FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 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.)
4021 N. 75th Street , Suite 201, Scottsdale, Arizona 85251
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(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (408) 922-3926
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(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 November 10,
2004 was 61,839,163.
IR BIOSCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet as of September 30, 2004.. F-1
Condensed Consolidated Statement of Operations for the three
months and nine months ended September 30, 2004 and 2003,
and for the period of inception (October 30, 2002) to
September 30, 2004 ............................................ F-2
Condensed Consolidated Statement of Cash Flows for the
nine months ended September 30, 2004 and 2003, and for
the period of inception (October 30, 2002) to
September 30, 2004............................................. F-3
Condensed Consolidated Statement of Stockholder' Equity
(Deficit) for the Period from inception (October 30, 2002)
to September 30, 2004.......................................... F-5
Notes to Consolidated Financial Statements..................... F-8
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operations.......................................... 3
Item 3. Controls and Procedures........................................ 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 15
Item 2. Changes in Securities and Use of Proceeds...................... 15
Item 3. Defaults Upon Senior Securities................................ 15
Item 4. Submission of Matters to a Vote of Securities Holders.......... 15
Item 5. Other Information.............................................. 15
Item 6. Exhibits and Reports on Form 8-K............................... 15
Signatures................................................................. 16
2
ITEM 1. FINANCIAL INFORMATION
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheet
September 30,
2004
-----------
Assets
Current assets
Prepaid services and other assets $ 2,300
-----------
Total current assets 2,300
Licensed proprietary rights, net 7,552
Furniture and equipment, net 2,286
-----------
Total assets $ 12,138
===========
Liabilities and Stockholders' Deficit
Current liabilities
Cash overdraft 5,153
Current portion of notes payable,
net of discount 1,044,365
Accounts payable and accrued liabilities 899,831
-----------
Total current liabilities 1,949,349
Long-term notes payable, net of discount 31,515
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; 29,621,776 shares
issued and outstanding 29,621
Additional paid-in capital 4,555,194
Deferred compensation (597,853)
Deficit Accumulated during the
Development Stage (5,955,688)
-----------
Total stockholder's deficit (1,968,726)
-----------
Total liabilities and stockholders' deficit $ 12,138
===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-1
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company) Cumulative
Condensed Consolidated Statements of Operations
Cumulative
From
Inception
For the Three For the Three For the Nine For the Nine (October 30,
Months Ended Months Ended Months Ended Months Ended 2002) to
September 30, September 30, September 30, September 30, September 30,
2004 2003 2004 2003 2004
------------ ------------ ------------ ------------ ------------
Revenues $ -- $ -- $ -- $ -- $ --
Operating expenses:
Selling, general and administrative expenses 1,041,152 297,587 3,546,641 666,661 4,940,437
Merger fees and costs -- 350,000 -- 350,000 350,000
Financing cost -- 90,000 -- 90,000 90,000
------------ ------------ ------------ ------------ ------------
Total operating expenses 1,041,152 737,587 3,546,641 1,106,661 5,380,437
Operating loss (1,041,152) (737,587) (3,546,641) (1,106,661) (5,380,437)
Other expense:
Interest expense (70,612) (89,020) (506,427) (111,662) (575,251)
------------ ------------ ------------ ------------ ------------
Total other expense (70,612) (89,020) (506,427) (111,662) (575,251)
------------ ------------ ------------ ------------ ------------
Loss before income taxes (1,111,764) (826,607) (4,053,068) (1,218,323) (5,955,688)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net Loss $ (1,111,764) $ (826,607) $ (4,053,068) $ (1,218,323) $ (5,955,688)
============ ============ ============ ============ ============
Net loss per share - basic and diluted $ (0.04) $ (0.04) $ (0.15) $ (0.06) $ (0.27)
============ ============ ============ ============ ============
Weighted average shares outstanding -
basic and diluted 29,040,133 23,379,818 27,129,221 20,604,880 22,094,881
============ ============ ============ ============ ============
The accompanying notes are in integral part of these condensed
consolidated financial statements.
F-2
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
Cumulative
From
Inception
For the Nine For the Nine (October 30,
Months Ended Months Ended 2002) to
September 30, September 30, September 30,
2004 2003 2004
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(4,053,068) $(1,218,323) $(5,955,688)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash compensation 2,636,280 28,779 2,751,703
Interest expense 74,517 -- 143,141
Amortization of discount on notes payable 406,360 60,582 708,662
Depreciation and amortization 12,454 9,470 25,216
Changes in operating assets and liabilities:
Prepaid services and other assets 33,543 (49,043) (2,299)
Accounts payable and accrued expenses 440,970 290,906 847,158
----------- ----------- -----------
Net cash used in operating activities (448,944) (877,629) (1,482,107)
Cash flows from investing activities:
Acquisition of property and equipment -- (3,304) (3,304)
----------- ----------- -----------
Net cash used in investing activities -- (3,304) (3,304)
Cash flows from financing activities:
Proceeds from notes payable 576,057 795,000 1,777,057
Principal payments on notes payable (174,000) (200,000) (424,000)
Proceeds from third parties for advances -- 265,000 96,001
Shares of stock sold for cash 31,200 65,000 31,200
Officer repayment of amounts paid on his behalf -- -- 19,880
Cash paid on behalf of officer -- (19,880) (19,880)
Cash paid on amount due to officer -- (22,427) --
----------- ----------- -----------
Net cash provided by financing activities 433,257 882,693 1,480,258
Net increase in cash and cash equivalents (15,687) 1,760 (5,153)
Cash and cash equivalents at beginning of period 10,534 32,155 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ (5,153) $ 33,915 $ (5,153)
=========== =========== ===========
Cash paid during the period for:
Interest $ 4,553 $ 40,000 $ 46,346
Taxes $ -- $ -- $ --
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-3
Non-cash investing and financing activities:
In January 2004, the Company issued 800,000 shares (post-split) of common stock
with a fair market value of $800,000 to a consultant.
In February 2004, the Company issued 40,000 shares (post-split) of common stock
with a fair market value of $24,800 to a consultant.
In March 2004, the Company issued 1,051,600 shares (post-split) of common stock
with a fair market value of $420,640 to a consultant.
In March 2004, the Company issued 500,000 shares (post-split) of common stock
with a fair market value of $250,000 to a consultant.
In March 2004, the Company issued 67,800 shares (post-split) of common stock
with a fair market value of $10,800 to consultants.
In March 2004, the Company issued 45,800 shares (post-split) of common stock
with a fair market value of $29,132 to a vendor in satisfaction of accounts
payable.
In April 2004, the Company issued 200,000 shares (post-split) of common stock
with a fair market value of $64,000 to its Chief Financial Officer is payment
for services rendered.
In May 2004, the Company converted a Note Payable in the amount of $35,000 into
350,000 shares (post-split) of common stock.
In May 2004, the Company issued 125,000 shares (post-split) of common stock with
a fair market value of $25,000 to a consultant.
In May 2004, the Company issued 500,000 shares (post-split) of common stock with
a fair market value of $500,000 to a consultant.
In July through September 2004, the Company issued 200,000 shares (post-split)
of common stock with a fair market value of $82,000 to a consultant.
In July 2004, the Company issued 250,000 shares (post-split) of common stock
with a fair market value of $25,000 to a consultant.
