FORM 10-QSB/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------------
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended March 31, 2004
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
Commission File Number: 033-05384
IR BioSciences Holdings, Inc.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3301899
------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8655 East Via De Ventura, Suite E-155, Scottsdale, Arizona 85258
--------------------------------------------------------------------------------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code (480) 922-3926
------------------------------
N/A
-----------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
The number of shares outstanding of Registrant's common stock as of May 6, 2004
was 28,194,500.
IR BIOSCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheet as of March 31, 2004 (unaudited)......3
Consolidated Statement of Operations for the three months
ended March 31, 2004 and 2003, and for the period of
inception (October 30, 2002) to March 31, 2004...................4
Consolidated Statement of Stockholders' Equity (Deficit)
for the period from inception (October 30, 2002) to
September 30, 2003...............................................5
Consolidated Statement of Cash Flows for the three months
ended March 31, 2004 and 2003, and for the period of
inception (October 30, 2002) to March 31, 2004...................7
Notes to Consolidated Financial Statements.......................8
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation............................................13
Item 3. Controls and Procedures.........................................27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................27
Item 2. Changes in Securities and Use of Proceeds.......................27
Item 3. Defaults Upon Senior Securities.................................27
Item 4. Submission of Matters to a Vote of Securities Holders...........27
Item 5. Other Information...............................................27
Item 6. Exhibits and Reports on Form 8-K................................28
Signatures......................................................28
ITEM 1. FINANCIAL INFORMATION
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheet
March 31,
2004
-----------------
Assets
Current assets
Cash and cash equivalents $ 12,555
Prepaid services and other assets 12,300
-----------------
Total current assets 24,855
Licensed proprietary rights, net 8,015
Furniture and equipment, net 2,626
-----------------
Total assets $ 35,496
=================
Liabilities and Stockholders' Deficit
Current liabilities
Accounts payable and accrued liabilities 587,887
Notes payable, net of discount 797,170
-----------------
Total current liabilities 1,385,057
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; 26,544,500 shares issued and outstanding 26,544
Additional paid-in capital 3,169,080
Deferred compensation (1,407,413)
Deficit Accumulated during the Development Stage (3,137,772)
--------------
Total stockholders' deficit (1,349,561)
--------------
Total liabilities and stockholders' deficit $ 35,496
==============
3
The accompanying notes are an integral part of these consolidated financial
statements.
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
For the Three For the Three Cumulative from
Months Ended Months Ended Inception
March 31, March 31, October 30, 2002)
2004 2003 to March 31, 2004
------------ ------------ -----------------
Revenues $ -- $ -- $ --
Operating expenses:
Selling, general and administrative expenses 931,074 88,202 2,324,870
Merger fees and costs 0 0 350,000
Financing cost 0 0 90,000
------------ ------------ ------------------
Total operating expenses 931,074 88,202 2,764,870
Operating loss (931,074) (88,202) (2,764,870)
Other expense:
Interest expense 304,078 0 372,902
------------ ------------ ------------------
Total other expense 304,078 0 372,902
------------ ------------ ------------------
Net loss $ (1,235,152) $ (88,202) $ (3,137,772)
============ ============ ==================
Net loss per share - basic and diluted $ (0.05) $ (0.01) $ (0.16)
============ ============ ==================
Weighted average shares outstanding -
basic and diluted 24,845,493 12,830,404 19,666,705
============ ============ ==================
The accompanying notes are in integral part of these consolidated financial
statements.
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 March 31, 2004
Deficit
Accumulated
Common Stock Additional During
-------------------- Paid-In Deferred Development
Shares Amount Capital Compensation 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
rights 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 at $0.1517 per share
for cash 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
Sale 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 - Audited 23,431,300 23,431 1,035,441 -- (1,902,620) (843,748)
The accompanying notes are in integral part of these consolidated financial
statements.
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 March 31, 2004 (continued)
Deficit
Accumulated
Common Stock Additional During
-------------------- Paid-In Deferred Development
Shares Amount Capital Compensation Stage Total
---------- ------- ----------- ----------- ----------- -----------
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a consultant
for services in January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62 per share
for services in February 2004 40,000 40 24,760 (24,800) -- --
Shares issued to a consultant at $0.40 per share
for services in March, 2004 1,051,600 1,052 419,588 (420,640) -- --
Shares issued to a consultant at $0.50 per share
for services 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 $0.2857 per share to consultants
for services in March, 2004 67,800 68 10,732 -- -- 10,800
Shares issued to consultants at $0.64 per share
for services in March, 2004 45,800 45 29,267 -- -- 29,312
Amortization of deferred compensation -- -- -- 688,027 -- 688,027
Net loss for the three months period
ended March 31, 2004 -- -- -- -- (1,235,152) (1,235,152)
---------- ------- ----------- ----------- ----------- -----------
Balance at March 31, 2004 - Unaudited 26,544,500 26,544 3,169,080 (1,407,413) (3,137,772) (1,349,561)
========== ======= =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
6
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Three For the Three Cumulative from
Months Ended Months Ended Inception
March 31, March 31, (October 30, 2002)
2004 2003 to March 31, 2004
------------- ------------- -------------------
Cash flows from operating activities:
Net loss $ (1,235,152) $ (88,202) $ (3,137,772)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash compensation -- -- 106,423
Amortization of deferred compensation 688,027 -- 697,027
Interest expense 953 -- 69,577
Amortization of discount on notes payable 287,241 -- 589,543
Depreciation and amortization 11,651 -- 24,413
Changes in operating assets and liabilities: -- -- --
Prepaid services and other assets 23,543 (24,000) (12,299)
Accounts payable and accrued expenses 89,558 32,632 495,746
------------- ------------- -------------------
Net cash used in operating activities (134,179) (79,570) (1,167,342)
Cash flows from investing activities:
Acqisition of property and equipment -- -- (3,304)
------------- ------------- -------------------
Net cash used in investing activities -- -- (3,304)
Cash flows from financing activities:
Proceeds from notes payable 150,000 -- 1,351,000
Principal payments on notes payable (15,000) -- (265,000)
Shares of stock issued for cash 1,200 67,749 97,201
Officer repayment of amounts paid on his behalf -- -- 19,880
Cash paid on behalf of officer -- -- 2,547
Cash paid on amount due to officer -- 6,412 (22,427)
------------- ------------- -------------------
Net cash provided by financing activities 136,200 74,161 1,183,201
Net increase in cash and cash equivalents 2,021 (5,409) 12,555
Cash and cash equivalents at beginning of period 10,534 32,155 --
------------- ------------- -------------------
Cash and cash equivalents at end of period $ 12,555 $ 26,746 $ 12,555
============= ============= ===================
Cash paid during the period for:
Interest $ 953 $ -- $ 42,746
Taxes $ -- $ -- $ ---
The accompanying notes are an integral part of these consolidated financial
statements.
7
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the three-month period ended March 31, 2004 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2004. The unaudited condensed consolidated financial statements
should be read in conjunction with the December 31, 2003 financial statements
and footnotes thereto included in the Company's Securities and Exchange
Commission Form 10-KSB.
Business and Basis of Presentation
----------------------------------
IR BioSciences Holdings, Inc. ("Company") is currently a development stage
company under the provisions of Statement of Financial Accounting Standards
("SFAS") No. 7. The Company was incorporated under the laws of the State of
Delaware, and has a December 31 year-end. The Company has one wholly-owned
subsidiary: ImmuneRegen BioSciences, Inc. ImmuneRegen BioSciences, Inc. is a
Delaware Corporation, and was incorporated on October 30, 2002. Currently, all
of our Company's operations are conducted by ImmuneRegen BioSciences, Inc.
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.
Reverse acquisition
-------------------
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 10,531,585 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.
