UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K









x
            Annual
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the fiscal year ended December
      31, 2008ORo
            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.)8777
      E. Via de Ventura, Suite 280,
      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)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes   ̈    No  þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  þ





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.    Yes  þ    No   ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
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-K
or any amendment to this Form 10-K.     ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “accelerated filer,” “large accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):





Large
accelerated filer   ̈    Accelerated
filer   ̈    Non-accelerated
filer   ̈    Smaller
reporting company  þ





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).    Yes   ̈    No  þ





The
aggregate market value of the registrant's issued and outstanding shares of
common stock held by non-affiliates of the Registrant as of June 30, 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 $8,809,048.





The
registrant had 13,097,525 shares of common stock, par value $0.001 per
share, outstanding as of March 24, 2009.





Documents
Incorporated by reference: The information required by Part III of Form 10-K
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-K/A, not later than the
end of the 120-day period.


Table of Contents





IRBIOSCIENCESHOLDINGS INC.


FORM
10-K


TABLE
OF CONTENTS




PagePART
      IItem
      1
                                    Description of Business
                                    4Item
      1A
                                    Risk Factors
                                    19Item
      1B
                                    Unresolved Staff Comments
                                    33Item
      2
                                    Description of Property
                                    33Item
      3
                                    Legal Proceedings
                                    33Item
      4
                                    Submission of Matters to a Vote of Security
      HoldersPART
      IIItem
      5
                                    Market for Registrant's Common Equity and Related Stockholder
      Matters and Issuer Purchases of Equity Securities
                                    34Item
      6
                                    Selected Consolidated Financial Data
                                    36Item
      7
                                    Management's Discussion and Analysis of Financial Condition and
      Results of Operation
                                    36Item
      7A
                                    Quantitative and Qualitative Disclosures About Market
      Risk
                                    41Item
      8
                                    Financial Statements and Supplementary Data
                                    F-1Item
      9
                                    Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure
                                    43Item
      9A
                                    Controls and Procedures
                                    43Item
      9B
                                    Other Information
                                    44PART
      IIIItem
      10
                                    Directors, Executive Officers and Corporate
      Governance
                                    45Item
      11
                                    Executive Compensation
                                    45Item
      12
                                    Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                                    45Item
      13
                                    Certain Relationships and Related Transactions, and Director
      Independence
                                    45Item
      14
                                    Principal Accountant Fees and Services
                                    45PART
      IVItem
      15
                                    Exhibits and Financial Statement Schedules
                                    46Signatures
                                    
                                    52Exhibit Index







Table of Contents


CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
 This
annual report on Form 10-K, including the sections entitled “Risk Factors,”
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and “Business,” contains forward-looking statements that involve
substantial risks and uncertainties. All statements other than statements of
historical facts contained in this annual report on Form 10-K, including
statements regarding our future financial position, business strategy and plans
and objectives of management for future operations, are forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as “believes,” “expects,” “anticipates,” “intends,”
“estimates,” “may,” “will,” “continue,” “should,” “plan,” “predict,” “potential”
or the negative of these terms or other similar expressions. We have based these
forward-looking statements on our current expectations and projections about
future events and financial trends that we believe may affect our financial
condition, results of operations, business strategy and financial needs. Our
actual results could differ materially from those anticipated in these
forward-looking statements, which are subject to a number of risks,
uncertainties and assumptions described in the “Risk Factors” section and
elsewhere in this Form 10-K, regarding, among other matters:
 
 ·
              our
      limited cash resources, lack of revenues and expectation to continue to
      incur substantial losses for the foreseeable
  future;
 
 ·
              the
      substantial doubt about our ability to continue as a going concern as
      raised by our independent auditors;
 
 ·
              our
      need for substantial additional
funding;
 
 ·
              adverse
      general economic and financial market
  conditions;
 
 ·
              our
      dependence on our potential drug candidate,
  Homspera;
 
 ·
              uncertainty
      as to if we will be successful, if ever, in developing a product and
      receiving regulatory approval;
 
 ·
              our
      ability to protect our proprietary technology and potential costs
      involved;
 
 ·
              our
      dependence on our officers and key
employees;
 
 ·
              our
      potential inability to repurchase our secured convertible
      notes;
 
 ·
              the
      conversion of our outstanding convertible notes would be dilutive and
      would adversely affect the market price of our common
    stock;
 
 ·
              the
      volatility of the price of our equity securities;
  and
 
 ·
              other
      factors referenced in this annual report on Form 10-K and other
      reports.
 
 You
should not rely upon forward-looking statements as predictions of future events.
We cannot assure you that the events and circumstances reflected in the
forward-looking statements will be achieved or occur. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assume responsibility
for the accuracy and completeness of the forward-looking statements. Except as
required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason after the date of this Form 10-K to
conform these statements to actual results or to changes in our
expectations.
 
 You
should read this annual report on Form 10-K, and the documents that we reference
in this Form 10-K and have filed as exhibits with the Securities and Exchange
Commission, completely and with the understanding that our actual future
results, levels of activity, performance and achievements may materially differ
from what we expect. We qualify all of our forward-looking statements by these
cautionary statements.
 
 ADDITIONAL
INFORMATION
 
 We are
required to file annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read our SEC filings over the Internet
at the SEC’s Web site at http://www.sec.gov. You may also read and copy any
document we file with the SEC at its public reference facilities at 100 F
Street, N.E. Washington, DC 20549. You may also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at
100 F Street, N.E., Washington, DC 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
facilities.
 
