UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





______________________





FORM
10-KSB


______________________







x
            Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the fiscal year ended December 31, 2007ORo
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




COMMISSION
FILE NUMBER: 33-05384





IR
BIOSCIENCES HOLDINGS, INC.


(Name of
Small Business Issuer in its Charter)




DELAWARE
            
            13-3301899(State
      or Other Jurisdiction ofIncorporation
      or Organization)
            
            (I.R.S.
      Employer Identification No.)8767
      E. Via de Ventura,Suite190,Scottsdale,AZ
            
            85258(Address
      of Principal Executive Offices)
            
            (Zip
      Code)




(480)
922-3926


(Issuer's
Telephone Number, including Area Code)





SECURITIES
REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:




NONE





SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:





COMMON STOCK, $ 0.001 PAR
VALUE PER SHARE


(Title of
class)







Check whether the issuer is not
required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act.o.





Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act of 1934 during the past 12 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.





YesxNoo





Check if there is no disclosure of
delinquent filers in response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.o





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesoNox





State
issuer's revenues for its most recent fiscal year: $ 0.




The
aggregate market value of the Registrant's issued and outstanding shares of
common stock held by non-affiliates of the Registrant as of March 20, 2008
(based on the average of the bid and asked prices as reported by the FINRA OTC
Bulletin Board as of that date) was approximately $5,728,761.




The
number of shares outstanding of Registrant's Common Stock, par value $0.001 as
of March 20, 2008: 115,622,539.





Documents
Incorporated by reference: The information required by Part III of Form 10-KSB
incorporated by reference from the Registrant's definitive proxy statement on
Schedule 14A that will be filed no later than the end of the 120-day period
following the Registrant's fiscal year end, or, if the Registrant's definitive
proxy statement is not filed within that time, the information will be filed as
part of an amendment to this Annual Report on Form 10-KSB/A, not later than the
end of the 120-day period.





Transitional Small Business Disclosure
Format YesoNox


Table of Contents










TABLEOF
CONTENTS







PagePART
      IItem
      1.Description of
      Business
            4Item
      2.Description of
      Property
            31Item
      3.Legal
      Proceedings
            31Item
      4.Submission of Matters to a Vote
      of Security Holders
            31PART
      IIItem
      5.Market for Registrant's Common
      Stock and Related Stockholder Matters
            32Item
      6.Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
            33Item
      7.Financial
      Statements
            F-1Item
      8.Changes in and Disagreements with
      Accountants on Accounting and Financial
    Disclosure
            41Item 8A.Controls and
      Procedures
            41Item 8B.Other
      Information
            41PART
      IIIItem
      9.Directors, Executive Officers,
      Promoters and Control Persons; Compliance with Section 16(a) of the
      Exchange ActItem
      10.Executive
      Compensation
            42Item 11.Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            42Item
      12.Certain Relationships and Related
      Transactions, And Director Independence
            42Item 13.Exhibits
            42Item
      14.Principal Accountant Fees and
      Services
            47Signatures
            48








Table of Contents











FORWARD-LOOKING
STATEMENTS





THIS
ANNUAL REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. IN PARTICULAR, STATEMENTS ABOUT OUR EXPECTATIONS,
BELIEFS, PLANS, OBJECTIVES, ASSUMPTIONS OR FUTURE EVENTS OR PERFORMANCE ARE
CONTAINED OR INCORPORATED BY REFERENCE IN THIS REPORT. WE HAVE BASED THESE
FORWARD-LOOKING STATEMENTS ON OUR CURRENT EXPECTATIONS ABOUT FUTURE EVENTS.
WHILE WE BELIEVE THESE EXPECTATIONS ARE REASONABLE, SUCH FORWARD-LOOKING
STATEMENTS ARE INHERENTLY SUBJECT TO RISKS AND UNCERTAINTIES, MANY OF WHICH ARE
BEYOND OUR CONTROL. THE ACTUAL FUTURE RESULTS FOR IR BIOSCIENCES HOLDINGS, INC.
MAY DIFFER MATERIALLY FROM THOSE DISCUSSED HERE FOR VARIOUS REASONS, INCLUDING
THOSE DISCUSSED IN THIS REPORT UNDER THE HEADING "RISK FACTORS," PART II, ITEM 6
ENTITLED "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND ELSEWHERE THROUGHOUT THIS ANNUAL REPORT. GIVEN THESE
RISKS AND UNCERTAINTIES, YOU ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
REPORT ARE MADE ONLY AS OF THE DATE HEREOF. WE DO NOT UNDERTAKE AND SPECIFICALLY
DECLINE ANY OBLIGATION TO UPDATE ANY SUCH STATEMENTS OR TO PUBLICLY ANNOUNCE THE
RESULTS OF ANY REVISIONS TO ANY OF SUCH STATEMENTS TO REFLECT FUTURE EVENTS OR
DEVELOPMENTS. WHEN USED IN THE REPORT, UNLESS OTHERWISE INDICATED, "WE," "OUR,"
"US," THE "COMPANY" OR "IMMUNEREGEN" REFERS TO IR BIOSCIENCES HOLDINGS, INC. AND
ITS SUBSIDIARY, IMMUNEREGEN BIOSCIENCES, INC.














Table of Contents




PART
I




ITEM1. DESCRIPTION OF BUSINESS





OVERVIEW





IR
BioSciences Holdings, Inc. is a development-stage biotechnology company. Through
our wholly-owned subsidiary ImmuneRegen BioSciences, Inc., we are engaged in the
research and development of potential drug candidates, HomsperaTM and its
derivatives, Radilex® and Viprovex®. Although containing the identical
active ingredient Homspera, we defined Radilex and Viprovex as derivatives of
Homspera due to the potential difference in formulations and indications for
use. Our goals include developing these potential drug candidates to be used as
possible countermeasures for homeland security threats, including radiological,
chemical and biological agents, and to meet the commercial need for similar
beneficial effects in conditions such as radiation therapy, influenza, anthrax
and potentially other microbial ailments. We have discovered activities of
Homspera that may potentially open additional commercialization opportunities in
areas such as human adult stem cell stimulation, vaccine adjuvants, which
stimulate the immune system above that of a stand-alone vaccine, and wound
healing.


Our
patents, patent applications and continued research are partially derived from
discoveries made during research studies related to the function of Substance P,
which is found in the body and has a large number of actions. These studies were
funded by the Air Force Office of Scientific Research (AFOSR) in the early 1990s
and were conducted by research scientists, including our co-founders Drs. Mark
Witten and David Harris. In the course of research on Substance P, scientists
created a number of synthetic analogues, structural derivatives with slight
chemical differences, for study. One of these, which we have named Homspera, is
the basis for our drug development efforts and our intellectual property. All of
our research and development efforts are at the pre-clinical stage and Homspera
has only undergone exploratory studies to evaluate its biological activity in
small animals. There can be no assurance that our interpretation of study
results will prove to be accurate after further testing, and our beliefs
regarding the potential uses of our drug candidates may never
materialize.





Our
current focus is to develop Homspera for regenerating or strengthening the human
immune system, in part, through stimulating human adult stem
cells.  It is the belief of our management, that the stem cell
activity exhibited by Homspera underlies some of the effects previously reported
in potential applications like treatment for radiation exposure and infectious
disease using Homspera derivatives Radilex and Viprovex, respectively, which are
described below.  Recent studies have evaluated the effects of
Homspera on human adult stem cell activity.  Additionally, ongoing
studies are being performed to evaluate the efficacy of Homspera as a potential
product to increase the healing rate of wounds.





We are
researching Radilex for use as a potential treatment for acute exposure to
radiation. We believe that Radilex, if developed, may be an acceptable candidate
to be marketed to governmental agencies for procurement. Further, we believe
that a commercial market may exist for the use of Radilex as it relates to the
treatment of radiation-induced side effects of cancer treatments, either as a
stand-alone treatment or as a co-therapeutic agent to be used with other
therapies.





Viprovex
is being researched by us for use in potential treatments of exposure to
biological agents, such as infectious disease, which include influenza and
anthrax. We believe that Viprovex, if developed, can be used in potential
applications for sale to governments for the treatment of exposure to anthrax
and pandemic influenza. In addition, we believe that potential commercial
opportunities may exist for the treatment of seasonal influenza and other viral
or bacterial infections, either as a stand-alone drug or as an adjuvant to other
existing drugs.  Ongoing studies are being performed to evaluate the
efficacy of Viprovex as a vaccine adjuvant to enhance immune response to a given
dose of vaccine.  Based on early studies on Homspera and existing
literature on Substance P, we are also researching the efficacy of Viprovex as a
potential treatment for exposure to chemical agents, such as
formalin.





To date
we have submitted preliminary study data to the U.S. Food and Drug
Administration (FDA) and have been issued two Pre-Investigational New Drug
(PIND) numbers, one for the potential use of Radilex in the treatment of acute
radiation syndrome and the other for the potential use of Viprovex in the
treatment of avian influenza. We have contracted with an FDA regulatory
consultant to assist us in our preparation and submission of an Investigational
New Drug application (IND), a necessary prerequisite to human clinical studies,
which can only follow after the FDA’s allowance of our IND.





We have
filed patent applications directed to various methods of using and compositions
comprising Substance P analogues.  We presently own at least five
issued patents, including at least two issued U.S. patents and at least three
issued foreign patents, one of which has been registered in nine countries in
the European Union. We also have at least 61 pending patent applications,
including  at least 10 pending U.S. utility patent applications, at
least 10 pending U.S. provisional applications, at least  4 pending
international patent applications, and at least 37 pending foreign patent
applications. All inventions embodied in these applications and issued
patents have been assigned to the company by the
inventors.


Our
potential drug candidates, Homspera, Radilex and Viprovex, are at pre-clinical
stages of development and may not be shown to be safe or effective and may never
receive regulatory approval. Neither Homspera, Radilex nor Viprovex have been
tested in large animals or humans. There is no guarantee that regulatory
authorities will ever permit human testing of Homspera, Radilex, Viprovex or any
other potential products derived from Homspera. Even if such testing is
permitted, none of Homspera, Radilex, Viprovex or any other potential drug
candidates, if any, derived from Homspera may be successfully developed or shown
to be safe or effective in humans.





The
results of our pre-clinical studies and clinical trials may not be indicative of
future clinical trial results. A commitment of substantial resources to conduct
time-consuming research, pre-clinical studies and clinical trials will be
required if we are to develop any commercial applications using Homspera or any
derivatives thereof. It is possible that partnerships and/or licensing
agreements will not develop during the preclinical and/or clinical stages of
development, if at all. Delays in planned patient enrollment in our future
clinical trials may result in increased costs, program delays or both. None of
our potential technologies may prove to be safe or effective in clinical trials.
Approval of the FDA, or other regulatory approvals, including export license
permissions, may not be obtained and even if successfully developed and
approved, our potential applications may not achieve market acceptance. Any
potential applications resulting from our programs may not be successfully
developed or commercially available for a number of years, if at
all.





To date,
we have not obtained regulatory approval for, or commercialized any
applications, using Homspera or any of its derivatives.  We have
incurred significant losses since our inception and we expect to incur annual
losses for at least the next three years as we continue with our drug research
and development efforts.




4
 Table of Contents




SUBSTANCE
P AND HOMSPERATM





Our
patents, patent applications and continued research relate to Substance P.
Substance P is found in the body and performs a large number of actions.
Substance P analogues are structural derivatives with slight chemical
differences from Substance P.  One of these analogues of Substance P,
which we have termed Homspera, is the basis for our research and development of
potential drug candidates.





Substance
P





The
elements carbon, oxygen, nitrogen and hydrogen can be combined to form amino
acids, the basic building blocks of life. When amino acids are combined through
a biochemical process they form what are called peptides or proteins. Proteins
play a number of fundamental roles in living organisms, from structural to
messaging between cells.  Neurotransmitters are chemicals that relay
signals between neurons and other cells found throughout the
body.  When peptides are released by nerves or other cells and
modulate this neurotransmission, they are termed neuropeptides.





One such
neuropeptide is Substance P. Discovered in 1931, Substance P is a relatively
small peptide made of just eleven amino acids. The amino acid sequence (using
the standard three-letter acronyms for amino acids) of Substance P is presented
below:


Arg-Pro-Lys-Pro-Gln-Gln-Phe-Phe-Gly-Leu-Met-NH2.


Neuropeptides,
such as Substance P, were originally identified as being distributed throughout
the peripheral and central nervous systems of experimental animals, and then of
humans. To date, Substance P has also been shown to be produced in non-neuronal
cells such as human endothelial cells, Leydig cells, enterochromaffin cells,
epithelial cells, fibroblasts, keratinocytes, intestinal and airway smooth
muscle cells, inflammatory and immune cells, and in cells of the female
reproductive system.





In early
research, Substance P was revealed as playing a key role in the transmission of
pain. Later on, Substance P was identified as being involved in the
pathophysiology of psychiatric disorders, like anxiety and depression.
Additionally, Substance P has been shown to be involved in a number of
physiological processes, such as blood vessel and smooth muscle contractions,
and in the levels and responses of cells in the blood and immune
system.





Substance
P produces this wide variety of effects by acting through three different
molecular receptors, located on the surface membrane of sensitive cells. These
receptors are called NK1 (neurokinin 1), NK2 and NK3
receptors.  Binding of Substance P to one receptor subtype or another
will cause different chemical signaling to occur both inside and outside
cells.





Homspera





Within a
few years following the discovery of the amino acid sequence of Substance P,
numerous synthetic analogues were being produced in an attempt to better
understand how the structure and function of the molecule were related. One
particular analogue was produced by the replacement of the amino acid glycine
(Gly) with Sarcosine (Sar or N-methyl glycine) at the ninth position and the
introduction of oxidized methionine (Met(O2)) in place
of methionine (Met) at the eleventh position. The resulting peptide, still 11
amino acids long, but with a slightly higher molecular weight, was thus termed
Sar9, Met
(O2)11-Substance
P. The amino acid sequence for this molecule, which we call Homspera, is
presented below:





Arg-Pro-Lys-Pro-Gln-Gln-Phe-Phe-Sar-Leu-Met(O2)-NH2.


These
specific chemical alterations are presumably responsible for the different
physiological actions of Homspera versus endogenous Substance P. In fact,
Sar9, Met
(O2)11-Substance
P was first synthesized in an attempt to make chemicals that had specific
distinctions in their activity from that of the parent Substance P
molecule.





Homspera,
or Sar9, Met
(O2)11-Substance
P differs from Substance P in at least two ways. It is reported to be active at
only the NK1 receptor, and to be more resistant to the enzymes that break down
Substance P thereby terminating its action. Thus Sar9, Met
(O2)11-Substance
P is both more specific than Substance P, and also more persistent in the
body.





5
 Table of Contents




Applications





Through
our wholly-owned subsidiary ImmuneRegen BioSciences, Inc., we are engaged in the
research and development of potential drug candidates, Homspera and its
derivatives, Radilex and Viprovex. Our goals include developing these potential
drug candidates to be used as possible countermeasures for homeland security
threats, including radiological, chemical and biological agents, and to meet the
commercial need for similar beneficial effects in conditions such as radiation
therapy, influenza, anthrax and potentially other microbial ailments. We have
discovered activities of Homspera that may potentially open additional
commercialization opportunities in areas such as vaccine adjuvants, which
stimulate the immune system above that of a stand-alone vaccine, and human adult
stem cell stimulation.





We use
the trade names Radilex and Viprovex to differentiate the derivatives of
Homspera. The active ingredient, Homspera, is chemically equivalent in both
Radilex and Viprovex; however, since both Radilex and Viprovex are to be used in
differing potential applications, and have distinct indications for use, we
anticipate several formulations in the future that will support appropriate (and
possibly different) modes of administration. For this reason, we have created
the trade names to more easily differentiate the potential formulations, and
applications, with respect to their development and potential future market
opportunities.
 
 The
initial pre-clinical applications we are researching include: (i) stem cell
activity/immune system strengthening (Homspera); (ii) wound healing (Homspera);
(iii) treating the effects on the body caused by exposure to radiation
(Radilex); (iv) treating the effects on the body caused by infectious disease
and harmful biological materials (Viprovex); (v) vaccine adjuvants
(Viprovex); and, (vi) treating the effects on the body caused by exposure to
harmful chemical agents (Viprovex). In addition to these six potential
applications, we continue to explore the potential capabilities of Homspera and
strive to better understand the mechanisms of this compound in order to further
our development efforts with regard to not only our current application
research, but also potential future applications.
 
 All our
product candidates are in the pre-clinical stage of development. They have only
been introduced to FDA via the pre-IND filings, submissions to which the FDA
offers no judgment thereon. To date we have been issued two
Pre-Investigational New Drug (PIND) numbers by the U.S. Food & Drug
Administration (FDA). One is for the potential use of Radilex in the treatment
of acute radiation syndrome and one is for the potential use of Viprovex in the
treatment of avian influenza. The table below illustrates our current product
candidates and their current stage of development within the FDA approval
process.





Product
      Candidate
            
            Pre-Clinical
      Mechanistic Studies
            
            Animal
      Safety Studies
            
            Phase
      I
            
            Phase
      II
            
            Phase
      IIIImmune/Stem
      Cell StimulantHomspera
            
            
            
            In-progress
            
            PlannedWound
      HealingHomspera
            
            
            
            In-progress
            
            PlannedAcute
      Radiation SyndromeRadilex
            
            
            
            In-progress
            
            In-progressInfectious
      diseaseViprovex
            
            
            
            In-progress
            
            In-progressVaccine
      AdjuvantViprovex
            
            
            
            In-progress
            
            In-progressChemical
      exposureViprovex
            
            
            
            In-progress
            
            Planned






6
 Table of Contents




The
preliminary results of our pre-clinical studies using Homspera, Radilex or
Viprovex may not be indicative of results that will be obtained from subsequent
studies or from more extensive trials. Furthermore, our pre-clinical or clinical
trials may not be successful, and we may not be able to obtain the required
regulatory approvals in a timely fashion, or at all. See "Risk
Factors."




HOMSPERATM





In the
early studies with the Air Force Office of Scientific Research, it was observed
that the exposure of animals to JP-8 jet fuel resulted in pathological changes
in the lungs and immune systems of those exposed. Homspera was administered to
the test animals after prolonged exposure to the jet fuel. Based on the results
of these studies, we believe that the administration of Homspera prevented some
of the harmful effects of the jet fuel exposure in the lungs, as well as had a
positive effect on the immune system. However, there is no guarantee that our
interpretation of the results of these studies will prove to be accurate after
further testing.


Because
of the results in other potential indications like radiation and infectious
disease, which suggest a role for Homspera in stimulating the immune system, we
are performing studies utilizing Homspera in applications with adult stem
cells.





Adult
Stem Cells





Adult
stem cells are undifferentiated cells that have the ability to differentiate and
mature into more than one cell type.  The ability of adult stem cells
to become other cells can be limited to their position in the organism’s
body.  For example, there are adult stem cells found in bone marrow
that are blood-forming stem cells known as hematopoietic stem cells
(HSC).  Hematopoietic stem cells specifically form cells found in the
blood: red blood cells, responsible for transporting oxygen and carbon dioxide;
white blood cells, components of the immune system; and, platelets that are
involved in blood clotting.





Stem
cells that are dividing or replicating are more sensitive to environmental
hazards compared to cells that are in a resting state.  During
radiation and other toxic exposures, dividing cells can suffer damage to their
DNA and propagate that damage to their daughter cells, rendering them
useless.  Resting cells are less prone to the mutations observed in
dividing cells as they have more time to repair their DNA using built-in
molecular repair systems.





We have
planned to conduct research to determine whether Homspera can trigger resting
HSCs to proliferate, differentiate, and mobilize from bone marrow compartments
to the peripheral circulation, thus replenishing damaged blood
cells.  Research has suggested that when Homspera is given to animals
before exposure to radiation, white blood cell numbers significantly decrease
and are similar to irradiated controls lacking treatment; however, when Homspera
is given to animals after radiation exposure, there is an increase in white
blood cell numbers over time.  Management hopes to determine whether
the effects of Homspera on adult stem cells enable animals to regenerate their
immune system by restoring white blood cells.





Studies
were performed to evaluate the potential effects of Homspera in stimulating
hematopoietic stem cells to differentiate into blood-cell
precursors.  Study findings showed that Homspera stimulated adult
hematopoietic stem cells to differentiate into early-stage white blood
cells.  Homspera increased the number of early-stage white blood cells
from controls and also produced this effect at low
concentrations.  Management believes these findings suggest Homspera’s
potential benefit in situations where regenerating or stimulating the immune
system is desired, as with patients undergoing chemotherapy or recovering from
influenza or other infectious diseases.





We
believe the results of previous influenza studies can be partly explained by
Homspera’s potential ability to enhance the immune system.  In one
study, Homspera treatment correlated with an increase in survival of animals
infected with influenza.  Additionally, there were decreased levels of
virus in both the lungs and nasal passage in animals treated with
Homspera.  We also see an increase in antibodies when Homspera is
administered as a vaccine adjuvant to an influenza vaccine in small
animals.  These results suggest a possible role for Homspera in
stimulating the immune system to increase the numbers of white blood cells,
thereby preparing or helping the body to identify and target invading
micro-organisms or foreign particles.


Taken
together, these results are consistent with our previous findings in areas such
as radiation exposure, infectious disease and vaccine adjuvant
capability.  The efficacy for these indications may be attributed, at
least in part, to the potential ability of Homspera to stimulate adult
hematopoietic stem cells, which become the cells of the immune
system.





Wound
Healing





The wound
healing process is a complex, multi-faceted process typically defined by three
distinct phases: inflammation, proliferation, and remodeling. Different cell
types, ranging from structural cells in the skin such as fibroblasts and
keratinocytes (that together play a major role in forming both the cellular
structure as well as the supporting collagen and keratin in skin) to cells of
the immune system, are crucial for each stage of wound healing.  We believe
Homspera may have direct effects on a number of the cell types that are vital in
each stage of the wound healing process. Additionally, we believe that
Homspera’s actions on adult stem cells may play a critical role in the wound
healing process as well.  Published literature regarding the role of
Substance P, both endogenously-found and exogenously-applied, shows that it
plays a role, via the NK1 receptor, in accelerating wound healing, thus
suggesting that Homspera may be a wound healing therapeutic.





7
 Table of Contents




Preliminary
cell culture studies have been performed to evaluate the effects of Homspera on
the proliferation of some of the cells of the wound healing process.
 Homspera was found to increase the proliferation of cells in some of these
studies, leading management to plan animal studies to evaluate the effect of
Homspera in a more integrated, model of the wound healing process.





Such
studies are currently being planned to evaluate the effects of Homspera on wound
healing in established porcine (pig) models.  Our co-development
relationships with BioCure, Inc., DelSite Biotechnologies, Inc., and ULURU Inc.
are structured to progress to the development of a potential controlled-release,
Homspera wound healing product.  Stand-alone studies are also being planned
to evaluate the effects of Homspera alone using these same models.





RADILEX®





All of
our product candidates based on Radilex are in the pre-clinical stage of
development. On January 14, 2004, we received a Pre-Investigational New Drug
Application number for the use of Radilex (PIND No. 63,255) in the treatment of
acute radiation syndrome.  We believe the results of these and other
studies suggest Radilex may play a role in increasing an individual’s ability to
overcome the effects of radiation, and, in the cases of exposure to potentially
lethal radiation, to play a role in increased rates of survivability. Based on
the sum of these studies, we believe that Radilex, once and if developed, could
be an acceptable candidate to be purchased by governmental agencies for national
distribution in the event of a significant nuclear or radiological threat.
Further, we hope that a commercial market may develop for the potential use of
Radilex as it relates to the treatment of radiation-induced side effects of
cancer treatments, either as a stand-alone treatment or as a co-therapeutic
agent to be used with other treatments.
 
 Excessive
exposure to ionizing radiation over a short period of time leads to the
development of radiation sickness, or Acute Radiation Syndrome (ARS). Exposure
to lower doses of radiation may, either by accident or as a side effect of
cancer treatment, result in the destruction of bone marrow cells responsible for
maintaining the levels of red blood cells, white blood cells and platelets,
resulting in compromised oxygen carrying capacity, diminished immune system
function, and uncontrollable bleeding, respectively.  More
specifically, the blood-forming hematopoietic stem cells in the bone marrow
compartment are the cells responsible for replacing damaged blood and immune
cells.
 
 To date
we have sponsored and co-sponsored multiple studies utilizing rodents to examine
the impact of Radilex treatment on survival, drug dose-dependent responses and
the effects of different drug administration results.  Acute total
body irradiation exposure studies were performed at the University of Arizona
Cancer Center, The Translational Drug Development (TD2) group from the
Translational Genomics Research Institute (TGen) and at Oak Ridge National
Laboratories (ORNL). We believe our study findings suggest Radilex may play a
role in increased survival among tested rodents following exposure to lethal
doses of ionizing radiation.
 
 These
studies showed that radiation destroys the immune system, thereby contributing
to death. We believe that the data from these radiation studies suggest Radilex
shows efficacy in treating ARS by combating neutropenia. Neutropenia is a
decrease in blood levels of white blood cells and is a major medical condition
associated with acute exposure to radiation and is also a side-effect of many
chemotherapy agents.  In exploring the potential mechanism for this
result, we have identified an effect of Radilex on human adult stem cells and,
more specifically, the hematopoietic, or blood-forming, stem
cells.  Because these cells are stem cells, they have the ability to
self-renew or become specialized and functional cells through a maturation
process.  Hematopoietic stem cells can mature into red blood cells,
white blood cells, or platelets, thereby providing a way to replace old or
damaged cells.  Therefore, hematopoietic stem cells replenish blood
cells that are damaged in the circulation of animals exposed to
radiation.  In animals, Homspera treatment increased the number of
white blood cells, compared to control animals that were irradiated and not
treated.   Mechanistic cell culture studies have demonstrated
that Homspera can stimulate the ability of hematopoietic stem cells to mature
into early-stage white blood cells.  Taken together these results lead
us to believe that Homspera regenerates white blood cells in the circulation of
animals exposed to radiation, and can play a pivotal role in the protective
effect that we believe has been identified for Radilex.
 
 We
believe that Radilex, if developed, may be an acceptable candidate to be
marketed to governmental agencies for procurement. Further, we believe that a
commercial market may exist for the use of Radilex as it relates to the
treatment of radiation-induced side effects of cancer treatments, either as a
stand-alone treatment or as a co-therapeutic agent to be used with other
therapies.
 
 We
believe these animal studies provide support for our continued effort to
research and develop Radilex to treat the effects of exposure to radiation.
However, there is no assurance that our interpretation of the results of the
studies will prove to be accurate after further testing.





VIPROVEX®





All of
our product candidates based on Viprovex are in the pre-clinical stage of
development. We are researching the efficacy of Viprovex as a potential
treatment, either as a stand-alone application or as co-therapeutic treatment,
for exposure to various biological agents, such as infectious disease, including
influenza and anthrax. We are also researching the efficacy of Viprovex as a
potential treatment for exposure to chemical agents.





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Screening
studies have been performed at the National Institutes of Health, National
Institute of Allergy and Infectious Diseases (NIAID) at its Antimicrobial
Acquisition and Coordinating Facility (AACF). We believe the screening studies
suggest that any anti-viral effect observed in infected animals potentially
reflected an impact of Viprovex on the host immune system rather than a direct
antiviral effect.
 
 We have
examined the potential of Viprovex as a vaccine adjuvant, which is to be used
with other drugs.  A vaccine adjuvant improves the host’s
immunological response to the vaccine antigen(s), without causing the host to
stimulate an immune response against it. In studies performed under our
sponsorship, we believe we have identified a potential vaccine adjuvant
capability of Viprovex in a study utilizing a protein-based vaccine for highly
pathogenic influenza. Performed in rodents, this study suggested an improved
host immune response to the vaccine and improved survival in animals infected
with lethal H5N1 influenza of the types currently identified as pre-pandemic
risks in Asian bird populations and in humans.
 
 Based on
early studies on Homspera and existing literature on Substance P, we are also
researching Viprovex as a potential treatment for exposure to chemical agents,
such as formalin. Formalin, a highly toxic chemical, is a solution of
formaldehyde gas dissolved in water and used industrially.  A
preliminary study suggested an anti-inflammatory action of Viprovex in animals
exposed to formalin vapor.
 
 If
Viprovex can be developed, we believe that potential applications may exist for
sale to governments for the treatment of exposure to anthrax and pandemic
influenza – either as stand-alone treatments or as vaccine adjuvants. In
addition, we believe that potential commercial opportunities may exist for the
treatment of seasonal influenza and other viral or bacterial infections, either
as a stand-alone drug or in conjunction with other drugs.





Biological Exposure
Applications





Infectious
Disease - Seasonal and Pandemic Influenza





We
believe that results from our studies may reveal the potential ability of
Viprovex to enhance flu therapies, minimize the respiratory impact of influenza
infection and augment the capability of vaccination to induce a protective
immune response.





In
October 2003 the Air Force Office of Scientific Research sponsored preliminary
studies with the Hong Kong influenza virus (A/Hong Kong/8/68) and Viprovex at
the University of Arizona, Arizona Health Sciences Center, Lung Injury
Laboratory. We believe that these studies suggest that when mice were exposed to
the irritant JP-8 jet fuel and then inoculated with the Hong Kong respiratory
virus (HKV), they experience elevated levels of inflammatory cells in their
lungs. These levels were reduced in animals also treated with Viprovex. In
contrast to control animals exposed to the virus the JP-8 treated animals also
treated with Viprovex, did not develop the clinical symptoms of viral infection,
which included increases in alveolar macrophages and neutrophils in
broncho-alveolar lavage fluid. These cells are components of the immune system
that are expressed out of the blood and into the fluid inside the lungs coating
the alveoli. The alveoli, found in the respiratory zone of the lungs, are
primary sites of gas exchange where blood and air exchange oxygen and carbon
dioxide carried by red blood cells. The fluid is acquired and assayed by lavage
(washing the lung airways with liquid) and assessing the cells and chemicals in
this wash fluid. Animals treated with Viprovex also exhibited lower levels
of leukotriene B4 (LTB4), a chemical released by white blood cells during an
immune response, than animals not treated with Viprovex. Elevated LTB4 would
attract the inflammatory cells, particularly neutrophils, which would follow
infection with virus. Electron micrographs showed healthier, normal appearing
cells in the airways with no virus particles in the Viprovex-treated animals, in
contrast to the HKV/JP-8 controls, suggesting, in our opinion, that Viprovex
actually prevented viral replication and pathology, perhaps by stimulating the
pulmonary alveolar macrophages to actively attack, engulf and destroy the virus
more effectively. Without virus particles in the lungs, there would be no
need to mount an immune response. Based on the results of this study, we believe
that Viprovex may be potentially used to increase the ability of the body's own
immune system to naturally fight off flu strains, thereby presenting the
possibility that Viprovex could be used either as a stand- alone treatment or as
an adjunct to a vaccine or other therapy.





On
November 29, 2005 we applied for a PIND from the Department of Health and Human
Services (HHS) for the use of Viprovex in the treatment of avian influenza. The
PIND number for the use of Viprovex in treating avian influenza was issued on
December 19, 2005 (PIND No. 73,709).





Subsequently,
we have sponsored influenza studies conducted at Virion Systems, Inc., utilizing
rodents to test the efficacy of Viprovex in treating the human influenza
A/Wuhan/359/95 (H3N2), a model system for studying respiratory viruses that
infect humans. We believe results demonstrated that Viprovex attenuated the
symptoms of influenza by decreasing weight loss and hypothermia and also
decreased viral titers in lungs and nasal passages over non-treated, infected
animals. In similar studies, animals were infected with H3N2 and treated with
Viprovex, the anti-viral drug Tamiflu® (oseltamivir, Roche), or both. Pulmonary
inflammation was assessed by a trained histopathologist and showed, in our
belief, to be inhibited by Viprovex.





In our
opinion, the data acquired to date examining the effect of Viprovex on influenza
infection suggests an anti-viral action occurs in lungs and, more noticeably, in
nose. Further, in conjunction with the suggested anti-viral effect, animal
weights and temperatures were normalized. Differences in cytokines, small
peptide-signaling molecules released by cells of the immune system to mediate
inflammation and immune responses were also witnessed. In the opinion of
management, such Viprovex-induced changes in immune response as evidenced by
cytokine signals demonstrate the potential efficacy of Viprovex. Based on our
results, we believe that Viprovex may show efficacy as a stand-alone drug in the
treatment of influenza. Further, when used in conjunction with a neuraminidase
inhibitor, currently the most effective pharmacological agents (zanamivir
(Relenza®, GlaxoSmithKline) and oseltamivir (Tamiflu®, Roche)) to treat
influenza by inhibiting an enzyme necessary for infectivity, Viprovex might be
an effective vaccine adjuvant treating or mitigating the pathology associated
with influenza infection.





There is
no assurance that our interpretation of the results of the studies will prove to
be accurate after further testing.





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Vaccine
Adjuvant
 
 Vaccine
adjuvants are chemicals, traditionally co-administered with vaccines, which are
designed to not stimulate an immune response when administered on their own but,
rather improve the immune response to other, co-administered vaccines.
Currently, the only FDA-approved adjuvants are alum, an aluminum salt and MPL, a
bacterial membrane-derived lipid-carbohydrate. Adjuvants in development
generally consist of derivatives of nucleic acids or lipids that most typically
would be found within invading micro-organisms.  These micro-organism
derived chemicals trigger the host’s immune system to provide a more robust
response, enhancing the host’s ability to fight off infection by the
micro-organism.
 
 Results
from studies in animals suggest that Viprovex may have potential value as a
vaccine adjuvant.
 
 Under a
co-development agreement with GenPhar, Inc., Viprovex was evaluated for adjuvant
activity in combination with GenPhar’s pandemic influenza vaccines in a murine
model of vaccination and virus challenge. In this model, mice were vaccinated
with GenPhar’s proprietary avian influenza vaccines and challenged by exposure
to highly pathogenic virus at concentrations that ordinarily would be lethal to
the mice.Viprovex-adjuvanted vaccine resulted an approximate 300% increase of
influenza virus antibody levels in animals evaluated for Spanish-flu proteins
and roughly 50% increase in animals evaluated for Avian flu
proteins.  This adjuvant activity correlated with enhanced survival
after intranasal challenge with highly pathogenic avian (H5N1)
influenza.  Results indicated that only 33% of the Spanish
flu-vaccinated animals survived challenge, while 100% of Spanish flu-vaccinated
mice that received Viprovex survived.
 
 Additional
studies conducted with Viprovex in cell culture have shown an increased immune
response to vaccine components as vaccine adjuvant increased immune responses to
vaccine components. Additionally, the anti-anthrax activity reported by Viprovex
is similarly consistent with activation of components of innate immunity that
have been reported to have anti-anthrax activity, such as defensins, small
peptides found in immune cells that help destroy invading
bacteria.
 
 We
believe that the potential efficacy of Viprovex as a vaccine adjuvant, as
detailed above, likely results from the unique combination of two mechanisms
through which Viprovex affects the immune system. As mentioned, the actions of
Viprovex are mediated predominately through interactions with the neurokinin-1
receptor (NK1-R) which in turn stimulates stem and immune cell activity. We
believe that these actions on stem cells and circulating immune cells may
underlie the vaccine adjuvant capability.