In August 2004, the Company issued 100,000 shares (post-split) of common stock
with a fair market value of $14,000 to a consultant.
In August 2004, the Company issued 200,000 shares (post-split) of common stock
for conversion of a note payable of $30,000.
In July through August 2004, the Company issued 300,000 shares (post-split) of
common stock with a fair market value of $36,000 to as interest on a note.
In September 2004, the Company issued 127,276 shares (post-split) of common
stock with a fair market value of $16,910 to a consultant.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-4
IR BIOSCIENCES HOLDING, INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Deficiency in Stockholders' Equity From date
of inception (October 30, 2002) to June 30, 2004
(Unaudited)
COMMON STOCK
------------------------ AMOUNT PAID DEFERRED ACCUMULATED
SHARES AMOUNT IN CAPITAL COMPENSATION DEFICIT TOTAL
---------- ----------- ----------- ----------- ----------- -----------
Balance at October 30, 2002 (date) -- $ -- $ -- $ -- $ -- $ --
Shares of common stock issued at
$0.0006 per share to founders
for license of proprietary right
in December 2002 ............... 16,612,276 16,612 (7,362) -- 9,250
Shares of common stock issued at
$0.0006 per share to founders
for services rendered in
December 2002 .................. 1,405,310 1,405 (623) -- 782
Shares of common stock issued at
$0.1671 per share to consultants
for services rendered in
December 2002 .................. 53,878 54 8,946 (9,000) --
Sale of common stock for cash at
$0.1671 per share in December
2002 ........................... 185,578 186 30,815 -- 31,001
Net loss for the period from
inception (October 30, 2002) to
December 31, 2002 .............. -- -- -- -- (45,918) (45,918)
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2002....... 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at
$0.1392 per share for services
rendered in January 2003 ....... 98,776 99 13,651 -- 13,750
Sale of shares of common stock for
cash at $0.1517 per share in
January 2003 ................... 329,552 330 49,670 -- 50,000
Shares granted to consultants at
$0.1392 per share for services
rendered in March 2003 ......... 154,450 154 21,346 -- 21,500
Conversion of notes payable to
common stock at
$0.1392 per share in April 2003 . 1,436,736 1,437 198,563 -- 200,000
Shares granted to consultants at
$0.1413 per share for services
rendered in April 2003 ......... 14,368 14 2,016 -- 2,030
Sale of shares of common stock for
cash at $0.2784
per share in May 2003 ........... 17,960 18 4,982 -- 5,000
Sales of shares of common stock for
cash at $0.2784 per share in
June 2003 ...................... 35,918 36 9,964 -- 10,000
Conversion of notes payable to
common stock at $0.1392 per
share in June 2003 ............. 718,368 718 99,282 -- 100,000
Beneficial conversion feature
associated with notes issued in
June 2003 ...................... -- -- 60,560 -- 60,560
Amortization of deferred
compensation ................... -- -- -- 9,000 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- (120,799)
Value of warrants issued with
extended notes payable in
October 2003 ................. -- -- 189,937 -- 189,937
Value of Company warrants issued
in conjunction with fourth
quarter notes payable issued
October through December 2003 -- -- 207,457 -- 207,457
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-5
COMMON STOCK
------------------------ AMOUNT PAID DEFERRED ACCUMULATED
SHARES AMOUNT IN CAPITAL COMPENSATION DEFICIT TOTAL
---------- ----------- ----------- ----------- ----------- -----------
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 year ended
December 31, 2003 ............ -- -- -- -- (1,856,702) (1,856,702)
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 .. 23,431,300 23,431 1,035,441 -- (1,902,620) (843,748)
Shares granted at $1.00 per share
pursuant to the Senior Note
Agreement in January 2004 ...... 600,000 600 599,400 (600,000) --
Shares issued in January 2004 at
$1.00 per share to a consultant
for services ................... 800,000 800 799,200 (800,000) --
Shares issued in February 2004 to a
consultant at $0.62 per share
for services ................... 40,000 40 24,760 (24,800) --
Shares issued in March 2004 to a
consultant at $0.40 per share
for services ................... 1,051,600 1,052 419,588 (420,640) --
Shares issued in March 2004 to a
consultant at $0.50 per share
for services ................... 500,000 500 249,500 (250,000) --
Shares sold for cash in March 2004
at $0.15 per share ............. 8,000 8 1,192 -- 1,200
Shares issued in March 2004 at
$0.2857 per share to consultants
for services ................... 67,800 68 10,732 -- 10,800
Shares issued in March 2004 at
$0.64 per share to consultants
for services ................... 45,800 45 29,267 -- 29,312
Amortization of deferred
compensation through March 2004 -- -- -- 688,027 688,027
Shares to be issued to a consultant
at $0.41 per share for
contracted services ............ -- -- -- (82,000) (82,000)
Shares granted pursuant to the New
Senior Note Agreement in April
2004 ........................... 600,000 600 149,400 (150,000) --
Shares issued in April 2004 to
officer at (0.32 per share for
services ....................... 200,000 200 63,800 -- 64,000
Conversion of Note Payable to
common stock at $0.10 per share
in May 2004 .................... 350,000 350 34,650 -- 35,000
Beneficial Conversion Feature
associated with note payable in
May 2004 ....................... -- -- 52,500 -- 52,000
Issuance of warrants to officers
and founder in May 2004 for
services ....................... -- -- 250,704 -- 250,704
Shares to a consultant in May 2004
at $0.20 per share as a due
diligence fee .................. 125,000 125 24,875 -- 25,000
Shares issued to a consultant in
May 2004 at $1.00 per share for
services ....................... 500,000 500 499,500 (500,000) --
Beneficial Conversion Feature
associated with notes payable
issued in April, May, and June
2004 ........................... -- -- 20,938 -- 20,938
Issuance of warrants to employees
and consultants for services
rendered in April through June
2004 ........................... -- -- 5,427 -- 5,427
Amortization of deferred
compensation through June 2004 . -- -- -- 952,069 952,069
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-6
COMMON STOCK
------------------------ AMOUNT PAID DEFERRED ACCUMULATED
SHARES AMOUNT IN CAPITAL COMPENSATION DEFICIT TOTAL
---------- ----------- ----------- ----------- ----------- -----------
Shares issued in July to a
consultant at $0.10 for
services to be rendered
through July 2005............... 250,000 250 24,750 (25,000) --
Shares issued to a consultant in
July and September at $0.41
per share for services to be
rendered through April 2005..... 200,000 200 81,800 82,000
Shares issued from July to
September 2004 as interest
on note payable................. 300,000 300 35,700 36,000
Accrued deferred compensation in
August 2004 to a consultant
for 100,000 shares at $0.10 per
share, committed but unissued... -- -- -- (10,000) (10,000)
Shares issued in August 2004 at
$0.14 to a consultant for
services to be performed
through October 2004............ 100,000 100 13,900 (14,000) --
Shares issued in August 2004 at
$0.125 per share for conversion
of $30,000 demand loan.......... 200,000 200 29,800 -- 30,000
Shares issued in August 2004 at
$0.16 per share to a consultant
for services provided........... 125,000 125 19,875 -- 20,000
Shares issued to a consultant in
September at $0.12 to $0.22
for services rendered through
September 2004 127,276 127 16,783 -- 16,910
Issuance of warrants to employees
and consultants for services
through September, 2004 61,716 61,716
Amortization of deferred
compensation through
September, 2004 638,491 638,491
Loss for the nine months ended
September 30, 2004 (4,053,068) (4,053,068)
---------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2004... 29,621,776 $ 29,621 $ 4,555,194 $ (597,853) $(5,955,688) $(1,968,726)
========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
F-7
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 and nine-month periods ended
September 30, 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
----------------------------------
ImmuneRegen BioSciences, Inc. ("Company" or "ImmuneRegen") 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 on October 30, 2002, and has a December 31 year-end.
