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As Filed with the Securities and Registration No. 333-120784
Exchange Commission on November 16, 2005
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2/A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 2)
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IR BIOSCIENCES HOLDINGS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 2834 13-3301899
------------------------------ ---------------------------- ------------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
4021 North 75th Street, Suite 201
Scottsdale, Arizona 85251
(480) 922-3926
(Address and Telephone Number of Principal Executive Offices)
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Michael K. Wilhelm, Chief Executive Officer
4021 North 75th Street, Suite 201
Scottsdale, Arizona 85251
(480) 922-3926
(Name, Address and Telephone Number of Agent for Service)
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Copies to
Thomas J. Poletti, Esq.
Michael S. Yu, Esq.
Kirkpatrick & Lockhart Nicholson Graham LLP
10100 Santa Monica Blvd., 7th Floor
Los Angeles, CA 90067`
Telephone (310) 552-5000 Facsimile (310) 552-5001
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Approximate Date of Proposed Sale to the Public: From time to time after the
effective date of this Registration Statement
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
==============================================================================================================================
Proposed
Proposed Maximum Maximum
Amount To Be Offering Price Aggregate Amount of
Title of Each Class of Securities To Be Registered Registered (1) Per Share Offering Price Registration Fee
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Common stock, $.001 par value (5) 37,141,981 $0.18(2) $6,685,557(2) $ 847(7)
Common stock, $.001 par value (6) 10,019,600 0.18(2) 1,803,528(2) 229(7)
Common stock, $.001 par value (5) 5,192,135 0.31(3) 1,609,562(3) 189(7)
Common stock, $.001 par value (6) 5,432,891 0.31(3) 1,684,196(3) 198(7)
Common stock, $.001 par value (5) 2,545,140 0.50(4) 1,272,570(4) 150
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Total Registration Fee $1,613
=========
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(Footnotes to table on next page)
--------------------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall hereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to such Section 8(a), may determine.
(1) In accordance with Rule 416(a), the Registrant is also registering
hereunder an indeterminate number of additional shares of common stock
that shall be issuable pursuant to Rule 416 to prevent dilution resulting
from stock splits, stock dividends or similar transactions.
(2) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee based on the
average of the bid and ask prices reported on the OTC Bulletin Board on
November 22, 2004.
(3) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee based on the
average of the bid and ask prices reported on the OTC Bulletin Board on
July 19, 2005.
(4) Estimated pursuant to Rule 457(c) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee based on the
average of the bid and ask prices reported on the OTC Bulletin Board on
November 11, 2005.
(5) Represents shares of the Registrant's common stock being registered for
resale that have been issued to the selling stockholders named in the
prospectus or a prospectus supplement.
(6) Represents shares of the Registrant's common stock being registered for
resale that have been or may be acquired upon the exercise of warrants
issued to the selling stockholders named in the prospectus or a prospectus
supplement.
(7) Previously paid.
PROSPECTUS
Subject to Completion, Dated November 16, 2005
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
--------------------------------------------------------------------------------
60,331,747 Shares
IR BIOSCIENCES HOLDINGS, INC.
COMMON STOCK
This prospectus relates to 60,331,747 shares of common stock of IR
BioSciences Holdings, Inc. that may be sold from time to time by the selling
stockholders named in this prospectus. We will not receive any proceeds from the
sales by the selling stockholders, but we will receive funds from the exercise
of warrants held by selling stockholders, if exercised.
--------------------------------------
Our common stock is traded on the OTC Bulletin Board maintained by the
National Association of Securities Dealers, Inc. under the symbol "IRBO." On
November 11, 2005, the closing sales price for our common stock on the OTCBB was
$0.50 per share.
--------------------------------------
The securities offered by this prospectus involve a high degree of
risk. See "Risk Factors" beginning on page 7.
--------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------------------------------
The date of this prospectus is November 16, 2005
TABLE OF CONTENTS
Prospectus Summary.............................................................1
Risk Factors...................................................................6
Special Note Regarding Forward-Looking Statements.............................17
Use Of Proceeds...............................................................19
Dividend Policy...............................................................19
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations...............................................19
Business......................................................................30
Management....................................................................43
Certain Relationships And Related Transactions................................48
Selling Stockholders..........................................................52
Description Of Capital Stock..................................................76
Shares Eligible For Future Sale...............................................81
Plan Of Distribution..........................................................82
Legal Matters.................................................................84
Experts.......................................................................84
Additional Information........................................................85
Index To Financial Statements................................................F-1
-i-
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus, and it
may not contain all of the information that is important to you. You should read
the following summary together with the more detailed information regarding our
company and the common stock being sold in this offering, including "Risk
Factors" and our consolidated financial statements and related notes, included
elsewhere in, this prospectus. All share and per share information included in
this prospectus has been adjusted for a 1-for-20 reverse split of our common
stock that we effected in July 2003 and a 2-for-1 forward stock split of our
common stock that we effected in April 2004.
Please read this prospectus carefully. It describes our business, our
financial condition and results of operations. We have prepared this prospectus
so that you will have the information necessary to make an informed investment
decision.
You should rely on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to sell
shares of our common stock and seeking offers to buy shares of our common stock
only in jurisdictions where offers and sales are permitted. The information
contained in this prospectus is accurate only as of the date of the prospectus,
regardless of the time the prospectus is delivered or the common stock is sold.
OUR COMPANY
GENERAL
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of Homspera(TM), a proprietary
compound that is derived from homeostatic substance P, a naturally occurring
peptide. Currently, the majority of our development efforts are centered on two
drug candidates derived from Homspera, Radilex(TM) and Viprovex(TM). Radilex has
been formulated specifically for the indication of acute exposure to radiation.
Viprovex was formulated specifically for applications relating to the treatment
maladies caused by the exposure to various chemical and biological agents. Our
research and development efforts are at a very early stage and Radilex and
Viprovex have only undergone pre-clinical testing in mice.
We own or have obtained a license to 2 issued U.S. and 2 issued foreign
patents and 5 pending Patent Cooperation Treaty (PCT) applications, 6 pending
U.S. applications and 15 pending foreign patent applications.
Our therapies and technologies utilizing Radilex, Viprovex and Homspera
are at early stages of development and may not be shown to be safe or effective
and may never receive regulatory approval. Our technologies utilizing Radilex,
Viprovex and Homspera have not yet been tested in humans. Regulatory authorities
may not permit human testing of potential products based on these technologies.
Even if human testing is permitted, any potential products based on Homspera may
not be successfully developed or shown to be safe or effective.
The results of our preclinical studies and clinical trials may not be
indicative of 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.
Our principal offices are located at 4021 North 75th Street, Suite 201,
Scottsdale, Arizona 85251 and our telephone number is (480) 922-3926. We are
incorporated in Delaware. We maintain a website at www.immuneregen.com. The
reference to our worldwide web address does not constitute incorporation by
reference of the information contained on our website.
COMPANY HISTORY
-1-
We were originally incorporated in Delaware in June 1985 under the name
Vocaltech, Inc. to develop, design, manufacture and market products utilizing
proprietary speech-generated tactile feedback devices. We completed our initial
public offering of our securities in October 1987. We changed our name to
InnoTek, Inc. in November 1992. In January 1992, we effected a 1-for-6.3 reverse
stock split of our common stock. In December 1994, we acquired all of the
outstanding stock of InnoVisions, Inc., a developer and marketer of skin
protective products, discontinued our prior operations in their entirety and
changed our name to DermaRx Corporation. In April 2000, we effected a reverse
merger with a subsidiary of Go Public Network, Inc., which was engaged in
assisting early-stage development and emerging growth companies with financial
and business development services. We changed our name to GoPublicNow.com, Inc.,
effected a 1-for-5 reverse stock split and discontinued our prior operations in
their entirety. In November 2000, we changed our name to GPN Network, Inc. In
July 2001, we discontinued the operations of GPN Network, Inc. in their entirety
and began looking for appropriate merger partners. Our objective became the
acquisition of an operating company with the potential for growth in exchange
for our securities. In July 2003, we effected a reverse merger with ImmuneRegen
BioSciences, Inc. and adopted our current business model. In July 2003, we
effected a 1-for-20 reverse stock split, and in April 2004, we effected a
2-for-1 stock split. ImmuneRegen BioSciences, Inc. was incorporated in October
2002; all information contained herein refers to the operations of ImmuneRegen
BioSciences, Inc., our wholly-owned operational subsidiary.
RECENT DEVELOPMENTS
On August 10, 2005, we entered into a new employment agreement with our
President and Chief Executive Officer, Michael K. Wilhelm. The employment
agreement calls for a salary at the rate of $275,000 per annum. The salary will
be subject to adjustment of at least 10% per year at the end of each year. We
also agreed to defend and indemnify, to the fullest extent permitted by our
certificate of incorporation and bylaws and the Delaware General Corporation
Law, Mr. Wilhelm and hold him harmless against any liability that he incurs
within the scope of his employment under the agreement. The agreement also
provides for the following various bonus incentives:
(i) A target incentive bonus in cash and/or stock if we consummate
a transaction with any unaffiliated third party such as an
equity or debt financing, acquisition, merger , strategic
partnership or other similar transaction.
(ii) A one time grant of an incentive option to purchase 103,030
shares of the Company's Common Stock, at an exercise price of
$0.33 and a nonstatutory option to purchase 1,896,970 shares
at an exercise price equal to the fair market value per share
on the date the option is granted and at such time that the
Company's 2003 Stock Plan is amended to authorize additional
shares,
In connection with Mr. Wilhelm's new employment agreement, we also
entered into a Change of Control Agreement and a Severance Agreement with him on
August 10, 2005. Under the Change of Control Agreement, Mr. Wilhelm shall be
entitled to a continuation of his base salary for a period of 18 months
following an Involuntary Termination, which means, at any time within that
period which is one-year from the change of control date (including such date),
the termination of the employment of Mr. Wilhelm (i) by us without Cause or (ii)
due to Constructive Termination, as such terms are defined in the Change of
Control Agreement. Further, in the event of an Involuntary Termination, the
agreement provides that we shall pay Mr. Wilhelm a lump sum amount in cash,
equal to the sum of (i) any unpaid incentive compensation which has been
allocated or awarded to Mr. Wilhelm for a completed fiscal year or other
measuring period preceding the date of Involuntary Termination under any annual
or long-term incentive plan and which, as of the date of Involuntary
Termination, is contingent only upon the continued employment of Mr. Wilhelm to
a subsequent date, and (ii) a pro rata portion to the date of Involuntary
Termination of the aggregate value of all contingent incentive compensation
awards to Mr. Wilhelm for all then uncompleted periods under any such plan.
Further, 100% of the unvested portion of each outstanding stock option granted
to Mr. Wilhelm shall be accelerated so that they become immediately exercisable
upon the date of Involuntary Termination.
Under the Severance Agreement, Mr. Wilhelm shall be entitled to a
continuation of his base salary for a period of 18 months following an
Involuntary Termination, which means the termination of the employment of Mr.
Wilhelm (i) by us without Cause or (ii) due to Constructive Termination, as such
terms are defined in the Severance Agreement. Further, in the event of an
Involuntary Termination, the agreement provides that we shall pay Mr.
-2-
Wilhelm an amount equal to the amount of executive incentive pay (bonus) that he
would have received for the year in which the Involuntary Termination occurred
had he met one hundred percent (100%) of the target for such incentive pay.
Also, under this agreement, 100% of the unvested portion of each outstanding
stock option granted to Mr. Wilhelm shall be accelerated so that they become
immediately exercisable upon the date of Involuntary Termination.
In June 2005, we issued 80,000 shares of common stock pursuant to the
exercise of a warrant at a price of $0.05 per share.
During nine months ended September 30, 2005, our Board of Directors
granted 150,000 discretionary incentive stock options to our Chief Executive
Officer, Michael K. Wilhelm, per his employment agreement. The options have an
exercise price of $0.44 and a term of five years.
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.
On December 9, 2004 we filed for trademarks with US Patent and
Trademark Office (US PTO) for Radilex and Viprovex. On August 23, 2005, these
trademarks were approved and passed to publication by the US PTO. September 6,
2005 was the publication date for these two patents.
In October 2004, we completed a private placement, whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors (the "Private
Placement"). Each unit was sold for $10,000 (the "Unit Price") and consisted of
(a) a number of shares of our common stock determined by dividing the Unit Price
by $0.125, and (b) a warrant to purchase, at any time prior to the fifth
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to fifty percent (50%) of the number of shares included
within the unit, at a price equal to $0.50 per share of common stock. We issued
in the Private Placement an aggregate of 19,600,000 shares of our common stock
and warrants to purchase 9,800,000 shares of our common stock. In consideration
of the investment, we granted to each investor certain registration rights and
anti-dilution rights.
Pursuant to the terms of a placement agency agreement, dated September
3, 2004, by and between us and Joseph Stevens & Co., Inc., we issued 4,900,000
shares of our common stock to Joseph Stevens & Co., Inc. or its designees, upon
the closing of the Private Placement. The shares were issued as consideration
for the services of Joseph Stevens & Co., Inc. as our placement agent in the
Private Placement.
Further to the Private Placement, we entered into a settlement
agreement with certain creditors whereby for full and complete satisfaction of
claims totaling an aggregate of $158,017 (the "Claim Amount"), we issued to the
creditors the following: (a) a number of shares of our common stock determined
by dividing the Claim Amount by $0.125, and (b) warrants to purchase, at any
time prior to the fifth anniversary following the date of issuance of the
warrant, a number of shares of our common stock equal to fifty percent (50%) of
the number of shares described above, at a price equal to $0.50 per share of
common stock. The warrants are identical to the warrants issued in the Private
Placement. Pursuant to the settlement we issued an aggregate of 1,257,746 shares
of common stock and warrants to purchase 628,873 shares of common stock. Under
the terms of the settlement agreement, the creditors released us from all
claims, known or unknown, relating to the Claim Amount.
Between June 2003 and August 2004 eleven investors entered into fifteen
convertible promissory notes totaling $558,500 with interest rates ranging
between 8% and 12% and having various maturities. In October 2004, these notes
were converted into equity in the aggregate amount of $558,500 plus accrued
interest of $56,757. For full and complete satisfaction of debt, we issued to
the note holders the following: (a) a number of shares of our common stock
determined by dividing the debt amount by an amount between $0.075 and $0.125,
and (b) warrants to purchase, at any time prior to the fifth anniversary
following the date of issuance of the warrant, a number of shares of our common
stock equal to fifty percent (50%) of the number of shares described above, at a
price equal to $0.50 per share of common stock. The warrants are identical to
the warrants issued in the Private Placement. Pursuant to the debt conversion we
issued an aggregate of 6,694,149 shares of common stock and warrants to purchase
3,347,076 shares of common stock. Under the terms of the conversion agreement,
the note holders released us from all claims, known or unknown, relating to the
debt amount.
-3-
Effective December 17, 2004, Eric Hopkins resigned from his position as
our Chief Financial Officer.
Effective December 22, 2004, Dr. Harris resigned from his position as a
member of our Board of Directors and a member of the Board of Directors of
ImmuneRegen BioSciences, Inc., our subsidiary
Effective December 22, 2004, Steven J. Scronic resigned from his
position as our Corporate Secretary.
Our board of directors appointed John N. Fermanis to serve as our Chief
Financial Officer, effective as of December 22, 2004. Our Board resolved to
issue 100,000 shares of registered common stock to Mr. Fermanis for his
acceptance of this position. These shares were issued to Mr. Fermanis in May
2005.
Our board of directors appointed Michelle R. Laroche to serve as our
Corporate Secretary, effective as of December 22, 2004.
THE OFFERING
Common stock offered by selling stockholders.....60,331,747 shares(1)
Common stock outstanding.........................69,475,428 shares(2)
Use of proceeds..................................We will not receive any
proceeds from the sale of the
common stock, but we will
receive funds from the exercise
of warrants by selling
stockholders, if exercised.
OTC Bulletin Board...............................IRBO
(1) Represents 51,045,234 shares of our common stock that were issued to
selling stockholders and 9,286,573 shares of our common stock underlying
warrants that were issued to selling stockholders.
(2) The number of shares of common stock outstanding as of October 3, 2005
listed above excludes:
o 63,212 shares of our common stock issuable upon exercise of options
at a weighted average exercise price of $25.00 per share that were
granted outside of our 2003 Stock Option, Deferred Stock and
Restricted Stock Plan.
o 150,000 5-year common stock purchase options at an exercise price of
$0.44 have been granted under our 2003 Stock Option, Deferred Stock
and Restricted Stock Plan; and,
o 103,030 5 -year common stock purchase options at an exercise price
of $0.33 have been granted under our 2003 Stock Option, Deferred
Stock and Restricted Stock Plan.
o 11,651,502 shares of our common stock issuable upon exercise of
warrants with exercise prices ranging from $0.01 to $2.00 per share.
o 430,438 common shares that have been committed due to convertible
features of notes, employment and advisory agreements that are not
yet issued.
o The total number of shares of common stock offered for resale by the
selling stockholders includes 4,150,800 shares and 1,634,400
five-year warrants with an exercise price of $0.50 to be issued in
connection with a penalty clause regarding the registerance of
shares sold in our Private Offering in October 2004. For each 30-day
period beyond 90-days following the second closing date (October 26,
2004), we have agreed to issue to the holders of units sold in the
Private Offering an additional 2% a month, or in aggregate 461,200
shares and 181,600 warrants until such a time as this Registration
Statement is made effective. We have committed these shares although
they remain unissued.
-4-
SUMMARY FINANCIAL INFORMATION
The following summary financial information has been derived from the
financial statements that are included elsewhere in this prospectus. You should
read this information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and the related notes thereto included elsewhere in this prospectus.
For the Three For the Three For the Nine For the Nine Cumulative from
Months Ended Months Ended Months Ended Months Ended Inception (October
Sept 30, Sept 30, Sept 30, Sept 30, 30, 2002) to
2005 2004 2005 2004 Sept 30, 2005
--------------- ---------------- ------------- ------------- -------------
Revenues -- -- -- -- --
Operating expenses:
Selling, general and
administrative expenses $ 507,445 $ 1,041,152 $ 1,939,800 $ 3,546,641 $ 7,529,684
Merger fees and costs -- -- -- -- 350,000
Financing cost 579,575 -- 2,072,831 -- 2,162,831
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,087,020 1,041,152 4,012,631 3,546,641 10,042,515
Operating loss (1,087,020) (1,041,152) (4,012,631) (3,546,641) (10,042,515)
Other expense:
Interest income (expense) 5,925 (70,612) 4,607 (506,427) (1,173,536)
------------ ------------ ------------ ------------ ------------
Total other expense 5,925 (70,612) 4,607 (506,427) (1,173,536)
Loss before income taxes (1,081,095) (1,111,764) (4,008,024) (4,053,068) (11,216,051)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (1,081,095) $ (1,111,764) $ (4,008,024) $ (4,053,068) $(11,216,051)
============ ============ ============ ============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.04) $ (0.06) $ (0.15) $ (0.31)
Weighted average shares outstanding -
basic and diluted 69,337,210 29,040,133 67,103,634 27,129,221 36,302,076
============ ============ ============ ============ ============
-5-
ADDITIONAL INFORMATION
We were originally incorporated in Delaware under the name of
Vocaltech, Inc. in June 1985. We changed our name to InnoTek, Inc. in November
1992, to DermaRx Corporation in December 1994, to GoPublicNow.com, Inc. in April
2000, to GPN Network, Inc. in November 2000 and to IR BioSciences Holdings, Inc.
in August 2003. Our executive offices are located at 4021 N. 75th Street, Suite
201, Scottsdale, Arizona 85251. Our telephone number is (480) 922-3926.
In this prospectus, the terms "we," "us," and "our" refer to IR
BioSciences Holdings, Inc., a Delaware corporation, and its consolidated
subsidiary, as appropriate in the context, and, unless the context otherwise
requires, "common stock" refers to the common stock, par value $0.001 per share,
of IR BioSciences Holdings, Inc.
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common
stock. The risks described below are all of the material risks that are facing
our company. If any of the following risks actually occur, our business,
financial condition and results of operations could be harmed. The trading price
of our common stock could decline, and you may lose all or part of your
investment in our common stock.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE HAVE LIMITED CASH RESOURCES, AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY
PROFITABLE AND EXPECT TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
As of September 30, 2005, the Company had a working capital deficit of
$1,725,791. This amount consists of cash of $667,041 and current assets of
$15,713, accounts payable of $170,909, accrued current liabilities of $164,805
and an accrued current liability of $2,072,831 related to a penalty for the late
registration of the securities sold in the Company's recent private placement.
The Company anticipates settling this late registration penalty in additional
shares of common stock and warrants to purchase additional shares of common
stock. If this non-cash liability were to be removed from the Company's working
capital position as of September 30, the Company would have working capital of
$347,040. We have incurred a substantial net loss for the period from our
inception in October 2002 to September 30, 2005, and are currently experiencing
negative cash flow. We expect to continue to experience negative cash flow and
operating losses through at least 2008 and possibly thereafter. As a result, we
will need to generate significant revenues to achieve profitability.
WE MAY FAIL TO BECOME AND REMAIN PROFITABLE OR WE MAY BE UNABLE TO FUND OUR
CONTINUING LOSSES, IN WHICH CASE OUR BUSINESS MAY FAIL.
We are focused on product development and have not generated any
revenue to date. We have incurred operating losses since our inception. Our net
loss for the nine months ended September 30, 2005 and for fiscal year 2004 was
$4,008,024 and $5,305,407, respectively. As of September 30, 2005, we had an
accumulated deficit of $11,216,051.
WE EXPECT TO INCUR LOSSES AS WE RESEARCH, DEVELOP AND SEEK REGULATORY APPROVALS
FOR OUR PRODUCTS.
If our products fail in clinical trials or do not gain regulatory
approval, or if our products do not achieve market acceptance, we will not be
profitable. If we fail to become and remain profitable, or if we are unable to
fund our continuing losses, our business may fail. In addition, to compete
effectively, our future products must be easy to use, cost-effective and
economical to manufacture on a commercial scale. We may not achieve any of these
objectives.
IF WE DO NOT OBTAIN GOVERNMENT REGULATORY APPROVAL FOR OUR PRODUCTS, WE CANNOT
SELL OUR PRODUCTS AND WE WILL NOT GENERATE REVENUES.
-6-
Our principal development efforts are currently centered around a class
of drug candidates based on Homspera, a synthesized version of Substance P, a
naturally occurring peptide. We believe that these candidates show promise for
the treatment of diseases and disorders in which the body is unable to mount an
appropriate immune response. However, all drug candidates require U.S. Food and
Drug Administration ("FDA") and foreign government approvals before they can be
commercialized. These regulations change from time to time and new regulations
may be adopted. None of our drug candidates have been approved for commercial
sale. We may incur significant additional operating losses over the next several
years as we fund development, clinical testing and other expenses while seeking
regulatory approval. To date we have conducted limited preclinical studies of
our potential drug candidates using various small animal models, significant
additional trials are required, and we may not be able to demonstrate that these
drug candidates are safe or effective. If we are unable to demonstrate the
safety and effectiveness of a particular drug candidate to the satisfaction of
regulatory authorities, the drug candidate will not obtain required government
approval. If we do not receive FDA or foreign approvals for our products, we
will not be able to sell our products and will not generate revenues. If we
receive regulatory approval of a product, such approval may impose limitations
on the indicated uses for which we may market the product, which may limit our
ability to generate significant revenues.
WE WILL NEED TO CONDUCT SIGNIFICANT ADDITIONAL RESEARCH, PRECLINICAL TESTING AND
CLINICAL TESTING BEFORE WE CAN FILE APPLICATIONS WITH THE FDA FOR APPROVAL OF
OUR PRODUCT CANDIDATES.
To date we have not yet made applications with the FDA or any other
governmental regulatory agency for approval for our product candidates. Until
such as time as our New Drug Application (NDA) is filed and subsequently
approved, we will not be able to manufacture products.
Our research and preclinical testing is currently directed in
developing products candidates based on our proprietary compound, Homspera. We
have demonstrated in early preclinical studies evidence that may suggest that
Homspera may be used to treat the suppression of the body's immune system caused
by exposure to various forms of radiation, toxic inhalants and viral infectious
diseases. As a research and development company, we may, from time to time,
pursue the development of other products based on discoveries made during our
studies. To differentiate from these other potential future applications, we are
developing specific candidates under the name Radilex as a potential treatment
for maladies caused by exposure to various forms of radiation, and Viprovex, as
a potential treatment to various toxic inhalants and viral infectious diseases.
We are currently conducting formulation, toxicity and stability studies
on Homspera, Radilex and Viprovex. We anticipate that these studies will be
completed in 6 to 9 months.
Also in conjunction with these studies, we plan to begin a rodent study
using Radilex. We expect the study to be completed within 6 to nine months. In
parallel with the rodent study, we intend to begin our preparations for the
filing of an Investigational New Drug Application (IND). We expect the IND to be
filed with the FDA within the next 12 months. At the conclusion of the rodent
study, we anticipate commencing a study in non-human primates. We expect this
study to be completed within 16 months. Based on positive study results, we
expect to file a New Drug Application (NDA) with the FDA in 24 to 36 months.
We are currently conducting a pre-clinical study on the efficacy of
Viprovex as a treatment for exposure to anthrax with the Air Force School of
Aeronautical Medicine. We expect this study to conclude within the next 45 to 60
days. In addition, we have recently prepared the protocol for a pre-clinical
study using Viprovex in the treatment of influenza. We expect this study to
begin in the first quarter of 2006 to be completed within 120 days. After the
conclusion of these aforementioned studies, we expect to design and perform
additional studies in order to ascertain if filing an IND for Viprovex is
warranted.
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
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financial condition may be materially adversely affected. Our expense levels
will be based in part on our expectations concerning future revenues. A
significant portion of our revenue is anticipated to be derived from Homspera or
derivatives thereof; 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.
RISKS RELATED TO OUR BUSINESS
IF OUR PLAN IS NOT SUCCESSFUL OR MANAGEMENT IS NOT EFFECTIVE, THE VALUE OF OUR
COMMON STOCK MAY DECLINE.
Our operating subsidiary, ImmuneRegen BioSciences, Inc., was founded in
October 2002. As a result, we are a development stage company with a limited
operating history that makes it impossible to reliably predict future growth and
operating results. Our business and prospects must be considered in light of the
risks and uncertainties frequently encountered by companies in their early
stages of development. In particular, we have not demonstrated that we can
o ensure that our products function as intended in human
clinical applications;
o obtain the regulatory approvals necessary to commercialize
products that we may develop in the future;
o manufacture, or arrange for third-parties to manufacture,
future products in a manner that will enable us to be
profitable;
o establish many of the business functions necessary to operate,
including sales, marketing, administrative and financial
functions, and establish appropriate financial controls;
o make, use, and sell future products without infringing upon
third party intellectual property rights; or,
o respond effectively to competitive pressures.
We cannot be sure that we will be successful in meeting these
challenges and addressing these risks and uncertainties. If we are unable to do
so, our business will not be successful.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS. IF WE
CANNOT RAISE NEEDED ADDITIONAL CAPITAL IN THE FUTURE, WE WILL BE REQUIRED TO
CEASE OPERATIONS.
Based on our current plans, we believe our existing financial
resources, and interest earned thereon, will be sufficient to meet our operating
expenses and capital requirements through January 2006. However, changes in our
research and development plans or other events affecting our operating expenses
may result in the expenditure of such cash before that time. We may require
substantial additional funds in order to finance our drug discovery and
development programs, fund operating expenses, pursue regulatory clearances,
develop manufacturing, marketing and sales capabilities, and prosecute and
defend our intellectual property rights. We may seek additional funding through
public or private financing or through collaborative arrangements with strategic
partners.
You should be aware that in the future:
o we may not obtain additional financial resources when
necessary or on terms favorable to us, if at all; and,
o any available additional financing may not be adequate.
If we cannot raise additional funds when needed, or on acceptable
terms, we will not be able to continue to
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develop our drug candidates. We require substantial working capital to fund our
operations. Since we do not expect to generate significant revenues in the
foreseeable future, in order to fund operations, we will be completely dependent
on additional debt and equity financing arrangements. There is no assurance that
any financing will be sufficient to fund our capital expenditures, working
capital and other cash requirements beyond January 2006. Our working capital as
of September 30, 2005 was $347,040 net of the accrual of securities pursuant to
the penalty provision of our October 2004 private placement. 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 product candidates 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 product candidates 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, or
more specifically Radilex and Viprovex, will require significant additional
research and development efforts and regulatory approvals prior to potential
commercialization in the future. We cannot guarantee that we, or our corporate
collaborators, if any, will ever obtain any regulatory approvals of Homspera. We
currently are focusing our core competencies on the development of Radilex and
Viprovex although there may be no assurance that we will be successful in so
doing.
Our therapies and technologies utilizing Homspera, including but not
limited to Radilex and Viprovex, are at an early stage 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.
The results of our preclinical studies may not be indicative of future
preclinical or clinical trial results. A commitment of substantial resources to
conduct time-consuming research, preclinical studies and clinical trials will be
required if we are to develop any products. Delays in planned patient enrollment
in our clinical trials may result in increased costs, program delays or both.
None of our potential products may prove to be safe or effective in clinical
trials. Approval of the Unites States Food and Drug Administration, the FDA, or
other regulatory approvals, including export license permissions, may not be
obtained and even if successfully developed and approved, our potential products
may not achieve market acceptance. Any products resulting from our programs may
not be successfully developed or commercially available for a number of years,
if at all.
Moreover, unacceptable toxicity or side effects could occur at any time
in the course of human clinical trials or, if any products are successfully
developed and approved for marketing, during commercial use of any of our
proposed products. The appearance of any unacceptable toxicity or side effects
could interrupt, limit, delay or abort the development of any of our proposed
products or, if previously approved, necessitate their withdrawal from the
market.
THE MARKET FOR TREATING ASPECTS OF ACUTE RADIATION SYNDROME AND EXPOSURE TO
VARIOUS CHEMICAL AND BIOLOGICAL AGENTS IS UNCERTAIN AND IF WE ARE UNABLE TO
SUCCESSFULLY COMMERCIALIZE RADILEX OR VIPROVEX, WE WILL NOT RECOGNIZE A
SIGNIFICANT PORTION OF OUR FUTURE REVENUES, IF ANY
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We do not believe any drug has ever been approved and commercialized
for the treatment of severe acute radiation injury. In addition, the incidence
of large-scale exposure to nuclear, radiological or biological agents has been
low. Accordingly, even if Radilex, our leading drug candidate to treat aspects
of Acute Radiation Syndrome (ARS) and Viprovex, our leading candidate to treat
exposure to various biological agents, are approved by the FDA, we cannot
predict with any certainty the size of this market. The potential market for
Radilex and Viprovex is largely dependent on the size of stockpiling orders, if
any, procured by the U.S. and foreign governments. While a number of governments
have historically stockpiled drugs to treat indications such as smallpox,
anthrax exposure, plague, tularemia and certain long-term effects of radiation
exposure, we are unaware of any significant stockpiling orders for drugs to
treat ARS. While we have filed a formal response to the U.S. Department of
Health and Human Services Request for Information (RFI) for therapeutics to
treat ARS, at least one other company has responded to this RFI, and we cannot
guarantee that our response to this RFI will result in a U.S. Department of
Health and Human Services Request for Proposal (RFP) or any stockpiling orders.
A decision by the U.S. Government to enter into a commitment to purchase Radilex
or Viprovex prior to FDA approval is largely out of our control. Our development
plans and timelines may vary substantially depending on whether we receive such
a commitment and the size of such commitment, if any. In addition, even if
Radilex or Viprovex is approved by regulatory authorities, we cannot guarantee
that we will receive any stockpiling orders for Radilex or Viprovex, that any
such order would be profitable to us or that Radilex or Viprovex will achieve
market acceptance by the general public.
IF WE DO NOT OBTAIN GOVERNMENT REGULATORY APPROVAL FOR OUR PRODUCTS, WE CANNOT
SELL OUR PRODUCTS AND WE WILL NOT GENERATE REVENUES.
Our principal development efforts are currently centered around a class
of drug candidates based on Homspera, a synthesized, modified analog of
Substance P, a naturally occurring peptide. We believe that these candidates
show promise for the treatment of diseases, conditions and situation in which
the body's immune system is compromised or unable to respond appropriately.
However, all drug candidates require U.S. Food and Drug Administration ("FDA")
and foreign government approvals before they can be commercialized. These
regulations change from time to time and new regulations may be adopted. None of
our drug candidates have been approved for commercial sale. We may incur
significant additional operating losses over the next several years as we fund
development, clinical testing and other expenses while seeking regulatory
approval. To date we have conducted limited preclinical studies of our potential
drug candidates using various small animal models, significant additional
studies as well as clinical trials are required, and we may not be able to
demonstrate that these drug candidates are likely to be safe and effective for
human use. If we are unable to demonstrate the safety and effectiveness of a
particular drug candidate to the satisfaction of regulatory authorities, the
drug candidate will not obtain required government approval. If we do not
receive FDA or foreign approvals for our products, we will not be able to sell
our products and will not generate revenues. If we receive regulatory approval
of a product, such approval may impose limitations on the indicated uses for
which we may market the product, which may limit our ability to generate
significant revenues.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS, AND
THEREFORE ADVERSELY AFFECT THE TIMING AND LEVEL OF FUTURE REVENUES, IF ANY.
The process of obtaining FDA and other regulatory approvals is time
consuming, expensive and difficult to design and implement. Clinical trials are
required and the marketing and manufacturing of our applications are subject to
rigorous testing procedures. Significant delays in clinical trials will impede
our ability to commercialize our applications and generate revenue and could
significantly increase our development costs. The commencement and completion of
clinical trials for our Homspera-based applications or any of our applications
could be delayed or prevented by a variety of factors, including:
o delays in obtaining regulatory approvals to commence a study;
o delays in identifying and reaching agreement on acceptable
terms with prospective clinical trial sites;
o delays in the enrollment of patients;
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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.
Additionally, the FDA's policies may change and additional government
regulations may be enacted which could prevent or delay regulatory approval of
our applications. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are not able to maintain
regulatory compliance, we might not be permitted to market our future products
and our business could suffer.
Even if human clinical trials of Radilex, Viprovex and Homspera are
initiated and successfully completed, the FDA may not approve Radilex, Viprovex
and Homspera for commercial sale. We may encounter significant delays or
excessive costs in our efforts to secure necessary approvals. Regulatory
requirements are evolving and uncertain. Future United States or foreign
legislative or administrative acts could also prevent or delay regulatory
approval of our products. We may not be able to obtain the necessary approvals
for clinical trials, manufacturing or marketing of any of our products under
development. Even if commercial regulatory approvals are obtained, they may
include significant limitations on the indicated uses for which a product may be
marketed.
The FDA has not designated expanded access protocols for Radilex,
Viprovex and Homspera as "treatment" protocols. The FDA may not determine that
Radilex, Viprovex and Homspera meet all of the FDA's criteria for use of an
investigational drug for treatment use. Even if Radilex, Viprovex and Homspera
are allowed for treatment use, third party payers may not provide reimbursement
for the costs of treatment with Radilex, Viprovex and Homspera. The FDA also may
not consider Radilex, Viprovex and Homspera to be an appropriate candidate for
acceptance as Emergency Use Authorization for Promising Medical Countermeasures
Under Development, accelerated approval, expedited review or fast track
designation.
IF WE FAIL TO OBTAIN APPROVAL FROM FOREIGN REGULATORY AUTHORITIES, WE WILL NOT
BE ALLOWED TO MARKET OR SELL OUR PRODUCTS IN OTHER COUNTRIES, WHICH WOULD
ADVERSELY AFFECT OUR LEVELS OF FUTURE REVENUES, IF ANY.
Marketing any drug products outside of the United States will subject
us to numerous and varying foreign regulatory requirements governing the design
and conduct of human clinical trials and marketing approval. Additionally, our
ability to export drug candidates outside the United States on a commercial
basis will be subject to the receipt from the FDA of export permission, which
may not be available on a timely basis, if at all.
Approval procedures vary among countries and can involve additional
testing, and the time required to obtain approval may differ from that required
to obtain FDA approval. Foreign regulatory approval processes include all of the
risks associated with obtaining FDA approval set forth above, and approval by
the FDA does not ensure approval by the health authorities of any other country.
-11-
CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR
APPLICATIONS, THE EFFECT OF WHICH COULD PREVENT OR SIGNIFICANTLY DELAY
REGULATORY APPROVAL AND THEREFORE ADVERSELY AFFECT THE TIMING AND LEVEL OF
FUTURE REVENUES, IF ANY.
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.
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.
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IF THE MANUFACTURERS OF OUR PRODUCTS DO NOT COMPLY WITH CURRENT GOOD
MANUFACTURING PRACTICES REGULATIONS, OR CANNOT PRODUCE THE AMOUNT OF PRODUCTS
NEED TO CONTINUE OUR DEVELOPMENT, WE WILL FALL BEHIND ON OUR BUSINESS
OBJECTIVES.
Manufacturers producing our drug candidates must follow current Good
Manufacturing Practices, or GMP, regulations enforced by the FDA and foreign
equivalents. If a manufacturer of our drug candidates does not conform to the
GMP regulations and cannot be brought up to such a standard, we will be required
to find alternative manufacturers that do conform. This may be a long and
difficult process, and may delay our ability to receive FDA or foreign
regulatory approval of our products.
We also rely on our manufacturers to supply us with a sufficient
quantity of our drug candidates to conduct clinical trials. If we have
difficulty in the future obtaining our required quantity and quality of supply,
we could experience significant delays in our development programs and
regulatory process.
OUR LACK OF COMMERCIAL MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
EXPERIENCE MAY PREVENT US FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS WHICH WOULD
ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
The manufacturing process of our proposed products is expected to
involve a number of steps and requires compliance with stringent quality control
specifications imposed by us and by the FDA. We have no experience in the sales,
marketing and distribution of pharmaceutical or biotechnology products. We have
not manufactured any of our products. We may not successfully arrange for
contract manufacturing of our products in production quantities and this could
prevent us from commercializing products or limit our profitability from our
products.
WE RELY ON THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE OF RADILEX, VIPROVEX
AND HOMSPERA. OUR INABILITY TO MANUFACTURE RADILEX, VIPROVEX AND HOMSPERA, AND
OUR DEPENDENCE ON SUCH MANUFACTURERS, MAY DELAY OR IMPAIR OUR ABILITY TO
GENERATE REVENUES, OR ADVERSELY AFFECT OUR PROFITABILITY.
We may enter into arrangements with contract manufacturing companies in
order to meet requirements for our products or to attempt to improve
manufacturing efficiency. If we choose to contract for manufacturing services,
we may encounter costs, delays and/or other difficulties in producing, packaging
and distributing our clinical trials and finished product. Further, contract
manufacturers must also operate in compliance with the GMP requirements; failure
to do so could result in, among other things, the disruption of our product
supplies. Our potential dependence upon third parties for the manufacture of our
proposed products may adversely affect our profit margins and our ability to
develop and deliver proposed products on a timely and competitive basis.
For the manufacture of the applications under development, we obtain
synthetic peptides from third party manufacturers. A synthesized version of
substance P is readily available at low cost from several life science and
technology companies that provide biochemical and organic chemical products and
kits used in scientific and genomic research, biotechnology, pharmaceutical
development and the diagnosis of disease and chemical manufacturing. If any of
these proposed manufacturing operations prove inadequate, there may be no
assurance that any other arrangements may be established on a timely basis or
that we could establish other manufacturing capacity on a timely basis.
Although, we believe that the synthetic substance P and other materials
necessary to produce Radilex, Viprovex and Homspera are readily available from
various sources, and several suppliers are capable of supplying substance P in
both clinical and commercial quantities, our dependence on such manufacturers,
may delay or impair our ability to generate revenues, or adversely affect our
profitability.
ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING RADILEX, VIPROVEX AND
HOMSPERA WHICH WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
Our ability to earn sufficient revenue on Radilex, Viprovex and
Homspera or any other proposed products will depend in part on the extent to
which reimbursement for the costs of such products and related treatments will
be available from government health administration authorities, private health
coverage insurers, managed care organizations and other organizations. Failure
to obtain appropriate reimbursement may prevent us from successfully
commercializing Radilex, Viprovex and Homspera or any proposed products.
Third-party payers are increasingly challenging the prices of medical products
and services. If purchasers or users of Radilex, Viprovex and
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Homspera or any such other proposed products are not able to obtain adequate
reimbursement for the cost of using such products, they may forego or reduce
their use. Significant uncertainty exists as to the reimbursement status of
newly approved health care products and whether adequate third party coverage
will be available.
