------------------------------------------------------------
Biological Threats.
-------------------
We are currently continuing to research the efficacy of Radilex as a universal
protectant to be used also as a treatment for exposure to various chemical and
biological threats. We have generated data in preclinical studies indicating
that Radilex could potentially be used in treating respiratory failure caused by
exposure to various chemical and biological agents, such as anthrax, ricin
poisoning and other poisonous inhalants, as well as, infectious diseases such as
avian flu and SARS. We are continuing to design and perform studies for the
further development of Radilex for these applications. We have budgeted
approximately $35,000 for studies related to the use of Radilex as a treatment
for exposure to various chemical and biological threats. We anticipate
additional studies to begin in the third or fourth quarters 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.
Development of Homspera in the Promotion of Wound Healing.
----------------------------------------------------------
We have observed in early preclinical studies that Homspera may have an effect
in promoting or accelerating wound healing. Within the next three months we plan
to begin preclinical studies to determine if Homspera could become a candidate
for further development as a compound used in wound healing. We believe that
such an application would have a large potential market and would share
synergies with potential uses for Radilex as a universal protectant. We expect
to begin studies regarding the use of Homspera in the promotion of wound healing
in the third 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, as our observations were generated while conducting our radiation
studies. 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
5
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
March 31, 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.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements made in the fiscal quarter ended
March 31, 2005.
REVENUES
We have not generated any revenues from operations from our inception. We
believe we will begin earning revenues from operations during calendar year 2007
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 March 31, 2005, we have incurred losses of
$8,047,524. These expenses were associated principally with equity-based
compensation to employees and consultants, product development costs and
professional services.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2005, we had current assets of $1,607,085 consisting of cash of
$1,600,000 and other current assets of $7,085. At March 31, 2005, we also had
current liabilities of $408,180, consisting of accounts payable and accrued
liabilities of $341,210 and notes payable of $66,970. This resulted in net
working capital at March 31, 2005 of $1,198,905. During the three months ended
March 31, 2005, the Company used cash in operating activities of ($550,971).
From the date of inception (October 30, 2002) to March 31, 2005, the Company has
had a net loss of ($8,047,524) and has used cash of ($2,625,316) 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 March 31, 2005 via the private placement
of $3,259,903 of our common stock, $973,500 from the issuance of notes payable,
net of repayments and $1,190,857, net of costs, from the exercise of common
stock purchase warrants.
6
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 March 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.
During the three months ended March 31, 2005, the Company paid a note payable in
the amount of $10,000. At March 31, 2005, the Company had outstanding two
unsecured notes payable to Company shareholders in the aggregate amount of
$66,970. Interest accrues at 6% per annum. Accrued interest at March 31, 2005 is
$9,923. These notes were in default at March 31, 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. 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.
7
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 first quarter ended March 31, 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 March 31, 2005, we have relied on
the services of outside consultants for services and currently have five total
employees, two contract employees and three 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.
THE COMPANY HAS AN ACCUMULATED DEFICIT, IS NOT CURRENTLY PROFITABLE AND EXPECTS
TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
The Company has incurred a substantial net loss for the period from our
inception in October 2002 to March 31, 2005, and is currently experiencing
negative cash flow. We expect to continue to experience negative cash flow and
operating losses through at least 2006 and possibly thereafter. As a result, we
will need to generate significant revenues to achieve profitability.
8
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 to be derived from
Radilex 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.
WE MAY EXPERIENCE FLUCTUATION OF QUARTERLY OPERATING RESULTS WHICH MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include: the level of demand for Radilex, Homspera and any other
products; our ability to attract and retain personnel with the necessary
strategic, technical and creative skills required for effective operations; the
amount and timing of expenditures by customers; the amount and timing of capital
expenditures and other costs relating to the expansion of our operations;
government regulation and legal developments regarding the use of Homspera; and
general economic conditions. As a strategic response to changes in the
competitive environment, we may from time to time make certain pricing, service,
technology or marketing decisions that could have a material adverse effect on
our quarterly results. Due to all of these factors, our operating results may
fall below the expectations of securities analysts, stockholders and investors
in any future quarter.
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.
9
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 March 31, 2005, our cash and cash equivalents totaled approximately
$1,600,000. 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 December 31, 2005.. 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 December 31, 2005. Our working capital as of March 31, 2005 was $
1,198,905. No assurance can be given that any such additional funding will be
available or that, if available, can be obtained on terms favorable to us. If we
are unable to raise needed funds on acceptable terms, we will not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. A material
shortage of capital will require us to take drastic steps such as reducing our
level of operations, disposing of selected assets or seeking an acquisition
partner. If cash is insufficient, we will not be able to continue operations.