 We
maintain a corporate Web site at www.immuneregen.com. You may access our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports filed with, or furnished to,
the SEC pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934, as amended, with the SEC free of charge at our Web site as soon as
reasonably practicable after such material is electronically filed with, or
furnished to, the SEC. The reference to our Web address is provided for
informational purposes only and does not constitute incorporation by reference
of the information contained on this Web site.
  3
 Table of Contents
  PART
I
 
 When we
use the terms “IR BioSciences,” “we,” “us,” “our,” and “the company,” we mean IR
BioSciences Holdings, Inc. a Delaware corporation, and its subsidiaries. Our
principal subsidiary is our wholly-owned subsidiary, ImmuneRegen BioSciences,
Inc. (“ImmuneRegen”).
 ITEM1  DESCRIPTION
OF BUSINESS
 
 
 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
diseases 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. One aspect of this evaluation is
to consider the impact of Homspera on the mechanisms and pathology of fibrosis,
which is associated with scar formation, pulmonary injury and can occur
following exposure to ionizing radiation (gamma rays or x-rays).
 
 We are
researching Radilex for use as a potential treatment for acute exposure to
radiation. We believe that a commercial market may exist for the use of Radilex
as it relates to the amelioration of certain side effects of cancer treatments,
whether chemotherapy or radiotherapy. Further, we believe that Radilex, if
developed, may be an acceptable candidate to be marketed to governmental
agencies for procurement into the Strategic National Stockpile for potential use
following radiological or nuclear threats.
 
 We are
researching Viprovex for potential use in treatments of exposure to biological
agents, such as infectious diseases, which include influenza and anthrax. 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. We believe that
Viprovex, if adequately developed, may be used in potential applications for
sale to governments for the treatment of exposure to anthrax and pandemic
influenza. In addition, 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 for either prophylactic protection, such as influenza, or
therapy, such as cancer.  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 (PIND 63,255) and the other for the potential use of Viprovex
in the treatment of avian influenza (PIND 73,709). We have evaluated and/or
contracted with a number of FDA regulatory consultants 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 approximately
eight issued patents, including two issued U.S. patents and six issued foreign
patents, one of which has been registered in nine countries in the European
Union. We also have approximately 64 pending patent applications, including
approximately 17 pending U.S. utility patent applications, 1 pending U.S.
provisional application, 6 pending international patent applications, and
approximately 40 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 in humans and
may never receive regulatory approval. Neither Homspera, Radilex nor Viprovex
have been tested in 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,
neither 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 and
related substances. 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 replacing 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. Homspera 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 less prone to
degradation.
 
 5
 Table of Contents
  Applications
 
 Through
our wholly-owned subsidiary ImmuneRegen BioSciences, Inc., we are engaged in the
research and development of the potential drug candidate Homspera and its
derivatives, Radilex and Viprovex. We believe that studies indicate that
activities of Homspera may potentially be open to commercialization in areas
such as human stem cell stimulation, immune stimulation and anti-infective
activity, vaccine adjuvancy, and wound healing. Our goals include developing
these potential drug candidates to meet the commercial need for beneficial
effects in conditions such as radiation therapy, influenza, anthrax and
potentially other microbial ailments as well as in wound healing and as cancer
chemo- and/or radiotherapy co-treatments, and also to be used as possible
countermeasures for related homeland security threats including radiological,
chemical and biological agents.
 
 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 the 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 FDA, one for the potential
use of Radilex in the treatment of acute radiation syndrome (PIND 63,255) and
the other for the potential use of Viprovex in the treatment of avian influenza
(PIND 73,709). The table below illustrates our current product candidates and
their current stages of development within the FDA approval
process.
 
 Product
      Candidate
                  Discovery
                  Pre-Clinical
                  Advanced
      Pre-Clinical
                  IND
                  Phase
      I
                  Phase
      II
                  Phase
      IIIHomsperaImmune/Stem
      Cell Stimulant
                  X
                  X
                  XWound
      Healing
                  X
                  X
                  XRadilexRadiation
      Damage
                  X
                  XViprovexInfectious
      Disease
                  X
                  XVaccine
      Adjuvant
                  XChemical
      Agents
                  X
 
 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."
 
 HOMSPERA®
 
 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 of the test
animals, as well as had a positive effect on the animals’ immune systems.
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.
 
 6
 Table of Contents
  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 exposure, dividing stem cells can suffer damage to
their DNA and propagate that damage to their daughter cells, rendering them
useless.  Resting stem cells are less prone to the mutations observed
in dividing stem cells as they have more time to repair their DNA using built-in
molecular repair systems.
 
 We have
conducted 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 the Homspera 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 HSCs
to differentiate into blood-cell precursors.  Study findings showed
that Homspera stimulated adult HSCs 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, such 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 the survival of animals
infected with influenza and co-treated with high dose Tamiflu® (Oseltamivir,
Roche).  Tamiflu (oseltamivir phosphate) is an oral anti-viral drug
for the treatment of uncomplicated influenza and for the prevention of influenza
in adults and children aged one year and older. Approved in over 80 countries,
it is the centerpiece of many governments’ plans for treating potential pandemic
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 diseases 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 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 mobilizing adult stem cells from bone
marrow and accelerating wound healing, thus suggesting that Homspera may be a
wound healing therapeutic.
 
 In
addition to cell culture studies, ImmuneRegen has sponsored an in vivo wound
healing study using a porcine model of full-thickness, surgically-induced wound
healing.  Briefly, this study involved two Yorkshire pigs that were
mechanically-wounded and each separate wound was treated immediately following
wounding and every five days thereafter until the study’s end with either
Homspera or with a control only containing the solvent used to dissolve the
Homspera.  A full thickness wound involves the surface layer of skin
(dermis) as well as the underlying tissue (epidermis).
 