THE MEDICAL COMMUNITY MAY NOT ACCEPT AND UTILIZE RADILEX, VIPROVEX AND HOMSPERA,
THE EFFECT OF WHICH WOULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING THE
PRODUCT AND ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUE, IF ANY.
Our ability to market and commercialize Radilex, Viprovex and Homspera
depends on the acceptance and utilization of Homspera by the medical community.
We will need to develop commercialization initiatives designed to increase
awareness about us and Homspera among targeted audiences, including public
health activists and community-based outreach groups in addition to the
investment community. Currently, we have not developed any such initiatives.
Without such acceptance of Homspera, the product upon which we expect to be
substantially dependent, we may not be able to successfully commercialize
Homspera or generate revenue.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY OR COSTS WHICH
WOULD ADVERSELY IMPART OUR FUTURE OPERATING RESULTS AND DIVERT FUNDS FROM THE
OPERATION OF OUR BUSINESS.
We face an inherent business risk of exposure to product liability and
other claims and lawsuits in the event that the development or use of our
technology or prospective products 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 avoid
liability exposure, significant costs could be incurred that could hurt our
financial performance.
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS, THE
EFFECT OF WHICH COULD ADVERSELY AFFECT ANY COMPETITIVE ADVANTAGE WE MAY HAVE.
We own or have obtained a license to 2 issued U.S. and 2 issued foreign
patents and 5 pending Patent Cooperation Treaty (PCT) applications, 6 pending
U.S. applications and 15 pending foreign patent applications. Our success will
depend in part on our ability to obtain additional United States and foreign
patent protection for our drug candidates and processes, preserve our trade
secrets and operate without infringing the proprietary rights of third parties.
We place considerable importance on obtaining patent protection for significant
new technologies, products and processes.
Our long-term success largely depends on our ability to market
technologically competitive processes and products. If we fail to obtain or
maintain these protections, we may not be able to prevent third parties from
using our proprietary rights. Our currently pending or future patent
applications may not result in issued patents. In the United States, patent
applications are confidential until patent applications are published or the
patent is issued, and because third parties may have filed patent applications
for technology covered by our pending patent applications without us being aware
of those applications, our patent applications may not have priority over any
patent applications of others. In addition, our issued patents may not contain
claims sufficiently broad to protect us against third parties with similar
technologies or products or provide us with any competitive advantage. If a
third party initiates litigation regarding our patents, and is successful, a
court could revoke our patents or limit the scope of coverage for those patents.
Legal standards relating to the validity of patents covering
pharmaceutical and biotechnology inventions and the scope of claims made under
such patents are still developing. In some of the countries in which we intend
to market our products, pharmaceuticals are either not patentable or have only
recently become patentable. Past enforcement of intellectual property rights in
many of these countries has been limited or non-existent. Future enforcement of
patents and proprietary rights in many other countries may be problematic or
unpredictable. Moreover, the issuance of a patent in one country does not assure
the issuance of a similar patent in another country. Claim interpretation and
infringement laws vary by nation, so the extent of any patent protection is
uncertain and may vary in different jurisdictions. The U.S. Patent and Trademark
Office, commonly referred to as the USPTO, and
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the courts have not consistently treated the breadth of claims allowed in
biotechnology patents. If the USPTO or the courts begin to allow broader claims,
the incidence and cost of patent interference proceedings and the risk of
infringement litigation will likely increase. On the other hand, if the USPTO or
the courts begin to allow narrower claims, the value of our proprietary rights
may be limited. Any changes in, or unexpected interpretations of the patent laws
may adversely affect our ability to enforce our patent position.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.
OUR PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT BE ENFORCEABLE AND THE PATENTS
AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT US FROM COMMERCIALIZING
PRODUCTS, WHICH WOULD ADVERSELY AFFECT OUR LEVEL OF FUTURE REVENUES, IF ANY.
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
-15-
adversely affect our financial results.
FAILURE TO COMPLY WITH ENVIRONMENTAL LAWS OR REGULATIONS COULD EXPOSE US TO
SIGNIFICANT LIABILITY OR COSTS WHICH WOULD ADVERSELY IMPART OUR OPERATING
RESULTS AND DIVERT FUNDS FROM THE OPERATION OF OUR BUSINESS 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. Our research and development
processes involve the controlled storage, use and disposal of hazardous
materials, biological hazardous materials and radioactive compounds. We are
subject to federal, state and local laws and regulations governing the use,
manufacture, storage, handling and disposal of these materials and some waste
products. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by these laws
and regulations, the risk of contamination or injury from these materials cannot
be completely eliminated. In the event of an incident, IR BioSciences Holdings,
Inc. or ImmuneRegen BioSciences, Inc. could be held liable for any damages that
result, and any liability could exceed our resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF A
KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS.
The execution of our present business plan depends on the continued
services of Michael K. Wilhelm, our Chief Executive Officer and President, and
Mark L. Witten, Ph.D., our acting Chief Scientific Officer. We do not currently
maintain key-man insurance on their lives. While we have entered into employment
agreements with each of them, the loss of any of their services would be
detrimental to us and could have a material adverse effect on our business,
financial condition and results of operations.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL OUR
BUSINESS AND MAY MAKE DECISIONS THAT ARE NOT IN OUR BEST INTERESTS.
Our officers, directors and principal stockholders, and their
affiliates, in the aggregate, own over a majority of the outstanding shares of
our common stock. As a result, such persons, acting together, have the ability
to substantially influence all matters submitted to our stockholders for
approval, including the election and removal of directors and any merger,
consolidation or sale of all or substantially all of our assets, and to control
our management and affairs. Accordingly, such concentration of ownership may
have the effect of delaying, deferring or preventing a change in discouraging a
potential acquirer form making a tender offer or otherwise attempting to obtain
control of our business, even if such a transaction would be beneficial to other
stockholders.
RISKS RELATED TO THIS OFFERING
A LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK AND THUS ADVERSELY AFFECT THE VALUE OF YOUR
INVESTMENT.
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
-16-
is thus subject to this volatility.
SALES OR ISSUANCES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND YOUR RIGHTS IN US MAY BE REDUCED.
Certain of our stockholders have the right to register securities for
resale that they hold pursuant to registration rights agreements. We expect to
continue to incur product development and selling, general and administrative
costs, and in order to satisfy our funding requirements, we will need to sell
additional equity securities, which may be subject to similar registration
rights. The sale or the proposed sale of substantial amounts of our common stock
in the public markets may adversely affect the market price of our common stock.
An aggregate of 60,331,747 shares of our common stock are being registered with
the SEC in the registration statement. The registration and subsequent sales of
such shares of common stock will likely have an adverse effect on the market
price of our common stock.
The registration and subsequent sales of shares of our common stock
will likely have an adverse effect on the market price of our common stock. From
time to time, certain stockholders of our company may be eligible to sell all or
some of their shares of common stock by means of ordinary brokerage transactions
in the open market pursuant to Rule 144, promulgated under the Act ("Rule 144"),
subject to certain limitations. In general, pursuant to Rule 144, a stockholder
(or stockholders whose shares are aggregated) who has satisfied a one-year
holding periods may, under certain circumstances, sell within any three-month
period a number of securities which does not exceed the greater of 1% of the
then outstanding shares of our common stock or the average weekly trading volume
of the class during the four calendar weeks prior to such sale. Rule 144 also
permits, under certain circumstances, the sale of securities, without any
limitations, by a non-affiliate of our company who has satisfied a two-year
holding period. Any substantial sale of our common stock pursuant to Rule 144 or
pursuant to any resale prospectus may have an adverse effect on the market price
of our securities.
Our stockholders may experience substantial dilution and a reduction in
the price that they are able to obtain upon sale of their shares. Also, any new
equity securities issued, including any new series of preferred stock authorized
by our board of directors, may have greater rights, preferences or privileges
than our existing common stock. To the extent stock is issued or options and
warrants are exercised, holders of our common stock will experience further
dilution. In addition, as in the case of the warrants, in the event that any
future financing should be in the form of, be convertible into or exchangeable
for, equity securities and upon the exercise of options and warrants, security
holders may experience additional dilution.
The 366,420 shares of our common stock, and 450,000 shares of our
common stock issuable upon warrants presently issued and outstanding as of the
date hereof are held by promoters of our prior company, GPN Networks, Inc., or
such promoters' affiliates and assignees, or their transferees. It should be
noted that because GPN Network, Inc. was a "blank check" company as that term is
defined under the Securities Act, these shares may not be sold by these
promoters or their affiliates and assignees, or their transferees, pursuant to
Rule 144 of the Securities Act. The position of the staff of the Division of
Corporation Finance of the Securities and Exchanges Commission is that any such
resale transaction under Rule 144 would appear to be designed to distribute or
redistribute such shares to the public without coming within the registration
requirements of the Securities Act. Therefore, these promoters or their
affiliates and assignees, or their transferees, can only resell the shares they
hold as of the date hereof through a registration statement filed under the
Securities Act. All of these shares are being registered hereunder
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains
statements relating to our future business and/or results, including, without
limitation, the statements under the captions "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." These statements include certain projections and
business trends that are "forward-looking" within the meaning of the United
States Private Securities Litigation Reform Act of 1995 (the "PSLRA"). The safe
harbor for forward-looking statements under the PSLRA does not apply to our
company. You can identify these statements by the use of words like "may,"
"could," "should," "project," "believe," "anticipate," "expect," "plan,"
"estimate," "forecast," "potential," "intend," "continue" and variations of
these words or comparable words. Forward-looking statements do not
-17-
guarantee future performance and involve risks and uncertainties. Actual results
will differ, and may differ materially, from projected results as a result of
certain risks and uncertainties. These risks and uncertainties include, without
limitation, those described under "Risk Factors" and those detailed from time to
time in our filings with the SEC, and include, among others, the following:
o Our ability to raise additional funding and the amounts
raised, if any;
o Our ability to successfully develop and commercialize products
based on our therapies and technologies utilizing Homspera;
o A lengthy approval process and the uncertainty of FDA and
other government regulatory requirements may have a material
adverse effect on our ability to commercialize our
applications;
o Clinical trials may fail to demonstrate the safety and
effectiveness of our applications or therapies, which could
have a material adverse effect on our ability to obtain
government regulatory approval;
o The degree and nature of our competition;
o Our ability to employ and retain qualified employees; and,
o The other factors referenced in this prospectus, including,
without limitation, under the sections entitled "Risk
Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business."
Other sections of this prospectus may include additional factors which
could adversely impact our business and financial performance. Moreover, we
operate in a very competitive and rapidly changing environment. New risk factors
emerge from time to time and it is not possible for our management to predict
all risk factors, nor can we assess the impact of all factors on our business or
to the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should not place
undue reliance on forward-looking statements as a prediction of actual results.
These forward-looking statements are made only as of the date of this
prospectus. Except for our ongoing obligation to disclose material information
as required by federal securities laws, we do not intend to update you
concerning any future revisions to any forward-looking statements to reflect
events or circumstances occurring after the date of this prospectus.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares of common
stock by the selling stockholders, but we will receive funds from the exercise
of warrants held by selling stockholders, if exercised.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is approved for quotation on the NASD OTC Bulletin
Board under the symbol "IRBO". Previous to July 2, 2003, the Company traded
under the symbol "GPNN". The following table sets forth the high and low bid
prices for our common stock for the periods noted, as reported by the National
Daily Quotation Service and the Over-The-Counter Bulletin Board. Quotations
reflect inter-dealer prices, without retail mark-up, markdown or commission and
may not represent actual transactions.
2005
----------------------------------
High Low
-------------- --------------
1st Quarter $ 1.00 $ 0.33
2nd Quarter 0.52 0.26
3rd Quarter 0.48 0.28
4th Quarter (through November 11, 2005) 0.52 0.34
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2004
---------------------------------
High Low
-------------- --------------
1st Quarter $ 1.00 $ 0.28
2nd Quarter 0.60 0.11
3rd Quarter 0.23 0.09
4th Quarter 0.50 0.15
2003
---------------------------------
High Low
-------------- --------------
1st Quarter $ 0.01 $ 0.01
2nd Quarter 2.50 0.10
3rd Quarter 4.50 0.65
4th Quarter 1.13 0.28
On November 11, 2005, the closing price of our common stock as reported
by the OTC Bulletin Board was $0.50 per share. There were approximately 520
shareholders of record and beneficial stockholders of our common stock as of
November 11, 2005. We have not paid any dividends on our common stock since
inception and do not intend to do so in the foreseeable future.
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock,
and we currently intend to retain future earnings, if any, to finance the
expansion of our business, and we do not expect to pay any cash dividends in the
foreseeable future. The decision whether to pay cash dividends on our common
stock will be made by our board of directors, in their discretion, and will
depend on our financial condition, operating results, capital requirements and
other factors that the board of directors considers significant. We have never
declared or paid any dividends on our securities. We currently intend to retain
our earnings for funding growth and, therefore, do not expect to pay any
dividends in the foreseeable future.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Please note that the safe harbor
for forward-looking statements under the Securities Act of 1933 and the
Securities Exchange Act do not apply to our company. Our actual results could
differ materially from those set forth as a result of general economic
conditions and changes in the assumptions used in making such forward-looking
statements. The following discussion and analysis of our financial condition and
results of operations should be read together with the audited consolidated
financial statements and accompanying notes and the other financial information
appearing else where in this prospectus. The analysis set forth below is
provided pursuant to applicable Securities and Exchange Commission regulations
and is not intended to serve as a basis for projections of future events.
Except for historical information contained herein, the matters discussed in
this prospectus are forward-looking statements that are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those set forth in such forward-looking statements. Such forward-looking
statements may be identified by the use of certain forward-looking terminology,
such as "may," "expect," "anticipate," "intend," "estimate," "believe," or
comparable terminology that involves risks or uncertainties. Actual future
results and trends may differ materially from historical and anticipated
results, which may occur as a result of a variety of factors. Such risks and
uncertainties include, without limitation, factors discussed in management's
discussion and analysis of financial condition and results of operations set
forth below, as well as in "risk factors" set forth herein. Except for our
ongoing obligation to disclose material information as required by federal
securities laws, we do not intend to update you concerning any future revisions
to any forward-looking statements to reflect events or circumstances occurring
after the date of this prospectus.
-19-
OVERVIEW
We were originally incorporated in Delaware in June 1985 under the name
Vocaltech, Inc. to develop, design, manufacture and market products utilizing
proprietary speech-generated tactile feedback devices. We completed our initial
public offering of our securities in October 1987. We changed our name to
InnoTek, Inc. in November 1992. In January 1992, we effected a 1-for-6.3 reverse
stock split of our common stock. In December 1994, we acquired all of the
outstanding stock of InnoVisions, Inc., a developer and marketer of skin
protective products, discontinued our prior operations in their entirety and
changed our name to DermaRx Corporation. In April 2000, we effected a reverse
merger with a subsidiary of Go Public Network, Inc., which was engaged in
assisting early-stage development and emerging growth companies with financial
and business development services. We changed our name to GoPublicNow.com, Inc.,
effected a 1-for-5 reverse stock split and discontinued our prior operations in
their entirety. In November 2000, we changed our name to GPN Network, Inc. In
July 2001, we discontinued the operations of GPN Network, Inc. in their entirety
and began looking for appropriate merger partners. Our objective became the
acquisition of an operating company with the potential for growth in exchange
for our securities. In July 2003, we effected a reverse merger with ImmuneRegen
BioSciences, Inc. and adopted our current business model. In July 2003, we
effected a 1-for-20 reverse stock split, and in April 2004, we effected a
2-for-1 stock split. ImmuneRegen BioSciences, Inc. was incorporated in October
2002; all information contained herein refers to the operations of ImmuneRegen
BioSciences, Inc., our wholly-owned operational subsidiary.
GENERAL
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of Homspera(TM), a proprietary
compound that is derived from homeostatic substance P, a naturally occurring
peptide. Currently, the majority of our development efforts are centered on two
drug candidates derived from Homspera, Radilex(TM) and Viprovex(TM). Radilex has
been formulated specifically for the indication of acute exposure to radiation.
Viprovex was formulated specifically for applications relating to the treatment
of various maladies caused by chemical and biological agents. Our research and
development efforts are at a very early stage and Radilex and Viprovex have only
undergone pre-clinical testing in mice.
We own or have obtained a license to 2 issued U.S. and 2 issued foreign
patents and 5 pending Patent Cooperation Treaty (PCT) applications, 6 pending
U.S. applications and 15 pending foreign patent applications.
Our therapies and technologies utilizing Radilex, Viprovex and Homspera
are at early stages of development and may not be shown to be safe or effective
and may never receive regulatory approval. Our technologies utilizing Radilex,
Viprovex and Homspera have not yet been tested in humans. Regulatory authorities
may not permit human testing of potential products based on these technologies.
Even if human testing is permitted, any potential products based on Homspera may
not be successfully developed or shown to be safe or effective.
The results of our preclinical studies and clinical trials may not be
indicative of 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.
Our principal offices are located at 4021 North 75th Street, Suite 201,
Scottsdale, Arizona 85251 and our telephone number is (480) 922-3926. We are
incorporated in Delaware. We maintain a website at www.immuneregen.com. The
reference to our worldwide web address does not constitute incorporation by
reference of the information contained on our website.
-20-
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 received a credit of $65,849 for laboratory studies in May, 2005
resulting in net expense of $(40,430) for the three months ended June 30, 2005
versus an expense of $61,807 for the three months ended June 30, 2004 in
research and development activities related to the development of Radilex and
Viprovex. Due to our liquidity and limited cash available, our spending on
research and development activities was limited. From our inception in October
2002, we have spent $218,103 in research and development activities. These costs
include the manufacture and delivery of our drug by third party manufacturers,
payments to Contract Research Organizations ("CRO") for consulting related to
our studies and costs of performing such studies.
If we are successful in obtaining additional funding through grants or
investment capital, we anticipate that during the next 12 months we will
increase our research and development activities by approximately $450,000 to a
total of approximately $600,000, excluding a radiation study on primates which
we estimate will cost $1,500,000, in an effort to further develop Radilex and
Viprovex. If we are unable to raise additional capital, our research and
development activities may be lessened. The drug development, clinical trial and
regulatory process is lengthy, expensive and uncertain and subject to numerous
risks.
We will need to generate significant revenues from product sales and or
related royalties and license agreements to achieve and maintain profitability.
Through September 30, 2005, we had no revenues from any product sales, royalties
or licensing fees, and have not achieved profitability on a quarterly or annual
basis. Our ability to achieve profitability depends upon, among other things,
our ability to develop products, obtain regulatory approval for products under
development and enter into agreements for product development, manufacturing and
commercialization. Moreover, we may never achieve significant revenues or
profitable operations from the sale of any of our products or technologies.
Our major research and development projects include:
RESEARCH AND DEVELOPMENT OF RADILEX IN RADIOLOGICAL EXPOSURE
APPLICATIONS.
--------------------------------------------------------------------------------
We have commenced initial testing of Radilex to record its potential
therapeutic effects on the treatment of toxic radiation exposure. Our initial
testing has been limited to seven prior mouse studies.
We are currently preparing the protocols for a radiation sensitivity
study on rodents in which we will further validate our prior studies. We expect
to begin the study within the next 60 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 expect an additional $1,500,000 will be required to complete this study
in 2006.
If we are successful in completing the study and achieve the desired
results, we intend to submit the necessary documentation to the FDA and other
regulatory agencies for approval. If approval for Radilex is granted, we expect
to begin efforts to commercialize our product immediately thereafter. We are
anticipating revenues from the sale of Radilex beginning in calendar year 2008
as a treatment to the effects caused by irradiation.
If product development or approval does not occur as scheduled our time
to reach market will be lengthened and our costs will substantially increase.
Additionally, we may be requested to expand our findings to gather additional
data or we may not achieve the desired results. If so, we may have to design new
protocols and conduct additional studies. This will increase our costs and delay
the time to market for Radilex as a possible therapeutic for radiation exposure.
Any of these occurrences would have a material negative impact on our business
-21-
and our liquidity as it may cause us to seek additional capital sooner than
expected and allow our competitors to successfully enter the market ahead of us.
RESEARCH AND DEVELOPMENT OF VIPROVEX IN CHEMICAL AND BIOLOGICAL
EXPOSURE APPLICATIONS.
--------------------------------------------------------------------------------
We are currently continuing to conduct preliminary research and
development on the efficacy of Viprovex as a potential treatment for toxic
chemical and biological exposure. Our initial testing has been limited to early
preclinical studies on rodent models. We estimate approximately $120,000 for
additional studies related to the use of Viprovex in these areas over the next
twelve months. We anticipate additional studies to begin in the fourth quarter
of calendar 2005 and continue on an ongoing basis over the next three years. If
we are successful in achieving desirable results, we intend to design the
protocols and begin studies for these indications, when capital is available. As
we have only collected preliminary data and additional studies are required, we
cannot predict when, if ever, a viable treatment can be commercialized. If we do
not observe significant results or we lack the capital to further the
development, we may abandon such research and development efforts; thereby
limiting our future potential revenues.
RESEARCH AND DEVELOPMENT OF HOMSPERA IN WOUND HEALING APPLICATIONS.
-------------------------------------------------------------------
Within the next three months we plan to begin preclinical studies to
determine if Homspera could become a compound that would be used in wound
healing. We expect to begin studies in the first quarter of calendar 2006. We do
not have any research and development expenses associated with the use of
Homspera in wound healing in 2005, 2004 or 2003. We estimate approximately
$120,000 for the costs of such studies over the next twelve months. We
anticipate the completion of such studies within eight months of commencement of
the studies. If we achieve desirable results, we will design the protocols and
begin studies for these indications, when capital is available. As we have only
collected preliminary data and additional studies are required, we cannot
predict when, if ever, a viable product can be commercialized. If we do not
observe significant results or we lack the capital to further the development,
we may abandon such research and development efforts; thereby limiting our
future potential revenues.
COMMUNICATIONS WITH FDA AND NIH.
--------------------------------
On October 16, 2003, a representative of our CRO, Synergos, Inc., spoke
with the FDA Project Manager. who asked whether our ARDS Pre-IND meeting package
was ready to be sent to them. The FDA Project Manager also mentioned that she
had put ImmuneRegen on their agenda for two potential meeting dates, both in
November 2003, and she requested twelve copies of the meeting "information
package" to be sent to the FDA.
On October 30, 2003, a representative of our CRO (Synergos, Inc.)
returned a call to the FDA Medical Reviewer. The Medical Reviewer had initially
called with a question about the structure of Sar9,Met(O2)11-SubstanceP. After
researching the answer, our CRO representative called him to explain that "Sar"
is sarcosine (N-methylglycine), an amino acid that occurs as an intermediate in
the metabolism of choline in the kidney and liver. The FDA Medical Reviewer
confirmed that he is the medical reviewer for this product but he could not
confirm the date for the Pre-IND teleconference. He did say, however, that the
agency had an internal meeting for the product set for November 5, 2003.
On November 4, 2003, our CRO (Synergos, Inc.) representative received a
call from the FDA Division of Counterterrorism (DCT). Our CRO representative
stated that the division wanted to have an introductory call with the company
and November 17, 2003 at 2:00PM EST was selected. We were informed that the
Division Director, DCT would be present for the meeting and that despite the
delays in contacting us, her division was very interested in Homspera in this
indication.
On November 4, 2003,our CRO representative (Synergos, Inc.) received a
call from the FDA Project Manager to inform us that a second meeting, the
Pre-IND ARDS meeting, was scheduled for November 18, 2003 and that we would
receive written comments within a few days after their internal meeting on
November 5th. They briefly discussed the scheduling of the ARS (Acute Radiation
Sickness) meeting which was set for November 17, 2003.
-22-
On November 17, 2003 ImmuneRegen Senior Management and regulatory
consultants from Synergos, Inc. engaged in a teleconference with representatives
from the FDA's Division of Counterterrorism (DCT) to discuss the development of
Homspera(TM) for use in the event of a terrorist attack. Although the
counterterrorism group could not comment upon the specifics of the planned
studies, they agreed that development of this product would be regulated
according to the provisions of the animal efficacy rule. They also agreed that,
with submission of appropriate toxicity data, the selected animal model would be
acceptable. Moreover, they were pleased to see that the company understood the
requirement for a post marketing study commitment.
On January 14, 2004, we received a meeting confirmation from the FDA
Consumer Safety Officer via fax. This confirmed the meeting date of March 12,
2004 @ 1:30PM EST in Rockville, MD in relation to a Pre-IND meeting for Homspera
and its efficacy relating to acute radiation exposure, ARS. The confirmation
letter also stated that the agency required receipt of 33 hard copies and one
disk of the company's background package no later than February 13, 2004.
Also on January 14, 2004 the company received a fax from the FDA
Division of Counter-Terrorism. The fax attached a summary of the Pre-IND
teleconference meeting that was held on November 17, 2003 to determine the
appropriate division for submitting "Homspera(TM) for Treatment of Acute
Radiation Syndrome (ARS).
On March 12, 2004, the Company held an "in-person" Pre-IND meeting on
Acute Radiation Sickness (ARS) with FDA members in Rockville, MD.
On October 21, 2004 the NIH contacted the company to let us know that
the Homspera's Mechanisms of Action were needed for RFI submission.
On November 1, 2004 the Mechanisms of Action for Homspera(TM) where
sent electronically to the NIH.
On December 28, 2004 the company received an email from the FDA's
Division of Counterterrorism. The email stated that if the company had not
already forwarded an RFI specifically for Acute Radiation-Counterterrorism
Indication that we should contact the NIH and confirm that they had indeed
received the necessary data from the company for the Counterterrorism
Indication.
On January 11, 2005, we received a meeting confirmation from the FDA
Consumer Safety Officer via fax. This confirmed the meeting date of February 17,
2005 at 11:30AM EST in Rockville, MD in relation to Pre-IND for
Radilex(TM)/(Homspera(TM)) for ARS. The confirmation letter also stated that the
agency required receipt of 18 hard copies and one disk of the company's
background package no later than January 20, 2005 and which were submitted prior
to that date.
On February 17, 2005 the company received a copy of the Meeting Minutes
from the FDA Consumer Safety Officer for the "in-person" Pre-IND meeting
regarding Homspera(TM) and its efficacy relating to Acute Radiation Exposure
held on March 12, 2004. After review of the minutes, it was decided to postpone
the February 17, 2005 in person meeting, until the Company could complete an
additional radiation study based on AFRRI (Armed Forces Radiological Research
Institute) protocols.
On February 17, 2005 the company received via fax from the FDA Consumer
Safety Officer the FDA responses to our questions posed in the background
package dated January 28, 2005.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements made in the fiscal quarter
ended September 30, 2005.
There were no off-balance sheet arrangements made in 2004.
REVENUES
We have not generated any revenues from operations from our inception.
We believe we will begin earning
-23-
revenues from operations during calendar year 2008 as we transition from a
development stage company to that of an active growth and acquisition stage
company.
COSTS AND EXPENSES
From our inception through September 30, 2005, we have incurred losses
of $11,216,051. These expenses were associated principally with equity-based
compensation to employees and consultants, late registration penalty expenses,
product development costs and professional services.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, we had current assets of $682,754 consisting of
cash of $667,041 and other current assets of $15,713. At September 30, 2005, we
also had current liabilities of $2,408,545, consisting of accounts payable and
accrued liabilities of $335,714 and accrued penalties for late registration of
$2,072,831. This resulted in net working deficit at September 30, 2005 of
$1,725,791. During the nine months ended September 30, 2005, we used cash in
operating activities of ($1,482,933). From the date of inception (October 30,
2002) to September 30, 2005, we have had a net loss of ($11,216,051) and has
used cash of ($3,557,278) 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
September 30, 2005 via the private placement of $3,263,903 net of costs of our
common stock, $1,194,857 of this was from the exercise of common stock purchase
warrants net of costs. An additional $968,503 from the issuance of notes
payable, net of repayments.
In January 2005, we made a tender offer to temporarily reduce the
exercise price of certain warrants issued in October 2004 from $0.50 to $0.20
per share. The tender offer expired on March 4, 2005. We accepted for exercise a
total of 6,600,778 warrants validly tendered and not withdrawn pursuant to the
terms of the tender offer, which represents approximately 48% of the aggregate
13,780,449 warrants that were subject to the offer. We raised an aggregate of
$1,190,857 from the tender offer, net of costs.
During the nine months ended September 30, 2005, the Company repaid two
notes payable, $14,997 in cash and $65,003 by converting into 232,153 shares of
common stocks at $0.28 per share pursuant to the terms of the promissory note
dated September 26, 2001. The first note which accrued interest at 8% was repaid
in full for $4,998 ($3,900 principal & $1,097 accrued interest) on April 11,
2005, releasing the Company from further obligations under the note. On June 7,
2005, the remaining note in the principal amount of $50,000 and all accrued
interest of $15,003 were converted into 232,153 shares of our common stock in
accordance with the original terms of the note.
We also previously issued convertible promissory notes in the aggregate
principal amount of $35,000. On December 24, 2004 all outstanding principal and
accrued interest was forgiven by the note holder. Consideration of $100.00 was
paid by us to the note holder. Under the terms of the agreement, the note holder
released us from all claims, known or unknown, relating to the amount owed.
On June 13, 2005, the Company issued 80,000 shares of common stock for
cash of $4,000 pursuant to the exercise of a warrant at $0.05 per share.
Between June 2003 and August 2004 eleven investors entered into fifteen
convertible promissory notes totaling $558,500 with interest rates ranging
between 8% and 12% and having various maturities. In October 2004, these notes
were converted into equity in the aggregate amount of $558,500 plus accrued
interest of $56,757. For full and complete satisfaction of debt, we issued to
the note holders the following: (a) a number of shares of our common stock
determined by dividing the debt amount by $0.125, and (b) warrants to purchase,
at any time prior to the fifth anniversary following the date of issuance of the
warrant, a number of shares of our common stock equal to fifty percent (50%) of
the number of shares described above, at a price equal to $0.50 per share of
common stock. The warrants are identical to the warrants issued in the Private
Placement. Pursuant to the debt conversion we issued an aggregate of 6,694,149
shares of common stock and warrants to purchase 3,347,076 shares of common
stock. Under the terms of the conversion agreement, the note holders released us
from all claims, known or unknown,
-24-
relating to the debt amount.
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.
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. The company and Dr. Harris agreed to terminate the
consulting agreement for Dr. Harris as of March 2005.
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
September 2005, we were able to obtain financing of $3,590,136 from a series of
private placements of our securities (which resulted in net proceeds to us of
$3,162,702). Based on our current plan of operations all of our current funding
is expected to be depleted by the end of January 2006. If we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, it would have a material adverse effect on our business,
results of operations, liquidity and financial condition.
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.
Until such time, if at all, as we receive adequate funding, we intend
to continue to defer payment of all of our obligations which are capable of
being deferred, which actions have resulted in some vendors demanding cash
payment for their goods and services in advance, and other vendors refusing to
continue to do business with us. In the event that we are successful in
obtaining third-party funding, we do not expect to generate a positive cash flow
from our operations for at least several years, if at all, due to anticipated
expenditures for research and development activities, administrative and
marketing activities, and working capital requirements and expect to continue to
attempt to raise further capital through one or more further private placements.
Based on our operating expenses and anticipated research and development
activities, we believe that we will require an additional $1 million to meet our
expenses over the next 12 months.
ACQUISITION OR DISPOSITION OF PLANT AND EQUIPMENT
-------------------------------------------------
We did not dispose or acquire any significant property, plant or
equipment during the nine months ended September 30, 2005.
We do not anticipate the sale of any significant property, plant or
equipment during the next twelve months.
-25-
NUMBER OF EMPLOYEES
-------------------
From our inception through the period ended September 30, 2005, we have
relied on the services of outside consultants for services and currently have
six total employees, two contract employees and four full-time employees. Our
full-time employees are Michael K. Wilhelm, our Chief Executive Officer; John
Fermanis, our Chief Financial Officer; and, the third and fourth serve in an
administrative role. 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.
CRITICAL ACCOUNTING POLICY
The preparation of our consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires us
to make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and liabilities.
We base our estimates and judgments on historical experience and on
various other assumptions we believe to be reasonable under the circumstances.
Future events, however, may differ markedly from our current expectations and
assumptions. While there are a number of significant accounting policies
affecting our consolidated financial statements; we believe the following
critical accounting policy involves the most complex, difficult and subjective
estimates and judgments:
STOCK-BASED COMPENSATION
------------------------
In December 2002, the FASB issued SFAS No. 148 - Accounting for
Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS
No. 123 - Accounting for Stock-Based Compensation, providing alternative methods
of voluntarily transitioning to the fair market value based method of accounting
for stock based employee compensation. FAS 148 also requires disclosure of the
method used to account for stock-based employee compensation and the effect of
the method in both the annual and interim financial statements. The provisions
of this statement related to transition methods are effective for fiscal years
ending after December 15, 2002, while provisions related to disclosure
requirements are effective in financial reports for interim periods beginning
after December 31, 2003.
We elected to continue to account for stock-based compensation plans
using the intrinsic value-based method of accounting prescribed by APB No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. Under
the provisions of APB No. 25, compensation expense is measured at the grant date
for the difference between the fair value of the stock and the exercise price.
From its inception, the Company has incurred significant costs in connection
with the issuance of equity- based compensation, which is comprised primarily of
our common stock and warrants to acquire our common stock, to non-employees. The
Company anticipates continuing to incur such costs in order to conserve its
limited financial resources. The determination of the volatility, expected term
and other assumptions used to determine the fair value of equity based
compensation issued to non-employees under SFAS 123 involves subjective judgment
and the consideration of a variety of factors, including our historical stock
price, option exercise activity to date and the review of assumptions used by
comparable enterprises.
We account for equity based compensation, issued to non-employees in
exchange for goods or services, in accordance with the provisions of SFAS No.
123 and EITF No. 96-18, "Accounting for Equity Instruments That are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services".
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In November 2004, the Financial Accounting Standards Board (FASB)
issued SFAS 151, Inventory Costs--an amendment of ARB No. 43, Chapter 4. This
Statement amends the guidance in ARB No. 43, Chapter 4,
-26-
"Inventory Pricing," to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs may be so abnormal as to require treatment as
current period charges. . . ." This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal." In addition, this Statement requires that allocation
of fixed production overheads to the costs of conversion be based on the normal
capacity of the production facilities. This Statement is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Management
does not believe the adoption of this Statement will have any immediate material
impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real
Estate Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67"
("SFAS 152) The amendments made by Statement 152 This Statement amends FASB
Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of
Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to real
estate time-sharing transactions. The accounting for those operations and costs
is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005 with earlier
application encouraged. The Company does not anticipate that the implementation
of this standard will have a material impact on its financial position, results
of operations or cash flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion
No. 29, Accounting for Nonmonetary Transactions ("SFAS 153"). This statement
amends APB Opinion 29 to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. Under SFAS 153, if
a nonmonetary exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be accounted for
at fair value resulting in recognition of any gain or loss. SFAS 153 is
effective for nonmonetary transactions in fiscal periods that begin after June
15, 2005. The Company does not anticipate that the implementation of this
standard will have a material impact on its financial position, results of
operations or cash flows.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
2005 AND FOR THE PERIOD OF INCEPTION (OCTOBER 30, 2002) TO SEPTEMBER 30, 2005.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2005 AND
2004
Revenue
-------
We are in the development stage and have no revenue.
Sales, general, and administrative expenses
-------------------------------------------
Sales, general, and administrative expenses ("SG&A") were $507,445 for
the three months ended
-27-
September 30, 2005, a decrease of $533,707 or approximately 51% compared to SG&A
of $1,041,152 during the three months ended September 30, 2004. The decrease is
primarily due to lower costs of non-cash compensation. For the three months
ended September 30, 2005, this amount consisted primarily of officer
compensation of $95,846, research and development of $83,020, legal and
accounting fees of $79,085, other consulting fees of $73,621, payroll and
related costs of $55,355, public relations and marketing of $30,164, and
non-cash compensation costs of $23,586.
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, build
out the Company's infrastructure, and continue to develop the Company's line of
potential products.
Late filing of registration statement
-------------------------------------
In October 2004, the Company completed a private placement sale of
shares of its common stock and warrants to purchase additional shares of common
stock. The Company agreed to register these shares along with the shares
underlying these warrants within ninety days from the closing date of the
transaction, or the Company would incur a penalty equivalent to an additional 2%
of the shares and warrants to be registered for every 30 days that the Company
fails to complete this registration. This penalty amounts to an aggregate of
461,200 shares and 181,600 warrants per 30 day period until such a time as this
registration Statement is made effective. During the three months ended
September 30, 2005, the Company incurred additional penalties in the amount of
$579,575. As of September 30, 2005, the Company is required to issue additional
3,827,960 shares of common stock and warrants to purchase an additional
1,507,280 shares of common stock. These shares have been valued at the market
price of the common stock at the time each 30 day period, for a total of
$1,539,331 at September 30, 2005; the warrants have been valued at $533,500 at
September 30, 2005 utilizing the Black-Scholes valuation model. The total value
of the common stock and warrants issuable pursuant to this late filing penalty
at September 30, 2005 is $2,072,831. This amount was charged to finance cost
during the nine months ended September 30, 2005 and are included in the
Company's balance sheet at September 30, 2005 as accrued penalty for late
registration of shares.
The Company anticipates completing the registration of these shares
during the quarter ended December 31, 2005, but expects that an obligation to
issue approximately 1,245,240 additional shares and 490,320 additional warrants
at an aggregate cost of approximately $649,367 will be incurred.
Interest income / expense
-------------------------
Interest income (net) for the three months ended September 30, 2005 was
$5,925, a decrease of $76,537 compared to interest expense (net) of $70,612 for
the three months ended September 30, 2004. The decrease is due to a higher cash
balances and a decrease in debt.
Net loss
--------
For the reasons above, primarily lower SG&A expenses and lower interest
expenses offset by the late registration penalty, the net loss for the three
months ended September 30, 2005 was $1,081,095, an decrease of $30,669 or
approximately 3% compared to a net loss of $1,111,764 for the three months ended
September 30, 2004.
The Company expects losses to increase during the coming twelve months.
The Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as we move our line of potential
products through the testing and approval phases, and as we build out our
corporate infrastructure.
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2005 AND
2004
Revenue
-------
We are in the development stage and have no revenue.
Selling, general and administrative expenses
--------------------------------------------
-28-
Selling, general and administrative expenses were $1,939,800 for the
nine months ended September 30, 2005 which is a decrease of $1,606,841 or
approximately 45% compared to SG&A of $3,546,641 for the nine months ended
September 30, 2004. The decrease is primarily due to lower costs of non-cash
compensation. This expense is primarily comprised of non-cash compensation of
$460,364, legal and accounting fees of $408,109, consulting fees of $268,598,
officer compensation of $212,838, payroll and related costs of $149,809,,
research and development of $108,439, public relation and marketing of $95,047,
travel and entertainment of $82,546, and rent of $23,043.
Late filing of registration statement
-------------------------------------
In October 2004, the Company completed a private placement sale of
shares of its common stock and warrants to purchase additional shares of common
stock. The Company agreed to register these shares along with the shares
underlying these warrants within ninety days from the closing date of the
transaction, or the Company would incur a penalty equivalent to an additional 2%
of the shares and warrants to be registered for every 30 days that the Company
fails to complete this registration. This penalty amounts to an aggregate of
461,200 shares and 181,600 warrants per 30 day period until such a time as this
registration Statement is made effective. As of September 30, 2005, the Company
is required to issue additional 3,827,960 shares of common stock and warrants to
purchase an additional 1,507,280 shares of common stock. These shares have been
valued at the market price of the common stock at the time each 30 day period,
for a total of $1,539,332 at September 30, 2005; the warrants have been valued
at $533,500 at September 30, 2005 utilizing the Black-Scholes valuation model.
The total value of the common stock and warrants issuable pursuant to this late
filing penalty at September 30, 2005 is $2,072,831. This amount was charged to
finance cost during the nine months ended September 30, 2005 and are included in
accrued penalty for late registration of shares in the Company's balance sheet
at September 30, 2005.
The Company anticipates completing the registration of these shares
during the quarter ended December 31, 2005, but expects that an obligation to
issue approximately 1,245,240 additional shares and 490,320 additional warrants
at an aggregate cost of approximately $649,367 will be incurred.
Interest expense (net)
----------------------
Interest income (net) was $4,607 for the nine months ended September
30, 2005, a decrease of $511,034 compared to interest expense of $506,427 for
the nine months ended September 30, 2004. The decrease is due to a decrease in
debt along with an increase cash balances.