Anthrax





Anthrax
is an often-fatal human disease resulting from infection of the bacterium Bacillus anthracis. Anthrax
is most often contracted by skin to skin, or cutaneous, contact with an infected
lesion, resulting from the handling of infected animal
products.  Cutaneous anthrax has a mortality rate of roughly 20%.
Inhalation of B.
anthracis spores results in a severe and often-times lethal infection,
with mortality rates of greater than 80%. As a result of the high mortality rate
and broad route of infection, anthrax is considered a prominent agent of
bioterrorism.





To date
we have sponsored multiple anthrax studies, which were conducted utilizing
rodents to evaluate the efficacy of Viprovex in reducing the mortality rate of
an active pulmonary infection of anthrax. Results suggest that when treated with
Viprovex prior to exposure to anthrax spores, Viprovex elicited protective,
prophylactic efficacy. When treated a short time after exposure to anthrax
spores, Viprovex elicited post-exposure, pre-symptom prophylactic
efficacy.





We signed
a Material Transfer Agreement with VaxGen, Inc. in August of 2007 with the
intention of receiving the pharmaceutically active ingredient of VaxGen’s
anthrax vaccine candidate to be tested in combination with Viprovex. These tests
will commence once results are analyzed from on-going formulation and mode of
administration studies for Viprovex.





Further
research, in our opinion, has supported these findings of prophylactic efficacy
of Viprovex against anthrax and also demonstrated Viprovex to show efficacy in
increasing survival rates in mice pretreated with anthrax. Additionally, while
these results are preliminary, we believe that Viprovex could play an important
role, in conjunction with other therapies, in improving treatments of anthrax
exposure.





There is
no assurance that our interpretation of the results of the studies will prove to
be accurate after further testing.





Other
Infectious Diseases





Melioidosis,
also called Whitmore's disease, is an infectious disease caused by the bacterium
Burkholderia
pseudomallei, and is endemic to Southeast Asia and is seen in the South
Pacific, Africa, India, and the Middle East as well. The causative agent, Burkholderia pseudomallei can
be transmitted from animals to man as well as from person to person. The
bacteria can be found in contaminated water and soil and is spread to humans and
animals through direct contact with the contaminated source. Mortality rate for
melioidosis varies and is as high as 90% particularly when aerosolized. The
Centers for Disease Control and Prevention (CDC) considers both B. pseudomallei and its
related B. mallei as
potential agents for biological warfare and biological terrorism.
 
 In the
third quarter of 2007, we completed a study to investigate the therapeutic
effects of Viprovex on acute melioidosis. This study was funded and performed in
conjunction with Singapore's Defense Medical & Environmental Research
Institute, DSO National Laboratories ("DSO"). Initial findings were unremarkable
but further studies are planned.


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Chemical
Exposure Applications





Based on
early studies on Homspera and JP-8 jet fuel, and existing literature on
Substance P, we have performed research on the efficacy of Viprovex as a
potential treatment for exposure to chemical agents. To date, we have only
conducted limited preclinical studies with regard to the development of Viprovex
for indications related to treatment of exposure to harmful
chemicals.




There is
no assurance that our interpretation of the results of the studies will prove to
be accurate after further testing.




JP-8
Jet Fuel and Smoke
 
 We
believe our early AFOSR rodent studies demonstrated the administration of
Substance P and Homspera to animals exposed to JP-8 decreased the effect of jet
fuel inhalation to inhibit the immune system, while administration of Substance
P receptor (NK1) antagonists compounded the deleterious effects. Further
experiments performed using Viprovex examined effectiveness in preventing lung
injury on inhalation of toxic diesel exhaust fumes. In our opinion based on our
results, Viprovex has been shown to exhibit anti-inflammatory effects in animal
models.




Formalin





Formalin
is a solution of formaldehyde gas dissolved in water, used industrially and
toxic typically via crosslinking of proteins to other nearby proteins.
Formaldehyde is one of the 25 most abundantly produced chemicals in the world
and has use in many industries. When dissolved in water at 30% to 50%
formaldehyde, and often with methanol as a stabilizer, the resulting formalin
solution is toxic to embryos and adult organisms.





We have
conducted one pilot study to determine if aerosolized Viprovex could be
effective in attenuating lung injury after formalin exposure. In this study of
rats exposed to an aerosol application of formalin data suggests, in our
opinion, that treatment with inhaled Viprovex may minimize lung damage
concurrent with formalin inhalation.





There is
no assurance that our interpretation of the results of the studies will prove to
be accurate after further testing.





DEVELOPMENT
PROGRAM




Research and Development
Spending
 
 Due to
our liquidity and limited cash available our spending on research and
development activities has been limited. We spent approximately $455,017 and
$484,029 in 2007 and 2006, respectively, in research and development activities
related to the development of Homspera, Radilex and Viprovex. From our inception
in October 2002, we have spent $1,481,614 in research and development
activities. These costs only include the manufacture and delivery of our drug by
third party manufacturers, payments to Contract Research Organizations and
consultants for consulting related to our studies and costs of performing such
studies. Significant costs relating to research and development, such as salary
for Dr. Siegel, have been classified in officer salaries for consistency of
financial reporting.
 
 We
anticipate that during the next 12 months we will increase our research and
development spending to a total of approximately $800,000 in an effort to
further develop Homspera, Radilex and Viprovex. This research and development
cost estimate includes additional animal pharmacology studies, formulation and
animal safety/toxicity studies. If we receive additional funds, through either
investment funding or grants, we expect we will increase our research and
development spending.
 
 Grants
 
 From time
to time, we may apply for governmental grants and respond to formal requests
from the government for additional information, thereby possibly allowing us to
be included as a candidate for potential future grants.
 
 Since our
incorporation in October 2002, we have made submissions for twelve grants either
by submitting Requests For Information (RFI), Requests for Proposal (RFP), Broad
Agency Announcements (BAA), requests for white papers and/or fully executed
grant applications. To date our applications for grant funding have not been
accepted. We intend to continue to apply for grants; however, there can be no
assurance that we will ever receive any grants.







11
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In August
of 2007, Dr. Siegel, our Director and Senior Director of Product Development and
Regulatory Affairs, made a presentation at the 2007 Biomedical Advanced Research
and Development Authority (BARDA) Industry Day in Washington,
D.C.  The presentation highlighted our research and development
activities pertaining to Homspera as a possible treatment for Acute Radiation
Syndrome (ARS), Anthrax infection and pandemic influenza.  The purpose
of the forum is for companies interested in working with the Federal Government
to showcase technological advances to agencies such as Project Bioshield, BARDA,
and HHS.
 
 Study
Partners
 
 Extensive
time and money is required to be spent to develop new drug applications by the
time they are approved by regulatory agencies for use on the market. In order to
efficiently and expeditiously navigate the research, development and regulatory
approval process in hopes of bringing our applications to market, our
development program relies on the use of study partners and co-development
relationships.
 
 Contract
Research Organizations (CRO's) are independent laboratories or other
facilities that provide contract services to the pharmaceutical industry. These
CRO's offer broad therapeutic expertise, advanced technologies and extensive
resources for drug discovery and drug and device development, and in some
instances partnering opportunities. In the opinion of management, using these
outside organizations helps to maximize our flexibility and minimize our
one-time costs in outsourcing very expensive programs to those companies that
maintain the necessary infrastructure to perform these cost-effectively
according to internationally recognized standards. Further, as product demands
change, we believe that this structure will allow us to move our resources to
more appropriate contract research or development or formulation or
manufacturing facilities without incurring loss of time or money on outdated
projects and programs. As we move our candidate products into FDA-compliant
animal safety testing, we expect to contract with specialty groups,
organizations or companies that meet regulatory requirements and have adequate
and appropriate technical capabilities, rather than develop and maintain an
animal use and care facility ourselves that is compliant with current Good
Laboratory Practices.
 
 To date
we have worked with numerous study partners and contractors including CRO's,
biotechnology companies, hospitals, institutions and
universities.  Some of these partners and contractors include Celgene
Corporation, HemoGenix, Inc., National Institutes of Health, Lovelace
Respiratory Research Institute, University of California at Berkeley, University
of Medicine & Dentistry of New Jersey, Pacific Northwest National
Laboratory, Armed Forces Institute of Pathology, Southern Research Institute,
Dynport Vaccine Company, Virion Systems, Hyperion Biotechnology, Charles River
Laboratories, Apptec, TGA Sciences, BioQuant, The Children's Hospital of
Philadelphia, AAI Pharma, CS Bio Company, Stemcell Technologies, Tandem Labs,
University of Arizona, Integrated Biomolecule Corporation, Johns Hopkins
Medicine, InvivoGen, MIR Preclinical Services, Covance and T-Gen
TD2.
 
 Co-Development
Relationships
 
 Our
co-development relationships generally involve some combination of sharing
costs, combining technologies and know-how and/or profit-sharing with our
co-development partners.  Our current co-development partners
are:
 
 BioCure, Inc.  We have
entered into an agreement to develop wound healing treatment using Homspera with
BioCure's proprietary spray-on hydrogel drug-delivery technology.
 
 DelSite Biotechnologies,
Inc.  We have signed an agreement to develop wound healing treatment
using Homspera with DelSite's proprietary polysaccharide drug delivering wound
dressing.  Additionally, the agreement entails the development of our
vaccine adjuvant with DelSite's proprietary polysaccharide antigen delivery
device.
 
 ULURU Inc.  We have
entered into an agreement to develop a strategic partnership with ULURU Inc. to
co-develop the combination of ULURU's hydrogel nanoparticle biomaterial and
Homspera into a potential wound healing treatment.
 
 Virion Systems, Inc. We
have entered into a cost sharing and profit-sharing agreement to conduct animal
studies on Viprovex as treatment for both seasonal and pandemic
influenza.
 
 GenPhar, Inc. We have entered into a cost sharing
agreement to conduct animal studies on Viprovex as an adjuvant to GenPhar’s
proprietary cAdVaxTM vaccine for influenza.
 
 Advisory Boards and
Consultants
 
 To assist
us in the research and development of our various applications we make use of
outside consultants and advisory boards.





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Consultants





We
currently contract three outside consultants related to the research and
development, including regulatory affairs, of our potential
products.
 
 Dr.Joy A. Cavagnaro, Ph.D., DABT, RAC. Dr. Cavagnarois
the President of Access BIO, Boyce, VA, a consultancy specializing in
science-based regulatory strategies and preclinical product development services
to facilitate biomedical research and emerging technologies. Specific product
areas of expertise include vaccines, cellular and gene therapies, animal-based
and plant-based biotherapeutics, biotechnology-derived and tissue engineered
products.   She has over 25 years experience in biotech spanning
academia, the CRO and biotech industries and government, including the
FDA.  During her tenure at the FDA Center for Biologics Evaluation and
Research Dr. Cavagnaro was appointed to the Senior Biomedical Research Service,
served as FDA's topic lead for safety for the ICH initiative for 7
years.  Dr. Cavagnaro’s engagement with us began on February 25, 2008
and is to provide expertise in support of our preclinical strategy regarding our
drug development program.  She is paid an hourly fee in
cash.
 
 Dr.Chet Leach, Ph.D.. Dr. Leach
was  previously Director of Preclinical Toxicology for Lovelace and
Director of Life Science Research and Development at Nektar Therapeutics, will
serve as an independent consultant to us, assisting in planning upcoming
clinical trials and non- clinical studies, and helping to prepare for eventual
clinical trials of Homspera. Leach has nearly 30 years experience in toxicology
and pulmonary drug development, having also held positions at IIT Research
Institute, Battelle Pacific Northwest Laboratories, and 3M Pharmaceuticals,
where he was head of Preclinical Pulmonary Drug Development. Dr.
Leach‘s engagement with us began on February 14, 2008 and calls for him to
assist in planning non clinical studies and to help prepare for eventual
clinical trials of Homspera.  He is paid an hourly fee in
cash.
 
 Dr. Pranela Rameshwar,
Ph.D. Dr. Rameshwaris a professor at The University of Medicine and Dentistry of New
Jersey, where she teaches and conducts translational research at the Medicine
Department, Division of Hematology/Oncology. She received her undergraduate
degree in Medical Microbiology from the University of Wisconsin, and her Ph.D.
in Biology from Rutgers University, writing her doctoral thesis on the
stimulatory effect of substance P on the immune system. Dr. Rameshwar has written over 100 articles on
regenerative medicine, genetics, and stem cell research and has presented over
140 abstracts at national and international meetings including the American
Society of Hematology, the American Society of Immunologists, and the American
Association for Cancer Research. She began consulting for us in December of
2007 and is paid a cash fee on an hourly basis for consulting on the design of
study protocols and issues relating to Homspera’s properties in comparison to
endogenous Substance P.
 
 Advisory
Boards
 
 We
currently have two advisory boards - the Scientific Advisory Board and the
Bioterrorism Preparedness Advisory Board. Advisory board members are appointed
for one-year terms by our management. For services rendered, members of our
advisory boards are compensated on a quarterly basis in common stock purchase
options issued under our 2003 Stock Option, Deferred Stock and Restricted
Stock  Plan.
 
 The
Scientific Advisory Board was formed to educate and provide direction with
regard to the discovery, research and development of applications using Homspera
in the areas of expertise of the various advisory board members. The following
individuals comprise our Scientific Advisory Board:
 
 Dr. John
Dann, M.D., D.D.S. graduate of Harvard University Dental School
and Washington University Medical School, Board Certified
maxillofacial and cranial facial surgeon.
 
 Dr.
Jeffery Friedman, M.D., Diplomat, American Board of Cosmetic Surgery, American
Board of Otolaryngology Head and Neck Surgery, Fellow of the American Academy of
Cosmetic Surgery.
 
 Dr. Susan
E. Leeman, Ph.D, Professor in the Department of Pharmacology and Experimental
Therapeutics at the Boston University School of Medicine. Dr. Leeman was one of
the first scientists to isolate substance P in the central nervous and
gastrointestinal systems. Dr. Leeman was elected to the National Academy of
Sciences in 1991.
 
 Dr. K.A.
Kelly McQueen, M.D., MPH. Anesthesiologist and Public Health Consultant;
Infectious Disease and Disaster Planning for U.S. Army and US Northern Combatant
Command.
 
 Dr.
Pranela Rameshwar, Ph.D.,  Professor in the Department of Medicine,
Division of Hematology/Oncology at the University of Medicine and Dentistry of
New Jersey; research areas include Substance P, stem cells and
cancer.





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The
Bioterrorism Preparedness Advisory Board was formed to discuss logistics
and coordinate between agencies and their first responder groups in the event of
an attack or outbreak. We have attempted to appoint knowledgeable military and
private citizens that possess first hand experience in combat casualty and mass
trauma scenarios, including preparation for a bioterrorist attack and/or medical
or scientific expertise. The following individuals comprise our Bioterrorism
Preparedness Advisory Board:





Dennis E.
Amundson, D.O., Captain, United States Navy, Medical Corps, Naval
Medical Center, San Diego, Pulmonary Medicine.





Frederick
M. Burkle, Jr., M.D., Director, Asia-Pacific Center for Biosecurity, Disaster
& Conflict Research, and a Professor in Tropical Medicine, Public Health and
Epidemiology, at the University of Hawaii's John A. Burns School of Medicine,
Senior Fellow, the Harvard Humanitarian Initiative and Director of the
Asia-Pacific Branch and Senior Scholar, Scientist, and Visiting Professor at
John Hopkins University Medical Institutes' Center for Refugee & Disaster
Response.





Mr.
Michael Caridi,  Chairman, MAJIC Development Group, SRC Industries Inc. and
Protection Plus Security Consultants, Inc.





Paul
Carlton, M.D.,  Lt. General, USAF, Medical Corps, (Ret.), Director,
Homeland Security for The Health Science Center The
Texas A&M University System, Former USAF Surgeon
General





William
Hoehn, Ph.D., Visiting Professor, Georgia Tech, Sam Nunn School of
International Affairs, Center for International Strategy, Technology, and
Policy





Col.
Kerrie Lindberg (Ret.),  Colonel, USAF, Nurse Corps, (Ret.), Former
Director, Defense Institute for Medical Operations (DIMO), Brooks City-Base,
Texas





K.A.
Kelly McQueen, M.D., MPH. Anesthesiologist and Public Health Consultant;
Infectious Disease and Disaster Planning for U.S. Army and US Northern Combatant
Command





MANUFACTURING





As
previously discussed, we expect that Radilex and Viprovex will ultimately have
distinct formulations and dosing regimens, however, at this early stage of
development, the formulations used are identical. We do not have, and do not
intend to establish, manufacturing facilities to produce Homspera, Radilex or
Viprovex or any other potential products, if any, that may be derived from
Homspera.





As an
analog of a naturally occurring substance, the compound itself is not
proprietary; therefore, we have used and expect to continue to use third party
manufacturers to obtain synthetic Homspera or Sar9, Met
(O2)11-Substance
P, the active ingredient in experimental formulations of Radilex and Viprovex.
We believe Sar9, Met
(O2)11-Substance
P is readily available at low cost from several life science and technology
companies that provide biochemical and organic chemical products used in
scientific and genomic research, biotechnology, pharmaceutical development and
the diagnosis of disease and chemical manufacturing. Further, we believe that
the Sar9, Met
(O2)11-Substance
P is readily available from various sources, and several suppliers are capable
of supplying such in both clinical and initial commercial quality and
quantities.





Since to
date we are only purchasing research quantities of the drug at this time, we
have not entered into any contracts or agreements with any third party
manufacturers, other than standard non-disclosure agreements.





The
manufacture of Homspera, Radilex, Viprovex or any potential products, if any,
derived from Homspera, whether done by outside contractors, as planned, or
internally, will be subject to rigorous regulations, including the need to
comply with the FDA's current Good Manufacturing Practice (cGMP) standards. As
part of obtaining FDA approval for each product, each of the manufacturing
facilities must be inspected, approved by and registered with the FDA. In
addition to obtaining FDA approval of the prospective manufacturer's quality
control and manufacturing procedures, domestic and foreign manufacturing
facilities are subject to periodic inspection by the FDA and/or foreign
regulatory authorities.





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PATENTS
AND PROPRIETARY RIGHTS





We
are developing Substance P analogues for a variety of uses. Our intellectual and
proprietary rights with respect to these developments are essential to our
business. We file patent applications to protect our inventions, and
improvements to our inventions that we consider important to the development of
our business. We also rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
our competitive position.


We have
filed patent applications directed to various methods of using and compositions
comprising Substance P analogues. We presently own at least five issued patents,
including at least two issued U.S. patents and at least three issued foreign
patents, one of which has been registered in nine countries in the European
Union. We also have at least 61 pending patent applications, including at least
10 pending U.S. utility patent applications, at least 10 pending U.S.
provisional applications, at least 4 pending international patent applications,
and at least 37 pending foreign patent applications. All inventions
embodied in these applications and issued patents have been assigned to the
company by the inventors.
  We
currently own issued patents in the U.S. drawn to methods of using one or
more Substance P analogues to inhibit metastasis and to stimulate the immune
system of immunocompromised individuals. Similar patents have been issued in
Europe and Australia. We were also recently granted a patent in Singapore for
the use of Substance P analogues to ameliorate the effects of cigarette
smoke.
 
 We have
also filed U.S. and foreign patent applications for a variety of uses of the
substance P analogues including treating infectious diseases, pulmonary
disorders, hematologic disorders, wound healing, as well as various uses in the
areas of stem cell technology, dermatology and cosmetics. Because these
applications have not yet been granted, the rights in these subject matters
remain potential.
 
 Some of
our research has been funded by the Air Force Office of Scientific Research and
has been conducted at the University of Arizona. We have received waivers of
ownership rights from the United States Air Force and the University of Arizona
in regard to issued U.S. Patents 5,945,508 and 5,998,376 and pending patent
applications in this family. We are expecting to receive similar waivers from
the United States Air Force and the University of Arizona for any remaining
patent applications that may be subject to such rights.
 
 Although
we own U.S. Patent Numbers 5,945,508 and 5,998,376, (Substance P Treatment for
Immunostimulation), our rights in those patents are subject to certain
limitations with respect to the University of Arizona and the United States Air
Force as described below. If patents are issued for any of our pending patent
applications in this patent family, the same limitations would most likely
apply.
 
 Our
agreements with the University of Arizona outline specific rights in regard to
our sponsored-supported projects. In accordance with our sponsored-supported
project agreements, the University of Arizona retains the right to use data
developed during these projects for non-commercial purposes, including teaching,
research and education. ImmuneRegen BioSciences, Inc. retains the rights to
trade secrets, inventions, developments and discoveries as limited by the
University of Arizona's employment contracts in effect at the time the
intellectual property was created. Further to this point, the principal
investigator at the University of Arizona, Dr. Mark Witten, was a consultant to
ImmuneRegen BioSciences, and, under the terms of his consulting agreement,
ImmuneRegen BioSciences, Inc. retains rights to any developments or discoveries
that he made in the course of working for us.
 
 As a
result of governmental funding, the U.S. Government has certain rights in the
technology developed with such funds. These rights include a non-exclusive,
paid-up, worldwide license for any governmental purpose. In addition, the
government has the right to require us to grant an exclusive license to any such
funded invention to a third party if the government determines that: (i)
adequate steps have not been taken to commercialize such inventions, (ii) such
action is necessary to meet public health or safety needs, or (iii) such action
is necessary to meet requirements for public use under federal
regulations.
 
 In this
regard, the United States Air Force has reserved a non-exclusive license to U.S.
Patent Number 5,945,508 and 5,998,376 in connection with Air Force grant
F49620-94-1-0297 and may, under certain conditions, have commensurate or
additional license rights under the Bayh-Dole Act. Those rights are set forth in
35 U.S.C. §202(c)(4) and 37 C.F.R. §§401.9 and 14(a).
 
 Under the
federal Bayh Dole Act, a party which acquires an exclusive license for an
invention that was partially funded by a federal research grant is subject to
the following government rights: (i) products using the invention which are sold
in the U.S. are to be manufactured substantially in the U.S. unless a waiver is
obtained; (ii) the government may force the granting of a license to a third
party who will make and sell the needed product if the licensee does not pursue
reasonable commercialization of a needed product using the invention; and (iii)
the U.S. Government may use the invention for its own needs.
 
 Besides
the rights that have been granted to the U.S. Government, the validity and
breadth of claims in medical technology patents involve complex legal and
factual questions and, therefore, may be highly uncertain. No assurance can be
given that any patents based on pending patent applications or any future patent
applications by us will be issued, that the scope of any patent protection will
exclude competitors or provide competitive advantages to us, that any of the
patents that have been or may be issued to us will be held valid if subsequently
challenged or that others will not claim rights in or ownership of the patents
and other proprietary rights held by us. Furthermore, there can be no assurance
that others have not developed or will not develop similar products, duplicate
any of our products or design around any patents that have been or may be issued
to us. We also cannot be certain that others did not first file applications for
inventions covered by our pending patent applications, nor can we be certain
that we will not infringe any patents that may be issued to others on such
applications.





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We also
rely on trade secrets and unpatentable know-how that we seek to protect, in
part, by confidentiality agreements. It is our policy to require our employees,
consultants, contractors, manufacturers, outside scientific collaborators and
sponsored researchers and other advisors to execute confidentiality agreements
upon the commencement of relationships with us. These agreements provide that
all confidential information developed or made known to the individual during
the course of the individual's relationship with us is to be kept confidential
and not disclosed to third parties except in specific limited circumstances. We
also require signed confidentiality or material transfer agreements from any
company that is to receive our confidential information. In the case of
employees, consultants and contractors, the agreements generally provide that
all inventions conceived by the individual while rendering services to us shall
be assigned to us as our exclusive property. There can be no assurance, however,
that these agreements will not be breached, that we would have adequate remedies
for any breach, or that our trade secrets or unpatentable know-how will not
otherwise become known or be independently developed by
competitors.





Our
potential success will also depend in part on our ability to develop
commercially viable products without infringing the proprietary rights of
others. We have conducted preliminary freedom to
operate  inquiries  on four  potential uses of
substance P analogues: (i) treatment or prevention of avian influenza in
mammals; (ii) wound healing stimulation, especially in irradiated persons; (iii)
enhancing a response to a vaccine; and (iv) immunostimulation of
immunocompromised individuals.  These searches were limited to claim
scope and did not address validity issues.  Although the inquiry did
not uncover any claims which would impede our freedom to operate, no assurance
can be given that patents do not exist or could not be filed which would have an
adverse affect on our ability to market our technology or maintain our
competitive position with respect to our technology. If our technology
components, devices, designs, products, processes or other subject matter are
claimed under other existing U.S. or foreign patents, or are otherwise protected
by third party proprietary rights, we may be subject to infringement actions. In
such event, we may challenge the validity of such patents or other proprietary
rights or we may be required to obtain licenses from such companies in order to
develop, manufacture or market our products. There can be no assurances that we
would be able to obtain such licenses or that such licenses, if available, could
be obtained on commercially reasonable terms. Furthermore, the failure to either
develop a commercially viable alternative or obtain such licenses could result
in delays in marketing our proposed technology or the inability to proceed with
the development, manufacture or sale of products requiring such licenses, which
could have a material adverse affect on our business, financial condition and
results of operations. If we are required to defend ourselves against charges of
patent infringement or to protect our proprietary rights against third parties,
substantial costs will be incurred regardless of whether we are successful. Such
proceedings are typically protracted with no certainty of success. An adverse
outcome could subject us to significant liabilities to third parties and force
us to curtail or cease our development and sale of our products and
processes.
 
 We may
collaborate in the future with other entities on research, development and
commercialization activities. Disputes may arise about inventorship and
corresponding rights in know-how and inventions resulting from the joint
creation or use of intellectual property by us and our collaborators, partners,
licensors and consultants. As a result, we may not be able to maintain our
proprietary position.
 
 Trademarks
 
 
 On August
15, 2006, Viprovex became our federally registered trademark (Registration
Number 3,130,407) in International Class 5 with respect to pharmaceutical
products, namely antidotes for the treatment of viral, chemical and biological
warfare agents.
 
 On
October 30, 2007, Radilex became our federally registered trademark
(Registration Number 3,325,241) in International Class 5 with respect
to  biotechnology pharmaceuticals, namely, products for counteracting
exposure to radiation and chemical agents.
 
 On
January 8, 2008, we filed a declaration of actual use with the U.S.Patent and
Trademark Office for Homspera with respect to biotechnology pharmaceuticals,
namely adjuvants, counter-actants and immunostimulant products for enhancing the
natural and reactive immunity to toxic agents.  As of the date of this
report, the application is still pending.
 
 On
November 6, 2007, ImmuneRegen became our federally registered trademark
(Registration Number. 3,329,995) in International Class 5 with respect
to  biotechnology pharmaceuticals, namely adjuvants, counter-actants
and immunostimulant products for enhancing the natural and reactive immunity to
toxic agents.







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RESEARCH
AND LICENSE AGREEMENTS





Our
patents and continued research on Sar9, Met
(O2)11-Substance
P are derived from discoveries made during research studies funded by the Air
Force Office of Scientific Research in 1994 by our co-founders Drs. Mark Witten
and David Harris. In December 2002 we entered into consulting agreements on a
month-to-month basis with Dr. Mark Witten and Dr. David Harris. Under the terms
of these agreements, Drs. Witten and Harris agreed to place at the disposal of
us their judgment and expertise in the area of acute lung injury. In
consideration for these services, we agreed to pay each of Drs. Witten and
Harris a non-refundable fee of $5,000 per month. We and Dr. Harris agreed to
terminate the consulting agreement for Dr. Harris in March 2005. In January
2006, the company received correspondence from Dr. Witten stating that he would
terminate his consulting contract if his specific requirements were not met. We
subsequently accepted his termination effective February 1,
2006.


In
December 2002, we entered into a royalty-free license agreement with Drs. Witten
and Harris. Under the terms of the license agreement, Drs. Harris and Witten
granted to us an exclusive license to use and sublicense certain patents,
medical applications, and other technologies developed by them. Our obligations
under this agreement include (i) reasonable efforts to protect any licensed
patents or other associated property rights; (ii) reasonable efforts to maintain
confidentiality of any proprietary information; (iii) upon the granting by the
U. S. Food and Drug Administration to us the right to market a product, we will,
for so long as we sell any product or medical application which incorporates or
utilizes the patents, medical applications, and other technologies developed by
Drs. Witten and Harris, maintain in full force and effect policies of general
liability insurance (with Broad Form General Liability and Product Liability
endorsements) with limits of not less than $1,000,000 per occurrence and
$1,000,000 annual aggregate. The license agreement will terminate ten years
after the date of the expiration of the last patent issued or issuing with
respect to the licensed patents, medical applications, and other technologies.
The resignation of Dr. Harris as a director of our company in December 2004 and
as a consultant in March 2005 does not have any impact upon the terms of the
license agreement. The resignation of Dr. Witten as a consultant to our company
in February 2006 does not have any impact upon the terms of the license
agreement.





In
February 2005, Drs. Witten and Harris executed assignment documents in which,
for good and valuable consideration, patent applications and patents developed
by them were assigned to ImmuneRegen BioSciences, Inc. The assignment documents
included all of the patents and patent applications which were included in and
covered by the Licensing Agreement, as amended. Drs. Witten and Harris have also
assigned all proprietary technology developed at ImmuneRegen subsequent to the
execution of the February 2005 assignment documents.





All
patent applications filed subsequent to those assigned by Drs. Witten and Harris
have been assigned to ImmuneRegen by the inventors.





GOVERNMENTAL
REGULATION





Our
research and development activities and the manufacturing and marketing of our
applications are subject to the laws and regulations of governmental authorities
in the U.S. and other countries in which our applications may be potentially
marketed. Specifically, in the U.S., the FDA, among other activities, regulates
new product approvals to establish safety and efficacy of these applications.
Governmental authorities in the United States extensively regulate the
pre-clinical and clinical testing, safety, efficacy, research, development,
manufacturing, labeling, storage, record-keeping, advertising, promotion,
export, marketing and distribution, among other things, of pharmaceutical
products. Governments in other countries have similar requirements for testing
and marketing. In the U.S., in addition to meeting FDA regulations, we are also
subject to other federal laws as well as certain state laws.





REGULATORY
PROCESS IN THE UNITED STATES





In the
United States, the FDA, under the Federal Food, Drug, and Cosmetic Act (FFDCA),
the Public Health Service Act and other federal statutes and regulations,
subject pharmaceutical and biologic products to rigorous review. If we do not
comply with applicable requirements, we may be fined, the government may refuse
to approve our marketing applications or allow us to manufacture or market our
products or product candidates, and we may be criminally prosecuted. The FDA
also has the authority to discontinue or suspend manufacture or distribution,
require a product withdrawal or recall or revoke previously granted marketing
authorizations, if we fail to comply with regulatory standards or if we
encounter problems following initial marketing.





Approval
of new pharmaceutical (and biological) products is a lengthy procedure leading
from development of a new product through pre-clinical and clinical testing.
This process takes a number of years and the expenditure of significant
resources. There can be no assurance that our product candidates will ultimately
receive regulatory approval.





Regardless
of how our product candidates are regulated, the FFDCA and other Federal
statutes and regulations govern or influence the research, testing, manufacture,
safety, labeling, storage, record-keeping, approval, distribution, use, product
reporting, advertising and promotion of such products. Noncompliance with
applicable requirements can result in civil penalties, recall, injunction or
seizure of products, refusal of the government to approve or clear product
approval applications or to allow us to enter into government supply contracts,
withdrawal of previously approved applications and criminal
prosecution.







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PRODUCT
APPROVAL IN THE UNITED STATES





To obtain
approval of a new product from the FDA, we must, among other requirements,
submit data demonstrating the product's safety and efficacy, as well as,
detailed information and reports on the manufacture and composition of the
product candidate. In most cases, this entails extensive laboratory tests,
pre-clinical and clinical trials. This testing and the preparation of necessary
applications and processing of those applications by the FDA are expensive and
typically take many years to complete. The FDA may deny our applications or may
not act quickly or favorably in reviewing these applications, and we may
encounter significant difficulties or costs in our efforts to obtain FDA
approvals that could delay or preclude us from marketing any products we may
develop. The FDA also may require post-marketing testing and surveillance to
monitor the effects of approved products or place conditions on any approvals
that could restrict the commercial applications of these products. Regulatory
authorities may withdraw product approvals if we fail to comply with regulatory
standards or if we encounter problems following initial marketing. With respect
to patented products or technologies, delays imposed by the governmental
approval process may materially reduce the period during which we will have the
exclusive right to exploit the products or technologies.





The
process required by the FDA before a new drug or biologic may be marketed in the
United States generally involves the following:









·completion of pre-clinical laboratory
tests or trials and formulation studies;
  ·submission to the
FDA of an IND for a new drug or biologic, which must become effective before
human clinical trials may begin;





·performance of
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the proposed drug or biologic for its intended use;
and,





·submission and
approval of a New Drug Application, or NDA, for a drug, or a Biologics License
Application, or BLA, for a biologic.





Pre-clinical
tests include laboratory evaluation of product chemistry, formulation and
stability, as well as studies to evaluate toxicity. The results of pre-clinical
testing, together with manufacturing information and analytical data, are
submitted to the FDA as part of an IND application. The FDA requires a 30-day
waiting period after the filing of each IND application before clinical trials
may begin, in order to ensure that human research subjects will not be exposed
to unreasonable health risks. At any time during this 30-day period or at any
time thereafter, the FDA may halt proposed or ongoing clinical trials, or may
authorize trials only on specified terms. The IND application process may become
extremely costly and substantially delay development of our products. Moreover,
positive results of pre-clinical tests will not necessarily indicate positive
results in clinical trials.





The
sponsor typically conducts human clinical trials in three sequential phases,
which may overlap. These phases generally include the following:





Phase I:
The product is usually first introduced into healthy humans or, on occasion,
into patients, and is tested for safety, dosage tolerance, absorption,
distribution, excretion and metabolism.





Phase II:
The product is introduced into a limited patient population to:





·  assess its efficacy in specific,
targeted indications;





·  assess dosage tolerance and optimal
dosage; and,





·  identify possible adverse effects and
safety risks.





Phase
III: These are commonly referred to as pivotal studies. If a product is found to
have an acceptable safety profile and to be potentially effective in Phase II
clinical trials, new clinical trials will be initiated to further demonstrate
statistically significant clinical efficacy, optimal dosage and safety within an
expanded and diverse patient population at geographically-dispersed clinical
study sites.





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If the
FDA does ultimately approve the product, it may require post-marketing testing,
including potentially expensive Phase IV studies, to monitor its safety and
effectiveness.
 
 Clinical
trials must meet requirements for Institutional Review Board, or IRB, oversight,
informed consent and the FDA's Good Clinical Practices. Prior to commencement of
each clinical trial, the sponsor must submit to the FDA a clinical plan, or
protocol, accompanied by the approval of the committee responsible for
overseeing clinical trials at one of the clinical trial sites. The FDA and the
IRB at each institution at which a clinical trial is being performed may order
the temporary or permanent discontinuation of a clinical trial at any time if it
believes that the clinical trial is not being conducted in accordance with FDA
requirements or presents an unacceptable risk to the clinical trial
patients.
 