8
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The stockholders of ImmuneRegen (aggregating approximately 40) owned
approximately 90% of the Registrant's common stock outstanding immediately after
the effective time of the Merger (excluding any additional shares issuable upon
outstanding options, warrants and other securities convertible into our common
stock).
Under Delaware law, the Registrant did not need to obtain the approval of its
stockholders to consummate the Merger, as the constituent corporations in the
merger were Merger Sub and ImmuneRegen, each of which are business entities
incorporated under the laws of Delaware. The Registrant is not a constituent
corporation in the Merger.
For accounting purposes, this transaction was accounted for as a reverse merger,
since the stockholders of ImmuneRegen own a majority of the issued and
outstanding shares of common stock of the Registrant, and the directors and
executive officers of ImmuneRegen became the directors and executive officers of
the Registrant. No agreements exist among present or former controlling
stockholders of the Registrant or present or former members of ImmuneRegen with
respect to the election of the members of our board of directors, and to the
Registrant's knowledge, no other agreements exist which might result in a change
of control of the Registrant.
Going Concern
-------------
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. However, the Company
has no established source of revenue. This matter raises substantial doubt about
the Company's ability to continue as a going concern. These financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
Management plans to take the following steps that it believes will be sufficient
to provide the Company with the ability to continue in existence: Management
intends to continue to raise additional financing through private debt or equity
financing or other means and interests that it deems necessary, with a view to
moving forward and sustaining a prolonged growth in its strategy phases. The
Company believes that its status as a publicly traded company will improve its
chances of raising funds through either equity or debt financings.
Interim Financial Statements
----------------------------
The accompanying balance sheet as of March 31, 2004, the statements of
operations for the three months ended March 31, 2004 and 2003, and for the
period from inception to March 31, 2004, and the statements of cash flows for
the three months ended March 31, 2004 and 2003, and from the period of inception
(October 30, 2002) to March 31, 2004 are unaudited. These unaudited interim
financial statements include all adjustments (consisting of normal recurring
accruals), which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the periods presented. Interim
results are not necessarily indicative of the results to be expected for a full
year.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
Long-Lived Assets
------------------
The Company accounts for its long-lived assets under the provision of Statements
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undercounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset.
Prepaid Services
----------------
Prepaid services consist of outside services that the Company has paid for in
advance. At March 31, 2004 this amount was $10,000, consisting of a 90 day
consulting contract. This item is charged to expense on a straight line basis
over the term of the contract.
9
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Licensed Proprietary Rights
---------------------------
The Company has licensed from its founders certain proprietary rights which the
Company intends to utilize in the execution of its business plan. These
proprietary rights are being amortized over the term of the license agreement,
or ten years. The amount amortized during the three months ended March 31, 2004
and 2003 was $232. The Company amortized $1,235 for the period from October 30,
2002 (inception) to March 31, 2004.
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 amount depreciated for the three months ended March 31, 2004 and 2003 was
$170 and $0, respectively. The amount depreciated from the date of inception
(October 30, 2002) through March 31, 2004 was $680.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
-
In January 2003, the FASB issued interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46), as revised December 2003. This
interpretation of Accounting Research Bulletin No. 51, Consolidated Financial
Statements, addresses consolidation by business enterprises of variable interest
entities (VIEs) that either: (1) do not have sufficient equity investment at
risk to permit the entity to finance its activities without additional
subordinated financial support, or (2) the equity investors lack an essential
characteristic of a controlling financial interest. This interpretation applies
immediately to VIEs created after January 31, 2003. It applies in the first
fiscal year or interim period beginning after June 15, 2003, to VIEs in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
The application of FIN 46 did not have a material effect on our consolidated
financial statements.
NOTE 3 - RELATED PARTY TRANSACTIONS
Founder's Consulting Fees
-------------------------
During the three months ended March 31, 2004 and 2003, the Company accrued
$30,000 in consulting fees payable to two of the Company's founders. The Company
accrued $155,000 in consulting fees to the Company Founders from October 30,
2002 (inception) to March 31, 2004.
InOne Contract
--------------
The Company has entered into a series of contracts for marketing, website
development, and website hosting with a InOne Advertising "(In-One"), a company
run by the spouse of the Company's CEO. Pursuant to these contracts, during the
three months ended March 31, 2004, the Company issues 45,800 shares of its
common stock to with a value of $29,312 to In-One.
Office Lease
------------
The Company subleases its office space from Foresight Capital Partners, a
company controlled by the Company's CEO. The rent cost is passed through to the
Company at the same rental rate that Foresight Capital Partners is charged by
the facility's primary landlord. Rent expense amounted to $8,202 and $1,500 for
the three months ended March 31, 2004 and 2003, respectively. The Company has
incurred $39,751 of rent expense from October 30, 2002 (inception) to March 31,
2004.
NOTE 4 - DEBT
Amended Secured Convertible Promissory Notes
--------------------------------------------
During the three months ended March 31, 2004, the Company amortized to interest
expense $93,913 of the discount associated with its Amended Convertible
Promissory Notes Payable (the "Amended Notes"). At March 31, 2004, the total
principal amount due pursuant to the Amended Notes is $245,000. The total
discount attributable to the warrants issued with the Amended Secured
Convertible Promissory Notes remaining at March 31, 2004 is $11,854. In May
2004, the terms of the Amended Notes were extended to August, 2004. Interest
accrued for the three months ended March 31, 2004 was $4,818. Total accrued
interest due at March 31, 2004 was $9,013.
10
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Fourth Quarter Secured Convertible Promissory Notes
----------------------------------------------------
During the three months ended March 31, 2004, the Company made principal
payments in the aggregate of $15,000 on the Fourth Quarter Secured Convertible
Promissory Notes (the "Fourth Quarter Notes"). The Company also amortized to
interest expense $193,328 of the discount associated with the Fourth Quarter
Notes. At March 31, 2004, the total principal amount due pursuant to the Fourth
Quarter Notes is $376,000. The total discount remaining on the Fourth Quarter
Notes at March 31, 2004 is $40,100. In May 2004, the terms of Fourth Quarter
Notes were extended to August, 2004. Interest accrued for the three months ended
March 31, 2004 was $7,667. Total accrued interest due at March 31, 2004 was
$14,375.
Senior Secured Promissory Note
------------------------------
In January 2004, the Company entered into a $150,000 Senior Secured Promissory
Note Agreement (the "Senior Note"). The Senior Note bears interest at the rate
of 12% per annum and has a term of 90 days. Interest accrued for the three
months ended March 31, 2004 was $3,100. The maturity date may be extended for an
additional 30 days. If the Company extends the maturity date, they shall pay the
holder 60,000 shares of the Company's unregistered stock. The Senior Note is
senior secured indebtedness of the Company and is secured by certain collateral.
As additional incentive to enter into the Senior Note, the Company also provided
600,000 shares (post-split) of the Company's common stock valued at $600,000. In
April, 2004, the Senior Note was paid in full.
NOTE 5 - EQUITY
Common Stock
------------
In January 2004, the Company entered into the Senior Note Agreement (see Note
4). Pursuant to this agreement, the Company issued to the lender 600,000 shares
of the Company's common stock valued at $600,000 (unaudited). This amount was
charged to deferred compensation and additional paid-in capital, and is being
amortized over the term of the 90 day term of the Senior Note. During the three
months ended March 31, 2004, $493,333 (unaudited) of this amount had been
charged to non-cash compensation.
In January 2004, the Company issued 800,000 shares of common stock with a fair
market value of $800,000 (unaudited) to a consultant in exchange for services to
be provided through January 2005. This amount was charged to deferred
compensation and additional paid-in capital, and is being amortized over the
term of the 360 day Agreement. During the three months ended March 31, 2004,
$157,778 (unaudited) of this amount had been charged to non-cash compensation.