Net loss
--------
For the reasons above, primarily lower SG&A expenses and lower interest
expenses offset by the late registration penalty, the net loss for the nine
months ended September 30, 2005 was $4,008,024, a decrease of $45,044 or
approximately 1% compared to a net loss of $4,053,068 for the nine months ended
September 30, 2004
RESULTS OF OPERATIONS FROM THE PERIOD OF INCEPTION (OCTOBER 30, 2002) TO
SEPTEMBER 30, 2005.
SALES, GENERAL, AND ADMINISTRATIVE EXPENSES
Sales, general, and administrative expenses ("SG&A") were $7,529,684
from the period of inception (October 30, 2002) to September 30, 2005.
FINANCING COSTS
Financing Costs were $2,162,831 from the period of inception (October
30, 2002) to September 30, 2005.
INTEREST EXPENSE
Interest expense was $1,173,536 from the period of inception (October
30, 2002) to September 30, 2005.
-29-
NET LOSS
Our net loss was $11,216,051 from the period of inception (October 30,
2002) to September 30, 2005.
RESULTS OF OPERATIONS FOR THE TWELVE MONTH PERIOD ENDED DECEMBER 31, 2004 AND
FOR THE PERIOD OF INCEPTION (OCTOBER 30, 2002) TO DECEMBER 31, 2004.
REVENUE
We are currently in the development stage and have not yet generated
any revenue.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $4,498,390 for the
twelve months ended December 31, 2004. These expenses are primarily comprised of
non-cash compensation of $3,284,577, legal and accounting fees of $271,077,
officer wages of $175,000, research and development costs of $150,091,
consulting fees of $169,311, and contract labor of $89,989.
Total selling, general and administrative expenses for the period of
inception (October 30, 2002) through December 31, 2004, were $5,589,884. This
increase of $1,091,494 from the twelve months ended December 31, 2004 consists
primarily of an additional $125,000 in officer wages, an additional $264,630 in
legal and accounting fees, an additional $204,354 in consulting fees, and an
additional $86,611 in non-cash compensation.
MERGER FEES AND COSTS
Merger fees and costs were $0 for the twelve months end December 31,
2004 and $350,000 for the period of inception (October 30, 2002) to December 31,
2004. This amount is related to the reverse merger between GPN Network, Inc. and
ImmuneRegen Biosciences, Inc., which was consummated in July 2003. $185,000 of
this amount were monies paid to the former controlling shareholder of GPN
Network, Inc., and the remaining $165,000 of these funds were used to satisfy
certain outstanding liabilities of GPN Network, Inc.
During the twelve months ending December 31, 2005 we may investigate
potential acquisition candidates, and the potential cash costs of such an
acquisition or acquisitions is not possible to forecast.
FINANCING COST
Financing costs were $0 for the twelve months ending December 31, 2004
and $90,000 for the period of inception (October 30, 2002) to December 31, 2004.
This amount consists of non-refundable prepaid travel and road show costs
relating to the reverse merger and an aborted private offering.
INTEREST EXPENSE
Interest expense during the twelve months ended December 31, 2004 was
$807,017. This amount consists of interest payable on our notes payable. An
additional $371,126 of interest was accrued during the period of inception
(October 30, 2002) through December 31, 2003.
NET LOSS
For the reasons stated above, our net loss for the twelve months ending
December 31, 2004 was $5,305,407 or $0.16 per share. For the period of inception
(October 30, 2002) through December 31, 2004, our net loss was $7,208,027 or
$0.28 per share. We expect that losses will continue through the period ending
December 31, 2005.
BUSINESS
OVERVIEW
-30-
IR BioSciences Holdings, Inc. is a development-stage biopharmaceutical
company. Through our wholly owned subsidiary, ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of Homspera(TM), a proprietary
compound that is derived from homeostatic substance P, a naturally occurring
peptide. Currently, the majority of our development efforts are centered on two
drug candidates derived from Homspera, Radilex(TM) and Viprovex(TM). Radilex has
been formulated specifically for the indication of acute exposure to radiation.
Viprovex was formulated specifically for applications relating to the treatment
of maladies caused by exposure to various chemical and biological agents. Our
research and development efforts are at a very early stage and Radilex and
Viprovex have only undergone pre-clinical testing in mice.
We own or have obtained a license to 2 issued U.S. and 2 issued foreign
patents and 5 pending Patent Cooperation Treaty (PCT) applications, 6 pending
U.S. applications and 15 pending foreign patent applications.
Our patents and continued substance P research are derived from
discoveries made during research studies funded by the Air Force Office of
Scientific Research in early 1991 by our Chief Scientific Officer and Director,
Dr. Mark Witten. In December 2002 we entered into consulting agreements on a
month-to-month basis with Dr. Mark Witten and Dr. David Harris, who are our two
founders and largest shareholders. Under the terms of these agreements, Drs.
Witten and Harris agree to place at the disposal of us their judgment and
expertise in the area of acute lung injury. In consideration for these services,
we agreed to pay each of Drs. Witten and Harris a non-refundable fee of $5,000
per month. We and Dr. Harris agreed to terminate the consulting agreement for
Dr. Harris in March 2005.
In December 2002, we entered into a royalty-free license agreement with
Drs. Witten and Harris. Under the terms of the license agreement, Drs. Harris
and Witten granted to us an exclusive license to use and sublicense certain
patents, medical applications, and other technologies developed by them. Our
obligations under this agreement include (i) reasonable efforts to protect any
licensed patents or other associated property rights; (ii) reasonable efforts to
maintain confidentiality of any proprietary information; (iii) upon the granting
by the U. S. Food and Drug Administration to us the right to market a product,
we will, for so long as we sell any product or medical application which
incorporates or utilizes the patents, medical applications, and other
technologies developed by Drs. Witten and Harris, maintain in full force and
effect policies of general liability insurance (with Broad Form General
Liability and Product Liability endorsements) with limits of not less than
$1,000,000 per occurrence and $1,000,000 annual aggregate. The license agreement
will terminate ten years after the date of the expiration of the last patent
issued or issuing with respect to the licensed patents, medical applications,
and other technologies.
In February 2005, Drs. Witten and Harris executed assignment documents
in which, for good and valuable consideration, patent applications and patents
developed by them were assigned to ImmuneRegen BioSciences, Inc. The assignment
documents included all of the patents and patent applications which were
included in and covered by the Licensing Agreement, as amended. Drs. Witten and
Harris have also assigned all proprietary technology developed at ImmuneRegen
subsequent to the execution of the February 2005 assignment documents.
RADILEX, VIPROVEX, HOMSPERA AND SUBSTANCE P
Substance P (SP) is a naturally occurring small (1348 D molecular
weight) peptide of 11 amino acids that is localized to the nerves in the airways
of several species, including humans. It is a member of the tachykinin family of
neuropeptides, which are widely distributed in the peripheral and central
nervous systems and have direct, receptor-mediated actions on most tissues and
organs.
Homspera is a propriety compound that is derived from Substance P. Both
Radilex and Viprovex are propriety compounds derived from Homspera.
PRODUCTS IN DEVELOPMENT
Radilex and Viprovex
We are currently focusing our research and development efforts on
Radilex, as a potential therapeutic for
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exposure to lethal doses of radiation, and Viprovex for potential applications
relating to the treatment of various chemical agents, such as exposure to
formalin, and biological agents, such as infectious disease and other Class A
pathogens. As traditional efficacy studies would require healthy human
volunteers to be exposed to potentially lethal effects of radiation and various
biological and chemical agents, we are developing both Radilex and Viprovex as
pursuant to a new rule enacted by the U.S. Food and Drug Administration (FDA)
under which approval may be granted solely on the basis of proof of efficacy in
relevant animal species and proof of safety in humans. To date we have conducted
three studies and co-sponsored five radiation studies using Radilex on mice to
determine dose response to radiation, the maximum efficacious dose, the impact
on survival and to distinguish survival response between aerosol versus intra
muscular delivery. In each of these studies mice were exposed to varying levels
of radiation.
Our studies to date are summarized below:
o Currently we are performing High Concentration HPLC/UV Assay
in order to detect purity of our substance P analog, as well
as the establishment of a characterization of Homspera's
chemical-amino acids. This will allow us to monitor how pure
and stable Homspera and its derivates are.
Radilex
o Pilot Studies numbers 1 and 2, co-sponsored by us, attempted
to find a 50% lethal dose (LD50) total body dose of Gamma
radiation in a C57BL/6 male mouse. We found that an LD50 dose
was impractical because the threshold between no lethality and
complete lethality was so small.
o Pilot study number 3, co-sponsored by us, and was intended to
determine if Homspera treatment would prolong life in C57BL/6
male mice exposed to a single total body irradiation 9 gy dose
of Gamma radiation. The radiation exposed, Homspera treated
mice lived an average of two days longer than untreated,
radiation exposed mice.
o Pilot Study number 4, co-sponsored by us, analyzed whether
Homspera treatment would prolong life in C57BL/6 male mice
exposed to a single total body 7.75 gy dose of Gamma
radiation. The Homspera Treated, radiation exposed mice lived
an average of 17.3 days longer than untreated but radiation
exposed mice.
o Pilot Study number 5, co-sponsored by us, was meant to find a
long-term survival rate of C57BL/6 male mice exposed to a
single total body, 7.75 gy dose of Gamma radiation. 50% of
radiation exposed, Homspera treated mice survived at 90 days
post exposure. When compared with non-irradiated mice, the
Homspera treated, radiation exposed mice showed no significant
differences in their immune system.
o Pilot Study number 6, conducted by us, was initiated at the
request of the US FDA to determine efficacy in treating
radiation exposure with Homspera by intramuscular injection,
rather than inhalation. The study compared inhalation to
direct injection over a range of radiation and Homspera doses,
and found that direct injection did not offer any particular
advantage.
o Pilot Study number 7, conducted by us, was intended to find a
maximum efficacious dose of Homspera in mice exposed to total
body 7.75 gy dose of Gamma radiation. All mice remained alive
until 17 days post exposure, when they were exposed to a
second dose of radiation, at 9 gy. All of the mice died at
roughly the same time. However, this study was confounded by
the fact that the mice spent their first 7 days post-exposure
in Biolevel 2 conditions.
Viprovex
o We are currently conducting a rodent inhaled anthrax study at
the Air Force School of Aeronautical Medicine at Brooks Air
Force Base in San Antonio, Texas. The study was intended to
explore pretreatment and treatment evaluations using Viprovex
in pulmonary anthrax infection.
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This study is expected to be completed within the next 90 days.
PLANNED STUDIES
Currently, we are finalizing the protocols for a radiation sensitivity
animal model study. We are designing this study to further proof of concept, as
well as obtaining the optimum dosing regime, drug dosage levels and delivery
method. This study will evaluate the possible survival impact of Radilex
following exposure to various gamma radiation levels; to further validate the
effects of Radilex on PARP-1 levels/expression following irradiation; to
determine Radilex levels in major organs; to determine the impact of Radilex on
survival when administered 12, 24 and 36 hours following cobalt radiation
exposure; and, to validate and compare survival rates of aerosol versus intra
muscular delivery. We expect this study to begin within the next 60 days.
We are also determining the protocols that we believe will allow us to
initiate large animal trials that will be necessary for establishing efficacy.
We expect these studies to begin within the next 12 to 18 months. In conjunction
with this, we are establishing protocols for toxicology and human safety studies
that will be needed to support a New Drug Application (NDA).
Furthermore we are also researching the efficacy of Viprovex as a
potential treatment for exposure to various chemical and biological agents. We
have only conducted limited preclinical studies to date.
However, pending approval of our grant application to the Army Research
Office, we intend to undertake an avian flu study, to be conducted at an
independent laboratory using Viprovex. If the grant is approved, we expect the
study to begin within 1 to 2 months.
RESEARCH AND DEVELOPMENT
Due to our liquidity and limited cash available, our spending on
research and development activities in 2003 and most of 2004 was limited. We
spent approximately $150,091 and $42,972 in 2004 and 2003, respectively, in
research and development activities related to the research development of
Radilex as a possible therapeutic for toxic radiological and nuclear exposure.
From our inception in October 2002, we have spent $301,123 in research and
development activities. These costs include the manufacture and delivery of our
drug by third party manufacturers, payments to Contract Research Organizations
("CRO") for consulting related to our studies and costs of performing such
studies.
If we are successful in obtaining additional funding through grants or
investment capital, we anticipate that during the next 12 months we will
increase our research and development activities by approximately $450,000 to a
total of approximately $600,000, excluding a radiation study on primates which
we estimate will cost $1,500,000, in an effort to further develop Radilex, as a
medical countermeasure against radiological and nuclear threats, and Viprovex,
as a protectant against threats from various biological agents. If we are unable
to raise additional capital, our research and development activities may be
lessened.
COMPETITION
The biotechnology and pharmaceutical industries are intensely
competitive. We have numerous competitors in the United States and elsewhere.
Because we are pursuing potentially large markets, our competitors include major
multinational pharmaceutical companies, specialized biotechnology firms and
universities and other research institutions. Several of these entities have
already successfully marketed and commercialized products that will compete with
our products, assuming that our products gain regulatory approval. Competitors
such as Amgen Inc., Hollis-Eden Pharmaceuticals, Inc. and Akorn, Inc. have
developed or are developing products for treating aspects of severe acute
radiation injury. Companies such as VaxGen, Inc., Acambis plc and Emergent
BioSolutions have developed or are developing vaccines against infectious
diseases, including anthrax.
Many of our competitors have greater financial and other resources,
larger research and development staffs and more effective marketing and
manufacturing organizations than we do. In addition, academic and government
institutions have become increasingly aware of the commercial value of their
research findings. These institutions are now more likely to enter into
exclusive licensing agreements with commercial enterprises, including our
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competitors, to develop and market commercial products.
Our competitors may succeed in developing or licensing technologies and
drugs that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates before we do. If competing drug candidates prove to be more effective
or less costly than our drug candidates, our drug candidates, even if approved
for sale, may not be able to compete successfully with our competitors' existing
products or new products under development. If we are unable to compete
successfully, we may never be able to sell enough products at a price sufficient
to permit us to generate profits.
We believe that due to the global political environment that time to
market is critical in the discovery of an effective countermeasure to radiation
exposure and other biological and chemical threats. New developments in areas in
which we are conducting our research and development are expected to continue at
a rapid pace in both industry and academia. It is due to these reasons that we
believe that competition will be driven by time to market.
If our product candidates and compounds are successfully developed and
approved, we will face competition based on the safety and effectiveness of our
products and compounds, the timing and scope of regulatory approvals,
availability of manufacturing, sales, marketing and distribution capabilities,
reimbursement coverage, price and patent position. There can be no assurance
that our competitors will not develop more effective or more affordable
technology or products, or achieve earlier patent protection, product
development or product commercialization than us. Accordingly, our competitors
may succeed in commercializing products more rapidly or effectively than us,
which could have a material adverse effect on our business, financial condition
and results of operations.
GOVERNMENTAL REGULATION
Our technologies are subject to extensive government regulation,
principally by the U.S. Food and Drug Administration and state and local
authorities in the United States and by comparable agencies in foreign
countries. Governmental authorities in the United States extensively regulate
the pre-clinical and clinical testing, safety, efficacy, research, development,
manufacturing, labeling, storage, record-keeping, advertising, promotion,
export, marketing and distribution, among other things, of pharmaceutical
products under various federal laws including the Federal Food, Drug and
Cosmetic Act, or FFDCA, and under comparable laws by the states and in most
foreign countries.
DOMESTIC REGULATION
-------------------
In the United States, the FDA, under the FFDCA, the Public Health
Service Act and other federal statutes and regulations, subject pharmaceutical
and biologic products to rigorous review. If we do not comply with applicable
requirements, we may be fined, the government may refuse to approve our
marketing applications or allow us to manufacture or market our products or
product candidates, and we may be criminally prosecuted. The FDA also has the
authority to discontinue or suspend manufacture or distribution, require a
product withdrawal or recall or revoke previously granted marketing
authorizations, if we fail to comply with regulatory standards or if we
encounter problems following initial marketing.
FDA APPROVAL PROCESS
--------------------
To obtain approval of a new product from the FDA, we must, among other
requirements, submit data demonstrating the product's safety and efficacy, as
well as, detailed information and reports on the manufacture and composition of
the product candidate. In most cases, this entails extensive laboratory tests,
pre-clinical and clinical trials. This testing and the preparation of necessary
applications and processing of those applications by the FDA are expensive and
typically take many years to complete. The FDA may deny our applications or may
not act quickly or favorably in reviewing these applications, and we may
encounter significant difficulties or costs in our efforts to obtain FDA
approvals that could delay or preclude us from marketing any products we may
develop. The FDA also may require post-marketing testing and surveillance to
monitor the effects of approved products or place conditions on any approvals
that could restrict the commercial applications of these products. Regulatory
authorities may withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems following initial marketing. With respect
to patented products or technologies, delays imposed by the governmental
approval
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process may materially reduce the period during which we will have the exclusive
right to exploit the products or technologies.
The FDA does not apply a single regulatory scheme to human tissues and
the products derived from human tissue. On a case-by-case basis, the FDA may
choose to regulate such products as transplanted human tissue, medical devices
or biologics. A fundamental difference in the treatment of products under these
classifications is that the FDA generally permits human tissue for
transplantation to be commercially distributed without marketing approval. In
contrast, products regulated as medical devices or biologics usually require
such approval.
The process required by the FDA before a new drug or biologic may be
marketed in the United States generally involves the following:
o completion of pre-clinical laboratory tests or trials and
formulation studies;
o submission to the FDA of an IND for a new drug or biologic,
which must become effective before human clinical trials may
begin;
o performance of adequate and well-controlled human clinical
trials to establish the safety and efficacy of the proposed
drug or biologic for its intended use; and,
o submission and approval of a New Drug Application, or NDA, for
a drug, or a BLA for a biologic.
Pre-clinical tests include laboratory evaluation of product chemistry
formulation and stability, as well as studies to evaluate toxicity. In view of
the nature of our product candidates and our prior clinical experience with our
product candidates, we concluded that it was reasonably safe to initiate
clinical trials and that the clinical trials would be adequate to further assess
both the safety and efficacy of our product candidates. The results of
pre-clinical testing, together with manufacturing information and analytical
data, are submitted to the FDA as part of an IND application. The FDA requires a
30-day waiting period after the filing of each IND application before clinical
trials may begin, in order to ensure that human research subjects will not be
exposed to unreasonable health risks. At any time during this 30-day period or
at any time thereafter, the FDA may halt proposed or ongoing clinical trials, or
may authorize trials only on specified terms. The IND application process may
become extremely costly and substantially delay development of our products.
Moreover, positive results of pre-clinical tests will not necessarily indicate
positive results in clinical trials.
The sponsor typically conducts human clinical trials in three
sequential phases, which may overlap. These phases generally include the
following:
Phase I: The product is usually first introduced into healthy humans
or, on occasion, into patients, and is tested for safety,
dosage tolerance, absorption, distribution, excretion and
metabolism.
Phase II: The product is introduced into a limited patient population
to:
o assess its efficacy in specific, targeted indications;
o assess dosage tolerance and optimal dosage; and,
o identify possible adverse effects and safety risks.
Phase III: These are commonly referred to as pivotal studies. If a
product is found to have an acceptable safety profile and to
be potentially effective in Phase II clinical trials, new
clinical trials will be initiated to further demonstrate
clinical efficacy, optimal dosage and safety within an
expanded and diverse patient population at
geographically-dispersed clinical study sites.
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If the FDA does ultimately approve the product, it may require
post-marketing testing, including potentially expensive Phase IV studies, to
monitor its safety and effectiveness.
Clinical trials must meet requirements for Institutional Review Board,
or IRB, oversight, informed consent and the FDA's Good Laboratory Practices.
Prior to commencement of each clinical trial, the sponsor must submit to the FDA
a clinical plan, or protocol, accompanied by the approval of the committee
responsible for overseeing clinical trials at one of the clinical trial sites.
The FDA and the IRB at each institution at which a clinical trial is being
performed may order the temporary or permanent discontinuation of a clinical
trial at any time if it believes that the clinical trial is not being conducted
in accordance with FDA requirements or presents an unacceptable risk to the
clinical trial patients.
The sponsor must submit to the FDA the results of the pre-clinical and
clinical trials, together with, among other things, detailed information on the
manufacturing and composition of the product, in the form of an NDA, or, in the
case of a biologic, a BLA. Once the submission has been accepted for filing, the
FDA has 180 days to review the application and respond to the applicant. The
review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the BLA to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved, but the FDA is not bound by the recommendation of an advisory
committee.
It is possible that our product candidates will not successfully
proceed through this approval process or that the FDA will not approve them in
any specific period of time, or at all. The FDA may deny or delay approval of
applications that do not meet applicable regulatory criteria, or if the FDA
determines that the clinical data do not adequately establish the safety and
efficacy of the product. Satisfaction of FDA pre-market approval requirements
for a new biologic is a process that may take several years and the actual time
required may vary substantially based upon the type, complexity and novelty of
the product or disease. The FDA reviews these applications and, when and if it
decides that adequate data are available to show that the product is both safe
and effective and that other applicable requirements have been met, approves the
drug or biologic for marketing. Government regulation may delay or prevent
marketing of potential products for a considerable period of time and impose
costly procedures upon our activities. Success in early stage clinical trials
does not assure success in later stage clinical trials. Data obtained from
clinical activities is not always conclusive and may be susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. Upon
approval, a product candidate may be marketed only for those indications
approved in the BLA or NDA and may be subject to labeling and promotional
requirements or limitations, including warnings, precautions, contraindications
and use limitations, which could materially impact profitability. Once approved,
the FDA may withdraw the product approval if compliance with pre- and
post-market regulatory standards is not maintained or if safety, efficacy or
other problems occur after the product reaches the marketplace.
The FDA may, during its review of an NDA or BLA, ask for additional
test data. If the FDA does ultimately approve the product, it may require
post-marketing testing, including potentially expensive Phase IV studies, to
monitor the safety and effectiveness of the product. In addition, the FDA may,
in some circumstances, impose restrictions on the use of the product, which may
be difficult and expensive to administer and may require prior approval of
promotional materials.
ONGOING FDA REQUIREMENTS
------------------------
Before approving an NDA or BLA, the FDA will inspect the facilities at
which the product is manufactured and will not approve the product unless the
manufacturing facilities are in compliance with the FDA's current Good
Manufacturing Practices, or cGMP, requirements which govern the manufacture,
holding and distribution of a product. Manufacturers of biologics also must
comply with the FDA's general biological product standards. Following approval,
the FDA periodically inspects drug and biologic manufacturing facilities to
ensure continued compliance with the cGMP requirements. Manufacturers must
continue to expend time, money and effort in the areas of production, quality
control, record keeping and reporting to ensure full compliance with those
requirements. Failure to comply with these requirements subjects the
manufacturer to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product, voluntary recall of product, withdrawal of
marketing approval or civil or criminal penalties. Adverse experiences with the
product must be reported to the FDA and could result in the imposition of
marketing restrictions through labeling changes or market removal. Product
approvals may be
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withdrawn if compliance with regulatory requirements is not maintained or if
problems concerning safety or efficacy of the product occur following approval.
The labeling, advertising, promotion, marketing and distribution of a
drug or biologic product also must be in compliance with FDA and FTC
requirements which include, among others, standards and regulations for
direct-to-consumer advertising, industry-sponsored scientific and educational
activities, and promotional activities involving the internet. The FDA and FTC
have very broad enforcement authority, and failure to abide by these regulations
can result in penalties, including the issuance of a Warning Letter directing
the company to correct deviations from regulatory standards, a requirement that
future advertising and promotional materials be pre-cleared by the FDA and
enforcement actions that can include seizures, injunctions and criminal
prosecution.
Manufacturers are also subject to various laws and regulations
governing laboratory practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances in connection with
their research. In each of the above areas, the FDA has broad regulatory and
enforcement powers, including the ability to levy fines and civil penalties,
suspend or delay issuance of approvals, seize or recall products and deny or
withdraw approvals.
HIPAA REQUIREMENTS
------------------
Other federal legislation may affect our ability to obtain certain
health information in conjunction with our research activities. The Health
Insurance Portability and Accountability Act of 1996, or HIPAA, mandates, among
other things, the adoption of standards designed to safeguard the privacy and
security of individually identifiable health information. In relevant part, the
U.S. Department of Health and Human Services, or HHS, has released two rules to
date mandating the use of new standards with respect to such health information.
The first rule imposes new standards relating to the privacy of individually
identifiable health information. These standards restrict the manner and
circumstances under which covered entities may use and disclose protected health
information so as to protect the privacy of that information. The second rule
released by HHS establishes minimum standards for the security of electronic
health information. While we do not believe we are directly regulated as a
covered entity under HIPAA, the HIPAA standards impose requirements on covered
entities conducting research activities regarding the use and disclosure of
individually identifiable health information collected in the course of
conducting the research. As a result, unless they meet these HIPAA requirements,
covered entities conducting clinical trials for us may not be able to share with
us any results from clinical trials that include such health information.
In addition to the statutes and regulations described above, we are
also subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state and local regulations.
SECURITIES LAWS
Because our common stock is publicly traded, we are subject to a
variety of rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies
whose securities are publicly traded. These entities, including the SEC, the
Public Company Accounting Oversight Board and the NASD OTC Bulletin Board, have
recently issued new requirements and regulations and are currently developing
additional regulations and requirements in response to recent laws enacted by
Congress, most notably the Sarbanes-Oxley Act of 2002. As certain rules are not
yet finalized, we do not know the level of resources we will have to commit in
order to be in compliance. Our compliance with current and proposed rules is
likely to require the commitment of significant financial and managerial
resources. As a result, our management's attention might be diverted from other
business concerns, which could negatively affect our business.
MANUFACTURING
We do not have, and do not intend to establish, manufacturing
facilities to produce Radilex or Viprovex or any future products. We have used
and expect to continue to use third party manufacturers to obtain synthetic
peptides. We believe synthesized versions of substance P is readily available at
low cost from several life science and technology companies that provide
biochemical and organic chemical products used in scientific and genomic
research, biotechnology, pharmaceutical development and the diagnosis of disease
and chemical manufacturing. We
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believe that the synthetic substance P and other materials necessary to produce
Homspera, Radilex and Viprovex are readily available from various sources, and
several suppliers are capable of supplying such in both clinical and commercial
quantities.
The manufacture of our product candidates or any future products,
whether done by outside contractors as planned or internally, will be subject to
rigorous regulations, including the need to comply with the FDA's current Good
Manufacturing Practice (GMP) standards. As part of obtaining FDA approval for
each product, each of the manufacturing facilities must be inspected, approved
by and registered with the FDA. In addition to obtaining FDA approval of the
prospective manufacturer's quality control and manufacturing procedures,
domestic and foreign manufacturing facilities are subject to periodic inspection
by the FDA and/or foreign regulatory authorities.
DISTRIBUTION
If Radilex or Viprovex receives approval from the FDA, we will attempt
to commercialize these products. Upon such approval, if Radilex we intend to use
our best efforts to market it as a treatment to the damaging effects of
radiation injury that result after exposure to total body irradiation. If
Viprovex, we intend to use our best efforts to market it as a medical
countermeasure to the effects of exposure to various biological and chemical
agents. We intend to offer for sale the product to various governmental agencies
at the local, state and federal levels, both domestically and outside the United
States.
Prior to FDA approval, Radilex and Viprovex may become eligible for
purchase by the U.S. government. Project BioShield legislation contains
provisions enabling the HHS to begin purchasing new medical countermeasures for
the Strategic National Stockpile in advance of formal FDA approval. This
provision, known as an Emergency Use Authorization, has already been implemented
for other development stage medical countermeasures to weapons of mass
destruction. In that Radilex may have efficacy in the treatment of the
life-threatening effects of radiation exposure and Viprovex to exposure to
various biological and chemical agents, we believe there may be strong interest
by government agencies to stockpile Radilex and/or Viprovex if it is
successfully developed.
PATENTS
PATENTS
We own or have obtained a license to 2 issued U.S. and 2 issued foreign
patents and 5 pending Patent Cooperation Treaty (PCT) applications, 6 pending
U.S. applications and 15 pending foreign patent applications. Our issued patents
and patent applications primarily cover the methods whereby Homspera is used in
improving pulmonary function and stimulating the immune system. We are in the
process of pursuing several other patent applications.
The following patents are owned by us.
TITLE SERIAL NO.
------------------------------------------------- ---------------------------
Method to Promote Wound Healing US 60/622,015
Amelioration of Effects of Cigarette Smoke US 10/645,839
Substance P Treatment for Immunostimulation Canada 2,261,885
Substance P Treatment for Immunostimulation US 5,945,508
Substance P Treatment for Immunostimulation US 5,998,376
Substance P Treatment for Immunostimulation Australia 737201
Substance P Treatment for Immunostimulation European 0957930
Acute Respiratory Syndromes US 10/553232
Acute Respiratory Syndromes Europe (PCT/US04/1) TBA
Acute Respiratory Syndromes Singapore (PCT/US04/1) TBA
Acute Respiratory Syndromes Vietnam 1-2005-015
Treatment of Skin Diseases Vietnam 1-2005-00598
Treatment of Skin Diseases Thailand 098080
Prevention of Respiratory Infection in Fowl Vietnam 1-2005-00599
Prevention of Respiratory Infection in Fowl Thailand 097659
Amelioration of Cigarette Smoke Singapore 2005 01072-3
Amelioration of Cigarette Smoke US 10645839
Amelioration of Cigarette Smoke Vietnam 1-2005-00215
Amelioration of Cigarette Smoke Japan 2004-532943
Amelioration of Cigarette Smoke European Union 3791722.6
Amelioration of Cigarette Smoke Canada -2496447
Anti-Aging Effects of Substance P PCT/US05/13113
Stimulation of Hair Growth PCT/US2003/040260
Treatment of Asthma US 60/667,062
Treatment of Skin Diseases US 60/642,996
Prevention of Respiratory Diseases in Fowl US 60/641153
Treatment of Skin Diseases Singapore 200500466-8
Prevention of Respiratory Diseases in Fowl Singapore 200500467-6
Treatment of Asthma Singapore 200504104-1
Inducing and Maintaining Hair Color PCT/US05/13112
We have licenses to the following patents.
TITLE SERIAL NO.
--------------------------------------------------- ---------------------------
Amelioration of Effects of Cigarette Smoke 60/406,036
Substance P Treatment for Immunostimulation 60/022,063
Substance P Treatment for Immunostimulation 08/829,445
Substance P Treatment for Immunostimulation 40464/97 Australia 737201
Substance P Treatment for Immunostimulation Canada 2,261,885
Substance P Treatment for Immunostimulation 97938049.0
European 0957930
Substance P Induces Hair Growth 60/433,996
Acute Respiratory Distress Syndrome 60/462,316
Acute Respiratory Syndrome 60/465,266
We believe that patents, trademarks, copyrights and other proprietary
rights are important to our business. We also rely on trade secrets, know-how,
continuing technological innovations and licensing opportunities to
-39-
develop and maintain our competitive position. We seek to protect our
intellectual property rights by a variety of means, including obtaining patents,
maintaining trade secrets and proprietary know-how, and technological innovation
to operate without infringing on the proprietary rights of others and to prevent
others from infringing on our proprietary rights. Our policy is to seek to
protect our proprietary position by, among other methods, actively seeking
patent protection in the United States and foreign countries.
Our success depends in part on our ability to maintain our proprietary
position through effective patent claims and their enforcement against our
competitors. Although we believe our patents and patent applications provide a
competitive advantage, the patent positions of companies like ours are generally
uncertain and involve complex legal and factual questions. We do not know
whether any of our patent applications will result in the issuance of any
patents. Our issued patents, those that may be issued in the future or those
acquired by us, may be challenged, invalidated or circumvented, and the rights
granted under any issued patent may not provide us with proprietary protection
or competitive advantages against competitors with similar technology. In
particular, we do not know if competitors will be able to design variations on
our treatment methods to circumvent our current and anticipated patent claims.
Furthermore, competitors may independently develop similar technologies or
duplicate any technology developed by us. Because of the extensive time required
for the development, testing and regulatory review of a potential product, it is
possible that, before any of our products can be commercialized or marketed, any
related patent claim may expire or remain in force for only a short period
following commercialization, thereby reducing the advantage of the patent. We
also rely upon trade secrets, confidentiality agreements, proprietary know-how
and continuing technological innovation to remain competitive, especially where
we do not believe patent protection is appropriate or obtainable. We continue to
seek ways to protect our proprietary technology and trade secrets, including
entering into confidentiality or license agreements with our employees and
consultants, and controlling access to and distribution of our technologies and
other proprietary information. While we use these and other reasonable security
measures to protect our trade secrets, our employees or consultants may
unintentionally or willfully disclose our proprietary information to
competitors.
Our commercial success will depend in part on our ability to operate
without infringing upon the patents and proprietary rights of third parties. It
is uncertain whether the issuance of any third party patents would require us to
alter our products or technology, obtain licenses or cease certain activities.
Our failure to obtain a license to technology that we may require to discover,
develop or commercialize our future products may have a material adverse impact
on us. One or more third-party patents or patent applications may conflict with
patent applications to which we have rights. Any such conflict may substantially
reduce the coverage of any rights that may issue from the patent applications to
which we have rights. If third parties prepare and file patent applications in
the United States that also claim technology to which we have rights, we may
have to participate in interference proceedings in the USPTO to determine
priority of invention.
Our rights to the US Patent Nos. 5,945,508 and 5,998,376 have certain
limitations with respect to the University of Arizona and the United States Air
Force.
Our agreements with the University of Arizona outline very specific
rights in regard to our sponsored-supported projects. In accordance with our
sponsored-supported project agreements, The University of Arizona retains the
right to use data developed during these projects for non-commercial purposes,
including teaching, research and education. ImmuneRegen BioSciences, Inc.
retains the rights to trade secrets, inventions, developments and discoveries as
limited by the University of Arizona's employment contracts in effect at the
time the intellectual property was created. Further to this point, the principal
investigator at the University of Arizona, Dr. Mark Witten, is a consultant to
ImmuneRegen BioSciences, and, under the terms of his consulting agreement,
ImmuneRegen BioSciences, Inc. retains rights to any developments or discoveries
that he may make in the course of working for us.
The United States Air Force has reserved a non-exclusive license to the
patents in connection with Air Force grant F49620-94-1-0297 and may, under
certain conditions, have commensurate or additional license rights under the
Bayh-Dole Act. Those rights are set forth in 35 USC 202(c)(4) and 37 CFR 401.9
and 14(a).
In December 2002 we entered into consulting agreements on a
month-to-month basis with Dr. Mark Witten and Dr. David Harris, who are our two
founders and largest shareholders. Under the terms of these agreements, Drs.
Witten and Harris agree to place at the disposal of us their judgment and
expertise in the area of acute lung injury. In
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consideration for these services, we agree to pay each of Drs. Witten and Harris
a non-refundable fee of $5,000 per month. In March 2005, Dr. Harris resigned as
consultant to us and our subsidiaries.
In December 2002, we entered into a royalty-free license agreement with
Drs. Witten and Harris. Under the terms of the license agreement, Drs. Harris
and Witten granted to us an exclusive license to use and sublicense certain
patents, medical applications, and other technologies developed by them. Our
obligations under this agreement include (i) reasonable efforts to protect any
licensed patents or other associated property rights; (ii) reasonable efforts to
maintain confidentiality of any proprietary information; (iii) upon the granting
by the U. S. Food and Drug Administration to us the right to market a product,
we will, for so long as we sell any product or medical application which
incorporates or utilizes the patents, medical applications, and other
technologies developed by Drs. Witten and Harris, maintain in full force and
effect policies of general liability insurance (with Broad Form General
Liability and Product Liability endorsements) with limits of not less than
$1,000,000 per occurrence and $1,000,000 annual aggregate. The license agreement
will terminate ten years after the date of the expiration of the last patent
issued or issuing with respect to the licensed patents, medical applications,
and other technologies.
In February 2005, Drs. Witten and Harris executed assignment documents
in which, for good and valuable consideration, patent applications and patents
developed by them were assigned to ImmuneRegen BioSciences, Inc. The assignment
documents included all of the patents and patent applications which were
included in and covered by the Licensing Agreement, as amended. Drs. Witten and
Harris have also assigned all proprietary technology developed at ImmuneRegen
subsequent to the execution of the February 2005 assignment documents.
We may collaborate in the future with other entities on research,
development and commercialization activities. Disputes may arise about
inventorship and corresponding rights in know-how and inventions resulting from
the joint creation or use of intellectual property by us and our collaborators,
partners, licensors and consultants. As a result, we may not be able to maintain
our proprietary position.
EMPLOYEES
From our inception through the period ended June 30, 2005, we have
relied on the services of outside consultants for services and currently have
six total employees, two contract employees and four full-time employees. Our
full-time employees are Michael K. Wilhelm, our Chief Executive Officer; John
Fermanis, our Chief Financial Officer; and, the third serves in an
administrative role. 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.
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.
FLUCTUATION OF QUARTERLY OPERATING RESULTS
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
-41-
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.
PROPERTY
Our corporate headquarters are currently located at 4021 N. 75th
Street, Suite 201, Scottsdale, Arizona 85251, where we have leased approximately
1,800 square feet of office space through September 30, 2007. Our rent expense
is $2,320 per month in year one and will increase to $2,380 in year two. We
believe that our facilities are adequate for our current needs and suitable
additional or substitute space will be available in the future to replace our
existing facilities, if necessary, or accommodate expansion of our operations.
LEGAL PROCEEDINGS
On December 13, 2001, service of process was effectuated upon GPN
Network, Inc. with regard to a fee agreement between GPN Network, Inc. and
Silver & Deboskey, a Professional Corporation located in Denver, Colorado. The
complaint sought compensation for legal services allegedly rendered to DermaRx
Corp. On November 7, 2002, the District Court in Denver, Colorado rendered
judgment in favor of Silver & Deboskey in the amount of $28,091. At December 31,
2004, we had not paid any of this amount. The judgment of $28,091 has been
accrued and is contained in the $1,843,088 of Accounts Payable and Accrued
Liabilities on the Company's condensed consolidated balance sheet of June 30,
2005.
The judgment was subsequently settled in full for a cash payment of
$35,107 paid on August 2, 2005 releasing the Company from all obligations under
the judgment.
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MANAGEMENT
Executive officers are elected annually by the Board of Directors.
Board members serve one-year terms until their death, resignation or removal by
the Board of Directors.
Name Age Position
------------------------ --- -----------------------------------------------
Michael K. Wilhelm 38 President, Chief Executive Officer and Director
John N. Fermanis 51 Chief Financial Officer
Mark L. Witten, Ph.D. 51 Director and Research Scientist
Theodore E. Staahl, M.D. 59 Director
Michael K. Wilhelm, President, Chief Executive Officer and Director.
Mr. Wilhelm has served as our President and Chief Executive Officer and on our
Board of Directors since July 2003 and as President and Chief Executive Officer
of ImmuneRegen BioSciences, Inc. since December 2002 and on its Board of
Directors since November 2002. Mr. Wilhelm has been actively involved in the
financial industry since 1990. After leaving the brokerage industry, Mr. Wilhelm
founded Foresight Capital Partners in July 1996, a company designed to identify
early stage companies with above average growth potential and assist them in
reaching the next stage of development. In working with these companies, Mr.
Wilhelm took an active role, provided advisory services and facilitated
financing for continued growth and development. Mr. Wilhelm was Managing
Director of Foresight Capital Partners until December 2002. Mr. Wilhelm works on
average 70 hours per week.
John N. Fermanis, Chief Financial Officer. Mr. Fermanis was appointed
as our Chief Financial Officer, effective as of December 22, 2004. Mr. Fermanis
is a co-founder of AMPS Wireless Data, Inc., a privately held Arizona
corporation founded in 1998, where he served as Chief Financial Officer from
May, 2001 to October, 2004. Mr. Fermanis had overall financial responsibility at
AMPS and was instrumental in raising over $5 Million in venture capital. From
1997 to 2001, he held the position of Treasury Manager for Peter Piper, Inc., a
national restaurant chain headquartered in Scottsdale, Arizona, where he was
responsible for managing a $25 Million revolving line of credit and cash
concentration and disbursement for a company with over $100 Million annual
sales. Mr. Fermanis has over 18 years of financial management experience with
both the American Express Corporation and Citigroup in New York City. Mr.
Fermanis holds a Bachelor of Arts degree from the S.U.N.Y. at Stony Brook and
attended Pace University's Graduate School of Management in New York City. Mr.
Fermanis works on average 60 hours per week.