 The three
phases of full thickness wound repair consist of: inflammatory, proliferative
(sometimes called granulation), and remodeling.  The inflammatory
phase begins within minutes of the injury and lasts approximately 3 days. During
this phase, blood vessels constrict and platelets gather to stop bleeding and
form clots. The exudation of serum and white blood cells into damaged tissues
results in localized redness, edema, and warmth.  The proliferative
phase begins with the appearance of new blood vessels and lasts from 3 to 24
days. During this phase, the vascular bed re-establishes, the area is filled
with replacement granulation tissue, fibroblasts and collagen, wound contraction
occurs, and the surface is repaired (epithelialization). The final stage of
healing, the remodeling phase, may take more than a year depending on the depth
and extent of the wound. During this phase, the collagen scar continues to
reorganize and gain strength.
 7
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  The
studies indicated that the wounds receiving the highest dose of Homspera had
healed more quickly.  A reduction in
wound size was observed over the time period of days 7-24 after the wound
compared to controls, representing an acceleration of the proliferative (or
granulation) phase of wound healing. Wounds treated with Homspera were observed
in the study to close two days sooner (26 vs. 28 days) relative to controls in
one of the treated animals and 1.5 days sooner (22.5 vs. 24) relative to
controls in the other treated animal.  Additional animal studies are
being pursued to further elucidate the results observed in this experiment, as
well as additional mechanistic information.
 
 Our
co-development relationships with BioCure, 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 that available 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 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. Further, we believe that
Radilex, if developed, could be an acceptable candidate to be marketed to
governmental agencies for national distribution in the event of a significant
nuclear or radiological threat.
 
 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 damages 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 the levels of white blood cells in the blood 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 irradiated 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 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. Further, we believe that Radilex, if developed, may be an acceptable
candidate to be marketed to governmental agencies for procurement.
 
 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 diseases,
including influenza and anthrax. We are also researching the efficacy of
Viprovex as a potential treatment for exposure to chemical agents.
 
 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.
 
 8
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  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. In one study performed in rodents, results 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.  Additional animal studies have appear to corroborate this
vaccine adjuvant activity of Viprovex, as results continued to suggest Viprovex
enhances the host immune response to the vaccine administered in parallel with
Viprovex.
 
 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 that is used by the chemical
industry, is a solution of formaldehyde gas dissolved in water.  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 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. In
addition, 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.
 
 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 experienced 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.
 
 Macrophages
and neutrophils circulate in the blood and survey the body for foreign
substances. When they find foreign antigens, such as viruses, they engulf and
destroy them.  Neutrophils are inflammatory cells and are the most
common white blood cell type.  Alveolar macrophanges and neutrophils
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 a 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 levels 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 the lungs and, more
noticeably, in the 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 therapeutic 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.
 
 Vaccine
Adjuvant
 
 Vaccine
adjuvants are chemicals, traditionally co-administered with vaccines, which are
designed not to stimulate an immune response when administered on their own but,
rather improve the immune response to other, co-administered
antigens.  Vaccine adjuvants are not antigens on their own. Currently,
the only FDA-approved adjuvant is alum. Alum is the generic name for aluminum
salts, generally aluminum hydroxide and aluminum phosphate, which were first
used as adjuvants in 1926. Adjuvants in development generally consist of
derivatives of nucleic acids or lipids that most typically would be found within
invading micro-organisms, alone or in combination.  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.
 9
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  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 against Spanish flu or avian
flu and challenged by exposure to highly pathogenic Spanish or avian flu viruses
at concentrations that ordinarily would be lethal to the mice. The
Viprovex-adjuvanted vaccine resulted in an approximate 300% increase of
influenza virus antibody levels in animals evaluated for Spanish-flu proteins
and roughly a 50% increase in animals evaluated for Avian flu
proteins.  This adjuvant activity correlated with the animals’
enhanced survival after intranasal challenge with highly pathogenic avian (H5N1)
influenza, because while no unimmunized animals survived challenge, 33% of the
Spanish flu-vaccinated animals survived challenge, while 100% of Spanish
flu-vaccinated mice that received Viprovex survived.
 
 Studies
sponsored by us have also shown enhanced immune responses to antigens
co-administered subcutaneously with Viprovex. This adjuvant activity on
co-administration is the more typical route for currently administered
adjuvants, which are included in vaccines and are administered with a single,
usually intramuscular, injection. These findings suggest additional mechanisms
may be invoked by Viprovex, perhaps including direct, receptor-mediated
stimulation of the antigen-presenting cells of the immune system. A combination
of increasing immune cell number and directly enhancing immune cell activity
could underlie Viprovex’s effectiveness as a vaccine adjuvant.
 
 Additional
studies conducted with Viprovex in cell culture have shown an increased immune
response to vaccine components, as the 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. When VaxGen
ceased actively developing this product (rPA102) in 2007, we began discussions
with alternative manufacturers of anthrax vaccine candidates. We believe such
materials can be acquired for testing with Viprovex although in light of ongoing
studies and uncertainties in governmental procurement activities for an anthrax
treatment, we have not made this a Company priority.
 
 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.
 
 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.
  10
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  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 inhibiting
effect of jet fuel inhalation on the immune system, while administration of
antagonists to Substance P increased the inhibiting effect on the immune system.
Further experiments performed using Viprovex examined Viprovex’s effectiveness
in preventing lung injury caused by 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 $1,291,710 and
$541,589 in 2008 and 2007, respectively, in research and development activities
related to the development of Homspera, Radilex and Viprovex. From our inception
in October 2002, we have spent $2,859,896 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 fiscal 2009 we will decrease our research and development
spending to a total of approximately $500,000 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 above this level.
 