In February 2004, the Company issued 40,000 shares of common stock with a fair
market value of $24,800 (unaudited) to a consultant in exchange for services to
be provided through August 2004. This amount was charged to deferred
compensation and additional paid-in capital, and is being amortized over the
term of the 180 day Agreement. During the three months ended March 31, 2004,
$6,889 (unaudited) of this amount had been charged to non-cash compensation.
In March 2004, the Company issued 1,051,600 shares of common stock with a fair
market value of $420,640 (unaudited) to a consultant in exchange for services to
be provided through March 2005. This amount was charged to deferred compensation
and additional paid-in capital, and is being amortized over the term of the 360
day Agreement. During the three months ended March 31, 2004, $17,527 (unaudited)
of this amount had been charged to non-cash compensation.
11
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In March 2004, the Company issued 500,000 shares of common stock with a fair
market value of $250,000 (unaudited) to a consultant in exchange for services to
be provided through September 2004. This amount was charged to deferred
compensation and additional paid-in capital, and is being amortized over the
term of the 180 day Agreement. During the three months ended March 31, 2004,
$12,500 (unaudited) of this amount had been charged to non-cash compensation.
In March 2004, the Company issued 8,000 shares of common stock with a fair
market value of $1,200 (unaudited) for cash.
In March 2004, the Company issued 67,800 shares of common stock with a fair
market value of $10,800 (unaudited) to various consultants in exchange for
services rendered. This amount was charged to non-cash compensation.
In March 2004, the company issued 45,800 shares of stock with a market value of
$29,312 (unaudited) to InOne as payment for outstanding payables.
All valuations of the above shares are based on the stock price at the date of
issue, which did not differ materially from the value of the services that were
rendered by the consultants under the contracts.
NOTE 6 - SUBSEQUENT EVENTS
Common Stock Split
------------------
On April 6, 2004, the Company completed a 2-for-1 split of its common stock.
Immediately before the split, there were 13,265,637 shares of the Company's
common stock issued and outstanding; immediately after the split, there were
26,531,274 of the Company's common stock issued and outstanding. The
accompanying financial statements have been retroactively restated to reflect
the effect of this stock split.
Senior Secured Promissory Note
------------------------------
In April 2004, the Company entered into a $154,500 note agreement. The note
bears interest at the rate of 12% per annum and has a term of 90 days.
Consulting Agreement
--------------------
In April 2004, the Company entered into several consulting agreements. The
Company is contracted to issue 1,450,000 shares of common stock and 1,000,000
warrants to consultants in exchange for services to be provided through April
2005. The warrants have expiration terms of five years and exercise values
ranging from $2 to $3 per share.
In April 2004, the Company issued 200,000 shares of common stock to its CFO in
exchange for services rendered.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Special note regarding forward-looking statements
---------------------------------------------------
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS QUARTERLY REPORT FORM 10-QSB 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
DESCRIBED UNDER "RISK FACTORS" AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM
10-Q. 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 REPORT.
Overview
--------
Our company, IR BioSciences Holdings, Inc., is a Delaware corporation and, until
July 2001, was engaged in the business, through its subsidiaries, affiliates and
strategic alliances, of assisting unaffiliated early-stage development and small
to mid-sized emerging growth companies with financial and business development
services, including raising capital in private and public offerings. During
2001, due in large part to the decreased availability of investment capital to
our then target market of Internet related, small growth companies, we failed to
meet our revenue targets. On July 27, 2001, a majority interest in our company
was acquired by a private investor, and we installed new management and adopted
a new business plan. The immediate action taken regarding this new business plan
was to discontinue our then current operations effective July 27, 2001.
On July 2, 2003, our company and ImmuneRegen Biosciences, Inc., a privately-held
Delaware corporation ("ImmuneRegen"), entered into and consummated an Agreement
and Plan of Merger (the "Merger"). In accordance with the Merger, on July 2,
2003, we acquired ImmuneRegen in exchange for 10,531,585 shares of our common
stock. The transaction contemplated by the Agreement was intended to be a
"tax-free" reorganization pursuant to the provisions of Section 351 and
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. On August 29,
2003, the Registrant's name was changed from GPN Network, Inc. to IR BioSciences
Holdings, Inc.
ImmuneRegen is a biotechnology company engaged in the research and development
of applications utilizing modified Substance P, a naturally occurring
immunomodulator. Derived from homeostatic Substance P, ImmuneRegen has named its
proprietary compound "Homspera." Currently, ImmuneRegen holds two patents and
four provisional patents in the United States. Additionally, ImmuneRegen holds a
patent with the European Union and Australia and is seeking to extend its
patents into Canada and, possibly, Japan.
13
Our initial areas of focus will be in continuing development of several
applications for use in improving pulmonary function and stimulating the immune
system. These applications have been derived from research studies and positive
results from laboratory tests conducted by management over the past nine years.
With the assistance of our U.S. Food and Drug Administration ("FDA")
consultants, Synergos, Inc., we plan to apply for Investigational New Drug
("IND") approval from the FDA. Based on our past test results and continuing
studies, we believe that the IND may be activated, allowing us to begin human
clinical trials using the Homspera compound as a treatment for lung injury
caused by acute respiratory disease syndrome ("ARDS").
Our goal is to enter into overseas licensing and royalty agreements for its
applications while awaiting approval by the FDA in the Unites States. Once
approval has been obtained by the FDA, we hope to further expand our sales
efforts internationally and will attempt to begin to generate sales domestically
through the licensing and the direct sales of our products in the United States.
Our goal is to strategically align ourselves with larger pharmaceutical and
other biotechnology and medical research companies, which we believe may enhance
our ability to succeed in reaching the objectives of bringing its applications
to the marketplace. If FDA approval is granted, we intend to seek to establish
license agreements and relationships domestically that will bring Homspera to
those in need of it.
We have established a pilot manufacturing facility at our lab headquarters in
Tucson, Arizona for the production of immune-based therapies. We expect these
facilities to be adequate to supply limited clinical trial quantities for our
products under development. Additional manufacturing capacity will be needed for
commercial scale production, if these therapies are approved for commercial
sale.
For the manufacture of the applications under development, we obtain synthetic
peptides from third party manufacturers. We believe that synthesized version of
Substance P is readily available at low cost from several life science and
technology companies that provide biochemical and organic chemical products and
kits used in scientific and genomic research, biotechnology, pharmaceutical
development and the diagnosis of disease and chemical manufacturing. We believe
that the synthetic Substance P and other materials necessary to produce Homspera
are readily available from various sources, and several suppliers are capable of
supplying Substance P in both clinical and commercial quantities. These
suppliers also store and ship the product as well.
We expect that our products will use an inhaler (puffer) device to deliver
Homspera to the user. To develop, manufacture and test an inhaler device we hope
to partner with a drug development and chemical services company that offers
services ranging from pre-clinical and toxicology studies to clinical trial
support and manufacturing services. We believe that such a partnership may
enable us to decrease the time-to-market for our products and to increase our
productivity.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2004
Revenue
-------
We are in the development stage and have no revenue.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses were $931,074 for the three months
ended March 31, 2004. This amount consists primarily of non-cash compensation of
$698,827 and professional fees of $87,114. We expect these costs to increase in
the coming year as we continue to seek further financing, implement our plan of
operation, and as we build out our administrative and operational
infrastructure.
Interest expense
----------------
Interest expense was $304,078 for the three months ended March 31, 2004. This
amount consists of amortization of the beneficial conversion feature of notes
payable of $287,241 and interest on the notes payable of $16,837. The Company
expects interest expense to increase in the next twelve months if additional
debt financing is secured. Such debt would likely to contain beneficial
conversion features which will contribute further to our interest expense as the
value of these beneficial conversion features is amortized.