Mark L. Witten, Ph.D., Director and Research Scientist. Dr. Witten has
served as a research scientist for our company and on our Board of Directors
since July 2003 and as a research scientist for ImmuneRegen BioSciences, Inc.
since December 2002 and on its Board of Directors since November 2002. Dr.
Witten has served as a Research Professor at the University of Arizona since
July 2000. Since July 1998 Dr. Witten has served as the Director of the Joan B.
and Donald R. Diamond Lung Injury Laboratory in the Department of Pediatrics at
the University of Arizona College of Medicine. Dr. Witten obtained his Ph.D.
from Indiana University in 1983 with a double major in physiology and exercise
physiology. He conducted a post-doctoral fellowship in Respiratory Sciences at
the University of Arizona College of Medicine from 1983 to 1988. He then spent
two years as an Assistant Biologist at Massachusetts General Hospital and
Instructor in Medicine at Harvard Medical School. He returned to The University
of Arizona College of Medicine in 1990. Dr. Witten has authored over 200
published manuscripts, book chapters and abstracts. Dr. Witten devotes on
average 10 hours per week to our business.
Theodore E. Staahl, M.D., Director. Dr. Staahl has served on our Board
of Directors since April 2003. Dr. Staahl is employed at the Cosmetic, Plastic
and Reconstructive Surgery Center, a company which he founded in 1978. Dr.
Staahl's professional training was received at the University of Illinois and
the University of Wisconsin and is board certified by the American Board of
Facial, Plastic and Reconstruction Surgeons, the Board of Cosmetic Surgeons and
the American Board of Head and Neck Surgeons. Dr. Staahl has presented papers at
national and international meetings on hair transplant, rhinoplasty and cleft
lip deformities. Additionally, Dr. Staahl is currently participating in the FDA
approval process of another biotechnology company. Dr. Staahl devotes on average
3 hours per week to our business.
-43-
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS. Directors currently receive no cash compensation
from IR BioSciences Holdings, Inc. for their services as members of the Board or
for attendance at committee meetings. Members of the Board are reimbursed for
some expenses in connection with attendance at Board and committee meetings.
OTHER ARRANGEMENTS. We may from time to time issue warrants to
executives and directors for fulfilling certain performance goals.
On December 16, 2002 we entered into a consulting agreement with Mark
Witten, our chief research scientist and director. The consulting agreement is
on a month-to-month basis. 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.
COMMITTEES AND ATTENDANCE AT BOARD MEETINGS
Our board of directors does not maintain a separate audit, nominating
or compensation committee. Functions customarily performed by such committees
are performed b y our board of directors as a whole. We are not required to
maintain such committees under the applicable rules of the Over-the-Counter
Bulletin Board. None of our independent directors qualify as an "audit committee
financial expert" as that term is defined in Item 401(e) of Regulation S-B.
EXECUTIVE COMPENSATION
The following table sets forth information concerning all compensation
awarded to, earned by, or paid to (1) our Chief Executive Officer and President,
(2) our former Chief Executive Officer and President who served in such
capacities until July 2003 when ImmuneRegen BioSciences, Inc. became a
wholly-owned subsidiary of IR BioSciences, Inc. (the "Reorganization") and (3)
each of the other executive officers whose annual salary and bonus during 2002,
2003 and 2004 exceeded $100,000 (the "Named Executive Officers").
Annual Compensation
-----------------------
Name and Principal Position Year Salary ($) Bonus($)
-------------------------------------------------------------------------------
2004 175,000 247,301(2)
Michael K. Wilhelm 2003 125,000 0
Chief Executive Officer and President(1)..... 2002 5,208 0
Todd M. Ficeto 2004 0 0
Chief Executive Officer, Chief Financial 2003 0 0
Officer, President and Secretary(3).......... 2002 0 0
----------
(1) Michael K. Wilhelm has served as Chief Executive Officer and President of
IR BioSciences Holdings, Inc. since July 2003 when the Reorganization was
completed. Prior to the completion of the Reorganization, Mr. Wilhelm
served as Chief Executive Officer and President of ImmuneRegen
BioSciences, Inc. since December 2002. Mr. Wilhelm's compensation is
reported in the table with respect to his positions at both IR BioSciences
Holdings, Inc. and ImmuneRegen BioSciences, Inc. for the years ended
December 31, 2003 and 2004.
(2) Reflects the value of 948,980 warrants granted to Michael K. Wilhelm as
performance bonuses. In May 2004, the Company issued a warrant to Mr.
Wilhelm to purchase 500,000 shares (post-split) of common stock at a price
of $0.25 per share (post-split). The warrants were issued as performance
bonuses. The Company valued these warrants using the Black-Scholes model,
and charged the amount of $134,604 to operations during the twelve months
ended December 31, 2004. In October 2004, the Company issued a
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warrant to Mr. Wilhelm to purchase 448,980 shares (post-split) at a price
of $0.125 per share (post-split) as a performance bonus for achieving
certain objectives. The Company valued this warrant using the
Black-Scholes valuation model, and charged the amount of $112,697 to
operations during the twelve months ended December 31, 2004.
(3) Todd M. Ficeto served as Chief Financial Officer and Secretary of GPN
Network, Inc. from July 2001 until the completion of the Reorganization in
July 2003 and as Chief Executive Officer and President of GPN Network,
Inc. from August 2001 until the completion of the Reorganization in July
2003.
EMPLOYMENT AGREEMENTS
On August 10, 2005, we entered into a new employment agreement with our
President and Chief Executive Officer, Michael K. Wilhelm. The employment
agreement calls for a salary at the rate of $275,000 per annum. The salary will
be subject to adjustment of at least 10% per year at the end of each year. We
also agreed to defend and indemnify, to the fullest extent permitted by our
certificate of incorporation and bylaws and the Delaware General Corporation
Law, Mr. Wilhelm and hold him harmless against any liability that he incurs
within the scope of his employment under the agreement. The agreement also
provides for the following various bonus incentives:
(i) A target incentive bonus in cash and/or stock if we consummate
a transaction with any unaffiliated third party such as an
equity or debt financing, acquisition, merger , strategic
partnership or other similar transaction.
(ii) A one time grant of an incentive option to purchase 103,030
shares of the Company's Common Stock, at an exercise price
equal to the fair market value per share on the date option is
granted and a nonstatutory option to purchase 1,896,970 shares
at such time that the Company's 2003 Stock Plan is amended to
authorize additional shares,
In connection with Mr. Wilhelm's new employment agreement, we also
entered into a Change of Control Agreement and a Severance Agreement with him on
August 10, 2005. Under the Change of Control Agreement, Mr. Wilhelm shall be
entitled to a continuation of his base salary for a period of 18 months
following an Involuntary Termination, which means, at any time within that
period which is one-year from the change of control date (including such date),
the termination of the employment of Mr. Wilhelm (i) by us without Cause or (ii)
due to Constructive Termination, as such terms are defined in the Change of
Control Agreement. Further, in the event of an Involuntary Termination, the
agreement provides that we shall pay Mr. Wilhelm a lump sum amount in cash,
equal to the sum of (i) any unpaid incentive compensation which has been
allocated or awarded to Mr. Wilhelm for a completed fiscal year or other
measuring period preceding the date of Involuntary Termination under any annual
or long-term incentive plan and which, as of the date of Involuntary
Termination, is contingent only upon the continued employment of Mr. Wilhelm to
a subsequent date, and (ii) a pro rata portion to the date of Involuntary
Termination of the aggregate value of all contingent incentive compensation
awards to Mr. Wilhelm for all then uncompleted periods under any such plan.
Further, 100% of the unvested portion of each outstanding stock option granted
to Mr. Wilhelm shall be accelerated so that they become immediately exercisable
upon the date of Involuntary Termination.
Under the Severance Agreement, Mr. Wilhelm shall be entitled to a
continuation of his base salary for a period of 18 months following an
Involuntary Termination, which means the termination of the employment of Mr.
Wilhelm (i) by us without Cause or (ii) due to Constructive Termination, as such
terms are defined in the Severance Agreement. Further, in the event of an
Involuntary Termination, the agreement provides that we shall pay Mr. Wilhelm an
amount equal to the amount of executive incentive pay (bonus) that he would have
received for the year in which the Involuntary Termination occurred had he met
one hundred percent (100%) of the target for such incentive pay. Also, under
this agreement, 100% of the unvested portion of each outstanding stock option
granted to Mr. Wilhelm shall be accelerated so that they become immediately
exercisable upon the date of Involuntary Termination.
On February 15, 2005, we entered into an employment agreement with our
John N. Fermanis, our Chief Financial Officer. The employment agreement expires
on December 31, 2007, unless terminated earlier pursuant to the terms of the
agreement. Under the terms of the employment agreement, Mr. Fermanis is entitled
to a base salary
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of $60,000 until the company completed a funding of $500,000 or more which
occurred on March 4, 2005, at which time the base salary was increased to
$85,000 until December 31, 2005. Thereafter, the second year salary will be
$98,000 per annum and the third year will be $112,000 per annum. Severance
provisions include two months salary for Termination For Cause and six months
salary for Constructive Termination. This agreement also provides for the
following various bonus incentives:
i) A quarterly discretionary bonus based upon our performance in the
previous quarter. This discretionary bonus will be in the form of
stock options.
ii) A quarterly five-year warrant to purchase up to 12,500 shares of our
common stock at 75% of the fair market value of the stock on the
date the warrant is granted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
We did not grant stock options to any of the Named Executive Officers
during the year ended December 31, 2004.
AGGREGATE OPTION EXERCISED IN FISCAL 2004 AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised any stock options during
the year ended December 31, 2004. As of June 30, 2005 only Michael Wilhelm, the
Chief Executive Officer, held stock options.
STOCK OPTIONS
We issued 150,000 stock options to our Chief Executive Officer, Michael
Wilhelm, during the nine month period ended September 30, 2005. We did not issue
options to any of our employees during the years ended December 31, 2003 and
2004.
Subject to the separate approvals by the Board, a one time grant of an
incentive option to our Chief Executive Officer to purchase 103,030 shares of
the Company's Common Stock, at an exercise price equal to 110% of the fair
market value per share on the date the option is granted and a nonstatutory
option to purchase 1,896,970 shares at the fair market value per share on the
date the option is granted such time that the Company's 2003 Stock Plan is
amended to authorize additional shares.
2003 STOCK OPTION, DEFERRED STOCK AND RESTRICTED STOCK PLAN
We adopted the 2003 Stock Option, Deferred Stock and Restricted Stock
Plan (the "Plan") which authorizes the Board of Directors in accordance with the
terms of the Plan, among other things, to grant incentive stock options, as
defined by Section 422(b) of the Internal Revenue Code, nonstatutory stock
options (collectively, the "Stock Options") and awards of restricted stock and
deferred stock and to sell shares of common stock of the Company ("Common
Stock") pursuant to the exercise of such stock options for up to an aggregate of
3,600,000 shares. The options will have a term not to exceed ten years from the
date of the grant. During nine months ended September 30, 2005, our Board of
Directors granted 150,000 discretionary incentive stock options to our Chief
Executive Officer, Michael K. Wilhelm, per his employment agreement. The options
have an exercise price of $0.44 and a term of five years. Subject to the
separate approvals by the Board, a one time grant of an incentive option to our
Chief Executive Officer to purchase 103,030 shares of the Company's Common
Stock, at an exercise price equal to 110% of the fair market value per share on
the date the option is granted and a nonstatutory option to purchase 1,896,970
shares at the fair market value per share on the date the option is granted such
time that the Company's 2003 Stock Plan is amended to authorize additional
shares.
We granted, prior to the merger with ImmuneRegen BioSciences, Inc.,
options to purchase 63,212 shares of our common stock at a weighted average
exercise price of $25.00 per share to certain employees and consultants that are
exercisable over various periods through March 2010. These stock options were
granted outside of our 2003 Stock Option, Deferred Stock and Restricted Stock
Plan.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table provides information as of December 31, 2004
regarding compensation plans (including individual compensation arrangements)
under which equity securities of our company are authorized for issuance. All
share information included in this table has been adjusted to reflect a 2-for-1
forward stock split of our common stock that was effected in April 2004.
Number of securities
remaining available for
Number of Securities to be Weighted- average future issuance under equity
issued upon exercise of exercise price of compensation plans
outstanding options, outstanding options, (excluding securities
Plan Category warrants and rights warrants and rights reflected in column (a)
----------------------------------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation
plans approved by
security holders........ 0(1) N/A 445,996(3)
Equity compensation
plans not approved by
security holders........ 17,729,422(2) $0.49 --
Total................... 17,729,42 445,996
============= ==========
----------
(1) Represents stock options outstanding under our 2003 Stock Option,
Deferred Stock and Restricted Stock Plan.
(2) Represents 17,666,210 stock purchase warrants at a weighted average
price of $0.49 and 63,212, options at a weighted average exercise price
of $25.00.
(3) Represents 445,996 shares are available for future issuance under our
2003 Stock Option, Deferred Stock and Restricted Stock as of the date
hereof.
WARRANTS
--------
The following table summarizes the changes in warrants outstanding and
the related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
--------------------------------- -------------------------------------------
Weighted Average Weighted Average
Remaining Remaining
Number Contractual Life Weighted Average Number Contractual Life
Exercise Prices Outstanding (Years) Exercise Price Exercisable (Years)
----------------------------------------------------------------------------------------------------------------------
$0.05-0.10 480,698 4.60 $ 0.05-0.10 480,698 4.60
0.125-0.70 778,511 4.46 0.125-0.70 778,511 4.46
0.25-0.56 15,498,021 4.68 0.25-0.56 15,498,021 4.68
1.00 741,400 2.98 1.00 741,400 2.98
2.00 167,580 4.51 2.00 167,580 4.51
---------- ---- ----------- --------------------------
17,666,210 4.59 17,666,210 4.59
Transactions involving warrants are summarized as follows:
The following table summarizes the changes in warrants outstanding
issued to non-employees of the
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Company. These warrants were granted in lieu of cash compensation for services
performed or financing expenses and in connection with placement of convertible
debentures.
Weighted Average
Number of Shares Price Per Share
(post-split) (post-split)
---------------- ----------------
Outstanding at January 1, 2003 26,938 $0.84
Granted 805,572 0.89
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2003 832,510 0.89
Granted 16,833,699 0.47
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2004 17,666,210 $0.49
A description of our warrant arrangements and issuances is included in
our financial statements for the year ended December 31, 2004 under "Note H -
Stock Options and Warrants," These financial statements were included in our
annual report on Form 10-KSB for the year ended December 31, 2004, as originally
filed on April 19, 2005.
The estimated value of the compensatory warrants granted to
non-employees in exchange for services and financing expenses was determined
using the Black-Scholes pricing model and the following assumptions:
2004
--------------
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75%
Expected stock price volatility 163% to 262%
Expected dividend payout -
Expected option life-years (a) 5
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
IMMUNEREGEN BIOSCIENCES, INC.
ImmuneRegen BioSciences, Inc. is a wholly-owned subsidiary of IR
BioSciences Holdings, Inc. IR BioSciences Holdings, Inc. and ImmuneRegen
BioSciences, Inc. have interlocking executive positions and share common
ownership.
IMMUNEREGEN BIOSCIENCES ASIA PTE. LTD.
ImmuneRegen BioSciences Asia PTE. LTD. ("ImmuneRegen Asia"), a
Singaporean company, is an affiliate of IR BioSciences Holdings, Inc.
Approximately 94% of the company is owned equally between our Chief Executive
Officer and Chairman, Michael K. Wilhelm, and our Chief Research Scientist and
Director, Mark Witten. IR BioSciences Holdings, Inc. holds less than 1%
ownership in the company. For the three month period ended June 30, 2005, we
incurred expenses totaling approximately $23,558 on a Singapore-based
consultant. For the period of inception (October 30, 2002) to September 30,
2005, we incurred expenses totaling approximately $133,781, $114,660 on a
Singapore-based consultant and $19,121 on travel regarding corporate development
and the attendance of symposiums and conferences.
In November 2003, based on observations made during early preclinical
animal model studies we approached Ever Progressing System PTE LTD ("EPS"), a
Singapore based contract research organization (CRO), in an attempt to increase
our market presence, attract potential funding sources for our research and
development efforts and to identify and receive governmental grants. EPS advised
us that a presence in Singapore would be desirable if we wanted to pursue such
efforts in Singapore and elsewhere in Asia.
-48-
Acting on their advice, we incorporated, under the Singapore Companies
Act, ImmuneRegen Asia on June 5, 2004 and retained a Singapore-based consultant
to assist us in (i) the development and set-up of our Singapore corporation;
(ii) increasing our visibility in Asia through attendance of conferences,
meetings, symposiums, etc.; (iii) reaching out to contacts in various
governmental organizations; and, (iv) contact bankers, institutional and private
sources of funds for start-up costs, research and development and working
capital related to ImmuneRegen Asia.
Between November 2003 and January 2005, we held discussions with the
Economic Development Board of Singapore ("EDB") to assist in establishing a
research and development and clinical trials presence in Singapore. In October
2004, our Singapore-based consultant and representatives of ImmuneRegen
BioSciences, Inc. met with several members of Thailand's Department of Disease
Control, Ministry of Public Health in Bangkok. Also in October 2004, our
Singapore-based consultant met with various departments of the Philippines
Department of Health in Manila.
By April 2005, our efforts to further discussions with the EBD and
other governmental agencies and to secure adequate funding had proven
unsuccessful. At that time our Board of Directors opted to terminate the
Singapore-based consultant, dissolve ImmuneRegen Asia and focus solely on our
United States operations. We have since abandoned all discussions with EPS the
EBD and other governments in Asia regarding our research and development
activities.
Dissolution of ImmuneRegen Asia of which we own less than a 1%
interest, has been initiated pursuant to the requirements of Section 344 of the
Singapore Companies Act. ImmuneRegen Asia has not conducted any business since
its creation in May 2004, and is expected to satisfy the requirements for
dissolution with completion of the process anticipated in the near future. Upon
adequate and sufficient showing to the Singapore Registrar of Companies,
ImmuneRegen Asia will be struck off the register of companies and the company
will be dissolved. Shareholder and Board approval have occurred and the required
documents are being filed with the registrar of companies in Singapore.
OFFICE LEASE
During the period from December 1, 2002 through August 31, 2004, the
Company leased office space from an entity controlled by the Company's Chief
Executive Officer under a sub-let agreement. The rental cost of $2,734 per month
was passed through to the Company at the same rental rate charged by the
facility's primary landlord.
INONE CONTRACT
We have entered into a series of contracts with InOne Advertising &
Design, Inc. ("InOne"). At the time of the initiation of the contracts, InOne
employed the spouse of Michael Wilhelm, the Company's CEO. These contracts
include (i) a three-year agreement dated January 13, 2003 whereby InOne will
design and create certain corporate identity and marketing materials in exchange
for 72,000 shares (post split) of our common stock and $15,000. This Agreement
also provides that InOne will bill us on an hourly basis for additional
services, as well as a $100,000 termination fee if the agreement is terminated
as a result of a merger or acquisition of the Company; (ii) an Agreement dated
March 14, 2003 whereby InOne will design, create, maintain, and host our website
for one year in exchange for 140,000 shares (post split) of our common stock and
$4,200; (iii) an Agreement dated December 30, 2003 whereby InOne will name and
design a logo for respiratory infectious diseases, such as SARS (Viprovex), in
exchange for $5,000 and a warrant to purchase 20,000 shares (post-split) of tour
common stock at a price of $0.125; (iv) an Agreement dated December 31, 2003
whereby InOne will name and design a logo for Acute Radiation Syndrome (ARS)
medical countermeasure for radiation (Radilex) in exchange for $5,000 and a
warrant to purchase 20,000 shares (post-split) of our common stock at a price of
$0.125.
At December 31, 2004, InOne no longer employs or has any business
relationship with the spouse of Mr. Wilhelm.
The amounts due InOne at December 31, 2004 and 2003 are $2,700 and
$19,565, respectively.
RELATED PARTY LOANS
-49-
In October 2003, we were loaned $30,000 by Gerald Witten, the father of
one of our founders. Pursuant to the terms of this transaction, we provided this
lender with a warrant to purchase 15,000 shares of our common stock at a price
of $2.00 per share. The original duration of the loan was 180 days and was
extended to one year. The interest rate was 8% per annum. This loan was repaid
in October 2004.
In October 2003, we were loaned $40,000 by Foresight Capital
Corporation, a company controlled by Michael Wilhelm, our President and CEO.
Pursuant to the terms of this transaction, we provided this lender with a
warrant to purchase 20,000 shares of our common stock at a price of $2.00 per
share. The loan was payable upon funding of $150,000 in debt or equity and bore
interest at 8% per annum. This loan was repaid in October 2004.
In December 2003, we were loaned $20,000 by Carol Kraft, the
mother-in-law of Michael Wilhelm, our President and CEO. Pursuant to the terms
of this transaction, we provided this lender with a warrant to purchase 10,000
shares of our common stock at a price of $2.00 per share. The original duration
of the loan was 180 days and was extended to one year. The interest rate was 8%
per annum. This loan was repaid in October 2004.
As of August 15, 2004, we had accrued payables due to our President and
CEO, Michael Wilhelm, of $109,374. In connection with our completed private
offering in October 2004, $89,500 of such amount was converted into 716,000
shares of common stock and warrants to purchase 358,000 shares of common stock.
LICENSE AGREEMENT
In December 2002, we entered into a royalty-free license agreement with
David Harris and Mark Witten, who are our two founders and largest shareholders.
Under the terms of the license agreement, Messrs. Harris and Witten granted to
us an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by them. Our obligations under
this agreement include (i) reasonable efforts to protect any licensed patents or
other associated property rights; (ii) reasonable efforts to maintain
confidentiality of any proprietary information; (iii) upon the granting by the
U. S. Food and Drug Administration to us the right to market a product, we will
maintain a broad form general liability and product liability insurance.
In February 2005, Drs. Witten and Harris executed assignment documents
in which, for good and valuable consideration, patent applications and patents
developed by them were assigned to ImmuneRegen BioSciences, Inc. The assignment
documents included all of the patents and patent applications which were
included in and covered by the Licensing Agreement, as amended. Drs. Witten and
Harris have also assigned all proprietary technology developed at ImmuneRegen
subsequent to the execution of the February 2005 assignment documents.
CONSULTING AGREEMENTS
On December 16, 2002 we entered into consulting agreements with David
Harris and Mark Witten, who were our two founders and research scientists. The
consulting agreements are on a month-to-month basis. Under the terms of these
agreements, Messrs. Harris and Witten agreed to place at the disposal of us
their judgment and expertise in the area of acute lung injury. In consideration
for these services, we agreed to pay each of them a non-refundable fee of $5,000
per month. In March 2005, Dr. Harris resigned as consultant to us and our
subsidiaries.
Pursuant to consulting agreements entered into with David Harris and
Mark Witten, who are our two founders and chief research scientists, during the
period from October 30, 2002 (inception) to December 31, 2002, we accrued $5,000
in consulting fees. During the period from January 1, 2003 to December 31, 2003,
we accrued an additional $120,000 in consulting fees. We had accrued payables
collectively due to Drs. Harris and Witten of $125,000 and $5,000 as of December
31, 2003 and 2002, respectively. In connection with our recently completed
private offering in October 2004, $90,500 of such amount owed to Dr. Witten
converted into 724,000 shares of our common stock and warrants to purchase
362,000 shares of common stock. In October 2004, because Dr. Harris had not
taken an active role in the management of the Company, he agreed that he would
forgive the amount accrued to him under the Consulting agreement of $107,500. We
accounted for the transaction as a forgiveness of indebtedness under FAS No. 140
during the period ended December 31, 2004.
DUE TO RELATED PARTIES
-50-
Pursuant to consulting agreements entered into with David Harris and
Mark Witten, who are our two founders and chief research scientists, during the
period from October 30, 2002 (inception) to December 31, 2002, we accrued $5,000
in consulting fees. During the period from January 1, 2003 to December 31, 2003,
we accrued an additional $120,000 in consulting fees. We had accrued payables
collectively due to Drs. Harris and Witten of $125,000 and $5,000 as of December
31, 2003 and 2002, respectively. In connection with our recently completed
private offering in October 2004, $90,500 of such amount owed to Dr. Witten
converted into 724,000 shares of our common stock and warrants to purchase
362,000 shares of common stock. In October 2004, because Dr. Harris had not
taken an active role in the management of the Company, he agreed that he would
forgive the amount accrued to him under the Consulting agreement of $107,500. We
accounted for the transaction as a forgiveness of indebtedness under FAS No. 140
during the period ended December 31, 2004.
As of August 15, 2004, we had accrued payables due to our President and
CEO, Michael Wilhelm, of $109,374. In connection with our recently completed
private offering in October 2004, $89,500 of such amount was converted into
716,000 shares of common stock and warrants to purchase 358,000 shares of common
stock.
OUTSTANDING LOANS
In October 2003, we were loaned $30,000 by Gerald Witten, the father of
one of our founders. Pursuant to the terms of this transaction, we provided this
lender with a warrant to purchase 15,000 shares of our common stock at a price
of $2.00 per share. The original duration of the loan was 180 days and was
extended to one year. The interest rate was 8% per annum. This loan was repaid
in October 2004.
In October 2003, we were loaned $40,000 by Foresight Capital
Corporation, a company controlled by Michael Wilhelm, our President and CEO.
Pursuant to the terms of this transaction, we provided this lender with a
warrant to purchase 20,000 shares of our common stock at a price of $2.00 per
share. The loan was payable upon funding of $150,000 in debt or equity and bore
interest at 8% per annum. This loan was repaid in October 2004.
In December 2003, we were loaned $20,000 by Carol Kraft, the
mother-in-law of Michael Wilhelm, our President and CEO. Pursuant to the terms
of this transaction, we provided this lender with a warrant to purchase 10,000
shares of our common stock at a price of $2.00 per share. The original duration
of the loan was 180 days and was extended to one year. The interest rate was 8%
per annum. This loan was repaid in October 2004.
As of August 15, 2004, we had accrued payables due to our President and
CEO, Michael Wilhelm, of $109,374. In connection with our completed private
offering in October 2004, $89,500 of such amount was converted into 716,000
shares of common stock and warrants to purchase 358,000 shares of common stock.
STRATUM CONSULTING GROUP, LLC
On April 1, 2004, we entered into a consulting agreement with Stratum
Consulting Group, LLC. ("Stratum," "The Stratum Agreement") a company controlled
by Steven J. Scronic, our former Secretary. The Stratum Agreement has a term of
twelve months, and calls for Stratum to provide us with financial consulting
services, including but not limited to working directly with senior management
regarding the business and business development, attendance at meetings,
preparation of internal financial models and business plans and various
presentations in return for the following: 200,000 shares (post-split) of our
common stock upon execution of the agreement, and the number of shares of our
common stock equal to $2,500 per month for the term of the agreement. The
Stratum Agreement also calls for a cash fee of an additional $2,500 per month.
There is nothing outstanding under the Stratum Agreement.
-51-
PRINCIPAL AND SELLING STOCKHOLDERS
This prospectus relates to the resale from time to time of up to a
total of 60,331,747 shares of common stock by the selling stockholders,
comprising:
o 51,045,234 shares of our common stock that were issued to
selling stockholders pursuant to transactions exempt from
registration under the Securities Act of 1933; and
o 9,286,573 shares of common stock underlying warrants that were
issued to selling stockholders pursuant to transactions exempt
from registration under the Securities Act of 1933.
o The total number of shares of common stock offered for resale
by the selling stockholders includes 4,150,800 shares and
1,634,400 five-year warrants with an exercise price of $0.50
to be issued in connection with a penalty clause regarding the
registerance of shares sold in our Private Offering in October
2004. For each 30-day period beyond 90-days following the
second closing date (October 26, 2004), we have agreed to
issue to the holders of units sold in the Private Offering an
additional 2% a month, or in aggregate 461,200 shares and
181,600 warrants until such a time as this Registration
Statement is made effective. We have committed these shares
although they remain unissued.
The following table sets forth certain information as of October 3,
2005 regarding the selling stockholders and the beneficial ownership of our
common stock as to (1) each person known to us to beneficially own more than
five percent of our common stock, (2) each director, (3) our executive officers,
(4) all directors and executive officers as a group and (5) the shares offered
by them in this prospectus. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, or SEC. In computing
the number of shares beneficially owned by a selling stockholder and the
percentage of ownership of that selling stockholder, shares of common stock
underlying shares of convertible preferred stock, options or warrants held by
that selling stockholder that are convertible or exercisable, as the case may
be, within 60 days of October 3, 2005 are included. Those shares, however, are
not deemed outstanding for the purpose of computing the percentage ownership of
any other selling stockholder. Each selling stockholder's percentage of
ownership in the following table is based upon 69,475,428 shares of common stock
outstanding as of October 3, 2005.
Except as described below, none of the selling stockholders within the
past three years has had any material relationship with us or any of our
affiliates:
o Michael Wilhelm has served as our company's Chief Executive
Officer since December 2002 and on our Board of Directors
since November 2002;
o Mark Witten has served as a research scientist for our company
since December 2002 and on our Board of Directors since
November 2002;
o Theodore Staahl has served on our Board of Directors since
April 2003;
o CDM Group, Synergos, Inc., Spelling Communications, Stratum
Consulting Group, LLC, Debra Gessner, and Michael Caridi have
provided services to our company within the past three years,
and we agreed to issue shares of our common stock and warrants
to purchase additional shares of our common stock to each of
them in exchange for the settlement of outstanding
indebtedness; and,
o Steven J. Scronic, our company's former Secretary, is a
control party of Stratum Consulting Group, LLC.
The term "selling stockholders" also includes any transferees, pledges,
donees, or other successors in interest to the selling stockholders named in the
table below. To our knowledge, subject to applicable community property laws,
each person named in the table has sole voting and investment power with respect
to the shares of common stock set forth opposite such person's name.
-52-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Named Executive Officers and directors:
Michael K. Wilhelm
11007 N. Ridgeview Ct
Fountain Hills, AZ 85268 8,203,117(2) 11.5% 1,254,000(2) 6,949,117(2) 10.0%
Mark L. Witten
7032 E. Rosewood St
Tucson, AZ 85710-1236 9,501,138(3) 13.5% 1,086,000(3) 8,415,138(3) 12.0%
John N. Fermanis
11375 E. Sahuaro Dr., #2041
Scottsdale, AZ 85259 192,497(4) * 0 192,497(4) *
Theodore Staahl
1329 Spanos Court
Suite A-1
Modesto, CA 95356 3,489,464(5) 5.0% 350,000(5) 3,139,464(5) 4.5%
All directors and executive officers as
a group
(4 persons) 1,556,216(6) 29.5% 2,690,000(6) 18,696,216(6) 27.2%
Owners of 5% or more:
David Harris
1501 N Campbell Ave
Dept B1M Build 90 U of A
Tucson, AZ 85721 5,066,138(7) 7.3% 4,066,138(7) 1,000,000(7) 1.4%
-53-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Other Selling Stockholders:
Richard Ackner
14643 Drafthorse Ln
Wellington, FL 33414 141,600(8) * 141,600(8) 0 *
Wayne Adams
4845 Campo Ct
Coral Gables, FL 33146 354,000(9) * 354,000(9) 0 *
Jason J. Aiello &
Rachel Aiello JT WROS
714 Willowbrook Rd
Staten Island, NY 10314 141,600(10) * 141,600(10) 0 *
John Alderson
Hunter World Markets, Inc.
9300 Wilshire Blvd
Suite 600
Beverly Hills, CA 90212 200,000(11) * 200,000(11) 0 *
Richard B. Aronson
11 Lawrence Ln
Lexington, MA 02421 141,600(8) * 141,600(8) 0 *
Richard E. Beattie
101 Graystone Farm Rd
White Hall, MD 21161 283,200(12) * 283,200(12) 0 *
David Benadum
13960 Fox Trail Dr.
Holland, MI 49424 141,600(8) * 141,600(8) 0 *
John J. Bender
2803 S. 22nd St
LaCrosse, WI 54601 141,600(8) * 141,600(8) 0 *
-54-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Lester B. Boelter
50 Shady Oak Ct
Winona, MN 55987 1,062,000(13) 1.5% 1,062,000(13) 0 *
Delaware Charter Guarantee Trust Co.
F/B/O ML Bond Dental MP-Money Purch
Keogh/FBO
Betty C. Bond**
P.O. Box 558
Gretna, VA 24557 141,600(10) * 141,600(10) 0 *
Delaware Charter Guarantee Trust Co.
F/B/O ML Bond Dental MP-Money Purch
Keogh/FBO
Michael L. Bond**
601 S. Main St
Gretna, VA 24557 141,600(10) * 141,600(10) 0 *
Michael L. Bond
601 S. Main St
Gretna, VA 24557 283,200(14) * 283,200(14) 0 *
Roger Bouchard
32 Walnut Road
Rocky Hill, CT 06067 994,625(49) 1.4% 833,291(49) 161,334(49) *
Elliot Braun
3775 Park Ave
Edison, NJ 08820 354,000(15) * 354,000(15) 0 *
David Briskie
15006 Beltway Dr.
Addison, TX 75001 354,000(15) * 354,000(15) 0 *
-55-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Robert Burkhardt
2615 Kingston Point
Fort Wayne, IN 46815 283,200(14) * 283,200(14) 0 *
Michael Caridi
32 Cutler Road
Greenwich, CT 06831 504,778(50) * 120,000(50) 384,778(50) *
CDM Group
Jerry Teich**
3541 East Broadway Rd
Phoenix, AZ 85040 102,564(51) * 102,564(51) 0 *
Edward L. Chant
226 Edward Street
Suite #2
Aurora Ontario L4G 3S8
Canada 708,000(16) 1.0% 708,000(16) 0 *
Jerry Chitwood
3276 Lexington Rd
Richmond, KY 40475 141,600(10) * 141,600(10) 0 *
Salvatore Clark
P.O. Box 317
Deer Park, NY 11729 259,600(17) * 259,600(17) 0 *
Antonio Coladonato
2526 Harway Ave
Brooklyn, NY 11214 5,900(18) * 5,900(18) 0 *
Keith H. Cooper
5840 De Claire Ct
Atlanta, GA 30328 283,200(12) * 283,200(12) 0 *
-56-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Raymond B. Cromer
873 Westtown Rd
West Chester, PA 19382 141,600(10) * 141,600(10) 0 *
William Crowell &
Patricia Crowell JT WROS
9045 E. Havasupia Dr.
Scottsdale, AZ 85255 141,600(8) * 141,600(8) 0 *
John Dann
895 Moraga Road, Suite 7
Lafayette, CA 94549 1,336,958(52) 1.9% 1,183,125(52) 153,833(52) *
Kris Destefano
2 Manchester Drive
Bethpage, NY 11714 218,300(19) * 218,300(19) 0 *
Sherida Downer & Paul Downer JT WROS
546 Merimont Blvd
Auburn AL 36830 212,400(20) * 212,400(20) 0 *
Edward Duffy
178 Hanson Ln
New Rochelle, NY 10804 141,600(10) * 141,600(10) 0 *
John R. Durant
1867 S. Ashe Ct
Auburn, AL 36830 283,200(12) * 283,200(12) 0 *
Matt Earl
5120 Aihama Dr.
Woodland Hills, CA 91364 141,600(8) * 141,600(8) 0 *
-57-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Gary Ecklar
1630 N. Broadway
Lexington, KY 40505 849,600(21) 1.2% 849,600(21) 0 *
Robert Lee England IV
3 Montcrest Dr.
Birmingham, AL 35213 141,600(8) * 141,600(8) 0 *
Roger Erickson
850 S. Boulder Hwy. 222
Henderson, NV 89015 424,800(22) * 424,800(22) 0 *
Delaware Charter Guarantee & Trust Co.
F/P/O Roger Erickson**
SEP IRA
850 S. Boulder Hwy. 222
Henderson, NV 89015 283,200(12) * 283,200(12) 0 *
Donn Fassero
600 Coffee Road
Modesto, CA 95355 607,771(53) * 557,771(53) 50,000(53) *
Kristina Fasullo
77 Claradon Lane
Staten Island, NY 10305 5,900(18) * 5,900(18) 0 *
Alan Ferraro
7201 4th Avenue
Apt. #C-14
Brooklyn, NY 11209 194,700(23) * 194,700(23) 0 *
Arturo L. Filippe
1300 N. Portero Grande Dr. A
Rosemead, CA 91770 141,600(8) * 141,600(8) 0 *
-58-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Flagship Mortgage Co.
c/o Brian Shannon**
30 East Padonia Rd
Ste 207
Timonium, MD 21093 141,600(71) * 141,600(71) 0 *
William L. Fox & Lynne Fox JT WROS
450 Music Mountain Rd
Falls Village, CT 06031 708,000(16) 1.0% 708,000(16) 0 *
Franz Family Trust
D/T/D 8/16/02
David Franz & Nicole Franz** TTEES
5553 Wellesley Dr.
Calabasas, CA 91302 141,600(8) * 141,600(8) 0 *
William Christopher Frasco
532 Nugent Ave
Staten Island, NY 10305 118,000(24) * 118,000(24) 0 *
Jerome French
1600 N. Foliage Dr.
Wichita, KS 67206 1,653,229 2.4% 1,528,229 125,000 *
Jeffrey Friedman
12074 Broadway Terrace
Oakland, CA 94611 2,896,518(55) 4.2% 2,236,468(55) 660,050(55) *
Janine Frisco 70,000(73) * 70,000(73) 0 *
Bernie Gallas
5200 N. Diversey Blvd. #204
Milwaukee, WI 53217 212,400(20) * 212,400(20) 0 *
-59-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Delaware Charter G&T Co. Trust Co. F/B/O
Anthony Gentile** IRA
7076 Via Quito
Pleasanton, CA 94566 354,000(9) * 354,000(9) 0 *
Myron Gerber
84 Gifford St. #33
New Bedford, MA 02744 283,200(14) * 283,200(14) 0 *
Debra Gessner
9331 E. Calle de Valle
Scottsdale, AZ 85255 270,000(56) * 270,000(56) 0 *
William M. Goldstein
787 Trethanny Ln
Wayne, PA 19087 177,000(25) * 177,000(25) 0 *
Dian Griesel
11 Stone Street, 4th Floor
New York, NY 10004 300,000 * 300,000 0 *
Gummersbach LTD
Lisa Marshall
22 Victoria St
Hamilton, Bermuda HMF 12 708,000(72) 1.0% 708,000(72) 0 *
Steven Gurewitsch
930 5th Ave
Apt. 3-G
New York, NY 10021 566,400(26) * 566,400(26) 0 *
-60-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Jack Ham Revocable Living Trust Dtd
3/22/00
Jack Ham** Trustee
3143 Marcus Pointe Blvd
Pensicola, FL 32505 283,200(12) * 283,200(12) 0 *
Mark Hellner
900 West Olive
Merced, CA 95348 566,400(27) * 566,400(27) 0 *
Michael Hennessy
686 Bowman Rd
Chamberburg, PA 17201 141,600(8) * 141,600(8) 0 *
Don Jackler
246 E 51st Street, Suite 8
New York, NY 10022 792,500 1.0% 792,500 92,500 *
William J. Kathol
7220 S. 141st
Omaha, NE 68138 708,000(16) 1.0% 708,000(16) 0 *
Joel Katz**
c/o American Business
1205 Northern Blvd
Manahasset, NY 11030 354,000(15) * 354,000(15) 0 *
Robert Koch
1825 Eye St. N.W
Ste 1100
Washington, DC 20006 283,200(14) * 283,200(14) 0 *
Michael Kramm &
Doris Kramm JT WROS
39 Rugen Dr.
Harrington Pk., NJ 07640 141,600(10) * 141,600(10) 0 *
-61-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Michael Kulick, MD
Profit Shared Plan
Michael Kulick, MD
450 Sutter, Suite 2620
San Francisco, CA 94118 1,122,020(57) 1.6% 922,020(57) 200,000(57) *
Indy S. Kullar
8631 Armstrong Ave
Burnaby BC 999 999 212,400(20) * 212,400(20) 0 *
David Bruce Laughton
12065 Beaufait Ave
Northridge, CA 91326 141,600(8) * 141,600(8) 0 *
Peter J. Lawrence
5 Landsdowne Crescent
London W11 2NH
United Kingdom 424,800(22) * 424,800(22) 0 *
Myron A. Leon
2806 Saklan Indian Dr.
Walnut Creek, CA 94595 141,600(10) * 141,600(10) 0 *
David Lind
267 Dedham St
Norfolk, MA 02056 354,000(15) * 354,000(15) 0 *
Lind Family
Investments LP Barry Lind**,
General Partner Philip
Lind**, Limited Partner
1000 West Washington St
Suite #502
Chicago, IL 60607 141,600(70) * 141,600(70) 0 *
-62-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Barry Lind Revocable Trust
Barry Lind** Trustee U/A/D 12/19/1989
1000 West Washington St.
Suite #502
Chicago, IL 60607 849,600(21) 1.2% 849,600(21) 0 *
Dwight E. Long
406 Belle Glen Ln
Brentwood, TN 37027 424,800(22) * 424,800(22) 0 *
Randall K. Lowry, Jr
14511 Falling Creek Dr.
Houston, TX 77014 708,000(16) 1.0% 708,000(16) 0 *
Steven Markowitz
c/o Joseph Stevens & Co., Inc.