 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 2010. 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, 2008, 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.
  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
treatment 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.
 
 11
 Table of Contents
  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.
 
 Presentations
 
 In August
of 2007, Dr. Siegel, our Director and Vice President 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.
 
 In
September 2008, Dr. Siegel accompanied one of our Program Managers to the 2008
Public Health Emergency Medical and Countermeasures Enterprise Stakeholder’s
Workshop (PHEMCE) and BARDA Industry Day in Arlington, Virginia for a 3-day
workshop and presentations. We displayed a poster showing the effects of our
compound on human hematopoietic stem cells in vitro and demonstrated in animal
studies that the recovery from ionizing radiation was accompanied by increases
in circulating neutrophils, the mechanism by which management believes the
lethal effects of radiation are blunted by Radilex treatment. Additionally, a
number of partnering discussions and potential relationships resulted from
contacts made initially at this PHEMCE workshop.
 
 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, BioCure, MDx
Bioanalytical, ULURU, DelSite Biotechnologies, Nelson Laboratories, U.K. Health
Protection Agency, CARE, Dow Pharmaceutical Sciences, GE Healthcare, VaxDesign,
Mayo Clinic, IITRI, MD Biosciences, Epitomics, GenPhar, University of Texas
Southwestern, and the Translational Genomics Research Institute (TGen) Center
for Translational Drug Development (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 a wound healing treatment using Homspera
with BioCure's proprietary spray-on hydrogel drug-delivery
technology.
 
 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.
 
 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.
 
 12
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  Advisory Boards and
Consultants
 
 We
currently contract four outside consultants related to the research and
development, including quality and regulatory affairs, of our potential
products.
 
 Consultants
 
 We
currently contract four 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 is 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.
 
 Dr. Donna Hartzfeld, Ph.D.,
Founder, Quality Implementation Services, Inc. Quality Implementation Services,
Inc. has designed proactive strategies to assist companies in reaching
successful regulatory milestones in their drug and device approval process. Dr.
Hartzfeld has over 18 years of Quality and Laboratory compliance experience in
pharmaceutical, medical device, biotech, combination products, biologics and
dietary supplements industries. She has launched a small pharmaceutical cGMP
manufacturing facility, incorporating a comprehensive quality management
infrastructure and built a fully functional analytical quality control
laboratory. The facility successfully passed its first Pre-Approval Inspection
(PAI) in less than four years from conception with no FDA observations. She has
academic teaching experience at the university level and has applied her
academic teaching skills to industrial training and to the development of
innovative, educational materials to accompany inter-active training sessions.
She currently serves on the Advisory Board of a life science project and
document software management company in Phoenix, Arizona, and has been a member
of various professional associations such as the Regulatory Affairs Professional
Society, the Drug Information Association, the American Society for Quality and
the Society of Quality Assurance.
 
 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.
 
 Dr. Ivan Rich, Ph.D., CEO and
founder of HemoGenix, a biotechnology company focused on the development of 21st
century stem cell assays.
 
 Spencer A. Brown, Ph.D.,
Assistant Professor and Director of Research for the Department of Plastic
Surgery, University of Texas Southwestern.
 
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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 have engaged in ongoing
product development activities through Dow Pharma that are designed to obtain
stable formulations for specific modes of administration.  We have
engaged Dow Pharma to develop stable formulations of Homspera for different
modes of administration. The first targeted application is a gel formulation for
wound healing studies. 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 have only purchased research quantities of the drug, 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.
 
 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 approximately
eight issued patents, including two issued U.S. patents and six issued foreign
patents, one of which has been registered in nine countries in the European
Union. We also have approximately 64 pending patent applications, including
approximately 17 pending U.S. utility patent applications, 1 pending U.S.
provisional application, 6 pending international patent applications, and
approximately 40 pending foreign patent applications. All inventions
embodied in these applications and issued patents have been assigned to the
company by the inventors.
  14
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  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.
 
 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.
 
 15
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  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
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.
 
 On April 15, 2008, Homspera became our
federally registered trademark (Registration Number 3,411,933) 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.
 
 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.
 
 16
 Table of Contents
  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.
  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.
 
 17
 Table of Contents
  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.
 
 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.
 
 18
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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.
 
 COMPETITION
 
 The
biotechnology and pharmaceutical industries are intensely competitive. We have
numerous competitors in the United States and elsewhere. Because we are pursuing
potentially large markets, our competitors include major multinational
pharmaceutical companies, specialized biotechnology firms and universities and
other research institutions. Several of these entities have already successfully
marketed and commercialized products that will compete with our products,
assuming that our products gain regulatory approval. Competitors such as Amgen
Inc. 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
 
 As of
December 31, 2008 we had ten full-time 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., Vice-President and Chief
Scientific Officer; three scientific program managers; one finance
department employee; and three administrative personnel.
 
 From our
inception through the period ended December 31, 2008, we have relied on the
services of outside consultants for services.
 
 None of
our employees are covered by collective bargaining agreements, and we believe
our relations with our employees are favorable.
 
 In the
first quarter of 2009 we made significant staff reductions, eliminating two
employees from the science department, one from the finance department and two
administrative personnel.  We currently have five full-time total
employees: Michael K. Wilhelm, our Chief Executive Officer; John N. Fermanis,
our Chief Financial Officer; Hal N. Siegel, Ph.D., Vice-President and Chief
Scientific Officer; one scientific program manager; and, one administrative
personnel. We do not anticipate our employment base will significantly
change during the next twelve months.
 ITEM1A. RISK
FACTORS
  You
should carefully consider the risks described below together with all of the
other information included in this report before making an investment
decision. The risks described below are the material risks that we are
currently aware of that are facing our company. In addition, other sections
of this report may include additional factors that could adversely impact our
business and operating results. If any of the following risks actually
occurs, our business, financial condition or results of operations could be
materially adversely affected. In that case, the trading price of our
common stock would decline and you may lose all or part of your
investment.
 