14
Net Loss
--------
For the reasons stated above, the Company had a net loss of ($1,235,152) or
($0.05) per share for the three months ended March 31, 2004. We expect further
losses for the foreseeable future until our products can be successfully
developed and marketed.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2004, we had current assets of $24,855, consisting of cash of
$12,555 and prepaid services of $12,300. Also at March 31, 2004, we had current
liabilities of $1,385,057, consisting of accounts payable and accrued
liabilities of $587,887, demand loans payable of $376,000, notes payable due
within twelve months of $421,170. This results in negative working capital of
($1,360,202). During the three months ended March 31, 2004, the Company used
cash in operating activities of ($134,179). From the date of inception (October
30, 2002) to March 31, 2004, the Company has had a net loss of ($3,137,772) and
has used $1,167,342 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 developmentIt is expected that in order to
implement its business plan, the Company will require additional capital. There
can be absolutely 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.
By adjusting its operations and development to the level of capitalization ,
management believes it has suffucient capital resources to meet projected cash
flow deficits through the next twelve months . However, if thereafter, we are
not successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations , liquidity and
financial condition.
Product Research and Development
--------------------------------
We anticipate performing further research and development of the applications of
our proprietary compound "Homspera" during the next twelve months. These
projected expenditures are dependent upon our generating revenues and obtaining
sources of financing in excess of our existing capital resources. There is no
guarantee that we will be successful in raising the funds required or generating
revenues sufficient to fund the projected costs of research and development
during the next twelve months
Acquisition of Plant and Equipment and Other Assets
---------------------------------------------------
We do not anticipate the sale of any material property , plant or equipment
during the next 12 months. We do not anticipate the acquisition of any material
property, plant or equipment during the next 12 months.
Number of Employees
-------------------
From our inception through the period ended March 31, 2004 , we have relied on
the services of outside consultants for services and have one _(1) employee. Our
sole full time employee is our Chief Executive Officer, Michael K. Wilhelm. In
order for us to attract and retain quality personnel, we anticipate we will have
to offer competitive salaries to future employees. We anticipate that it may
become desirable to add additional full and or part time employees to discharge
certain critical functions during the next 12 months. This projected increase in
personnel is dependent upon our ability to generate revenues and obtain 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. As we continue to expand, we will incur additional
cost for personnel.
Trends, Risks and Uncertainties
-------------------------------
We have sought to identify what we believe to be the most significant risks to
our business, but we cannot predict whether, or to what extent, any of such
risks may be realized nor can we guarantee that we have identified all possible
risks that might arise. Investors should carefully consider all of such risk
factors before making an investment decision with respect to our Common Stock.
15
RISK FACTORS
The actual results of the combined company may differ materially from those
anticipated in these forward-looking statements. The Registrant and ImmuneRegen
will operate as a combined company in a market environment that is difficult to
predict and that involves significant risks and uncertainties, many of which
will be beyond the combined company's control. Additional risks and
uncertainties not presently known, or that are not currently believed to be
important to you, if they materialize, also may adversely affect the combined
company.
WE HAVE AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY PROFITABLE AND EXPECT TO INCUR
SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
ImmuneRegen has incurred a substantial net loss for the period from its
inception in October 2002 to March 31, 2004, and we are currently experiencing
negative cash flow. We expect to continue to experience negative cash flow and
operating losses through at least 2004 and possibly thereafter. As a result,
ImmuneRegen will need to generate significant revenues to achieve profitability.
If our revenues grow more slowly than we anticipate, or if its operating
expenses exceed its expectations, we may experience reduced profitability.
OUR INDEPENDENT OUTSIDE AUDITORS HAVE RAISED SUBSTANTIAL DOUBT ABOUT
IMMUNEREGEN'S ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent certified public accountants have stated in their report
included in Form 10-KSB that the Company has incurred a net loss and negative
cash flows from operations of $3,137,772 and $1,167,342, respectively, for the
period of inception from October 30,2002 to March 31, 2004, and a lack of
operational history, among other matters, that raise substantial doubt about its
ability to continue as a going concern, which contemplates, among other things,
the realization of assets and satisfaction of liabilities in the normal course
of business. The effect of this going concern would materially and adversely
affect ImmuneRegen's ability to raise capital, its relationship with potential
suppliers and customers, and have other unforeseen effects.
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.
ImmuneRegen has focused on product development and has not generated any revenue
to date. We have incurred operating losses since our inception.
We currently have no product candidates for sale in the United States, and we
cannot guarantee that we will ever have marketable products in the United
States. We must demonstrate that our product candidates satisfy rigorous
standards of safety and efficacy before the FDA and other regulatory authorities
in the United States and abroad will approve the products for commercial
marketing. We will need to conduct significant additional research, preclinical
testing and clinical testing before we can file applications with the FDA for
approval of our product candidates. In addition, to compete effectively, our
future products must be easy to use, cost-effective and economical to
manufacture on a commercial scale. We may not achieve any of these objectives.
We expect to incur losses as we research, develop and seek regulatory approvals
for our products. If our products fail in clinical trials or do not gain
regulatory approval, or if our products do not achieve market acceptance, we
will not be profitable. If we fail to become and remain profitable, or if we are
unable to fund our continuing losses, our business may fail.
OUR OPERATING EXPENSES ARE UNPREDICTABLE, WHICH MAY ADVERSELY AFFECT OUR
BUSINESS, OPERATIONS AND FINANCIAL CONDITION.
As a result of our limited operating history and because of the emerging nature
of the markets in which we will compete, our financial data is of limited value
in planning future operating expenses. To the extent our operating expenses
precede or are not rapidly followed by increased revenue, our business, results
of operations and financial condition may be materially adversely affected. Our
expense levels will be based in part on our expectations concerning future
revenues. A significant portion of our revenue is anticipated to be derived from
Homspera; however the size and extent of such revenues are wholly dependent upon
the choices and demand of individuals, which are difficult to forecast
accurately. We may be unable to adjust our operations in a timely manner to
compensate for any unexpected shortfall in revenues. Further, business
development and marketing expenses may increase significantly as we expand our
operations.
16
WE MAY EXPERIENCE FLUCTUATION OF QUARTERLY OPERATING RESULTS WHICH MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE.
Our quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside our control. These
factors include: the level of demand for Homspera and any other products; our
ability to attract and retain personnel with the necessary strategic, technical
and creative skills required for effective operations; the amount and timing of
expenditures by customers; the amount and timing of capital expenditures and
other costs relating to the expansion of our operations; government regulation
and legal developments regarding the use of Homspera; and general economic
conditions. As a strategic response to changes in the competitive environment,
we may from time to time make certain pricing, service, technology or marketing
decisions that could have a material adverse effect on our quarterly results.
Due to all of these factors, our operating results may fall below the
expectations of securities analysts, stockholders and investors in any future
quarter.
IF OUR PLAN IS NOT SUCCESSFUL OR MANAGEMENT IS NOT EFFECTIVE, THE VALUE OF OUR
COMMON STOCK MAY DECLINE.
Our operating subsidiary, ImmuneRegen BioSciences, Inc., was founded in October
2002. As a result, we are a development stage company with a limited operating
history that makes it impossible to reliably predict future growth and operating
results. Our business and prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in their early stages of
development. In particular, we have not demonstrated that we can:
o ensure that our products function as intended in human clinical
applications;
o obtain the regulatory approvals necessary to commercialize products
that we may develop in the future;
o manufacture, or arrange for third-parties to manufacture, future
products in a manner that will enable us to be profitable;
o establish many of the business functions necessary to operate,
including sales, marketing, administrative and financial functions,
and establish appropriate financial controls;
o make, use, and sell future products without infringing upon third
party intellectual property rights; or,
o respond effectively to competitive pressures.
We cannot be sure that we will be successful in meeting these challenges and
addressing these risks and uncertainties. If we are unable to do so, our
business will not be successful.
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.