285 Benadict Rd
Staten Island, NY 10304 708,738(28) 1.0% 708,738(28) 0 *
Mike Marr
3577 Fruitville Ave
Oakland, CA 94602 283,200(14) * 283,200(14) 0 *
George F. McCabe Jr. Family Trust
DTD 2/11/98
George F. McCabe** TTEE
926 Hawk Landing
Frontland Park, FL 34731 354,000(15) * 354,000(15) 0 *
James L. McCormack
3355 Fruitvale Rd
Lincoln, CA 95648 141,600(8) * 141,600(8) 0 *
-63-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
John Kevin McCrary
4520 Red Fox Rd.
Fort Collins, CO 80526 141,600(8) * 141,600(8) 0 *
Matthew S. Menies
52 Beach Road
Massapequa, NY 11758 147,500(29) * 147,500(29 ) 0 *
Fabio Migliaccio
658 Henry Street
Brooklyn, NY 11231 236,000(30) * 236,000(30) 0 *
Sloane M. Miles
10660 E. Mercer Dr.
Scottsdale, AZ 85259 116,000 * 116,000 0 *
E. Scott Millbury
S. Shore Dr.
Millbury Lane
Rangely, ME 04970 141,600(8) * 141,600(8) 0 *
John Richard Miller
29 Bishop Kirk Place
Oxford
England
UK 708,000(16) 1.0% 708,000(16) 0 *
Sanford J. Miller &
Babette D. Miller JT WROS
7606 Forsyth Blvd
St. Louis, MO 63105 354,000(15) * 354,000(15) 0 *
-64-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Glen Miskiewicz
48 Par-La-Ville Rd.
Apt. 724
Hamilton, HM11
Bermuda 708,000(16) 1.0% 708,000(16) 0 *
Enrico Monaco
2230 Ocean Ave
Brooklyn, NY 11229 212,400(20) * 212,400(20) 0 *
Dina Mondelli
1-74th Street
Apt. #2S
Brooklyn, NY 11209 5,900(18) * 5,900(18) 0 *
Steven Moore
1026 Rodeo Rd
Pebble Beach, CA 93953 1,365,242(58) 2.0% 1,215,242(58) 150,000(58) *
MSB Family Trust
D/T/D 6/25/93 Michael Blechman**
TTEE 295 Shadowood Ln
Northfield, IL 60093 637,200(31) * 637,200(31) 0 *
James Mulryan &
Maureen Mulryan JT WROS
9925 S. Bell Ave
Chicago, IL 60643 141,600(8) * 141,600(8) 0 *
Daniel Navarro Jr. &
Richard Navarro JT WROS
2036 Highway 35 N
South Amboy, NJ 08879 141,600(32) * 141,600(32) 0 *
-65-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Daniel P. Neri
308 Bordeaux Lane
Cary, NC 27511 457,334(59) * 407,334(59) 50,000(59) *
John G. Nesbett
11 Stone Street, 4th Floor
New York, NY 10004 50,000 * 50,000 0 *
David R. Nichols &
Angela S. Nichols
Revocable Trust 1993
David Nichols and Angela
Nichols** TTEES
2250 Applewood Ln
Camarillo, CA 93012 708,000(16) 1.0% 708,000(16) 0 *
Allen Notowitz
2710 Victoria Mnr
San Carlos, CA 94070 141,600(8) * 141,600(8) 0 *
Michael O'Brien
1575 Professional Way
P.O. Box 2737
Auburn, AL 36831 212,400(20) * 212,400(20) 0 *
Peter Orthos
52 Stone Hill Drive S
Manhasset, NY 11030 236,000(33) * 236,000(33) 0 *
Alexander Orthos & Peter
Orthos JT WROS
52 Stone Hill Drive S
Manhasset, NY 11030 1,576,775(34) 2.3% 1,576,775(34)) 0 *
-66-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Nelson Pan
985 Main St.
Melrose, MA 02176 212,400(20) * 212,400(20) 0 *
George Paxinos
24 Vanderbilt Ave (Apt.1B)
Manhasset, NY 11030 100,300(35) * 100,300(35) 0 *
Robert Petrozzo
20 Woods Lane
East Hampton, NY 11937 401,200(36) * 401,200(36) 0 *
Paul B. Poulsen &
Kathleen J. Poulsen JT WROS
215 Alverado Ave
Los Altos, CA 94022 283,200(12) * 283,200(12) 0 *
Professional Traders Fund LLC
Marc Swickle and Howard Berger**
1400 Old Country Road, Suite 206
Westbury, NY 11590 366,420(60) * 366,420(60) 0 *
Progressive Ins. Services, Inc.
Money Purchase Pension Plan
Russell E. Davis** TTEE
205 E. Reynolds Rd
Lexington, KY 40571 141,600(8) * 141,600(8) 0 *
Palangat Radhakrishnan &
Devika Radhakrishnan JT WROS
115 White Ave
New Hyde PK., NY 11040 354,000(15) * 354,000(15) 0 *
-67-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Prahalathan Rajasekaran**
c/o Jupiter Asset Management
27 Cool Gardie Ave
Chigwell
Essex 1G7 5AX 424,800(22) * 424,800(22) 0 *
James Rathgeber
14 Richbourne Lane
Melville, NY 11747 483,800(37) * 483,800(37) 0 *
Reichert, Wenner, Koch, & Provinzino
Profit Sharing Plan
F/B/O John Koch**
501 St. Germain
St. Cloud, MN 56302 212,400(20) * 212,400(20) 0 *
Frank Restivo
1311 S. Hidden Valley Dr.
W. Covina, CA 91791 141,600(8) * 141,600(8) 0 *
The Richardson Family
Trust D/T/D
07/19/90
Dennis L. Richardson &
Evette Richardson** TTEES
537 Ocampo Dr.
Pacific Palisades, CA 90272 566,400(38) * 566,400(38) 0 *
Delaware Charter
Guaranty & Trust Co.
FBO Stanley Riggins** IRA
1937 Whatley Dr.
Auburn, AL 36830 141,600(8) * 141,600(8) 0 *
-68-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Paul Sallwasser &
Teri Sallwasser JT WROS
301 Windmill Palm Ave.
Plantation, FL 33324 283,200(14) * 283,200(14) 0 *
Barry Saxe
35 McDaniel Rd
Shady, NY 12409 2,262,200(39) 3.3% 2,199,200(39) 63,000(39) *
Jody R. Saxe & Richard
Saxe JT WROS
3 West Ledge Rd
Marblehead, MA 01945 141,600(8) * 141,600(8) 0 *
SBM Certificate Company
Eric Westbury
5101 River Road, Suite 101
Bethesda, MD 20816 900,000(61) 1.3% 900,000(61) 0 *
Steve Scronic
7575 E. Indian Bend Rd. #2107
Scottsdale, AZ 85250 287,987(62) * 287,987(62) 0 *
Ronald S. Sheldon Self Directed
Profit Sharing Plan & Trust
Ronald S. Sheldon** TTEE
1488 Old Barn Lane
Highland Pk., IL 60035 283,200(12) * 283,200(12) 0 *
Delaware Charter
Guarantee & Trust Co.
FBO Stanley Sides** IRA
631 Walker Ferry Rd
Alexander City, AL 35010 283,200(12) * 283,200(12) 0 *
-69-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Lawrence M. Silver
225 West Hubbard
Suite #600
Chicago, IL 60610 495,600(40) * 495,600(40) 0 *
Delaware Charter Guarantee Trust Co.
F/B/O
Richard S. Simms** II Keogh Plan
5951 S. Middlefield Rd
Ste. 105
Littleton, CO 80123 141,600(10) * 141,600(10) 0 *
Joseph Sorbara
4 Windham Court
Muttontown, NY 11545 708,738(41) 1.0% 708,738(41) 0 *
Spelling Communications
Daniel Spelling**
2211 Corinth Avenue, Suite 210
Los Angeles, CA 89064 300,532(63) * 286,164(63) 14,368(63) *
John Spiziri
5 Nettie Lane
Lancaster, PA 17603 141,600(8) * 141,600(8) 0 *
Claire Spooner
111 Seaview Ct
Neptune, NJ 07753 141,600(8) * 141,600(8) 0 *
Charles D. Stadterman
5620 Elgin St
Pittsburgh, PA 15206 212,400(20) * 212,400(20) 0 *
-70-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Henry Steinberg
934 Southern Drive
Franklin Sq., NY 11010 141,600(8) * 141,600(8) 0 *
Warren Stout
800 E. Colorado Blvd., Suite 450
Pasadena, CA 91101 1,267,838(65)() 1.8% 1,117,838(65) 150,000(65) *
Stratum Consulting Group, LLC
Steve Scronic**
11442 E. Aster Drive
Scottsdale, AZ 85259 268,800(66) * 268,800(66) 0 *
Daniel C. Strum
95 Upper Hampden Rd
Monson, MA 01057 283,200(12) * 283,200(12) 0 *
Frank Sylva
450 Sylva Lane
Lakeport, CA 95453 141,600(42) * 141,600(42) 0 *
Synergos, Inc.
Jaye Thompson and J.T. Thompson**
2202 Timberloch Place, Suite 230
The Woodlands, TX 77380 839,091(67) 1.2% 839,091(67) 0 *
Edward Taylor
6415 Boulevard East
West New York, NJ 07093 55,313(43) * 55,313(43) 0 *
Andrea Todaro
55 92nd Street
Apt. #2F
Brooklyn, NY 11209 23,600(44) * 23,600(44) 0 *
-71-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Drew Tranchina
178-15 69th Ave.
Fresh Meadows, NY 11365 64,900(45) * 64,900(45) 0 *
William S. Tyrrell
2711 Edgehill Ave
Bronx, NY 10463 849,600(21) 1.2% 849,600(21) 0 *
Value Management Research AG
Attn: Kevin Devine, CEO
Campus Kronberg 7
D-61476 Kronberg im Taunus
Germany 232,153(68) * 232,153(68) 0 *
Michael Van Petten
100 N Tampa Street
Suite 2200
Tampa, FL 33602 141,600(8) * 141,600(8) 0 *
Louis John Ventre
1339 85th Street
Brooklyn, NY 11228 118,000(24) * 118,000(24) 0 *
Stephen Walker
5829 Niwot Road
Longmont, CO 80503 41,162(69) * 39,912(69) 1,250(69) *
John Wechsler
159 Bedford Rd
Greenwich, CT 06831 177,000(46) * 177,000(46) 0 *
-72-
Percentage of Percentage of
Shares of Number of Shares Shares of Common
Number of Shares Common Stock of Common Stock Stock
of Common stock Beneficially Number of Shares Beneficially Beneficially
Beneficially Owned Prior of Common Stock Owned After Owned After
Owned Prior to to the Registered for Completion of Completion of the
Offering Offering Sale Hereby the Offering (1) Offering (1)
-------------------------------------------------------------------------------------------
Westrock Advisors
Ed Taylor**
230 Park Ave.
Suite #934
New York, NY 10169 18,438(47) * 18,438(47) 0 *
Peter T. White
122 Wilsondale St
Westwood, MA 02090 354,000(15) * 354,000(15) 0 *
Robert Wilner
787 King St
Rye Brook, NY 10573 566,400(27) * 566,400(27) 0 *
Olen C. Wilson
2404 Teckla Blvd
Amarillo, TX 79106 212,400(20) * 212,400(20) 0 *
Tad Wilson
877 Maple Dr.
Spencer, IN 47460 141,600(8) * 141,600(8) 0 *
Jonathan H. Witherspoon
730 Yorkshire Road
Winston Salem, NC 27106 141,600(8) * 141,600(8) 0 *
Jeffrey Blake Woolf
80 Park Ave
Apt. #7F
New York, NY 10016 94,400(48) * 94,400(48) 0 *
Alan J. Young
1750 Braeside Avenue
Northbrook, IL 60062 495,600(40) * 495,600(40) 0 *
-73-
----------
* Less than 1 percent.
** Beneficial owner(s) based information provided to us by the selling
stockholder.
1 Represents the amount of shares that will be held by the selling
stockholders after completion of this offering based on the assumption
that all shares registered for sale hereby will be sold. However, the
selling stockholders may offer all, some or none of the shares pursuant to
this prospectus, and to our knowledge there are currently no agreements,
arrangements or understanding with respect to the sale of any of the
shares that may be held by the selling stockholders after completion of
this offering.
2 Includes 1,788,718 shares underlying warrants that are currently
exercisable at prices ranging from $0.05 to $2.00, 4,106,138 of which
represent warrants, exercisable at $0.05, to purchase shares held by David
T. Harris. Includes 283,333 stock purchase options at with strike prices
ranging from $0.30 to $0.40. Also includes 20,000 shares held by Michael K
Wilhelm that underlie currently exercisable warrants held by one
individual.
3 Includes 712,000 shares underlying warrants that are currently exercisable
at prices ranging from $0.125 to $0.50. Includes 163,000 shares held by
Mark L. Witten that underlie currently exercisable warrants held by 7
individuals.
4 Includes 74,997 common shares which have been committed. These shares to
be issued per Mr. Fermanis's employment agreement. Includes 17,500 shares
underlying warrants that are currently exercisable at prices ranging from
$0.25 to $0.41.
5 Includes 93,300 common shares which have been committed These shares are
being issued in conjunction with the conversion of an outstanding
convertible promissory note in September 2003. Includes 203,000 shares
underlying warrants that are currently exercisable at prices ranging from
$0.038 to $1.00, 17,500 of which represent warrants to purchase shares
held by David T. Harris and 17,500 of which represent warrants to purchase
shares held by Mark L. Witten.
6 Includes 168,297 common shares that have been committed. Includes 150,000
common stock purchase warrants issued to Michael K. Wilhelm per his
employment agreement. Includes 6,596,218 shares underlying warrants that
are currently exercisable at prices ranging from $0.005 to $1.00, and
4,106,138 of which are underlying warrants to purchase shares held by
David T. Harris. Includes an aggregate of 386,000 shares held by Michael,
K. Wilhelm, Mark L. Witten and David T. Harris that underlie currently
exercisable warrants held by 9 individuals.
7 Includes 4,066,138 shares held by David T. Harris that underlie currently
exercisable warrants held by Foresight Capital Corporation, a company
owned by Michael K. Wilhelm, and an additional 203,000 shares held by Mr.
Harris that underlie currently exercisable warrants held by 8 individuals.
8 Includes 14,400 common shares and 7,200 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
9 Includes 100,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 36,000 common shares and 18,000 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
10 Includes 40,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 14,400 common shares and 7,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
11 Includes 200,000 shares underlying warrants that are currently exercisable
at a price of $0.125 per share.
12 Includes 28,800 common shares and 14,400 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
13 Includes 108,000 common shares and 54,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
14 Includes 80,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 28,800 common shares and 14,400 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
15 Includes 36,000 common shares and 18,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
16 Includes 72,000 common shares and 36,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
17 Includes 39,600 common shares that have been committed due to penalty
registration clause.
18 Includes 900 common shares that have been committed due to penalty
registration clause.
19 Includes 33,300 common shares that have been committed due to penalty
registration clause.
20 Includes 21,600 common shares and 10,800 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
-74-
21 Includes 240,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 86,400 common shares and 43,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
22 Includes 43,200 common shares and 21,600 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
23 Includes 29,700 common shares that have been committed due to penalty
registration clause.
24 Includes 18,000 common shares that have been committed due to penalty
registration clause.
25 Includes 18,000 common shares and 9,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
26 Includes 65,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 57,600 common shares and 28,800 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
27 Includes 57,600 common shares and 28,800 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
28 Includes 108,113 common shares that have been committed due to penalty
registration clause.
29 Includes 22,500 common shares that have been committed due to penalty
registration clause.
30 Includes 36,000 common shares that have been committed due to penalty
registration clause.
31 Includes 180,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 64,800 common shares and 32,400 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
32 Includes 20,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 14,400 common shares and 7,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
33 Includes 36,000 common shares that have been committed due to penalty
registration clause.
34 Includes 240,525 common shares that have been committed due to penalty
registration clause.
35 Includes 15,300 common shares that have been committed due to penalty
registration clause.
36 Includes 61,200 common shares that have been committed due to penalty
registration clause.
37 Includes 73,800 common shares that have been committed due to penalty
registration clause.
38 Includes 160,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 57,600 common shares and 28,800 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
39 Includes 172,800 common shares and 86,400 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause.
40 Includes 140,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 50,400 common shares and 25,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
41 Includes 108,113 common shares that have been committed due to penalty
registration clause.
42 Includes 20,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 14,400 common shares and 7,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
43 Includes 8,438 common shares that have been committed due to penalty
registration clause.
44 Includes 3,600 common shares that have been committed due to penalty
registration clause.
45 Includes 9,900 common shares that have been committed due to penalty
registration clause.
46 Includes 50,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 18,000 common shares and 9,000 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause.
47 Includes 2,813 common shares that have been committed due to penalty
registration clause. Dan Hunter is the Chief Operating Officer and control
person of Westrock Advisors.
48 Includes 14,400 common shares that have been committed due to penalty
registration clause.
49 Includes 367,264 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00, 8,000 of which represent warrants
to purchase shares held by Mark L. Witten and 8,000 of which represent
warrants to purchase shares held by David T. Harris.
50 Includes 424,778 shares underlying warrants that are currently exercisable
at prices ranging from $0.125 to $0.50.
51 Includes 34,188 shares underlying warrants that are currently exercisable
at $0.50. Excludes 7,500 shares underlying warrants that are currently
exercisable held by the owner of CDM Group. Jerry Teich is the control
person of CDM Group.
-75-
52 Includes 488,208 shares underlying warrants that are currently exercisable
at prices ranging from $0.25 to $0.50.
53 Includes 235,924 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
54 Includes 634,410 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
55 Includes 40,000 shares that have been committed pending issuance. Includes
1,040,540 shares underlying warrants that are currently exercisable at
prices ranging from $0.09 to $2.00, 62,500 of which represent warrants to
purchase shares held by Mark L. Witten and 62,500 of which represent
warrants to purchase shares held by David T. Harris.
56 Includes 90,000 shares underlying warrants that are currently exercisable
at a price of $0.50 per share.
57 Includes 507,340 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
58 Includes 480,081 shares underlying warrants that are currently exercisable
at prices ranging from $0.50 to $1.00, 37,500 of which represent warrants
to purchase shares held by Mark L. Witten and 37,500 of which represent
warrants to purchase shares held by David T. Harris.
59 Includes 50,000 shares underlying warrants that are currently exercisable,
25,000 at a price of $1.00, 12,500 of which represent warrants to purchase
shares held by Mark L. Witten and 12,500 of which represent warrants to
purchase shares held by David T. Harris.
60 Mark Swickle and Howard Berger are the control persons of Professional
Traders Fund LLC.
61 Eric Westbury is the control person of SBM Certificate Company.
62 Includes 14,464 common shares which have been committed. Includes 26,939
shares underlying warrants that are currently exercisable at $0.278 per
share. Steven J. Scronic is the control person of Stratum Consulting
Group, LLC.
63 Includes 95,388 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 40,000 shares and 20,000 shares underlying
warrants that are currently exercisable held by the owner of Spelling
Communications. Daniel Spelling is the control person of Spelling
Communications.
64 Not used.
65 Includes 522,613 shares underlying warrants that are currently exercisable
at prices ranging from $0.038 to $1.00.
66 Includes 89,600 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 261,048 shares and 26,939 shares underlying
warrants that are currently exercisable held by the owner of Stratum
Consulting Group, LLC. Steven J. Scronic is the control person of Stratum
Consulting Group, LLC.
67 Includes 279,697 shares underlying warrants that are currently exercisable
at a price of $0.50. Excludes 20,000 shares underlying warrants that are
currently exercisable held by the shareholders of Synergos, Inc, Jaye
Thompson and J.T. Thompson. Jaye Thompson is the control person of
Synergos, Inc.
68 Kevin Devine is the control person of Value Management Research AG.
69 Includes 14,554 shares underlying warrants that are currently exercisable
at prices ranging from $0.35 to $0.50.
70 Includes 40,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 14,400 common shares and 7,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause. Barry Lind is the General Partner and
control person of Lind Family Investments LP.
71 Includes 40,000 shares underlying warrants that are currently exercisable
at $0.50. Includes 14,400 common shares and 7,200 common stock purchase
warrants that are currently exercisable at $0.50 that have been committed
due to penalty registration clause. Brian Shannon is the control person of
Flagship Mortgage Co..
72 Includes 72,000 common shares and 36,000 common stock purchase warrants
that are currently exercisable at a price of $0.50 that have been
committed due to penalty registration clause. Lisa Marshall is the
President and control person of Gummersback LTD.
73 Includes 70,000 shares underlying warrants that are currently exercisable
at a price of $0.30.
We will not receive any of the proceeds from the sale of the shares by
the selling stockholders. We have agreed to bear expenses incurred by the
selling stockholders, up to a maximum limit of $15,000, that relate to the
registration of the shares being offered and sold by the selling stockholders,
including the Securities and Exchange Commission registration fee and legal,
accounting, printing and other expenses of this offering.
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue 100,000,000 shares of common stock, $0.001
par value per share, and 10,000,000 shares of preferred stock, $0.001 par value
per share. The following description of our capital stock does not purport to be
complete and is governed by and qualified by our certificate of incorporation
and bylaws, which are included as exhibits to the registration statement of
which this prospectus forms a part, and by the provisions of
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applicable Delaware law.
COMMON STOCK
As of November 8, 2005, we had 69,475,428 shares of common stock
outstanding, which were held of record and beneficially by approximately 520
stockholders. We also have committed to the issuance of 430,438 common shares.
Additionally, in regard to the penalty for delayed registration, pursuant to the
terms of our October 2004 Private Placement, we have committed to the issuance
of 4,150,800 common shares. As of October 31, 2005, there were 13,285,902 shares
of common stock underlying outstanding warrants, and options to purchase 63,212
shares of common stock had been granted or were outstanding outside our 2003
Stock Option, Deferred Stock and Restricted Stock Plan. 271,212 options had been
granted or were outstanding under our 2003 Stock Option, Deferred Stock and
Restricted Stock Plan; 174,784 shares remain available for issuance under this
plan.
The holders of our common stock are entitled to one (1) vote per share
on all matters submitted to a vote of our stockholders. In addition, such
holders are entitled to receive ratably such dividends, if any, as may be
declared from time to time by our Board of Directors out of funds legally
available therefore. No dividends may be paid on the common stock until all
accrued but unpaid dividends on the shares of our preferred stock have been
paid. In the event of the dissolution, liquidation or winding up of our company,
the holders of common stock are entitled to share ratably in all assets
remaining after payment of all liabilities of our company and the preference
amount distributable to the holders of the shares of preferred stock. The
holders of common stock do not have any subscription, redemption or conversion
rights, nor do they have any preemptive or other rights to acquire or subscribe
for additional, unissued or treasury shares.
Pursuant to our bylaws, except for any matters which pursuant to
Delaware law require a greater percentage vote for approval, the holders of a
majority of the outstanding shares of common stock, if present in person or by
proxy, are sufficient to constitute a quorum for the transaction of business at
meetings of our stockholders. Except as to any matters which pursuant to
Delaware law require a greater percentage vote for approval, the affirmative
vote of the holders of a majority of the shares of common stock present in
person or by proxy at any meeting (provided a quorum is present) is sufficient
to authorize, affirm or ratify any act or action, including the election of our
Board of Directors.
The holders of the common stock do not have cumulative voting rights.
Accordingly, the holders of more than half of the outstanding shares of common
stock can elect all of the directors to be elected in any election, if they
choose to do so. In such event, the holders of the remaining shares of common
stock would not be able to elect any directors. Our Board of Directors is
empowered to fill any vacancies on the Board created by the resignation, death
or removal of directors.
In addition to voting at duly called meetings at which a quorum is
present in person or by proxy, Delaware law and our bylaws provide that
stockholders may take action without the holding of a meeting by written consent
or consents signed by the holders of a majority of the outstanding shares of our
capital stock entitled to vote thereon. Prompt notice of the taking of any
action without a meeting by less than unanimous consent of the stockholders will
be given to those stockholders who do not consent in writing to the action. The
purposes of this provision are to facilitate action by stockholders and to
reduce the corporate expense associated with special meetings of stockholders.
MARKET PRICE OF OUR COMMON STOCK
The price of our common stock has been volatile in the past and will
likely continue to fluctuate in the future. The stock market in general and the
market for shares of life science companies in particular have experienced
extreme stock price fluctuations. In some cases, these fluctuations have been
unrelated to the operating performance of the affected companies. Many companies
in the life science and related industries have experienced dramatic volatility
in the market prices of their common stock. We believe that a number of factors,
both within and outside our control, could cause the price of our common stock
to fluctuate, perhaps substantially. Factors such as the following could have a
significant adverse impact on the market price of our common stock:
- Our ability to obtain additional financing and, if available,
the terms and conditions of the financing;
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- Our financial position and results of operations;
- Biological or medical discoveries by competitors;
- The results of preclinical studies and clinical trials by us,
our collaborators or our competitors;
- Concern as to, or other evidence of, the safety or efficacy of
our proposed products or our competitors' products;
- Announcements of technological innovations or new products by
us or our competitors;
- U.S. and foreign governmental regulatory actions;
- Delays in the conduct or analysis of our preclinical or
clinical studies;
- Unfavorable results from preclinical or clinical studies;
- Unfavorable developments concerning patents or other
proprietary rights;
- Unfavorable domestic or foreign regulatory developments;
- Actual or anticipated changes in drug reimbursement policies;
- Developments with our collaborators, if any;
- Developments concerning patent or other proprietary rights of
us or our competitors (including litigation);
- Status of litigation;
- Period-to-period fluctuations in our operating results;
- Changes in estimates of our company's performance by any
securities analysts;
- New regulatory requirements and changes in the existing
regulatory environment;
- Market conditions for life science stocks in general;
- The issuance of new equity securities pursuant to a future
offering;
- Changes in interest rates;
- Competitive developments, including announcements by
competitors of new products or services or significant
contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
- Variations in quarterly operating results;
- Change in financial estimates by securities analysts;
- The depth and liquidity of the market for our common stock;
- Investor perceptions of our company and the technologies
industries generally; and,
- General economic and other national conditions.
Trading in our securities could be subject to extreme price
fluctuations that could adversely affect your investment. The market prices for
securities of life sciences companies, particularly those that are not
profitable, have been highly volatile, especially recently. Publicized events
and announcements may have a significant impact on the market price of our
common stock. The factors listed above 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 November 11, 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.
PREFERRED STOCK
Under our certificate of incorporation, shares of our preferred stock
may, without any action by our stockholders, be issued by our Board of Directors
from time to time in one or more series for such consideration and with such
relative rights, privileges and preferences as the Board may determine.
Accordingly, our Board of Directors has the power, without stockholder approval,
to fix the dividend rate and to establish the provisions, if any, relating to
voting rights, redemption rate, sinking fund, liquidation preferences and
conversion rights for any series of preferred stock (subject to the preferences
of the shares of common stock offered hereby) issued in the future, which could
adversely affect the voting power or other rights of the holders of common
stock.
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Our Board of Directors' authority to issue preferred stock provides a
convenient vehicle in connection with possible acquisitions and other corporate
purposes, but could have the effect of making it more difficult for a person or
group to gain control of our company. As of the date of the prospectus, there
are no shares of preferred stock outstanding, and we do not have present plans
to issue any shares of preferred stock or designate any series of preferred
stock.
STOCK OPTIONS
As of September 30, 2005, there were 316,242 outstanding stock options
at a weighted average exercise price of $5.31, of which 253,030 are at an
average price of $0.37 per share and were granted under our 2003 Stock Option,
Deferred Stock and Restricted Stock Plan and 63,212 shares at a weighted average
exercise price of $25.00 per share that were granted outside of our 2003 Stock
Option, Deferred Stock and Restricted Stock Plan. There are 174,784 shares
reserved for future grant under our 2003 Stock Option, Deferred Stock and
Restricted Stock Plan.
Our Board of Directors has approved the issuance of a nonstatutory
option to purchase 1,896,970 shares at 110% of the fair market value per share
to our Chief Executive Officer under our 2003 Stock Option, Deferred Stock and
Restricted Stock Plan. Due to the fact that there are currently not enough
shares available under our 2003 Stock Option, Deferred Stock and Restricted
Stock Plan to grant these options to our Chief Executive Officer, we have not
yet made a commitment to issue these options. We recognize that if, at such a
time as the Company's 2003 Stock Plan is amended to authorize additional shares,
a commitment will be made and the options granted.
WARRANTS
As of September 30, 2005, there were outstanding warrants to purchase
11,573,999 shares of our common stock with exercise prices ranging from $0.04 to
$2.00 per share.
DELAWARE ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law. In general, this statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless, with certain exceptions, the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior, did own 15% or more
of the corporation's voting stock. These provisions may have the effect of
delaying, deferring or preventing a change in control of us without further
action by our stockholders.
Our certificate of incorporation and bylaws contain provisions that
could have the effect of discouraging potential acquisition proposals or making
a tender offer or delaying or preventing a change in control of our company,
including changes a stockholder might consider favorable. In particular, our
certificate of incorporation and bylaws, as applicable, among other things,
will:
- provide our board of directors with the ability to alter our
bylaws without stockholder approval;
- provide that special meetings of stockholders can only be
called by our Board of Directors or by a committee of our
Board of Directors that has been duly designated by the Board
and whose powers and authority included the power to call such
meetings;
- provide for an advance notice procedure with regard to the
nomination of candidates for election as directors and with
regard to business to be brought before a meeting of
stockholders;
- provide that vacancies on our board of directors may be filled
by a majority of directors in office, although less than a
quorum; and,
- allow us to issue up to 10,000,000 shares of preferred stock
with rights senior to those of the common stock and that
otherwise could adversely affect the rights and powers,
including voting rights, of the
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holders of common stock. In some circumstances, this issuance
could have the effect of decreasing the market price of our
common stock, as well as having the anti-takeover effects
discussed above.
Such provisions may have the effect of discouraging a third-party from
acquiring us, even if doing so would be beneficial to our stockholders. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of our board of directors and in the policies formulated by
them, and to discourage some types of transactions that may involve an actual or
threatened change in control of our company. These provisions are designed to
reduce our vulnerability to an unsolicited acquisition proposal and to
discourage some tactics that may be used in proxy fights. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure our
company outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. However, these provisions could have the effect of discouraging
others from making tender offers for our shares that could result from actual or
rumored takeover attempts. These provisions also may have the effect of
preventing changes in our management.
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BROKER-DEALER REQUIREMENTS FOR "PENNY STOCK" TRANSACTIONS
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.
TRANSFER AGENT AND REGISTRAR
The transfer agent for our common stock is Stalt, Inc., located at 671
Oak Grove Avenue, Suite C, Menlo Park, California 94025.
SHARES ELIGIBLE FOR FUTURE SALE
As of November 8, 2005, we had outstanding 69,475,428 shares of common
stock.
RULE 144
Of our outstanding shares, 5,989,664 shares of common stock are
immediately eligible for sale in the public market without restriction or
further registration under the Securities Act. All other outstanding shares of
our common stock are "restricted securities" as such term is defined under Rule
144, in that such shares were issued in private transactions not involving a
public offering and may not be sold in the absence of registration other than in
accordance with Rules 144 or another exemption from registration under the
Securities Act.. If shares are purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act of 1933, their sales of shares
would be governed by the limitations and restrictions that are described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares of our common
stock for at least one year, including any person who may be deemed to be an
"affiliate" (as the term "affiliate" is defined under the Securities Act of
1933), would be entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the number of shares of common
stock then outstanding, which as of November 8, 2005 would equal approximately
694,754 shares.
Sales under Rule 144 are also governed by other requirements regarding
the manner of sale, notice filing and the availability of current public
information about us. Under Rule 144, however, a person who is not, and for the
three months prior to the sale of such shares has not been, an affiliate of the
issuer is free to sell shares that are "restricted securities" which have been
held for at least two years without regard to the limitations contained in Rule
144. The selling stockholders will not be governed by the foregoing restrictions
when selling their shares pursuant to this prospectus.
RULE 144(K)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, notice
filing, volume limitation or notice provisions of Rule 144.
SEC POSITION ON RULE 144 SALES
In November 2000, we changed our name to GPN Network, Inc. In July
2001, we discontinued the operations of GPN Network, Inc. in their entirety and
began looking for appropriate merger partners. Our objective became the
acquisition of an operating company with the potential for growth in exchange
for our securities. In July
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2003, we effected a reverse merger with ImmuneRegen BioSciences, Inc. and
adopted our current business model.
Prior to the merger with ImmuneRegen Biosciences, Inc., we were a blank
check company and did not have any operations or receive any revenues since
inception. A "blank check" company is a development stage company that has no
specific business plan or purpose or has indicated its business plan is to
engage in a merger or acquisition with an unidentified company or companies, or
other entity or person.
The Securities and Exchange Commission has taken the position that
promoters or affiliates of a blank check company and their transferees, both
before and after a business combination, would act as an "underwriter" under the
Securities Act when reselling the securities of a blank check company because
their resale transactions would appear to be designed to distribute or
redistribute securities to the public without compliance with the registration
requirement of the Securities Act. Accordingly, the Securities and Exchange
Commission believes that those securities can be resold only through a
registered offering and that Rule 144 would not be available for those resale
transactions despite technical compliance with the requirements of Rule 144. As
of October 3, 2005, 366,420 shares of our outstanding common stock, and 450,000
shares of our common stock issuable upon warrants presently issued and
outstanding as of the date hereof are held by promoters or affiliates (or their
transferees) of our prior company, GPN Networks, Inc.. These shares are being
registered hereby.
Additionally, stockholders who obtained securities directly from a
blank check issuer and through promoters and affiliates, cannot use Rule 144 to
resell their securities, since their resale transactions would appear to be
designed to distribute or redistribute securities to the public without
compliance with the registration requirement of the Securities Act. As a result,
this policy applies to stockholders of ImmuneRegen Biosciences, Inc., prior to
the merger with our company.
PLAN OF DISTRIBUTION
The selling stockholders, and any of their pledgees, assignees and
successors-in-interest, may, from time to time, sell any or all of their shares
of our common stock on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The selling stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell
the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o settlement of short sales entered into after the date of this
prospectus;
o broker-dealers may agree with the selling stockholders to sell
a specified number of such shares at a stipulated price per
share;
o a combination of any such methods of sale; or,
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or
otherwise.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, if available, rather than under this prospectus.
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Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the selling stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. Each selling stockholder does not expect these commissions and
discounts relating to its sales of shares to exceed what is customary in the
types of transactions involved.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may, after the date of this prospectus, also sell shares of our
common stock short and deliver these securities to close out their short
positions, or loan or pledge the common stock to broker-dealers that in turn may
sell these securities. The selling stockholders may also enter into option or
other transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to such
broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. Each selling stockholders has
informed us that it does not have any agreement or understanding, directly or
indirectly, with any person to distribute our common stock.
The shares of common stock underlying the warrants issued to those
selling stockholders who, as indicated in the Selling Stockholder table above,
received such warrants as part of compensation pursuant to a placement agency
agreement between us and Joseph Stevens & Co. are restricted in accordance with
Rule 2710(g)(I) of the NASD Conduct Rules. Accordingly, those selling
stockholders shall not directly or indirectly, offer, sell, agree to offer or
sell, transfer, assign, pledge, hypothecate or subject to hedging, short sale,
derivative, put or call transaction such shares for a period of 180 days after
the date this registration statement is declared effective by the SEC.
We are required to pay certain fees and expenses incurred by us
incident to the registration of the shares. We have agreed to indemnify the
selling stockholders against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
Because selling stockholders may be deemed to be "underwriters" within
the meaning of the Securities Act, they will be subject to the prospectus
delivery requirements of the Securities Act. In addition, any securities covered
by this prospectus which qualify for sale pursuant to Rule 144 under the
Securities Act may be sold under Rule 144 rather than under this prospectus.
Each selling stockholder has advised us that they have not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of the resale shares. There is no underwriter or coordinating
broker acting in connection with the proposed sale of the resale shares by the
selling stockholders.
We agreed to keep this prospectus effective until the earlier of (i)
the date on which the shares may be resold by the selling stockholders without
registration and without regard to any volume limitations by reason of Rule
144(k) under the Securities Act or any other rule of similar effect or (ii) all
of the shares have been sold pursuant to the prospectus or Rule 144 under the
Securities Act or any other rule of similar effect. The resale shares will be
sold only through registered or licensed brokers or dealers if required under
applicable state securities laws. In addition, in certain states, the resale
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in the distribution of the resale shares may not
simultaneously engage in market making activities with respect to our common
stock for a period of two business days prior to the commencement of the
distribution. In addition, the selling stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases and
sales of shares of our common stock
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by the selling stockholders or any other person. We will make copies of this
prospectus available to the selling stockholders and have informed them of the
need to deliver a copy of this prospectus to each purchaser at or prior to the
time of the sale.
DISCLOSURE OF COMMISSION POSITION OF
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Under Section 145 of the General Corporation Law of the State of
Delaware, we can indemnify our directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). Our certificate of incorporation
provides that, pursuant to Delaware law, our directors shall not be liable for
monetary damages for breach of the directors' fiduciary duty of care to us and
our stockholders. This provision in the certificate of incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to us or our
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of the law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of our directors to the
fullest extent permitted by the Delaware General Corporation Law. Our bylaws
further provide that our Board of Directors has sole discretion to indemnify our
officers and other employees. We may limit the extent of such indemnification by
individual contracts with our directors and executive officers, but have not
done so. We are required to advance, prior to the final disposition of any
proceeding, promptly on request, all expenses incurred by any director or
executive officer in connection with that proceeding on receipt of an
undertaking by or on behalf of that director or executive officer to repay those
amounts if it should be determined ultimately that he or she is not entitled to
be indemnified under our bylaws or otherwise. We are not, however, required to
advance any expenses in connection with any proceeding if a determination is
reasonably and promptly made by our Board of Directors by a majority vote of a
quorum of disinterested Board members that (a) the party seeking an advance
acted in bad faith or deliberately breached his or her duty to us or our
stockholders and (b) as a result of such actions by the party seeking an
advance, it is more likely than not that it will ultimately be determined that
such party is not entitled to indemnification pursuant to the applicable
sections of our bylaws.
We have been advised that in the opinion of the Securities and Exchange
Commission, insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Securities Act") may be permitted to our directors,
officers and controlling persons pursuant to the foregoing provisions, or
otherwise, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event a claim for
indemnification against such liabilities (other than our payment of expenses
incurred or paid by our director, officer or controlling person in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for us by Kirkpatrick & Lockhart Nicholson Graham LLP, Los Angeles,
California.
EXPERTS
The financial statements appearing in this Prospectus and Registration
Statement have been audited by Russell Bedford Stefanou Mirchandani LLP,
independent accountants; to the extent and for the periods indicated in their
report appearing elsewhere herein, and are included in reliance upon such report
and upon the authority of such firms as experts in accounting and auditing.
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ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act of 1933 for the shares of common
stock in this offering. This prospectus does not contain all of the information
in the registration statement and the exhibits and schedule that were filed with
the registration statement. For further information with respect to us and our
common stock, we refer you to the registration statement and the exhibits and
schedule that were filed with the registration statement. Statements contained
in this prospectus about the contents of any contract or any other document that
is filed as an exhibit to the registration statement are not necessarily
complete, and we refer you to the full text of the contract or other document
filed as an exhibit to the registration statement. A copy of the registration
statement and the exhibits and schedules that were filed with the registration
statement may be inspected without charge at the Public Reference Room
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part of the registration
statement may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee. Information regarding the operation of the Public
Reference Room may be obtained by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site
that contains reports, proxy and information statements, and other information
regarding registrants that file electronically with the SEC. The address of the
site is www.sec.gov.
We are subject to the information and periodic reporting requirements
of the Securities Exchange Act of 1934, and in accordance with the Securities
Exchange Act of 1934, we file annual, quarterly and special reports, and other
information with the Securities and Exchange Commission. These periodic reports
and other information are available for inspection and copying at the regional
offices, public reference facilities and website of the Securities and Exchange
Commission referred to above.