 The
sponsor must submit to the FDA the results of the pre-clinical and clinical
trials, together with, among other things, detailed information on the
manufacturing and composition of the product, in the form of an NDA, or, in the
case of a biologic, a BLA. Once the submission has been accepted for filing, the
FDA has 180 days to review the application and respond to the applicant. The
review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the BLA to an advisory committee
for review, evaluation and recommendation as to whether the application should
be approved, but the FDA is not bound by the recommendation of an advisory
committee.
 
 It is
possible that our product candidates will not successfully proceed through this
approval process or that the FDA will not approve them in any specific period of
time, or at all. The FDA may deny or delay approval of applications that do not
meet applicable regulatory criteria, or if the FDA determines that the clinical
data do not adequately establish the safety and efficacy of the product.
Satisfaction of FDA pre-market approval requirements for a new biologic is a
process that may take several years and the actual time required may vary
substantially based upon the type, complexity and novelty of the product or
disease. The FDA reviews these applications and, when and if it decides that
adequate data are available to show that the product is both safe and effective
and that other applicable requirements have been met, approves the drug or
biologic for marketing. Government regulation may delay or prevent marketing of
potential products for a considerable period of time and impose costly
procedures upon our activities. Success in early stage clinical trials does not
assure success in later stage clinical trials. Data obtained from clinical
activities is not always conclusive and may be susceptible to varying
interpretations that could delay, limit or prevent regulatory approval. Upon
approval, a product candidate may be marketed only for those indications
approved in the BLA or NDA and may be subject to labeling and promotional
requirements or limitations, including warnings, precautions, contraindications
and use limitations, which could materially impact profitability. Once approved,
the FDA may withdraw the product approval if compliance with pre- and
post-market regulatory standards is not maintained or if safety, efficacy or
other problems occur after the product reaches the marketplace.
 
 The FDA
may, during its review of an NDA or BLA, ask for additional test data. If the
FDA does ultimately approve the product, it may require post-marketing testing,
including potentially expensive Phase IV studies, to monitor the safety and
effectiveness of the product. In addition, the FDA may, in some circumstances,
impose restrictions on the use of the product, which may be difficult and
expensive to administer and may require prior approval of promotional
materials.
 
 Animal Efficacy
Rule
 
 Using
traditional efficacy studies in the development of some of our potential
applications would require healthy human volunteers to be exposed to lethal
agents and pathogens. This cannot be done. Therefore, for several of the product
opportunities we are pursuing, we may apply for approval based upon a rule
adopted by the FDA in 2002, titled "Approval of New Drugs When Human Efficacy
Studies Are Not Ethical or Feasible" (Code of Federal Regulations, Title 21,
Part 314, Subpart I), which is also referred to as the "animal efficacy rule."
Pursuant to this rule, in situations where it would be unethical to conduct
traditional Phase III efficacy studies in humans, as is the case with our
applications relating to the treatment of maladies caused by exposure to high
level gamma radiation and various chemical and biological agents, the FDA will
review new drugs for approval on the basis of safety in humans and efficacy in
relevant animal models. Under either the animal efficacy rule or traditional
efficacy rules, we will not have marketable applications unless and until our
drug candidates complete all required safety studies and clinical trials and
receive FDA approval in the United States or approval by regulatory agencies
outside of the United States.





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ONGOING
FDA REQUIREMENTS





Before
approving an NDA or BLA, the FDA will inspect the facilities at which the
product is manufactured and will not approve the product unless the
manufacturing facilities are in compliance with the FDA's current Good
Manufacturing Practices, or cGMP, requirements which govern the manufacture,
holding and distribution of a product. Manufacturers of biologics also must
comply with the FDA's general biological product standards. Following approval,
the FDA periodically inspects drug and biologic manufacturing facilities to
ensure continued compliance with the cGMP requirements. Manufacturers must
continue to expend time, money and effort in the areas of production, quality
control, record keeping and reporting to ensure full compliance with those
requirements. Failure to comply with these requirements subjects the
manufacturer to possible legal or regulatory action, such as suspension of
manufacturing, seizure of product, voluntary recall of product, withdrawal of
marketing approval or civil or criminal penalties. Adverse experiences with the
product must be reported to the FDA and could result in the imposition of
marketing restrictions through labeling changes or market removal. Product
approvals may be withdrawn if compliance with regulatory requirements is not
maintained or if problems concerning safety or efficacy of the product occur
following approval.





The
labeling, advertising, promotion, marketing and distribution of a drug or
biologic product also must be in compliance with FDA and FTC requirements which
include, among others, standards and regulations for direct-to-consumer
advertising, industry-sponsored scientific and educational activities, and
promotional activities involving the internet. The FDA and FTC have very broad
enforcement authority, and failure to abide by these regulations can result in
penalties, including the issuance of a Warning Letter directing the company to
correct deviations from regulatory standards, a requirement that future
advertising and promotional materials be pre-cleared by the FDA and enforcement
actions that can include seizures, injunctions and criminal
prosecution.





Manufacturers
are also subject to various state and Federal laws and regulations governing
laboratory practices (specifically, the requirement for certain studies to
comply with current Good Laboratory Practices), the experimental use of animals
and the use and disposal of hazardous or potentially hazardous substances in
connection with their research. In each of the above areas, the FDA has broad
regulatory and enforcement powers, including the ability to levy fines and civil
penalties, suspend or delay issuance of approvals, seize or recall products and
deny or withdraw approvals.





Some of
our drug candidates may need to be administered using specialized drug delivery
systems. We may rely on drug delivery systems that are already approved to
deliver drugs like ours to similar physiological sites or, in some instances, we
may need to modify the design or labeling of the legally available device for
delivery of our product candidate. In such an event, the FDA may regulate the
product as a combination product or require additional approvals or clearances
for the modified device. Further, to the extent the delivery device is owned by
another company, we would need that company's cooperation to implement the
necessary changes to the device and to obtain any additional approvals or
clearances. Obtaining such additional approvals or clearances, and cooperation
of other companies, when necessary, could significantly delay, and increase the
cost of obtaining, marketing approval, which could reduce the commercial
viability of a drug candidate.





HIPAA
REQUIREMENTS





Other
federal legislation may affect our ability to obtain certain health information
in conjunction with our research activities. The Health Insurance Portability
and Accountability Act of 1996, or HIPAA, mandates, among other things, the
adoption of standards designed to safeguard the privacy and security of
individually identifiable health information. In relevant part, the U.S.
Department of Health and Human Services, or HHS, has released two rules to date
mandating the use of new standards with respect to such health information. The
first rule imposes new standards relating to the privacy of individually
identifiable health information. These standards restrict the manner and
circumstances under which covered entities may use and disclose protected health
information so as to protect the privacy of that information. The second rule
released by HHS establishes minimum standards for the security of electronic
health information. While we do not believe we are directly regulated as a
covered entity under HIPAA, the HIPAA standards impose requirements on covered
entities conducting research activities regarding the use and disclosure of
individually identifiable health information collected in the course of
conducting the research. As a result, unless they meet these HIPAA requirements,
covered entities conducting clinical trials for us may not be able to share with
us any results from clinical trials that include such health
information.





In
addition to the statutes and regulations described above, we are also subject to
regulation under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act and other present and potential future federal, state and local
regulations.





SECURITIES
LAWS





Because
our common stock is registered under the Securities Exchange Act of 1934, as
amended, and publicly traded, we are subject to a variety of rules and
regulations of federal, state and financial market exchange entities charged
with the protection of investors and the oversight of companies whose securities
are publicly traded. These entities, including the Securities and Exchange
Commission, the Public Company Accounting Oversight Board and the FINRA OTC
Bulletin Board, have recently issued new requirements and regulations and are
currently developing additional regulations and requirements in response to laws
enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. We do not know
the exact level of resources we will have to commit in order to be in
compliance. Our compliance with current and proposed rules is likely to require
the commitment of significant financial and managerial resources. As a result,
our management's attention might be diverted from other business concerns, which
could negatively affect our business.





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DISTRIBUTION





If
Radilex or Viprovex receives approval from the FDA, we will attempt to
commercialize these applications. Upon such approval, if Radilex we intend to
use our best efforts to market it as a treatment to the damaging effects of
radiation injury that result after exposure to total body irradiation. If
Viprovex, we intend to use our best efforts to market it as a medical
countermeasure to the effects of exposure to various biological agents.


COMPETITIVE
ENVIRONMENT





The
biotechnology and pharmaceutical industries are intensely competitive. We have
numerous competitors in the United States and elsewhere. Because we are pursuing
potentially large markets, our competitors include major multinational
pharmaceutical companies, specialized biotechnology firms and universities and
other research institutions. Several of these entities have already successfully
marketed and commercialized products that will compete with our products,
assuming that our products gain regulatory approval. Competitors such as Amgen
Inc. and Cleveland Biolabs, Inc. have developed or are developing products for
treating aspects of severe acute radiation injury. Companies such as
PharmAthene, Inc. and Emergent BioSolutions, Inc. have developed or are
developing vaccines against infectious diseases, including anthrax.
 
 Many of
our competitors have greater financial and other resources, larger research and
development staffs and more effective marketing and manufacturing organizations
than we do. In addition, academic and government institutions have become
increasingly aware of the commercial value of their research findings. These
institutions are now more likely to enter into exclusive licensing agreements
with commercial enterprises, including our competitors, to develop and market
commercial products.
 
 Our
competitors may succeed in developing or licensing technologies and drugs that
are more effective or less costly than the potential products we are developing.
Our competitors may succeed in obtaining FDA or other regulatory approvals for
drug candidates before we do. If competing drug candidates prove to be more
effective or less costly than our drug candidates, our drug candidates, even if
approved for sale, may not be able to compete successfully with our competitors'
existing products or new products under development. If we are unable to compete
successfully, we may never be able to sell enough of our potential products at a
price sufficient to permit us to generate profits.
 
 We
believe that due to the global political environment that time to market is
critical in the discovery of an effective countermeasure to radiation exposure
and other biological and chemical threats. New developments in areas in which we
are conducting our research and development are expected to continue at a rapid
pace in both industry and academia. It is due to these reasons that we believe
that competition will be driven by time to market.
 
 If our
proposed product candidates are successfully developed and approved, we will
face competition based on the safety and effectiveness of our proposed products,
the timing and scope of regulatory approvals, availability of manufacturing,
sales, marketing and distribution capabilities, reimbursement coverage, price
and patent position. There can be no assurance that our competitors will not
develop more effective or more affordable technology or products, or achieve
earlier patent protection, product development or product commercialization than
us. Accordingly, our competitors may succeed in commercializing products more
rapidly or effectively than us, which could have a material adverse effect on
our business, financial condition and results of operations.
 
 EMPLOYEES
 
 From our
inception through the period ended December 31, 2007, we have relied primarily
on the services of outside consultants for services.  As of December
31, 2007, we had nine total employees: five full-time employees, two
part-time employees and two contract employees. Our full-time employees are
Michael K. Wilhelm, our Chief Executive Officer; John N. Fermanis, our Chief
Financial Officer; Hal N. Siegel, Ph.D., Senior Director, Product Development
and Regulatory Affairs, a scientific program manager; and, the fifth serves in
an administrative role. In order for us to attract and retain quality personnel,
we anticipate we will have to offer competitive salaries to future employees. We
do not anticipate our employment base will significantly change during the next
twelve months, except that we plan on converting the two contract employees to
full-time positions within our science department.
 
 If we are
able to expand our operations, we will incur additional costs for personnel.
This projected increase in personnel is dependent upon our generating revenues
and obtaining sources of financing. There is no guarantee that we will be
successful in raising the funds required or generating revenues sufficient to
fund the projected increase in the number of employees.
 
 Our
future success depends in large part upon our ability to attract and retain
highly skilled scientific personnel. The competition in the scientific industry
for such personnel is intense, and we cannot be sure that we will be successful
in attracting and retaining such personnel. All of our employees are subject to
employment agreements. We cannot guarantee that we will be able to replace any
of our scientific personnel in the event their services become
unavailable.
 
 None of
our employees are covered by collective bargaining agreements, and we believe
our relations with our employees are favorable.


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RISK
FACTORS





IN
EVALUATING OUR BUSINESS, YOU SHOULD CONSIDER THE FOLLOWING DISCUSSIONS OF RISKS,
IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS REPORT AS WELL AS OUR OTHER
PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY OF THE FOLLOWING
RISKS COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS AND PROSPECTS.





Risks Related To Our
Financial Results





We
have limited cash resources, an accumulated deficit, are not currently
profitable and expect to incur significant expenses in the near
future.





As of
December 31, 2007, we had a working capital deficit of $624,773. This amount
consists of cash of $221,120, prepaid services of $84,691 and a salary advance
of $2,025 less accounts payable and accrued liabilities of $932,609. We have
incurred a net loss of $18,749,138 for the period from our inception in October
2002 to December 31, 2007, and have always experienced negative cash flow. We
expect to continue to experience negative cash flow and operating losses through
at least 2010 and possibly thereafter. As a result, we will need to generate
significant revenues to achieve profitability.





We
may fail to ever become and remain profitable or we may be unable to fund our
continuing losses, in which case our business may fail.





We are
focused on product development and have not generated any revenue to date. We do
not believe we will begin earning revenues from operations until the calendar
year 2009 as we transition from a development stage company. We have incurred
operating losses since our inception. Our net loss for the fiscal year ended
December 31, 2007 and December 31, 2006 was $5,463,958 and $1,486,046
respectively. As of December 31, 2007, we had an accumulated deficit of
$18,749,138.





Our
independent outside auditors have raised substantial doubt about our ability to
continue as a going concern.





Our
independent certified public accountants have stated in their report included in
this Form 10-KSB that we have incurred a net loss and negative cash flows from
operations of $5,463,958 and $2,456,038, respectively, for the year ended
December 31, 2007. Our expectations to continue to incur net losses and negative
cash flow from operations and a lack of operational history, among other
matters, that raise substantial doubt about our 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 our ability to raise
capital, our relationship with potential suppliers and customers, and have other
unforeseen effects.





We
will be required to raise additional capital to fund our operations. If we
cannot raise needed additional capital in the future, we will be required to
cease operations.





Based on
our current plans, we believe our existing financial resources, and interest
earned thereon, will be sufficient to meet our operating expenses and capital
requirements through August, 2008. Additionally, in July 2008, we expect to sell
and issue the remaining $1,000,000 of secured convertible debentures pursuant to
our January 3, 2008 Securities Purchase Agreement with Y.A. Global Investments,
L.P. However, changes in our research and development plans or other events
affecting our operating expenses may result in the expenditure of such cash
before that time. We estimate that we will require an additional $5.0 million
over the next 24 months in order to finance our research and development
efforts, fund operating expenses, pursue regulatory clearances and prosecute and
defend our intellectual property rights. We may seek such additional funding
through public or private financing or through collaborative arrangements with
strategic partners.


You
should be aware that in the future:





·          we may not obtain additional financial
resources when necessary or on terms favorable to us, if at all;
and





·          any available additional financing may
not be adequate.





22
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If we
cannot raise additional funds when needed, or on acceptable terms, we will not
be able to continue to develop our drug candidates. We require substantial
working capital to fund our operations. Since we do not expect to generate any
revenues in the foreseeable future, in order to fund operations, we will be
completely dependent on additional debt and equity financing arrangements. There
is no assurance that any financing will be sufficient to fund our capital
expenditures, working capital and other cash requirements
beyond  August, 2008. No assurance can be given that any such
additional funding will be available or that, if available, can be obtained on
terms favorable to us. If we are unable to raise needed funds on acceptable
terms, we will not be able to develop or enhance our products, take advantage of
any future opportunities or respond to competitive pressures or unanticipated
requirements. A material shortage of capital will require us to take drastic
steps such as reducing our level of operations, disposing of selected assets or
seeking an acquisition partner. If cash is insufficient, we will not be able to
continue operations.
  We
have deferred, and may continue to defer, payment of some of our obligations,
which may adversely affect our ability to obtain goods and services in the
future.
 
 We
estimate that we will require approximately $5.0 million to meet our expenses
for the next 24 months. Until such time, if at all, as we receive adequate
funding, we intend to defer payment of all of our obligations that are capable
of being deferred. Such deferment has resulted in the past, and may result in
the future, in some vendors demanding cash payment for their goods and services
in advance, and other vendors refusing to continue to do business with us, which
may adversely affect our ability to obtain goods and services in the future, or
to do so on favorable terms. There is no guarantee that we will be able to defer
payment of any of our obligations, at which point we will be forced to find
immediate funding to settle such obligations. If we do not find such funding, we
may not be able obtain the services and goods needed to continue our
operations.
 
 We
will need to conduct significant additional research, preclinical testing and
clinical testing and expect to incur losses as we research, develop and seek
regulatory approvals for our potential products.
 
 All of
our research and development efforts are early, pre-clinical stage and Homspera
has only undergone exploratory studies to evaluate its biological activity in
small animals. We will need to conduct significant additional research,
pre-clinical testing and clinical testing before we can file applications with
the FDA for approval of our product candidates. To date we have not yet made
applications with the FDA or any other governmental regulatory agency for
approval for our drug candidates, nor have we been in a position to seek such
approval. Until such time as we are able to file a New Drug Application, and it
is subsequently approved, we will not be able to market or manufacture any
products.
 
 If our
potential products fail in clinical trials or do not gain regulatory approval,
or if our products do not achieve market acceptance, we will not be profitable.
If we fail to become and remain profitable, or if we are unable to fund our
continuing losses, our business may fail. In addition, to compete effectively,
any future products must be easy to use, cost-effective and economical to
manufacture on a commercial scale. We may not achieve any of these
objectives.
 
 Our
operating expenses are unpredictable, which may adversely affect our business,
operations and financial condition.
 
 As a
result of our limited operating history and because of the emerging nature of
the markets in which we will compete, our financial data is of limited value in
planning future operating expenses. To the extent our operating expenses precede
or are not rapidly followed by increased revenue, our business, results of
operations and financial condition may be materially adversely affected. Our
expense levels will be based in part on our expectations concerning future
revenues. We currently anticipate that a significant portion of any revenue
would be derived from Homspera, Radilex and Viprovex; however, the size and
extent of such revenues, if any, are wholly dependent upon the choices and
demand of individuals, which are difficult to forecast accurately. We may be
unable to adjust our operations in a timely manner to compensate for any
unexpected shortfall in revenues. Further, business development and marketing
expenses may increase significantly as we further our product
development.







23
 Table of Contents




Risks Related To Our
Business





If
our plan is not successful or management is not effective, the value of our
common stock may decline.





Our
operating subsidiary, ImmuneRegen BioSciences, Inc., was founded in October
2002. We are a development stage company with a limited operating history that
makes it impossible to reliably predict future growth and operating results. Our
business and prospects must be considered in light of the risks and
uncertainties frequently encountered by companies in their early stages of
development. In particular, we have not demonstrated that we can:





·
            ensure that any potential drug
      candidate would function as intended in large animal studies or human
      clinical applications;





·
            obtain the regulatory approvals
      necessary to commercialize products that we may develop in the
      future;





·
            manufacture, or arrange for
      third-parties to manufacture, future products in a manner that will enable
      us to be profitable;





·
            establish many of the business
      functions necessary to operate, including sales, marketing, administrative
      and financial functions, and establish appropriate financial
      controls;





·
            make, use, and sell future
      products without infringing upon third party intellectual property rights;
      or





·
            respond effectively to
      competitive pressures.





We cannot
be sure that we will be successful in meeting these challenges and addressing
these risks and uncertainties. If we are unable to do so, our business will not
be successful.





If
we do not obtain government regulatory approval for our products, we cannot sell
our products and we will not generate revenues.





Our
principal development efforts are currently centered on Homspera, and
derivatives thereof, Radilex and Viprovex. All drug candidates require U.S. Food
and Drug Administration and foreign government approvals before they can be
commercialized. These regulations change from time to time and new regulations
may be adopted. Our research and development efforts for our drug candidates are
at a very early stage; they have not been, and may not be, approved for
commercial sale by the FDA or any other governmental regulatory agency. We may
incur significant additional operating losses over the next several years as we
fund development, clinical testing and other expenses while seeking regulatory
approval. To date we have conducted limited pre-clinical studies of our
potential drug candidates using various small animal models; significant
additional trials are required, and we may not be able to demonstrate that these
drug candidates are safe or effective. If we are unable to demonstrate the
safety and effectiveness of a particular drug candidate to the satisfaction of
regulatory authorities, the drug candidate will not obtain required government
approval. If we do not receive FDA or foreign approvals for our products, we
will not be able to sell our potential products and will not generate revenues.
Even if we receive regulatory approval of a potential product, such approval may
impose limitations on the indicated uses for which we may market the product,
which may limit our ability to generate significant
revenues.


All
our applications are derived from the use of Homspera. If Homspera is found to
be unsafe or ineffective, our business would be materially harmed.





All of
our current potential drug candidates are derived from Homspera. In addition, we
plan to utilize Homspera in the development of any future products we market. If
these current or future product candidates are found to be unsafe or ineffective
due to the use of Homspera, we may have to modify or cease production of the
products. As all of our applications utilize or will utilize Homspera, any
findings that Homspera is unsafe or ineffective would severely harm our business
operations, since all of our primary revenue sources would be negatively
affected by such findings.





If
we fail to successfully develop and commercialize products, we will have to
cease operations.





Our
failure to develop and commercialize products successfully will cause us to
cease operations. Our current potential drug candidates will require significant
additional research and development efforts and regulatory approvals prior to
potential commercialization in the future. We cannot guarantee that we will ever
obtain any regulatory approvals of Homspera, Radilex or Viprovex. We currently
are focusing our core competencies on the development of Homspera, Radilex and
Viprovex although there may be no assurance that we will be successful in so
doing.





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 Table of Contents




Our
current potential drug candidates, Homspera, Radilex, Viprovex and our
technologies utilizing Homspera are at early stages of development and may not
be shown to be safe or effective and may never receive regulatory approval.
Neither Homspera, Radilex nor Viprovex nor our technologies utilizing Homspera
have yet been tested in large animals or humans. Regulatory authorities may not
permit large animal or human testing of Homspera, Radilex, Viprovex or any other
potential products derived from Homspera. Even if large animal or human testing
is permitted, none of Homspera, Radilex, Viprovex or any other potential drug
candidate, if any, derived from Homspera may be successfully developed or shown
to be safe or effective.


The
results of our pre-clinical studies may not be indicative of future pre-clinical
or clinical trial results. A commitment of substantial resources to conduct
time-consuming research, pre-clinical studies and clinical trials will be
required if we are to develop any products. Delays in planned patient enrollment
in our clinical trials may result in increased costs, program delays or both.
None of our potential products or technologies may prove to be safe or effective
in clinical trials. Approval of the FDA, or other regulatory approvals,
including export license permissions, may not be obtained and even if
successfully developed and approved, our potential products may not achieve
market acceptance. Any potential products resulting from our programs may not be
successfully developed or commercially available for a number of years, if at
all.





Moreover,
unacceptable toxicity or side effects could occur at any time in the course of
human clinical trials or, if any products are successfully developed and
approved for marketing, during commercial use of any of our proposed products.
The appearance of any unacceptable toxicity or side effects could interrupt,
limit, delay or abort the development of any of our proposed products or, if
previously approved, necessitate their withdrawal from the market.





The
lengthy product approval process and uncertainty of government regulatory
requirements may delay or prevent us from commercializing proposed products, and
therefore adversely affect the timing and level of future revenues, if
any.





The
process of obtaining FDA and other regulatory approvals is time consuming,
expensive and difficult to design and implement. Our current drug candidates,
Homspera, Radilex and Viprovex, will have to undergo clinical trials and the
marketing and manufacturing of these drug candidates, if any, will be subject to
rigorous testing procedures. Our research and development efforts are at a very
early stage and Homspera, Radilex and Viprovex have only undergone pre-clinical
testing in small animals. We may not be able to obtain the necessary approvals
for clinical trials, manufacturing or marketing of Homspera, Radilex and
Viprovex or any other potential products, if any, derived from Homspera.
Moreover, any significant delays in clinical trials will impede our ability to
commercialize our applications and generate revenue and could significantly
increase our development costs. The commencement and completion of clinical
trials for Homspera, Radilex, Viprovex or any other potential products, if any,
derived from Homspera, could be delayed or prevented by a variety of factors,
including:





·
            delays in obtaining regulatory
      approvals to commence a
study;





·
            delays in identifying and
      reaching agreement on acceptable terms with prospective clinical trial
      sites;





·
            delays in the enrollment of
      patients;





·
            lack of efficacy during clinical
      trials; or,





·
            unforeseen safety
      issues.





Even if
marketing approval from the FDA is received, the FDA may impose post-marketing
requirements, such as:





·
            labeling
      and advertising requirements, restrictions or limitations, including the
      inclusion of warnings, precautions, contra-indications or use limitations
      that could have a material impact on the future profitability of our
      applications;





·
            testing and surveillance to
      monitor our future products and their continued compliance with regulatory
      requirements;





·
            submitting products for
      inspection and, if any inspection reveals that the product is not in
      compliance, prohibiting the sale of all
  products;





·
            suspending manufacturing;
      or,





·
            withdrawing marketing
      clearance.





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 Table of Contents




Additionally,
the FDA's policies may change and additional government regulations may be
enacted which could prevent or delay regulatory approval of our applications. We
cannot predict the likelihood, nature or extent of adverse government regulation
that may arise from future legislation or administrative action, either in the
United States or abroad. If we are not able to maintain regulatory compliance,
we might not be permitted to market our potential future products and our
business could suffer.
 
 Even if
human clinical trials of Homspera, Radilex, Viprovex or any other potential
products, if any, derived from Homspera are initiated and successfully
completed, the FDA may not approve any of them for commercial sale. We may
encounter significant delays or excessive costs in our efforts to secure
necessary approvals. Regulatory requirements are evolving and uncertain. Future
United States or foreign legislative or administrative acts could also prevent
or delay regulatory approval of our products. We may not be able to obtain the
necessary approvals for clinical trials, manufacturing or marketing of any of
our potential products under development. Even if commercial regulatory
approvals are obtained, they may include significant limitations on the
indicated uses for which a product may be marketed.
 
 The FDA
has not designated expanded access protocols for Homspera, Radilex or Viprovex
as "treatment" protocols. The FDA may not determine that Homspera, Radilex or
Viprovex meet all of the FDA's criteria for use of an investigational drug for
treatment use. Even if Homspera or Radilex or Viprovex are allowed for treatment
use, third party payers may not provide reimbursement for the costs of treatment
with any of them.


If
we fail to obtain approval from foreign regulatory authorities, we will not be
allowed to market or sell our potential products in other countries, which would
adversely affect our levels of future revenues, if any.





Marketing
any drug products outside of the United States will subject us to numerous and
varying foreign regulatory requirements governing the design and conduct of
human clinical trials and marketing approval. Additionally, our ability to
export our potential 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.





Clinical
trials may fail to demonstrate the safety and efficacy of our potential drug
candidates, the effect of which could prevent or significantly delay regulatory
approval and therefore adversely affect the timing and level of future revenues,
if any.





Prior to
receiving approval to commercialize Homspera, Radilex, Viprovex or any other
potential products, if any, derived from Homspera, we must demonstrate with
substantial evidence from well-controlled clinical trials, and to the
satisfaction of the FDA and other regulatory authorities in the United States
and abroad, that they are both safe and effective. We will need to demonstrate
such potential products' efficacy and monitor their safety throughout the
process. If any future clinical trials are unsuccessful, our business and
reputation would be harmed and our stock price would be adversely
affected.





All of
our applications are prone to the risks of failure inherent in biologic
development. The results of early-stage clinical trials of our applications do
not necessarily predict the results of later-stage clinical trials. Applications
in later-stage clinical trials may fail to show desired safety and efficacy
traits despite having progressed through initial clinical testing. Even if we
believe the data collected from clinical trials of our applications is
promising, this data may not be sufficient to support approval by the FDA or any
other U.S. or foreign regulatory approval. Pre-clinical and clinical data can be
interpreted in different ways. Accordingly, FDA officials could interpret such
data in different ways than we do which could delay, limit or prevent regulatory
approval. The FDA, other regulatory authorities, or we may suspend or terminate
clinical trials at any time. Any failure or significant delay in completing
clinical trials for our applications, or in receiving regulatory approval for
the sale of any products resulting from our applications, may severely harm our
business and reputation.





Delays
in the conduct or completion of our pre-clinical or clinical studies or the
analysis of the data from our pre-clinical or clinical studies may result in
delays in our planned filings for regulatory approvals or adversely affect our
ability to enter into collaborative arrangements.





26
 Table of Contents




We may
encounter problems with some or all of our completed or ongoing studies that may
cause us or regulatory authorities to delay or suspend our ongoing studies or
delay the analysis of data from our completed or ongoing studies. If the results
of our ongoing and planned studies for our drug candidates are not available
when we expect or if we encounter any delay in the analysis of the results of
our studies for our drug candidates:





·
            we may not have the financial
      resources to continue research and development of any of our drug
      candidates; and,





·
            we may not be able to enter into
      collaborative arrangements relating to any drug candidate subject to delay
      in regulatory filing.





Any of
the following reasons, among others, could delay or suspend the completion of
our ongoing and future studies:





·
            delays in enrolling
      volunteers;





·
            interruptions in the
      manufacturing of our drug candidates or other delays in the delivery of
      materials required for the conduct of our
  studies;





·
            lower than anticipated retention
      rate of volunteers in a
trial;





·
            unfavorable efficacy
      results;





·
            serious side effects experienced
      by study participants relating to the drug
    candidate;





·
            new communications from
      regulatory agencies about how to conduct these studies;
      or,





·
            failure to raise additional
      funds.





Our
lack of commercial manufacturing, sales, distribution and marketing experience
may prevent us from successfully commercializing products, which would adversely
affect our level of future revenues, if any.





The
manufacturing process of Homspera, Radilex, Viprovex or any other potential
products, if any, derived from Homspera is expected to involve a number of steps
and requires compliance with stringent quality control specifications imposed by
us and by the FDA. We have no experience in the sales, marketing and
distribution of pharmaceutical or biotechnology products and we have not
manufactured any of the limited quantities of Homspera, Radilex and Viprovex
used in our studies to date. We may not successfully arrange for contract
manufacturing of Homspera, Radilex, Viprovex or any other potential products, if
any, derived from Homspera in production quantities and this could prevent us
from commercializing products or limit our profitability from any such proposed
products.





We
rely on third party manufacturers for the manufacture of Radilex, Viprovex and
Homspera. Our inability to manufacture Radilex, Viprovex and Homspera, and our
dependence on such manufacturers, may delay or impair our ability to generate
revenues, or adversely affect our profitability.





For the
manufacture of Radilex, Viprovex and Homspera, we obtain synthetic peptides from
third party manufacturers. If any of these proposed manufacturing operations
prove inadequate, there may be no assurance that any other arrangements may be
established on a timely basis or that we could establish other manufacturing
capacity on a timely basis. Our dependence on such manufacturers may delay or
impair our ability to generate revenues, or adversely affect our
profitability.





We rely
on arrangements with contract manufacturing companies in order to meet
requirements for Radilex, Viprovex and Homspera. By choosing to contract for
manufacturing services, we may encounter costs, delays and/or other difficulties
in producing, packaging and distributing our clinical trials and finished
product, if any. Further, contract manufacturers must also operate in compliance
with the cGMP requirements; failure to do so could result in, among other
things, the disruption of our proposed product supplies. Our planned dependence
upon third parties for the manufacture of our proposed products may adversely
affect our potential profit margins, if any, and our ability to develop and
deliver proposed products on a timely and competitive basis.





If
the manufacturers of our products do not comply with current good manufacturing
practices regulations, or cannot produce the amount of products we need to
continue our development, we will fall behind on our business
objectives.





The
manufacture of our product candidates or any future products, whether done by
outside contractors as planned or internally, must comply with current Good
Manufacturing Practices, or cGMP, regulations enforced by the FDA and foreign
equivalents. If a manufacturer of our drug candidates does not conform to the
cGMP regulations and cannot be brought up to such a standard, we will be
required to find alternative manufacturers that do conform. This may be a long
and difficult process, and may delay our ability to receive FDA or foreign
regulatory approval of our products.





27
 Table of Contents




We also
rely on our manufacturers to supply us with a sufficient quantity of our drug
candidates to conduct clinical trials. If we have difficulty in the future
obtaining our required quantity and quality of such supply, we could experience
significant delays in our development programs and regulatory
process.
 
 Even
if we are permitted to market our potential products, adverse determinations
concerning product pricing, reimbursement and related matters could prevent us
from successfully commercializing Radilex, Viprovex and Homspera which would
adversely affect our level of future revenues, if any.
 
 Our
ability to earn any revenue on Homspera, Radilex, Viprovex or any other
potential products, if any, derived from Homspera will depend in part on the
extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health coverage insurers, managed care organizations and other
organizations. Failure to obtain appropriate reimbursement may prevent us from
successfully commercializing Homspera, Radilex, Viprovex or any other potential
products, if any, derived from Homspera. Third-party payers are increasingly
challenging the prices of medical products and services. If purchasers or users
of Homspera, Radilex, Viprovex or any such other potential products, if any,
derived from Homspera are not able to obtain adequate reimbursement for the cost
of using such products, they may forego or reduce their use. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products and whether adequate third party coverage will be
available.
 
 The
medical community may not accept and utilize Homspera, Radilex, Viprovex or any
other potential product, if any, derived from Homspera, the effect of which
would prevent us from successfully commercializing any proposed product and
adversely affect our level of future revenue, if any.
 
 Our
ability to market and commercialize Homspera, Radilex, Viprovex or any other
potential product, if any, derived from Homspera depends on the acceptance of
potential drug candidates based on Homspera by the medical community. We will
need to develop commercialization initiatives designed to increase awareness
about us and Homspera among targeted audiences, including public health
activists and community-based outreach groups in addition to the investment
community. Currently, we have not developed any such initiatives. Without such
acceptance of potential drug candidates based on Homspera, we may not be able to
successfully commercialize any proposed products or generate
revenue.
 
 Product
liability exposure may expose us to significant liability or costs which would
adversely impart our future operating results and divert funds from the
operation of our business.
 
 We face
an inherent business risk of exposure to product liability and other claims and
lawsuits in the event that the development or use of our technology or
prospective products is alleged to have resulted in adverse effects. We may not
be able to avoid significant liability exposure. We may not have sufficient
insurance coverage, and we may not be able to obtain sufficient coverage at a
reasonable cost. An inability to obtain product liability insurance at
acceptable cost or to otherwise protect against potential product liability
claims could prevent or inhibit the commercialization of our products. A product
liability claim could hurt our financial performance. Even if we avoid liability
exposure, significant costs could be incurred that could hurt our financial
performance.
 
 We
may fail to protect adequately our proprietary technology, which would allow
competitors to take advantage of our research and development efforts, the
effect of which could adversely affect any competitive advantage we may
have.
 
 We have
filed patent applications directed to various methods of using and compositions
comprising substance P analogues.  We presently own at least five
issued patents, including at least two issued U.S. patents and at least three
issued foreign patents, one of which has been registered in nine countries in
the European Union. We also have at least 61 pending patent applications,
including at least 10 pending U.S. utility patent applications, at least 10
pending U.S. provisional applications, at least  4 pending
international patent applications, and at least 37 pending foreign patent
applications. All inventions embodied in these applications and issued
patents have been assigned to the company by the inventors.
 