ImmuneRegen is a biotechnology company and plans to develop and market
applications utilizing modified substance P, a naturally occurring
immunomodulator.
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
-------------------
ImmuneRegen BioSciences, Inc., a private corporation, was formed on October 30,
2002 according to the laws of Delaware. On July 2, 2003, GPN Network, Inc.
("Registrant") and ImmuneRegen entered into and consummated an Agreement and
Plan of Merger (the "Merger"). In accordance with the Merger, on July 2, 2003,
the Registrant, through its wholly-owned subsidiary, GPN Acquisition
Corporation, a Delaware corporation ("Merger Sub"), acquired ImmuneRegen in
exchange for 21,063,170 shares (post split) of the Registrant's common stock.
The transaction contemplated by the Agreement was intended to be a "tax-free"
reorganization pursuant to the provisions of Section 351 and 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended.
F-8
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 September 30, 2004, the statements of
operations for the three months and nine months ended September 30, 2004 and
2003, and for the period from inception to September 30, 2004, and the
statements of cash flows for the nine months ended September, 2004 and 2003, and
from the period of inception (October 30, 2002) to September 30, 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.
Prepaid Services
----------------
Prepaid services consist of outside services that the Company has paid for in
advance. At September 30, 2004 this amount was $2,300 consisting of an employee
advance.
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 and nine months ended
September 30, 2004 was $232 and $696, respectively.
F-9
Furniture and Equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Furniture 7 years
The amounts depreciated for the three months and nine months ended September 30,
2004 were $170 and $510, respectively. The amounts depreciated for the three
months and nine months ended September, 2003 were $170 and $340, respectively.
The amount depreciated from the date of inception (October 30, 2002) through
June 30, 2004 was $1,019.
NOTE 2 - RELATED PARTY TRANSACTIONS
Founder's Consulting Fees
-------------------------
During the three months and nine months ended September 30, 2004, the Company
accrued $30,000 and $90,000, respectively, in consulting fees payable to two of
the Company's founders.
In-One Contract
---------------
The Company has entered into a series of contracts for marketing, website
development, and website hosting with In-One Advertising "(In-One"), a company
run by the spouse of the Company's CEO. Pursuant to these contracts, during the
nine months ended September 30, 2004, the Company issues 91,600 shares
(post-split) 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 $7,196 and $24,332,
respectively, for the three and nine month periods ended September 30, 2004.
Stratum Consulting Agreement
----------------------------
On April 1, 2004, the Company entered into a consulting agreement with Stratum
Consulting Group, Inc. ("Stratum", "The Stratum Agreement") a company controlled
by the Company's Secretary. The Stratum Agreement has a term of twelve months,
and calls for Stratum to provide financial consulting to the Company in return
for the following: 200,000 shares (post-split) of the Company's common stock
upon execution of the agreement, and the number of shares of the Company's
common stock equal to $2,500 per month for the term of the agreement. The
Stratum agreement also calls for a cash fee of an additional $2,500 per month.
During the three months ended September 30, 2004, the Company issued 127,776
shares (post reverse-split) of common stock to Stratum, and accrued $7,500 in
cash fees. At September 30, 2004, the Company has accrued a total of $12,500 in
cash fees due to Stratum.
NOTE 3 - DEBT
At September 30, 2004, the Company had the following debt outstanding:
Principal Discount Net Book Value
Current: --------- -------- --------------
Amended Secured Convertible
Promissory Notes $ 245,000 $ -- $ 245,000
Fourth Quarter Secured Convertible
Promissory Notes 337,000 -- 337,000
Senior Secured Promissory Note 154,500 -- 154,500
Other Notes Payable 310,653 (2,788) 307,865
--------- -------- --------------
$1,047,153 $ (2,788) $ 1,044,365
========= ======== ==============
Long term:
Other Notes Payable $ 35,000 $ (3,485) $ 31,515
========= ======== ==============
Amended Secured Convertible Promissory Notes
--------------------------------------------
At September 30, 2004, the Company had outstanding five Amended Secured
Convertible Promissory Notes in the aggregate amount of $245,000. Interest
accrued for the three and nine months ended September 30, 2004 was $4,940 and
$14,576, respectively. Total accrued interest due on the Amended Notes at
September 30, 2004 was $18,908. At September 30, 2004, these notes were in
default as they had not been paid at their maturity date. All of the Amended
Secured Convertible Promissory Notes were either paid or converted to common
stock in October and November 2004.
F-10
Fourth Quarter Secured Convertible Promissory Notes
---------------------------------------------------
At September 30, 2004, the Company had outstanding nine Amended Secured
Convertible Promissory Notes in the aggregate amount of $337,000. Interest
accrued for the three and nine months ended September 30, 2004 was $6,795 and
$21,622, respectively. Total accrued interest due on the Fourth Quarter Notes at
September 30, 2004 was $28,330. At September 30, 2004, eight of the nine Fourth
Quarter Notes were in default as they had not been paid at their maturity date.
All of the Fourth Quarter Secured Convertible Promissory Notes were either paid
or converted to common stock in October and November 2004.
Senior Secured Promissory Notes
-------------------------------
At September 30, 2004, the Company had outstanding one Senior Secured Promissory
Note in the amount of $154,500 (the "New Senior Note"). The New Senior Note
bears interest at the rate of 12% per annum and has a term of 90 days. Interest
accrued on the New Senior Secured Note for the three and nine months period
ending September 30, 2004 was $4,672 and $7,924, respectively. The New Senior
Note is senior secured indebtedness of the Company and is secured by certain
collateral. As additional incentive to enter into the New Senior Note, the
Company provided 600,000 shares (post-split) of the Company's common stock
valued at $150,000. During the three months ended September 30, 2004, the New
Senior Note was extended to October 11, 2004. As compensation for extending the
due date of this note, the Company issued 300,000 shares of its common stock
with a fair value of $36,000. The New Senior Note was paid in November 2004.
Other Notes Payable
-------------------
At June 30, 2004, the Company had outstanding eight other notes payable (the
"Other Notes") in the aggregate principal amount of $211,581, net of discount
associated with beneficial conversion features of $13,411. These notes bear
interest at rates ranging from 6% to 12% per annum. During the three months
ended September 30, 2004, the Company entered into five new note agreements in
the aggregate amount of $133,100 bearing interest at rates ranging from 8% to
12% per annum, and capitalized $972 of interest on one of the notes. At
September 30, 2004 the Company had outstanding a total of thirteen Other Notes
in the aggregate amount of $345,653. Eleven of these in the aggregate amount of
$307,865 (net of discount of $2,788) are due less than one year from September
30, 2004; two of these in the aggregate amount of $31,515 (net of discount of
$3,485) are due in April and May 2006. Accrued interest on the Other Notes
amounted to $5,725 for the $9,430 for the three and nine months ended September
30, 2004, respectively. Three notes in the aggregate amount of $84,081 were in
default at September 30, 2004 as they have not been paid by their due dates.