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. As of March 31, 2004, our cash and cash equivalents
totaled approximately $24,855. Based on our current plans, we believe these
financial resources, and interest earned thereon, will be sufficient to meet our
operating expenses and capital requirements for at least the next 30 days. There
is no assurance that any financing will be sufficient to fund our capital
expenditures, working capital and other cash requirements for the fiscal year
ending December 31, 2004. 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.
We expect to 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.
17
If we cannot raise additional funds when needed, or on acceptable terms, we will
not be able to continue to develop our drug candidates. We require substantial
working capital to fund our operations. Since we do not expect to generate
significant revenues in the foreseeable future, in order to fund operations, we
will be completely dependent on additional debt and equity financing
arrangements. There is no assurance that any financing will be sufficient to
fund our capital expenditures, working capital and other cash requirements for
the next 12 months. Our working capital as of March 31, 2004 was $(1,360,202).
No assurance can be given that any such additional funding will be available or
that, if available, can be obtained on terms favorable to us. If we are unable
to raise needed funds on acceptable terms, we will not be able to develop or
enhance our products, take advantage of future opportunities or respond to
competitive pressures or unanticipated requirements. A material shortage of
capital will require us to take drastic steps such as reducing our level of
operations, disposing of selected assets or seeking an acquisition partner. If
cash is insufficient, we will not be able to continue operations.
ALL OUR APPLICATIONS ARE ALL DERIVED FROM THE USE OF HOMSPERA. IF HOMSPERA IS
FOUND TO BE UNSAFE OR INEFFECTIVE, OUR BUSINESS WOULD BE MATERIALLY HARMED.
All our potential applications are derived from the use of Homspera. In
addition, we expect to utilize Homspera in the development of any future
products we market. If these current or future products are found to be unsafe
or ineffective due to the use of Homspera, we may have to modify or cease
production of the products. As all of our applications utilize or will utilize
Homspera, any findings that Homspera is unsafe or ineffective would severely
harm our business operations, since all of our primary revenue sources would be
negatively affected by such findings.
IF WE FAIL TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS, WE WILL HAVE TO
CEASE OPERATIONS.
Our failure to develop and commercialize products successfully will cause us to
cease operations. Our potential therapies utilizing Homspera will require
significant additional research and development efforts and regulatory approvals
prior to potential commercialization in the future. We cannot guarantee that we,
or our corporate collaborators, if any, will ever obtain any regulatory
approvals of Homspera. We currently are focusing our core competencies on
Homspera although there may be no assurance that we will be successful in so
doing.
Our therapies and technologies utilizing Homspera is at early stages of
development and may not be shown to be safe or effective and may never receive
regulatory approval. Our technologies utilizing Homspera have not yet been
tested in humans. Regulatory authorities may not permit human testing of
potential products based on these technologies. Even if human testing is
permitted, any potential products based on Homspera may not be successfully
developed or shown to be safe or effective.
The results of our preclinical studies and clinical trials may not be indicative
or future clinical trial results. A commitment of substantial resources to
conduct time-consuming research, preclinical studies and clinical trials will be
required if we are to develop any products. Delays in planned patient enrollment
in our clinical trials may result in increased costs, program delays or both.
None of our potential products may prove to be safe or effective in clinical
trials. Approval of the Unites States Food and Drug Administration, the FDA, or
other regulatory approvals, including export license permissions, may not be
obtained and even if successfully developed and approved, our potential products
may not achieve market acceptance. Any products resulting from our programs may
not be successfully developed or commercially available for a number of years,
if at all.
Moreover, unacceptable toxicity or side effects could occur at any time in the
course of human clinical trials or, if any products are successfully developed
and approved for marketing, during commercial use of any of our proposed
products. The appearance of any unacceptable toxicity or side effects could
interrupt, limit, delay or abort the development of any of our proposed products
or, if previously approved, necessitate their withdrawal from the market.
18
THE MARKET FOR TREATING ACUTE RADIATION SYNDROME IS UNCERTAIN AND WE MAY NOT BE
ABLE TO SUCCESSFULLY COMMERCIALIZE RADILEX.
We do not believe any drug has ever been approved and commercialized for the
treatment of severe acute radiation injury. In addition, the incidence of
large-scale exposure to nuclear or radiological events has been low.
Accordingly, even if Radilex, our lead drug candidate to treat Acute Radiation
Syndrome (ARS), is approved by the FDA, we cannot predict with any certainty the
size of this market. The potential market for Radilex is largely dependent on
the size of stockpiling orders, if any, procured by the U.S. and foreign
governments. While a number of governments have historically stockpiled drugs to
treat indications such as smallpox, anthrax exposure, plague, tularemia and
certain long-term effects of radiation exposure, we are unaware of any
significant stockpiling orders for drugs to treat ARS. While we have filed a
formal response to the U.S. Department of Health and Human Services Request for
Information (RFI) for therapeutics to treat ARS, at least one other company has
responded to this RFI, and we cannot guarantee that our response to this RFI
will result in a U.S. Department of Health and Human Services Request for
Proposal (RFP) or any stockpiling orders. A decision by the U.S. Government to
enter into a commitment to purchase Radilex prior to FDA approval is largely out
of our control. Our development plans and timelines may vary substantially
depending on whether we receive such a commitment and the size of such
commitment, if any. In addition, even if Radilex is approved by regulatory
authorities, we cannot guarantee that we will receive any stockpiling orders for
Radilex, that any such order would be profitable to us or that Radilex will
achieve market acceptance by the general public.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT US FROM COMMERCIALIZING PROPOSED PRODUCTS.
Clinical testing, manufacture, promotion, export and sale of our proposed
products are subject to extensive regulation by numerous governmental
authorities in the United States, principally the FDA, and corresponding state
and foreign regulatory agencies. This regulation may delay or prevent us from
commercializing proposed products. Noncompliance with applicable requirements
can result in, among other things, fines, injunctions, seizure or recall of such
products, total or partial suspension of product manufacturing and marketing,
failure of the government to grant premarket approval, withdrawal of marketing
approvals and criminal prosecution.
The regulatory process for new therapeutic drug products, including the required
preclinical studies and clinical testing, is lengthy and expensive. We may not
receive necessary FDA clearances for any of our potential products in a timely
manner, or at all. The length of the clinical trial process and the number of
patients the FDA will require to be enrolled in the clinical trials in order to
establish the safety and efficacy of our proposed products is uncertain.
Even if human clinical trials of Homspera are initiated and successfully
completed, the FDA may not approve Homspera for commercial sale. We may
encounter significant delays or excessive costs in our efforts to secure
necessary approvals. Regulatory requirements are evolving and uncertain. Future
United States or foreign legislative or administrative acts could also prevent
or delay regulatory approval of our products. We may not be able to obtain the
necessary approvals for clinical trials, manufacturing or marketing of any of
our products under development. Even if commercial regulatory approvals are
obtained, they may include significant limitations on the indicated uses for
which a product may be marketed.
The FDA has not designated expanded access protocols for Homspera as "treatment"
protocols. The FDA may not determine that Homspera meets all of the FDA's
criteria for use of an investigational drug for treatment use. Even if Homspera
is allowed for treatment use, third party payers may not provide reimbursement
for the costs of treatment with Homspera. The FDA also may not consider Homspera
to be an appropriate candidate for accelerated approval, expedited review or
fast track designation.
IF WE OBTAIN REGULATORY APPROVAL OF OUR PRODUCTS, THEY WILL BE SUBJECT TO
CONTINUING REVIEW AND EXTENSIVE REGULATORY REQUIREMENTS, WHICH COULD AFFECT THE
MANUFACTURING AND MARKETING OF OUR PRODUCTS.
A marketed product is subject to continual FDA review. Later discovery of
previously unknown problems or failure to comply with the applicable regulatory
requirements may result in restrictions on the marketing of a product or
withdrawal of the product from the market, as well as possible civil or criminal
sanctions. The FDA could withdraw a previously approved product from the market
upon receipt of newly discovered information, including a failure to comply with
regulatory requirements, the occurrence of unanticipated problems with products
following approval, or other reasons, which could adversely affect our operating
results.