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INDEX TO FINANCIAL STATEMENTS
PAGE NO.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM......................F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet at December 31, 2004..............................F-3
Consolidated Statements of Losses for the two years ended
December 31, 2004 and 2003 and the period October 30, 2002
(Date of Inception) through December 31, 2004........................F-4
Consolidated Statements of Stockholders' Equity for the period
October 30, 2002 (Date of Inception) through
December 31, 2004.............................................F-5 to F-7
Consolidated Statements of Cash Flows for the two years ended
December 31, 2004 and 2003 and the period October 30, 2002
(Date of Inception) through December 31, 2004.................F-8 to F-9
Notes to Consolidated Financial Statements..........................F-10 to F-26
Consolidated Balance Sheet as ofs September 30, 2005 (unaudited)............F-28
Consolidated Statements of Operations for the three months ended
September 30, 2005 and 2004 (unaudited).............................F-29
Consolidated Statements of Stockholders' Equity (Deficit) from the
date of inception (October 30,2002) to September 30, 2005
(unaudited)................................................F-30 to F-34
Consolidated Statements of Cash Flows for the three months ended
September 30, 2005 and 2004 (unaudited).....................F-35 to F-36
Notes to Consolidated Financial Statements for the three months
ended September 30, 2005 and 2004 (unaudited)...............F-37 to F-42
The accompanying notes are an integral part of these
Condensed consolidated financial statements.
F-1
RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
Board of Directors
IR Biosciences Holdings, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of IR Biosciences
Holdings, Inc., development stage company, (the "Company") as of December 31,
2004 and the related consolidated statements of losses, stockholders' equity,
and cash flows for the two years December 31, 2004 and 2003 and the period
October 30, 2002 (date of inception) through December 31, 2004. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based upon
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of IR
Biosciences Holdings, Inc. , a development stage company, as of December 31,
2004 , and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003 and for the period October 30, 2002 (date of
inception) through December 31, 2004 , in conformity with accounting principles
generally accepted in the United States of America.
/s/ RUSSELL BEDFORD STEFANOU MIRCHANDANI LLP
--------------------------------------------
Russell Bedford Stefanou Mirchandani LLP
New York, New York
March 4, 2005
F-2
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
December 31,
2004
-----------
Assets
Current assets
Cash and cash equivalents $ 970,114
Prepaid services and other current assets 6,713
-----------
Total current assets 976,827
Licensed proprietary rights, net 7,320
Furniture and equipment, net 6,500
-----------
Total assets $ 990,647
===========
Liabilities and Stockholders' Equity
Current liabilities
Current portion of notes payable, net of discount 75,993
Accounts payable and accrued liabilities 307,301
-----------
Total current liabilities 383,294
Commitments and Contingencies
Stockholders' Equity
Preferred stock, 0.001 par value:
10,000,000 shares authorized, no shares issued and outstanding 0
Common stock, $0.001 par value; 100,000,000 shares authorized;
62,423,388 shares issued and outstanding at December 31, 2004 62,423
Additional paid-in capital 7,922,943
Deferred compensation (169,986)
Deficit accumulated during the Development Stage (7,208,027)
Total stockholder's equity 607,353
-----------
Total liabilities and stockholders' equity $ 990,647
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Losses
Cumulative from
For the Twelve For the Twelve Inception
Months Ended Months Ended (October 30, 2002)
December 31, December 31, to December 31,
2004 2003 2004
------------ ------------ ------------
Operating expenses:
Selling, general and administrative expenses $ 4,498,390 $ 1,045,776 $ 5,589,884
Merger fees and costs 0 350,000 350,000
Financing cost 0 90,000 90,000
------------ ------------ ------------
Total operating expenses 4,498,390 1,485,776 6,029,884
Operating loss (4,498,390) (1,485,776) (6,029,884)
Other expense:
Interest expense 807,017 370,926 1,178,143
------------ ------------ ------------
Total other expense 807,017 370,926 1,178,143
Loss before income taxes (5,305,407) (1,856,702) (7,208,027)
Provision for income taxes -- -- --
------------ ------------ ------------
Net loss $ (5,305,407) $ (1,856,702) $ (7,208,027)
============ ============ ============
Net loss per share - basic and diluted $ (0.16) $ (0.09) $ (0.28)
============ ============ ============
Weighted average shares outstanding -
basic and diluted 33,510,168 21,317,292 25,698,261
============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of
Stockholders' Equity (Deficit) From Date of
Inception (October 30, 2002) to December 31, 2004
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in
conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders
in conjunction with fourth quarter notes
payable issued October through
December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the twelve month period ended
December 31, 2003 -- -- -- -- (1,856,702) (1,856,702)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2003 23,431,300 23,431 1,035,441 -- (1,902,620) (843,748)
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a
consultant for services rendered in
January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62
per share for services rendered in
February 2004 40,000 40 24,760 (24,800) -- --
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- --
Shares issued to a consultant at $0.50 per
share for services rendered in March 2004 500,000 500 249,500 (250,000) -- --
Shares sold for cash at $0.15 per share
in March, 2004 8,000 8 1,192 -- -- 1,200
Shares issued at $0.50 per share to
consultants for services rendered in
March 2004 20,000 20 9,980 -- -- 10,000
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 2,000 2 798 -- -- 800
Shares issued to consultants at $0.32 per
share for services rendered in March 2004 91,600 92 29,220 -- -- 29,312
Shares to be issued to consultant at $0.41 per
share in April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- (82,000)
Shares granted pursuant to the New Senior Note
Agreement in April 2004 600,000 600 149,400 (150,000) -- --
Shares issued to officer at $0.32 per share for
services rendered in April 2004 200,000 200 63,800 -- -- 64,000
Conversion of note payable to common stock at
$0.10 per share in May 2004 350,000 350 34,650 -- -- 35,000
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statement of
Stockholders' Equity (Deficit) From Date of
Inception (October 30, 2002) to December 31, 2004 (continued)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Beneficial Conversion Feature associated with
note payable in May 2004 -- -- 35,000 -- -- 35,000
Issuance of warrants to officers and founder
for services rendered in May 2004 -- -- 269,208 -- -- 269,208
Shares to a consultant at $0.20 per share as a
due dilligence fee in May 2004 125,000 125 24,875 -- -- 25,000
Shares issued to a consultant at $1.00 per
share for services to be rendered over
twelve months beginning May 2004 500,000 500 499,500 (500,000) -- --
Benefial Conversion Feature associated with
notes payable issued in June 2004 -- -- 3,000 -- -- 3,000
Issuance of warrants to note holders in April,
May, and June 2004 -- -- 17,915 -- -- 17,915
Issuance of warrants to employees and
consultants for services rendered in
April through June 2004 -- -- 8,318 -- -- 8,318
Shares issued in July to a consultant at
$0.10 for services to be rendered through
July 2005 250,000 250 24,750 (25,000) -- --
Shares issued to a consultant in July and
September at $0.41 per share for services
to be rendered through April 2005 200,000 200 81,800 -- -- 82,000
Shares issued to a consultant in September at
$0.12 to $0.22 for services rendered
through September 2004 127,276 127 16,782 -- -- 16,909
Shares issued in July to September 2004 as
interest on note payable 300,000 300 35,700 -- -- 36,000
Issuance of warrants with notes payable in
July and August 2004 -- -- 72,252 -- -- 72,252
Accrued deferred compensation in August 2004
to a consultant for 100,000 shares at $0.10
per share, committed but unissued -- -- -- (10,000) -- (10,000)
Shares issued in August 2004 at $0.14 to a
consultant for services to be performed
through October 2004 100,000 100 13,900 (14,000) -- --
Shares issued in August 2004 at $0.125 per
share for conversion of $30,000 demand loan 240,000 240 29,760 -- -- 30,000
Shares issued in August 2004 at $0.16 per
share to a consultant for services provided 125,000 125 19,875 -- -- 20,000
Shares issued to employees at $0.16 to
$0.25 per share 48,804 49 8,335 -- -- 8,384
Commitment to issue 100,000 shares of stock to
a consultant at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- (23,000)
Sale of stock for cash in October at $0.125 per
share, net of costs of $298,155 18,160,000 18,160 1,345,763 -- -- 1,363,923
Value of warrants issued with sale of common
stock in October, net of costs -- -- 607,922 -- -- 607,922
Issuance of warrant to officer in October -- -- 112,697 -- -- 112,697
Issuance of stock to investment bankers in
October 2004 for commissions earned 4,900,000 4,900 (4,900) -- -- --
Conversion of accounts payable to stock in
October at $0.125 per share 1,257,746 1,258 107,382 -- -- 108,640
Value of warrants issued with accounts
payable conversions -- -- 48,579 -- -- 48,579
Conversion of demand loan to stock in October
at $0.11 per share 93,300 93 10,170 -- -- 10,263
Forgiveness of notes payable in October 2004 -- -- 36,785 -- -- 36,785
Issuance of stock to officer and director at
$0.125 per share in October for conversion
of liability 1,440,000 1,440 122,493 -- -- 123,933
Value of warrants issued with officer and
director conversion of liabilities -- -- 56,067 -- -- 56,047
Conversion of debt and accrued interest to
common stock at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- 424,217
Value of warrants issued with conversion
of debt -- -- 191,111 -- -- 191,111
Conversion of note payable in October into
common stock at $0.075 per share 67,613 68 4,932 -- -- 5,000
Issuance of warrants to note holders in
October 2004 -- -- 112,562 -- -- 112,562
Value of shares issued to CFO as compensation 100,000 100 34,900 -- -- 35,000
Value of warrants issued to members of
advisory committees in November and
December -- -- 16,348 -- -- 16,348
Beneficial conversion feature associated with
notes payable -- -- 124,709 -- -- 124,709
Shares issued in error to be cancelled (9,002) (9) 9 -- -- --
Amortization of deferred compensation through
December 31, 2004 -- -- -- 2,729,454 -- 2,729,454
Loss for the twelve months ended
December 31, 2004 -- -- -- -- (5,305,407) (5,305,407)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) (7,208,027) 607,353
=========== =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
Cumulative
from Inception
For the Twelve For the Twelve (October 30,
Months Ended Months Ended 2002) to
December 31, December 31, December 31,
2004 2003 2004
----------- ----------- --------------
Cash flows from operating activities:
Net loss $(5,305,407) $(1,856,702) $(7,208,027)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES:
Non-cash compensation 3,284,577 114,641 3,400,000
Interest expense 83,776 68,624 152,400
Amortization of discount on notes payable 704,633 302,302 1,006,935
Depreciation and amortization 13,255 12,685 26,017
Changes in operating assets and liabilities:
Prepaid services and other assets 29,130 (35,842) (6,712)
Accounts payable and accrued expenses 148,854 397,402 555,042
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,041,182) (996,890) (2,074,345)
Cash flows from investing activities:
Acquisition of property and equipment (4,783) (3,304) (8,087)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (4,783) (3,304) (8,087)
Cash flows from financing activities:
Net proceeds from notes payable 32,500 1,186,000 1,233,500
Principal payments on notes payable -- (250,000) (250,000)
Shares of stock sold for cash 1,973,045 65,000 2,069,046
Officer repayment of amounts paid on behalf of officer -- 19,880 19,880
Cash paid on behalf of officer -- (19,880) (19,880)
Cash paid on amount due to officer -- (22,427) (22,427)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,005,545 978,573 3,030,119
Net increase in cash and cash equivalents 959,580 (21,621) 947,687
Cash and cash equivalents at beginning of period 10,534 32,155 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 970,114 $ 10,534 $ 970,114
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows (continued)
Non-cash investing and financing activities:
Cumulative
from Inception
For the Twelve For the Twelve (October 30,
Months Ended Months Ended 2002) to
December 31, December 31, December 31,
2004 2003 2004
----------- ----------- --------------
Supplemental Disclosures of Cash Flow Information:
Acquisition and Capital Restructure:
Assets acquired $ - $ - $ -
Liabilities assumed - (120,799) (120,799)
Common stock retained - (2,369) (2,369)
Adjustment to additional paid in capital - 123,168 123,168
Organization costs - 350,000 350,000
----------- ----------- --------------
Total consideration paid $ - $ 350,000 $ 350,000
=========== =========== ==============
Cash paid during the period for interest $ 54 $ 41,793 $ 41,847
=========== =========== ==============
Cash paid during the period for taxes $ -- $ -- $ --
=========== =========== ==============
Common stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
=========== =========== ==============
Common stock issued in exchange for services $ 2,878,006 $ 37,280 $ 2,915,286
=========== =========== ==============
Common stock issued in exchange for previously incurred
debt and accrued interest $ 695,591 $ 300,000 $ 995,591
=========== =========== ==============
Common stock issued in exchange as interest $ 36,000 $ -- $ 36,000
=========== =========== ==============
Amortization of beneficial conversion feature $ 162,709 $ 60,560 $ 223,269
=========== =========== ==============
Stock options and warrants issued in exchange for
services rendered $ 406,571 $ 85,861 $ 492,432
=========== =========== ==============
Debt and accrued interest forgiveness from
note holders $ 36,785 $ -- $ 36,785
=========== =========== ==============
Common stock issued in satisfaction of
accounts payable $ 157,219 $ -- $ 157,219
=========== =========== ==============
Common stock issued in satisfaction of
amounts due to an Officer and a Director $ 180,000 $ -- $ 180,000
=========== =========== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements follows.
Nature of Business
------------------
IR Biosciences Holdings Inc. ("Company") formerly GPN Network, Inc. ("GPN") is
currently a development stage company under the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 7. The Company, which was
incorporated under the laws of the State of Delaware on October 30, 2002, is a
biotechnology company and plans to develop and market applications utilizing
modified substance P, a naturally occurring immunomodulator. From its inception
through the date of these financial statements, the Company has recognized
minimal revenues and has incurred significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary, ImmuneRegen BioSciences, Inc.. Significant
intercompany transactions have been eliminated in consolidation.
Acquisition and Corporate Restructure
-------------------------------------
On July 20, 2003 ImmuneRegen Biosciences Inc. ("ImmuneRegen")entered into an
Agreement of Plan and Merger ("Agreement") with GPN Network, Inc. ("GPN") an
inactive publicly registered shell corporation with no significant assets or
operations. In accordance with SFAS No. 141, the Company was the acquiring
entity. While the transaction is accounted for using the purchase method of
accounting, in substance the Agreement is a recapitalization of the Company's
capital structure.
For accounting purposes, the Company has accounted for the transaction as a
reverse acquisition and the Company shall be the surviving entity. The total
purchase price and carrying value of net assets acquired was $0. From July 2001
until the date of the Agreement the Company was inactive. The Company did not
recognize goodwill or any intangible assets in connection with the transaction.
Effective with the Agreement, all previously outstanding common stock, preferred
stock, options and warrants owned by the Company's shareholders were exchanged
for an aggregate of 21,063,170 (post-split) shares of GPN common stock. The
value of the stock that was issued was the historical cost of GPN's net tangible
assets, which did not differ materially from their fair value.
Effective with the Agreement, GPN changed its name to IR Biosciences Holdings
Inc.
The accompanying financial statements present the historical financial
condition, results of operations and cash flows of the Company prior to the
merger with GPN.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
F-9
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
--------------------------
For purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.
Long-lived Assets
-----------------
The Company accounts for its long-lived assets under the provision of Statements
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset.
Income Taxes
------------
The Company has implemented the provisions on Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
that income tax accounts be computed using the liability method. Deferred taxes
are determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws.
Net Loss Per Common Share
-------------------------
The Company computes earnings per share under Financial Accounting Standard No.
128, "Earnings Per Share" (SFAS 128). Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the year. Dilutive common
stock equivalents consist of shares issuable upon conversion of convertible
notes and the exercise of the Company's stock options and warrants (calculated
using the treasury stock method). During 2004, 2003 and 2002, common stock
equivalents are not considered in the calculation of the weighted average number
of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share.
Liquidity
---------
As shown in the accompanying financial statements, the Company has incurred a
net loss of $7,208,027 from its inception through December 31, 2004. The
Company's has net working capital of $593,533, with cash and cash equivalents of
$970,114 of this amount as of December 31, 2004.
F-10
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development
------------------------
The Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. Total expenditures on
research and product development for the years 2004, 2003, and the period from
October 30, 2002 (date of inception) to December 31, 2004 were $150,091, $42,972
and $193,063, respectively.
Concentrations of Credit Risk
-----------------------------
Financial instruments and related items, which potentially subject the Company
to concentrations of credit risk, consist primarily of cash, cash equivalents
and related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. There is
no allowance for doubtful accounts established as of December 31, 2004.
Comprehensive Income
---------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income," establishes standards for reporting and displaying of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company does not have any items of comprehensive
income in any of the periods presented.
Stock Based Compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary charge to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise
F-11
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation (continued)
------------------------------------
price of the related option. The Company has adopted the annual disclosure
provisions of SFAS No. 148 in its financial reports for the year ended December
31, 2004 and 2003 and for subsequent periods. The Company did not issue any
stock-based employee compensation during the years ended December 31, 2004 and
2003.
Segment Information
-------------------
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States of America. The
estimated fair values approximate their carrying value because of the short-term
maturity of these instruments or the stated interest rates are indicative of
market interest rates.
Property and Equipment
-----------------------
Property and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
Website Development Costs
-------------------------
The Company recognizes website development costs in accordance with Emerging
Issue Task Force ("EITF") No. 00-02, "Accounting for Website Development Costs."
As such, the Company expenses all costs incurred that relate to the planning and
post implementation phases of development of its website. Direct costs incurred
in the development phase are capitalized and recognized over the estimated
useful life of two years. The Company follows the policy of charging costs
associated with repair or maintenance for the website to expenses incurred.
Advertising
-----------
The Company follows the policy of charging the costs of advertising to expenses
incurred. The Company has not incurred any advertising costs during the years
ended December 31, 2004 or 2003, or for the period from October 30, 2002
(inception) through December 31, 2004.
F-12
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
-----------------
Certain reclassifications have been made in prior year's financial statements to
conform to classifications used in the current year.
New Accounting Pronouncements
-----------------------------
In November 2004, the Financial Accounting Standards Board (FASB) issued
SFAS151, Inventory Costs- an amendment of ARB No. 43, Chapter 4. This Statement
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that "under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges" This Statement
requires that those items be recognized as current-period charges regardless of
whether they meet the criterion of "so abnormal." In addition, this Statement
requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities. This
Statement is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Management does not believe the adoption of this
Statement will have any immediate material impact on the Company.
In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions-an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152. This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. with earlier application encouraged.
The Company does not anticipate that the implementation of this standard will
have a material impact on its financial position, results of operations or cash
flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment ("SFAS 123R"). SFAS 123R requires that compensation cost
related to share-based payment transactions be recognized in the financial
statements. Share-based payment transactions within the scope of SFAS 123R
include stock options, restricted stock plans, performance-based awards, stock
appreciation rights, and employee share purchase plans. The provisions of SFAS
123R are effective as of the first interim period that begins after June 15,
2005. Accordingly, the Company will implement the revised standard in the third
quarter of fiscal year 2005. Currently, the Company accounts for its share-based
payment transactions under the provisions of APB 25, which does not necessarily
require the recognition of compensation cost in the financial statements.
Management is assessing the implications of this revised standard, which may
materially impact the Company's results of operations in the third quarter of
fiscal year 2005 and thereafter.
On December 16, 2004, FASB issued Statement of Financial Accounting Standards
No. 153, Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29,
Accounting for Nonmonetary Transactions (" SFAS 153"). This statement amends APB
Opinion 29 to eliminate the exception for
F-13
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Pronouncements (continued)
-----------------------------------------
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. Under SFAS 153, if a nonmonetary exchange of similar
productive assets meets a commercial-substance criterion and fair value is
determinable, the transaction must be accounted for at fair value resulting in
recognition of any gain or loss. SFAS 153 is effective for nonmonetary
transactions in fiscal periods that begin after June 15, 2005. The Company does
not anticipate that the implementation of this standard will have a material
impact on its financial position, results of operations or cash flows.
NOTE B - PROPERTY, PLANT AND EQUIPMENT
The Company's property and equipment at December 31, 2004 consists of the
following:
2004
-------
Office Equipment $6,665
Office Fixtures and Furniture 1,423
-------
8,088
Accumulated Depreciation (1,588)
-------
$6,500
=======
Depreciation expense included as a charge to income amounted to $1,078, $510,
and $1,588 for the years ended December 31, 2004 and 2003 and from inception to
December 31, 2004, respectively.
NOTE C - INTANGIBLE ASSETS
The Company has adopted SFAS No. 142, Goodwill and Other Intangible Assets,
whereby the Company periodically tests its intangible assets for impairment. On
an annual basis, and when there is reason to suspect that their values have been
diminished or impaired, these assets will be tested for impairment, and
write-downs to be included in results from operations may be necessary.
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan . Consideration
for this license was the issuance of 16,612,276 shares (post-split) of the
Company's restricted common, valued at the shares' par value of $0.001 per
share, aggregating $ 9,250. These proprietary rights are being amortized over
the term of the license agreement, or ten years.
The costs and accumulated amortization of intangible assets at December 31 are
summarized as follows:
2004
--------
Technology License $9,250
Website 22,500
Less: accumulated amortization (24,430)
--------
Intangible assets, net $7,320
========
Amortization expense included as a charge to income amounted to $12,177 and
$12,175 and $24,430 for the years ended December 31, 2004 and 2003, and the
period from inception to December 31, 2004, respectively.
F-14
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE D - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2004 are as follows:
2004
--------
Accounts payable & accrued liabilities $292,190
Accrued interest 8,946
Accrued payroll and payroll taxes 6,165
--------
Total $307,301
========
NOTE E - RELATED-PARTY TRANSACTIONS
Consulting Agreements
---------------------
On December 16, 2002, the Company entered into consulting agreements (the
"Consulting Agreements") with its two founders and chief research scientists
(the "Consultants"). The Consulting Agreements were on a month-to-month basis.
Under the terms of the Consulting Agreements, the Consultants agreed to place at
the disposal of the Company their judgment and expertise in the area of acute
lung injury. In consideration for these services, the Company agreed to pay each
consultant a non-refundable fee of $5,000 per month, which shall accrue until
such time as the Company raises at least $2,000,000 in equity or debt financing,
at which time such accrued amount will become due and payable. Pursuant to the
Consulting Agreements, during the period from January 1, 2003 to December 31,
2003, the Company accrued $120,000 in consulting fees. During the period from
January 1, 2004 to December 31, 2004, the Company accrued an additional $90,000
in consulting fees. The amounts due the Consultants at December 31, 2003 was
$125,000 and was included in accounts payable and accrued expenses.
In October 2004, the Company achieved the threshold amount of $2,000,000 in
equity or debt financing (see Note I). As of October, 2004, the aggregate
amounts due the Consultants under the Consulting Agreements was $215,000.
In October, 2004, one of the Consultants elected to exchange 724,000 shares of
the Company's common stock and a warrant to purchase an additional 362,000
(post-split) shares of common stock at an exercise price of $0.50 (post-split)
in exchange for $90,500 of the $107,500 of the previously accrued and unpaid
fees due him under the Consulting Agreement, and the balance of $17,000 was paid
to the consultant. At December 31, 2004, there is no balance due to the
Consultant.
In October 2004, because the remaining Consultant had not taken an active role
in the management of the Company, he agreed that would forgive the amount
accrued to him under the Consulting agreement of $107,500. The Company accounted
for the transaction as a forgiveness of indebtedness under FAS No. 140 during
the period ended December 31, 2004.
Proprietary Rights Agreement
----------------------------
In December 2002, the Company entered into a royalty-free license agreement (the
"License Agreement") with its two founders and largest shareholders (the
"Licensors"). Under the terms of the License Agreement, the Licensors grant to
the Company an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by the Licensors. The Company's
obligations under the License Agreement include (i) reasonable efforts to
protect any licensed patents or other associated property rights; (ii)
reasonable efforts to maintain confidentiality of any proprietary information;
(iii) upon the granting by the U. S. Food and Drug Administration to the Company
the right to market a product, the
F-15
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE E - RELATED-PARTY TRANSACTIONS (CONTINUED)
Proprietary Rights Agreement (continued)
---------------------------------------
Company will maintain a broad form general liability and product liability
insurance (see Note C).
Office Lease
------------
During the period from December 1, 2002 through August 31, 2004, the Company
leased office space from an entity controlled by the Company's Chief Executive
Officer under a sub-let agreement . The rental cost of $2,734 per month was
passed through to the Company at the same rental rate charged by the facility's
primary landlord.
In July 2004, the Company leased a new office facility from a third party (see
Note J).
InOne Contract
--------------
We have entered into a series of contracts with InOne Advertising & Design, Inc.
("InOne"). At the time of the initiation of the contracts, InOne employed the
spouse of Michael Wilhelm, the Company's CEO. These contracts include (i) a
three-year agreement dated January 13, 2003 whereby InOne will design and create
certain corporate identity and marketing materials in exchange for 72,000 shares
(post split) of our common stock and $15,000. This Agreement also provides that
InOne will bill us on an hourly basis for additional services, as well as a
$100,000 termination fee if the agreement is terminated as a result of a merger
or acquisition of the Company; (ii) an Agreement dated March 14, 2003 whereby
InOne will design, create, maintain, and host our website for one year in
exchange for 140,000 shares (post split) of our common stock and $4,200; (iii)
an Agreement dated December 30, 2003 whereby InOne will name and design a logo
for respiratory infectious diseases, such as SARS (Viprovex), in exchange for
$5,000 and a warrant to purchase 20,000 shares (post-split) of tour common stock
at a price of $0.125; (iv) an Agreement dated December 31, 2003 whereby InOne
will name and design a logo for Acute Radiation Syndrome (ARS) medical
countermeasure for radiation (Radilex) in exchange for $5,000 and a warrant to
purchase 20,000 shares (post-split) of our common stock at a price of $0.125.
At December 31, 2004, InOne no longer employs or has any business relationship
with the spouse of the Company's Chief Executive officer, and InOne is no longer
considered a related party to the Company.
The amounts due InOne at December 31, 2004 and 2003 are $2,700 and $19,565,
respectively.
Notes payable to related parties at December 31, 2004 consists of the following:
2004
-------
Promissory notes payable and accrued interest
of $12,093 to Company shareholders, interest
at 6% per annum, unsecured; The Company is
in default under these agreements $65,993
Less: current portion (65,993)
-------
$ --
=======
F-16
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE F - NOTES PAYABLE
Notes payable at December 31, 2004 consists of the following:
2004
--------
Convertible note payable, interest at 8% per annum,
due in August 2004; Noteholder has the option, with
the consent of the Company, to convert unpaid note
principal together with accrued and unpaid interest
to the Company's common stock at a price equal to
$.835 per share, under certain terms and conditions.
In addition, the Company granted the noteholder a
warrant to acquire 26,938 shares of the Company's
common stock at a price equal to $0.835 per share.
The Company is in default under this note agreement. $ 10,000
Less: current portion (10,000)
--------
$ --
========
At December 31, 2003, the Company had outstanding 17 notes payable in the
aggregate amount of $713,171. During the twelve months ended December 31, 2004,
the Company entered into 14 other note agreements in the aggregate amount of
$575,100. The Company repaid principal in the amount of $572,600 under these
notes, and converted principal in the amount of $638,500 plus accrued interest
of $57,091 into 7,445,062 shares of common stock. Two of these notes in the
aggregate amount of $35,000 plus accrued interest of $1,885 were forgiven for
consideration of $100 during the twelve months ended December 31, 2004.
NOTE G - CAPITAL STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock, par
value $0.001 per share. No shares of preferred stock have been issued as of
December 31, 2004. The company has authorized 100,000,000 shares of common
stock, with a par value of $.001 per share. In July, 2003 a one for twenty
reverse stock split of the Company's common stock was effected . On April 6,
2004, the Company effected a 2 for 1 forward split of its common stock. Total
authorized shares and par value remain the unchanged. Accordingly, the effect of
the reverse and subsequent forward split has been presented in the accompanying
financial statement and footnote disclosures. As of December 31, 2004, the
Company has 62,423,388 shares of common stock issued and outstanding.
During the period ended December 31, 2002, the Company issued an aggregate of
1,459,188 shares of common stock to employees and consultants for services in
the amount of $ 9,782. All valuations of common stock issued for services were
based upon the value of the services rendered, which did not differ materially
from the fair value of the Company's common stock during the period the services
were rendered. In addition, the Company issued 16,612,276 shares of common stock
to its founders in exchange for a proprietary license charged to operations,
valued at $ 9,250 (see Note C) . The Company also issued an aggregate of 185,578
shares of common stock in exchange for $ 31,001, net of costs and fees.
During the year ended December 31, 2003, the Company issued an aggregate of
267,594 shares of common stock to consultants for services in the amount of
$37,280. All valuations of common stock issued for services were based upon the
value of the services rendered, which did not differ materially from the fair
value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 2,155,104 shares of common stock in
exchange for $ 300,000 of previously incurred debt. The Company also issued an
aggregate of 383,430 shares of common stock in exchange for $ 65,000 net of
F-17
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE G - CAPITAL STOCK (CONTINUED)
costs and fees. In July, 2003, the Company issued 2,368,130 in connection with
the Company's acquisition and merger with GPN Network, Inc. (see Note A.)
During the year ended December 31, 2004, the Company issued an aggregate of
5,481,280 shares of common stock to consultants for services in the amount of
$2,877,872. All valuations of common stock issued for services were based upon
the value of the services rendered, which did not differ materially from the
fair value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 300,000 shares of common stock as with
a fair value of $36,000 as interest on a note payable. In addition, in
conjunction with a private placement of stock (see below), the Company issued
6,855,062 shares of common stock in exchange for $ 630,591 of previously
incurred debt and accrued interest. In addition, the Company issued 590,000
shares of common stock in exchange for $65,000 of previously issued debt. Total
debt exchanged for stock during the year ended December 31, 2004 was $695,591 of
debt and interest for 7,745,062 shares of common stock. The Company also sold an
aggregate of 18,160,000 shares of common stock in exchange for $ 1,971,045 cash,
net of costs and fees. The Company also sold 8,000 shares of common stock for
$1,200. The Company also issued an aggregate of 4,900,000 shares of common stock
to its investment bankers as fees. The Company also issued 1,257,746 shares of
common stock in settlement of $157,219 of accounts payable. In addition, the
Company issued an aggregate 1,440,000 shares of common stock to an officer and a
director in satisfaction $180,000 of liabilities.
Private Placement of Common Stock
---------------------------------
In October 2004, the Company completed a private placement of its common stock
(the "Private Placement") whereby the Company sold an aggregate of $2,450,000
worth of units (each a "Unit" and collectively, the "Units") to accredited
investors (as defined by Rule 501 under the Securities Act of 1933, as amended)
(the transaction is referred to herein as the "Private Placement"). The Company
received proceeds of $1,971,845 after costs of the issuance of $298,155.
Included in the $2,450,000 sale was conversion of $180,000 of accrued salary and
consulting fees due to an officer and an director of the Company. The number of
shares of common stock issued pursuant to the Private Placement was 19,600,000,
along with warrants to purchase an additional 9,080,000 shares, plus warrants to
purchase an additional 720,000 shares issued to the officer and director. The
Company also issued an additional 4,900,000 shares of common stock to its
investment banker as commission. The investment bankers did not acquire any
warrants pursuant to this transaction.
Pursuant to the terms of the Private Placement, each Unit was sold for $10,000
(the "Unit Price") and consisted of the following:
(a) a number of shares (the "Shares") of common stock of the
Registrant, par value $0.001 per share (the "Common Stock"), determined by
dividing: (i) the Unit Price by (ii) $0.125; and
(b) a warrant (each a "Warrant" and collectively, the "Warrants") to
purchase, at any time prior to the fifth (5th) anniversary following the date of
issuance of the Warrant, a number of shares of Common Stock equal to fifty
percent (50%) of the number of Shares included within the Unit, at a price equal
to fifty cents ($0.50) per share of Common Stock. A form of the Warrant is
attached hereto as Exhibit 4.1.
In consideration of the investment, the Company granted to each investor certain
registration rights and anti-dilution rights. The Company is obligated to file a
registration statement for the shares of common stock issued in the private
placement and shares of common stock underlying the warrants issued in the
private placement within 30 days of the final closing date of October 26, 2004,
or November 25, 2004. The Company is also obligated to effectuate the
registration statement within 90 days of the final closing date of October 26,
2004, or January 24, 2005. Failure to meet either of these deadlines results in
the Company subject to a penalty of a 2% increase in the number of shares to be
registered, or 461,200 shares and warrants to purchase an additional 181,600
shares, for every 30 day period beyond the deadline date. The Company filed a
registration statement on November 24, 2004. However, at March 7, 2005, the
registration statement has not yet been deemed effective by the Securities and
Exchange Commission. Accordingly, at April 3, 2005, the Company has accrued a
penalty of two 30-day periods, or 922,400 shares and warrants to purchase an
additional 363,200 shares. If the Company fails to complete a registration by
April 24, 2005, an additional penalty of 461,200 shares and warrants to purchase
181,600 shares will be incurred.
F-18
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE G - CAPITAL STOCK
Private Placement of Common Stock (continued)
---------------------------------------------
Also in October 2004, the Company converted certain notes payable with an
aggregate principal amount of $573,500 plus accrued interest of $57,091 for a
total of $630,328 into Units with terms identical to those provided to investors
in the Private Placement. The number of shares of common stock issued via these
note conversions was 6,855,062 along with warrants to purchase an additional
3,427,531 shares (see Note H).
Also in October 2004, the Company entered into a settlement agreements with
certain creditors whereby for full and complete satisfaction of claims totaling
an aggregate of $157,219 the Company issued Units with terms identical to those
provided to investors in the Private Placement. The number of shares of common
stock issued via these creditor conversions was 1,257,746, along with warrants
to purchase an additional 628,873 shares.
NOTE H - STOCK OPTIONS AND WARRANTS
Employee Stock Options
----------------------
The Company has adopted the 2003 Stock Option, Deferred Stock and Restricted
Stock Plan (the "Plan") which authorizes the Board of Directors in accordance
with the terms of the Plan, among other things, to grant incentive stock
options, as defined by Section 422(b) of the Internal Revenue Code, nonstatutory
stock options (collectively, the "Stock Options") and awards of restricted stock
and deferred stock and to sell shares of common stock of the Company ("Common
Stock") pursuant to the exercise of such stock options for up to an aggregate of
6,465,316 shares . The options will have a term not to exceed ten years from the
date of the grant. There have been no options granted under this Plan.
Through December 31, 2002, GPN had granted pre-merger stock options to certain
employees and consultants which are exercisable over various periods through
March 2010. These stock options are currently held by the Company outside of the
Plan.
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
----------------------------------------------------- ----------------------------------------------
Weighted Average Weighted Weighted
Number Remaining Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
---------------------------------------------------------- ----------------------------------------------
$25.00 63,212 5.25 $25.00 63,212 $25.00
Transactions involving stock options issued to employees are summarized as
follows:
F-19
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Employee Stock Options (continued)
----------------------------------
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at January 1, 2003 63,212 $25.00
Granted (as restated) --
Exercised --
Canceled or expired --
------
Outstanding at December 31, 2003 63,212 25.00
Granted --
Exercised --
Canceled or expired --
------
Outstanding at December 31, 2004 63,212 $25.00
====== ======
The Company did not issue options to employees during the years ended December
31, 2003 and 2004.
Warrants
--------
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
------------------------------------------------ ------------------------------------------------
Weighted Average Weighed Weighted Average
Number Remaining Average Remaining
Exercise Outstanding Contractual Life Exercise Number Contractual Life
Prices (Years) Price Exercisable (Years)
----------------------------------------------------- ---------------------------------------------------
$0.05-0.10 480,698 4.60 $0.05-0.10 480,698 4.60
0.125-0.70 778,511 4.46 0.125-0.70 778,511 4.46
0.25-0.56 15,498,021 4.68 0.25-0.56 15,498,021 4.68
1.00 741,400 2.98 1.00 741,400 2.98
2.00 167,580 4.51 2.00 167,580 4.51
---------- ----- ---------- ----
17,666,210 4.59 17,666,210 4.59
========== ===== ========== ====
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
(post-split) Price Per Share
(post-split)
--------------- ------------------
Outstanding at January 1, 2003 26,938 $ .84
Granted 805,572 .89
Exercised --
Canceled or expired --
---------- --------
Outstanding at December 31, 2003 832,510 .89
Granted 16,833,699 .47
Exercised -- --
Canceled or expired -- --
Outstanding at December 31, 2004 17,666,210 $ .49
========== ========
F-20
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants (continued)
--------------------
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2004 2003
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.75% 2.375%
Expected stock price volatility 163% to 262% 312%
Expected dividend payout -- --
Expected option life-years (a) 5 5
(a) The expected option life is based on contractual expiration dates.
The amount of the expense charged to operations for compensatory warrants
granted in exchange for services was $406,571 and $85,861 during the years ended
December 31, 2004 and 2003, respectively.
The Company also capitalized financing costs of $184,814 and $397,394 for
warrants granted in connection with placement of convertible debentures for the
years ended December 31, 2004 and 2003, respectively. The unamortized financing
costs were written off as of December 31, 2003 commensurate with the conversion
of the debentures.
At December 31, 2002, the Company had outstanding warrants to purchase 26,939
shares (post-split) of common stock at $0.835 per share (post-split).
During the twelve months ended December 31, 2003, the Company issued warrants to
purchase 169,572 shares (post-split) of common stock at prices ranging from
$0.125 to $1.00 per share (post-split) to eight service providers. The Company
valued the warrants using the Black-Scholes calculation model, and the warrants
were deemed to have a combined value of $85,860. This amount was charged to
expense on the Company's financial statements for the twelve months ending
December 31, 2003.
In October 2003, pursuant to the Amended Note agreements, the Company issued the
Amended Note Warrants to purchase 245,000 shares (post-split) of its common
stock at a price of $1.00 per share (post-split). The Company valued the Amended
Note Warrants using the Black-Scholes calculation model, and the warrants were
deemed to have a combined value of $189,937. This amount was recorded as a
discount to the Amended Notes and an addition to paid-in capital, and was
charged to expense over the term of the notes, or 180 days. During the twelve
months ended December 31, 2003, the Company recognized $84,169 of expense in
relation to these warrants. During the twelve months ended December 31, 2004,
the remaining $105,768 was charged to operations.
In October, November, and December 2003, pursuant to the Fourth Quarter Note
agreements, the Company issued the Fourth Quarter Company Warrants to purchase
391,000 shares (post-split) of its common stock at a price of $1.00 per share
(post-split).
As an additional incentive to investors in the Secured Convertible Promissory
Notes, the Company provided five-year warrants (the "Secured Note Warrants") to
purchase that number of shares of common stock equal to one-half the initial
principal amount of the Secured Convertible Promissory Notes. For example, an
investor who purchased a $10,000 Secured Convertible Promissory Note would
receive a warrant to purchase 8,979 shares (post-split) of common stock. The
exercise price of the Secured Note Warrants is equal to 60% of the price per
share paid by investors in a future equity financing (the "Reorganization
Financing"). The Secured Note Warrants are not considered granted until the
completion of the Reorganization Financing. In accordance with EITF 00-27,
because the Reorganization Financing had not occurred at December 31, 2003, the
Company ascribed no value to the Secured Note Warrants at December 31, 2003. At
the time of the first closing of the Private Placement in October 2004, warrants
to purchase a total of 444,490 shares (post-split) of common stock at $0.075 per
share (post-split) were issued under the Secured Note Warrants. The value of
these warrants was computed utilizing the Black-Scholes valuation model, and the
total value of these warrants, or $112,562 was charged to operations during the
twelve months ended December 31, 2004.
F-21
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE H - STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants (continued)
--------------------
The Company has outstanding warrants to purchase 250,000 shares of common stock
at $0.30 per share which were issued in 2002 by its predecessor company GPN
Network.
In April through June 2004, the Company issued warrants to purchase 32,500
shares (post-split) at price ranging from $0.25 to $2.00 to consultants for
services performed. The Company valued these warrants using the Black-Scholes
valuation model, and charged the amount of $8,318 to operations during the
twelve months ended December 31, 2004.
In May 2004, the Company issued a warrant to its president and a warrant to a
director, each warrant to purchase 500,000 shares (post-split) of common stock
at a price of $0.25 per share (post-split). The warrants were issued as
performance bonuses. The Company valued these warrants using the Black-Scholes
model, and charged the amount of $134,604 for each warrant, or a total of
$269,208, to operations during the twelve months ended December 31, 2004.