 19
 Table of Contents
  Risks Related To Our
Financial Results and Need for Additional Financing
 
 We
have incurred losses since inception, have limited cash resources and anticipate
that we will continue to incur substantial losses for the foreseeable future. We
might never achieve or maintain profitability.
 
 We have a
limited operating history and have not yet commercialized any products or
generated any product revenues.  We have always experienced negative
cash flow and expect to continue to incur significant and increasing negative
cash flow and operating losses.
 
 As of
December 31, 2008, we had an accumulated deficit of $24,556,491. We have
incurred losses in each year since our inception in October 2002. Our net losses
were $5,807,353 in 2008 and $5,463,958 in 2007. These losses resulted
principally from costs incurred in our research and development programs and
from our general and administrative expenses. As of December 31, 2008, we had
working capital of $1,017,318. This amount consists of cash and cash equivalents
of $3,158,226 and prepaid services and other current assets of $222,018, less
accounts payable and accrued liabilities of $862,926 and current portion of
notes payable of $1,500,000.
 We expect
to continue to incur significant and increasing negative cash flow and operating
losses as we continue our research activities, conduct development of, and seek
regulatory approvals for our potential drug candidates. These losses, among
other things, have had and will continue to have an adverse effect on our
stockholders’ equity, total assets and working capital.
 
 We have
financed our operations and internal growth principally through the issuance of
equity securities and convertible debt instruments. We have devoted
substantially all of our efforts to research and development and we have not
completed development of any drugs. Because of the numerous risks and
uncertainties associated with drug development, we are unable to predict the
extent of any future losses, whether or when any of our product candidates will
become commercially available, or when we will become profitable, if at all.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis.
 
 If we are
unable to achieve and then maintain profitability, the market value of our
common stock will decline.
 
 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-K that we incurred a net loss and negative cash flows from
operations of $5,807,353 and $4,769,496, respectively, for the year ended
December 31, 2008. Our expectation that we will continue to incur net losses and
negative cash flow from operations and our lack of operational history, among
other matters, 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 our
auditor’s concerns regarding our ability to continue as a going concern could
materially and adversely affect our ability to raise capital, our relationship
with potential suppliers and customers, and have other unforeseen
effects.
 We will need
substantial additional funding and may be unable to raise capital when needed,
which would force us to delay, reduce or eliminate our product development
programs andif
we cannot raise needed additional capital in the future, we will be required to
cease operations.
 
 We expect
to incur significant expenses for our research and development programs and our
general and administrative expenses. We will need substantial additional funding
and may be unable to raise capital when needed or on attractive terms,
particularly in the current economic environment. An inability to raise
necessary funds would force us to delay, reduce or eliminate our research and
development programs and if we cannot raise needed additional capital in the
future, we will be required to cease operations.
 
 We
believe that our existing cash and cash equivalents will be sufficient to enable
us to fund our operating expenses and capital expenditure requirements through
fiscal 2009. Our future capital requirements will depend on many factors,
including:
  •
              
              the
      scope and results of our research and development efforts and our
      preclinical development activities;
  •
              
              the
      timing of, and the costs involved in, preparing regulatory
      submissions;
  •
              
              the
      costs involved in preparing, filing, maintaining our patents, as well as,
      other patent-related costs,
  •
              
              the
      extent to which we acquire or invest in businesses, products and
      technologies; and,
  •
              
              our
      ability to establish collaborations and
  partnerships.
 
 Until
such time, if ever, as we can generate revenues, we expect to finance our cash
needs through public or private equity offerings, debt financings and corporate
collaboration and licensing arrangements. If we raise additional funds by
issuing equity securities, our stockholders may experience dilution. Debt
financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. Any debt
financing or additional equity that we raise may contain terms, such as
liquidation and other preferences, that are not favorable to us or our
stockholders. If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to relinquish valuable
rights to our technologies, research programs or product candidates or grant
licenses on terms that may not be favorable to us.
 
 20
 Table of Contents
  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 December 2009.
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.
 
 Our
business and results of operations may be negatively impacted by general
economic and financial market conditions and such conditions may exacerbate the
other risks that affect our business.
 
 The
world’s financial markets are currently experiencing significant turmoil,
resulting in reductions in available credit, constraints in access to capital,
extreme volatility in security prices, rating downgrades of investments and
reduced valuations of securities generally. These economic conditions have had,
and we expect will continue to have, an adverse impact on the
pharmaceutical and biotechnology industries. Our business depends on our ability
to raise substantial additional capital and to maintain and enter into new
collaborative research, development and commercialization agreements with
leading pharmaceutical and biotechnology companies. Current market conditions
could impair our ability to raise additional capital when needed for our
research and development programs, or on attractive terms. Recent economic
conditions may result in prospective collaborators electing to defer entering
into collaborative agreements with us or reduce the amount of discretionary
investment that prospective collaborators may have available to invest in our
business.
 
 We are
unable to predict the likely duration and severity of the current disruption in
financial markets and adverse economic conditions in the U.S. and abroad, but
the longer the duration the greater risks we face in operating our
business. There can be no assurance, therefore, that current economic
conditions or worsening economic conditions or a prolonged or recurring
recession will not have a significant adverse impact on our operating
results.
 
 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.
 
 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.
 