19
Among the other requirements for regulatory approval is the requirement that
prospective manufacturers conform to the FDA's Good Manufacturing Practices, or
GMP, requirements. In complying with the FDA's GMP requirements, manufacturers
must continue to expend time, money and effort in production, record keeping and
quality control to assure that products meet applicable specifications and other
requirements. Failure to comply and maintain compliance with the FDA's GMP
requirements subjects manufacturers to possible FDA regulatory action and as a
result, may have a material adverse effect on us. We, or our contract
manufacturers, if any, may not be able to maintain compliance with the FDA's GMP
requirements on a continuing basis. Failure to maintain compliance could have a
material adverse effect on us.
Additionally, the FDA's policies may change and additional government
regulations may be enacted, which could prevent or delay regulatory approval of
our applications. We cannot predict the likelihood, nature or extent of adverse
government regulation that may arise from future legislation or administrative
action, either in the United States or abroad. If we are not able to maintain
regulatory compliance, we might not be permitted to market our future products
and our business could suffer.
IF WE FAIL TO OBTAIN APPROVAL FROM FOREIGN REGULATORY AUTHORITIES, WE WILL NOT
BE ALLOWED TO MARKET OR SELL OUR PRODUCTS IN OTHER COUNTRIES.
Marketing any drug products outside of the United States will subject us to
numerous and varying foreign regulatory requirements governing the design and
conduct of human clinical trials and marketing approval. Additionally, our
ability to export drug candidates outside the United States on a commercial
basis will be subject to the receipt from the FDA of export permission, which
may not be available on a timely basis, if at all.
Approval procedures vary among countries and can involve additional testing, and
the time required to obtain approval may differ from that required to obtain FDA
approval. Foreign regulatory approval processes include all of the risks
associated with obtaining FDA approval set forth above, and approval by the FDA
does not ensure approval by the health authorities of any other country.
SIGNIFICANT DELAY OR FAILURE TO OBTAIN REGULATORY APPROVALS WOULD IMPEDE OUR
ABILITY TO GENERATE REVENUE.
The process of obtaining FDA and other regulatory approvals is time consuming,
expensive and difficult to design and implement. Clinical trials are required
and the marketing and manufacturing of our applications are subject to rigorous
testing procedures. Significant delays in clinical trials will impede our
ability to commercialize our applications and generate revenue and could
significantly increase our development costs. The commencement and completion of
clinical trials for our Homspera-based applications or any of our applications
could be delayed or prevented by a variety of factors, including:
o delays in obtaining regulatory approvals to commence a study;
o delays in identifying and reaching agreement on acceptable terms with
prospective clinical trial sites;
o delays in the enrollment of patients;
o lack of efficacy during clinical trials; or,
o unforeseen safety issues.
Even if marketing approval from the FDA is received, the FDA may impose
post-marketing requirements, such as:
o labeling and advertising requirements, restrictions or limitations,
including the inclusion of warnings, precautions, contra-indications
or use limitations that could have a material impact on the future
profitability of our applications;
o testing and surveillance to monitor our future products and their
continued compliance with regulatory requirements;
o submitting products for inspection and, if any inspection reveals that
the product is not in compliance, prohibiting the sale of all
products;
o suspending manufacturing; or,
o withdrawing marketing clearance.
CLINICAL TRIALS MAY FAIL TO DEMONSTRATE THE SAFETY AND EFFICACY OF OUR
APPLICATIONS, WHICH COULD PREVENT OR SIGNIFICANTLY DELAY REGULATORY APPROVAL.
Prior to receiving approval to commercialize any of our applications or
therapies, we must demonstrate with substantial evidence from well-controlled
clinical trials, and to the satisfaction of the FDA and other regulatory
authorities in the United States and abroad, that our applications are both safe
and effective. We will need to demonstrate our applications' efficacy and
monitor their safety throughout the process. If any future clinical trials are
unsuccessful, our business and reputation would be harmed and our stock price
would be adversely affected.
20
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.
IF THE MANUFACTURERS OF OUR PRODUCTS DO NOT COMPLY WITH CURRENT GOOD
MANUFACTURING PRACTICES REGULATIONS, OR CANNOT PRODUCE THE AMOUNT OF PRODUCTS WE
NEED TO CONTINUE OUR DEVELOPMENT, WE WILL FALL BEHIND ON OUR BUSINESS
OBJECTIVES.
Manufacturers producing our drug candidates must follow current Good
Manufacturing Practices, or GMP, regulations enforced by the FDA and foreign
equivalents. If a manufacturer of our drug candidates does not conform to the
GMP regulations and cannot be brought up to such a standard, we will be required
to find alternative manufacturers that do conform. This may be a long and
difficult process, and may delay our ability to receive FDA or foreign
regulatory approval of our products.
We also rely on our manufacturers to supply us with a sufficient quantity of our
drug candidates to conduct clinical trials. If we have difficulty in the future
obtaining our required quantity and quality of supply, we could experience
significant delays in our development programs and regulatory process.
OUR LACK OF COMMERCIAL MANUFACTURING, SALES, DISTRIBUTION AND MARKETING
EXPERIENCE MAY PREVENT US FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS.
The manufacturing process of our proposed products is expected to involve a
number of steps and requires compliance with stringent quality control
specifications imposed by us and by the FDA. We have no experience in the sales,
marketing and distribution of pharmaceutical or biotechnology products. We have
not manufactured any of our products in commercial quantities. We may not
successfully make the transition from manufacturing clinical trial quantities to
commercial production quantities or be able to arrange for contract
manufacturing and this could prevent us from commercializing products or limit
our profitability from our products.
21
WE RELY ON THIRD PARTY MANUFACTURERS FOR THE MANUFACTURE OF HOMSPERA. OUR
INABILITY TO MANUFACTURE HOMSPERA, AND OUR DEPENDENCE ON SUCH MANUFACTURERS, MAY
DELAY OR IMPAIR OUR ABILITY TO GENERATE REVENUES, OR ADVERSELY AFFECT OUR
PROFITABILITY.
We may enter into arrangements with contract manufacturing companies in order to
meet requirements for our products or to attempt to improve manufacturing
efficiency. If we choose to contract for manufacturing services, we may
encounter costs, delays and/or other difficulties in producing, packaging and
distributing our clinical trials and finished product. Further, contract
manufacturers must also operate in compliance with the GMP requirements; failure
to do so could result in, among other things, the disruption of our product
supplies. Our potential dependence upon third parties for the manufacture of our
proposed products may adversely affect our profit margins and our ability to
develop and deliver proposed products on a timely and competitive basis. For the
manufacture of the applications under development, we obtain synthetic peptides
from third party manufacturers. A synthesized version of Homspera 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 Homspera
are readily available from various sources, and several suppliers are capable of
supplying substance P in both clinical and commercial quantities, our dependence
on such manufacturers, may delay or impair our ability to generate revenues, or
adversely affect our profitability.
ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT US FROM SUCCESSFULLY COMMERCIALIZING HOMSPERA.
Our ability to earn sufficient revenue on Homspera or any other proposed
products will depend in part on the extent to which reimbursement for the costs
of such products and related treatments will be available from government health
administration authorities, private health coverage insurers, managed care
organizations and other organizations. Failure to obtain appropriate
reimbursement may prevent us from successfully commercializing Homspera or any
proposed products. Third-party payers are increasingly challenging the prices of
medical products and services. If purchasers or users of Homspera or any such
other proposed products are not able to obtain adequate reimbursement for the
cost of using such products, they may forego or reduce their use. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products and whether adequate third party coverage will be available.
THE MEDICAL COMMUNITY MAY NOT ACCEPT AND UTILIZE HOMSPERA, WHICH WOULD PREVENT
US FROM SUCCESSFULLY COMMERCIALIZING THE PRODUCT.