In October 2004, the Company issued a warrant to its president to purchase
448,980 shares (post-split) at a price of $0.125 per share (post-split) as a
performance bonus for achieving certain objectives. The Company valued this
warrant using the Black-Scholes valuation model, and charged the amount of
$112,697 to operations during the twelve months ended December 31, 2004.
In November and December 2004, the Company issued a warrant to purchase 50,000
shares (post-split) of its common stock at a price of $0.125 per share
(post-split) and a warrant to purchase 10,000 shares (post-split) of its common
stock at a price of $0.075 per share (post-split) to two members of its advisory
boards. The Company valued these warrants using the Black-Scholes valuation
model, and charged the aggregate amount of $16,348 to operations during the
twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 9,080,000 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the investors in its private placement of equity securities. The Company
allocated $607,922 of the total proceeds of $1,971,845 to the warrants, and
charged this amount to additional paid-in capital during the twelve months ended
December 31, 2004.
In October 2004, the Company issued warrants to purchase an aggregate of 720,000
shares (post-split) of its common stock at a price of $0.50 per share
(post-split) to the an officer and a director for converting a total of $180,000
of amounts owed to these individuals for accrued salary and accrued consulting
fees. The Company allocated $56,067 of the total proceeds of $180,000 to the
warrants, and charged this amount to additional paid-in capital during the
twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 3,347,076 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the convertible note holders who invested its private placement of equity
securities via conversion of their notes. The Company allocated $191,111 of the
total amount converted of $615,328 to the warrants, and charged this amount to
additional paid-in capital during the twelve months ended December 31, 2004.
In October 2004, the Company issued warrants to purchase 628,873 shares
(post-split) of its common stock at a price of $0.50 per share (post-split) to
the vendors who invested in its private placement of equity securities via
conversion of amounts owed to them by the Company. The Company allocated $48,579
of the total amount converted of $157,219 to the warrants, and charged this
amount to additional paid-in capital during the twelve months ended December 31,
2004.
In April through June 2004, the Company issued warrants to purchase 77,500
shares (post-split) of its common stock at prices ranging from $0.25 to $2.00
per share (post-split) to certain investors as additional incentive under notes
payable agreements. The Company valued these warrants using the Black-Scholes
model, and charged the amount of $17,915 to additional paid-in capital during
the twelve months ended December 31, 2004.
In July and August 2004, the Company issued warrants to purchase 744,280 shares
(post-split) of its common stock at prices ranging from $0.05 to $2.00 per share
(post-split) to certain investors as additional incentive under notes payable
agreements. The Company valued these warrants using the Black-Scholes model, and
charged the amount of $72,252 to additional paid-in capital during the twelve
months ended December 31, 2004.
NOTE I - COMMITMENTS AND CONTINGENCIES
Office Leases
-------------
The Company lease office space under a short term agreement, expiring in
September 2005. Rent expense amounted to $31,369 for the years ended December
31, 2003, $41,051 for the year ended December 31, 2004, and $75,154 for the
period from October 30, 2002 (inception) through December 31, 2004.
F-22
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE I - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Employment and Consulting Agreements
------------------------------------
The Company has employment agreements with all of its President and Chief
Executive Officer. In addition to salary and benefit provisions, the agreements
include non-disclosure and confidentiality provisions for the protection of the
Company's proprietary information.
The Company has consulting agreements with outside contractors to provide
marketing and financial advisory services. The Agreements are generally for a
term of 12 months from inception and renewable automatically from year to year
unless either the Company or Consultant terminates such engagement by written
notice.
The Company has a three-year contract for the period January 2003 to January
2006 with its advertising and design agency. This contract stipulates that there
will be a minimum guaranteed annual fee for consultation, planning, creative and
account service of $100,000 for each of the three years of the contract if
termination of the contract is the result of a merger or acquisition of the
Company. The contract was not terminated upon the GPN Merger Agreement.
Litigation
----------
On December 13, 2001, service of process was effectuated upon GPN with regard to
a fee agreement between GPN and Silver and Deboskey, a Professional Corporation
located in Denver, Colorado. On November 27, 2002, judgment was entered in favor
of Silver & Deboskey in the amount of $28,091 and the amount of the judgment is
included in accounts payable at December 31, 2004.
The Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its financial position,
results of operations or liquidity.
Obligation to Register Shares
-----------------------------
In October 2004, the Company sold shares of its common stock to investors in a
private placement transaction. The Company is obligated to file a registration
statement for the shares of common stock issued in the private placement and
shares of common stock underlying the warrants issued in the private placement
within 30 days of the final closing date of October 26, 2004, or November 25,
2004. The Company is also obligated to effectuate the registration statement
within 90 days of the final closing date of October 26, 2004, or January 24,
2005. Failure to meet either of these deadlines results in the Company subject
to a penalty of a 2% increase in the number of shares to be registered, or
461,200 shares and warrants to purchase an additional 181,600 shares, for every
30 day period beyond the deadline date. The Company filed a registration
statement on November 24, 2004. However, at March 7, 2005, the registration
statement has not yet been deemed effective by the Securities and Exchange
Commission. Accordingly, at April 3, 2005, the Company has accrued a penalty of
two 30-day periods, or 922,400 shares and warrants to purchase an additional
363,200 shares. If the Company fails to complete a registration by April 24,
2005, an additional penalty of 461,200 shares and warrants to purchase 181,600
shares will be incurred.
NOTE J - INCOME TAXES
The Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary
F-23
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
AND FOR THE PERIOD FROM OCTOBER 30, 2002
(INCEPTION) TO DECEMBER 31, 2004
NOTE J - INCOME TAXES (CONTINUED)
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.
For income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $7,200,000 which expire through 2023, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carryforward is approximately $2,400,000. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, because in the opinion of management based upon the earning history of
the Company, it is more likely than not that the benefits will not be realized.
Components of deferred tax assets as of December 31, 2004 are as follows:
Non Current:
Net operating loss carryforward $ 2,400,000
Valuation allowance (2,400,000)
-----------
Net deferred tax asset $ --
===========
NOTE K - LOSSES PER COMMON SHARE
The following table presents the computations of basic and dilutive loss per
share:
For the Period From
October 30, 2002
(Date of Inception)
2004 2003 Through December 31, 2004
------------ ------------- --------------------------
Net loss available to common shareholders $ (5,305,407) $ (1,856,702) $ (7,208,027)
============ ============ ============
Basic and fully diluted loss per share $ (0.16) $ (0.09) $ (0.28)
============ ============ ============
Weighted average common shares outstanding 33,510,168 21,317,292 25,698,261
============ ============ ============
Net loss per share is based upon the weighted average of shares of common stock
outstanding. In June , 2003 a .897960946 for one (1) reverse stock split of the
Company's common stock was effected (See Note A). Accordingly, all historical
weighted average share and per share amounts have been restated to reflect the
reverse stock split.
On April 6, 2004, the Company effected a 2 for 1 forward split of its common
stock. Accordingly, the effect of the forward split has been presented in the
accompanying financial statement and footnote disclosures.
NOTE L - SUBSEQUENT EVENTS
In January, 2005, the Company made a tender offer to temporarily reduce the
exercise price of certain warrants issued in October, 2004 from $0.50 to $0.20
per share. The tender offer expired on March 4, 2005. We accepted for exercise a
total of 6,600,778 warrants validly tendered and not withdrawn pursuant to the
terms of the tender offer, which represents approximately 48% of the aggregate
13,780,449 warrants that were available in the tender offer. The Company raised
net proceeds of $1,211,000 via the tender offer.
F-24
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
September 30, 2005 (unaudited)..................................... F-26
Condensed Consolidated Statement of Operations for
the three months and nine months ended September 30, 2005
and 2004, and for the period of inception
(October 30, 2002) to September 30, 2005........................... F-27
Condensed Consolidated Statement of Deficiency in
Stockholders' Equity from date of inception
(October 30, 2002) to September 30, 2005................... F-28 to F-32
Condensed Consolidated Statement of Cash Flows for the
six months ended September 30, 2005 and 2004, and for the
period of inception (October 30, 2002) to S
eptember 30, 2005.......................................... F-33 to F-34
Notes to Condensed Consolidated Financial Statements....... F-35 to F-41
F-25
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheet as of September 30, 2005
(Unaudited)
Sept 30,
2005
-------------
Assets
Current assets
Cash and cash equivalents $ 667,041
Prepaid services and other current assets 15,713
------------
Total current assets 682,754
Licensed proprietary rights, net 6,624
Furniture and equipment, net 4,795
------------
Total assets $ 694,173
============
Liabilities and Deficiency in Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities 2,408,545
------------
Total current liabilities 2,408,545
Commitments and Contingencies
Stockholders' deficit 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;
69,436,319 shares issued and outstanding at September 30, 2005 69,436
Additional paid-in capital 9,447,102
Deferred compensation (14,859)
Deficit Accumulated during the Development Stage (11,216,051)
------------
Total deficiency in stockholder's equity (1,714,372)
------------
Total liabilities and deficiency in stockholders' equity $ 694,173
============
F-26
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Operations
For the three and nine months ended September 30, 2005 and 2004,
And for the period of inception
(October 30, 2002) to September 30, 2005
(Unaudited)
Cumulative
from
Inception
For the Three For the Three For the Nine For the Nine (October 30,
Months Ended Months Ended Months Ended Months Ended 2002) to
Sept 30, Sept 30, Sept 30, Sept 30, September 30,
2005 2004 2005 2004 2005
------------ ------------ ------------ ------------ ------------
Revenues -- -- -- -- --
Operating expenses:
Selling, general and
administrative
expenses $ 507,445 $ 1,041,152 $ 1,939,800 $ 3,546,641 $ 7,529,684
Merger fees and costs -- -- -- -- 350,000
Financing cost 579,575 -- 2,072,831 -- 2,162,831
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,087,020 1,041,152 4,012,631 3,546,641 10,042,515
Operating loss (1,087,020) (1,041,152) (4,012,631) (3,546,641) (10,042,515)
Other expense:
Interest income (expense) 5,925 (70,612) 4,607 (506,427) (1,173,536)
------------ ------------ ------------ ------------ ------------
Total other expense
5,925 (70,612) 4,607 (506,427) (1,173,536)
Loss before income taxes (1,081,095) (1,111,764) (4,008,024) (4,053,068) (11,216,051)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss $ (1,081,095) $ (1,111,764) $ (4,008,024) $ (4,053,068) $(11,216,051)
============ ============ ============ ============ ============
Net loss per share - basic and diluted $ (0.02) $ (0.04) $ (0.06) $ (0.15) $ (0.31)
Weighted average shares outstanding -
basic and diluted 69,337,210 29,040,133 67,103,634 27,129,221 36,302,076
============ ============ ============ ============ ============
F-27
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in
Stockholders' Equity For the period from inception
(October 30, 2002) to September 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at October 30, 2002 -- $ -- $ -- -- $ -- $ -- $ --
(date of inception)
Shares of common stock issued at
$0.0006 per share to founders
for license of proprietary
right in December 2002 16,612,276 16,612 (7,362) -- -- -- 9,250
Shares of common stock issued at
$0.0006 per share to founders
for services rendered in
December 2002 1,405,310 1,405 (623) -- -- -- 782
Shares of common stock issued at
$0.1671 per share to consultants
for services rendered in
December 2002 53,878 54 8,946 (9,000) -- -- --
Sale of common stock for cash
at $0.1671 per share in
December 2002 185,578 186 30,815 -- -- -- 31,001
Net loss for the period from
inception (October 30, 2002)
to December 31, 2002 -- -- -- -- -- (45,918) (45,918)
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at December 31, 2002
(reflective of stock splits) 18,257,042 18,257 31,776 (9,000) -- (45,918) (4,885)
Shares granted to consultants at
$0.1392 per share for services
rendered in January 2003 98,776 99 13,651 -- -- -- 13,750
Sale of shares of common stock
for cash at $0.1517 per share
in January 2003 329,552 330 49,670 -- -- -- 50,000
Shares granted to consultants at
$0.1392 per share for services
rendered in March 2003 154,450 154 21,346 -- -- -- 21,500
Conversion of notes payable to
common stock at $0.1392 per share
in April 2003 1,436,736 1,437 198,563 -- -- -- 200,000
Shares granted to consultants at
$0.1413 per share for services
rendered in April 2003 14,368 14 2,016 -- -- -- 2,030
Sale of shares of common stock
for cash at $0.2784 per share
in May 2003 17,960 18 4,982 -- -- -- 5,000
Sales of shares of common stock
for cash at $0.2784 per share
in June 2003 35,918 36 9,964 -- -- -- 10,000
Conversion of notes payable to
common stock at $0.1392 per share
in June 2003 718,368 718 99,282 -- -- -- 100,000
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-28
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to September 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Beneficial conversion feature
associated with notes issued in
June 2003 -- -- 60,560 -- -- -- 60,560
Amortization of deferred
compensation -- -- -- 9,000 -- -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- -- (120,799)
Value of warrants issued with
extended notes payable in
October 2003 -- -- 189,937 189,937
--
Value of Company warrants
issued in conjunction with
fourth quarter notes payable
issued October through December 2003 -- -- 207,457 -- -- -- 207,457
Value of warrants contributed
by founders in conjunction with
fourth quarter notes payable
issued October through
December 2003 -- -- 183,543 -- -- -- 183,543
Value of warrants issued for
services in October through
December 2003 -- -- 85,861 -- -- -- 85,861
Net loss for the twelve month
period ended December 31, 2003 -- -- -- -- -- (1,856,702) (1,856,702)
--
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at December 31, 2003 23,431,300 23,431 1,035,441 -- -- (1,902,620) (843,748)
Shares granted at $1.00 per
share pursuant to the Senior
Note Agreement in January 2004 600,000 600 599,400 (600,000) -- -- --
Shares issued at $1.00 per
share to a consultant for
services rendered in January 2004 800,000 800 799,200 (800,000) -- -- --
Shares issued to a consultant at
$0.62 per share for services
rendered in February 2004 40,000 40 24,760 (24,800) -- -- --
Shares issued to a consultant
at $0.40 per share for services
rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- -- --
Shares issued to a consultant
at $0.50 per share for services
rendered in March 2004 500,000 500 249,500 (250,000) -- -- --
Shares sold for cash at $0.15
per share in March, 2004 8,000 8 1,192 -- -- -- 1,200
Shares issued at $0.50 per
share to consultants for
services rendered in March 2004 20,000 20 9,980 -- -- -- 10,000
Shares issued to a consultant
at $0.40 per share for services
rendered in March 2004 2,000 2 798 -- -- -- 800
Shares issued to consultants at
$0.32 per share for services
rendered in March 2004 91,600 92 29,220 -- -- -- 29,312
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-29
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to September 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Shares to be issued to
consultant at $0.41 per share in
April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- -- (82,000)
Shares granted pursuant to the
New Senior Note Agreement
in April 2004 600,000 600 149,400 (150,000) -- -- --
Shares issued to officer at
$0.32 per share for services
rendered in April 2004 200,000 200 63,800 -- -- -- 64,000
Conversion of Note Payable to
common stock at $0.10 per share
in May 2004 350,000 350 34,650 -- -- -- 35,000
Beneficial Conversion Feature
associated with note payable in
May 2004 -- -- 35,000 -- -- -- 35,000
Issuance of warrants to officers
and founder for services
rendered in May 2004 -- -- 269,208 -- -- -- 269,208
Shares to a consultant at $0.20
per share as a due diligence fee
in May 2004 125,000 125 24,875 -- -- -- 25,000
Shares issued to a consultant at
$1.00 per share for services
to be rendered over twelve
months beginning May 2004 500,000 500 499,500 (500,000) -- -- --
Beneficial Conversion Feature
associated with notes payable
issued in June 2004 -- -- 3,000 -- -- -- 3,000
Issuance of warrants to note
holders in April, May, and June 2004 -- -- 17,915 -- -- -- 17,915
Issuance of warrants to
employees and consultants for
services rendered in April
through June 2004 -- -- 8,318 -- -- -- 8,318
Shares issued in July to a
consultant at $0.10 for services
to be rendered through July 2005 250,000 250 24,750 (25,000) -- -- --
Shares issued to a consultant in
July and September at $0.41 per
share for services to be rendered
through April 2005 200,000 200 81,800 -- -- -- 82,000
Shares issued to a consultant in
September at $0.12 to $0.22 for
services rendered through September
2004 127,276 127 16,782 -- -- -- 16,909
Shares issued in July to
September 2004 as interest on
note payable 300,000 300 35,700 -- -- -- 36,000
Issuance of warrants with notes
payable in July and August 2004 -- -- 72,252 -- -- -- 72,252
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-30
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company) Condensed Consolidated Statement of
Deficiency in Stockholders' Equity
For the period from inception (October 30, 2002) to September 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During the
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Accrued deferred compensation in
August 2004 to a consultant for
100,000 shares at $0.10 per share,
committed but unissued -- -- -- (10,000) -- -- (10,000)
Shares issued in August 2004 at
$0.14 to a consultant for
services to be performed
through October 2004 100,000 100 13,900 (14,000) -- -- --
Shares issued in August 2004 at
$0.125 per share for conversion
of $30,000 demand loan 240,000 240 29,760 -- -- -- 30,000
Shares issued in August 2004 at
$0.16 per share to a consultant
for services provided 125,000 125 19,875 -- -- -- 20,000
Shares issued to employees at
$0.16 to $0.25 per share 48,804 49 8,335 -- -- -- 8,384
Commitment to issue 100,000
shares of stock to a consultant
at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- -- (23,000)
Sale of stock for cash in
October at $0.125 per share, net
of costs of $298,155 18,160,000 18,160 1,345,763 -- -- -- 1,363,923
Value of warrants issued with
sale of common stock in October,
net of costs -- -- 607,922 -- -- -- --
Issuance of warrant to officer
in October -- -- 112,697 -- -- -- 112,697
Issuance of stock to investment
bankers in October 2004 for
commissions earned 4,900,000 4,900 (4,900) -- -- -- --
Conversion of accounts payable
to stock in October at $0.125
per share 1,257,746 1,258 107,382 -- -- -- 108,640
Value of warrants issued with
accounts payable conversions -- -- 48,579 -- -- -- 48,579
Conversion of demand loan to
stock in October at $0.11 per
share 93,300 93 10,170 -- -- -- 10,263
Forgiveness of notes payable in
October 2004 -- -- 36,785 -- -- -- 36,785
Issuance of stock to officer and
director at $0.125 per share in
October for conversion of liability 1,440,000 1,440 122,493 -- -- -- 123,933
Value of warrants issued with
officer and director conversion
of liabilities -- -- 56,067 -- -- -- 56,067
Conversion of debt and accrued
interest to common stock
at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- -- 424,217
Value of warrants issued with
conversion of debt -- -- 191,111 -- -- -- 191,111
Conversion of note payable in
October into common stock at
$0.075 per share 67,613 68 4,932 -- -- -- 5,000
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-31
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Deficiency
in Stockholders' Equity
For the period from inception (October 30, 2002) to September 30, 2005
(unaudited)
Deficit
Accumulated
Common Stock Additional Common During The
----------------------- Paid-In Deferred Stock Development
Shares Amount Capital Compensation Subscribed Stage Total
---------- ----------- ----------- ------------ ----------- ----------- -----------
Issuance of warrants to note
holders in October 2004 -- -- 112,562 -- -- -- 112,562
Value of shares issued to CFO as
compensation 100,000 100 34,900 -- -- -- 35,000
Value of warrants issued to
members of advisory committees in
in November and December -- -- 16,348 -- -- -- 16,348
Beneficial conversion feature
associated with notes payable -- -- 124,709 -- -- -- 124,709
Shares issued in error to be
cancelled (9,002) (9) -- -- -- -- --
Amortization of deferred
compensation through
December 31, 2004 -- -- -- 2,729,454 -- -- 2,729,454
Loss for the twelve months ended
December 31, 2004 -- -- -- -- -- (5,305,407) (5,305,407)
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) -- (7,208,027) 607,353
=========== =========== =========== ============ =========== =========== ===========
Sale of shares of common stock
for cash at $0.20 per share
in March 2005 for warrant
exercise, net of costs 6,600,778 6,601 1,184,256 -- -- -- 1,190,857
Value of warrants issued to members
of advisory committee in March 2005 -- -- 137,049 -- -- -- 137,049
Accrued deferred compensation in
February, 2005 to a consultant
for 50,000 shares at $0.65 per
share. Committed but unissued -- -- -- (32,500) -- -- (32,500)
Amortization of deferred
compensation for the three months
ended March 31, 2005 -- -- -- 149,061 -- -- 149,061
Warrants exercised at $0.05
per share 80,000 80 3,920 -- -- -- 4,000
Value of warrants issued to
members of advisory committees
in June 2005 -- -- 70,781 -- -- -- 70,781
Value of warrants issued to
investors and service providers -- -- 32,991 -- -- -- 32,991
Amortization of deferred
compensation for the three months
ended June 30, 2005 -- -- -- 22,563 -- -- 22,563
Conversion of notes payable into
232,153 common stock not yet issued -- -- -- -- 65,003 -- 65,003
Issuance of 232,153 shares of common
stock for conversion of notes payable 232,153 232 64,771 -- (65,003) -- --
Issuance of 100,000 shares of common
stock to consultant for services
provided 100,000 100 9,900 -- -- -- 10,000
Amortization of deferred compensation
for the three months ended
September 30, 2005 -- -- -- 16,003 -- -- 16,003
Value of warrants issued to advisory
committee in September 2005 for services -- -- 20,491 -- -- -- 20,491
Loss for the nine months ended
September 30, 2005 -- -- -- -- -- (4,008,024) (4,008,024)
---------- ----------- ----------- ------------ ----------- ----------- -----------
Balance at September 30, 2005 69,436,319 69,436 9,447,102 (14,859) -- (11,216,051) (1,714,372)
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-32
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2005 and 2004,
And for the period of inception
(October 30, 2002) to September 30, 2005
(Unaudited)
Cumulative
For the For the from Inception
Nine Months Nine Months (October 30,
Ended Ended 2002) to
September 30, September 30, September 30,
2005 2004 2005
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (4,008,024) $ (4,053,068) $(11,216,051)
Adjustments to reconcile net loss to net cash
used in operating activities:
Non-cash compensation 462,773 2,636,280 3,862,773
Interest expense 4,007 74,517 156,407
Amortization of discount on notes payable -- 406,360 1,006,935
Depreciation and amortization 2,401 12,454 28,418
Changes in operating assets and liabilities: --
Prepaid services and other assets (9,000) 33,543 (15,712)
Accounts payable and accrued expenses 2,064,910 440,970 2,619,952
------------ ------------ ------------
Net cash used in operating activities (1,482,933) (448,944) (3,557,278)
Cash flows from investing activities:
Acquisition of property and equipment -- -- (8,087)
------------ ------------ ------------
Net cash used in investing activities -- -- (8,087)
Cash flows from financing activities:
Proceeds from notes payable -- 576,057 1,233,500
Principal payments on notes payable and demand loans (14,997) (174,000) (264,997)
Shares of stock sold for cash 1,190,857 31,200 3,259,903
Procees from exercised of warrants 4,000 -- 4,000
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 1,179,860 433,257 4,232,406
Net increase in cash and cash equivalents (303,073) (15,687) 667,041
Cash and cash equivalents at beginning of period 970,114 10,534 --
------------ ------------ ------------
Cash and cash equivalents at end of period $ 667,041 $ (5,153) $ 667,041
============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-33
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Cash Flows
For the nine months ended September 30, 2005 and 2004,
And for the period of inception
(October 30, 2002) to September 30, 2005
(Unaudited) (continued)
Cumulative
For the For the from Inception
Nine Months Nine Months (October 30,
Ended Ended 2002) to
September 30, September 30, September 30,
2005 2004 2005
------------ ------------ ------------
Supplemental disclosure of cash flow information:
Acquisition and capital restructure:
Assets acquired $ -- $ -- $ --
Liabilities assumed -- -- (120,799)
Common stock retained -- -- (2,369)
Adjustment to additional paid-in capital -- -- 123,168
Organization costs -- -- 350,000
------------- ------------- -----------
Total consideration paid $ -- $ -- $ 350,000
============= ============= ===========
Cash paid during the period for:
Interest $ 1,486 $ 4,553 $ 44,286
============= ============= ===========
Taxes $ -- $ -- $ --
============= ============= ===========
Common stock issued in exchange for proprietary rights $ -- $ -- $ 9,250.00
============= ============= ===========
Common stock issued in exchange for services $ 10,000 $ 2,095,240 $ 2,925,286
============= ============= ===========
Common stock issued in exchange for previously incurred
debt and accrued interest $ 65,003 $ 35,000 $ 1,060,594
============= ============= ===========
Common stock issued in exchange as interest $ -- $ -- $ 36,000
============= ============= ===========
Amortization of beneficial conversion feature $ -- $ -- $ 223,269
============= ============= ===========
Stock options and warrants issued in exchange for
services rendered $ 261,312 $ -- $ 762,744
============= ============= ===========
Debt and accrued interest forgiveness from note holders $ -- $ -- $ 36,875
============= ============= ===========
Common stock issued in satisfaction of accounts payable $ -- $ 29,132 $ 157,219
============= ============= ===========
Common stock issued in satisfaction of amounts due to
an Officer and a Director $ -- $ -- $ 180,000
============= ============= ===========
Amortization of deferred compensation $ 187,627 $ -- $ 187,627
============= ============= ===========
Fair value of common stock and warrants payable in
connection with the filing of the registration
statement. $ 2,072,831 $ -- $ 2,072,831
============= ============= ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements
F-34
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2005
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the nine-month periods ended September 30, 2005 and
2004 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2005. The unaudited condensed consolidated financial
statements should be read in conjunction with the December 31, 2004 financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB filed with the Securities and Exchange Commission on April 19, 2005 and
form 10-KSB/A filed with the Securities and Exchange Commission on May 2, 2005.
Business and basis of presentation
----------------------------------
IR BioSciences Holdings, Inc. (the "Company," "we," or "us") formerly GPN
Network, Inc. ("GPN") is currently a development stage company under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7. The
Company, which was incorporated under the laws of the State of Delaware on
October 30, 2002, is a biopharmaceutical company. Through our wholly owned
subsidiary, ImmuneRegen BioSciences, Inc., we are engaged in the research and
development of Homspera(TM), a proprietary compound that is derived from
homeostatic substance P, a naturally occurring peptide. Currently, the majority
of our development efforts are centered around two drug candidates derived from
Homspera, Radilex(TM) and Viprovex(TM). Radilex has been formulated specifically
for the indication of acute exposure to radiation. Viprovex was formulated
specifically for applications relating to the treatment of maladies caused by
exposure to various chemical and biological agents. Our research and development
efforts are at a very early stage and Radilex and Viprovex have only undergone
pre-clinical testing in mice. From its inception through the date of these
financial statements, the Company has recognized no revenues and has incurred
significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, ImmuneRegen BioSciences, Inc. Significant
intercompany transactions have been eliminated in consolidation.
Reclassification
----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
Stock based compensation
------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS 123." This statement
amends SFAS No. 123,"Accounting for Stock-Based Compensation," to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
statement amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 and related interpretations. Accordingly, compensation expense
for stock options is measured as the excess, if any, of the fair market value of
the Company's stock at the date of the grant over the exercise price of the
related option. The Company has adopted the annual disclosure provisions of SFAS
No. 148 in its financial reports for the year ended December 31, 2002 and for
the subsequent periods.
F-35
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized over the options' vesting period. The Company's pro forma
information was as follows:
Three months ended September 30, 2005:
2005 2004
----------- -----------
Net loss, as reported $(1,081,095) $(1,111,764)
Compensation recognized under
under APB 25 -- --
Compensation recognized under
SFAS 123 77,969 --
----------- -----------
Pro forma net loss $(1,159,064) $(1,111,764)
=========== ===========
Pro forma loss per share $ (0.02) $ (0.04)
=========== ===========
Nine months ended September 30, 2005:
2005 2004
----------- -----------
Net loss, as reported $(4,008,024) $(4,053,068)
Compensation recognized under
under APB 25 -- --
Compensation recognized under
SFAS 123 77,969 --
----------- -----------
Pro forma net loss $(4,085,993) $(4,053,068)
=========== ===========
Pro forma loss per share $ (0.06) $ (0.15)
=========== ===========
Interim financial statements
----------------------------
The accompanying balance sheet as of September 30, 2005, the statements of
operations for the three and nine months ended September 30, 2005 and 2004, and
for the period of inception (October 30, 2002) to September 30, 2005, and the
statements of cash flows for nine months ended September 30, 2005 and 2004, and
from the period of inception (October 30, 2002) to September 30, 2005 are
unaudited. These unaudited interim financial statements include all adjustments
(consisting of normal recurring accruals), which, in the opinion of management,
are necessary for a fair presentation of the results of operations for the
periods presented. Interim results are not necessarily indicative of the results
to be expected for a full year.
Use of estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
Long-lived assets
-----------------
The Company accounts for its long-lived assets under the provision of Statements
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
Inablity to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset.
F-36
Prepaid services and other current assets
------------------------------------------
Prepaid services and other current assets consist of (i) salary advance to an
employee of $2,300; (ii) deposits of $2,260; and (iii) prepaid consulting and
legal fees of $11,153.
Licensed proprietary rights
---------------------------
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan. These
proprietary rights are being amortized over the term of the license agreement,
or ten years. The amount amortized during the three months ended September 30,
2005 and 2004 was $232 during each period. The amount amortized during the nine
months ended September 30, 2005 and 2004 was $696 during each period. The
Company amortized $2,626 for the period from October 30, 2002 (inception) to
September 30, 2005.
Furniture and equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
The amounts depreciated for the three months ended September 30, 2005 and 2004
were $967 and $170, respectively. The amounts depreciated for the nine months
ended September 30, 2005 and 2004 were $1,705 and $510, respectively. The amount
depreciated from the date of inception (October 30, 2002) through September 30,
2005 was $3,293.
NOTE 2 - RELATED PARTY TRANSACTIONS
Proprietary rights agreements
-----------------------------
In December 2002, the Company entered into a royalty-free license agreement (the
"License Agreement") with its two founders and largest shareholders (the
"Licensors"). Under the terms of the License Agreement, the Licensors grant to
the Company an exclusive license to use and sublicense certain patents, medical
applications, and other technologies developed by the Licensors. The Company's
obligations under the License Agreement include (i) reasonable efforts to
protect any licensed patents or other associated property rights; (ii)
reasonable efforts to maintain confidentiality of any proprietary information;
(iii) upon the granting by the U. S. Food and Drug Administration to the Company
the right to market a product, the Company will maintain a broad form general
liability and product liability insurance.
In February 2005, Drs. Witten and Harris executed assignment documents in which,
for good and valuable consideration, patent applications and patents developed
by them were assigned to ImmuneRegen BioSciences, Inc. The assignment documents
included all of the patents and patent applications which were included in and
covered by the Licensing Agreement, as amended. Drs. Witten and Harris have also
assigned all proprietary technology developed at ImmuneRegen subsequent to the
execution of the February 2005 assignment documents.
Consulting agreements
---------------------
On December 16, 2002, the Company entered into consulting agreements (the
"Consulting Agreements") with its two founders and chief research scientists
(the "Consultants"). The Consulting Agreements were on a month-to-month basis.
Under the terms of the Consulting Agreements, the Consultants agreed to place at
the disposal of the Company their judgment and expertise in the area of acute
lung injury. In consideration for these services, the Company agreed to pay each
consultant a non-refundable fee of $5,000 per month, which shall accrue until
such time as the Company raises at least $2,000,000 in equity or debt financing
at which time such accrued amount will become due and payable. Pursuant to the
Consulting Agreements, during the period from January 1, 2003 to December 31,
2003, the Company accrued $120,000 in consulting fees. During the period from
January 1, 2004 to December 31, 2004, the Company accrued an additional $90,000
in consulting fees. The amounts due the Consultants at December 31, 2003 were
$125,000 and were included in accounts payable and accrued expenses.
F-37
In October 2004, the Company achieved the threshold amount of $2,000,000 in
equity or debt financing. As of October 2004, the aggregate amounts due the
Consultants under the Consulting Agreements 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 year ended December 31, 2004.
During the three months ended September 30, 2005, the Company paid $24,000 in
consulting fees to the Consultant, and charged $19,000 of this amount to
operations and $5,000 to prepaid consulting fees; During the three months ended
September 30, 2004, the Company accrued the amount of $15,000 in consulting fees
payable to the Company's Founders. During the nine months ended September 30,
2005, the Company paid a total of $62,000 to the Consultant, charging $31,000 of
this amount to operations and the remaining $31,000 against the accrued
liability; also during the nine months ended September 30, 2005, the Company
accrued an additional $19,000 in consulting fees due to the Consultant. At
September 30, 2005, there is a prepaid asset of $9,153 relating to these fees.
During the nine months ended September 30, 2004, the Company accrued $90,000 in
consulting fees payable to the Consultants.
Employment agreements
---------------------
Pursuant to our employment agreement with Michael Wilhelm, our President and
Chief Executive Officer, dated December 16, 2002, we paid a salary of $125,000
and $175,000 to Mr. Wilhelm during the first and second years of his employment,
respectively. Thereafter we paid an annual salary of $250,000. On August 10,
2005, we entered into a new employment agreement with our President and Chief
Executive Officer, Michael K. Wilhelm. Pursuant to this new employment agreement
we shall pay an annual salary of $275,000 to Mr. Wilhelm through the term of his
employment. Mr. Wilhelm's salary is payable in regular installments in
accordance with the customary payroll practices of our company. Also on August
10, 2005, Mr. Wilhelm received an option to purchase 103,030 shares of the
Company's stock at a price of $0.33, which was 110% of the closing market price
on the date of the option grant. These options vested on September 10, 2005. The
Company valued these options using the intrinsic value method, and because the
option price was less than the closing market price of the Company's common
stock when the 103,030 options vested on August 10, 2005 there was no value
assigned to these options.
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.
Mr. Fermanis also receives 100,000 shares of the Company's common stock, which
are earned at the rate of 1/12 or 8,333 per month beginning January 2005. The
Company charges to operations the market value of these shares as of the first
day of each month. For the three months ended September 30, 2005, the Company
charged $7,583 to operations for the issuance of 25,000 shares to Mr. Fermanis;
for the nine months ended September 30, 2005, the Company charged to operations
the amount of $31,916 for the issuance of 75,000 shares to Mr. Fermanis.
NOTE 3 - DEBT
During the nine months ended September 30, 2005, the Company paid two notes
payable in the aggregate amount of $80,000. Payment was made by cash in the
amount of $14,997, and by converting a note with a balance of $65,003 into
232,153 shares of the Company's common stock at a price of $0.28 per share.
These shares were issued in July 2005.
F-38
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.
In June 2005, the Company issued 80,000 shares of common stock pursuant to the
Exercise of a warrant at a price of $0.05 per share.
In July 2005, the Company issued 232,153 shares of common stock at a price of
$0.28 per share pursuant to the conversion of a note payable (see Note 5.)
In August 2005, the Company issued 100,000 shares of common stock pursuant to an
agreement with a service provider. The fair value of these shares of $10,000 was
amortized over the life of the contract, from July 2004 to July 2005.
Warrants
--------
During the three months ended March 31, 2005, the Company issued warrants to
purchase 268,033 shares of common stock at prices ranging from $0.125 to $1.00
to consultants for services performed. The Company valued these warrants using
the Black-Scholes valuation model, and charged the amount of $137,049 three
months ended March 31, 2005.
During the three months ended June 30, 2005, the Company issued warrants to
purchase 366,814 shares of common stock at prices ranging from $0.038 to $1.00
per share. The Company also cancelled warrants to purchase 123,530 shares of
common stock at a price of $2.00 per share. The Company valued these issuance
and cancellations using the Black-Scholes valuation model, and charged the
amount of $103,772 to operations during the three months ended June 30, 2005.
Also during the three months ended June 30, 2005, warrants to purchase 80,000
shares of common stock at a price of $0.05 per share were exercised.
During the three months ended September 30, 2005, the Company issued warrants to
purchase 77,250 shares of common stock at prices ranging from $0.125 to $1.00
per share. The Company valued these warrants using the Black-Scholes valuation
model, and charged the amount of $20,491 to operations during the three months
ended September 30, 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)
---------------------------------------------------------------------------------------------------------
$0.01-0.10 519,780 3.64 $0.01-0.10 519,780 3.64
0.125-0.21 903,919 3.72 0.125-0.21 903,919 3.72
0.25-0.56 9,270,406 3.82 0.25-0.56 9,270,406 3.82
1.00 830,844 2.29 1.00 830,844 2.29
2.00 49,050 3.49 2.00 49,050 3.49
---------- ----- ---------- ----
11,573,999 3.69 11,573,999 3.69
========== ===== ========== ====
F-39
Transactions involving warrants are summarized as follows:
Weighted Average
Number of Shares Price Per Share
--------------- ---------------
Outstanding at January 1, 2005 17,666,210 $ .49
Granted 268,033 .48
Exercised (6,600,778) .50
Canceled or expired -- --
---------- --------
Outstanding at March 31, 2005 11,333,465 $ .47
Granted 366,814 .32
Exercised (80,000) .05
Cancelled or expired (123,530) 2.00
---------- ----------
Outstanding at June 30, 2005 11,496,749 $ .45
Granted 77,250 .56
Exercised -- --
Cancelled or expired -- --
---------- ----------
Outstanding at September 30, 2005 11,573,999 $ .46
========== ==========
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2005
----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 3.69% to 4.00%
Expected stock price volatility 104% to 163%
Expected dividend payout --
Expected option life-years (a) 3 to 5
Options
-------
We granted, prior to the merger with ImmuneRegen BioSciences, Inc., options to
purchase 63,212 shares of our common stock at a weighted average exercise price
of $25.00 per share to certain employees and consultants that are exercisable
over various periods through March 2010. These stock options were granted
outside of our 2003 Stock Option, Deferred Stock and Restricted Stock Plan.
During the nine months ended September 30, 2005, our Board of Directors granted
150,000 discretionary incentive stock options to our Chief Executive Officer,
Michael K. Wilhelm, per his employment agreement. The options have an exercise
price of $0.44 and a term of five years. The Company valued these options using
the intrinsic value method. Since the exercise price of the options was greater
than the market value of the Company's stock at the date of issuance, the
Company assigned $0 value to these options.
During the three months ended September 30, 2005, the Company issued options to
an employee to purchase 103,030 shares of the Company's common stock at a price
equal to 110% of the closing price of the Company's common stock on the date of
issuance. The options have an exercise price of $0.33 and a term of five years.
The Company valued these options using the intrinsic value method. Since the
exercise price of the options was greater than the market value of the Company's
stock at the date of issuance, the Company assigned $0 value to these options.
The following table summarizes the changes in stock options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company.
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------------------------
Weighted Average Weighed Weighted Average
Remaining Average Remaining
Exercise Number Contractual Life Exercise Number Contractual Life
Prices Outstanding (Years) Price Exercisable (Years)
--------------------------------------------------------------------------------------------------------
$0.33 103,030 4.86 $0.33 103,030 4.86
$0.44 150,000 4.59 $0.44 150,000 4.59
$25.00 63,212 4.50 $25.00 63,212 4.50
---------- ----- ---------- ----
316,242 4.66 316,242 4.66
========== ===== ========== ====
F-40
Transactions involving options are summarized as follows:
Weighted Average
Number of Shares Price Per Share
--------------- ---------------
Outstanding at January 1, 2005 63,212 $ 25.00
Granted -- --
Exercised -- --
Canceled or expired -- --
---------- --------
Outstanding at March 31, 2005 63,212 $ 25.00
Granted -- --
Exercised -- --
Cancelled or expired -- --
---------- ----------
Outstanding at June 30, 2005 63,212 $ 25.00
Granted 253,030 $ 0.40
Exercised -- --
Cancelled or expired -- --
---------- ----------
Outstanding at September 30, 2005 316,242 $ 5.31
========== ==========
Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------
In October 2004, the Company completed a private placement sale of shares of its
common stock and warrants to purchase additional shares of common stock. The
Company agreed to register these shares along with the shares underlying these
warrants within ninety days from the closing date of the transaction, or the
Company would incur a penalty equivalent to an additional 2% of the shares and
warrants to be registered for every 30 days that the Company fails to complete
this registration. This penalty amounts to an aggregate of 461,200 shares and
181,600 warrants per 30 day period until such a time as this registration
Statement is made effective. As of September 30, 2005, the Company is required
to issue additional 3,827,960 shares of common stock and warrants to purchase an
additional 1,507,280 shares of common stock. These shares have been valued at
the market price of the common stock at the time each 30 day period, for a total
of $1,539,331 at September 30, 2005; the warrants have been valued at $533,500
at September 30, 2005 utilizing the Black-Scholes valuation model. The total
value of the common stock and warrants issuable pursuant to this late filing
penalty at September 30, 2005 is $2,072,831. This amount was charged to finance
cost during the nine months ended September 30, 2005 and are included in the
Company's balance sheet at September 30, 2005 as accounts payable and accrued
liabilities.