 If
our stock price is volatile, purchasers of our common stock could incur
substantial losses.
 
 Our stock
price is likely to be volatile. The stock market in general and the market for
biotechnology companies in particular have experienced extreme volatility that
has often been unrelated to the operating performance of particular companies,
particularly in recent months due to the turmoil in world financial markets. As
a result of this volatility, investors may not be able to sell their common
stock at or above the price at which they purchase it. The market price for our
common stock may be influenced by many factors, including:
  •
              
              results
      from pre-clinical studies of our potential product candidates or those of
      our competitors;
  •
              
              regulatory
      developments in the United States and foreign
  countries;
  •
              
              variations
      in our financial results or those of companies that are perceived to be
      similar to us;
  •
              
              changes
      in the structure of healthcare payment
systems;
  •
              
              market
      conditions in the pharmaceutical and biotechnology sectors and issuance of
      new or changed securities analysts’ reports or
      recommendations;
  •
              
              general
      economic, industry and market conditions;
and
  •
              
              the
      other factors described in this “Risk Factors”
  section.
 
 21
 Table of Contents
  Risks
Related to Development of Product Candidates
 
 All
our potential 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.
 
 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 (NDA),
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.
 
 If
we do not obtain government regulatory approval for our products, we cannot
commercialize our products, we will not generate revenues and our business would
be materially harmed.
 
 Our
principal development efforts are currently centered on Homspera, and
derivatives thereof, Radilex and Viprovex. All drug candidates require FDA
and/or 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.
 
 We
depend on the success of our potential drug product candidate, Homspera, and its
derivates Radilex and Viprovex, which are still under development.  If
we are unable to commercialize any of these product candidates, or experience
significant delays in doing so, our business will be materially
harmed.
 
 We have
invested a significant portion of our efforts and financial resources in the
development of Homspera, and its derivates Radilex and Viprovex, for human stem
cell stimulation, immune system stimulation and anti-infective activity, vaccine
adjuvancy, and wound healing.  Our ability to generate product
revenues, which we do not expect in any case will occur for at least the next
several years, will depend heavily on the successful development and
commercialization of these product candidates. The commercial success of these
product candidates will depend on several factors, including the
following:
  •
              
              successful
      completion of pre-clinical and clinical
trials;
  •
              
              receipt
      of marketing approvals from the FDA and similar foreign regulatory
      authorities;
  •
              
              establishing
      commercial manufacturing arrangements with third-party
      manufacturers;
  •
              
              launching
      commercial sales of the product, whether alone or in collaboration with
      others; and
  •
              
              acceptance
      of the product in the medical community and with third-party
      payors.
 
 If we are
not successful in commercializing Homspera, Radilex or Viprovex, our business
will be materially harmed. Our efforts to commercialize Homspera, and its
derivates Radilex and Viprovex, are at an early stage.  To date we have
conducted limited pre-clinical studies of our potential drug candidates using
various small animal models. 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.
 
 Our
current potential drug candidates, 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 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 Radilex, Viprovex or any other potential products derived from
Homspera. Even if large animal or human testing is permitted, none of Radilex,
Viprovex or any other potential drug candidate, if any, derived from Homspera
may be successfully developed or shown to be safe or effective.
 
 22
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  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.
 
 We
will not be able to commercialize our product candidates if our preclinical
studies do not produce successful results or our clinical trials do not
demonstrate safety and efficacy in humans.
 
 Before
obtaining regulatory approval for the sale of our product candidates, we must
conduct, at our own expense, extensive preclinical tests and clinical trials to
demonstrate the safety and efficacy in humans of our product candidates.
Preclinical and clinical testing is expensive, difficult to design and
implement, can take many years to complete and is uncertain as to outcome.
Success in preclinical testing and early clinical trials does not ensure that
later clinical trials will be successful, and interim results of a clinical
trial do not necessarily predict final results. A failure of one or more of our
clinical trials can occur at any stage of testing. We may experience numerous
unforeseen events during, or as a result of, preclinical testing and the
clinical trial process that could delay or prevent our ability to receive
regulatory approval or commercialize our product candidates,
including:
  •
              
              regulators
      or institutional review boards may not authorize us to commence a clinical
      trial or conduct a clinical trial at a prospective trial
    site;
  •
              
              our
      preclinical tests or clinical trials may produce negative or inconclusive
      results, and we may decide, or regulators may require us, to conduct
      additional preclinical testing or clinical trials or we may abandon
      projects that we expect to be
promising;
  •
              
              enrollment
      in our clinical trials, if any, may be slower than we currently
      anticipate, resulting in significant
delays;
  •
              
              we
      might have to suspend or terminate our clinical trials, if any, if the
      participating patients are being exposed to unacceptable health
      risks;
  •
              
              regulators
      or institutional review boards may require that we hold, suspend or
      terminate clinical research for various reasons, including noncompliance
      with regulatory requirements;
  •
              
              the
      cost of our clinical trials, if any, may be greater than we currently
      anticipate;
  •
              
              any
      regulatory approval we ultimately obtain may be limited or subject to
      restrictions or post-approval commitments that render the product not
      commercially viable; and
  •
              
              the
      effects of our product candidates may not be the desired effects or may
      include undesirable side effects or the product candidates may have other
      unexpected characteristics.
 
 If we are
required to conduct additional clinical trials or other testing of our product
candidates beyond those that we currently contemplate, if we are unable to
successfully complete our clinical trials or other testing or if the results of
these trials or tests are not positive or are only modestly positive, we
may:
  •
              
              be
      delayed in obtaining marketing approval for our product
      candidates;
  •
              
              not
      be able to obtain marketing approval;
or
  •
              
              obtain
      approval for indications that are not as broad as
  intended.
 