Eight notes in the aggregate amount of $225,600 were either paid or converted to
common stock in October and November 2004.
NOTE 4 - EQUITY
Stock Split
-----------
On April 6, 2004, the Company effected a two-for-one forward split of its common
stock. The number of shares of common stock outstanding immediately prior to the
reverse split was 13,272,250; the number of shares of common stock outstanding
immediately after the reverse split was 26,544,500. The accompanying financial
statements reflect the effect of this stock split.
Common Stock
------------
In January 2004, the Company entered into the Senior Note Agreement (see Note
3). Pursuant to this agreement, the Company issued to the lender 600,000 shares
(post-split) of the Company's common stock valued at $600,000. 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 and six months ended June 30, 2004, $106,667 and $600,000of this amount,
respectively, had been charged to non-cash compensation.
In January 2004, the Company issued 800,000 shares (post-split) of common stock
with a fair market value of $800,000 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 and six months ended June
30, 2004, $204,444 and $362,222 of this amount, respectively, 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 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 and six months ended June 30, 2004, $12,676 and
$19,564 of this amount, respectively, had been charged to non-cash compensation.
F-11
In March 2004, the Company issued 1,051,600 shares (post-split) of common stock
with a fair market value of $420,640 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 and six months ended June 30, 2004, $107,497 and
$125,024 of this amount, respectively, been charged to non-cash compensation.
In March 2004, the Company issued 500,000 shares (post-split) of common stock
with a fair market value of $250,000 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 and six months ended June 30,
2004, $127,778 and $140,278 of this amount, respectively, had been charged to
non-cash compensation.
In March 2004, the Company issued 8,000 shares (post-split) of common stock with
a fair market value of $1,200 for cash.
In March 2004, the Company issued 67,800 shares (post-split) of common stock
with a fair market value of $10,800 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 (post-split) of stock with a
market value of $29,312 to InOne as payment for outstanding payables.
In April 2004, the Company entered into the New Senior Note Agreement (see Note
3). Pursuant to this agreement, the Company issued to the lender 600,000 shares
(post-split) of the Company's common stock valued at $150,000. 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 New Senior Note. During the
three months and six months ended June 30, 2004, $103,846 of this amount had
been charged to non-cash compensation.
In April 2004, the Company issued 200,000 shares (post-split) of stock with a
market value of $64,000 to its Chief Financial Officer for services rendered.
This amount was charged to non-cash compensation.
In May 2004, the Company issued 350,000 shares (post-split) of stock with a
market value of $87,500 via conversion of a note payable in the amount of
$35,000. The Company recorded a charge to interest expense for the beneficial
conversion feature of this transaction in the amount of $52,500.
In May 2004, the Company issued 125,000 shares (post-split) of stock with a
market value of $25,000 to a consultant as a due diligence fee. This amount was
charged to non-cash compensation.
In May 2004, the Company issued 500,000 shares (post-split) of stock with a
market value of $500,000 to a consultant for services to be rendered through
December 2004. This value was determined as of the date the consulting agreement
was signed, which was in December 2003. This amount was charged to deferred
compensation and additional paid-in capital, and is being amortized over the
term of the agreement. During the three and six months ended June 30, 2004,
$268,493 of this amount has been charged to non-cash compensation.
In July 2004, the Company issued 250,000 shares (post-split) of stock with a
market value of $25,000 to a consultant for services to be rendered through July
2005. This amount was charged to deferred compensation.
In July and September 2004, the Company issued 200,000 shares of stock with a
market value of $82,000 to a consultant for services to be rendered through
April 2005. This amount was charged to deferred compensation at the time the
contract with this consultant was signed in April 2005.
In July, August, and September 2004, the Company issued 300,000 shares of stock
with a market value of $36,000 to a lender as consideration for extending the
due date of a note payable. This amount was charged to interest expense.
In August 2004, the Company committed to issue 100,000 shares of common stock to
a consultant for services rendered through July 2005. These shares are to be
issued in October 2005. The Company charged the $10,000 fair value of these
shares to deferred compensation.
In August 2004, the Company issued 100,000 shares of common stock at a fair
value of $14,000 to a consultant for services to be rendered through October
2004. The Company charged this amount to deferred compensation.
In August 2004, the Company issued 200,000 shares of common stock for conversion
of a note payable in the amount of $30,000.
F-12
In August 2004, the Company issued 125,000 shares of common stock at a fair
value of $20,000 to a consultant for services provided.
In September 2004, the Company issued 127,276 shares of common stock at a fair
value of $16,910 to a consultant for services provided through September 2004.
Except as otherwise indicated above, 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 5 - SUBSEQUENT EVENTS
In October 2004, Company completed the private placement (the "Private
Placement") of 19,600,000 shares of its common stock at a price of $0.125 per
share for gross proceeds of $2,450,000. The Company also converted approximately
$837,893 in notes payable and $157,218 in vendor payables at the same terms as
the Private Placement into 6,703,151 and 1,257,746 shares of common stock,
respectively. Pursuant to the terms of the Private Placement, the Company also
issued five-year warrants to purchase approximately 13,900,449 shares of the
Company's common stock at a price of $0.50.
F-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
Special note regarding forward-looking statements
-------------------------------------------------
Some of the statements under "Risk Factors," "Business" and elsewhere in this
Quarterly Report on Form 10-Q constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those described under
"Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, it cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this report.
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
Overview
--------
Our company, IR BioSciences Holdings, Inc., is a Delaware corporation and, until
July 2001, was engaged in the business, through its subsidiaries, affiliates and
strategic alliances, of assisting unaffiliated early-stage development and small
to mid-sized emerging growth companies with financial and business development
services, including raising capital in private and public offerings. During
2001, due in large part to the decreased availability of investment capital to
our then target market of Internet related, small growth companies, we failed to
meet our revenue targets. On July 27, 2001, a majority interest in our company
was acquired by a private investor, and we installed new management and adopted
a new business plan. The immediate action taken regarding this new business plan
was to discontinue our then current operations effective July 27, 2001.
On July 2, 2003, our company and ImmuneRegen Biosciences, Inc., a privately-held
Delaware corporation ("ImmuneRegen"), entered into and consummated an Agreement
and Plan of Merger (the "Merger"). In accordance with the Merger, on July 2,
2003, we acquired ImmuneRegen in exchange for 10,531,585 shares of our common
stock. The transaction contemplated by the Agreement was intended to be a
"tax-free" reorganization pursuant to the provisions of Section 351 and
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. On August 29,
2003, the Registrant's name was changed from GPN Network, Inc. to IR BioSciences
Holdings, Inc.
ImmuneRegen is a biotechnology company engaged in the research and development
of applications utilizing modified Substance P, a naturally occurring
immunomodulator. Derived from homeostatic Substance P, ImmuneRegen has named its
proprietary compound "Homspera." Currently, ImmuneRegen holds two patents and
four provisional patents in the United States. Additionally, ImmuneRegen holds a
patent with the European Union and Australia and is seeking to extend its
patents into Canada and, possibly, Japan.
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").