 Our
success will depend in part on our ability to obtain additional United States
and foreign patent protection for our drug candidates and processes, preserve
our trade secrets and operate without infringing the proprietary rights of third
parties. We place considerable importance on obtaining patent protection for
significant new technologies, products and processes.
 
 If we
fail to obtain or maintain these protections, we may not be able to prevent
third parties from using our proprietary rights. Our currently pending or future
patent applications may not result in issued patents. In the United States,
patent applications are confidential until patent applications are published or
the patent is issued, and because third parties may have filed patent
applications for technology covered by our pending patent applications without
us being aware of those applications, our patent applications may not have
priority over any patent applications of others. In addition, our issued patents
may not contain claims sufficiently broad to protect us against third parties
with similar technologies or products or provide us with any competitive
advantage. If a third party initiates litigation regarding our patents, and is
successful, a court could revoke our patents or limit the scope of coverage for
those patents.


28
 Table of Contents




Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnology inventions and the scope of claims made under such patents are
still developing. In some of the countries in which we intend to market our
products, pharmaceuticals are either not patentable or have only recently become
patentable. Past enforcement of intellectual property rights in many of these
countries has been limited or non-existent. Future enforcement of patents and
proprietary rights in many other countries may be problematic or unpredictable.
Moreover, the issuance of a patent in one country does not assure the issuance
of a similar patent in another country. Claim interpretation and infringement
laws vary by nation, so the extent of any patent protection is uncertain and may
vary in different jurisdictions. The U.S. Patent and Trademark Office, commonly
referred to as the USPTO, and the courts have not consistently treated the
breadth of claims allowed in biotechnology patents. If the USPTO or the courts
begin to allow broader claims, the incidence and cost of patent interference
proceedings and the risk of infringement litigation will likely increase. On the
other hand, if the USPTO or the courts begin to allow narrower claims, the value
of our proprietary rights may be limited. Any changes in, or unexpected
interpretations of the patent laws may adversely affect our ability to enforce
our patent position.





We also
rely upon trade secrets, proprietary know-how and continuing technological
innovation to remain competitive. We protect this information with reasonable
security measures, including the use of confidentiality agreements with our
employees, consultants and corporate collaborators. It is possible that these
individuals will breach these agreements and that any remedies for a breach will
be insufficient to allow us to recover our costs. Furthermore, our trade
secrets, know-how and other technology may otherwise become known or be
independently discovered by our competitors.





Our rights to the US Patent Nos.
5,945,508 and 5,998,376, Substance P Treatment for Immunostimulation, are
limited by the rights of the University of Arizona and the United States Air
Force and as a result, our ability to use of the patent in our business is also
limited. Due to these limitations, we may not be able to use the patent in the
most profitable or efficient manner and, as a result, our results of operations
may suffer. If
patents are issued for any of our pending patent applications, the same
limitations would most likely apply.





Our
agreements with the University of Arizona outline very specific rights in regard
to our sponsored-supported projects. In accordance with our sponsored-supported
project agreements, the University of Arizona retains the right to use data
developed during these projects for non-commercial purposes, including teaching,
research and education.





Further,
because our patents are based on research funded by the government, the U.S.
Government has certain rights in any technology developed. These rights include
a non-exclusive, paid-up, worldwide license under such inventions for any
governmental purpose. In addition, under the federal Bayh Dole Act, a party
which acquires an exclusive license for an invention that was partially funded
by a federal research grant is subject to the following government rights: (i)
products using the invention which are sold in the U.S. are to be manufactured
substantially in the U.S. unless a waiver is obtained; (ii) the government may
force the granting of a license to a third party who will make and sell the
needed product if the licensee does not pursue reasonable commercialization of a
needed product using the invention; and (iii) the U.S. Government may use the
invention for its own needs.





As a
result, our potential future revenues, if any, may be lessened. Additionally,
our profit margins, if any, may be lessened as our cost of goods may increase if
we are mandated to manufacture our products substantially in the United States.
Additionally, the U.S. Government may elect to manufacture and use any products
based on our technology without paying us any revenue.





Our
patents and proprietary technology may not be enforceable and the patents and
proprietary technology of others may prevent us from commercializing products,
which would adversely affect our level of future revenues, if any.





Although
we believe our proprietary technology to be protected and our patents on the use
of Homspera and its derivates, Radilex and Viprovex are enforceable, the failure
to obtain meaningful patent protection for our potential products and processes
would greatly diminish the value of our potential products and
processes.





In
addition, whether or not our applications are issued, or issued with limited
coverage, others may receive patents that contain claims applicable to our
potential products. Patents we are not aware of may adversely affect our ability
to develop and commercialize any potential products.





The
patent positions of biotechnology and pharmaceutical companies are often highly
uncertain and involve complex legal and factual questions. Therefore, the
breadth of claims allowed in biotechnology and pharmaceutical patents cannot be
predicted. We also rely upon non-patented trade secrets and know how, and others
may independently develop substantially equivalent trade secrets or know how. We
also rely on protecting our proprietary technology in part through
confidentiality agreements with our current and former corporate collaborators,
employees, consultants and certain contractors. These agreements may be
breached, and we may not have adequate remedies for any such breaches.
Litigation may be necessary to defend against claims of infringement, to enforce
our patents or to protect trade secrets. Litigation could result in substantial
costs and diversion of management efforts regardless of the results of the
litigation. An adverse result in litigation could subject us to significant
liabilities to third parties, require disputed rights to be licensed or require
us to cease using certain technologies.





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Our
potential products based on Homspera could infringe on the intellectual property
rights of others, which may cause us to engage in costly litigation and, if not
successful, could cause us to pay substantial damages and prohibit us from
selling our products. Because patent applications in the United States are not
publicly disclosed until the patent application is published or the patent is
issued, applications may have been filed which relate to services similar to
those offered by us. We may be subject to legal proceedings and claims from time
to time in the ordinary course of our business, including claims of alleged
infringement of the trademarks and other intellectual property rights of third
parties.





If our
potential products violate third-party proprietary rights, we cannot assure you
that we would be able to arrange licensing agreements or other satisfactory
resolutions on commercially reasonable terms, if at all. Any claims made against
us relating to the infringement of third-party proprietary rights could result
in the expenditure of significant financial and managerial resources and
injunctions preventing us from providing services. Such claims could severely
harm our financial condition and ability to compete.





In
addition, if another party claims the same subject matter or subject matter
overlapping with the subject matter that we have claimed in a United States
patent application or patent, we may decide or be required to participate in
interference proceedings in the USPTO in order to determine the priority of
invention. Loss of such an interference proceeding would deprive us of patent
protection sought or previously obtained and could prevent us from
commercializing our potential products. Participation in such proceedings could
result in substantial costs, whether or not the eventual outcome is favorable.
These additional costs could adversely affect our financial
results.





Failure
to comply with environmental laws or regulations could expose us to significant
liability or costs which would adversely impact our operating results and divert
funds from the operation of our business have a material adverse effect on our
business.





We may be
required to incur significant costs to comply with current or future
environmental laws and regulations. Our research and development processes
involve the controlled storage, use and disposal of hazardous materials,
biological hazardous materials and radioactive compounds. We are subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of these materials and some waste products.
Although we believe that our safety procedures for handling and disposing of
these materials comply with the standards prescribed by these laws and
regulations, the risk of contamination or injury from these materials cannot be
completely eliminated. In the event of an incident, IR BioSciences Holdings,
Inc. or ImmuneRegen BioSciences, Inc. could be held liable for any damages that
result, and any liability could exceed our resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.





We
depend on the continued services of our executive officers and the loss of a key
executive could severely impact our operations.





The
execution of our present business plan depends on the continued services of
Michael K. Wilhelm, our Chief Executive Officer and President, and Hal Siegel,
Ph.D., our Senior Director, Product Development and Regulatory Affairs.




We
currently maintain a key-man life insurance policy on Mr. Wilhelm and Dr. Siegel
for $1,000,000 and $250,000, respectively, payable to the company. While we have
entered into employment agreements with Mr. Wilhelm and Dr. Siegel, the loss of
any of their services would be detrimental to us and could have a material
adverse effect on our business, financial condition and results of
operations.  Additionally, our employment agreement with Michael
Wilhelm is an At-Will agreement, meaning that either the Company or Mr. Wilhelm
may terminate employment at any time for any reason with or without
cause.


A
limited prior public market and trading market may cause volatility in the price
of our common stock.





Our
common stock is currently traded on a limited basis on the OTC Bulletin Board
(the "OTCBB") under the symbol "IRBO". The OTCBB is an inter-dealer,
Over-The-Counter market that provides significantly less liquidity than
exchanges such as the NASDAQ Stock Market and the American Stock Exchange.
Therefore, prices for securities traded solely on the OTCBB may be difficult to
obtain and holders of common stock may be unable to resell their securities at
or near their original offering price or at any price.





The
quotation of our common stock on the OTCBB does not assure that a meaningful,
consistent and liquid trading market currently exists, and in recent years such
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many smaller companies like us. Our
common stock is thus subject to this volatility.





Sales
or issuances of additional equity securities may adversely affect the market
price of our common stock and your rights in us may be reduced.





Certain
of our stockholders holding approximately 34,864,823 shares of common stock and
17,708,125 common stock purchase warrants have the right to register securities
for resale that they hold pursuant to registration rights agreements. We also
currently have $2 million in convertible debentures outstanding.  The
debentures are convertible at any time at the option of the holder into shares
of the common stock at a price equal to $0.20 per share. On or after December
31, 2009 or if we fail to achieve certain milestones based on preclinical
studies and submission of a Investigational New Drug Application, as set forth
in the convertible debenture, the conversion price of the convertible debentures
becomes the lower of (i) $0.20 per share or (ii) 80% of the lowest daily volume
weighted average price during the five trading days immediately preceding
conversion. In addition, we expect to continue to incur product development and
selling, general and administrative costs, and in order to satisfy our funding
requirements, we will need to sell additional equity securities, which may be
subject to similar registration rights. The sale or the proposed sale of
substantial amounts of our common stock in the public markets may adversely
affect the market price of our common stock. The registration and subsequent
sales of such shares of common stock will likely have an adverse effect on the
market price of our common stock.





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Additionally,
some of our shareholders may be eligible to sell all or some of their shares of
common stock by means of ordinary brokerage transactions in the open market
pursuant to Rule 144, promulgated under the Securities Act (“Rule 144”), subject
to certain limitations, which were eased significantly in February 2008.
Although we are a former shell company and thus subject to heightened
informational requirements under revised Rule 144, we satisfied the requirement
of filing “Form 10” information, as specified in the Rule, over 12 months ago.
As a result, in general, pursuant to Rule 144, a shareholder (or shareholders
whose shares are aggregated) who has satisfied a one-year holding period may
freely sell their shares of our common stock, while our current and recent
affiliates may sell, within any three-month period, a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common stock
or the average weekly trading volume of the class during the four calendar weeks
prior to such sale. Any substantial sale of common stock pursuant to any resale
prospectus or Rule 144 may have an adverse effect on the market price of our
common stock by creating an excessive supply.





Our
stockholders may experience substantial dilution and a reduction in the price
that they are able to obtain upon sale of their shares. Also, any new equity
securities issued, including any new series of preferred stock authorized by our
Board of Directors, may have greater rights, preferences or privileges than our
existing common stock. To the extent stock is issued or options and warrants are
exercised, holders of our common stock will experience further dilution. In
addition, as in the case of the warrants, in the event that any future financing
should be in the form of, be convertible into or exchangeable for, equity
securities and upon the exercise of options and warrants, security holders may
experience additional dilution.




We
may not have the ability to repurchase our secured convertible
notes.
 
 On
January 3, 2008, we issued $2 million in secured convertible debentures (the
“Convertible Debentures”) and we have the option to issue to the buyer an
additional $1 million of Convertible Debentures within the six months from the
issuance.  Obligations under the Convertible Debentures are guaranteed
by our wholly-owned subsidiary and secured by all of our subsidiary’s assets and
property, including patents. The Convertible Debentures mature on December
31, 2010 and accrue interest at the rate of 8% per annum.
 
 Upon the
occurrence of certain events of default defined in the Convertible Debentures,
including our failure to pay the holder any amount of principal, interest, or
other amounts when due, the full principal amount of the Convertible Debentures,
together with interest and other amounts due, become immediately due and
payable.  In addition, in the event we effect any “fundamental
transaction” as defined in the Convertible Debentures, including a merger or
consolidation or sale of more than 50% of our assets, the holder may require the
redemption of all amounts owed, including principal, accrued and unpaid interest
and any other charges.  We cannot assure you that we will have
sufficient financial resources, or will be able to arrange financing, to
repurchase the Convertible Dentures.  Any failure to repurchase the
notes when required will result in an event of default, and in such event, we
may lose all of our assets, be forced to restructure, file for bankruptcy or
cease operations, any of which could cause to you to lose all or part of your
investment.


Our
common stock is considered a "penny stock," and is subject to additional sale
and trading regulations that may make it move difficult to sell.





Our
common stock is considered to be a "penny stock" since it does not qualify for
one of the exemptions from the definition of "penny stock" under Section 3a51-1
of the Securities Exchange Act for 1934 as amended (the "Exchange Act"). Our
common stock is a "penny stock" because it meets one or more of the following
conditions (i) the stock trades at a price less than $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 $5.00 per share; or
(iv) is issued by a company that has been in business less than three years with
net tangible assets less than $5 million.





The
principal result or effect of being designated a "penny stock" is that
securities broker-dealers participating in sales of our common stock will be
subject to the "penny stock" regulations set forth in Rules 15-2 through 15g-9
promulgated under the Exchange Act. For example, Rule 15g-2 requires
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 at least two business days before
effecting any transaction in a penny stock for the investor's account. 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 and time consuming for holders of our common stock to resell their
shares to third parties or to otherwise dispose of them in the market or
otherwise.





ITEM2. DESCRIPTION OF PROPERTY





Our
corporate headquarters are currently located at 8767 E. Via de Ventura, Suite
190, Scottsdale, Arizona 85258, where we have leased approximately 3,322
square feet of office space for the period November 1, 2007 through October 31,
2009. Our minimum monthly rent expense is $6,921 plus tax per month in the first
year and will increase to $7,128 plus tax per month in the second year. We will
also be responsible for our proportionate share, which is established to be
4.4%, of the direct operating and maintenance expenses of the building and real
estate taxes assessed or imposed on the building. We believe that our facilities
are adequate for our current needs and suitable additional or substitute space
will be available in the future to replace our existing facilities, if
necessary, or accommodate expansion of our operations.




ITEM3. LEGAL PROCEEDINGS





We are
not currently a party to any material legal proceedings.




ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of security holders during the fourth quarter
of 2007.


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 Table of Contents




PART
II










ITEM5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS





Our
common stock is approved for quotation on the FINRA OTC Bulletin Board under the
symbol "IRBO". The following table sets forth the high and low bid prices for
our common stock for the periods noted, as reported by the National Daily
Quotation Service and the Over-The-Counter Bulletin Board. Quotations reflect
inter-dealer prices, without retail mark-up, markdown or commission and may not
represent actual transactions.




2008High
            
            
            Low1st
      Quarter (through March 20, 2008)
            
            $
            0.10
            
            
            $
            0.02




2007High
            
            
            Low1st
      Quarter
            
            $
            0.17
            
            
            $
            0.122nd
      Quarter
            
            
            0.21
            
            
            
            0.123rd
      Quarter
            
            
            0.23
            
            
            
            0.144th
      Quarter
            
            
            0.16
            
            
            
            0.07




2006High
            
            
            Low1st
      Quarter
            
            $
            0.35
            
            
            $
            0.202nd
      Quarter
            
            
            0.51
            
            
            
            0.273rd
      Quarter
            
            
            0.30
            
            
            
            0.144th
      Quarter
            
            
            0.29
            
            
            
            0.13





On March
20, 2008 the closing price of our common stock as reported by the OTC Bulletin
Board was $0.055 per share. There were approximately 800 shareholders of record
of our common stock as of March 20, 2008. We have not paid any dividends on our
common stock since inception and do not intend to do so in the foreseeable
future.





UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





On
February 15, 2008, the Board of Directors approved of the issuance of 1,000,000
restricted shares of our common stock to Joseph Stevens & Co., Inc. and its
designees, all of whom are accredited investors, per the terms of a consulting
agreement dated November 20, 2007, under the terms of which the consultant would
provide referral services for a term of one year to identify and introduce
potential Directors to the company. The securities were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder.





Also on
February 15, 2008, the Board of Directors approved of the issuance of 300,000
restricted shares of common stock to a consultant, who is an accredited
investor, per the terms of a consulting agreement dated November 13, 2007, under
the terms of which the consultant would provide investor relations services and
consulting services for new product development for a term of four months. The
securities were issued in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.





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 Table of Contents




On
January 3, 2008, we entered into a securities purchase agreement with YA Global
Investments, L.P., pursuant to which YA Global Investments, L.P. agreed to
purchase from us (i) up to $3 million of secured convertible debentures, which
shall be convertible into shares of our common stock and (ii) warrants to
acquire up to 7,500,000 additional shares of our common stock. The initial
closing occurred on January 3, 2008, at which time we sold to YA Global
Investments, L.P. $2 million of the convertible debentures and the
warrants.  The securities were issued in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.





In April
2007, we issued warrants to purchase 5,000,000 shares of common stock to a
consultant, who is an accredited investor.  The warrants consist of
three year warrants to purchase up to 4,000,000 shares of common stock
exercisable at strike prices ranging from $.16 to $.30 per share and 1,000,000
five year warrants to purchase common stock exercisable at $.50 per share.
750,000 of the $0.16 strike price warrants vested immediately and the remainder
vest in equal monthly installments of 177,083 over the 24 month term of the
contract. The warrants have a net issue exercise provision to allow for cashless
exercise unless and until the shares underlying the warrants are registered by
us. The securities were issued in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933, as amended, and Rule
506 promulgated thereunder.





On
January 31, 2007, we issued 400,000 shares of common stock at a price of $0.155
per share to a consultant, who is an accredited investor, for services performed
through June 2007. The securities were issued in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933, as
amended, and Rule 506 promulgated thereunder.





On
January 31, 2007, we issued 100,000 shares of common stock at a price of $0.15
per share to a consultant, who is an accredited investor,  for
services performed through March 2007. The securities were issued in reliance
upon exemptions from registration pursuant to Section 4(2) under the Securities
Act of 1933, as amended, and Rule 506 promulgated thereunder.





On
January 3, 2007, we issued 5,482,600 shares of our common stock to Joseph
Stevens & Co., Inc. and its designees, all of whom are accredited investors,
as commission for acting as placement agent for our private offering completed
during the fourth quarter of 2006. Per the terms of our agreement, as additional
commission, the placement agent, or its designees, were entitled to receive one
share of common stock for each dollar of gross proceeds raised in the offering.
The shares issued to the placement agent were offered in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder.








DIVIDENDS
AND DISTRIBUTIONS





We have
not paid any cash dividends to date. We intend to retain our future earnings, if
any, and we do not anticipate paying cash dividends on our common stock in the
foreseeable future.





EQUITY
COMPENSATION PLANS




Refer to
Item 11 below for information with respect to our equity compensation
plans.




ITEM6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS




THE FOLLOWING DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SEE
"FORWARD-LOOKING STATEMENTS" ABOVE. THIS DISCUSSION AND ANALYSIS SHOULD BE READ
IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES INCLUDED ELSEWHERE IN
THIS REPORT.





This
annual report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Please note that the
safe harbor for forward-looking statements under the Securities Act of 1933 and
the Securities Exchange Act do not apply to our company. Our actual results
could differ materially from those set forth as a result of general economic
conditions and changes in the assumptions used in making such forward-looking
statements. The following discussion and analysis of our financial condition and
results of operations should be read together with the audited consolidated
financial statements and accompanying notes and the other financial information
appearing else where in this report. 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.





33
 Table of Contents




EXCEPT
FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS
ANNUAL REPORT ARE FORWARD-LOOKING STATEMENTS THAT ARE SUBJECT TO CERTAIN RISKS
AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE SET FORTH IN SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS MAY BE IDENTIFIED BY THE USE OF CERTAIN FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "EXPECT," "ANTICIPATE," "INTEND," "ESTIMATE," "BELIEVE," OR
COMPARABLE TERMINOLOGY THAT INVOLVES RISKS OR UNCERTAINTIES. ACTUAL FUTURE
RESULTS AND TRENDS MAY DIFFER MATERIALLY FROM HISTORICAL AND ANTICIPATED
RESULTS, WHICH MAY OCCUR AS A RESULT OF A VARIETY OF FACTORS. SUCH RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, FACTORS DISCUSSED IN MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SET
FORTH BELOW, AS WELL AS IN "RISK FACTORS" SET FORTH HEREIN. EXCEPT FOR OUR
ONGOING OBLIGATION TO DISCLOSE MATERIAL INFORMATION AS REQUIRED BY FEDERAL
SECURITIES LAWS, WE DO NOT INTEND TO UPDATE YOU CONCERNING ANY FUTURE REVISIONS
TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING
AFTER THE DATE OF THIS ANNUAL REPORT.





CORPORATE
HISTORY





We were
originally incorporated in the State of Delaware in June 1985 under the name
Vocaltech, Inc. to develop, design, manufacture and market products utilizing
proprietary speech-generated tactile feedback devices. We completed our initial
public offering of our securities in October 1987. In January 1992, we effected
a 1-for-6.3 reverse stock split of our common stock. We changed our name to
InnoTek, Inc. in November 1992. In December 1994, we acquired all of the
outstanding stock of InnoVisions, Inc., a developer and marketer of skin
protective products, discontinued our prior operations in their entirety and
changed our name to DermaRx Corporation. In April 2000, we effected a reverse
merger with a subsidiary of Go Public Network, Inc., which was engaged in
assisting early-stage development and emerging growth companies with financial
and business development services. We changed our name to GoPublicNow.com, Inc.,
effected a 1-for-5 reverse stock split and discontinued our prior operations in
their entirety. In November 2000, we changed our name to GPN Network, Inc. In
July 2001, we discontinued the operations of GPN Network, Inc. in their entirety
and began looking for appropriate merger partners. Our objective became the
acquisition of an operating company with the potential for growth in exchange
for our securities. In July 2003, we effected a reverse merger with ImmuneRegen
BioSciences, Inc., adopted our current business model and thereafter changed our
name to IR BioSciences Holdings, Inc. In July 2003, we effected a 1-for-20
reverse stock split, and in April 2004, we effected a 2-for-1 stock split. In
June 2006, our shareholders voted to increase the number of authorized shares of
Common Stock to 250,000,000. ImmuneRegen BioSciences, Inc. was incorporated in
October 2002; all information contained herein refers to the operations of
ImmuneRegen BioSciences, Inc., our wholly-owned operational
subsidiary.




RECENT
EVENTS





On
January 3, 2008, we entered into a securities purchase agreement with YA Global
Investments, L.P., pursuant to which YA Global Investments, L.P. agreed to
purchase from us (i) up to $3 million of secured convertible debentures, which
shall be convertible into shares of our common stock and (ii) warrants to
acquire up to 7,500,000 additional shares of our common stock. The initial
closing occurred on January 3, 2008, at which time we sold to YA Global
Investments, L.P. $2 million of the convertible debentures and the warrants. The
company, at our sole option, may elect to sell and issue to YA Global
Investments, L.P. an additional $1 million of secured convertible debentures
within the six months following the execution of the securities purchase
agreement. See Note 10 to the notes to the financial statements for more
information.





On
November 1, 2007, the Board of Directors appointed a new director, Jerome
Bernard Zeldis, M.D., Ph.D., to our Board of Directors to fill a vacant
directorship. We and Dr. Zeldis entered into a Director’s Agreement dated
October 30, 2007 which describes the duties of Dr. Zeldis, the fees and
compensation and expense reimbursement for his service, subject to the Board’s
approval, the grant of 1,000,000 non-qualified stock options to Dr. Zeldis for
service as a director, his term of service and other covenants and provisions.
As of December 31, 2007, the Board has not approved the non-qualified stock
issuance.





On
October 25, 2007, we entered into a two year lease agreement with Bay Colony
Executive Center-West, a division of BC Management Company, Inc. pursuant to
which we will lease approximately 3,322 square feet of office space for the
period November 1, 2007 through October 31, 2009, to serve as our new corporate
headquarters which are located at 8767 E. Via de Ventura, Suite 190, Scottsdale,
Arizona 85258.  Our minimum monthly rent expense is $6,921 plus tax
per month in the first year and will increase to $7,128 plus tax per month in
the second year.  We will also be responsible for its proportionate
share, which is established to be 4.4%, of the direct operating and maintenance
expenses of the building and real estate taxes assessed or imposed on the
building.





On August
6, 2007 we repaid an unsecured senior promissory note from a director in the
amount of $56,000, the outstanding principal amount of the note plus accrued
interest in the amount of $6,000.  Effective August 1, 2006, we had
converted a cash advance from such director into an unsecured senior promissory
note in the amount of $50,000 bearing an annual interest rate of
12%.





On August
1, 2007 the Board of Directors approved by Unanimous Written Consent to grant
stock option awards totaling ten million stock options to officers, directors
and consultants pursuant to the terms of the 2003 Stock Option, Deferred Stock
and Restricted Stock Plan.  The awards are as
follows:  6,060,000 stock options were issued to Officers and
employees in the form of incentive stock options with a strike price of $0.195
per share and non-qualified stock options with a strike price equal to $0.166
per share; 3,250,000 non-qualified stock options with a strike price equal to
$0.166 per share were issued to directors per the terms of their agreements, or
for reaching certain milestones: and lastly, 690,000 non-qualified stock options
with strike prices ranging from $0.166 per share to $0.195 per share were issued
to consultants per the terms of their agreements or as bonuses.





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On May
14, 2007, the Board of Directors appointed a new director, Lance K. Gordon,
Ph.D., to our Board of Directors to fill a vacant directorship. For his service
as a member of our Board of Directors, we granted to Dr. Gordon under the
Company’s 2003 Stock Option, Deferred Stock and Restricted Stock Plan, a
non-qualified stock option to purchase 1,000,000 shares of common stock at an
exercise price per share equal to $0.166 expiring on July 31, 2017 to vest
within 30 days from the date of the grant.





On April
24, 2007, our Board of Directors appointed a new director, Robert J. Hariri,
M.D., Ph.D., to our Board of Directors to fill a vacant directorship. For his
service as a member of our Board of Directors, we granted to Dr. Hariri under
the Company’s 2003 Stock Option, Deferred Stock and Restricted Stock Plan, a
non-qualified stock option to purchase 1,000,000 shares of common stock at an
exercise price per share equal to $0.166 expiring on July 31, 2017 to vest
within 30 days from the date of the grant.





On April
23, 2007, we entered into a consulting agreement for a term of 24 months to
obtain strategic advisory and development services. Consultant will analyze our
business plan and prepare corporate materials for dissemination to related
industry professionals to be used for identifying potential acquisition
candidates, partners and collaborators. We will pay to consultant a monthly cash
fee of $4,000. In addition, consultant will be issued up to 5,000,000 common
stock purchase warrants with a net issue exercise provision to allow for
cashless exercise unless and until the shares underlying the warrants are
registered by us. The warrants shall consist of three year warrants to purchase
up to 4,000,000 shares of common stock exercisable at strike prices ranging from
$.16 to $.30 per share and 1,000,000 five year warrants to purchase common stock
exercisable at $.50 per share. 750,000 of the $0.16 strike price warrants will
vest immediately and the remainder will vest in equal monthly installments over
the 24 month term of the contract. The contract is cancellable by either party
for any reason by providing 30 days written notice and the warrants contain
forfeiture provisions as to all unvested warrants in the event the agreement is
terminated prior to vesting date.





In April
2007, we issued warrants to purchase 5,000,000 shares of common stock to a
consultant.  The warrants vest 750,000 immediately and 177,083 every
month for the next two years.  We charged to operations the amount of
$166,997 the value of the warrants that vested during the twelve months ended
December 31, 2007.





In
January 2007, we issued 5,482,600 restricted shares of our common stock to
Joseph Stevens & Co., Inc. and its designees as commission for acting as
placement agent for our private offering completed during the fourth quarter of
2006. Per the terms of our agreement, as additional commission, the placement
agent, or its designees, were entitled to receive one share of common stock for
each dollar of gross proceeds raised in the offering. These shares were shown as
common stock subscribed on our balance sheet at December 31, 2006.





In
January 2007, we issued 298,039 shares of common stock at a price of $0.15 per
share to an employee in satisfaction of a liability previously
accrued.





In
January 2007, we issued 400,000 shares of common stock at a price of $0.155 per
share to a consultant for services to be performed through June
2007.





In
January 2007, we issued 100,000 shares of common stock at a price of $0.15 per
share to a consultant for services to be performed through March
2007.





In
January 2007, we issued options to purchase 100,000 shares of common stock an
employee. The options vest 12,500 every quarter for the next two
years.





GENERAL





IR
BioSciences Holdings, Inc. is a development-stage biotechnology company. Through
our wholly-owned subsidiary ImmuneRegen BioSciences, Inc., we are engaged in the
research and development of potential drug candidates, HomsperaTM and its
derivatives, Radilex® and Viprovex®. Although containing the identical
active ingredient Homspera, we defined Radilex and Viprovex as derivatives of
Homspera due to the potential difference in formulations and indications for
use. Our goals include developing these potential drug candidates to be used as
possible countermeasures for homeland security threats, including radiological,
chemical and biological agents, and to meet the commercial need for similar
beneficial effects in conditions such as radiation therapy, influenza, anthrax
and potentially other microbial ailments. We have discovered activities of
Homspera that may potentially open additional commercialization opportunities in
areas such as human adult stem cell stimulation, vaccine adjuvants, which
stimulate the immune system above that of a stand-alone vaccine, and wound
healing.


Our
current focus is to develop Homspera for regenerating or strengthening the human
immune system, in part, through stimulating human adult stem
cells.  It is the belief of our management, that the stem cell
activity exhibited by Homspera underlies some of the effects previously reported
in potential applications like treatment for radiation exposure and infectious
disease using Homspera derivatives Radilex and Viprovex, respectively, which are
described below.





We are
researching Radilex for use as a potential treatment for acute exposure to
radiation. We believe that Radilex, if developed, may be an acceptable candidate
to be marketed to governmental agencies for procurement. Further, we believe
that a commercial market may exist for the use of Radilex as it relates to the
treatment of radiation-induced side effects of cancer treatments, either as a
stand-alone treatment or as a co-therapeutic agent to be used with other
therapies.





35
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Viprovex
is being researched by us for use in potential treatments of exposure to
biological agents, such as infectious disease, which include influenza and
anthrax. We believe that Viprovex, if developed, can be used in potential
applications for sale to governments for the treatment of exposure to anthrax
and pandemic influenza. In addition, we believe that potential commercial
opportunities may exist for the treatment of seasonal influenza and other viral
or bacterial infections, either as a stand-along drug or as an adjuvant to other
existing drugs. Based on early studies on Homspera and existing literature on
Substance P, we are also researching the efficacy of Viprovex as a potential
treatment for exposure to chemical agents, such as formalin.
 
 Recent
studies have evaluated the effects of Homspera on human adult stem cell
activity.  Additionally, ongoing studies are being performed to
evaluate the efficacy of Homspera as a potential product to increase the healing
rate of wounds.
 
 To date,
we have not obtained regulatory approval for or commercialized any applications
using Homspera or any of its derivatives. We have incurred significant losses
since our inception and we expect to incur annual losses for at least the next
three years as we continue with our drug research and development
efforts.
 
 PLAN
OF OPERATIONS
 
 We expect
to continue to incur increasing operating losses for the foreseeable future,
primarily due to our continued research and development activities attributable
to Homspera, Radilex, Viprovex or any other proposed product, if any, derived
from Homspera and general and administrative activities.
 
 The
preliminary results of our pre-clinical studies using Homspera, Radilex or
Viprovex may not be indicative of results that will be obtained from subsequent
studies or from more extensive trials. Further, our pre-clinical or clinical
trials may not be successful, and we may not be able to obtain the required
regulatory approvals in a timely fashion, or at all. See "Risk
Factors."
 
 PRODUCT
RESEARCH AND DEVELOPMENT
 
 Due to
our liquidity and limited cash available our spending on research and
development activities in the years ended December 31, 2006 and 2007 was
limited. We spent approximately $541,589 and $484,029 in 2007 and 2006,
respectively, in research and development activities related to the development
of Homspera, Radilex and Viprovex. From our inception in October 2002, we have
spent $1,568,186 in research and development activities. These costs only
include the manufacture and delivery of our drug by third party manufacturers
and payments to contract research organizations and consultants for consulting
related to our studies and costs of performing such studies. Significant costs
relating to research and development, such as compensation for Dr. Siegel have
been classified in officer’s salaries for consistency of financial
reporting.
 
 We
anticipate that during the next 12 months we will increase our research and
development spending to a total of approximately $800,000 in an effort to
further develop Homspera, Radilex and Viprovex. This research and development
cost estimate includes additional animal pharmacology studies, formulation and
animal safety/toxicity studies. If we receive additional funds, through
investment funding, licensing agreements or grants, we expect we will further
increase our research and development spending.
 
 We
believe that initial revenues, if any, will likely be generated through
partnerships, alliances and/or licensing agreements with pharmaceutical or
biotechnology companies. Our focus during the next 12 months will be to identify
those companies which we believe may have an interest in our proposed products
and attempt to negotiate arrangements for potential partnerships, alliances
and/or licensing arrangements. Alliances between pharmaceutical and
biotechnology companies can take a variety of organizational forms and involve
many different payment structures such as upfront payments, milestone payments,
equity injections and royalty payments. To date, we have not entered into
discussions with and have no agreements or arrangements with any such companies.
Even if we are successful in entering into such a partnership or alliance or
licensing our technology, we anticipate that the earliest we may begin to
generate revenues from operations would be calendar year 2009. There is no
assurance that we will ever be successful in reaching such agreements or ever
generate revenues from operations.
  We will
need to generate significant revenues from product sales and or related
royalties and license agreements to achieve and maintain profitability. Through
December 31, 2007, we had no revenues from any product sales, royalties or
licensing fees, and have not achieved profitability on a quarterly or annual
basis. Our ability to achieve profitability depends upon, among other things,
our ability to develop products, obtain regulatory approval for products under
development and enter into agreements for product development, manufacturing and
commercialization. Moreover, we may never achieve significant revenues or
profitable operations from the sale of any of our potential products or
technologies.
 
 If
product development or approval does not occur as scheduled, our time to reach
market will be lengthened and our costs will substantially increase.
Additionally, we may be requested to expand our findings to gather additional
data or we may not achieve the desired results. If so, we may have to design new
protocols and conduct additional studies. This will increase our costs and delay
the time to market for our potential products, if any.  Any of these
occurrences would have a material negative impact on our business and our
liquidity as it may cause us to seek additional capital sooner than expected and
allow our competitors to successfully enter the market ahead of
us.





36
 Table of Contents




If we are
successful in achieving desirable results for these applications, we intend to
design the protocols and begin further studies for this and other applications,
when capital is available. As we have only collected preliminary data and
additional studies are required, we cannot predict when, if ever, a viable
treatments for these indications can be commercialized. If we do not observe
significant results or we lack the capital to further the development, we may
abandon such research and development efforts; thereby limiting our future
potential revenues.