 Our
product development costs will also increase if we experience delays in testing
or approvals. Significant clinical trial delays also could allow our competitors
to bring products to market before we do and impair our ability to commercialize
our products or product candidates.
 
 23
 Table of Contents
  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.
 
 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 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. The FDA also may not consider any of Homspera, Radilex or
Viprovex to be an appropriate candidate for acceptance as Emergency Use
Authorization for Promising Medical Countermeasures Under Development,
accelerated approval, expedited review or fast track designation.
 
 24
 Table of Contents
  Risks
Related to Our Dependence on Third Parties for Manufacturing,
 Research
and Development and Marketing and Distribution Activities
 
 If
third parties do not manufacture our product candidates in sufficient quantities
and at an acceptable cost, clinical development and commercialization of our
product candidates could be delayed, prevented or impaired.
 
 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 do not
currently own or operate manufacturing facilities and have little experience in
manufacturing pharmaceutical products. We rely and expect to continue to rely on
third parties for the production of clinical and commercial quantities of our
product candidates. There are a limited number of manufacturers that operate
under the FDA’s cGMP regulations and that are both capable of manufacturing for
us and willing to do so. We do not have any long-term manufacturing agreements
with third parties, and manufacturers under our short-term supply agreements are
not obligated to accept any purchase orders we may submit. Our current and
anticipated future dependence upon others for the manufacture of our product
candidates may adversely affect our future profit margins and our ability to
develop product candidates and commercialize any products that receive
regulatory approval on a timely and competitive basis. In particular, if the
third parties that are currently manufacturing Homspera for our preclinical
studies should cease to continue to do so for any reason, we expect that we
would experience delays in advancing these studies while we identify and qualify
replacement suppliers.
 
 Use
of third-party manufacturers may increase the risk that we will not have
adequate supplies of our product candidates.
 
 Reliance
on third-party manufacturers entails risks to which we would not be subject if
we manufactured product candidates or products ourselves,
including:
  •
              
              reliance
      on the third party for regulatory compliance and quality
      assurance;
  •
              
              the
      possible breach of the manufacturing agreement by the third party;
      and
  •
              
              the
      possible termination or nonrenewal of the agreement by the third party,
      based on its own business priorities, at a time that is costly or
      inconvenient for us.
  If we are
not able to obtain adequate supplies of our product candidates and any approved
products, it will be more difficult for us to develop our product candidates and
compete effectively. Our product candidates and any products that we
successfully develop may compete with product candidates and products of third
parties for access to manufacturing facilities.
 
 Our
contract manufacturers are subject to ongoing, periodic, unannounced inspection
by the FDA and corresponding state and foreign agencies or their designees to
ensure strict compliance with cGMP regulations and other governmental
regulations and corresponding foreign standards. We cannot be certain that our
present or future manufacturers will be able to comply with cGMP regulations and
other FDA regulatory requirements or similar regulatory requirements outside the
United States. We do not control compliance by our contract manufacturers with
these regulations and standards. Failure of our third-party manufacturers or us
to comply with applicable regulations could result in sanctions being imposed on
us, including fines, injunctions, civil penalties, failure of regulatory
authorities to grant marketing approval of our product candidates, delays,
suspension or withdrawal of approvals, license revocation, seizures or recalls
of product candidates or products, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect supplies of
our product candidates and products.
 
 If
third parties on whom we rely on for our research and development activities and
pre-clinical studies do not perform as contractually required or as we expect or
fail to comply with all applicable regulatory requirements, we may not be able
to obtain regulatory approval for or commercialize our product candidates, and
our business may suffer.
 
 We do not
have the ability to independently conduct the research and development
activities and pre-clinical studies required for regulatory submissions and
eventual regulatory approval for our products. We depend on independent clinical
investigators, contract research organizations and other third-party service
providers to conduct the clinical trials of our product candidates and expect to
continue to do so for at least the next several years.
 
 We rely
heavily on independent clinical investigators, contract research organizations
and other third-party service providers for successful execution of our
pre-clinical studies, but do not control many aspects of their activities. We
are responsible for ensuring that each of our studies, and clinical trials, if
any, is conducted in accordance with the general investigational plan and
protocols for the study. Moreover, the FDA requires us to comply with standards,
commonly referred to as Good Clinical Practices, for conducting and recording
and reporting the results of clinical trials, if any, to assure that data and
reported results are credible and accurate and that the rights, integrity and
confidentiality of trial participants are protected. The FDA closely monitors
the progress of clinical trials that are conducted in the U.S., and the FDA
significantly expands the federal government’s clinical trial registry to cover
more trials and more information, including information on the results of
completed trials. Our reliance on third parties that we do not control does not
relieve us of these responsibilities and requirements. Third parties may not
complete activities on schedule, or may not conduct our clinical trials in
accordance with regulatory requirements or our stated protocols. The failure of
these third parties to carry out their obligations could delay or prevent the
development, approval and commercialization of our product
candidates.
 
 25
 Table of Contents
  Risks
Related to Our Intellectual Property
 
 If
we are unable to obtain and maintain protection for the intellectual property
relating to our technology and products, the value of our technology and
products will be adversely affected.
 
 Our
success will depend in large part on our ability to obtain and maintain
protection in the United States and other countries for the intellectual
property covering or incorporated into our technology and products. The patent
situation in the field of biotechnology and pharmaceuticals generally is highly
uncertain and involves complex legal and scientific questions. We may not be
able to obtain additional issued patents relating to our technology or products.
Even if issued, patents may be challenged, narrowed, invalidated or
circumvented, which could limit our ability to stop competitors from marketing
similar products or limit the length of term of patent protection we may have
for our products. Changes in either patent laws or in interpretations of patent
laws in the United States and other countries may diminish the value of our
intellectual property or narrow the scope of our patent protection.
 