Our ability to market and commercialize Homspera depends on the acceptance and
utilization of Homspera by the medical community. We will need to develop
commercialization initiatives designed to increase awareness about us and
Homspera among targeted audiences, including public health activists and
community-based outreach groups in addition to the investment community.
Currently, we have not developed any such initiatives. Without such acceptance
of Homspera, the product upon which we expect to be substantially dependent, we
may not be able to successfully commercialize Homspera or generate revenue.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE US TO SIGNIFICANT LIABILITY OR COSTS.
We face an inherent business risk of exposure to product liability and other
claims and lawsuits in the event that the development or use of our technology
or prospective products is alleged to have resulted in adverse effects. We may
not be able to avoid significant liability exposure. We may not have sufficient
insurance coverage and we may not be able to obtain sufficient coverage at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of our products. A product
liability claim could hurt our financial performance. Even if we avoids
liability exposure, significant costs could be incurred that could hurt our
financial performance.
AS A RESULT OF OUR INTENSELY COMPETITIVE INDUSTRY, WE MAY NOT GAIN ENOUGH MARKET
SHARE TO BE PROFITABLE.
The biotechnology and pharmaceutical industries are intensely competitive. We
have numerous competitors in the United States and elsewhere. Because we are
pursuing potentially large markets, our competitors include major multinational
pharmaceutical companies, specialized biotechnology firms and universities and
other research institutions. Several of these entities have already successfully
22
marketed and commercialized products that will compete with our products,
assuming that our products gain regulatory approval. Competitors such as
Hollis-Eden Pharmaceuticals, Inc. have developed or are developing products for
the treatment of severe acute radiation injury. Companies such as VaxGen, Inc.,
Acambis plc and Emergent BioSolutions have developed or are developing vaccines
against infectious diseases, including anthrax.
Many of our competitors have greater financial and other resources, larger
research and development staffs and more effective marketing and manufacturing
organizations than we do. In addition, academic and government institutions have
become increasingly aware of the commercial value of their research findings.
These institutions are now more likely to enter into exclusive licensing
agreements with commercial enterprises, including our competitors, to develop
and market commercial products.
Our competitors may succeed in developing or licensing technologies and drugs
that are more effective or less costly than any we are developing. Our
competitors may succeed in obtaining FDA or other regulatory approvals for drug
candidates before we do. If competing drug candidates prove to be more effective
or less costly than our drug candidates, our drug candidates, even if approved
for sale, may not be able to compete successfully with our competitors' existing
products or new products under development. If we are unable to compete
successfully, we may never be able to sell enough products at a price sufficient
to permit us to generate profits.
IF WE FAIL TO ATTRACT AND RETAIN HIGHLY SKILLED SCIENTIFIC PERSONNEL, OUR GROWTH
COULD BE LIMITED, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND
FINANCIAL POSITION.
Our future success depends in large part upon our ability to attract and retain
highly skilled scientific personnel. The competition in the scientific industry
for such personnel is intense, and we cannot be sure that we will be successful
in attracting and retaining such personnel. Most of our consultants and
employees and several of our executive officers began working for us recently,
and all employees are subject to "at will" employment. We cannot guarantee that
we will be able to replace any of our scientific personnel in the event their
services become unavailable.
WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW
COMPETITORS TO TAKE ADVANTAGE OF RESEARCH AND DEVELOPMENT EFFORTS.
We own or have obtained a license to 4 issued U.S. and foreign patents and 8
pending U.S. and foreign patent applications. Our success will depend in part on
our ability to obtain additional United States and foreign patent protection for
our drug candidates and processes, preserve our trade secrets and operate
without infringing the proprietary rights of third parties. We place
considerable importance on obtaining patent protection for significant new
technologies, products and processes.
Our long-term success largely depends on our ability to market technologically
competitive processes and products. If we fail to obtain or maintain these
protections we may not be able to prevent third parties from using our
proprietary rights. Our currently pending or future patent applications may not
result in issued patents. In the United States, patent applications are
confidential until patent applications are published or the patent is issued,
and because third parties may have filed patent applications for technology
covered by our pending patent applications without us being aware of those
applications, our patent applications may not have priority over any patent
applications of others. In addition, our issued patents may not contain claims
sufficiently broad to protect us against third parties with similar technologies
or products or provide us with any competitive advantage. If a third party
initiates litigation regarding our patents, and is successful, a court could
revoke our patents or limit the scope of coverage for those patents. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnology inventions and the scope of claims made under such patents are
still developing. In some of the countries in which we intend to market our
products, pharmaceuticals are either not patentable or have only recently become
patentable. Past enforcement of intellectual property rights in many of these
countries has been limited or non-existent. Future enforcement of patents and
proprietary rights in many other countries may be problematic or unpredictable.
Moreover, the issuance of a patent in one country does not assure the issuance
of a similar patent in another country. Claim interpretation and infringement
laws vary by nation, so the extent of any patent protection is uncertain and may
vary in different jurisdictions.
23
The U.S. Patent and Trademark Office, commonly referred to as the USPTO, and the
courts have not consistently treated the breadth of claims allowed in
biotechnology patents. If the USPTO or the courts begin to allow broader claims,
the incidence and cost of patent interference proceedings and the risk of
infringement litigation will likely increase. On the other hand, if the USPTO or
the courts begin to allow narrower claims, the value of our proprietary rights
may be limited. Any changes in, or unexpected interpretations of the patent laws
may adversely affect our ability to enforce our patent position.
We also rely upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. We protect this information with
reasonable security measures, including the use of confidentiality agreements
with our employees, consultants and corporate collaborators. It is possible that
these individuals will breach these agreements and that any remedies for a
breach will be insufficient to allow us to recover our costs. Furthermore, our
trade secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.
OUR PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT BE ENFORCEABLE AND THE PATENTS
AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT US FROM COMMERCIALIZING
PRODUCTS.
Although we believe our inventions to be protected and our patents enforceable,
the failure to obtain meaningful patent protection products and processes would
greatly diminish the value of our potential products and processes.
In addition, whether or not our applications are issued, or issued with limited
coverage, others may receive patents, which contain claims applicable to our
products. Patents we are not aware of may adversely affect our ability to
develop and commercialize products.
The patent positions of biotechnology and pharmaceutical companies are often
highly uncertain and involve complex legal and factual questions. Therefore, the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. We also rely upon non-patented trade secrets and know how, and others
may independently develop substantially equivalent trade secrets or know how. We
also rely on protecting our proprietary technology in part through
confidentiality agreements with our current and former corporate collaborators,
employees, consultants and certain contractors. These agreements may be
breached, and we may not have adequate remedies for any such breaches.
Litigation may be necessary to defend against claims of infringement, to enforce
our patents or to protect trade secrets. Litigation or other disputes regarding
patents and other proprietary rights may be expensive, cause delays in bringing
products to market and harm our ability to operate. In addition, 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 products 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 developing and commercializing our products. Such
claims could severely harm our financial condition and ability to compete.
In addition, if another party claims the same subject matter or subject matter
overlapping with the subject matter that we have claimed in a United States
patent application or patent, we may decide or be required to participate in
interference proceedings in the United States Patent and Trademark Office in
order to determine the priority of invention. Loss of such an interference
proceeding would deprive us of patent protection sought or previously obtained
and could prevent us from commercializing our products. Participation in such
proceedings could result in substantial costs, whether or not the eventual
outcome is favorable. These additional costs could adversely affect our
financial results.
24
COMPLIANCE WITH ENVIRONMENTAL LAWS OR REGULATIONS COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS.
We may be required to incur significant costs to comply with current or future
environmental laws and regulations. Although we do not currently manufacture
commercial quantities of our proposed products, we do produce limited quantities
of these products for our clinical trials. Our research and development and
manufacturing processes involve the controlled storage, use and disposal of
hazardous materials, biological hazardous materials and radioactive compounds.