If we are
successful in completing our studies and the results are as we anticipate, we
intend to prepare and submit the necessary documentation to the FDA and other
regulatory agencies for approval. If approval for Homspera, Radilex and/or
Viprovex is granted, we expect to begin efforts to commercialize our product, if
any, immediately thereafter, however, since we are currently in the pre-clinical
stage of development, it will take an indeterminate amount of time in
development before we have a marketable drug, if ever.




OFF-BALANCE
SHEET ARRANGEMENTS





There
were no off-balance sheet arrangements made in 2007.





REVENUES





We have
not generated any revenues from operations from our inception. We believe we
will begin earning revenues from operations during calendar year 2009 as we
transition from a development stage company.





COSTS
AND EXPENSES





From our
inception through December 31, 2007, we have incurred losses of $18,749,138.
These expenses were associated principally with equity-based compensation to
employees and consultants, product development costs and professional services,
and equity based compensation to shareholders for the penalty incurred for the
late registration of shares.





For the
twelve months ending December 31, 2007, Sales, General and Administrative
expenses (“SG&A”) were $5,516,323, an increase of $3,071,006 or
approximately 125% compared to SG&A expenses of $2,445,317 during the 12
months ended December 31, 2006. The year over year increase was primarily due to
an increase of $2,468,218 for the costs of non-cash compensation and also to a
one-time adjustment in 2006 that resulted in a net gain of $1,007,779 relating
to the cost of penalty for late registration of shares, as more fully described
below.





For the
twelve months ending December 31, 2007, Interest Income (net) was $62,909 an
increase of approximately 230% compared to Interest Expense (net) of $48,508
during the 12 months ended December 31, 2006. Interest Income increased because
we repaid all outstanding notes payable during the twelve months ended December
31, 2007 and earned interest on the proceeds of a private placement that we
conducted in December 2006. We expect Interest Expense to increase during the
coming twelve months as we will accrue interest expenses on the convertible
debenture we issued in January 2008.





NET LOSS





For the
reasons stated above, our net loss for the twelve months ending December 31,
2007 was $5,463,958, or $0.05 per share versus a net loss for the twelve months
ending December 31, 2006 of $1,486,046 or $0.02 per share. For the period of
inception (October 30, 2002) through December 31, 2007, our net loss was
$18,749,138, or $0.38 per share. We expect that losses will continue through the
period ending December 31, 2010.





We have
incurred a net loss and negative cash flows from operations of $5,463,958 and
$2,456,038, respectively, for the year ended December 31, 2007. This loss, in
addition to a lack of operational history, raises substantial doubt about our
ability to continue as a going concern. Management believes we currently have
sufficient working capital to fund operations through August,
2008.  Additionally, in July of 2008, we expect to sell and issue the
remaining $1,000,000 of secured convertible debentures pursuant to the January
3, 2008, Securities Purchase Agreement with Y.A. Global Investments, L.P. In the
absence of significant revenue and profits, and since we do not expect to
generate significant revenues in the foreseeable future, we, in order to fund
future operations, will be completely dependent on additional debt and equity
financing arrangements. There is no assurance that any financing will be
sufficient to fund our capital expenditures, working capital and other cash
requirements beyond August, 2008. No assurance can be given that any such
additional funding will be available or that, if available, can be obtained on
terms favorable to us. If we are unable to raise needed funds on acceptable
terms, we will not be able to develop or enhance our products, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements. A material shortage of capital will require us to take drastic
steps such as reducing our level of operations, disposing of selected assets or
seeking an acquisition partner. If cash is insufficient, we will not be able to
continue operations.


37
 Table of Contents




Penalties for Late
Registration





In
October 2004, we completed a private placement sale of shares of our common
stock and warrants to purchase additional shares of common stock. We issued in
the private placement an aggregate of 19,600,000 shares of our common stock and
warrants to purchase 9,800,000 shares of our common stock. We agreed to register
these shares along with the shares underlying these warrants within ninety days
from the closing date of the transaction, or we would incur a penalty equivalent
to an additional 2% of the shares and warrants to be registered for every 30
days that we failed to complete this registration. This penalty amounts to an
aggregate of 461,200 shares and 181,600 warrants per 30 day period until such a
time as this registration statement is made effective. We were unable to
register the securities as required.





We
attempted to register the shares and warrants by filing a registration statement
with the Securities and Exchange Commission on November 24, 2004, and amended
this registration statement with pre-effective amendments no. 1, 2, 3 and 4 on
July 20, 2005, November 16, 2005, February 22, 2006 and April 7, 2006,
respectively. On July 10, 2006 we, pursuant to Rule 477 of Regulation C of the
Securities Act of 1933, as amended, applied for an order granting the immediate
withdrawal of the Registration Statement on Form SB-2.





In August
2006, we reached an agreement with the investors in the private placement of
October 2004 which limits the number of warrants and shares which we are
obligated to issue pursuant to the penalty calculation to an aggregate of 18% of
the number of original number of shares and warrants issued in the October 2004
private placement. This agreement limits the number of shares and warrants
issuable pursuant to the penalty calculation to an aggregate of 4,150,798 shares
and warrants to purchase an additional 1,634,400 shares, respectively. This
resulted in a decrease in the number of share issuable 2,475,107 (with a fair
value of $816,785) and a decrease in the number of warrant shares of 974,587
(with a fair value of $177,789). This resulted in a net realized gain of
$438,601 during the twelve months ended December 31, 2006.





In August
2006, we issued 4,150,798 shares and warrants to purchase 1,634,400 shares and
relieved accrued liabilities in the aggregate amount of $1,053,904. For the
twelve months ended December 31, 2006, we marked to market the value of the
shares and warrants issuable pursuant to the penalty calculation for an
aggregate gain in the amount of approximately $445,673 and $123,505,
respectively.





LIQUIDITY
AND CAPITAL RESOURCES





At
December 31, 2007, we had current assets of $307,836 consisting of cash of
$221,120 and prepaid services of $84,691.  Also, at December 31, 2007,
we had current liabilities of $932,609, consisting of accounts payable and
accrued liabilities of $932,609 and notes payable of $0. This resulted in a
working capital deficit of $624,773. During the twelve months ended December 31,
2007, we used cash in operating activities of $2,456,038. From the date of
inception (October 30, 2002) to December 31, 2007, we had a net loss of
$18,749,138 and used cash of $8,449,980 in operating activities. We met our cash
requirements from our inception through December 31, 2007 via the private
placement of $7,877,901 of our common stock and $858,628 from the issuance of
notes payable, net of repayments.





We
currently have 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, we have financed our 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.





On
January 3, 2008, we entered into a securities purchase agreement with YA Global
Investments, L.P., pursuant to which YA Global Investments, L.P. agreed to
purchase from us (i) up to $3 million of secured convertible debentures, which
shall be convertible into shares of our common stock and (ii) warrants to
acquire up to 7,500,000 additional shares of our common stock. The initial
closing occurred on January 3, 2008, at which time we sold to YA Global
Investments, L.P. $2 million of the convertible debentures and the warrants. The
company, at our sole option, may elect to sell and issue to YA Global
Investments, L.P. an additional $1 million of secured convertible debentures
within the six months following the execution of the securities purchase
agreement.





In
December 2006, we completed a private placement, whereby we sold an aggregate of
$5,482,600 worth of units to accredited investors. In consideration of the
investment, we granted to each investor certain registration rights and
anti-dilution rights. We agreed that not before 180 days after the closing of
the private placement and not later than 190 days thereafter, we would file with
the SEC an appropriate registration statement to register these shares along
with the shares underlying these warrants. In the event that we had failed to
comply with the filing deadline, there would have been a 1% penalty for each 30
day period (or pro rata portion thereof) paid to each investor in cash or
additional shares. This penalty would have amounted to an aggregate of 342,662
shares and 171,331 warrants per 30 day period until such  time as a
registration statement that included these shares and warrants was filed or for
12 months. As of December 31, 2007, we are not subject to any
penalty.
 
 Pursuant
to our employment agreement with Michael Wilhelm, our President and Chief
Executive Officer, dated December 16, 2002, we paid a salary of $125,000 and
$175,000 to Mr. Wilhelm during the first and second years of his employment,
respectively. Thereafter we paid through August 10, 2005, an annual salary of
$250,000. On August 10, 2005, we entered into a new employment agreement with
Mr. Wilhelm. The new employment agreement is an At-Will agreement, meaning that
the Company or Mr. Wilhelm may terminate employment at any time for any reason
with or without cause, and calls for a salary at the rate of $275,000 per annum
and provides for annual salary increases of 10% and bonus incentives. Mr.
Wilhelm's salary is payable in regular installments in accordance with the
customary payroll practices of our Company.
 
 Pursuant
to our employment agreement with John Fermanis, our Chief Financial Officer,
dated February 15, 2005, we paid a salary of $60,000 until the company completed
a financing of $500,000 or more. This occurred on March 4, 2005 when the company
completed a tender offer for warrants totaling $1,211,000 net of fees. From
March 4, 2005, until December 31, 2005, we paid an annual salary of $85,000.
Thereafter, we paid an annual salary of $98,000 for the second year ending
December 31, 2006 and paid an annual salary of $112,000 for the third year
ending December 31, 2007. Mr. Fermanis' salary is payable in regular
installments in accordance with the customary payroll practices of our
Company.





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 Table of Contents




Pursuant
to our employment agreement with Hal N. Siegel, our Senior Director of Product
Development and Regulatory Affairs, dated October 23, 2006, we will pay an
annual base salary of $200,000 for the first year and $210,000 for the second
year. Mr. Siegel will also be eligible for discretionary bonuses under the
Company's stock option plan during his employment. In addition, Mr. Siegel
received options with a term of five years to purchase 200,000 shares of common
stock of the Company. The options are exercisable at $0.20 per share. The
employment agreement has a term of two years, subject to early termination
provisions. Upon termination of Mr. Sigel's employment by the Company without
cause or constructive termination, as defined in the agreement, the Company
agrees to pay to Mr. Siegel the remainder of his salary for the year or six
months salary, whichever is greater, and any accrued vacation.





Pursuant
to the terms of the change of control agreement, the Company agrees to pay Mr.
Siegel his salary for a period of 18 months from the date an involuntary
termination, payable in accordance with the Company's compensation practice.
Involuntary termination is defined as the termination of Mr. Siegel's employment
by Company without cause or due to constructive termination at any time within
one-year from a change of control event, as defined in the
agreement.





Since our
inception, we have been seeking additional third-party funding. During such
time, we have retained a number of different investment banking firms to assist
us in locating available funding; however, we have not yet been successful in
obtaining any of the long-term funding needed to make us into a commercially
viable entity. During the period from October 2004 to December 31, 2007, we were
able to obtain financing of $9,097,736 from a series of private placements of
our securities (which resulted in net proceeds to us of $7,877,901). In January
2008 we sold $2 million in secured convertible debentures which resulted in net
proceeds to us of $1,815,000.  We also expect to sell an additional $1
million of the secured convertible debentures after July 3, 2008 as per the
terms of the securities purchase agreement with YA Global Investments L.P. Based
on our current plan of operations all of our current funding is expected to be
depleted by the end of August, 2008. The additional $1 million is expected to
fund operations until January 2009. If we are not successful in generating
sufficient liquidity from operations or in raising sufficient capital resources,
it would have a material adverse effect on our business, results of operations,
liquidity and financial condition.




Our independent registered
certified public accountants have stated in their report included in this Form
10-KSB that the Company's recurring losses and negative cash flow raise
substantial doubt about the Company's ability to continue as a going
concern.




While we
have raised capital to meet our working capital and financing needs in the past
through debt and equity financings, additional financing will be required in
order to implement our business plan and to meet our current and projected cash
flow deficits from operations and development. There can be no assurance that we
will be able to consummate future debt or equity financings in a timely manner
on a basis favorable to us, or at all. If we are unable to raise needed funds,
we will not be able to develop or enhance our potential products, take advantage
of future opportunities or respond to competitive pressures or unanticipated
requirements. A material shortage of capital will require us to take drastic
steps such as reducing our level of operations, disposing of selected assets or
seeking an acquisition partner.





Until
such time, if at all, as we receive adequate funding, we intend to continue to
defer payment of all of our obligations which are capable of being deferred,
which actions have resulted in some vendors demanding cash payment for their
goods and services in advance, and other vendors refusing to continue to do
business with us. We do not expect to generate a positive cash flow from our
operations for at least several years, if at all, due to anticipated
expenditures for research and development activities, administrative and
marketing activities, and working capital requirements and expect to continue to
attempt to raise further capital through one or more further private placements.
Based on our operating expenses and anticipated research and development
activities we believe we have sufficient to meet or operating needs through
August, 2008. Thereafter, we believe that we will require an additional
$2,500,000 to meet our expenses over the next 12 months.
 
 Acquisition or Disposition
of Plant and Equipment
 
 We
acquired $24,945 worth of property, plant or equipment for the year ended
December 31, 2007. We do not anticipate the acquisition or disposition of any
significant property, plant or equipment during the next 12 months.
 
 Number of
Employees
 
 From our
inception through the period ended December 31, 2007, we have relied primarily
on the services of outside consultants for services.  As of December
31, 2007 we had nine total employees: five full-time employees, two
part-time employees and two contract employees. Our full-time employees are
Michael K. Wilhelm, our Chief Executive Officer; John N. Fermanis, our Chief
Financial Officer; Hal N. Siegel, Ph.D., Senior Director, Product Development
and Regulatory Affairs, a scientific program manager; and, the fifth serves in
an administrative role. In order for us to attract and retain quality personnel,
we anticipate we will have to offer competitive salaries to future employees. We
do not anticipate our employment base will significantly change during the next
twelve months, except that we plan on converting the two contract employees to
full-time positions within our science department.





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 Table of Contents




CRITICAL
ACCOUNTING POLICY





The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and judgments that affect our reported assets, liabilities,
revenues, and expenses, and the disclosure of contingent assets and
liabilities.





We base
our estimates and judgments on historical experience and on various other
assumptions we believe to be reasonable under the circumstances. Future events,
however, may differ markedly from our current expectations and assumptions.
While there are a number of significant accounting policies affecting our
consolidated financial statements; we believe the following critical accounting
policy involves the most complex, difficult and subjective estimates and
judgments:





Stock-based
Compensation





Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised), "Share-Based
Payment" (SFAS 123(R)) utilizing the modified prospective approach. Prior to the
adoption of SFAS 123(R) we accounted for stock option grant in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" (the intrinsic
value method), and accordingly, recognized compensation expense for stock option
grants.





Under the
modified prospective approach, SFAS 123(R) applies to new awards and to awards
that were outstanding on January 1, 2006 that are subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
cost recognized in the nine months of fiscal 2006 includes compensation cost for
all share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and compensation cost for all share-based
payments granted subsequent to January 1, 2006 based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123(R). Prior periods
were not restated to reflect the impact of adopting the new
standard.





A summary
of option activity under the Plan as of December 31, 2007, and changes during
the period ended are presented below:





Options
            
            
            Weighted Average
              Exercise
      PriceOutstanding
      at December 31, 2006
            
            
            5,914,212
            
            
            $
            0.50Issued
            
            
            10,100,000
            
            
            
            0.17Exercised
            
            
            -
            
            
            
            -Forfeited or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2007
            
            
            16,014,212
            
            
            $
            0.29Non-vested
      at December 31, 2007
            
            
            100,000
            
            
            $
            0.16Exercisable
      at December 31, 2007
            
            
            15,914,212
            
            
            $
            0.29





Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2007 was
$0. Aggregate intrinsic value represents the difference between the Company's
closing stock price on the last trading day of the fiscal period, which was
$0.08 as of December 31, 2007, and the exercise price multiplied by the number
of options outstanding. As of December 31, 2007, total unrecognized stock-based
compensation expense related to stock options was $24,840 . During the year
ended December 31, 2007, the Company charged $482,771 to operations related to
recognized stock-based compensation expense for employee stock
options.





Recent Accounting
Pronouncements




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.







40
 Table of Contents




ITEM7. FINANCIAL STATEMENTS





IR BIOSCIENCES HOLDINGS,
INC.
  IR
BioSciences Holdings, Inc. and Subsidiary
 (A
Development Stage Company)
 Index
to Consolidated Financial Statements





Page
      No.Report of Independent Registered Certified Public
      Accounting Firm
            F-2Consolidated Balance Sheets at December 31,
      2007 and 2006
            F-3Consolidated Statements of Losses for the years ended
      December 31, 2007 and 2006 and the period October 30, 2002 (Date of
      Inception) through December 31, 2007
            F-4Consolidated Statements of Stockholders' Equity (Deficit)
      for the period October 30, 2002 (Date of Inception) through December 31,
      2007
            F-5Consolidated Statements of Cash Flows for the years ended
      December 31, 2007 and 2006 and the period October 30, 2002 (Date of
      Inception) through December 31, 2007
            F-12Notes to Consolidated Financial
Statements
            F-13
      to F-32











Table of Contents




REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
 
   The Board
of Directors
 IR
BioSciences Holdings, Inc.
 Scottsdale,
Arizona
  We have
audited the accompanying consolidated balance sheets of IR Biosciences
Holdings, Inc. and Subsidiary ("Company"), a development stage company, as of
December 31, 2007 and 2006, and the related consolidated statements of losses,
deficiency in stockholders' equity and cash flows for each of the two years
in the period ended December 31, 2007 and for the period October 30, 2002 (date
of inception as a development stage enterprise) to December 31, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
  We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of IR BioSciences
Holdings, Inc. as of December 31, 2007, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2007 and from October 30, 2002 (date of inception as a development
stage enterprise ) to December 31, 2007 in conformity with generally accepted
accounting principles in the United States of America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note A to the financial
statements, the Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
    /s/
RBSM  LLP Certified
Public Accountants
   New York,
New York
 March 28,
2008











F-2
 Table of Contents








IR
BioSciencesHoldings, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Balance Sheets as of December 31, 2007


And
December 31, 2006






December
      31, 2007
              
              
              December
      31, 2006AssetsCurrent
      assetsCash and cash equivalents
              
              $
              221,120
              
              
              $
              2,752,103Prepaid services and other current assets (Note 1)
              
              
              84,691
              
              
              
              77,899Salary advance (Note 1)
              
              
              2,025
              
              
              
              1,500Total
      current assets
              
              
              307,836
              
              
              
              2,831,502Deposit (Note 1)
              
              
              7,128
              
              
              
              2,260Furniture and equipment, net of accumulated depreciation of $27,158 and
      $12,242 (Note 2)
              
              
              38,271
              
              
              
              28,242Total
      assets
              
              $
              353,235
              
              
              $
              2,862,004Liabilities
      and Stockholders' (Deficit) EquityCurrent
      liabilitiesAccounts payable and accrued liabilities (Note 3)
              
              
              932,609
              
              
              
              460,969Current portion of Notes Payable
              
              
              -
              
              
              
              50,000Total
      current liabilities
              
              
              932,609
              
              
              
              510,969Commitments
      and Contingencies  (Note 8)
              
              
              -
              
              
              
              -Stockholders'
      (Deficit) EquityPreferred stock, $0.001 par value: 10,000,000 shares authorized, no shares
      issued and outstanding
              
              
              -
              
              
              
              -Common stock, $0.001 par value; 250,000,000 shares
      authorized; 114,322,539 and 108,041,897 shares
                issued and outstanding at December 31, 2007 and December 31, 2006,
      respectively (Note 6)
              
              
              114,323
              
              
              
              108,042Additional
      paid-in capital
              
              
              17,902,441
              
              
              
              15,522,690Common
      stock subscribed (Note 6)
              
              
              153,000
              
              
              
              5,483Deficit
      accumulated during the development stage
              
              
              (18,749,138
              )
              
              
              (13,285,180
              )Total
      stockholder's (deficit) equity
              
              
              (579,374
              )
              
              
              2,351,035Total
      liabilities and stockholders' (deficit) equity
              
              $
              353,235
              
              
              $
              2,862,004




The
accompanying notes are an integral part of these audited consolidated financial
statements.







F-3
 Table of Contents




IR
BioSciencesHoldings, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statements of Losses


For
the years ended December 31, 2007 and 2006,


And
for the period of inception


(October
30, 2002) to December 31, 2007





For
      the Year Ended
              December
      31,
            
            
            For
      the Period October 30, 2002 to2007
            
            
            2006
            
            
            December
      31, 2007Revenues
            
            $
            -
            
            
            $
            -
            
            
            $
            -Operating
      expenses:Selling, general and administrative expenses
            
            
            5,516,323
            
            
            
            2,445,317
            
            
            
            16,085,941Merger fees and costs
            
            
            -
            
            
            
            -
            
            
            
            350,000Financing cost
            
            
            -
            
            
            
            -
            
            
            
            90,000Impairment of intangible asset costs
            
            
            -
            
            
            
            -
            
            
            
            6,393Total operating expenses
            
            
            5,516,323
            
            
            
            2,445,317
            
            
            
            16,532,334Operating
      loss
            
            
            (5,516,323
            )
            
            
            (2,445,317
            )
            
            
            (16,532,334
            )Other
      expense:Cost of penalty for late registration of shares
            
            
            -
            
            
            
            (438,601
            )
            
            
            2,192,160(Gain) loss from marking to market - warrant
      portion    of penalty for late registration of
      shares
            
            
            -
            
            
            
            (123,505
            )
            
            
            (378,198
            )(Gain) loss from marketing to market - stock portion of penalty for late
      registration of shares
            
            
            -
            
            
            
            (445,673
            )
            
            
            (760,058
            )Interest (income) expense, net
            
            
            (62,909
            )
            
            
            48,508
            
            
            
            1,152,356Total other (income) expense
            
            
            (62,909
            )
            
            
            (959,271
            )
            
            
            2,206,260(Loss) before income taxes
            
            
            (5,453,414
            )
            
            
            (1,486,046
            )
            
            
            (18,738,594
            )Provision for income taxes
            
            
            (10,544
            )
            
            
            -
            
            
            
            (10,544
            )Net
      (loss)
            
            $
            (5,463,958
            )
            
            $
            (1,486,046
            )
            
            $
            (18,749,138
            )Net
      income (loss) per share - basic and diluted
            
            $
            (0.05
            )
            
            $
            (0.02
            )
            
            $
            (0.38
            )Weighted
      average shares outstanding -basic and diluted
            
            
            114,221,943
            
            
            
            73,234,541
            
            
            
            48,979,038






The
accompanying notes are an integral part of these audited consolidated financial
statements.






F-4
 Table of Contents




IR
BiosciencesHolding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007





Additional
            
            
            
            
            
            CommonCommon
      Stock
            
            
            Paid-In
            
            
            Deferred
            
            
            Stock
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Capital
            
            
            Compensation
            
            
            Subscribed
            
            
            Deficit
            
            
            TotalBalance
      at October 30, 2002 (date of inception)
            
            
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -Shares
      of common stock issued at $0.0006 per share to founders for license of
      proprietary right in December 2002
            
            
            16,612,276
            
            
            
            16,612
            
            
            
            (7,362
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            9,250Shares
      of common stock issued at $0.0006 per share to founders for services
      rendered in December 2002
            
            
            1,405,310
            
            
            
            1,405
            
            
            
            (623
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            782Shares
      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
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            31,001Net
      loss for the period from inception (October 30, 2002) to December 31,
      2002
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (45,918
            )
            
            
            (45,918
            )Balance
      at December 31, 2002 (reflective of stock splits)
            
            
            18,257,042
            
            
            $
            18,257
            
            
            $
            31,776
            
            
            $
            (9,000
            )
            
            $
            -
            
            
            $
            (45,918
            )
            
            $
            (4,885
            )





The
accompanying notes are an integral part of these audited consolidated financial
statements.









F-5
 Table of Contents




IR
Biosciences Holding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007


(continued)




Additional
              
              
              
              
              CommonCommon
      Stock
              
              Paid-In
              
              Deferred
              
              
              Stock
              
              
              AccumulatedShares
              
              
              Amount
              
              Capital
              
              Compensation
              
              
              Subscribed
              
              
              Deficit
              
              
              Total
  Shares
      granted to consultants at $0.1392 per share for services rendered in
      January 2003
              
              
              98,776
              
              
              
              99
              
              
              
              13,651
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,750Sale
      of shares of common stock for cash at $0.1517 per share in January
      2003
              
              
              329,552
              
              
              
              330
              
              
              
              49,670
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              50,000Shares
      granted to consultants at $0.1392 per share for services rendered in March
      2003
              
              
              154,450
              
              
              
              154
              
              
              
              21,346
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              21,500Conversion
      of notes payable to common stock at $0.1392 per share in April
      2003
              
              
              1,436,736
              
              
              
              1,437
              
              
              
              198,563
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              200,000Shares
      granted to consultants at $0.1413 per share for services rendered in April
      2003
              
              
              14,368
              
              
              
              14
              
              
              
              2,016
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,030Sale
      of shares of common stock for cash at $0.2784 per share in May
      2003
              
              
              17,960
              
              
              
              18
              
              
              
              4,982
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,000Sales
      of shares of common stock for cash at $0.2784 per share in June
      2003
              
              
              35,918
              
              
              
              36
              
              
              
              9,964
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,000Conversion
      of notes payable to common stock at $0.1392 per share in June
      2003
              
              
              718,368
              
              
              
              718
              
              
              
              99,282
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              100,000Beneficial
      conversion feature associated with notes issued in June
      2003
              
              
              -
              
              
              
              -
              
              
              
              60,560
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              60,560Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              9,000
              
              
              
              -
              
              
              
              -
              
              
              
              9,000Costs
      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
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              189,937Value
      of Company warrants issued in conjunction with fourth quarter notes
      payable issued October through December 2003
              
              
              -
              
              
              
              -
              
              
              
              207,457
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              207,457Value
      of warrants contributed by founders in conjunction with fourth quarter
      notes payable issued October through December 2003
              
              
              -
              
              
              
              -
              
              
              
              183,543
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              183,543Value
      of warrants issued for services in October through December
      2003
              
              
              -
              
              
              
              -
              
              
              
              85,861
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              85,861Net
      loss for the twelve month period ended December 31,
    2003
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,856,702
              )
              
              
              (1,856,702
              )Balance
      at December 31, 2003
              
              
              23,431,300
              
              
              $
              23,431
              
              
              $
              1,035,441
              
              
              $
              -
              
              
              $
              -
              
              
              $
              (1,902,620
              )
              
              $
              (843,748
              )








The
accompanying notes are an integral part of these audited consolidated financial
statements.





F-6
 Table of Contents




IR
Biosciences Holding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007


(continued)







Additional
                  
                  
                  
                  
                  CommonCommon
      Stock
                  
                  Paid-In
                  
                  Deferred
                  
                  
                  Stock
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  Capital
                  
                  Compensation
                  
                  
                  Subscribed
                  
                  
                  Deficit
                  
                  
                  Total
 Shares
      granted at $1.00 per share pursuant to the Senior Note Agreement in
      January 2004
              
              
              600,000
              
              
              
              600
              
              
              
              599,400
              
              
              
              (600,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      issued at $1.00 per share to a consultant for services rendered in January
      2004
              
              
              800,000
              
              
              
              800
              
              
              
              799,200
              
              
              
              (800,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      issued to a consultant at $0.62 per share for services rendered in
      February 2004
              
              
              40,000
              
              
              
              40
              
              
              
              24,760
              
              
              
              (24,800
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      issued to a consultant at $0.40 per share for services rendered in March
      2004
              
              
              1,051,600
              
              
              
              1,051
              
              
              
              419,589
              
              
              
              (420,640
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      issued to a consultant at $0.50 per share for services rendered in March
      2004
              
              
              500,000
              
              
              
              500
              
              
              
              249,500
              
              
              
              (250,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -Shares
      sold for cash at $0.15 per share in March, 2004
              
              
              8,000
              
              
              
              8
              
              
              
              1,192
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,200Shares
      issued at $0.50 per share to consultants for services rendered in March
      2004
              
              
              20,000
              
              
              
              20
              
              
              
              9,980
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,000Shares
      issued to a consultant at $0.40 per share for services rendered in March
      2004
              
              
              2,000
              
              
              
              2
              
              
              
              798
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              800Shares
      issued to consultants at $0.32 per share for services rendered in March
      2004
              
              
              91,600
              
              
              
              92
              
              
              
              29,220
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              29,312Shares
      to be issued to consultant at $0.41 per share in April 2004 for services
      to be rendered through March 2005
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (82,000
              )
              
              
              -
              
              
              
              -
              
              
              
              (82,000
              )Shares
      granted pursuant to the New Senior Note Agreement in April
      2004
              
              
              600,000
              
              
              
              600
              
              
              
              149,400
              
              
              
              (150,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -





The
accompanying notes are an integral part of these audited consolidated financial
statements.





F-7
 Table of Contents





IR
Biosciences Holding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007


(continued)





Additional
                
                
                
                
                CommonCommon
      Stock
                
                Paid-In
                
                Deferred
                
                
                Stock
                
                
                AccumulatedShares
                
                
                Amount
                
                Capital
                
                Compensation
                
                
                Subscribed
                
                
                Deficit
                
                
                Total


Shares
      issued to officer at $0.32 per share for services rendered in April
      2004
              
              
              200,000
              
              
              
              200
              
              
              
              63,800
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              64,000Conversion
      of Note Payable to common stock at $0.10 per share in May
      2004
              
              
              350,000
              
              
              
              350
              
              
              
              34,650
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              35,000Beneficial
      Conversion Feature associated with note payable in May
      2004
              
              
              -
              
              
              
              -
              
              
              
              35,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              35,000Issuance
      of warrants to officers and founder for services rendered in May
      2004
              
              
              -
              
              
              
              -
              
              
              
              269,208
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              269,208Shares
      to a consultant at $0.20 per share as a due diligence fee in May
      2004
              
              
              125,000
              
              
              
              125
              
              
              
              24,875
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25,000Shares
      issued to a consultant at $1.00 per share for services to be rendered over
      twelve months beginning May 2004
              
              
              500,000
              
              
              
              500
              
              
              
              499,500
              
              
              
              (500,000
              )
              
              
              -
              
              
              
              -
              
              
              
              -Beneficial
      Conversion Feature associated with notes payable issued in June
      2004
              
              
              -
              
              
              
              -
              
              
              
              3,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,000Issuance
      of warrants to note holders in April, May, and June
    2004
              
              
              -
              
              
              
              -
              
              
              
              17,915
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              17,915Issuance
      of warrants to employees and consultants for services rendered in April
      through June 2004
              
              
              -
              
              
              
              -
              
              
              
              8,318
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,318Shares
      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
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              82,000Shares
      issued to a consultant in September at $0.12 to $0.22 for services
      rendered through September 2004
              
              
              127,276
              
              
              
              127
              
              
              
              16,782
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,909Shares
      issued in July to September 2004 as interest on note
      payable
              
              
              300,000
              
              
              
              300
              
              
              
              35,700
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              36,000Issuance
      of warrants with notes payable in July and August
    2004
              
              
              -
              
              
              
              -
              
              
              
              72,252
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              72,252Accrued
      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
              )
              
              
              -
              
              
              
              -
              
              
              
              -










The
accompanying notes are an integral part of these audited consolidated financial
statements.





F-8
 Table of Contents





IR
Biosciences Holding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007


(continued)




Additional
                
                
                
                
                CommonCommon
      Stock
                
                Paid-In
                
                Deferred
                
                
                Stock
                
                
                AccumulatedShares
                
                
                Amount
                
                Capital
                
                Compensation
                
                
                Subscribed
                
                
                Deficit
                
                
                Total


Shares
      issued in August 2004 at $0.125 per share for conversion of $30,000 demand
      loan
              
              
              240,000
              
              
              
              240
              
              
              
              29,760
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              30,000Shares
      issued in August 2004 at $0.16 per share to a consultant for services
      provided.
              
              
              125,000
              
              
              
              125
              
              
              
              19,875
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              20,000Shares
      issued in October 2004 to employees at $0.16 to $0.25 per
      share
              
              
              48,804
              
              
              
              49
              
              
              
              8,335
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,384Commitment
      to issue 100,000 shares of stock to a consultant at $0.23 per share for
      services to be provided through September 2005
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (23,000
              )
              
              
              -
              
              
              
              -
              
              
              
              (23,000
              )Sale
      of stock for cash in October at $0.125 per share, net of costs of
      $298,155
              
              
              18,160,000
              
              
              
              18,160
              
              
              
              1,345,763
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,363,923Value
      of warrants issued with sale of common stock in October, net of
      costs
              
              
              -
              
              
              
              -
              
              
              
              607,922
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              607,922Issuance
      of warrant to officer in October, 2004
              
              
              -
              
              
              
              -
              
              
              
              112,697
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              112,697Issuance
      of stock to investment bankers in October 2004 for commissions
      earned
              
              
              4,900,000
              
              
              
              4,900
              
              
              
              (4,900
              )
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Conversion
      of accounts payable to stock in October at $0.125 per
      share
              
              
              1,257,746
              
              
              
              1,258
              
              
              
              107,382
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              108,640Value
      of warrants issued with accounts payable conversions
              
              
              -
              
              
              
              -
              
              
              
              48,579
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              48,579Conversion
      of demand loan to stock in October at $0.11 per
share
              
              
              93,300
              
              
              
              93
              
              
              
              10,170
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,263Forgiveness
      of notes payable in October 2004
              
              
              -
              
              
              
              -
              
              
              
              36,785
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              36,785Issuance
      of stock to officer and director at $0.125 per share in October for
      conversion of liability
              
              
              1,440,000
              
              
              
              1,440
              
              
              
              122,493
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              123,933Value
      of warrants issued with officer and director conversion of
      liabilities
              
              
              -
              
              
              
              -
              
              
              
              56,067
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              56,067Conversion
      of debt and accrued interest to common stock at $0.075 to $0.125 per
      share
              
              
              6,703,151
              
              
              
              6,703
              
              
              
              417,514
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              424,217Value
      of warrants issued with conversion of debt
              
              
              -
              
              
              
              -
              
              
              
              191,111
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              191,111Conversion
      of note payable in October into common stock at $0.075 per
      share
              
              
              67,616
              
              
              
              68
              
              
              
              4,932
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,000Issuance
      of warrants to note holders in October 2004
              
              
              -
              
              
              
              -
              
              
              
              112,562
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              112,562Value
      of shares issued to CFO as compensation
              
              
              100,000
              
              
              
              100
              
              
              
              34,900
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              35,000Value
      of warrants issued to members of advisory committees in November and
      December
              
              
              -
              
              
              
              -
              
              
              
              16,348
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,348Beneficial
      conversion feature associated with notes payable
              
              
              -
              
              
              
              -
              
              
              
              124,709
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              124,709Shares
      issued per conversion of Note Payable - correction
              
              
              (9,002
              )
              
              
              (9
              )
              
              
              9
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Amortization
      of deferred compensation through December 31, 2004
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,729,454
              
              
              
              -
              
              
              
              -
              
              
              
              2,729,454Loss
      for the twelve months ended December 31, 2004
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,305,407
              )
              
              
              (5,305,407
              )Balance
      at December 31, 2004
              
              
              62,423,391
              
              
              $
              62,423
              
              
              $
              7,922,943
              
              
              $
              (169,986
              )
              
              $
              -
              
              
              $
              (7,208,027
              )
              
              $
              607,353


The
accompanying notes are an integral part of these audited consolidated financial
statements.