3
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 SEPTEMBER 30, 2004
Revenue
-------
We are in the development stage and have no revenue.
Sales, general, and administrative expenses
-------------------------------------------
Sales, general, and administrative expenses ("SG&A") were $1,041,162 for the
three months ended September 30, 2004, an increase of $743,565 or approximately
250% compared to SG&A of $297,587 during the three months ended September 30,
2003. For the three months ended September 30, 2004, this amount consisted
primarily of non-cash compensation issued to consultants of $746,259, legal and
accounting fees of $63,366, other consulting fees of $56,550, officer wages of
$43,750, contract labor of $24,244, and research and development expenses of
$22,709. The increase was due primarily to an increase in the value of non-cash
compensation, which was $0 during the three months ended September 30, 2004.
The Company expects SG&A to increase during the coming twelve months as we
continue to utilize non-cash compensation in order to conserve cash, we build
out the Company's infrastructure, and continue to develop the Company's line of
potential products.
Interest expense
----------------
Interest expense was $70,612 for the three months ended September 30, 2004, an
decrease of $18,408 or approximately 21% compared to interest expense of $89,020
for the three months ended September 30, 2003. In the quarter ended September
30, 2004, interest expense consisted of stock issued for interest and loan
extension charges of $36,000, interest accrued on notes payable of $22,930, and
amortization of discount on notes payable of $11,682. Interest decreased from
the comparable period of the prior year due to amortization of the beneficial
conversion features of notes payable during the three months ended September 30,
2003.
The Company expects interest expense to decrease during the coming twelve months
because most of the Company's outstanding debt was converted to equity in
November 2004.
4
Net loss
--------
For the reasons above, the net loss for the three months ended September 30,
2004 was $1,111,764, an increase of $285,157 or 34.5% compared to a net loss of
$826,607 for the three months ended September 30, 2003.
The Company expects losses to increase during the coming twelve months. The
Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as we move our line of potential
products through the testing and approval phases, and as we build out our
corporate infrastructure.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2004
Revenue
-------
We are in the development stage and have no revenue.
Selling, General and Administrative Expenses
--------------------------------------------
SG&A expenses were $3,546,641 for the nine months ended September 30, 2004, an
increase of $2,879,980 or approximately 432% compared to SG&A of $666,661 for
the nine months ended September 30, 2003. For the 2004 period, this amount
consists primarily of non-cash compensation of $2,600,818, legal and accounting
fees of $249,077, officer wages of $131,350, consulting fees of $121,550,
research and development costs of $84,519, and contract labor of $65,747. The
increase was due primarily to an increase in the value of non-cash compensation,
which was $0 during the nine months ended September 30, 2004.
The Company expects SG&A to increase during the coming twelve months as we
continue to utilize non-cash compensation in order to conserve cash, we build
out the Company's infrastructure, and continue to develop the Company's line of
potential products.
Interest expense
----------------
Interest expense was $506,427 for the nine months ended September 30, 2004, an
increase of $394,765 or approximately 354% compared to interest expense of
$111,662 for the nine months ended September 30, 2003. For the nine months ended
September 30, 2004, interest expense consists of amortization of the discount on
notes payable of $412,815, and interest on notes payable of $57,612, and stock
issued for interest and loan extension charges of $36,000.
The Company expects interest expense to decrease during the coming twelve months
because most of the Company's outstanding debt was converted to equity in
November 2004.
Net loss
--------
For the reasons above, the net loss for the nine months ended September 30, 2004
was $4,053,068, an increase of $2,834,745 or approximately 35% compared to a net
loss of $1,218,323 for the nine months ended September 30, 2003.
The Company expects losses to increase during the coming twelve months. The
Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as we move our line of potential
products through the testing and approval phases, and as we build out our
corporate infrastructure.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had current assets of $2,300 consisting prepaid
services of $2,300. Also at September 30, 2004, we had current liabilities of
$1,949,349 consisting of a cash overdraft of $5,153, notes payable net of
discount of $1,044,365 and accounts payable and accrued liabilities of $899,831.
This results in negative working capital of ($1,947,049). During the nine months
ended September 30, 2004, the Company used cash in operating activities of
($448,944). From the date of inception (October 30, 2002) to September 30, 2004,
the Company has had a net loss of ($5,955,688) and has used cash of ($1,482,107)
in operating activities.
5
The Company currently has no revenue. There is no guarantee that our business
model will be successful, or that we will be able to generate sufficient revenue
to fund future operations. As a result, we expect our operations to continue to
use net cash, and that we will be required to seek additional debt or equity
financings during the coming quarters. Since Inception, the Company has financed
its operations through debt and equity financing. While we have raised capital
to meet our working capital and financing needs in the past, additional
financing is required in order to meet our current and projected cash flow
deficits from operations and development of our product line. In October 2004,
the Company completed the private placement of its common stock for the gross
amount of $2,465,000. It 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 sufficient 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 September 30, 2004 , we have relied
on the services of outside consultants for services and have one (1) employee.
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.
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.
6
IMMUNEREGEN HAS AN ACCUMULATED DEFICIT, IS NOT CURRENTLY PROFITABLE AND EXPECTS
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 September 30, 2004, and is currently experiencing
negative cash flow. ImmuneRegen expects 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 ImmuneRegen's revenues grow more slowly than it anticipates,
or if its operating expenses exceed its expectations, ImmuneRegen may experience
reduced profitability.
IMMUNEREGEN'S INDEPENDENT OUTSIDE AUDITORS HAVE RAISED SUBSTANTIAL DOUBT ABOUT
IMMUNEREGEN'S ABILITY TO CONTINUE AS A GOING CONCERN.
ImmuneRegen's independent certified public accountants have stated in their
report included in this Form 10-KSB that the Company has incurred a net loss and
negative cash flows from operations of $5,955,688 and $1,482,107, respectively,
for the period of inception of October 30, 2002 to September 30, 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.
THE REGISTRANT WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND
IMMUNEREGEN'S OPERATIONS. IF IMMUNEREGEN CANNOT RAISE NEEDED ADDITIONAL CAPITAL
IN THE FUTURE, IT WILL BE REQUIRED TO CEASE OPERATIONS.
ImmuneRegen requires substantial working capital to fund its operations. Since
it does not expect to generate significant revenues in the foreseeable future,
in order to fund operations, ImmuneRegen will be completely dependent on
additional debt and equity financing arrangements. There is no assurance that
any financing will be sufficient to fund its 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
ImmuneRegen. If ImmuneRegen is unable to raise needed funds on acceptable terms,
ImmuneRegen will not be able to develop or enhance its products, take advantage
of future opportunities or respond to competitive pressures or unanticipated
requirements. A material shortage of capital will require the Registrant to take
drastic steps such as reducing ImmuneRegen's level of operations, disposing of
selected assets or seeking an acquisition partner. If cash is insufficient,
ImmuneRegen will not be able to continue operations.
IMMUNEREGEN'S LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE THE
SUCCESS OF ITS BUSINESS MODEL AND THE EFFECTIVENESS OF ITS MANAGEMENT. IF
IMMUNEREGEN'S PLAN IS NOT SUCCESSFUL, OR MANAGEMENT IS NOT EFFECTIVE, THE VALUE
OF THE REGISTRANT'S COMMON STOCK MAY DECLINE.