ALL OUR APPLICATIONS ARE ALL DERIVED FROM THE USE OF HOMSPERA. IF HOMSPERA IS
FOUND TO BE UNSAFE OR INEFFECTIVE, OUR BUSINESS WOULD BE MATERIALLY HARMED.
All our potential applications are derived from the use of Homspera. In
addition, we expect to utilize Homspera in the development of any future
products we market. If these current or future 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 business operations, since all of our primary revenue sources would be
negatively affected by such findings.
IF WE FAIL TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS, WE WILL HAVE TO
CEASE OPERATIONS.
Our failure to develop and commercialize products successfully will cause us to
cease operations. Our potential therapies utilizing Homspera will require
significant additional research and development efforts and regulatory approvals
prior to potential commercialization in the future. We cannot guarantee that we,
or our corporate collaborators, if any, will ever obtain any regulatory
approvals of Homspera. We currently are focusing our core competencies on
Homspera although there may be no assurance that we will be successful in so
doing.
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 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.
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The results of our preclinical studies and clinical trials may not be indicative
or future clinical trial results. A commitment of substantial resources to
conduct time-consuming research, preclinical studies and clinical trials will be
required if we are to develop any products. Delays in planned patient enrollment
in our clinical trials may result in increased costs, program delays or both.
None of our potential products may prove to be safe or effective in clinical
trials. Approval of the Unites States Food and Drug Administration, the FDA, or
other regulatory approvals, including export license permissions, may not be
obtained and even if successfully developed and approved, our potential products
may not achieve market acceptance. Any products resulting from our programs may
not be successfully developed or commercially available for a number of years,
if at all.
Moreover, unacceptable toxicity or side effects could occur at any time in the
course of human clinical trials or, if any products are successfully developed
and approved for marketing, during commercial use of any of our proposed
products. The appearance of any unacceptable toxicity or side effects could
interrupt, limit, delay or abort the development of any of our proposed products
or, if previously approved, necessitate their withdrawal from the market.
THE MARKET FOR TREATING ACUTE RADIATION SYNDROME IS UNCERTAIN AND WE MAY NOT BE
ABLE TO SUCCESSFULLY COMMERCIALIZE RADILEX.
We do not believe any drug has ever been approved and commercialized for the
treatment of severe acute radiation injury. In addition, the incidence of
large-scale exposure to nuclear or radiological events has been low.
Accordingly, even if Radilex, our lead drug candidate to treat Acute Radiation
Syndrome (ARS), is approved by the FDA, we cannot predict with any certainty the
size of this market. The potential market for Radilex is largely dependent on
the size of stockpiling orders, if any, procured by the U.S. and foreign
governments. While a number of governments have historically stockpiled drugs to
treat indications such as smallpox, anthrax exposure, plague, tularemia and
certain long-term effects of radiation exposure, we are unaware of any
significant stockpiling orders for drugs to treat ARS. While we have filed a
formal response to the U.S. Department of Health and Human Services Request for
Information (RFI) for therapeutics to treat ARS, at least one other company has
responded to this RFI, and we cannot guarantee that our response to this RFI
will result in a U.S. Department of Health and Human Services Request for
Proposal (RFP) or any stockpiling orders. A decision by the U.S. Government to
enter into a commitment to purchase Radilex prior to FDA approval is largely out
of our control. Our development plans and timelines may vary substantially
depending on whether we receive such a commitment and the size of such
commitment, if any. In addition, even if Radilex is approved by regulatory
authorities, we cannot guarantee that we will receive any stockpiling orders for
Radilex, that any such order would be profitable to us or that Radilex will
achieve market acceptance by the general public.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS.
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
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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 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.
IF WE OBTAIN REGULATORY APPROVAL OF OUR PRODUCTS, THEY WILL BE SUBJECT TO
CONTINUING REVIEW AND EXTENSIVE REGULATORY REQUIREMENTS, WHICH COULD AFFECT THE
MANUFACTURING AND MARKETING OF OUR PRODUCTS.
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. The FDA could withdraw a previously approved product from the market
upon receipt of newly discovered information, including a failure to comply with
regulatory requirements, the occurrence of unanticipated problems with products
following approval, or other reasons, which could adversely affect our operating
results.
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. We, or our contract
manufacturers, if any, may not 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.
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.
IF WE FAIL TO OBTAIN APPROVAL FROM FOREIGN REGULATORY AUTHORITIES, WE WILL NOT
BE ALLOWED TO MARKET OR SELL OUR PRODUCTS IN OTHER COUNTRIES.