F-9
 Table of Contents





IR
Biosciences Holding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007


(continued)




Additional
                  
                  
                  
                  
                  CommonCommon
      Stock
                  
                  Paid-In
                  
                  Deferred
                  
                  
                  Stock
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  Capital
                  
                  Compensation
                  
                  
                  Subscribed
                  
                  
                  Deficit
                  
                  
                  Total
 Sale
      of shares of common stock for cash at $0.20 per share in March 2005 for
      warrant exercise, net of costs
              
              
              6,600,778
              
              
              
              6,600
              
              
              
              1,184,256
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,190,856Value
      of warrants issued to members of advisory committees in
      March
                2005
              
              
              -
              
              
              
              -
              
              
              
              137,049
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              137,049Deferred
      compensation in February 2005 to a consultant for 50,000 shares of common
      stock at $0.65 per share.
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (32,500
              )
              
              
              -
              
              
              
              -
              
              
              
              (32,500
              )Warrants
      exercised at $0.05 per share in June 2003
              
              
              80,000
              
              
              
              80
              
              
              
              3,920
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,000Value
      of warrants issued to members of advisory committee in June
      2005
              
              
              -
              
              
              
              -
              
              
              
              70,781
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              70,781Value
      of warrants issued to investors and service providers in June
      2005
              
              
              -
              
              
              
              -
              
              
              
              32,991
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              32,991Issuance
      of 232,153 shares of common stock in July 2005 for conversion of notes
      payable
              
              
              232,153
              
              
              
              232
              
              
              
              64,771
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              65,003Issuance
      of 100,000 shares of common stock in August 2005 to a consultant for
      services provided
              
              
              100,000
              
              
              
              100
              
              
              
              9,900
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              10,000Value
      of warrants issued to advisory committee in September 2005 for
      services
              
              
              -
              
              
              
              -
              
              
              
              20,491
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              20,491Amortization
      of deferred comp for the twelve months ended December,
      2005
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              199,726
              
              
              
              -
              
              
              
              -
              
              
              
              199,726Value
      of warrants issued in October and December 2005 to investors and service
      providers
              
              
              -
              
              
              
              -
              
              
              
              18,399
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              18,399Loss
      for the year ended December 31,2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              (4,591,107
              )
              
              
              (4,591,107
              )Balance
      at December 31, 2005
              
              
              69,436,322
              
              
              $
              69,435
              
              
              $
              9,465,501
              
              
              $
              (2,760
              )
              
              $
              -
              
              
              $
              (11,799,134
              )
              
              $
              (2,266,958
              )








The
accompanying notes are an integral part of these audited consolidated financial
statements.








F-10
 Table of Contents




IR
Biosciences Holding, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statement of Stockholders' Equity (Deficit)


From
period of inception (October 30, 2002) to December 31, 2007


(continued)





Additional
                  
                  
                  
                  
                  CommonCommon
      Stock
                  
                  Paid-In
                  
                  Deferred
                  
                  
                  Stock
                  
                  
                  AccumulatedShares
                  
                  
                  Amount
                  
                  Capital
                  
                  Compensation
                  
                  
                  Subscribed
                  
                  
                  Deficit
                  
                  
                  Total
 Issuance
      of 100,000 shares to officer, previously accrued
              
              
              100,000
              
              
              
              100
              
              
              
              41,316
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              41,416Value
      of warrants issued to members of advisory committee in March
      2006
              
              
              -
              
              
              
              -
              
              
              
              8,399
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,399Amortization
      of deferred compensation for the three months ended March 31,
      2006
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,760
              
              
              
              -
              
              
              
              -
              
              
              
              2,760Issuance
      of common stock in May 2006 to a consultant for services
      provided
              
              
              34,464
              
              
              
              35
              
              
              
              16,162
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              16,197Conversion
      of accrued interest to common stock at $0.125 per share in May,
      2006
              
              
              19,288
              
              
              
              19
              
              
              
              2,392
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,411Conversion
      of accrued interest to common stock at $0.125 per share in May,
      2006
              
              
              16,324
              
              
              
              16
              
              
              
              2,025
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,041Conversion
      of accrued interest to common stock at $0.10 per share in May,
      2006
              
              
              13,454
              
              
              
              14
              
              
              
              1,341
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,355Common
      stock issued pursuant to the exercise of warrants at $0.09 per share in
      June 2006
              
              
              5,000
              
              
              
              5
              
              
              
              445
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              450Value
      of warrants issued to members of advisory committee in June
      2006
              
              
              -
              
              
              
              -
              
              
              
              8,820
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,820Value
      of warrants issued to members of advisory committee in September
      2006
              
              
              -
              
              
              
              -
              
              
              
              3,495
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              3,495Value
      of warrants issued to officers
              
              
              -
              
              
              
              -
              
              
              
              50,874
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              50,874Issuance
      of penalty Common Stock, previously accrued
              
              
              4,150,798
              
              
              
              4,151
              
              
              
              867,514
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              871,665Issuance
      of penalty warrants, previously accrued
              
              
              -
              
              
              
              -
              
              
              
              182,239
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              182,239Value
      of options issued to officer
              
              
              -
              
              
              
              -
              
              
              
              78,802
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              78,802Value
      of warrants issued to members of advisory committee in December
      2006
              
              
              -
              
              
              
              -
              
              
              
              1,974
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,974Issuance
      of Common Stock for cash
              
              
              34,266,250
              
              
              
              34,267
              
              
              
              4,579,282
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,613,549Common
      stock to be issued as commission for equity fund
    raising
              
              
              -
              
              
              
              -
              
              
              
              (5,483
              )
              
              
              -
              
              
              
              5,483
              
              
              
              -
              
              
              
              -Value
      of options issued to officer
              
              
              -
              
              
              
              -
              
              
              
              32,120
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              32,120Value
      of options issued to officer
              
              
              -
              
              
              
              -
              
              
              
              185,472
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              185,472Loss
      for the year ended December 31, 2006
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,486,046
              )
              
              
              (1,486,046
              )Balance
      at December 31, 2006
              
              
              108,041,900
              
              
              $
              108,042
              
              
              $
              15,522,690
              
              
              $
              -
              
              
              $
              5,483
              
              
              $
              (13,285,180
              )
              
              $
              2,351,035Common
      stock issued as commission for equity fund raising
              
              
              5,482,600
              
              
              
              5,483
              
              
              
              -
              
              
              
              -
              
              
              
              (5,483
              )
              
              
              -
              
              
              
              -Common
      stock issued to consultant in January, 2007 at $0.15 per
      share
              
              
              298,039
              
              
              
              298
              
              
              
              44,408
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              44,706Common
      stock issued to consultants in January, 2007 at $0.155 per
      share
              
              
              400,000
              
              
              
              400
              
              
              
              61,600
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              62,000Common
      stock issued to consultants in January, 2007 at $0.15 per
      share
              
              
              100,000
              
              
              
              100
              
              
              
              14,900
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              15,000Value
      of options issued to officer in January, February and March
      2007
              
              
              -
              
              
              
              -
              
              
              
              471,457
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              471,457Value
      of options issued to employee in January, 2007
              
              
              -
              
              
              
              -
              
              
              
              5,426
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,426Value
      of warrants issued to a consultant in April 2007
              
              
              -
              
              
              
              -
              
              
              
              166,998
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              166,998Value
      of options issued to employees in July 2007
              
              
              -
              
              
              
              -
              
              
              
              996,133
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              996,133Value
      of options issued to directors in July 2007
              
              
              -
              
              
              
              -
              
              
              
              537,833
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              537,833Value
      of options issued to consultants in July 2007
              
              
              -
              
              
              
              -
              
              
              
              80,996
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              80,996Common
      stock to be issued for consulting services
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              33,000
              
              
              
              -
              
              
              
              33,000Common
      stock to be issued for finder’s fee
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              120,000
              
              
              
              -
              
              
              
              120,000Loss
      for the year ended December 31, 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,463,958
              )
              
              
              (5,463,958
              )Balance
      at December 31, 2007
              
              
              114,322,539
              
              
              $
              114,323
              
              
              $
              17,902,441
              
              
              $
              -
              
              
              $
              153,000
              
              
              $
              (18,749,138
              )
              
              $
              (579,374
              )








The
accompanying notes are an integral part of these audited consolidated financial
statements.





F-11
 Table of Contents





IR
BioSciencesHoldings, Inc. and Subsidiary


(A
Development Stage Company)


Consolidated
Statements of Cash Flows for the years


ended
December 31, 2007 and 2006,


and
for the period of inception (October 30, 2002)


to
December 31, 2007





For
      the Year Ended
              December
      31,
            
            
            For
      the Period October 30, 2002 to2007
            
            
            2006
            
            
            December
      31, 2007Cash
      flows from operating activities:Net
      loss
            
            $
            (5,463,958
            )
            
            $
            (1,486,046
            )
            
            $
            (18,749,138
            )Adjustments
      to reconcile net loss to netcash
      used in operating activities:Non-cash
      compensation
            
            
            2,488,843
            
            
            
            398,663
            
            
            
            6,808,359Cost
      of penalty for late registration of shares - stock
      portion
            
            
            -
            
            
            
            (360,197
            )
            
            
            1,631,726Cost
      of penalty for late registration of shares - warrant
      portion
            
            
            -
            
            
            
            (78,404
            )
            
            
            560,434(Gain)
      from marking to market - stock portion of penaltyfor late
      registration of shares
            
            
            -
            
            
            
            (445,673
            )
            
            
            (760,058
            )(Gain)
      from marking to market - warrant portion of penaltyfor late
      registration of shares
            
            
            -
            
            
            
            (123,505
            )
            
            
            (378,198
            )Legal
      fees for note payable
            
            
            -
            
            
            
            20,125
            
            
            
            20,125Placement
      fees for note payable
            
            
            -
            
            
            
            65,000
            
            
            
            65,000Impairment
      of intangible asset
            
            
            -
            
            
            
            -
            
            
            
            6,393Interest
      expense
            
            
            
            -
            
            
            -
            
            
            
            156,407Amortization
      of discount on notes payable
            
            
            -
            
            
            
            -
            
            
            
            1,006,935Depreciation
      and amortization
            
            
            14,916
            
            
            
            8,381
            
            
            
            52,515Changes
      in operating assets and liabilities:Deposits
            
            
            (4,868
            )
            
            
            -
            
            
            
            (4,868
            )Prepaid
      services and other assets
            
            
            (6,792
            )
            
            
            (38,392
            )
            
            
            (41,950
            )Accounts
      payable and accrued expenses
            
            
            516,346
            
            
            
            6,064
            
            
            
            1,178,363Salary
      advance
            
            
            (525
            )
            
            
            (1,500
            )
            
            
            (2,025
            )Net
      cash used in operating activities
            
            
            (2,456,038
            )
            
            
            (2,035,484
            )
            
            
            (8,449,980
            )Cash
      flows from investing activities:Acquisition
      of property and equipment
            
            
            (24,945
            )
            
            
            (32,397
            )
            
            
            (65,429
            )Net
      cash used in investing activities
            
            
            (24,945
            )
            
            
            (32,397
            )
            
            
            (65,429
            )Cash
      flows from financing activities:Proceeds
      from notes payable and cash advances
            
            
            -
            
            
            
            719,875
            
            
            
            1,953,375Principal
      payments on notes payable and demand loans
            
            
            (50,000
            )
            
            
            (779,750
            )
            
            
            (1,094,747
            )Shares
      of stock sold for cash
            
            
            -
            
            
            
            4,613,549
            
            
            
            7,873,451Proceeds
      from exercise of warrant
            
            
            -
            
            
            
            450
            
            
            
            4,450Officer
      repayment of amounts paid on his behalf
            
            
            -
            
            
            
            -
            
            
            
            19,880Cash
      paid on behalf of officer
            
            
            -
            
            
            
            -
            
            
            
            (19,880
            )Net
      cash provided by financing activities
            
            
            (50,000
            )
            
            
            4,554,124
            
            
            
            8,736,529Net
      increase (decrease) in cash and cash equivalents
            
            
            (2,530,983
            )
            
            
            2,486,243
            
            
            
            221,120Cash
      and cash equivalents at beginning of period
            
            
            2,752,103
            
            
            
            265,860
            
            
            
            -Cash
      and cash equivalents at end of period
            
            $
            221,120
            
            
            $
            2,752,103
            
            
            $
            221,120Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
            
            $
            6,000
            
            
            $
            36,500
            
            
            $
            86,053Taxes
            
            $
            -
            
            
            $
            -
            
            
            $
            8,115Acquisition
      and capital restructure:Liabilities
      assumed
            
            
            -
            
            
            
            -
            
            
            
            (120,799
            )Common
      stock retained
            
            
            -
            
            
            
            -
            
            
            
            (2,369
            )Adjustment
      to additional paid-in capital
            
            
            -
            
            
            
            -
            
            
            
            123,168Organization
      costs
            
            
            -
            
            
            
            -
            
            
            
            350,000Total
      consideration paid
            
            $
            -
            
            
            $
            -
            
            
            $
            350,000Common
      stock issued in exchange for proprietary rights
            
            $
            -
            
            
            $
            -
            
            
            $
            9,250Common
      stock issued in exchange for services
            
            $
            230,000
            
            
            $
            16,197
            
            
            $
            3,177,483Common
      stock issued in exchange for previously incurred debt and accrued
      interest
            
            $
            -
            
            
            $
            5,807
            
            
            $
            1,066,401Common
      stock issued in exchange as interest
            
            $
            -
            
            
            $
            -
            
            
            $
            36,000Amortization
      of beneficial conversion feature
            
            $
            -
            
            
            $
            -
            
            
            $
            223,269Stock
      options and warrants issued in exchange for services
      rendered
            
            $
            2,258,843
            
            
            $
            347,268
            
            
            $
            3,378,492Debt
      and accrued interest forgiveness from note holders
            
            $
            -
            
            
            $
            -
            
            
            $
            36,785Common
      stock issued in satisfaction of amounts due toan
      Officer and a Director
            
            $
            -
            
            
            $
            -
            
            
            $
            180,000Common
      stock issued in satisfaction of accounts payable
            
            $
            -
            
            
            $
            -
            
            
            $
            157,219Deferred
      compensation to a consultant accrued inMarch
    2005
            
            $
            -
            
            
            $
            -
            
            
            $
            2,630,761Amortization
      of deferred compensation
            
            $
            -
            
            
            $
            2,760
            
            
            $
            202,486Fair
      value of common stock and warrants in payablein connection with
      late filing of registration statement
            
            $
            -
            
            
            $
            1,053,904
            
            
            $
            3,684,664Gain
      from marking to market - stock portion of penaltyfor late
      registration of shares
            
            $
            -
            
            
            $
            (805,870
            )
            
            $
            (1,124,255
            )Gain
      from marking to market - warrant portion of penalty for
      late registration of shares
            
            $
            -
            
            
            $
            (201,910
            )
            
            $
            (456,603
            )Impairment
      of intangible asset
            
            $
            -
            
            
            $
            -
            
            
            $
            6,393Issuance
      of stock to Officer, previously accrued
            
            $
            -
            
            
            $
            41,416
            
            
            $
            41,416Value
      of warrants issued to members of advisory board
            
            $
            -
            
            
            $
            22,688
            
            
            $
            22,688Services
      for note payable
            
            $
            -
            
            
            $
            9,750
            
            
            $
            9,750Issuance
      of shares for accounts payable
            
            $
            44,706
            
            
            $
            -
            
            
            $
            44,706Issuance
      of shares as commission for equity fundraising
            
            $
            5,483
            
            
            $
            -
            
            
            $
            5,483




The
accompanying notes are an integral part of these audited consolidated financial
statements




F-12
 Table of Contents





IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY


(A
DEVELOPMENT STAGE COMPANY)


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006


AND
FOR THE PERIOD FROM OCTOBER 30, 2002


(INCEPTION)
TO DECEMBER 31, 2007





NOTE
1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





A summary
of the significant accounting policies applied in the preparation of the
accompanying consolidated financial statements follows.





Nature of
Business





IR
BioSciences Holdings, Inc. (the "Company," "we," or "us") formerly GPN Network,
Inc. ("GPN") is currently a development stage company under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 7. The Company, which
was incorporated under the laws of the State of Delaware on October 30, 2002, is
a development-stage biopharmaceutical company.Through our wholly owned
subsidiary, ImmuneRegen BioSciences, Inc., we are engaged in the research and
development of potential drugs. The Company’s goal is to develop therapeutics
for regenerating or strengthening the human immune system in part, through
stimulating human adult stem cells and for the protection of the body from
exposure to harmful agents such as toxic chemicals and radiation, as well as,
biological agents, including influenza and anthrax.The Company’s research
and development efforts are at a very early stage and Homspera, Radilex and
Viprovex, the Company’s potential drug candidates, have only undergone
pre-clinical testing in small animals. From its inception through the date of
these financial statements, the Company has recognized no revenues and has
incurred significant operating expenses.





The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, ImmuneRegen BioSciences, Inc. Significant inter-company
transactions have been eliminated in consolidation.





Going
Concern





The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the accompanying
financial statements during the years ended December 31, 2007 and 2006, the
Company incurred losses from operations of $5,463,958 and $1,486,046,
respectively. This among other factors may indicate that the Company will be
unable to continue as a going concern for a reasonable period of
time.





In order
to address our capital requirements, we intend to seek to raise additional cash
for working capital purposes through the public or private sales of debt or
equity securities, the procurement of advances on contracts or licenses, funding
from joint-venture or strategic partners, debt financing or short-term loans, or
a combination of the foregoing. We may also seek to satisfy indebtedness without
any cash outlay through the private issuance of debt or equity securities. There
can be no assurance the Company will be successful in its effort to secure
additional equity financing.





If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance can be
given that management's actions will result in profitable operations or the
resolution of its liquidity problems.





The
accompanying consolidated financial statements do not include any adjustments
that might result should the Company be unable to continue as a going
concern.





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.





Cash and Cash
Equivalents





For
purposes of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any corporate obligations.





F-13
 Table of Contents


IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




Long-lived
Assets





The
Company accounts for its long-lived assets under the provision of Statements of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
Inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset.





Income
Taxes





The
Company has implemented the provisions on Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 requires
that income tax accounts be computed using the liability method. Deferred taxes
are determined based upon the estimated future tax effects of differences
between the financial reporting and tax reporting bases of assets and
liabilities given the provisions of currently enacted tax laws.




In June
2006, the FASB issued FASB Interpretation No. 48,Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109 ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, treatment of interest and penalties, and
disclosure of such positions. Effective January 1, 2007, the Company
adopted the provisions of FIN 48, as required. As a result of implementing FIN
48, there has been no adjustment to the Company’s financial statements and the
adoption of FIN 48 did not have a material effect on the Company’s consolidated
financial statements for the year ending December 31,
2007.





Net Loss Per Common
Share





The
Company computes earnings per share under Financial Accounting Standard No. 128,
"Earnings Per Share" (SFAS 128). Net loss per common share is computed by
dividing net loss by the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the year. Dilutive common
stock equivalents consist of shares issuable upon conversion of convertible
notes and the exercise of the Company's stock options and warrants (calculated
using the treasury stock method). During 2007, 2006 and 2005, common stock
equivalents were not considered in the calculation of the weighted average
number of common shares outstanding because they would be anti-dilutive, thereby
decreasing the net loss per common share.





Liquidity





As shown
in the accompanying financial statements, the Company has incurred a net loss of
$18,749,138 from its inception through December 31, 2007. The Company incurred a
net loss of $5,463,958 and $1,486,046 from operations during the years ended
December 31, 2007 and 2006, respectively. The Company has a net working capital
deficit of $624,773 with cash and cash equivalents of $221,120 at December 31,
2007 versus working capital of $2,320,533 and cash and cash equivalents
of  $2,752,103 at December 31, 2006.





Research and
Development





The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred. Accordingly, internal research and development costs are expensed as
incurred. Third-party research and developments costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
Company-sponsored research and development costs related to both present and
future products are expensed in the period incurred. Total expenditures on
research and product development for the years 2007, and 2006 and the period
from October 30, 2002 (date of inception) to December 31, 2007
were  $541,589, $484,029, and $1,568,186, respectively.




Concentrations of Credit
Risk





Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
related party receivables. The Company places its cash and temporary cash
investments with credit quality institutions. At times, such investments may be
in excess of the FDIC insurance limit. The Company periodically reviews its
trade receivables in determining its allowance for doubtful accounts. There is
no allowance for doubtful accounts established as of December 31,
2007.





Comprehensive
Income





Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company does not have any items of comprehensive income in any
of the periods presented.





F-14
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007





Stock Based
Compensation





Effective
January 1, 2006, the Company adopted SFAS No. 123 (revised), "Share-Based
Payment" (SFAS 123(R)) utilizing the modified prospective approach. Prior to the
adoption of SFAS 123(R) we accounted for stock option grant in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees" (the intrinsic
value method), and accordingly, recognized compensation expense for stock option
grants.





Under the
modified prospective approach, SFAS 123(R) applies to new awards and to awards
that were outstanding on January 1, 2006 that are subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
cost recognized in the nine months of fiscal 2006 includes compensation cost for
all share-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and compensation cost for all share-based
payments granted subsequent to January 1, 2006 based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123(R). Prior periods
were not restated to reflect the impact of adopting the new
standard.





A summary
of option activity under the Plan as of December 31, 2007, and changes during
the period ended are presented below:





Options
            
            
            Weighted Average
              Exercise
      PriceOutstanding
      at December 31, 2006
            
            
            5,914,212
            
            
            $
            0.50Issued
            
            
            10,100,000
            
            
            
            0.17Exercised
            
            
            -
            
            
            
            -Forfeited or expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2007
            
            
            16,014,212
            
            
            $
            0.29Non-vested
      at December 31, 2007
            
            
            100,000
            
            
            $
            0.16Exercisable
      at December 31, 2007
            
            
            15,914,212
            
            
            $
            0.29





Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2007 was
$0. Aggregate intrinsic value represents the difference between the Company's
closing stock price on the last trading day of the fiscal period, which was
$0.08 as of December 31, 2007, and the exercise price multiplied by the number
of options outstanding. As of December 31, 2007, total unrecognized stock-based
compensation expense related to stock options was $12,420. During the year ended
December 31, 2007 the Company charged $2,010,849 to operations related to
recognized stock-based compensation expense for employee stock
options.





Segment
Information





Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") establishes standards for
reporting information regarding operating segments in annual financial
statements and requires selected information for those segments to be presented
in interim financial reports issued to stockholders. SFAS 131 also establishes
standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the
chief operating decision maker, or decision-making group, in making decisions
how to allocate resources and assess performance. The information disclosed
herein materially represents all of the financial information related to the
Company's principal operating segment.





Fair Value of Financial
Instruments





The
Company measures its financial assets and liabilities in accordance with
accounting principles generally accepted in the United States of America. The
estimated fair values approximate their carrying value because of the short-term
maturity of these instruments or the stated interest rates are indicative of
market interest rates.





F-15
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




Prepaid services and other
current assets





Prepaid
services and other current assets at December 31, 2007 and December 31, 2006
consist of the following:





December
      31, 2007
            
            
            
            December
      31, 2006Prepaid
      insurance
            
            $
            29,502
            
            
            $
            34,394Prepaid
      services
            
            
            27,500
            
            
            
            -Prepaid
      car lease
            
            
            27,689
            
            
            
            43,505$
            84,691
            
            
            $
            77,899





Salary
advance





The
Company has made an advance of salary to one employee in the amount of $2,025
and $1,500 as of December 31, 2007 and December 31, 2006,
respectively.
  Deposit
  The
deposit consists of a deposit on leased office space in the amount of $7,128 as
of December 31, 2007 versus a balance of $2,260 as of December 31,
2006.
 
 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
      yearsLaboratory
      equipment
            3
      yearsFurniture
            7
      years





Advertising





The
Company follows the policy of charging the costs of advertising to expenses
incurred. The Company has not incurred any advertising costs during the years
ended December 31, 2007 or 2006.





Reclassifications





Certain
reclassifications have been made in prior year's financial statements to conform
to classifications used in the current year.





New Accounting
Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” SFAS 159 permits entities to choose
to measure many financial instruments, and certain other items, at fair value.
SFAS 159 applies to reporting periods beginning after November 15, 2007. The
adoption of SFAS 159 is not expected to have a material impact on the Company’s
financial condition or results of operations.





F-16
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


NOTE
2 - PROPERTY, PLANT AND EQUIPMENT





The
Company's property and equipment at December 31, 2007 and December 31, 2006
consists of the following:




December
      31, 2007
            
            December
      31, 2006Office
      Equipment
            $
            59,283
            
            $
            34,337Office
      Fixtures and Furniture
            
            6,146
            
            
            6,14765,429
            
            
            40,484Accumulated
      Depreciation
            
            (27,158
            )
            
            (12,242
            )$
            38,271
            
            $
            28,242





Depreciation
expense included as a charge to income amounted to $14,916, $8,381, and $52,515
for the years ended December 31, 2007 and 2006 and from the period of inception
to December 31, 2007, respectively.




NOTE
3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





Accounts
payable and accrued liabilities at December 31, 2007 and December 31, 2006 are
as follows:





December
      31, 2007
            
            
            December
      31, 2006Accounts
      payable and accrued liabilities
            
            $
            852,411
            
            
            $
            395,788Accounts
      payable - Pre-merger
            
            
            34,926
            
            
            
            34,926Interest
      payable
            
            
            3,215
            
            
            
            5,681Accrued
      payroll
            
            
            2,092
            
            
            
            -Credit
      cards
            
            
            36,765
            
            
            
            21,374State
      income tax payable
            
            
            3,200
            
            
            
            3,200$
            932,609
            
            
            $
            460,969





NOTE
4 - RELATED-PARTY TRANSACTIONS





Notes
Payable





During
the year ended December 31, 2007, the Company had outstanding one note payable
in the amount of $50,000 to a Director. This note bore interest at the rate of
12% per annum.  This note was repaid in August 2007, along with $6,000
of accrued interest. At December 31, 2007, the Company had no notes payable
outstanding.
 
 Credit CardLines of
Credit
  The
Company has a line of credit with Bank of America for $25,000. Our Chief
Executive Officer Michael Wilhelm personally guarantees this line of credit. At
year end December 31, 2007, the Company had an outstanding balance on the credit
card of $21,027 versus a balance of $21,373 at December 31, 2006.
 
 The
Company has a second line of credit with Bank of America for $35,000. Our Chief
Executive Officer Michael Wilhelm personally guarantees this line of credit. At
year end December 31, 2007, the Company had an outstanding balance on the credit
card of $15,739 versus a zero balance as of December 31,
2006.





F-17
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




Employment
Agreements





President
and Chief Executive Officer:





On August
10, 2005, the Company entered into a new employment agreement with its President
and Chief Executive Officer, Michael K. Wilhelm. The employment agreement calls
for a salary at the rate of $275,000 per annum. The salary will be subject to
adjustment of at least 10% per year at the end of each year. The registrant also
agreed to defend and indemnify, to the fullest extent permitted by the
registrant's certificate of incorporation and bylaws and the Delaware General
Corporation Law, Mr. Wilhelm and hold him harmless against any liability that he
incurs within the scope of his employment under the agreement. The agreement
also provides for the following various bonus incentives:




i) A target incentive bonus in cash and/or stock if the Company consummates a
transaction with any unaffiliated third party such as an equity or debt
financing, acquisition, merger , strategic partnership or other similar
transaction.





ii) A one
time grant of an option to purchase 2,000,000 shares of the Company's common
stock at an exercise price equal to the fair market value per share on the date
option is granted.





In
connection with Mr. Wilhelm's new employment agreement, the Company also entered
into a change of control agreement and a severance agreement with him on August
10, 2005.





Under the
change of control agreement, Mr. Wilhelm shall be entitled to a continuation of
his base salary for a period of 18 months following an involuntary termination,
which means, at any time within that period which is one-year from the change of
control date (including such date), the termination of the employment of Mr.
Wilhelm (i) by the Company without cause or (ii) due to constructive
termination, as such terms are defined in the change of control agreement.
Further, in the event of an involuntary termination, the agreement provides that
the registrant shall pay Mr. Wilhelm a lump sum amount in cash, equal to the sum
of (i) any unpaid incentive compensation which has been allocated or awarded to
Mr. Wilhelm for a completed fiscal year or other measuring period preceding the
date of involuntary termination under any annual or long-term incentive plan and
which, as of the date of involuntary termination, is contingent only upon the
continued employment of Mr. Wilhelm to a subsequent date, and (ii) a pro rata
portion to the date of involuntary termination of the aggregate value of all
contingent incentive compensation awards to Mr. Wilhelm for all then uncompleted
periods under any such plan. Further, 100% of the unvested portion of each
outstanding stock option granted to Mr. Wilhelm shall be accelerated so that
they become immediately exercisable upon the date of involuntary
termination.





Under the
severance agreement, Mr. Wilhelm shall be entitled to a continuation of his base
salary for a period of 18 months following an involuntary termination, which
means the termination of the employment of Mr. Wilhelm (i) by the Company
without cause or (ii) due to constructive termination, as such terms are defined
in the severance agreement. Further, in the event of an involuntary termination,
the agreement provides that the registrant shall pay Mr. Wilhelm an amount equal
to the amount of executive incentive pay (bonus) that he would have received for
the year in which the involuntary termination occurred had he met one hundred
percent (100%) of the target for such incentive pay. Also, under this agreement,
100% of the unvested portion of each outstanding stock option granted to Mr.
Wilhelm shall be accelerated so that they become immediately exercisable
upon the date of involuntary termination.





During
the twelve months ended December 31, 2007 and 2006, options held by Mr. Wilhelm
to purchase an aggregate of 2,023,952 and 3,373,018 shares of common stock were
vested under  with a fair value of $471,457 and $264,274 were
vested.





In
addition, Mr. Wilhelm was granted ten year options to purchase an additional
2,000,000 shares of common stock at a price of $0.166 per share, and 500,000
shares of common stock at $0.195 per share.  During the twelve months
ended December 31, 2007, the Company charged to operations the fair value of
$330,975 and $81,112, respectively, for these option grants to Mr.
Wilhelm.





Chief
Financial Officer:





Pursuant
to our employment agreement with John Fermanis, our Chief Financial Officer,
dated February 15, 2005, we paid a salary of $60,000 until the Company completed
a financing of $500,000 or more. This occurred on March 4, 2005 when the Company
completed a Tender Offer for warrants totaling $1,190,857 net of fees. From
March 4, 2005, until December 31, 2005, we paid an annual salary of $85,000.
Thereafter, we paid an annual salary of $98,000 for the second year ending
December 31, 2006 and an annual salary of $112,000 for the third year ending
December 31, 2007. Mr. Fermanis' salary is payable in regular installments in
accordance with the customary payroll practices of the Company. Mr. Fermanis
also received 100,000 shares of the Company's common stock, which were earned at
the rate of 1/12 or 8,333 per month beginning January 2005. The Company charged
to operations the market value of these shares as of the first day of each
month. For the twelve months ended December 31, 2006, the Company charged
$41,416 to operations for the issuance of 100,000 shares to Mr. Fermanis. This
amount is carried in accrued liabilities at December 31,
2006.


F-18
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


During
the year ended December 31, 2007, Mr. Fermanis was granted ten year options to
purchase 900,000 shares of common stock at $0.166 per share, and 500,000 shares
of common stock at $0.195 per share. The Company charged to operations the fair
value of $148,939 and $81,112, respectively, for these option grants to Mr.
Fermanis.
 
 Mr.
Fermanis’ employment agreement ended on December 31, 2007.  Since that
time he has continued to serve as Chief Financial Officer at the same salary as
the third year of his expired contract.  We expect to sign Mr.
Fermanis to a new employment agreement with similar terms pending approval of
the Board of Directors.
 
 Senior
Director Of Product Development And Regulatory Affairs:
 
 Pursuant
to our employment agreement with Dr. Hal N. Siegel, our Senior Director of
Product Development and Regulatory Affairs, dated October 23, 2006, we will pay
an annual base salary of $200,000 for the first year and $210,000 for the second
year. Dr. Siegel will also be eligible for discretionary bonuses under the
Company's stock option plan during his employment. In addition, Dr.. Siegel
received options with a term of five years to purchase 200,000 shares of common
stock of the Company. The options are exercisable at $0.20 per share. The
employment agreement has a term of two years, subject to early termination
provisions. Upon termination of Dr. Sigel's employment by the Company without
cause or constructive termination, as defined in the agreement, the Company
agrees to pay to Dr. Siegel the remainder of his salary for the year or six
months salary, whichever is greater, and any accrued vacation.
 
 During
the year ended December 31, 2007, Dr. Siegel was granted ten-year options to
purchase 1,100,000 shares of common stock at $0.166 per share, and 500,000
shares of common stock at $0.195 per share. The Company charged to operations
the fair value of $182,050 and $81,112, respectively, for these option grants to
Dr. Siegel.
 
 Pursuant
to the terms of the change of control agreement, the Company agrees to pay Dr.
Siegel his salary for a period of 18 months from the date an involuntary
termination, payable in accordance with the Company's compensation practice.
Involuntary termination is defined as the termination of Mr. Siegel's employment
by Company without cause or due to constructive termination at any time within
one-year from a change of control event, as defined in the
agreement.
 
 Board
Of Directors
 
 During
the year ended December 31, 2007, the Company granted to board members ten-year
options to purchase an aggregate of 3,250,000 shares of common stock at a price
of $0.166 per share. The Company charged to operations the fair value of
$537,834 for these option grants to board members.
 
 NOTE
5 - NOTES PAYABLE
 
 During
the year ended December 31, 2007, the Company had outstanding one note payable
in the amount of $50,000 to a Director. This note bore interest at the rate of
12% per annum.  This note was repaid in August 2007, along with $6,000
of accrued interest. At December 31, 2007, the Company had no notes payable
outstanding.
 
 NOTE
6 - CAPITAL STOCK
 
 Common
stock
 
 The
Company is authorized to issue 10,000,000 shares of preferred stock, par value
$0.001 per share. No shares of preferred stock have been issued as of December
31, 2007. The Company has authorized 250,000,000 shares of common stock, with a
par value of $.001 per share.
 
 In July,
2003 a 1 for 20 reverse stock split of the Company's common stock was effected.
On April 6, 2004, the Company effected a 2 for 1 forward split of its common
stock. Total authorized shares and par value remain unchanged. Accordingly, the
effect of the reverse and subsequent forward split has been presented in the
accompanying financial statement and footnote disclosures. On June 28, 2006, our
shareholders voted to approve an amendment to our Certificate of Incorporation,
as amended, to increase the number of authorized shares of common stock from
100,000,000 to 250,000,000. As of December 31, 2007 the Company has 114,322,539
shares of common stock issued and outstanding.
  During
the year ended December 31, 2002, the Company issued an aggregate of 1,459,188
shares of common stock to employees and consultants for services in the amount
of $ 9,782. All valuations of common stock issued for services were based upon
the value of the services rendered, which did not differ materially from the
fair value of the Company's common stock during the period the services were
rendered. In addition, the Company issued 16,612,276 shares of common stock to
its founders in exchange for a proprietary license charged to operations, valued
at $ 9,250. The Company also issued an aggregate of 185,578 shares of common
stock in exchange for $31,001, net of costs and fees.