ImmuneRegen was founded in October 2002. As a result, ImmuneRegen has a limited
operating history on which you can base your evaluation of its business and
prospects. ImmuneRegen's business and prospects must be considered in light of
the risks and uncertainties frequently encountered by companies in their early
stages of development. These risks and uncertainties include the following:
o ImmuneRegen's ability to raise additional funding and the amounts raised,
if any;
o The time and costs involved in obtaining regulatory approvals;
o Continued scientific progress in ImmuneRegen's research and development
programs;
o The scope and results of preclinical studies and clinical trials;
o The costs involved in filing, prosecuting and enforcing patent claims;
o Competing technological and market developments;
o Effective commercialization activities and arrangements;
o The costs of defending against and settling lawsuits; and
o Other factors not within the combined company's control or known to it.
The combined company cannot be sure that it will be successful in meeting these
challenges and addressing these risks and uncertainties. If we are unable to do
so, ImmuneRegen's business will not be successful.
7
IMMUNEREGEN'S FAILURE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE PRODUCTS WILL
CAUSE US TO CEASE OPERATIONS.
ImmuneRegen's failure to develop and commercialize products successfully will
cause it to cease operations. Its potential therapies utilizing Homspera will
require significant additional research and development efforts and regulatory
approvals prior to potential commercialization in the future. ImmuneRegen cannot
guarantee that it, or its corporate collaborators, if any, will ever obtain any
regulatory approvals of Homspera. ImmuneRegen currently is focusing its core
competencies on Homspera although there may be no assurance that it will be
successful in so doing.
ImmuneRegen's 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. ImmuneRegen's technologies utilizing Homspera has
not yet been tested in humans. Regulatory authorities may not permit human
testing of potential products based on these technologies. Even if human testing
is permitted, any potential products based on Homspera may not be successfully
developed or shown to be safe or effective.
The results of ImmuneRegen's 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 it is to develop any products. Delays in planned
patient enrollment in ImmuneRegen's clinical trials may result in increased
costs, program delays or both. None of ImmuneRegen's 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, ImmuneRegen's potential products may not achieve market
acceptance. Any products resulting from ImmuneRegen's 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 ImmuneRegen's
proposed products. The appearance of any unacceptable toxicity or side effects
could interrupt, limit, delay or abort the development of any of ImmuneRegen's
proposed products or, if previously approved, necessitate their withdrawal from
the market.
THE LENGTHY PRODUCT APPROVAL PROCESS AND UNCERTAINTY OF GOVERNMENT REGULATORY
REQUIREMENTS MAY DELAY OR PREVENT IMMUNEREGEN FROM COMMERCIALIZING PROPOSED
PRODUCTS.
Clinical testing, manufacture, promotion, export and sale of ImmuneRegen's
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
ImmuneRegen 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. ImmuneRegen
may not receive necessary FDA clearances for any of its 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 ImmuneRegen's 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. ImmuneRegen may
encounter significant delays or excessive costs in its 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. ImmuneRegen may not be able to
obtain the necessary approvals for clinical trials, manufacturing or marketing
of any of our products under development. Even if commercial regulatory
approvals are obtained, they may include significant limitations on the
indicated uses for which a product may be marketed.
In addition, a marketed product is subject to continual FDA review. Later
discovery of previously unknown problems or failure to comply with the
applicable regulatory requirements may result in restrictions on the marketing
of a product or withdrawal of the product from the market, as well as possible
civil or criminal sanctions.
8
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 subject manufacturers to possible FDA regulatory action and as a
result, may have a material adverse effect on ImmuneRegen. ImmuneRegen, or its
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 ImmuneRegen.
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.
Marketing any drug products outside of the United States will subject
ImmuneRegen to numerous and varying foreign regulatory requirements governing
the design and conduct of human clinical trials and marketing approval.
Additionally, ImmuneRegen's ability to export drug candidates outside the United
States on a commercial basis will be subject to the receipt from the FDA of
export permission, which may not be available on a timely basis, if at all.
Approval procedures vary among countries and can involve additional testing, and
the time required to obtain approval may differ from that required to obtain FDA
approval. Foreign regulatory approval processes include all of the risks
associated with obtaining FDA approval set forth above, and approval by the FDA
does not ensure approval by the health authorities of any other country.
TECHNOLOGICAL CHANGE AND COMPETITION MAY RENDER IMMUNEREGEN'S POTENTIAL PRODUCTS
OBSOLETE.
The life science industry continues to undergo rapid change, and competition is
intense and is expected to increase. Competitors may succeed in developing
technologies and products that are more effective or affordable than any that
ImmuneRegen is developing or that would render ImmuneRegen's technology and
proposed products obsolete or noncompetitive. Most of ImmuneRegen's competitors
have substantially greater experience, financial and technical resources and
production, marketing and development capabilities than it. Accordingly, some of
ImmuneRegen's competitors may succeed in obtaining regulatory approval for
products more rapidly or effectively than it, or technologies and products that
are more effective and affordable than any that ImmuneRegen is developing.
IMMUNEREGEN'S LACK OF COMMERCIAL MANUFACTURING AND MARKETING EXPERIENCE MAY
PREVENT IT FROM SUCCESSFULLY COMMERCIALIZING PRODUCTS.
ImmuneRegen has not manufactured any of its products in commercial quantities.
ImmuneRegen may not successfully make the transition from manufacturing clinical
trial quantities to commercial production quantities or be able to arrange for
contract manufacturing and this could prevent us from commercializing products
or limit our profitability from our products. Even if Homspera is successfully
developed and receives FDA approval, ImmuneRegen has not demonstrated the
capability to manufacture Homspera in commercial quantities. ImmuneRegen has not
demonstrated the ability to manufacture Homspera in large-scale clinical
quantities. ImmuneRegen expects to rely on third parties for the final
activation step of the Homspera manufacturing process. If any of these proposed
manufacturing operations prove inadequate, there may be no assurance that any
other arrangements may be established on a timely basis or that ImmuneRegen
could establish other manufacturing capacity on a timely basis.
IMMUNEREGEN HAS NO EXPERIENCE IN THE SALES, MARKETING AND DISTRIBUTION OF
PHARMACEUTICAL OR BIOTECHNOLOGY PRODUCTS. THUS, IMMUNEREGEN'S PROPOSED PRODUCTS
MAY NOT BE SUCCESSFULLY COMMERCIALIZED EVEN IF THEY ARE DEVELOPED AND APPROVED
FOR COMMERCIALIZATION.
The manufacturing process of ImmuneRegen's proposed products is expected to
involve a number of steps and requires compliance with stringent quality control
specifications imposed by ImmuneRegen and by the FDA. Moreover, it is expected
that ImmuneRegen's proposed products may be manufactured only in a facility that
has undergone a satisfactory inspection and certification by the FDA. For these
reasons, ImmuneRegen would not be able to quickly replace its manufacturing
capacity if we were unable to use its manufacturing facilities as a result of a
fire, natural disaster (including an earthquake), equipment failure or other
difficulty, or if such facilities are deemed not in compliance with the GMP
requirements, and the noncompliance could not be rapidly rectified.
ImmuneRegen's inability or reduced capacity to manufacture its proposed products
would prevent it from successfully commercializing its proposed products.