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.
SIGNIFICANT DELAY OR FAILURE TO OBTAIN REGULATORY APPROVALS WOULD IMPEDE OUR
ABILITY TO GENERATE REVENUE.
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
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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.
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.
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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.
The manufacturing process of our proposed products is expected to involve a
number of steps and requires compliance with stringent quality control
specifications imposed by us and by the FDA. We have no experience in the sales,
marketing and distribution of pharmaceutical or biotechnology products. We have
not manufactured any of our products in commercial quantities. We may not
successfully make the transition from manufacturing clinical trial quantities to
commercial production quantities or be able to arrange for contract
manufacturing and this could prevent us from commercializing products or limit
our profitability from our products.
WE RELY ON THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE OF HOMSPERA. OUR
INABILITY TO MANUFACTURE 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
14
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 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 us 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.
THE MEDICAL COMMUNITY MAY NOT ACCEPT AND UTILIZE HOMSPERA, WHICH WOULD PREVENT
US FROM SUCCESSFULLY COMMERCIALIZING THE PRODUCT.
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 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.
We face an inherent business risk of exposure to product liability and other
claims and lawsuits in the event that the development or use of our technology
or prospective products is alleged to have resulted in adverse effects. We may
not be able to avoid significant liability exposure. We may not have sufficient
insurance coverage, and we may not be able to obtain sufficient coverage at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of our products. A product
liability claim could hurt our financial performance. Even if we avoids
liability exposure, significant costs could be incurred that could hurt our
financial performance.
AS A RESULT OF OUR INTENSELY COMPETITIVE INDUSTRY, WE MAY NOT GAIN ENOUGH
MARKETSHARE TO BE PROFITABLE.
The biotechnology and pharmaceutical industries are intensely competitive. We
have numerous competitors in the United States and elsewhere. Because we are
pursuing potentially large markets, our competitors include major multinational
pharmaceutical companies, specialized biotechnology firms and universities and
other research institutions. Several of these entities have already successfully
marketed and commercialized products that will compete with our products,
assuming that our products gain regulatory approval. Competitors such as
Hollis-Eden Pharmaceuticals, Inc. have developed or are developing products for
the treatment of severe acute radiation injury. Companies such as VaxGen, Inc.,
Acambis plc and Emergent BioSolutions have developed or are developing vaccines
against infectious diseases, including anthrax.
Many of our competitors have greater financial and other resources, larger
research and development staffs and more effective marketing and manufacturing
organizations than we do. In addition, academic and government institutions have
become increasingly aware of the commercial value of their research findings.
These institutions are now more likely to enter into exclusive licensing
agreements with commercial enterprises, including our competitors, to develop
and market commercial products.
15
Our competitors may succeed in developing or licensing technologies and drugs
that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates before we do. If competing drug candidates prove to be more effective
or less costly than our drug candidates, our drug candidates, even if approved
for sale, may not be able to compete successfully with our competitors' existing
products or new products under development. If we are unable to compete
successfully, we may never be able to sell enough products at a price sufficient
to permit us to generate profits.
IF WE FAIL TO ATTRACT AND RETAIN HIGHLY SKILLED SCIENTIFIC PERSONNEL, OUR GROWTH
COULD BE LIMITED, 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 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. We cannot guarantee that
we will be able to replace any of our scientific personnel in the event their
services become unavailable.
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF RESEARCH AND DEVELOPMENT EFFORTS.
We own or have obtained a license to 4 issued U.S. and foreign patents and 24
pending U.S. and foreign patent applications. Our 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.
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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 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.
COMPLIANCE WITH ENVIRONMENTAL LAWS OR REGULATIONS COULD 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
17
quantities of these products for our clinical trials. Our research and
development and manufacturing processes involve the controlled storage, use and
disposal of hazardous materials, biological hazardous materials and radioactive
compounds. We are subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of these
materials and some waste products. Although we believe that our safety
procedures for handling and disposing of these materials comply with the
standards prescribed by these laws and regulations, the risk of contamination or
injury from these materials cannot be completely eliminated. In the event of an
incident, ImmuneRegen BioSciences, Inc. could be held liable for any damages
that result, and any liability could exceed our resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.
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 COMPLIANCE WITH SECURITIES LAWS, RULES AND REGULATIONS TO WHICH WE ARE
SUBJECT COULD SUBSTANTIALLY INCREASE OUR OPERATING EXPENSES AND DIVERT
MANAGEMENT'S ATTENTION FROM THE OPERATION OF OUR BUSINESS.