F-19
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




During
the year ended December 31, 2003, the Company issued an aggregate of 267,594
shares of common stock to consultants for services in the amount of $37,280. All
valuations of common stock issued for services were based upon the value of the
services rendered, which did not differ materially from the fair value of the
Company's common stock during the period the services were rendered. In
addition, the Company issued 2,155,104 shares of common stock in exchange for $
300,000 of previously incurred debt. The Company also issued an aggregate of
383,430 shares of common stock in exchange for $ 65,000 net of costs and fees.
In July, 2003, the Company issued 2,368,130 in connection with the Company's
acquisition and merger with GPN Network, Inc. (see Note 1.)





During
the year ended December 31, 2004, the Company issued an aggregate of 5,481,280
shares of common stock to consultants for services in the amount of $2,877,872.
All valuations of common stock issued for services were based upon the value of
the services rendered, which did not differ materially from the fair value of
the Company's common stock during the period the services were rendered. In
addition, the Company issued 300,000 shares of common stock as with a fair value
of $36,000 as interest on a note payable. In addition, in conjunction with a
private placement of stock (see below), the Company issued 6,855,062 shares of
common stock in exchange for $ 630,591 of previously incurred debt and accrued
interest. In addition, the Company issued 590,000 shares of common stock in
exchange for $65,000 of previously issued debt. Total debt exchanged for stock
during the year ended December 31, 2004 was $695,591 of debt and interest for
7,745,062 shares of common stock. The Company also sold an aggregate of
18,160,000 shares of common stock in exchange for $ 1,971,045 cash, net of costs
and fees. The Company also sold 8,000 shares of common stock for $1,200. The
Company also issued an aggregate of 4,900,000 shares of common stock to its
investment bankers as fees. The Company also issued 1,257,746 shares of common
stock in settlement of $157,219 of accounts payable. In addition, the Company
issued an aggregate 1,440,000 shares of common stock to an officer and a
director in satisfaction $180,000 of liabilities.





During
the year ended December 31, 2005, the Company issued 100,000 shares of common
stock to a consultant for services in the amount of $10,000. All valuations of
common stock issued for services were based upon the value of the services
rendered, which did not differ materially from the fair value of the Company's
common stock during the period the services were rendered. In addition, the
Company issued 232,153 shares of common stock as with a fair value of $65,003 in
exchange for previously issued debt and accrued interest. In addition, 6,600,778
shares of common stock were sold for cash of $1,390,856 net of costs pursuant to
a tender offer to certain of the Company’s warrant holders whereby the exercise
price of the warrants was temporarily reduced. The Company also issued 80,000
shares of common stock for cash of $4,000 pursuant to the exercise of a warrant
at a price of $0.05 per share.





During
the year ended December 31, 2006, the Company issued 100,000 shares of common
stock to its Chief Financial Officer with a fair value of $41,416, which was
previously accrued.  The Company also issued 34,464 shares of S-8
common stock at $0.125 per share to a consultant for services provided for
business development. In addition, the Company issued 19,288 shares of common
stock at $0.125 per share to an investor for the conversion of accrued interest.
The Company issued 16,324 shares of common stock at $0.125 per share to an
investor for the conversion of accrued interest. The Company issued 13,454
shares of common stock at $0.10 per share to an investor for the conversion of
accrued interest. The Company issued 5,000 shares of common stock at $0.09 per
share for the exercise of warrants by an investor. The Company issued 4,150,798
shares of common stock for the penalty for late registration of shares, which
were previously accrued.




During
the year ended December 31, 2007, the Company issued 5,842,600 shares of common
stock as commission for the Company’s equity financing. In addition, the Company
issued 298,039 shares of common stock to a consultant for services in the amount
of $44,706 which were incurred during the year ended December 31,
2006.  All valuations for common stock issued for services were based
upon the value of the services rendered, which did not differ materially from
the fair value of the Company’s common stock during the period the services were
rendered. In addition, the Company issued 298,039 shares of common stock at a
price of $0.15 per share to an employee in satisfaction on a liability
previously accrued.  The Company also issued 400,000 shares of common
stock at a price of $0.155 per share to a consultant for services to be
performed through June 2007.  The Company charged the amount of
$62,000 to prepaid services during the three months ended June 30, 2007. In
addition, the Company issued 100,000 shares of common stock at a price of $0.15
per share to a consultant for services to be performed through March
2007.  The Company charged the amount of $15,000 to operations during
the three months ended June 30, 2007. Pursuant to an agreement dated, November
5, 2007, the Company agreed to issue 300,000 shares of common stock to a
consultant for services to be provided over the next year.  These
shares were not issued as of December 31, 2007 and the value of these shares in
the amount of $33,000 has been recorded in common stock subscribed at December
31, 2007. Pursuant to an agreement dated, November 20, 2007, the Company agreed
to issue 1,000,000 shares of common stock to a consultant for services
provided.  These shares were not issued as of December 31, 2007, and
the value of these shares in the amount of $120,000 has been recorded in common
tock subscribed at December 31, 2007.


Private Placement of Common
Stock





In
October 2004, the Company completed a private placement of its common stock (the
"Private Placement") whereby the Company sold an aggregate of $2,450,000 worth
of units (each a "Unit" and collectively, the "Units") to accredited investors
(as defined by Rule 501 under the Securities Act of 1933, as amended) (the
transaction is referred to herein as the "Private Placement"). The Company
received proceeds of $1,971,845 after costs of the issuance of
$298,155.





F-20
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




Included
in the $2,450,000 sale was conversion of $180,000 of accrued salary and
consulting fees due to an officer and a Director of the Company. The number of
shares of common stock issued pursuant to the Private Placement was 19,600,000,
along with warrants to purchase an additional 9,080,000 shares, plus warrants to
purchase an additional 720,000 shares issued to the officer and Director. The
Company also issued an additional 4,900,000 shares of common stock to its
investment banker as commission. The investment bankers did not acquire any
warrants pursuant to this transaction.





Pursuant
to the terms of the Private Placement, each Unit was sold for $10,000 (the "Unit
Price") and consisted of the following:





(a) a
number of shares (the "Shares") of common stock of the Registrant, par value
$0.001 per share (the "Common Stock"), determined by dividing: (i) the Unit
Price by (ii) $0.125; and





(b) a
warrant (each a "Warrant" and collectively, the "Warrants") to purchase, at any
time prior to the fifth (5th) anniversary following the date of issuance of the
Warrant, a number of shares of Common Stock equal to fifty percent (50%) of the
number of Shares included within the Unit, at a price equal to fifty cents
($0.50) per share of Common Stock.





In
consideration of the investment, the Company granted to each investor certain
registration rights and anti-dilution rights. The Company is obligated to file a
registration statement for the shares of common stock issued in the private
placement and shares of common stock underlying the warrants issued in the
private placement within 30 days of the final closing date of October 26, 2004,
or November 25, 2004. The Company is also obligated to effectuate the
registration statement within 90 days of the final closing date of October 26,
2004, or January 24, 2005. Failure to meet either of these deadlines results in
the Company subject to a penalty of a 2% increase in the number of shares to be
registered, or 461,200 shares and warrants to purchase an additional 181,600
shares, for every 30 day period beyond the deadline date. As of the date of the
financial statements, the registration statement has not been deemed effective
and as a result, the Company has incurred penalties in the amount of $2,061,683
representing the obligation to issue an additional 5,242,307 shares of common
stock and warrants to purchase an additional 2,064,187 shares of common stock at
a price of $0.50 per share. The accrued penalties in connection with the
issuance of the shares of common stock is included in accounts payable and
accrued expenses at December 31, 2005.





In
conjunction with raising capital through the private placement of our common
stock, the Company issued a warrant that has registration rights for the
underlying shares. As the contract must be settled by the delivery of registered
shares and the delivery of the registered shares is not controlled by the
Company, pursuant to EITF 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock", the
net value of the 9,800,000 warrants and an additional 2,064,187 penalty warrants
at their respective dates of issuance has been recorded as a warrant liability
on the balance sheet ($638,838) and the change in fair value from the date of
issuance to December 31, 2005 has been included in other income (expense). The
assumptions used in the Black Scholes model are as follows: (1) dividend yield
of 0%; (2) expected volatility of 79%, (3) risk-free interest rate of 4.5%, and
(4) expected life of 5 years. Upon the registration statement being declared
effective, the fair value of the warrant on that date will be reclassified to
equity.





For the
year ended December 31, 2006 the fair value of the warrants issued with
registration rights decreased by approximately $123,505 to $182,236 at August
21, 2006 and is recognized in other income (expense). On August 21, 2006, the
Company issued the 1,634,400 warrants to purchase shares of common stock in
satisfaction of the penalty due to investors for the late registration of
shares.





In
October 2004, the Company converted certain notes payable with an aggregate
principal amount of $558,500 plus accrued interest of $56,757 for a total of
$630,328 into Units with terms identical to those provided to investors in the
Private Placement. The number of shares of common stock issued via these note
conversions was 6,694,149 along with warrants to purchase an additional
3,347,076 shares.





Also in
October 2004, the Company entered into settlement agreements with certain
creditors whereby for full and complete satisfaction of claims totaling an
aggregate of $157,219 the Company issued Units with terms identical to those
provided to investors in the Private Placement. The number of shares of common
stock issued via these creditor conversions was 1,257,746, along with warrants
to purchase an additional 628,873 shares.





On
January 24, 2005, the Company made a tender offer to certain of the Company's
shareholders whereby the exercise price of certain warrants issued in October
2004 (the "Warrants") would be reduced from $0.50 to $0.20 per share. In March
2005, 6,600,778 shares of common stock were sold pursuant to this offer for
aggregate proceeds of $1,320,156 less costs of $129,300.





F-21
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




In June
2005, the Company issued 80,000 shares of common stock pursuant to the exercise
of a warrant at a price of $0.05 per share.





In July
2005, the Company issued 232,153 shares of common stock at a price of $0.28 per
share pursuant to the conversion of a note payable.





In August
2005, the Company issued 100,000 shares of common stock pursuant to an agreement
with a service provider. The fair value of these shares of $10,000 was amortized
over the life of the contract, from July 2004 to July 2005.





In March
2006, the Company issued 100,000 shares of common stock to its Chief Financial
Officer for a total compensation of $41,416. These shares were earned, and
accrued during the year ended December 31, 2006.





In May
2006, the Company issued 34,464 shares of S-8 common stock at $0.125 per share
to a consultant for services provided for business development.





In May
2006, the Company issued 19,288 shares of common stock at $0.125 per share to an
investor for the conversion of accrued interest.





In May
2006, the Company issued 16,324 shares of common stock at $0.125 per share to an
investor for the conversion of accrued interest.





In May
2006, the Company issued 13,454 shares of common stock at $0.10 per share to an
investor for the conversion of accrued interest.





In June
2006, the Company issued 5,000 shares of common stock at $0.09 per share for the
exercise of warrants by an investor.





In August
2006, the Company issued 4,150,798 shares of common stock for the penalty for
late registration of shares, which were previously accrued.





During
the fourth quarter of 2006, we completed a private placement, whereby we sold an
aggregate of $5,482,600 worth of units to accredited investors. Each unit was
sold for $25,000 and consisted of (a) a number of shares of our common stock
determined by dividing the unit price by $0.16, and (b) a five-year warrant to
purchase a number of shares of our common stock equal to 50% of the number of
shares included within the unit, at $0.50 per share. We issued in the private
placement an aggregate of 34,266,250 shares of our common stock and warrants to
purchase 17,133,125 shares of our common stock. In consideration of the
investment, we granted to each investor certain registration rights and
anti-dilution rights. We agreed that not before 180 days after the closing of
the private placement and not later than 190 days thereafter, that we will file
with the SEC a registration statement to register these shares along with the
shares underlying these warrants. In the event that we fail to comply with the
filing deadline, there shall be a 1% penalty for each 30 day period (or pro rata
portion thereof) paid to each investor in cash or additional shares. This
penalty amounts to an aggregate of 342,662 shares and 171,331 warrants per 30
day period until a registration statement that includes these shares and
warrants is filed or 12 months. As of December 31, 2006, we are not subject to
any penalty. As placement agent for the private placement, Joseph Stevens &
Co., Inc. and its designees received 5,482,600 shares of our common upon the
closing of the private placement. As of December 31, 2006, the shares to be
issued to Joseph Stevens & Co. were not issued and are included in common
stock subscribed.




The
Company has evaluated the Registration Rights Agreement related to the December
2006 private placement, specifically the 1% liquidated damages clause under EITF
Issue No. 00-19 to determine whether the warrants issued with the private
placement should be classified as a liability versus equity. According to EITF
Issue No. 00-19, paragraph 16 "If a settlement alternative includes a penalty
that would be avoided by a company under other settlement alternatives, the
uneconomic settlement alternative should be disregarded in classifying the
contract. In the case of delivery of unregistered shares, a discount from the
value of the corresponding registered shares that is a reasonable estimate of
the difference in fair values between registered and unregistered shares (that
is, the discount reflects the fair value of the restricted shares determined
using commercially reasonable means) is not considered a penalty."




The
Company concluded that the 12% cap added to the liquidated damages clause,
represents an economically reasonable difference between registered and
unregistered shares. As a result, the Company has not classified the fair value
of the warrants issued related to the private placement as a
liability.





F-22
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


The
Company completed the private placement with the following three
transactions:





On
October 4, 2006, the Company completed the closing of a private placement of its
common stock whereby the Company sold an aggregate of $2,276,500 worth of units
to accredited investors (as defined by Rule 501 under the Securities Act of
1933, as amended). The Company received proceeds of $1,841,724 after costs of
$434,776. The number of share of common stock issued pursuant to the Private
Placement was 14,228,125, along with warrants to purchase an additional
7,114,063 shares.





On
October 26, 2006, the Company completed the closing of a private placement of
its common stock whereby the Company sold an aggregate of $2,697,100 worth of
units to accredited investors (as defined by Rule 501 under the Securities Act
of 1933, as amended). The Company received proceeds of $2,344,020 after costs of
$353,080. The number of share of common stock issued pursuant to the Private
Placement was 16,856,875, along with warrants to purchase an additional
8,428,438 shares.





On
December 6, 2006, the Company completed the closing of a private placement of
its common stock whereby the Company sold an aggregate of $509,000 worth of
units to accredited investors (as defined by Rule 501 under the Securities Act
of 1933, as amended). The Company received proceeds of $427,805 after costs of
$81,195. The number of share of common stock issued pursuant to the Private
Placement was 3,181,250, along with warrants to purchase an additional 1,590,625
shares.





In
January 2007, the Company issued 5,482,600 shares of common stock as commission
for the Company’s equity financing completed during the year ended December 31,
2006. These shares were shown as common stock subscribed on the Company’s
balance sheet at December 31, 2006.





In
January 2007, the Company issued 298,039 shares of common stock at a price of
$0.15 per share to an employee in satisfaction of a liability previously
accrued.





In
January 2007, the Company issued 400,000 shares of common stock at a price of
$0.155 per share to a consultant for services to be performed through June
2007.  The Company charged the amount of $62,000 to prepaid services
during the three months ended June 30, 2007.





In
January 2007, the Company issued 100,000 shares of common stock at a price of
$0.15 per share to a consultant for services to be performed through March
2007.  The Company charged the amount of $15,000 to operations during
the three months ended June 30, 2007.





Pursuant
to an agreement dated, November 5, 2007, the Company agreed to issue
300,000 shares of common stock to a consultant for services to be provided over
the next year.  These shares were not issued as of December 31, 2007
and the value of these shares in the amount of $39,000 has been recorded in
common stock subscribed at December 31, 2007.





Pursuant
to an agreement dated, November 20, 2007, the Company agreed to issue
1,000,000 shares of common stock to a consultant for services
provided.  These shares were not issued as of December 31, 2007, and
the value of these shares in the amount of $120,000 has been recorded in common
tock subscribed at December 31, 2007.





F-23
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


Shares and warrants issued
due to late filing of registration statement





In
October 2004, we completed a private placement sale of shares of our common
stock and warrants to purchase additional shares of common stock. We issued in
the private placement an aggregate of 19,600,000 shares of our common stock and
warrants to purchase 9,800,000 shares of our common stock. We agreed to register
these shares along with the shares underlying these warrants within ninety days
from the closing date of the transaction, or we would incur a penalty equivalent
to an additional 2% of the shares and warrants to be registered for every 30
days that we failed to complete this registration. This penalty amounts to an
aggregate of 461,200 shares and 181,600 warrants per 30 day period until such a
time as this registration statement is made effective. We were unable to
register the securities as required.





The
Company attempted to register the shares and warrants by filing a
registration statement with the Securities and Exchange Commission on November
24, 2004, and amended this registration statement with pre-effective amendments
no. 1, 2, 3 and 4 on July 20, 2005, November 16, 2005, February 22, 2006 and
April 7, 2006, respectively. On July 10, 2006 the Company, pursuant to Rule 477
of Regulation C of the Securities Act of 1933, as amended, applied for an order
granting the immediate withdrawal of its Registration Statement on Form
SB-2.





In August
2006, we reached an agreement with the investors in the private placement of
October 2004 which limits the number of warrants and shares which we are
obligated to issue pursuant to the penalty calculation to an aggregate of 18% of
the number of original number of shares and warrants issued in the October 2004
private placement. This agreement limits the number of shares and warrants
issuable pursuant to the penalty calculation to an aggregate of 4,150,798 shares
and warrants to purchase an additional 1,634,400 shares, respectively. This
resulted in a decrease in the number of share issuable 2,475,107 (with a fair
value of $816,785) and a decrease in the number of warrant shares of 974,587
(with a fair value of $177,789). This resulted in a net realized gain of
$994,574 during the three months ended June 30, 2006.





In August
2006, we issued 4,150,798 shares and warrants to purchase 1,634,400 shares and
relieved accrued liabilities in the aggregate amount of $1,053,904.





For the
twelve months ended December 31, 2006 the Company marked to market the value of
the shares and warrants issuable pursuant to the penalty calculation for an
aggregate gain in the amount of approximately $445,673 and $123,505,
respectively.




NOTE
7- STOCK OPTIONS AND WARRANTS





Employee Stock
Options





The
Company has adopted the 2003 Stock Option, Deferred Stock and Restricted
Stock Plan (the “Plan”) which authorizes the Board of Directors in accordance
with the terms of the Plan, among other things, to grant incentive stock options
as defined by Section 422(b) if the Internal Revenue Code, nonstatutory stock
options (collectively, the “Stock Options”) and awards of restricted stock and
deferred stock and to sell shares of common stock of the company (“Common
Stock”) pursuant to the exercise of such stock options for up to an aggregate of
6,465,316 shares. The options will have a term not to exceed ten years from the
date of the grant.
 
 On June
28, 2006, our shareholders voted to (i) approve an amendment to our Certificate
of Incorporation, as amended, to increase the number of authorized shares of
Common Stock from 100,000,000 to 250,000,000 and (ii) approve an amendment to
our 2003 Stock Option, Deferred Stock and Restricted Stock Plan to increase the
number of shares of our common stock reserved and available for issuance under
the Plan from 3,600,000 to 20,000,000.
 
 Through
December 31, 2002, GPN had granted pre-merger stock options to certain employees
and consultants which are exercisable over various periods through March 2010.
These stock options are currently held by the company outside of this
Plan.
 
 In July
2006, the Company issued options to purchase 1,896,970 shares of common
stock with an exercise price of $0.231 per share to our Chief Executive Officer.
The options vest 50% after ninety days of continued employment and the balance
in equal monthly installments for 12 months thereafter.
 
 In
September 2006, the Company issued options to purchase 3,500,000 shares of
common stock with an exercise price of $0.22 per share to our Chief Executive
Officer. The options vest 50% after thirty days of continued employment with the
balance in equal monthly installments for one year
thereafter.





F-24
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


In
October 2006, the Company issued options to purchase 200,000 shares of
common stock with an exercise price of $0.20 to an employee.
 
 As of
December 31, 2006, total unrecognized stock-based compensation expense related
to stock options was $264,274. During the year ended December 31, 2006 the
company charged $296,394 to operations related to recognized stock-based
compensation expense for employee stock options.
 
 In
January 2007, the Company issued options to purchase 100,000 shares of common
stock with an exercise price of $0.1275 per share to an employee. The options
vest 12,500 every quarter for the next two years.  The Company charged
to operations the amount of $1,357 and $5,425 the value of the options that
vested during the three months and year ended December 31, 2007.
 
 On April
24, 2007, the Board of Directors of the Company appointed a new director,
Robert J. Hariri, M.D., Ph.D., to the company's Board of Directors to fill a
vacant directorship. For his service as a member of the company’s Board of
Directors, the company granted to Dr. Hariri under the Company’s 2003 Stock
Option, Deferred Stock and Restricted Stock Plan, a non-qualified stock option
to purchase 1,000,000 shares of common stock at an exercise price per share
equal to $0.166 to vest within 30 days.
 
 On May
14, 2007, the Board of Directors of the Company appointed a new director, Lance
K. Gordon, Ph.D., to the company's Board of Directors to fill a vacant
directorship. Subject to the Board’s approval, for his service as a member of
the company’s Board of Directors, the company granted to Dr. Gordon under the
Company’s 2003 Stock Option, Deferred Stock and Restricted Stock Plan, a
non-qualified stock option to purchase 1,000,000 shares of common stock at
$0.166 to vest within 30 days.
 
 In July
2007, the Company issued options to purchase 4,000,000 shares of common stock
with an exercise price of $0.166 per share to three officers.  The
Company charged to operations the fair value of $661,949 during the year
ended December 31, 2007.
 
 In July
2007, the Company issued options to purchase 2,060,000 shares of common stock
with an exercise price of $0.195 per share to various employees.  The
Company charged to operations the fair value of $334,183 during the year
ended December 31, 2007.
 
 In July
2007, the Company issued options to purchase 3,250,000 shares of common stock
with an exercise price of $0.166 per share to the directors of the
company.  The options vested 30 days after issuance.  The
Company charged to operations the amount of $537,834, the value of the options,
during the year ended December 31, 2007
 
 In July
2007, the Company issued options to purchase 590,000 shares of common stock with
exercise prices ranging from $0.166 to $0.195 to consultants.  The
options vested 30 days after issuance.  The Company charged to
operations the amount of $75,167, the value of the options, during the year
ended December 31, 2007.
 
 In July
2007, the Company issued options to purchase 100,000 shares of common stock with
an exercise price of $0.195 to a consultant.  These options vest
12,500 per quarter for the next year.  The Company charged to
operations the amount of $5,828, the value of the vested options during the year
ended December 31, 2007.
 
 On
November 1, 2007, the Board of Directors of the Company appointed a new
director, Jerome B. Zeldis, M.D., Ph.D., to the Company's Board of Directors to
fill a vacant directorship. Subject to the Board’s approval, for his service as
a member of the company’s Board of Directors, the company will grant, subject to
Board approval, to Dr. Zeldis under the Company’s 2003 Stock Option, Deferred
Stock and Restricted Stock Plan, a non-qualified stock option to purchase
1,000,000 shares of common stock at an exercise price per share equal to 85% of
the fair market value on the date of the grant approval to vest within 30 days.
As of December 31, 2007, the Board has not approved the non-qualified stock
issuance.
 
 In
December 2007, the Company agreed to issue options to purchase 117,465 shares of
common stock. The company charged to operations $6,875, the value of the options
during the year ended December 31, 2007.  As of December 31, 2007, the
options have not been issued.
 
 During
the year ended December 31, 2007, options to purchase a total of 2,023,952
shares of common stock held by the company’s President and Chief Executive
Officer were vested.  The Company charged to operations the amount of
$471,457 for the value of the options during the year ended December 31,
2007.





F-25
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


The
following table summarizes the changes in options outstanding and the related
prices for the shares of the company's common stock issued to employees of the
company under a non-qualified employee stock option plan December 31,
2007.




Options
      Outstanding
            
            Options
      ExercisableExercise
      Prices
            
            
            Number
      Outstanding
            
            Weighted Average Remaining
              Contractual
      Life (years)
            
            Weighted
      Average Exercise Price
            
            Number
      Exercisable
            
            Weighted Average Remaining
              Contractual
      Life (years)$
            0.128-0.22
            
            
            
            13,800,000
            
            7.72
            
            $
            0.128-0.22
            
            13,700,000
            
            7.770.231
            
            
            
            1,896,970
            
            3.54
            
            
            0.231
            
            1,896,970
            
            3.540.31
            
            
            
            1,000
            
            3.00
            
            
            0.31
            
            1,000
            
            3.000.33
            
            
            
            103,030
            
            2.64
            
            
            0.33
            
            103,030
            
            2.640.44
            
            
            
            150,000
            
            2.50
            
            
            0.44
            
            150,000
            
            2.5025.00
            
            
            
            63,212
            
            2.25
            
            
            25.00
            
            63,212
            
            2.2516,014,212
            
            
            
            
            
            
            15,914,212





Options
not vested are not exercisable. Transactions involving stock options issued to
employees are summarized as follows:




Number
      of Shares
            
            
            Weighted
      Average Price Per ShareOutstanding
      at December 31, 2003
            
            
            63,212
            
            
            $
            25.00Granted
            
            
            --
            
            
            
            --Exercised
            
            
            --
            
            
            
            --Expired
            
            
            --
            
            
            
            --Outstanding
      at December 31, 2004
            
            
            63,212
            
            
            $
            25.00Granted
            
            
            254,030
            
            
            
            0.39Exercise
            
            
            --
            
            
            
            --Expired
            
            
            --
            
            
            
            --Outstanding
      at December 31, 2005
            
            
            317,242
            
            
            $
            5.30Granted
            
            
            5,596,970
            
            
            
            0.22Exercise
            
            
            --
            
            
            
            --Expired
            
            
            --
            
            
            
            --Outstanding
      at December 31, 2006
            
            
            5,914,212
            
            
            $
            0.50Granted
            
            
            10,100,000
            
            
            
            0.17Exercise
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2007
            
            
            16,014,212
            
            
            $
            0.29







F-26
 Table of Contents


IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007




Warrants





The
following table summarizes the changes in warrants outstanding and the related
prices for the shares of the company’s common stock issued to non-employees of
the company as of December 31, 2007. These warrants were granted in lieu of cash
for compensation for services performed of financing expenses and in connection
with placement of convertible debentures.





Warrants
      Outstanding
            
            Warrants
      ExercisableExercise
      Prices
            
            
            Number
      Outstanding
            
            Weighted
      Average Remaining
              Contractual
      Life (years)
            
            Weighted
      Average
              Exercise
      Price
            
            Number
      Exercisable
            
            Weighted
      Average
              Remaining
      Contractual
              Life
      (years)$
            .05-.10
            
            
            
            574,780
            
            1.47
            
            $
            .05-.10
            
            574,780
            
            1.47.125-.22
            
            
            
            2,464,319
            
            3.11
            
            
            .125-.22
            
            1,870,569
            
            2.72.23-.56
            
            
            
            31,437,434
            
            3.22
            
            
            .23-.56
            
            28,666,605
            
            3.111.00
            
            
            
            677,564
            
            0.94
            
            
            1.00
            
            677,564
            
            0.942.00
            
            
            
            6,550
            
            1.57
            
            
            2.00
            
            6,550
            
            1.5735,160,647
            
            3.14
            
            
            
            
            31,796,068
            
            3.01





Transactions
involving warrants are summarized as follows:


Number
      of Shares
              Underlying
      Warrants
            
            
            Weighted
      Average
              Exercise
      Price Per ShareOutstanding
      at December 31, 2003
            
            
            832,510
            
            
            $
            0.82Granted
            
            
            16,831,199
            
            
            
            0.47Exercised
            
            
            (6,600,778
            )
            
            
            0.50Cancelled or expired
            
            
            --
            
            
            
            --Outstanding
      at December 31, 2004
            
            
            11,062,931
            
            
            $
            0.48Granted
            
            
            757,464
            
            
            
            0.44Exercised
            
            
            (80,000
            )
            
            
            0.05Canceled or expired
            
            
            (123,526
            )
            
            
            2.00Outstanding
      at December 31, 2005
            
            
            11,616,869
            
            
            $
            0.46Granted
            
            
            19,365,678
            
            
            
            0.32Exercised
            
            
            (5,000
            )
            
            
            0.09Cancelled or expired
            
            
            (326,000
            )
            
            
            1.00Outstanding
      at December 31, 2006
            
            
            30,651,547
            
            
            $
            0.37Granted
            
            
            5,000,000
            
            
            
            0.28Exercised
            
            
            -
            
            
            
            -Cancelled or expired
            
            
            (490,900
            )
            
            
            0.38Outstanding
      at December 31, 2007
            
            
            35,160,647
            
            
            $
            0.36






F-27
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


The
estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:





2007
            
            2006Significant
      assumptions (weighted-average):Risk-free
      interest rate at grant date
            
            4.50%
            
            4.5%
      to 4.75%Expected
      stock price volatility
            
            88%
            
            92%
      to 73%Expected
      dividend payout
            
            -
            
            -Expected
      option life-years
            
            3
      to 5
            
            3
      to 5





At
December 31, 2002, the Company had outstanding warrants to purchase 26,939
shares of common stock at $0.835 per share.





During
the year ended December 31, 2003, the Company issued warrants to purchase
169,572 shares of common stock at prices ranging from $0.125 to $1.00 per share
to eight service providers. The Company valued the warrants using the
Black-Scholes calculation model, and the warrants were deemed to have a combined
value of $85,860. This amount was charged to expense on the Company's financial
statements for the twelve months ending December 31,
2003.


In
October 2003, pursuant to the Amended Note agreements, the Company issued the
Amended Note Warrants to purchase 245,000 shares of its common stock at a price
of $1.00 per share . The Company valued the Amended Note Warrants using the
Black-Scholes calculation model, and the warrants were deemed to have a combined
value of $189,937. This amount was recorded as a discount to the Amended Notes
and an addition to paid-in capital, and was charged to expense over the term of
the notes, or 180 days. During the twelve months ended December 31, 2003, the
Company recognized $84,169 of expense in relation to these warrants. During the
twelve months ended December 31, 2004, the remaining $105,768 was charged to
operations.





In
October, November, and December 2003, pursuant to the Fourth Quarter Note
agreements, the Company issued the Fourth Quarter Company Warrants to purchase
391,000 shares of its common stock at a price of $1.00 per share.





As an
additional incentive to investors in the Secured Convertible Promissory Notes,
the Company provided five-year warrants (the "Secured Note Warrants") to
purchase that number of shares of common stock equal to one-half the initial
principal amount of the Secured Convertible Promissory Notes. For example, an
investor who purchased a $10,000 Secured Convertible Promissory Note would
receive a warrant to purchase 8,979 shares of common stock. The exercise price
of the Secured Note Warrants is equal to 60% of the price per share paid by
investors in a future equity financing (the "Reorganization Financing"). The
Secured Note Warrants are not considered granted until the completion of the
Reorganization Financing. In accordance with EITF 00-27, because the
Reorganization Financing had not occurred at December 31, 2003, the Company
ascribed no value to the Secured Note Warrants at December 31, 2003. At the time
of the first closing of the Private Placement in October 2004, warrants to
purchase a total of 444,490 shares of common stock at $0.075 per share were
issued under the Secured Note Warrants. The value of these warrants was computed
utilizing the Black-Scholes valuation model, and the total value of these
warrants, or $112,562 was charged to operations during the twelve months ended
December 31, 2004.





The
Company has outstanding warrants to purchase 250,000 shares of common stock at
$0.30 per share which were issued in 2002 by its predecessor company GPN
Network.
 
 In April
through June 2004, the Company issued warrants to purchase 32,500 shares at
price ranging from $0.25 to $2.00 to consultants for services performed. The
Company valued these warrants using the Black-Scholes valuation model, and
charged the amount of $8,318 to operations during the twelve months ended
December 31, 2004.
 
 In May
2004, the Company issued a warrant to its President and a warrant to a Director,
each warrant to purchase 500,000 shares of common stock at a price of $0.25
per share. The warrants were issued as performance bonuses. The Company valued
these warrants using the Black-Scholes model, and charged the amount of $134,604
for each warrant, or a total of $269,208, to operations during the twelve months
ended December 31, 2004.
 
 In
October 2004, the Company issued a warrant to its President to purchase 448,980
shares at a price of $0.125 per share as a performance bonus for achieving
certain objectives. The Company valued this warrant using the Black-Scholes
valuation model, and charged the amount of $112,697 to operations during the
twelve months ended December 31, 2004.
 
 In
November and December 2004, the Company issued a warrant to purchase 50,000
shares of its common stock at a price of $0.125 per share and a warrant to
purchase 10,000 shares of its common stock at a price of $0.075 per
share to two members of its advisory boards. The Company valued these
warrants using the Black-Scholes valuation model, and charged the aggregate
amount of $16,348 to operations during the twelve months ended December 31,
2004.





F-28
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


In
October 2004, the Company issued warrants to purchase 9,080,000 shares of its
common stock at a price of $0.50 per share to the investors in its private
placement of equity securities. The Company allocated $607,922 of the total
proceeds of $1,971,845 to the warrants, and charged this amount to additional
paid-in capital during the twelve months ended December 31, 2004.
 
 In
October 2004, the Company issued warrants to purchase an aggregate of 720,000
shares  of its common stock at a price of $0.50 per
share  to the an officer and a director for converting a total of
$180,000 of amounts owed to these individuals for accrued salary and accrued
consulting fees. The Company allocated $56,067 of the total proceeds of $180,000
to the warrants, and charged this amount to additional paid-in capital during
the twelve months ended December 31, 2004.
 
 In
October 2004, the Company issued warrants to purchase 3,347,076 shares) of its
common stock at a price of $0.50 per share to the convertible note holders
who invested its private placement of equity securities via conversion of their
notes. The Company allocated $191,111 of the total amount converted of $615,328
to the warrants, and charged this amount to additional paid-in capital during
the twelve months ended December 31, 2004.




In
October 2004, the Company issued warrants to purchase 628,873
shares  of its common stock at a price of $0.50 per share ) to the
vendors who invested in its private placement of equity securities via
conversion of amounts owed to them by the Company. The Company allocated $48,579
of the total amount converted of $157,219 to the warrants, and charged this
amount to additional paid-in capital during the twelve months ended December 31,
2004.





In April
through June 2004, the Company issued warrants to purchase 77,500 shares of its
common stock at prices ranging from $0.25 to $2.00 per share to certain
investors as additional incentive under notes payable agreements. The Company
valued these warrants using the Black-Scholes model, and charged the amount of
$17,915 to additional paid-in capital during the twelve months ended December
31, 2004.





In July
and August 2004, the Company issued warrants to purchase 744,280 shares of its
common stock at prices ranging from $0.05 to $2.00 per share to certain
investors as additional incentive under notes payable agreements. The Company
valued these warrants using the Black-Scholes model, and charged the amount of
$72,252 to additional paid-in capital during the twelve months ended December
31, 2004.





During
the three months ended March 31, 2005, the Company issued warrants to purchase
268,033 shares of common stock at prices ranging from $0.125 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $137,049 to operations
during the twelve months ended December 31, 2005.