9
ImmuneRegen may enter into arrangements with contract manufacturing companies in
order to meet requirements for its products, or to attempt to improve
manufacturing efficiency. If ImmuneRegen chooses to contract for manufacturing
services, ImmuneRegen may encounter costs, delays and/or other difficulties in
producing, packaging and distributing its clinical trials and finished product.
Further, contract manufacturers must also operate in compliance with the GMP
requirements; failure to do so could result in, among other things, the
disruption of its product supplies. ImmuneRegen's potential dependence upon
third parties for the manufacture of its proposed products may adversely affect
its profit margins and its ability to develop and deliver proposed products on a
timely and competitive basis.
ADVERSE DETERMINATIONS CONCERNING PRODUCT PRICING, REIMBURSEMENT AND RELATED
MATTERS COULD PREVENT IMMUNEREGEN FROM SUCCESSFULLY COMMERCIALIZING HOMSPERA.
ImmuneRegen's ability to earn sufficient revenue on Homspera or any other
proposed products will depend in part on the extent to which reimbursement for
the costs of such products and related treatments will be available from
government health administration authorities, private health coverage insurers,
managed care organizations and other organizations. Failure to obtain
appropriate reimbursement may prevent it from successfully commercializing
Homspera or any proposed products. Third-party payers are increasingly
challenging the prices of medical products and services. If purchasers or users
of Homspera or any such other proposed products are not able to obtain adequate
reimbursement for the cost of using such products, they may forego or reduce
their use. Significant uncertainty exists as to the reimbursement status of
newly approved health care products and whether adequate third party coverage
will be available.
IMMUNEREGEN'S SUCCESS WILL DEPEND UPON THE ACCEPTANCE OF HOMSPERA BY THE MEDICAL
COMMUNITY.
ImmuneRegen's ability to market and commercialize Homspera depends on the
acceptance and utilization of Homspera by the medical community. ImmuneRegen
will need to develop commercialization initiatives designed to increase
awareness about it and Homspera among targeted audiences, including public
health activists and community-based outreach groups in addition to the
investment community. Currently, ImmuneRegen has not developed any such
initiatives. Without such acceptance of Homspera, the product upon which
ImmuneRegen expects to be substantially dependent, ImmuneRegen may not be able
to successfully commercialize Homspera or generate revenue.
PRODUCT LIABILITY EXPOSURE MAY EXPOSE IMMUNEREGEN TO SIGNIFICANT LIABILITY.
ImmuneRegen faces an inherent business risk of exposure to product liability and
other claims and lawsuits in the event that the development or use of its
technology or prospective products is alleged to have resulted in adverse
effects. ImmuneRegen may not be able to avoid significant liability exposure.
ImmuneRegen may not have sufficient insurance coverage, and ImmuneRegen may not
be able to obtain sufficient coverage at a reasonable cost. An inability to
obtain product liability insurance at acceptable cost or to otherwise protect
against potential product liability claims could prevent or inhibit the
commercialization of its products. A product liability claim could hurt its
financial performance. Even if ImmuneRegen avoids liability exposure,
significant costs could be incurred that could hurt its financial performance.
IF IMMUNEREGEN FAILS TO ATTRACT AND RETAIN CONSULTANTS AND EMPLOYEES, ITS GROWTH
COULD BE LIMITED AND ITS COSTS COULD INCREASE, WHICH MAY ADVERSELY AFFECT ITS
RESULTS OF OPERATIONS AND FINANCIAL POSITION.
ImmuneRegen's future success depends in large part upon its ability to attract
and retain highly skilled executive-level management and scientific personnel.
The competition in the scientific industry for such personnel is intense, and
ImmuneRegen cannot be sure that it will be successful in attracting and
retaining such personnel. Most of ImmuneRegen's consultants and employees and
several of its executive officers began working for ImmuneRegen recently, and
all employees are subject to "at will" employment. Most of ImmuneRegen's
consultants and employees are not subject to non-competition agreements.
ImmuneRegen cannot guarantee that it will be able to replace any of its
management personnel in the event their services become unavailable.
IMMUNEREGEN'S PATENTS AND PROPRIETARY TECHNOLOGY MAY NOT BE ENFORCEABLE AND THE
PATENTS AND PROPRIETARY TECHNOLOGY OF OTHERS MAY PREVENT IMMUNEREGEN FROM
COMMERCIALIZING PRODUCTS.
Although ImmuneRegen believes its patents to be protected and enforceable, the
failure to obtain meaningful patent protection products and processes would
greatly diminish the value of its potential products and processes.
10
In addition, whether or not ImmuneRegen's patents are issued, or issued with
limited coverage, others may receive patents, which contain claims applicable to
its products. Patents we are not aware of may adversely affect ImmuneRegen's
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. ImmuneRegen also relies upon non-patented trade secrets and know how,
and others may independently develop substantially equivalent trade secrets or
know how. ImmuneRegen also relies on protecting our proprietary technology in
part through confidentiality agreements with its current and former corporate
collaborators, employees, consultants and certain contractors. These agreements
may be breached, and ImmuneRegen may not have adequate remedies for any such
breaches. In addition, ImmuneRegen's trade secrets may otherwise become known or
independently discovered by ImmuneRegen's competitors. Litigation may be
necessary to defend against claims of infringement, to enforce ImmuneRegen's
patents or to protect trade secrets. Litigation could result in substantial
costs and diversion of management efforts regardless of the results of the
litigation. An adverse result in litigation could subject ImmuneRegen to
significant liabilities to third parties, require disputed rights to be licensed
or require ImmuneRegen to cease using certain technologies.
IMMUNEREGEN'S PRODUCTS AND SERVICES COULD INFRINGE ON THE INTELLECTUAL PROPERTY
RIGHTS OF OTHERS, WHICH MAY CAUSE IT TO ENGAGE IN COSTLY LITIGATION AND, IF IS
NOT SUCCESSFUL, COULD CAUSE IT TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT IT FROM
SELLING OUR PRODUCTS OR SERVICING IMMUNEREGEN'S CLIENTS.
ImmuneRegen cannot be certain that its technology and other intellectual
property does not infringe upon the intellectual property rights of others.
Authorship and priority of intellectual property rights may be difficult to
verify. Because patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed which
relate to services similar to those offered by ImmuneRegen. ImmuneRegen may be
subject to legal proceedings and claims from time to time in the ordinary course
of its business, including claims of alleged infringement of the trademarks and
other intellectual property rights of third parties.
If ImmuneRegen's products violate third-party proprietary rights, it cannot
assure you that it 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 it from providing services. Such claims
could severely harm ImmuneRegen's financial condition and ability to compete.
HAZARDOUS MATERIALS AND ENVIRONMENTAL MATTERS COULD EXPOSE IMMUNEREGEN TO
SIGNIFICANT COSTS.
ImmuneRegen may be required to incur significant costs to comply with current or
future environmental laws and regulations. Although ImmuneRegen does not
currently manufacture commercial quantities of its proposed products, it does
produce limited quantities of these products for its clinical trials.
ImmuneRegen's research and development and manufacturing processes involve the
controlled storage, use and disposal of hazardous materials, biological
hazardous materials and radioactive compounds. ImmuneRegen is 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 ImmuneRegen believes that its 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 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 ImmuneRegen's operations, business and assets.