Because our common stock is publicly traded, we are subject to a variety of
rules and regulations of federal, state and financial market exchange entities
charged with the protection of investors and the oversight of companies whose
securities are publicly traded. These entities, including the SEC, the Public
Company Accounting Oversight Board and the NASD OTC Bulletin Board, have
recently issued new requirements and regulations and are currently developing
additional regulations and requirements in response to recent laws enacted by
Congress, most notably the Sarbanes-Oxley Act of 2002. As certain rules are not
yet finalized, we do not know the level of resources we will have to commit in
order to be in compliance. Our compliance with current and proposed rules is
likely to require the commitment of significant financial and managerial
resources. As a result, our management's attention might be diverted from other
business concerns, which could negatively affect our business.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL OUR
BUSINESS AND MAY MAKE DECISIONS THAT ARE NOT IN OUR BEST INTERESTS.
Our officers, directors and principal stockholders, and their affiliates, in the
aggregate, own over a majority of the outstanding shares of our common stock. As
a result, such persons, acting together, have the ability to substantially
influence all matters submitted to our stockholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets, and to control our management and affairs.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in discouraging a potential acquirer form
making a tender offer or otherwise attempting to obtain control of our business,
even if such a transaction would be beneficial to other stockholders.
TRADING IN OUR SECURITIES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS THAT
COULD ADVERSELY AFFECT THE PRICE OF 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;
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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 April 3, 2005.
These broad market fluctuations may adversely affect the ability of a
stockholder to dispose of his shares at a price equal to or above the price at
which the shares were purchased. In addition, in the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against that company. Any
litigation against our company, including this type of litigation, could result
in substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our business, financial condition and
results of operations.
A LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK.
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.
BROKER-DEALER REQUIREMENTS FOR "PENNY STOCK" TRANSACTIONS MAY AFFECT THE ABILITY
OF OUR INVESTORS TO RESELL THEIR SECURITIES.
Our common stock is considered to be a "penny stock" since 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. 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.
Compliance with this and other 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.
SALES OR ISSUANCES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND YOUR RIGHTS IN US MAY BE REDUCED.
Certain of our stockholders have the right to register securities for resale
that they hold pursuant to registration rights agreements. We expect to continue
to incur product development and selling, general and administrative costs, and
in order to satisfy our funding requirements, we will need to sell additional
equity securities, which may be subject to similar registration rights. The sale
or the proposed sale of substantial amounts of our common stock in the public
markets may adversely affect the market price of our common stock. We expect
that an aggregate of 52,391,374 shares of our
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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.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including our
principal executive and financial officers, as appropriate to allow timely
decisions regarding required disclosure.
As of the end of the period covered by this Quarterly Report, we conducted an
evaluation, under the supervision and with the participation of our chief
executive officer and chief financial officer, of our disclosure controls and
procedures (as defined in Rules 13a-15(e) of the Exchange Act). Based on this
evaluation, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures need improvement and were not
adequately effective as of March 31, 2005 to ensure timely reporting with the
Securities and Exchange Commission.
Our management is in the process of identifying deficiencies with respect to our
disclosure controls and procedures and implementing corrective measures, which
include the establishment of new internal policies related to financial
reporting.
(b) Changes in internal controls
There have been no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended
March 31, 2005 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Please refer to our Annual Report on Form 10-KSB for the year ended December 31,
2004 regarding litigation and claims.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company accrued the issuance of 75,000 shares of common stock during the
three months ended March 31, 2005. Pursuant to the terms of their respective
agreements with us, 25,000 of these shares are to be issued to our Chief
Financial Officer and 50,000 are to be issued to a consultant during the first
quarter ended March 31, 2005. The shares will bear a restrictive legend
regarding the sale or transfer of such. The shares were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder. Our Chief Financial
Officer and the consultant each qualifies as an accredited investor (as defined
by Rule 501 under the Securities Act of 1933, as amended).
The Company accrued the issuance of 268,033 common stock purchase warrants
during the three months ended March 31, 2005. The exercise prices of these
warrants range from $0.125 to $0.50 per share. The warrants expire three years
after date of issuance. Pursuant to the terms of their respective agreement with
us, 264,133 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
March 31, 2005 and 3,900 warrants are to be granted to a consultant. 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
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32.2 Certifications of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
o * This exhibit shall not be deemed "filed" for purposes
of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that section,
nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or
after the date hereof and irrespective of any general
incorporation language in any filings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on May 23, 2005.
IR BioSciences Holdings, Inc.
By: /S/ Michael K. Wilhelm
-----------------------------------
Michael K. Wilhelm
President, Chief Executive Officer
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