During
the three months ended June 30, 2005, the Company issued warrants to purchase
366,814 shares of common stock at prices ranging from $0.038 to $1.00 per share
to consultants and advisory board members. The Company also cancelled warrants
to purchase 123,530 shares of common stock at a price of $2.00 per share. The
Company valued these issuance and cancellations using the Black-Scholes
valuation model, and charged the amount of $103,772 to operations during the
twelve months ended December 31, 2005.





Also
during the three months ended June 30, 2005, warrants to purchase 80,000 shares
of common stock at a price of $0.05 per share were exercised.





During
the three months ended September 30, 2005, the Company issued warrants to
purchase 77,250 shares of common stock at prices ranging from $0.125 to $1.00
per share to consultants and advisory board members. The Company valued these
warrants using the Black-Scholes valuation model, and charged the amount of
$20,491 to operations during the twelve months ended December 31,
2005.





In
October and December 2005, the Company issued warrants to purchase 62,467 shares
of common stock at prices ranging from $0.125 to $1.00 to consultants and
advisory board members for services provided. The Company valued these warrants
using the Black-Scholes valuation model, and charged the amount of $18,399 to
operations during the twelve months ended December 31, 2005.





During
the three months ended March 31, 2006, the Company issued warrants to purchase
61,500 shares of common stock at prices ranging from $0.125 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $8,399 to operations
during the three months ended March 31, 2006.





During
the three months ended June 30, 2006, the Company issued warrants to purchase
84,653 shares of common stock at prices ranging from $0.20 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $8,819 to operations
during the three months ended June 30, 2006.





Also
during the three months ended June 30, 2006, an investor exercised a warrant to
purchase 5,000 shares of the Company's common stock at a price of $0.09 per
share.





During
the three months ended September 30, 2006, the Company issued warrants to
purchase 46,000 shares of common stock at prices ranging from $0.20 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $3,495 to operations
during the three months ended September 30, 2006.





F-29
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


During
the three months ended September 30, 2006, the Company issued warrants to
purchase 300,000 shares of common stock at $0.25 to our Chief Executive Officer,
Michael Wilhelm. The Company valued these warrants using the Black-Scholes
valuation model, and charged the amount of $41,278 to operations during the
three months ended September 30, 2006.





Also,
during the three months ended September 30, 2006, the Company issued warrants to
purchase 62,500 shares of common stock at $0.158 to our Chief Financial Officer,
John Fermanis per the terms of his employment agreement. The Company valued
these warrants using the Black-Scholes valuation model, and charged the amount
of $9,596 to operations during the three months ended September 30,
2006.





During
the three months ended September 30, 2006, the Company issued warrants to
purchase an additional 1,634,400 shares of common stock in satisfaction of the
penalty due to investors for the late registration of shares. The Company had
accrued the value of these warrants using the Black-Scholes valuation model, and
relieved the accrued liability of $258,986.





In
October 2006, the Company issued warrants to purchase 7,114,063 shares of its
common stock at a price of $0.50 per share to the investors in its first closing
of private placement of equity securities. The Company allocated $804,003 of the
total proceeds of $1,057,640 to the warrants, and charged this amount to
additional paid-in capital during the twelve months ended December 31,
2006.





In
October 2006, the Company issued warrants to purchase 8,428,437 shares of its
common stock at a price of $0.50 per share to the investors in its second
closing of private placement of equity securities. The Company allocated
$759,384 of the total proceeds of $2,344,020 to the warrants, and charged this
amount to additional paid-in capital during the twelve months ended December 31,
2006.





In
October 2006, the Company issued warrants to purchase 1,590,625 shares of its
common stock at a price of $0.50 per share to the investors in its final closing
of private placement of equity securities. The Company allocated $162,952 of the
total proceeds of $427,805 to the warrants, and charged this amount to
additional paid-in capital during the twelve months ended December 31,
2006.





During
the three months ended December 31, 2006, the Company issued warrants to
purchase 43,500 shares of common stock at prices ranging from $0.20 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $1,974 to operations
during the three months ended December 31, 2006.





In April
2007, the Company issued warrants to purchase 5,000,000 shares of common stock
to a consultant.  The warrants vest 750,000 immediately and 177,083
every month for the next two years.  The Company charged to operations
the amount of $166,997, representing the value of the warrants that vested
during the year ended December 31, 2007.





NOTE
8 - COMMITMENTS AND CONTINGENCIES





Office
Leases




Our
corporate headquarters are currently located at 8767 E. Via de Ventura,
Scottsdale, Arizona, 85258, where we have leased approximately 3,322 square feet
of office space through October 31, 2009. Our rent expense is $6,921 per month
in year one and will increase to $7,128 in year two.
 
 Rent
expense amounted to $38,778 for the year ended December 31, 2007, $28,622 for
the year ended December 31, 2006 and $170,339 for the period from October 30,
2002 (inception) through December 31, 2007.
  Future
minimum payments under non-cancelable leases with terms in excess of one year as
of December 31, 2007 were as follows:
    2008
              
              $
              83,6732009
              
              
              64,1522010
              
              
              -$
              147,825
 Employment and Consulting
Agreements
 
 The
Company has employment agreements with the President and Chief Executive Officer
(See Note 4) In addition to salary and benefit provisions, the agreements
include non-disclosure and confidentiality provisions for the protection of the
Company's proprietary information. The Company also has a severance agreement
and a change of control agreement in place with its President and Chief
Executive Officer.
 
 The
Company also has an employment agreement with its Chief Financial Officer (See
Note 4) and Senior Director, Product Development and Regulatory Affairs which
provide salary and benefit provisions.  The renewal of the Chief
Financial Officer’s employment agreement is currently pending Board
approval.
 
 The
Company has consulting agreements with outside contractors to provide marketing
and financial and scientific advisory services. The Agreements are generally for
a term of 12 months from inception and renewable automatically from year to year
unless either the Company or Consultant terminates such engagement by written
notice.
 
 Litigation
 
 The
Company is subject to other legal proceedings and claims, which arise in the
ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters should not have a material adverse effect on its financial position,
results of operations or liquidity.





F-30
 Table of Contents




IR
BIOSCIENCESHOLDINGS, INC. AND SUBSIDIARY
 (A
DEVELOPMENT STAGE COMPANY)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006
 AND
FOR THE PERIOD FROM OCTOBER 30, 2002
 (INCEPTION)
TO DECEMBER 31, 2007


NOTE
9 - INCOME TAXES





The
Company has adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.





For
income tax reporting purposes, the Company's aggregate unused net operating
losses approximate $10,915,000 which expire through 2027, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carryforward is approximately $3,820,250. The Company has
provided a valuation reserve against the full amount of the net operating loss
benefit, because in the opinion of management based upon the earning history of
the Company, it is more likely than not that the benefits will not be
realized.




Components
of deferred tax assets as of December 31, 2007 are as
follows:


Non
      Current:Net
      operating loss carryforward
            
            $
            3,820,250Valuation
      allowance
            
            
            (3,820,250
            )Net
      deferred tax asset
            
            $
            -





NOTE
10 - SUBSEQUENT EVENTS





On
February 15, 2008, the Board of Directors approved of the issuance of 1,000,000
restricted shares of our common stock to Joseph Stevens & Co., Inc. and its
designees, all of whom are accredited investors, per the terms of a consulting
agreement dated November 20, 2007, under the terms of which the consultant would
provide referral services for a term of one year to identify and introduce
potential Directors to the company.





Also on
February 15, 2008, the Board of Directors approved of the issuance of 300,000
restricted shares of common stock to a consultant, who is an accredited
investor, per the terms of a consulting agreement dated November 13, 2007, under
the terms of which the consultant would provide investor relations services and
consulting services for new product development for a term of four
months.





On
January 3, 2008, the Company entered into a securities purchase agreement with
YA Global Investments, L.P. (the “Buyer”), pursuant to which the Buyer agreed to
purchase from the Company (i) up to $3 million of secured convertible
debentures, which shall be convertible into shares of our common stock and (ii)
warrants to acquire up to 7,500,000 additional shares of our common stock (the
“Financing”).





The
initial closing of the Financing occurred on January 3, 2008, at which time the
Company sold to the Buyer $2 million of the convertible debentures and the
warrants. The Company, at its sole option, may elect to sell and issue to the
Buyer an additional $1 million of convertible debentures within the six months
following the execution of the securities purchase agreement. Obligations under
the convertible debentures are guaranteed by ImmuneRegen BioSciences, Inc. The
Company’s obligations under the convertible debentures are secured by (i) all of
the assets and property of ImmuneRegen BioSciences, Inc.; and (ii) all patents
owned by the company and ImmuneRegen BioSciences, Inc.


The
convertible debentures mature on December 31, 2010, unless extended by the
holder, and accrue interest at the rate of 8% per annum. Interest is payable in
cash quarterly on the last day of each calendar quarter beginning on March 31,
2008, or at the Company’s option if “Equity Conditions”(as defined in the
debenture) are satisfied, it may be paid by the issuance of common stock. The
debentures are convertible at any time at the option of the holder into shares
of the common stock at a price equal to $0.20 per share. On or after December
31, 2009 or if the Company’s fails to achieve certain milestones based on
preclinical studies and submission of a Investigational New Drug Application, as
set forth in the convertible debenture, the conversion price of the convertible
debentures becomes the lower of (i) $0.20 per share or (ii) 80% of the lowest
daily volume weighted average price during the five trading days immediately
preceding conversion.




The
Company may redeem a portion or all amounts outstanding under the convertible
debentures prior to the December 31, 2010 provided that certain conditions to
redemption have been satisfied. The Company may force a conversion of the
convertible debentures into common stock, provided that specified conditions
have been satisfied. Holders of the convertible debentures are subject to
limitations on their right to convert the debentures, or receive shares of
common stock as payment of interest, if after giving effect to such conversion
or receipt of shares, the holder would be deemed to beneficially own more than
9.99% of the Company’s then-outstanding common stock. Upon the occurrence of
certain events of default defined in the convertible debentures, including the
Company’s failure to pay the holder any amount of principal, interest, or other
amounts when due, the full principal amount of the convertible debentures,
together with interest and other amounts due, become immediately due and payable
in cash, provided however, that holder may request payment of such amounts in
common stock of the company.




In the
event the Company effects any “fundamental transaction” as defined in the
convertible debentures, including a merger or consolidation of the Company or
sale of more than 50% of its assets, the holder may (i) require the redemption
of all amounts owed, including principal, accrued and unpaid interest and any
other charges; (ii) require the conversion of the convertible debentures into
shares of common stock and other securities, cash and property; or (iii) in the
case of a merger or consolidation, require the surviving entity to issue to the
holder a convertible debenture with a principal amount equal to the convertible
debentures then held by the holder, plus all accrued and unpaid interest and
other amounts, and with the same terms and conditions as the convertible
debentures.




The
Company placed $175,000 into an escrow account upon closing, and if the Company
elects to close the subsequent $1 million it will place an additional $75,000
into escrow.  The funds in escrow will be used to compensate the
Buyer’s investment manager for monitoring and managing the Buyer’s purchase and
investment.  In addition, we agreed to pay a $20,000 structuring fee
to the Buyer’s investment manager. In addition, for the period from January 3,
2008 through 30 days after all amounts owed to the Buyer under the convertible
debentures have been paid, the officers and directors of the Company agreed not
to sell, transfer, pledge, or otherwise encumber or dispose of any securities of
the Company except in accordance with the volume limitations set forth in Rule
144(e) of the General Rules and Regulations under the Securities Act of 1933, as
amended.
 
 The
warrants have an exercise price, subject to adjustments, of $0.25 per share and
are exercisable at any time on or prior to December 31, 2012. The warrants
provide a right of cashless exercise if, at the time of exercise, there is no
effective registration statement registering the resale of the shares underlying
the warrants. Holders of the warrants are subject to limitations on their right
to exercise the warrants, if after giving effect to the exercise, a holder and
its affiliates would be deemed to beneficially own more than 9.99% of the
Company’s then-outstanding common stock.
 
 The Buyer
has a right of first refusal on any future funding that involves the issuance of
the Company’s capital stock for so long as a portion of the convertible
debentures is outstanding.





F-31
 Table of Contents





ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





None.




ITEM
8A. CONTROLS AND PROCEDURES





Evaluation of Disclosure
Controls and Procedures


Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
 
 As of the
end of the period covered by this Annual Report, we conducted an evaluation,
under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer, of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures are effective to
ensure that information required to be disclosed by the Company in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms and
which also are effective in ensuring that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including the
Company’s Chief Executive Officer and Chief Financial Officer, to allow timely
decisions regarding required disclosure.
 
 Management's Report on
Internal Control over Financial Reporting
 
 Management
is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies and
procedures may deteriorate.
 
 Management,
with the participation of our principal executive officer and principal
financial officer, has evaluated the effectiveness of our internal control over
financial reporting as of December 31, 2007 based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, because of
the Company’s limited resources and limited number of employees, management
concluded that, as of December 31, 2007, our internal control over
financial reporting is not effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
 
 This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.
 
 Limitations on Effectiveness
of Controls and Procedures
 
 Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include, but are not limited to, the realities that judgments in decision-making
can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
 
 Changes in internal
controls
 
 There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Exchange Act that occurred during the quarter ended December
31, 2007 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




ITEM8B. OTHER INFORMATION





None.




41
 Table of Contents





PART
III








ITEM9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT





The
information required by this Item 9 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2007 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-KSB/A,
not later than the end of the 120-day period.




ITEM10. EXECUTIVE COMPENSATION





The
information required by this Item 10 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2007 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-KSB/A,
not later than the end of the 120-day period.




ITEM11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT





The
information required by this Item 11 is incorporated by reference from our
definitive proxy statement on Schedule 14A which will be filed before the end of
the 120-day period immediately following the end of our 2007 fiscal year, or, if
our definitive proxy statement is not filed within that time, the information
will be filed as part of an amendment to this Annual Report on Form 10-KSB/A,
not later than the end of the 120-day period.




ITEM12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE





The
information required by this Item 12 is incorporated by reference from our
definitive proxy statement on Schedule 14A, or, if our definitive proxy
statement is not filed within that time, the information will be filed as part
of an amendment to this Annual Report on Form 10-KSB/A, not later than the end
of the 120-day period.




ITEM13. EXHIBITS





Exhibit
      Number
            
            Description
      of Exhibit




2.1
            
            Agreement
      and Plan of Merger dated July 2, 2003 among the Registrant, GPN
      Acquisition Corporation and ImmuneRegen BioSciences, Inc. (incorporated by
      reference to exhibit 2 of the Registrant's current report on Form 8-k
      filed with the Securities and Exchange Commission on July 7,
      2003).3.1
            
            Certificate
      of Incorporation filed with the Delaware Secretary of State on June 4,
      1985 (incorporated by reference to exhibit 3.1 of the Registrant's annual
      report on Form 10-KSB for the year ended December 31, 2001 filed with the
      Securities and Exchange Commission on April 16, 2002).3.1(a)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on July 16, 1987
      (incorporated by reference to exhibit 3.1(a) of the Registrant's annual
      report on Form 10-KSB for the year ended December 31, 2001 filed with the
      Securities and Exchange Commission on April 16, 2002).3.1(b)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on February 3,
      1992 (incorporated by reference to exhibit 3.1(b) of the Registrant's
      annual report on Form 10-KSB for the year ended December 31, 2001 filed
      with the Securities and Exchange Commission on April 16,
      2002).3.1(c)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on November 23,
      1992 (incorporated by reference to exhibit 3.1(c) of the Registrant's
      annual report on Form 10-KSB for the year ended December 31, 2001 filed
      with the Securities and Exchange Commission on April 16,
      2002).3.1(d)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on December 15,
      1994 (incorporated by reference to exhibit 3.1(d) of the Registrant's
      annual report on Form 10-KSB for the year ended December 31, 2001 filed
      with the Securities and Exchange Commission on April 16,
      2002).






42
 Table of Contents




Exhibit
      Number
              
              Description
      of Exhibit




3.1(e)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on November 7,
      1995 (incorporated by reference to exhibit 3.1(e) of the Registrant's
      annual report on Form 10-KSB for the year ended December 31, 2001 filed
      with the Securities and Exchange Commission on April 16,
      2002).3.1(f)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on December 30,
      1996 (incorporated by reference to exhibit 3.1(f) of the Registrant's
      annual report on Form 10-KSB for the year ended December 31, 2001 filed
      with the Securities and Exchange Commission on April 16,
      2002).3.1(g)
            
            Certificate
      of Amendment filed with the Delaware Secretary of State on November 8,
      2000 (incorporated by reference to exhibit 3.1(h) of the Registrant's
      annual report on Form 10-KSB for the year ended December 31, 2001 filed
      with the Securities and Exchange Commission on April 16,
      2002).3.2
            
            Amended
      and Restated Bylaws of the Registrant dated as of January 1, 2002
      (incorporated by reference to exhibit 3(b) of the Registrant's annual
      report on Form 10-KSB for the year ended December 31, 2001 filed with the
      Securities and Exchange Commission on April 16, 2002).4.1
            
            Specimen
      Common Stock Certificate (incorporated by reference to exhibit 4.1 of the
      Registrant's registration statement on Form SB-2 (File No. 333-120784)
      filed with the Securities and Exchange Commission on November 24,
      2004).4.2
            
            2003
      Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by
      reference to exhibit 4.1 of the Registrant's registration statement on
      Form S-8 (file no. 333-113511) filed with the Securities and Exchange
      Commission on March 11, 2004).4.3
            
            Form
      of Warrant by and between the Registrant and each of the Investors or
      Creditors, as the case may be, who entered into an Agreement filed as
      Exhibit 10.6, 10.7, 10.8 or 10.9 herewith (incorporated by reference to
      exhibit 4.1 of the Registrant's current report on Form 8-K filed with the
      Securities and Exchange Commission on October 19,
2004).4.4
            
            Form
      of Registration Rights (Annex A to Subscription Agreement) by and between
      the Registrant and each of the Investors who entered into the Agreements
      filed as Exhibits 10.6 and 10.8 herewith (incorporated by reference to
      exhibit 4.2 of the Registrant's current report on Form 8-K filed with the
      Securities and Exchange Commission on October 19,
2004).4.5
            
            Form
      of Anti-Dilution Rights (Annex B to Subscription Agreement) by and between
      the Registrant and each of the Investors who entered into the Agreements
      filed as Exhibits 10.6 and 10.8 herewith (incorporated by reference to
      exhibit 4.3 of the Registrant's current report on Form 8-K filed with the
      Securities and Exchange Commission on October 19,
2004).4.6
            
            Promissory
      Note issued from the Registrant to SBM Certificate Company as of April 28,
      2004 (incorporated by reference to exhibit 4.6 of the Registrant's
      registration statement on Form SB-2 (File No. 333-120784) filed with the
      Securities and Exchange Commission on November 24,
  2004).4.7
            
            Form
      of Warrant by and between the Registrant and each of the investors who
      entered into the Subscription Agreements filed as Exhibits 10.18, 10.19
      and 10.20 herewith (incorporated by reference from Exhibit 4.1 to the
      Quarterly Report on Form 10-QSB as filed with the Securities and Exchange
      Commission on November 14, 2006).4.8
            
            8%
      Secured Convertible Debenture due December 31, 2010, issued to YA Global
      Investments, L.P., dated January 3, 2008 (incorporated by reference from
      Exhibit 4.1 to the Current Report on Form 8-K as filed with the Securities
      and Exchange Commission on January 9, 2008).4.9
            
            Common
      Stock Purchase Warrant, issued to YA Global Investments, L.P., dated
      January 3, 2008 (incorporated by reference from Exhibit 4.2 to the Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      January 9, 2008).10.1
            
            License
      Agreement dated December 16, 2002 among ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant, David Harris and Mark Witten (incorporated
      by reference to exhibit 10.4 of the Registrant's registration statement on
      Form SB-2 (File No. 333-120784) filed with the Securities and Exchange
      Commission on November 24, 2004).10.1(a)
            
            First
      Amendment to License Agreement dated December 20, 2002 among ImmuneRegen
      BioSciences, Inc., a subsidiary of the Registrant, David Harris and Mark
      Witten (incorporated by reference to exhibit 10.4(a) of the Registrant's
      registration statement on Form SB-2 (File No. 333-120784) filed with the
      Securities and Exchange Commission on November 24,
  2004).10.1(b)
            
            Second
      Amendment to License Agreement dated June 26, 2003 among ImmuneRegen
      BioSciences, Inc., a subsidiary of the Registrant, David Harris and Mark
      Witten (incorporated by reference to exhibit 10.4(b) of the Registrant's
      registration statement on Form SB-2 (File No. 333-120784) filed with the
      Securities and Exchange Commission on November 24,
  2004).






43
 Table of Contents


Exhibit
      Number
              
              Description
      of Exhibit




10.1(c)
            
            Assignment
      Agreement dated February 23, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Mark Witten (incorporated by reference to
      exhibit 10.4(c) of the Registrant's registration statement on Form SB-2
      (File No. 333-120784) filed with the Securities and Exchange Commission on
      July 20, 2005).10.1(d)
            
            Assignment
      Agreement dated February 23, 2005 among ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant, David Harris and Mark Witten (incorporated
      by reference to exhibit 10.4(d) of the Registrant's registration statement
      on Form SB-2 (File No. 333-120784) filed with the Securities and Exchange
      Commission on July 20, 2005).10.1(e)
            
            Assignment
      Agreement dated November 7, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Mark Witten (incorporated by reference to
      exhibit 10.4(e) of the Registrant's registration statement on Form SB-2
      (File No. 333-120784) filed with the Securities and Exchange Commission on
      November 16, 2005).10.1(f)
            
            Assignment
      Agreement dated November 7, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Mark Witten (incorporated by reference to
      exhibit 10.4(f) of the Registrant's registration statement on Form SB-2
      (File No. 333-120784) filed with the Securities and Exchange Commission on
      February 22, 2006).10.1(g)
            
            Assignment
      Agreement dated November 7, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Mark Witten (incorporated by reference to
      exhibit 10.4(g) of the Registrant's registration statement on Form SB-2
      (File No. 333-120784) filed with the Securities and Exchange Commission on
      November 16, 2005).10.1(h)
            
            Assignment
      Agreement dated November 7, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Mark Witten (incorporated by reference to
      exhibit 10.4(h) of the Registrant's registration statement on Form SB-2
      (File No. 333-120784) filed with the Securities and Exchange Commission on
      November 16, 2005).10.2
            
            Lease
      Agreement dated July 1, 2004 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant, and The Clayton Companies (incorporated by
      reference to exhibit 10.5 of the Registrant's registration statement on
      Form SB-2 (File No. 333-120784) filed with the Securities and Exchange
      Commission on November 24, 2004).10.3
            
            Form
      of Subscription Agreement entered into as of October 13, 2004 between the
      Registrant and each of the Investors set forth on the Schedule of
      Investors thereto (incorporated by reference to exhibit 10.1 of the
      Registrant's current report on Form 8-K filed with the Securities and
      Exchange Commission on October 19, 2004).10.4
            
            Form
      of Settlement Agreement entered into as of October 13, 2004 between the
      Registrant and each of the Creditors set forth on the Schedule of
      Creditors thereto (incorporated by reference to exhibit 10.2 of the
      Registrant's current report on Form 8-K filed with the Securities and
      Exchange Commission on October 19, 2004).10.5
            
            Form
      of Subscription Agreement entered into as of October 26, 2004 between the
      Registrant and each of the Investors set forth on the Schedule of
      Investors thereto (incorporated by reference to exhibit 10.1 of the
      Registrant's current report on Form 8-K filed with the Securities and
      Exchange Commission on October 27, 2004).10.6
            
            Form
      of Settlement Agreement entered into as of October 26, 2004 between the
      Registrant and each of the Creditors set forth on the Schedule of
      Creditors thereto (incorporated by reference to exhibit 10.2 of the
      Registrant's current report on Form 8-K filed with the Securities and
      Exchange Commission on October 27, 2004).10.7
            
            Employment
      Agreement dated February 15, 2005 between the Registrant and John N.
      Fermanis (incorporated by reference to exhibit 10.10 of the Registrant's
      Amendment No. 1 on Form 10-K/A to its annual report for the year ended
      December 31, 2004).10.8
            
            Employment
      Agreement dated August 10, 2005 by and between the Registrant and Michael
      K. Wilhelm (incorporated by reference to exhibit 10.1 of the Registrant's
      quarterly report on Form 10-QSB for the three months ended September 30,
      2005).10.9
            
            Change
      of Control Agreement dated August 10, 2005 by and between the Registrant
      and Michael K. Wilhelm (incorporated by reference to exhibit 10.2 of the
      Registrant's quarterly report on Form 10-QSB for the three months ended
      September 30, 2005).10.10
            
            Severance
      Agreement dated November 7, 2005 by and between the Registrant and Michael
      K. Wilhelm (incorporated by reference to exhibit 10.3 of the Registrant's
      quarterly report on Form 10-QSB for the three months ended September 30,
      2005).








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Exhibit
      Number
              
              Description
      of Exhibit




10.11
            
            Authorization
      for Regulatory Contact dated November 7, 2005 between ImmuneRegen
      BioSciences, Inc., a subsidiary of the Registrant, and Synergos, Inc.
      (incorporated by reference to exhibit 10.14 of the Registrant's
      registration statement on Form SB-2 (File No. 333-120784) filed with the
      Securities and Exchange Commission on February 22,
  2006).10.12
            
            Proforma
      invoice/quotation dated November 7, 2005 from Sigma-Aldrich, Inc. to
      ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
      (incorporated by reference to exhibit 10.15 of the Registrant's
      registration statement on Form SB-2 (File No. 333-120784) filed with the
      Securities and Exchange Commission on November 16, 2005).10.13
            
            Letter
      of acceptance dated October 2, 2003, from Huntingdon Life Sciences to
      ImmuneRegen BioSciences, Inc., a subsidiary of the Registrant
      (incorporated by reference to exhibit 10.16 of the Registrant's
      registration statement on Form SB-2 (File No. 333-120784) filed with the
      Securities and Exchange Commission on February 22,
  2006).10.14
            
            Price
      Quotation dated June 27, 2003 received by ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant from AppTec Laboratory Services (incorporated
      by reference to exhibit 10.17 of the Registrant's registration statement
      on Form SB-2 (File No. 333-120784) filed with the Securities and Exchange
      Commission on February 22, 2006).10.15
            
            Consulting
      Agreement dated March 15, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Dr. Hal Siegel, Ph.D. (Siegel
      Consultancy) (incorporated by reference to exhibit 10.18 of the
      Registrant's registration statement on Form SB-2 (File No. 333-120784)
      filed with the Securities and Exchange Commission on February 22,
      2006).10.16
            
            Consulting
      Agreement dated November 3, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Dr. Jack Caravelli, Ph.D (incorporated by
      reference to exhibit 10.19 of the Registrant's registration statement on
      Form SB-2 (File No. 333-120784) filed with the Securities and Exchange
      Commission on February 22, 2006).10.17
            
            Consulting
      Agreement dated July 29, 2005 between ImmuneRegen BioSciences, Inc., a
      subsidiary of the Registrant and Dr. Kelly McQueen, MD, MPH (incorporated
      by reference to exhibit 10.20 of the Registrant's registration statement
      on Form SB-2 (File No. 333-120784) filed with the Securities and Exchange
      Commission on February 22, 2006).10.18
            
            Form
      of Subscription Agreement entered into as of December 6, 2006 between the
      Registrant and each of the Investors set forth on the Schedule of
      Investors contained therein (incorporated by reference from Exhibit 10.1
      to the Report on Form 8-K as filed with the Securities and Exchange
      Commission on December 7, 2006).10.19
            
            Form
      of Subscription Agreement entered into as of October 4, 2006 between the
      Registrant and each of the Investors set forth on the Schedule of
      Investors contained therein. (incorporated by reference from Exhibit 10.2
      to the Quarterly Report on Form 10-QSB as filed with the Securities and
      Exchange Commission on November 14, 2006).10.20
            
            Form
      of Subscription Agreement entered into as of October 26, 2006 between the
      Registrant and each of the Investors set forth on the Schedule of
      Investors contained therein (incorporated by reference from Exhibit 10.2
      to the Quarterly Report on Form 10-QSB as filed with the Securities and
      Exchange Commission on November 14, 2006).10.21
            
            Standard
      Form of Director Indemnification Agreement (incorporated by reference from
      Exhibit 10.21 to the Annual Report on Form 10-KSB/A as filed with the
      Securities and Exchange Commission on April 30, 2007).10.22
            
            Agreement
      dated May 14, 2007 by and between the Company and Dr. Lance K. Gordon
      (incorporated by reference from Exhibit 10.1 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on May 17,
      2007).10.23
            
            Agreement
      dated August 14, 2007 by and between the Company and Dr. Robert J. Hariri
      (incorporated by reference from Exhibit 10.1 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on August 17,
      2007).10.24
            
            Office
      Lease dated October 25, 2007 by and between the Company and Bay Colony
      Executive Center-West, a division of BC Management Company, Inc.
      (incorporated by reference from Exhibit 10.1 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on October 30,
      2007).10.25
            
            Securities
      Purchase Agreement, dated as of January 3, 2008, by and among the Company,
      YA Global Investments, L.P., and ImmuneRegen BioSciences, Inc.
      (incorporated by reference from Exhibit 10.1 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on January 9,
      2008).10.26
            
            Guaranty
      Agreement dated as of January 3, 2008, executed by ImmuneRegen
      BioSciences, Inc. in favor of YA Global Investments, L.P.(incorporated by reference from
      Exhibit 10.2 to the Current Report on Form 8-K as filed with the
      Securities and Exchange Commission on January 9,
    2008).10.27
            
            Security Agreement
      dated as of January 3, 2008, by and among the Company, YA Global
      Investments, L.P. and ImmuneRegen BioSciences, Inc.(incorporated
      by reference from Exhibit 10.3 to the Current Report on Form 8-K as filed
      with the Securities and Exchange Commission on January 9,
      2008).




45
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Exhibit
      Number
              
              Description
      of Exhibit




10.28
            
            Patent
      Security Agreement dated as of January 3, 2008, by and among the Company,
      YA Global Investments, L.P. and ImmuneRegen BioSciences, Inc.
      (incorporated by reference from Exhibit 10.3 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on January 9,
      2008).10.29
            
            Unsecured
      12% Senior Promissory Note dated April 13, 2006 (incorporated by reference
      from Exhibit 10.1 to the Current Report on Form 8-K as filed with the
      Securities and Exchange Commission on April 19, 2006).10.30
            
            Unsecured
      12% Senior  Promissory Note dated July 25, 2006 in the amount of
      $250,000 (incorporated by reference from Exhibit 10.1 to the Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      August 4, 2006).10.31
            
            Unsecured
      12% Senior Promissory Note dated August 1, 2006 in the amount of $50,000
      (incorporated by reference from Exhibit 10.2 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on August 4,
      2006).10.32
            
            Unsecured
      12% Senior Promissory Note dated August 1, 2006 in the amount of $20,000
      (incorporated by reference from Exhibit 10.3 to the Current Report on Form
      8-K as filed with the Securities and Exchange Commission on August 4,
      2006).10.33
            
            Employment
      Agreement dated October 23, 2006 by and between the Company and Hal
      Siegel. (incorporated by reference from Exhibit 10.1 to the Current Report
      on Form 8-K as filed with the Securities and Exchange Commission on
      November 1, 2006).10.34
            
            Change
      of Control Agreement dated October 23, 2006 by and between the Company and
      Hal Siegel (incorporated by reference from Exhibit 10.2 to the Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      November 1, 2006).21.1
            
            Subsidiaries
      of Registrant (incorporated by reference to exhibit 21.1 of the
      Registrant's registration statement on Form SB-2 (File No. 333-120784)
      filed with the Securities and Exchange Commission on November 24,
      2004).23.1
            
            Consent
      of Independent Registered Public Accounting Firm31.1
            
            Certification
      of Chief Executive Officer pursuant to Item 601(b)(31) of Regulation S-B,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
            
            Certification
      of Chief Financial Officer pursuant to Item 601(b)(31) of Regulation S-B,
      as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
            
            Certifications
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.*32.2
            
            Certifications
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002.**
            
            This
      exhibit shall not be deemed "filed" for purposes of Section 18 of the
      Securities Exchange Act of 1934 or otherwise subject to the liabilities of
      that section, nor shall it be deemed incorporated by reference in any
      filing under the Securities Act of 1933 or the Securities Exchange Act of
      1934, whether made before or after the date hereof and irrespective of any
      general incorporation language in any
filings.







46
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ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table sets forth fees billed to us by our auditors during the fiscal
years ended December 31, 2007 and December 31, 2006 for: (i) services rendered
for the audit of our annual financial statements and the review of our quarterly
financial statements, (ii) services by our auditor that are reasonably related
to the performance of the audit or review of our financial statements and that
are not reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.





December
      31, 2007
            
            
            December
      31,
              2006(i)
      Audit Fees
            
            $
            68,050
            
            
            $
            58,856(ii)
      Audit Related Fees
            
            
            --
            
            
            
            --(iii)
      Tax Fees
            
            
            --
            
            
            
            --(iv)
      All Other Fees
            
            
            3,300
            
            
            
            4,795Total
      fees
            
            $
            71,350
            
            
            $
            63,651





AUDIT FEES. Consists of fees
billed for professional services rendered for the audit of the Company's
consolidated financial statements and review of the interim consolidated
financial statements included in quarterly reports and services that are
normally provided by the Company's certifying accountant in connection with
statutory and regulatory filings or engagements.





TAX FEES.Consists of all
services performed by the independent auditor’s tax personnel, except those
related to the audit of financial statements, and include tax compliance, tax
consulting, tax planning and non-recurring projects.





ALL OTHER FEES.Consists of
fees billed for professional services performed by the independent auditors
related to the review of and consent to the Company’s SB-2 registration
statement, and exhibits thereto.





POLICY
ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS





We
currently do not have a designated Audit Committee, and accordingly, our Board
of Directors' policy is to pre-approve all audit and permissible non-audit
services provided by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. Pre-approval
is generally provided for up to one year and any pre-approval is detailed as to
the particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to
periodically report to our Board of Directors regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis. Directors may also
pre-approve particular services on a case-by-case basis.













47
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SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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 March 31, 2008.






IR
      BIOSCIENCES HOLDINGS, INC.Date:
      March 31, 2008
            By:
            /s/
      Michael K.
      WilhelmMichael
      K. WilhelmPresident
      and Chief Executive Officer








48
 Table of Contents






In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.






SIGNATURE
            
            TITLE
            
            DATE/s/ Michael
      K.
      Wilhelm
              Michael
      K. Wilhelm
            
            Chief
      Executive Officer, President and Director (Principal Executive
      Officer)
            
            March 31,
      2008/s/
      John N.
      Fermanis
              John
      N. Fermanis
            
            Chief
      Financial Officer (Principal Financial and Accounting
    Officer)
            
            March
      31, 2008/s/ Theodore E.
      Staahl
              Theodore
      E. Staahl, M.D.
            
            Director
            
            March
      31, 2008/s/ Hal N.
      Siegel
              Hal
      N. Siegel, Ph.D.
            
            Director
            
            March
      31, 2008/s/ Lance
      K.
      Gordon
              Lance
      K. Gordon, Ph.D.
            
            Director
            
            March
      31, 2008/s/
      Robert J.
      Hariri
              Robert
      J. Hariri, M.D., Ph.D.
            
            Director
            
            March
      31, 2008





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