The Company anticipates completing the registration of these shares during the
quarter ended December 31, 2005, but expects that an obligation to issue
approximately 1,245,240 additional shares and 490,320 additional warrants at an
aggregate cost of approximately $649,367 will be incurred.
NOTE 5 - SUBSEQUENT EVENTS
None.
F-41
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporation Law of the State of
Delaware, we can indemnify our directors and officers against liabilities they
may incur in such capacities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). Our certificate of incorporation
provides that, pursuant to Delaware law, our directors shall not be liable for
monetary damages for breach of the directors' fiduciary duty of care to us and
our stockholders. This provision in the certificate of incorporation does not
eliminate the duty of care, and in appropriate circumstances equitable remedies
such as injunctive or other forms of nonmonetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to us or our
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of the law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of our directors to the
fullest extent permitted by the Delaware General Corporation Law. Our bylaws
further provide that our Board of Directors has sole discretion to indemnify our
officers and other employees. We may limit the extent of such indemnification by
individual contracts with our directors and executive officers, but have not
done so. We are required to advance, prior to the final disposition of any
proceeding, promptly on request, all expenses incurred by any director or
executive officer in connection with that proceeding on receipt of an
undertaking by or on behalf of that director or executive officer to repay those
amounts if it should be determined ultimately that he or she is not entitled to
be indemnified under our bylaws or otherwise. We are not, however, required to
advance any expenses in connection with any proceeding if a determination is
reasonably and promptly made by our Board of Directors by a majority vote of a
quorum of disinterested Board members that (a) the party seeking an advance
acted in bad faith or deliberately breached his or her duty to us or our
stockholders and (b) as a result of such actions by the party seeking an
advance, it is more likely than not that it will ultimately be determined that
such party is not entitled to indemnification pursuant to the applicable
sections of our bylaws.
We also have directors' and officers' liability insurance.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, if any, payable by the Registrant
relating to the sale of common stock being registered. All amounts are estimates
except the SEC registration fee.
SEC registration fee ............................................$ 1,613
Printing and engraving expenses ................................. 5,000
Legal fees and expenses ......................................... 85,000
Accounting fees and expenses .................................... 50,000
Transfer agent and registrar's fees and expenses ................ 2,000
Miscellaneous expenses .......................................... 6,387
--------
Total......................................................$150,000
========
The Registrant has agreed to bear expenses incurred by the selling
stockholders, up to a maximum limit of $15,000, that relate to the registration
of the shares of common stock being offered and sold by the selling
stockholders. All such expenses in excess of $15,000 will be borne by the
selling stockholders in proportion to the number of shares being registered by
each stockholder.
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, we have issued unregistered securities to
the persons, as described below. None of these transactions involved any
underwriters, underwriting discounts or commissions, except as specified below,
or any public offering, and we believe that each transaction was exempt from the
registration requirements of the Securities Act of 1933 by virtue of Section
4(2) thereof and/or Regulation D promulgated thereunder. All recipients had
adequate access, through their relationships with us, to information about us.
In January 2002, we sold to Todd M. Ficeto, who was the sole director
and officer of GPN Network, Inc., 2,500,000 units at $0.06 per unit for an
aggregate purchase price of $150,000. Each unit sold included two shares of our
common stock and one five-year warrant to purchase one share of our common stock
at $0.03 per share. The sale of the units resulted in the issuance of 5,000,000
shares of our common stock and warrants exercisable for an additional 2,500,000
shares of our common stock. The securities were offered and sold in reliance
upon exemption from
-1-
registration pursuant to Section 4(2) of the Securities Act and Rule 506
promulgated thereunder.
On January 20, 2003, the Company entered into a $15,000 Convertible
Promissory Note bearing 8% interest per month with an accredited individual
investor. The principal on the note was subsequently repaid. On March 31, 2005
in accordance with the terms of the Promissory Note, accrued interest of
$2,410.96 was converted into 19,288 shares of our common stock releasing the
Company from any further obligation under the Note. These shares have been
accrued pending issuance. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note and the shares. The investor
represented to the Company that the investor was purchasing the securities for
the investor's own account and not with a present view towards the distribution
thereof. In addition, each investor acknowledged and agreed that the note and
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On June 11, 2003, the Company entered into a $50,000 Convertible
Promissory Note bearing 10% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement (see below). Immediately upon the closing of the
Private Placement, and in accordance with the terms of the Promissory Note, all
outstanding principal and accrued interest converted into 746,108 shares of our
common stock along with five-year warrants to purchase an additional 373,054
shares of common stock at $.50 per share releasing the Company from any further
obligation under the Note. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note. The investor represented to
the Company that the investor was purchasing the Note for the investor's own
account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the Note and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On June 11, 2003, the Company entered into a $50,000 Convertible
Promissory Note bearing 10% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 745,225 shares of our common stock
along with five-year warrants to purchase an additional 372,613 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On June 13, 2003, the Company entered into a $100,000 Convertible
Promissory Note bearing 10% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, 50% of the outstanding
principal was paid back in cash and 50% of the principal and accrued interest
converted into 614,680 shares of our common stock along with five-year warrants
to purchase an additional 307,340 shares of common stock at $.50 per share
releasing the Company from any further obligation under the Note. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the Note. The investor represented to the Company that the investor was
purchasing the Note for the investor's own account and not with a present view
towards the distribution thereof. In addition, the investor acknowledged and
agreed that the Note and the underlying securities had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On June 16, 2003, the Company entered into a $20,000 Convertible
Promissory Note bearing 10% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 297,722 shares of our common stock
along with five-year warrants to purchase an additional 148,861 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the
-2-
investor was purchasing the Note for the investor's own account and not with a
present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On July 20, 2003, we entered into and consummated an agreement and plan
of merger, pursuant to which we acquired ImmuneRegen BioSciences, Inc
("ImmuneRegen") in a reverse merger, which resulted in the issuance of 2,368,130
shares of our common stock. Pursuant to the terms of the merger, the
stockholders of ImmuneRegen were issued shares of our common stock exchange for
their shares in ImmuneRegen. The securities were issued to less than 35
purchasers and in reliance upon exemption from registration pursuant to Section
4(2) of the Securities Act and Rule 506 promulgated thereunder. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the securities. The stockholders were also provided with access to our SEC
filings, including the Company's annual reports on Form 10-KSB and its quarterly
reports on Form 10-QSB.
In May and June 2003, ImmuneRegen BioSciences, Inc. had sold and issued
eight secured convertible promissory notes in the aggregate principal amount of
$495,000 that were due 120 days from the date of issuance. When the notes were
due, three were paid and five were exchanged for 8% amended secured convertible
notes ("Amended Notes") in the aggregate principal amount of $245,000 in October
2003. The five accredited investors who received the Amended Notes were also
issued five-year warrants to purchase a total of 245,000 shares of our common
stock at an exercise price of $1.00 per share. The securities were offered and
sold in reliance upon exemption from registration pursuant to Section 4(2) of
the Securities Act and Rule 506 promulgated thereunder. No general solicitation
or advertising was undertaken in connection with the offer and sale of the
securities. Each investor represented to the Company that the investor was
purchasing the securities for the investor's own account and not with a present
view towards the distribution thereof. In addition, each investor acknowledged
and agreed that the securities and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements.
On September 9, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 272,711 shares of our common stock
along with five-year warrants to purchase an additional 136,356 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 9, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 371,847 shares of our common stock
along with five-year warrants to purchase an additional 185,924 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 23, 2003, the Company entered into a $125,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 1,359,511 shares of our common
stock along with five-year warrants to purchase an additional 679,756 shares of
common stock at $.50
-3-
per share releasing the Company from any further obligation under the Note. No
general solicitation or advertising was undertaken in connection with the offer
and sale of the Note. The investor represented to the Company that the investor
was purchasing the Note for the investor's own account and not with a present
view towards the distribution thereof. In addition, the investor acknowledged
and agreed that the Note and the underlying securities had not been registered
under the Securities Act and may not be offered or sold unless subsequently
registered and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On September 25, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 271,787 shares of our common stock
along with five-year warrants to purchase an additional 135,894 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 26, 2003, the Company entered into a $30,000 Convertible
Promissory Note bearing 8% interest per month with the father of one of our
Directors. The principal on the note was subsequently repaid. On January 28,
2005 in accordance with the terms of the Promissory Note, accrued interest of
$2,040.55 was converted into 27,207 shares of our common stock releasing the
Company from any further obligation under the Note. These shares have been
accrued pending issuance. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note. The investor represented to
the Company that the investor was purchasing the Note for the investor's own
account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the Note and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On September 29, 2003, the Company entered into a $25,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 271,556 shares of our common stock
along with five-year warrants to purchase an additional 135,778 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In October through December 2003, we sold and issued ten 8% secured
convertible promissory notes ("Fourth Quarter Notes") in the aggregate principal
amount of $391,000 that were due 180 days from the date of issuance. The ten
accredited investors who received the Fourth Quarter Notes were also issued
five-year warrants to purchase a total of 391,000 shares of our common stock at
an exercise price of $1.00 per share. The securities were offered and sold in
reliance upon exemption from registration pursuant to Section 4(2) of the
Securities Act and Rule 506 promulgated thereunder. No general solicitation or
advertising was undertaken in connection with the offer and sale of the Fourth
Quarter Notes. Each investor represented to the Company that the investor was
purchasing the Fourth Quarter Notes for the investor's own account and not with
a present view towards the distribution thereof. In addition, each investor
acknowledged and agreed that the Fourth Quarter Notes and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
In October 2003 through December 2003, we issued, in exchange for
accounting, marketing, business consulting, investor relations and public
relations services valued at approximately $85,861, five-year warrants to eight
-4-
investors for the purchase of an aggregate of 169,572 shares of our common stock
at exercise prices ranging from $0.25 to $2.00 per share. The securities were
offered and sold in reliance upon exemption from registration pursuant to
Section 4(2) of the Securities Act and Rule 506 promulgated thereunder. The
investors were financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the securities.
Each investor also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the securities, including the
Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the securities. Each
investor represented to the Company that the investor was purchasing the
securities for the investor's own account and not with a present view towards
the distribution thereof. In addition, each investor acknowledged and agreed
that the securities had not been registered under the Securities Act and may not
be offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
On November 10, 2003, the Company entered into a $50,000 Convertible
Promissory Note bearing 8% interest for a term of 180 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 538,374 shares of our common stock
along with five-year warrants to purchase an additional 269,187 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On November 18, 2003, the Company entered into a $16,000 Convertible
Promissory Note bearing 8% interest for a term of 220 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, $5,000 of the
outstanding principal was paid back in cash and the remaining $11,000 of the
principal plus accrued interest converted into 129,886 shares of our common
stock along with five-year warrants to purchase an additional 64,943 shares of
common stock at $.50 per share releasing the Company from any further obligation
under the Note. No general solicitation or advertising was undertaken in
connection with the offer and sale of the Note. The investor represented to the
Company that the investor was purchasing the Note for the investor's own account
and not with a present view towards the distribution thereof. In addition, the
investor acknowledged and agreed that the Note and the underlying securities had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On December 12, 2003, the Company entered into a $20,000 Convertible
Promissory Note bearing 8% interest per month with an accredited investor, the
mother-in-law Of our Chief Executive Officer. The principal on the note was
subsequently repaid. On October 15, 2004 in accordance with the terms of the
Promissory Note, accrued interest of $1,354.52 was converted into 13,454 shares
of our common stock releasing the Company from any further obligation under the
Note. These shares have been accrued pending issuance. No general solicitation
or advertising was undertaken in connection with the offer and sale of the
securities. The investor represented to the Company that the investor was
purchasing the securities for the investor's own account and not with a present
view towards the distribution thereof. In addition, the investor acknowledged
and agreed that the securities had not been registered under the Securities Act
and may not be offered or sold unless subsequently registered and/or offered,
sold or transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In January 2004, we entered into a 12% senior secured promissory note
("Senior Note") that had a term of 90 days. As an additional incentive to enter
into the Senior Note, we issued 600,000 shares of our common stock to the note
holder, and such shares were valued at $600,000. In April 2004, the Senior Note
was paid and we entered into a new 12% senior secured promissory note ("New
Senior Note") that had a term of 90 days. As an additional incentive to enter
into the New Senior Note, we issued another 600,000 shares of our common stock
to the note holder, and such shares were also valued at $600,000. The note
holders were financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the securities.
Each note holder also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the securities, including the
Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the shares. The note holder
represented to the Company that the note holder was purchasing the securities
-5-
for the note holder's own account and not with a present view towards the
distribution thereof. In addition, the note holder acknowledged and agreed that
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the shares were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
In February 2004, we issued 40,000 shares of our common stock at $0.62
per share to a consultant that is an accredited investor in exchange for public
relations services to be provided through August 2004. The services were valued
at approximately $24,800. No general solicitation or advertising was undertaken
in connection with the offer and sale of the shares. The consultant represented
to the Company that the consultant was purchasing the securities for the
consultant's own account and not with a present view towards the distribution
thereof. In addition, the consultant acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In March 2004, we sold and issued 8,000 shares of our common stock at
$0.15 per share for an aggregate purchase price of $1,200 to an investor. The
investor was financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the securities.
The investor also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the securities, including the
Company's periodic SEC reports. No general solicitation or advertising was
undertaken in connection with the offer and sale of the shares. Each investor
represented to the Company that the investor was purchasing the securities for
the investor's own account and not with a present view towards the distribution
thereof. In addition, the investor acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In May 2004 we also issued 350,000 shares of our common stock to a note
holder upon conversion of a note payable in the principal amount of $35,000 plus
accrued interest. No general solicitation or advertising was undertaken in
connection with the offer and sale of the shares. The note holder represented to
the Company that the he was acquiring the shares for the his own account and not
with a present view towards the distribution thereof. In addition, the note
holder acknowledged and agreed that the shares had not been registered under the
Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the shares were
offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
In April 2004 extended a 90 day offer to purchase certain rights to our
patents for Homspera for $30,000 to an accredited investor. On August 17, 2004,
at the conclusion of the 90-day period, if not exercised, the option would
convert into common shares of stock and warrants. In accordance with the terms
of the option, upon expiration the $30,000 was converted into 240,000 shares of
our common stock along with five-year warrants to purchase an additional 120,000
shares of common stock at $.50 per share. No general solicitation or advertising
was undertaken in connection with the offer and sale of the securities. The
investor represented to the Company that the he was acquiring the shares for the
his own account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On May 6, 2004, the Company entered into a $2,500 Convertible
Promissory Note bearing 12% interest for a term of 160 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 26,608 shares of our common stock
along with five-year warrants to purchase an additional 13,304 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to
-6-
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On May 14, 2004, the Company entered into a $75,000 Convertible
Promissory Note bearing 12% interest for a term of 160 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 788,750 shares of our common stock
along with five-year warrants to purchase an additional 394,375 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In May 2004, we issued five-year warrants to purchase 500,000 shares of
our common stock at an exercise price of $0.25 per share to each of one of our
founders and our Chief Executive Officer, Michael Wilhelm. The securities 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.
In May 2004 we also issued 125,000 shares of our common stock at $0.20
per share to a consultant as a due diligence fee. The consultant was financially
able to bear the economic risk of the investment and capable of evaluating the
merits and risks of the acquisition of the shares. The consultant also had
received and reviewed all information necessary or appropriate for deciding
whether to purchase the shares, including the Company's periodic SEC reports. No
general solicitation or advertising was undertaken in connection with the offer
and sale of the shares. The consultant represented to the Company that the
consultant was purchasing the securities for the consultant's own account and
not with a present view towards the distribution thereof. In addition, the
consultant acknowledged and agreed that the shares had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the shares were
offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
In May 2004 we also issued 500,000 shares of our common stock to a
consultant in exchange for business consulting services to be provided through
December 2004, and the stock price of $1.00 per share was determined as of the
date that we entered into the related consulting agreement in December 2003. The
consultant was financially able to bear the economic risk of the investment and
capable of evaluating the merits and risks of the acquisition of the shares. The
consultant also had received and reviewed all information necessary or
appropriate for deciding whether to purchase the shares, including the Company's
periodic SEC reports. No general solicitation or advertising was undertaken in
connection with the offer and sale of the shares. The consultant represented to
the Company that the consultant was purchasing the securities for the
consultant's own account and not with a present view towards the distribution
thereof. In addition, the consultant acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On June 18, 2004, the Company entered into a $10,000 Convertible
Promissory Note bearing 8% interest for a term of 120 days to an individual
accredited investor. The term was extended to October 16, 2004, the closing date
of the Private Placement. Immediately upon the closing of the Private Placement,
and in accordance with the terms of the Promissory Note, all outstanding
principal and accrued interest converted into 136,919 shares of our common stock
along with five-year warrants to purchase an additional 68,460 shares of common
stock at $.50 per share releasing the Company from any further obligation under
the Note. No general solicitation or advertising was undertaken in connection
with the offer and sale of the Note. The investor represented to the Company
that the investor was purchasing the Note for the investor's own account and not
with a present view towards the distribution thereof. In addition, the investor
acknowledged and agreed that the Note and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
In July 2004, we issued 250,000 shares of common stock at $0.10 per
share to an accredited entity in exchange for Investor and Public Relations
services to be provided though July, 2005. The services were valued at
approximately $25,000. No general solicitation or advertising was
-7-
undertaken in connection with the offer and sale of the shares. The consultant
represented to the Company that the consultant was purchasing the securities for
the consultant'[s own account and not with a present view towards the
distribution thereof. In addition, the consultant acknowledged and agreed that
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from registration requirements. Therefore,
the Company believes that the shares were offered and sold in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities act
of 1933, as amended, and Rule 506 promulgated thereunder.
In August 2004, we issued 100,000 shares of common stock at $0.14 per
share to an accredited consultant in exchange for Strategic Planning services to
be provided though October 2004. The services were valued at approximately
$14,000. No general solicitation or advertising was undertaken in connection
with the offer and sale of the shares. The consultant represented to the Company
that the consultant was purchasing the securities for the consultant'[s own
account and not with a present view towards the distribution thereof. In
addition, the consultant acknowledged and agreed that the shares had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from registration requirements. Therefore, the Company believes that
the shares were offered and sold in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities act of 1933, as amended, and Rule
506 promulgated thereunder.
In July and September of 2004, we issued a total of 200,000 shares of
common stock at $0.41 per share to an accredited consultant in exchange for
financial consulting services to be provided though April 2005. The services
were valued at approximately $82,000. No general solicitation or advertising was
undertaken in connection with the offer and sale of the shares. The consultant
represented to the Company that the consultant was purchasing the securities for
the consultant's own account and not with a present view towards the
distribution thereof. In addition, the consultant acknowledged and agreed that
the shares had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from registration requirements. Therefore,
the Company believes that the shares were offered and sold in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities act
of 1933, as amended, and Rule 506 promulgated thereunder.
On August 16, 2004, the Company entered into a $15,000 Convertible
Promissory Note bearing $500 interest per month for a term of 30 days to an
individual accredited investor. The term was extended to October 16, 2004, the
closing date of the Private Placement. Immediately upon the closing of the
Private Placement, and in accordance with the terms of the Promissory Note, all
outstanding principal and accrued interest converted into 131,467 shares of our
common stock along with five-year warrants to purchase an additional 65,734
shares of common stock at $.50 per share releasing the Company from any further
obligation under the Note. No general solicitation or advertising was undertaken
in connection with the offer and sale of the Note. The investor represented to
the Company that the investor was purchasing the Note for the investor's own
account and not with a present view towards the distribution thereof. In
addition, the investor acknowledged and agreed that the Note and the underlying
securities had not been registered under the Securities Act and may not be
offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements.
Therefore, the Company believes that the securities were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933, as amended, and Rule 506 promulgated thereunder.
On August 23, 2004, the Company entered into a $5,000 Convertible
Promissory Note bearing 8% interest per month to an individual accredited
investor. On October 26, 2004 in accordance with the terms of the Promissory
Note, principal of $5,000 and accrued interest of $71 was converted into 67,613
shares of our common stock releasing the Company from any further obligation
under the Note. These shares have been accrued pending issuance. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the Note. The investor represented to the Company that the investor was
purchasing the Note for the investor's own account and not with a present view
towards the distribution thereof. In addition, the investor acknowledged and
agreed that the Note and the underlying securities had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from egistration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
In September 2004, we issued 127,276 shares of common stock at $0.12 -
$0.22 per share to an accredited consultant in exchange for financial consulting
services provided though September 2004. The services were valued at
approximately $16,909. No general solicitation or advertising was undertaken in
connection with the offer and sale of the shares. The consultant represented to
the Company that the consultant was purchasing the securities for the
consultant's own account and not with a present view towards the distribution
thereof. In addition, the consultant acknowledged and agreed that the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from registration requirements. Therefore, the Company believes
that the shares were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities act of 1933, as
amended, and Rule 506 promulgated thereunder
-8-
In October 2004, we completed a private placement, whereby we sold an
aggregate of $2,450,000 worth of units to accredited investors (the "Private
Placement"). Each unit was sold for $10,000 (the "Unit Price") and consisted of
(a) a number of shares of our common stock determined by dividing the Unit Price
by $0.125, and (b) a warrant to purchase, at any time prior to the fifth
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to fifty percent (50%) of the number of shares included
within the unit, at a price equal to $0.50 per share of common stock. Thus, each
unit consisted of 80,000 shares of our common stock and a five-year warrant to
purchase an additional 40,000 shares of our common stock at an exercise price of
$0.50 per share. We issued an aggregate 27,560,897 shares of our common stock
and warrants to purchase 13,780,449 shares of our common stock in the Private
Placement. In consideration of the investment, we granted to each investor
certain registration rights and anti-dilution rights. The registration rights
provide, if the Registration Statement is not effective as of 90-days following
the second closing date (October 26, 2004), we must issue to the holders of
units sold in the Private Offering an additional 2% of their securities each
month. To date we are obligated to issue an aggregate of 3,228,400 shares and
1,271,200 warrants pursuant to this penalty provision. No general solicitation
or advertising was undertaken in connection with the offer and sale of the
Units. The investors each represented to the Company that the investor was
purchasing Units for the his or her own account and not with a present view
towards the distribution thereof. In addition, each investor acknowledged and
agreed that the Units and the underlying securities had not been registered
under the Securities Act and may not be offered or sold unless subsequently
registered and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. The securities were offered and sold in reliance upon
exemption from registration pursuant to Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
Further to the Private Placement, on October 26, 2004 we entered into a
settlement agreement with 8 accredited creditors whereby for full and complete
satisfaction of claims totaling an aggregate of $158,017.25 (the "Claim
Amount"), we issued to the creditors the following: (a) a number of shares of
our common stock determined by dividing the Claim Amount by $0.125, and (b)
warrants to purchase, at any time prior to the fifth anniversary following the
date of issuance of the warrant, a number of shares of our common stock equal to
fifty percent (50%) of the number of shares described above, at a price equal to
$0.50 per share of common stock. The warrants are identical to the warrants
issued in the Private Placement. No general solicitation or advertising was
undertaken in connection with the offer and sale of the securities. The
investors each represented to the Company that the investor was acquiring the
securities for the his or her own account and not with a present view towards
the distribution thereof. In addition, each investor acknowledged and agreed
that the securities had not been registered under the Securities Act and may not
be offered or sold unless subsequently registered and/or offered, sold or
transferred pursuant to an exemption from the registration requirements. The
securities were offered and sold in reliance upon exemption from registration
pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated
thereunder.
Pursuant to the terms of a placement agency agreement, dated September
3, 2004, by and between us and Joseph Stevens & Co., Inc., we issued 4,900,000
shares of our common stock to Joseph Stevens & Co., Inc. or its designees, upon
the closing of the Private Placement. The shares were issued as consideration
for the services of Joseph Stevens & Co., Inc. as our placement agent in the
Private Placement. There were 98 accredited investors who purchased units in the
Private Placement. The securities were offered and sold in reliance upon
exemption from registration pursuant to Section 4(2) of the Securities Act and
Rule 506 promulgated thereunder.
In September 2004 we entered into a settlement agreement with one of
our Directors, Theodore Staahl, whereby for full and complete satisfaction of
claims totaling $10,263.01, we issued to our Director 93,300 shares of our
common stock, determined by dividing the amount owed by $0.11. Under the terms
of the settlement agreement, our Director released us from all claims, known or
unknown, relating to the amount owed. The securities 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. The Director
qualified as an accredited investor (as defined by Rule 501 under the Securities
Act of 1933, as amended).
On November 18, 2004 we issued warrants to a member of our Bioterrorism
Preparedness Advisory Board to purchase, at any time prior to the third
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to 50,000, at a price equal to $0.125 per share of common
stock for advice on logistics, introductions to various organizations and
attendance of meetings. No general solicitation or advertising was undertaken in
connection with the offer and sale of the securities. The investor acknowledged
and agreed that the securities had not been registered under the Securities Act
and may not be offered or sold unless subsequently registered and/or offered,
sold or transferred pursuant to an exemption from the registration requirements.
The securities 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. The investor qualified as an accredited investor (as
defined by Rule 501 under the Securities Act of 1933, as amended).
On December 16, 2004 we issued warrants to a member of our Oncology and
Dermatology Advisory Board to purchase, at any time prior to the third
anniversary following the date of issuance of the warrant, a number of shares of
our common stock equal to 10,000, at a price equal to $0.50 per share of common
-9-
stock for advice on potential oncology applications for Homspera. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the securities. The investor acknowledged and agreed that the securities had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. The securities 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. The
investor qualified as an accredited investor (as defined by Rule 501 under the
Securities Act of 1933, as amended).
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. The tender offer was made in
reliance upon exemption from registration pursuant to Sections 3(a)(9), which
provide an exemption for any security exchanged by the issuer with its existing
security holders where no commission or other remuneration is paid or given
directly or indirectly for soliciting such exchange. We did not pay or give any
commission or other remuneration to any person for soliciting the tender offer.
The tender offer also falls within Section 4(2) of the Securities Act since all
the investors were current holders of the warrants and received their securities
from the October 2004 private placement or from issuances in October 2004
pursuant to the terms of settlement agreements or convertible promissory notes.
These transactions were conducted under Section 4(2) and the rules and
regulations promulgated thereunder, including Regulation D.
In July 2005, we issued to our Chief Executive Officer, Michael
Wilhelm, per his employment agreement, 150,000 stock options at a weighted
average exercise price of $0.44 per share under our 2003 Stock Option, Deferred
Stock and Restricted Stock Plan.
In May 2005, per his employment agreement we issued 100,000 shares of
our common stock to our Chief Financial Officer, John Fermanis. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the shares. The Company's Chief Financial Officer qualifies as an "accredited
investor" and acknowledged and agreed that the shares had not been registered
under the Securities Act and may not be offered or sold unless subsequently
registered and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. The securities 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.
The Company has accrued the issuance of 384,100 shares of common stock
as of May 31, 2005. Pursuant to the terms of their respective agreement with us,
41,665 of these shares are to be issued to our Chief Financial Officer and
114,464 are to be issued to consultants per agreements for the first quarter
2005. Also included is 127,971 shares relating to the conversion of convertible
notes. 100,000 of these shares are issued to two advisory board members. 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 consultants each
qualifies as an accredited investor (as defined by Rule 501 under the Securities
Act of 1933, as amended). No general solicitation or advertising was undertaken
in connection with the offer and sale of these shares.
The Company accrued the issuance of 359,921 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 term of his employment agreement,
our Chief Executive Officer, is to receive 79,388 warrants. Pursuant to the term
of his employment agreement, our Chief Financial Officer, is to receive 12,500
warrants. Pursuant to the terms of their respective agreement with us, 268,033
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.
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. No general solicitation or advertising was
undertaken in connection with the offer and sale of these shares. Each investor
was also provided with access to our Exchange Act reports including our annual
report on Form 10-KSB and our quarterly reports on Form 10-QSB.
On June 13, 2005, the Company issued 80,000 shares of common stock for
cash of $4,000 pursuant to the exercise of a warrant at $0.05 per share. On
April 15, 2004, the Company entered into a $5,000 Convertible Promissory Note
bearing 12% interest for a term of 60 days to an individual investor. The term
of the Note was extended to June 30, 2004. As additional incentive to the
extension of the note, the investor was issued 5-year warrants to purchase up to
40,000 shares of common stock at $0.05 per share. The term of the Note was again
extended to October 16, 2004, the closing date of the Private Placement. As
additional incentive to the extension of the note, the investor was issued
5-year warrants to purchase up to 40,000 shares of common stock at$0.05 per
-10-
share. Immediately upon the closing of the Private Placement, and in accordance
with the terms of the Promissory Note, the principal of $5,000 and $299.56 of
accrued interest was repaid to the investor releasing the Company from any
further obligation under the warrants. The investor was financially able to bear
the economic risk of the investment and capable of evaluating the merits and
risks of the acquisition of the warrants. The investor also had received and
reviewed all information necessary or appropriate for deciding whether to
purchase the shares, including the Company's periodic SEC reports. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the warrants. The investor represented to the Company that the investor was
purchasing the warrants for the investor's own account and not with a present
view towards the distribution thereof. In addition, the investor acknowledged
and agreed that the warrants and the underlying securities had not been
registered under the Securities Act and may not be offered or sold unless
subsequently registered and/or offered, sold or transferred pursuant to an
exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
On September 28, 2001, the Company entered into a $50,000 Convertible
Promissory Note bearing 8% interest per month with an accredited investor. On
June 7, 2005 in accordance with the terms of the Promissory Note, the
outstanding principal and accrued interest was converted into 232,153 shares of
our common stock releasing the Company from any further obligation under the
Note. No general solicitation or advertising was undertaken in connection with
the offer and sale of the Note and the shares. The investor represented to the
Company that the investor was purchasing the securities for the investor's own
account and not with a present view towards the distribution thereof. In
addition, each investor acknowledged and agreed that the note and the shares had
not been registered under the Securities Act and may not be offered or sold
unless subsequently registered and/or offered, sold or transferred pursuant to
an exemption from the registration requirements. Therefore, the Company believes
that the securities were offered and sold in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.
During the three months ended September 30, 2005, the Company issued
warrants to purchase 77,250 shares of common stock at prices ranging from $0.125
to $1.00 per share. Pursuant to the terms of their respective agreement with us,
these warrants were granted to current members of the Bioterrorism Advisory
Board, Drug Development Advisory Board and the Oncology and Dermatology Advisory
Board for participation during the quarter ended September 30, 2005. 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. No general solicitation or advertising was
undertaken in connection with the offer and sale of these shares. 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.
During the nine months ended September 30, 2005, the Company accrued
the issuance of 3,827,960 shares of common stock and warrants to purchase an
additional 1,507,280 shares of common stock pursuant to a penalty calculation
with regard to the late registration of shares sold in a private placement in
October 2004.
ITEM 27 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
2.1 Agreement and Plan of Merger dated July 2, 2003 among the
Registrant, GPN Acquisition Corporation and ImmuneRegen
BioSciences, Inc. (incorporated by reference to exhibit 2 of
the Registrant's current report on Form 8-k filed with the
Securities and Exchange Commission on July 7, 2003).
3.1 Certificate of Incorporation filed with the Delaware Secretary
of State on June 4, 1985 (incorporated by reference to exhibit
3.1 of the Registrant's annual report on Form 10-KSB for the
year ended December 31, 2001 filed with the Securities and
Exchange Commission on April 16, 2002).
3.1(a) Certificate of Amendment filed with the Delaware Secretary of
State on July 16, 1987 (incorporated by reference to exhibit
3.1(a) of the Registrant's annual report on Form 10-KSB for
the year ended December 31, 2001 filed with the Securities and
Exchange Commission on April 16, 2002).
3.1(b) Certificate of Amendment filed with the Delaware Secretary of
State on February 3, 1992 (incorporated by reference to
exhibit 3.1(b) of the Registrant's annual report on Form
-11-
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(c) Certificate of Amendment filed with the Delaware Secretary of
State on November 23, 1992 (incorporated by reference to
exhibit 3.1(c) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(d) Certificate of Amendment filed with the Delaware Secretary of
State on December 15, 1994 (incorporated by reference to
exhibit 3.1(d) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(e) Certificate of Amendment filed with the Delaware Secretary of
State on November 7, 1995 (incorporated by reference to
exhibit 3.1(e) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(f) Certificate of Amendment filed with the Delaware Secretary of
State on December 30, 1996 (incorporated by reference to
exhibit 3.1(f) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.1(g) Certificate of Amendment filed with the Delaware Secretary of
State on November 8, 2000 (incorporated by reference to
exhibit 3.1(h) of the Registrant's annual report on Form
10-KSB for the year ended December 31, 2001 filed with the
Securities and Exchange Commission on April 16, 2002).
3.2 Amended and Restated Bylaws of the Registrant dated as of
January 1, 2002 (incorporated by reference to exhibit 3(b) of
the Registrant's annual report on Form 10-KSB for the year
ended December 31, 2001 filed with the Securities and Exchange
Commission on April 16, 2002).
4.1* Specimen Common Stock Certificate.
4.2 2003 Stock Option, Deferred Stock and Restricted Stock Plan
(incorporated by reference to exhibit 4.1 of the Registrant's
registration statement on Form S-8 (file no. 333-113511) filed
with the Securities and Exchange Commission on March 11,
2004).
4.3 Form of Warrant by and between the Registrant and each of the
Investors or Creditors, as the case may be, who entered into
an Agreement filed as Exhibit 10.6, 10.7, 10.8 or 10.9
herewith (incorporated by reference to exhibit 4.1 of the
Registrant's current report on Form 8-K filed with the
Securities and Exchange Commission on October 19, 2004).
4.4 Form of Registration Rights (Annex A to Subscription
Agreement) by and between the Registrant and each of the
Investors who entered into the Agreements filed as Exhibits
10.6 and 10.8 herewith (incorporated by reference to exhibit
4.2 of the Registrant's current report on Form 8-K filed with
the Securities and Exchange Commission on October 19, 2004).
4.5+ Form of Anti-Dilution Rights (Annex B to Subscription
Agreement) by and between the Registrant and each of the
Investors who entered into the Agreements filed as Exhibits
10.6 and 10.8 herewith (incorporated by reference to exhibit
4.3 of the Registrant's current report on Form 8-K filed with
the Securities and Exchange Commission on October 19, 2004).
4.6+ Promissory Note issued from the Registrant to SBM Certificate
Company as of April 28, 2004.
5.1* Opinion of Kirkpatrick & Lockhart Nicholson Graham LLP
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
10.1+ Employment Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and Michael Wilhelm.
10.2+ Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and David Harris.
10.2(a)+ First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and David Harris.
10.3+ Consulting Agreement dated December 16, 2002 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant,
and Mark Witten.
10.3(a)+ First Amendment to Consulting Agreement dated January 2003
between ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, and Mark Witten.
10.4+ License Agreement dated December 16, 2002 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, and Mark
Witten.
10.4(a)+ First Amendment to License Agreement dated December 20, 2002
among ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, David Harris and Mark Witten.
10.4(b)+ Second Amendment to License Agreement dated June 26, 2003
among ImmuneRegen BioSciences, Inc., a subsidiary of the
Registrant, David Harris and Mark Witten.
10.4(c)+ Assignment Agreement dated February 23, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten.
10.4(d)+ Assignment Agreement dated February 23, 2005 among ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, David
Harris and Mark Witten.
10.4(e) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten.
10.4(f) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten.
10.4(g) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten.
10.4(h) Assignment Agreement dated November 7, 2005 between
ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
and Mark Witten.
10.5+ Lease Agreement dated July 1, 2004 between ImmuneRegen
BioSciences, Inc., a subsidiary of the Registrant, and The
Clayton Companies.
10.6 Form of Subscription Agreement entered into as of October 13,
2004 between the Registrant and each of the Investors set
forth on the Schedule of Investors thereto (incorporated by
reference to exhibit 10.1 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 19, 2004).
10.7 Form of Settlement Agreement entered into as of October 13,
2004 between the Registrant and each of the Creditors set
forth on the Schedule of Creditors thereto (incorporated by
reference to exhibit 10.2 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 19, 2004).
10.8 Form of Subscription Agreement entered into as of October 26,
2004 between the Registrant and each of the Investors set
forth on the Schedule of Investors thereto (incorporated by
reference to exhibit 10.1 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 27, 2004).
10.9 Form of Settlement Agreement entered into as of October 26,
2004 between the Registrant and each of the Creditors set
forth on the Schedule of Creditors thereto (incorporated by
reference to exhibit 10.2 of the Registrant's current report
on Form 8-K filed with the Securities and Exchange Commission
on October 27, 2004).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- --------------------------------------------------------------
10.10 Employment Agreement dated February 15, 2005 between the
Registrant and John N. Fermanis (incorporated by reference to
exhibit 10.10 of the Registrant's Amendment No. 1 on Form
10-K/A to its annual report for the year ended December 31,
2004).
10.11 Employment Agreement dated August 10, 2005 by and between the
Registrant and Michael K. Wilhelm (incorporated by reference
to exhibit 10.1 of the Registrant's quarterly report on Form
10-QSB for the three months ended September 30, 2005).
10.12 Change of Control Agreement dated August 10, 2005 by and
between the Registrant and Michael K. Wilhelm (incorporated by
reference to exhibit 10.2 of the Registrant's quarterly report
on Form 10-QSB for the three months ended September 30, 2005).
10.13 Severance Agreement dated November 7, 2005 by and between the
Registrant and Michael K. Wilhelm (incorporated by reference
to exhibit 10.3 of the Registrant's quarterly report on Form
10-QSB for the three months ended September 30, 2005).
10.14 Authorization for Regulatory Contact dated November 7, 2005
between Immuneregen BioSciences, Inc., a subsidiary of the
Registrant, and Synergos, Inc.
10.15 Proforma invoice/quotation dated November 7, 2005 from
Sigma-Aldrich, Inc. to ImmuneRegen BioSciences, Inc., a
subsidiary of the Registrant.
10.16 Letter of acceptance dated October 2, 2003, from Huntington
Life Sciences to ImmuneRegen BioSciences, Inc., a subsidiary
of the Registrant.
21.1+ Subsidiaries of Registrant.
23.1 Consent of Russell Bedford Stefanou Mirchandani LLP.
23.2* Consent of Kirkpatrick & Lockhart Nicholson Graham LLP
(contained in Exhibit 5.1).
24.1+ Power of Attorney (included on signature page).
----------
+ Previously filed.
* To be filed by amendment.
(B) FINANCIAL STATEMENT SCHEDULES
All such schedules have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 28 UNDERTAKINGS
The undersigned small business issuer hereby undertakes to:
(1) For determining any liability under the Securities Act, treat the
information omitted from this form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act of 1933 as part of this registration statement
as of the time the Securities and Exchange Commission declared it effective.
(2) For determining any liability under the Securities Act of 1933,
treat each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in this registration
statement, and that offering of the securities at that time as the initial BONA
FIDE offering of those securities.
The undersigned small business issuer hereby undertakes with respect to
the securities being offered and sold in this offering:
(1) To file, during any period in which it offers or sells securities,
a post- effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in this
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from
-14-
the low or high end of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; and
(c) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post- effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial BONA
FIDE offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification by the undersigned small business issuer for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the undersigned small business issuer will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and will
be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Scottsdale, State of
Arizona, on the 14th day of November, 2005.
IR Biosciences Holdings, Inc.
By: /s/ Michael K. Wilhelm
-------------------------------------
Michael K. Wilhelm
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------------------------------------------------------------------------------------------
/s/ Michael K. Wilhelm Chief Executive Officer, President and November 16, 2005
------------------------ Director (Principal Executive Officer)
Michael K. Wilhelm
/s/ John N. Fermanis Chief Financial Officer (Principal Financial November 16, 2005
------------------------ and Accounting Officer)
John N. Fermanis
*
------------------------ Director and Research Scientist November 16, 2005
Mark L. Witten, Ph.D.
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SIGNATURE TITLE DATE
--------------------------------------------------------------------------------------------
*
------------------------ Director November 16, 2005
Theodore E. Staahl, M.D.
*By: /s/ Michael K. Wilhelm
----------------------
Michael K. Wilhelm
Attorney in Fact
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