11
RISKS RELATED TO CAPITAL STRUCTURE
IMMUNEREGEN'S STOCK PRICE IS VOLATILE AND COULD DECLINE IN THE FUTURE.
The price of ImmuneRegen's common stock has been volatile in the past and will
likely continue to fluctuate in the future. The stock market in general and the
market for shares of life science companies in particular have experienced
extreme stock price fluctuations. In some cases, these fluctuations have been
unrelated to the operating performance of the affected companies. Many companies
in the life science and related industries have experienced dramatic volatility
in the market prices of their common stock. The Registrant believes that a
number of factors, both within and outside our control, could cause the price of
the Registrant's common stock to fluctuate, perhaps substantially. Factors such
as the following could have a significant adverse impact on the market price of
the ImmuneRegen's common stock:
o The Registrant's ability to obtain additional financing and, if
available, the terms and conditions of the financing;
o ImmuneRegen's financial position and results of operations;
o The results of preclinical studies and clinical trials by ImmuneRegen,
its collaborators or its competitors;
o Concern as to, or other evidence of, the safety or efficacy of
ImmuneRegen's proposed products or its competitors' products;
o Announcements of technological innovations or new products by
ImmuneRegen or its competitors;
o U.S. and foreign governmental regulatory actions;
o Actual or anticipated changes in drug reimbursement policies;
o Developments with ImmuneRegen's collaborators, if any;
o Developments concerning patent or other proprietary rights of
ImmuneRegen or its competitors (including litigation);
o Status of litigation;
o Period-to-period fluctuations in ImmuneRegen's operating results;
o Changes in estimates of the combined company's performance by any
securities analysts;
o New regulatory requirements and changes in the existing regulatory
environment;
o Market conditions for life science stocks in general.
THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET.
Although ImmuneRegen's common stock trades on the NASD OTC Bulletin Board, a
regular trading market for the securities may not be sustained in the future.
The NASD has enacted recent changes that limit quotations on the OTC Bulletin
Board to securities of issuers that are current in their reports filed with the
Securities and Exchange Commission. The effect on the OTC Bulletin Board of
these rule changes and other proposed changes cannot be determined at this time.
The OTC Bulletin Board is an inter-dealer, Over-The-Counter market that provides
significantly less liquidity than the NASD's automated quotation system (the
"NASDAQ Stock Market"). Quotes for stocks included on the OTC Bulletin Board are
not listed in the financial sections of newspapers as are those for the NASDAQ
Stock Market. Therefore, prices for securities traded solely on the OTC Bulletin
Board may be difficult to obtain and holders of common stock may be unable to
resell their securities at or near their original offering price or at any
price. Market prices for ImmuneRegen's common stock will be influenced by a
number of factors, including:
o The issuance of new equity securities pursuant to a future offering;
o Changes in interest rates;
o Competitive developments, including announcements by competitors of new
products or services or significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
o Variations in quarterly operating results;
12
o Change in financial estimates by securities analysts;
o The depth and liquidity of the market for ImmuneRegen's common stock;
o Investor perceptions of our company and the technologies industries
generally; and
o General economic and other national conditions.
IMMUNEREGEN'S COMMON STOCK IS CONSIDERED A "PENNY STOCK."
ImmuneRegen's 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. These include
but are not limited to the following: (i) the stock trades at a price less than
five dollars ($5.00) per share; (ii) it is NOT traded on a "recognized" national
exchange; (iii) it is NOT quoted on the NASDAQ Stock Market, or even if so, has
a price less than five dollars (5.00) per share; or (iv) is issued by a company
with net tangible assets less than $2,000,000, if in business more than a
continuous three years, or with average revenues of less than $6,000,000 for the
past three years. The principal result or effect of being designated a "penny
stock" is that securities broker-dealers cannot recommend the stock but must
trade in it on an unsolicited basis.
BROKER-DEALER REQUIREMENTS MAY AFFECT TRADING AND LIQUIDITY.
Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's account.
Potential investors in ImmuneRegen's common stock are urged to obtain and read
such disclosure carefully before purchasing any shares that are deemed to be
"penny stock." Moreover, Rule 15g-9 requires broker-dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for holders of ImmuneRegen's
common stock to resell their shares to third parties or to otherwise dispose of
them in the market or otherwise.
IMMUNEREGEN'S EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS CONTROL
OUR BUSINESS AND MAY MAKE DECISIONS THAT ARE NOT IN OUR BEST INTERESTS.
ImmuneRegen's 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
ImmuneRegen's 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 ImmuneRegen's business, even if such a
transaction would be beneficial to other stockholders.
SALES OF ADDITIONAL EQUITY SECURITIES MAY ADVERSELY AFFECT THE MARKET PRICE OF
OUR COMMON STOCK AND YOUR RIGHTS IN THE REGISTRANT MAY BE REDUCED.
Certain of ImmuneRegen's stockholders have the right to hold securities
registered pursuant to registration rights agreements. The sale or the proposed
sale of substantial amounts of ImmuneRegen's equity securities or convertible
debt securities may adversely affect the market price of its common stock and
its stockholders may experience substantial dilution. Also, any new equity
securities issued may have greater rights, preferences or privileges than
ImmuneRegen's existing common stock.
13
IMMUNEREGEN CAN ISSUE SHARES OF PREFERRED STOCK WITH RIGHTS SUPERIOR TO THOSE OF
THE HOLDERS OF OUR COMMON STOCK. SUCH ISSUANCES CAN DILUTE THE TANGIBLE NET BOOK
VALUE OF SHARES OF THE REGISTRANT'S COMMON STOCK.
ImmuneRegen's Board of Directors is authorized to issue up to 10,000,000 shares
of blank check preferred stock with rights that are superior to the rights of
the stockholders of its common stock, at a purchase price substantially lower
than the market price of shares of its common stock without stockholder
approval.
WE HAVE NO INTENTION TO PAY DIVIDENDS.
ImmuneRegen has never declared or paid any dividends on its securities.
ImmuneRegen currently intends to retain its earning for funding growth and,
therefore, does not expect to pay any dividends in the foreseeable future.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
The term "disclosure controls and procedures" refers to the controls and
procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files under Rules 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported within required time periods. As of the period covered
by this quarterly report on form 10-QSB (the "Evaluation Date"), we carried out
an evaluation under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer of the effectiveness of our
disclosure controls and procedures. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the
Evaluation Date, such controls and procedures were effective in ensuring that
required information will be disclosed on a timely basis in our periodic reports
filed under the Exchange Act.
(b) Changes in internal controls
There were no significant changes to our internal controls or in other factors
that could significantly affect internal controls subsequent to the Evaluation
Date.
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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 September 30, 2004, we issued a total
of 1,302,276 shares of our Common Stock to consultants and lenders for
their marketing, investor relations and advisory services and as
interest and loan extension fees. 145,000 of these shares are
registered with Form S-8 of the Securities and Exchange Commission, and
1,157,276 of these shares are considered exempt from registration by
reason of the Section 4(2) of the Securities Act of 1933.
(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.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Securities
Exchange Act Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Securities
Exchange Act Rule 13a-14(a).
32 Certification pursuant to U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on November 22, 2004.
IR BioSciences Holdings, Inc.
By: /s/ Michael Wilhelm
--------------------------------------------
Michael Wilhelm
President, Chief Executive Officer
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