We are subject to federal, state and local laws and regulations governing the
use, manufacture, storage, handling and disposal of these materials and some
waste products. Although we believe that our safety procedures for handling and
disposing of these materials comply with the standards prescribed by these laws
and regulations, the risk of contamination or injury from these materials cannot
be completely eliminated. In the event of an incident, ImmuneRegen BioSciences,
Inc. could be held liable for any damages that result, and any liability could
exceed our resources. Current or future environmental laws or regulations may
have a material adverse effect on our operations, business and assets.
WE DEPEND ON THE CONTINUED SERVICES OF OUR EXECUTIVE OFFICERS AND THE LOSS OF A
KEY EXECUTIVE COULD SEVERELY IMPACT OUR OPERATIONS.
The execution of our present business plan depends on the continued services of
Michael K. Wilhelm, our Chief Executive Officer and President, Mark L. Witten,
Ph.D., our acting Chief Scientific Officer. We do not currently maintain key-man
insurance on their lives. While we have entered into employment agreements with
each of them, the loss of any of their services would be detrimental to us and
could have a material adverse effect on our business, financial condition and
results of operations.
OUR COMPLIANCE WITH SECURITIES LAWS, RULES AND REGULATIONS TO WHICH WE ARE
SUBJECT COULD SUBSTANTIALLY INCREASE OUR OPERATING EXPENSES AND DIVERT
MANAGEMENT'S ATTENTION FROM THE OPERATION OF OUR BUSINESS.
Because our common stock is publicly traded, we are subject to a variety of
rules and regulations of federal, state and financial market exchange entities
charged with the protection of investors and the oversight of companies whose
securities are publicly traded. These entities, including the SEC, the Public
Company Accounting Oversight Board and the NASD OTC Bulletin Board, have
recently issued new requirements and regulations and are currently developing
additional regulations and requirements in response to recent laws enacted by
Congress, most notably the Sarbanes-Oxley Act of 2002. As certain rules are not
yet finalized, we do not know the level of resources we will have to commit in
order to be in compliance. Our compliance with current and proposed rules is
likely to require the commitment of significant financial and managerial
resources. As a result, our management's attention might be diverted from other
business concerns, which could negatively affect our business.
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL OUR
BUSINESS AND MAY MAKE DECISIONS THAT ARE NOT IN OUR BEST INTERESTS.
Our officers, directors and principal stockholders, and their affiliates, in the
aggregate, own over a majority of the outstanding shares of our common stock. As
a result, such persons, acting together, have the ability to substantially
influence all matters submitted to our stockholders for approval, including the
election and removal of directors and any merger, consolidation or sale of all
or substantially all of our assets, and to control our management and affairs.
Accordingly, such concentration of ownership may have the effect of delaying,
deferring or preventing a change in discouraging a potential acquirer form
making a tender offer or otherwise attempting to obtain control of our business,
even if such a transaction would be beneficial to other stockholders.
TRADING IN OUR SECURITIES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS THAT
COULD ADVERSELY AFFECT 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. For example:
o biological or medical discoveries by competitors;
o public concern about the safety of our drug candidates;
o delays in the conduct or analysis of our preclinical or clinical
studies;
o unfavorable results from preclinical or clinical studies;
o unfavorable developments concerning patents or other proprietary
rights; or
o unfavorable domestic or foreign regulatory developments;
25
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 $0.01 to $4.50 between January 1, 2003
and March 31, 2004.
These broad market fluctuations may adversely affect the ability of a
stockholder to dispose of his shares at a price equal to or above the price at
which the shares were purchased. In addition, in the past, following periods of
volatility in the market price of a company's securities, securities
class-action litigation has often been instituted against that company. Any
litigation against our company, including this type of litigation, could result
in substantial costs and a diversion of management's attention and resources,
which could materially adversely affect our business, financial condition and
results of operations.
A LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE
PRICE OF OUR COMMON STOCK.
Our common stock is currently traded on a limited basis on the OTC Bulletin
Board (the "OTCBB") under the symbol "IRBO". The OTCBB is an inter-dealer,
Over-The-Counter market that provides significantly less liquidity than the
NASDAQ Stock Market. Quotes for stocks included on the OTCBB are not listed in
the financial sections of newspapers as are those for the NASDAQ Stock Market.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their securities at
or near their original offering price or at any price. The NASD has enacted
recent changes that limit quotations on the OTC Bulletin Board to securities of
issuers that are current in their reports filed with the Securities and Exchange
Commission. The effect on the OTC Bulletin Board of these rule changes and other
proposed changes cannot be determined at this time.
The quotation of our common stock on the OTCBB does not assure that a
meaningful, consistent and liquid trading market currently exists, and in recent
years such market has experienced extreme price and volume fluctuations that
have particularly affected the market prices of many smaller companies like us.
Our common stock is thus subject to this volatility.
BROKER-DEALER REQUIREMENTS FOR "PENNY STOCK" TRANSACTIONS MAY AFFECT THE ABILITY
OF OUR INVESTORS TO RESELL THEIR SECURITIES.
Our common stock is considered to be a "penny stock" since it meets one or more
of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g)
of the Securities Exchange Act of 1934, as amended. Section 15(g) of the
Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated
thereunder by the SEC require broker-dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and to
obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor's account.
Compliance with this and other requirements may make it more difficult for
holders of our common stock to resell their shares to third parties or to
otherwise dispose of them in the market or otherwise.
SALES OR ISSUANCES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE
MARKET PRICE OF OUR COMMON STOCK AND YOUR RIGHTS IN US MAY BE REDUCED.
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.
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.
26
Our stockholders may experience substantial dilution and a reduction in the
price that they are able to obtain upon sale of their shares. Also, any new
equity securities issued, including any new series of preferred stock authorized
by our board of directors, may have greater rights, preferences or privileges
than our existing common stock. To the extent stock is issued or options and
warrants are exercised, holders of our common stock will experience further
dilution. In addition, as in the case of the warrants, in the event that any
future financing should be in the form of, be convertible into or exchangeable
for, equity securities and upon the exercise of options and warrants, security
holders may experience additional dilution.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The term "disclosure controls and procedures" refers to the controls and
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under Rules 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported within required time periods. As of the period covered
by this quarterly report on form 10-QSB (the "Evaluation Date"), we carried out
an evaluation under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the
Evaluation Date, such controls and procedures were effective in ensuring that
required information will be disclosed on a timely basis in our periodic reports
filed under the Exchange Act.
(b) Changes in internal controls
There were no changes in our internal control over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or 15d-15 under the Exchange Act that occurred during the quarter ended
March 31, 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings and there are no material
legal proceedings pending with respect to our property. We are not aware of any
legal proceedings contemplated by any governmental authorities involving either
of us or our property. None of our directors, officers or affiliates is an
adverse party in any legal proceedings involving us or our subsidiaries, or has
an interest in any proceeding which is adverse to us or our subsidiaries.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None.
(b) None.
(c ) During the three months ended March 31 , 2004, we issued a total of 600,000
shares of our Common Stock to consultants for their marketing, investor
relations and advisory services. These issuances are considered exempt from
registration by reason of the Section 4(2) of the Securities Act of 1933.
Also during three months ended March 31, 2003, we issued a total of 8,000 shares
of our Common Stock to an investor for $1,200 in cash which was received in a
previous period.
(d) None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14(a).
32.1* Certification of Chief Executive Officer pursuant to U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer pursuant to U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
* This exhibit shall not be deemed "filed" for purposes of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made
before or after the date hereof and irrespective of any general incorporation
language in any filings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on July 20, 2005.
IR BioSciences Holdings, Inc.
By: /s/ Michael Wilhelm
------------------------------
Michael Wilhelm
President, Chief Executive Officer
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