 Our
patents also may not afford us protection against competitors with similar
technology. Because patent applications in the United States and many foreign
jurisdictions are typically not published until 18 months after filing, or in
some cases not at all, and because publications of discoveries in the scientific
literature often lag behind actual discoveries, neither we nor our licensors can
be certain that we or they were the first to make the inventions claimed in
issued patents or pending patent applications, or that we or they were the first
to file for protection of the inventions set forth in these patent
applications.
 
 We have
filed patent applications directed to various methods of using and compositions
comprising Substance P analogues.  We presently own approximately
eight issued patents, including two issued U.S. patents and six issued foreign
patents, one of which has been registered in nine countries in the European
Union. We also have approximately 64 pending patent applications, including
approximately 17 pending U.S. utility patent applications, 1 pending U.S.
provisional application, 6 pending international patent applications, and
approximately 40 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.
 
 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 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.
 
 26
 Table of Contents
  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.
 
 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.
 
 If
we are unable to protect the confidentiality of our proprietary information and
know-how, the value of our technology and products could be adversely
affected.
 
 In
addition to patented technology, we rely upon unpatented proprietary technology,
processes and know-how. We seek to protect this information in part by
confidentiality agreements with our employees, consultants and third parties.
These agreements may be breached, and we may not have adequate remedies for any
such breach. In addition, our trade secrets may otherwise become known or be
independently developed by competitors. If we are unable to protect the
confidentiality of our proprietary information and know-how, competitors may be
able to use this information to develop products that compete with our products,
which could adversely impact our business.
 
 If
we infringe or are alleged to infringe intellectual property rights of third
parties, it will adversely affect our business.
 
 Our
research, development and commercialization activities, as well as any product
candidates or products resulting from these activities, may infringe or be
claimed to infringe upon patents or patent applications under which we do not
hold licenses or other rights. Third parties may own or control these patents
and patent applications in the United States and abroad. These third parties
could bring claims against us or our collaborators that would cause us to incur
substantial expenses and, if successful against us, could cause us to pay
substantial damages. Further, if a patent infringement suit were brought against
us or our collaborators, we or they could be forced to stop or delay research,
development, manufacturing or sales of the product or product candidate that is
the subject of the suit.
 
 As a
result of patent infringement claims, or in order to avoid potential claims, we
or our collaborators may choose or be required to seek a license from the third
party and be required to pay license fees or royalties or both. These licenses
may not be available on acceptable terms, or at all. Even if we or our
collaborators were able to obtain a license, the rights may be nonexclusive,
which could result in our competitors gaining access to the same intellectual
property. Ultimately, we could be prevented from commercializing a product, or
be forced to cease some aspect of our business operations, if, as a result of
actual or threatened patent infringement claims, we or our collaborators are
unable to enter into licenses on acceptable terms. This could harm our business
significantly.
  There has
been substantial litigation and other proceedings regarding patent and other
intellectual property rights in the pharmaceutical and biotechnology industries.
In addition to infringement claims against us, we may become a party to other
patent litigation and other proceedings, including interference proceedings
declared by the United States Patent and Trademark Office and opposition
proceedings in the European Patent Office, regarding intellectual property
rights with respect to our products and technology. The cost to us of any patent
litigation or other proceeding, even if resolved in our favor, could be
substantial. Some of our competitors may be able to sustain the costs of such
litigation or proceedings more effectively than we can because of their
substantially greater financial resources. Uncertainties resulting from the
initiation and continuation of patent litigation or other proceedings could have
a material adverse effect on our ability to compete in the marketplace. Patent
litigation and other proceedings may also absorb significant management
time.
 
 27
 Table of Contents
  Risks
Related to Regulatory Approval of Our Product Candidates
 
 If
we are not able to obtain required regulatory approvals, we will not be able to
commercialize our product candidates, and our ability to generate revenue will
be materially impaired.
 
 Our
product candidates and the activities associated with their development and
commercialization, including their testing, manufacture, safety, efficacy,
recordkeeping, labeling, storage, approval, advertising, promotion, sale and
distribution, are subject to comprehensive regulation by the FDA and other
regulatory agencies in the United States and by comparable authorities in other
countries. Failure to obtain regulatory approval for a product candidate will
prevent us from commercializing the product candidate. We have not received
regulatory approval to market any of our product candidates in any jurisdiction.
We have only limited experience in filing and prosecuting the applications
necessary to gain regulatory approvals and expect to rely on third-party
contract research organizations to assist us in this process. Securing FDA
approval requires, among other things, the submission of extensive preclinical
and clinical data, information about product manufacturing processes and
supporting information to the FDA for each therapeutic indication and inspection
of facilities to establish the product candidate’s safety and efficacy. Our
future products may not be effective, may be only moderately effective or may
prove to have undesirable or unintended side effects, toxicities or other
characteristics that may preclude our obtaining regulatory approval or prevent
or limit commercial use.
 
 The
process of obtaining regulatory approvals is expensive, often takes many years,
if approval is obtained at all, and can vary substantially based upon the type,
complexity and novelty of the product candidates involved. Changes in the
regulatory approval policy during the development period, changes in or the
enactment of additional statutes or regulations, or changes in regulatory review
for each submitted product application, may delay or prevent regulatory approval
of an application. The FDA has substantial discretion in the approval process
and may refuse to accept any application or may decide that our data are
insufficient for approval and require additional preclinical, clinical or other
studies. In addition, varying interpretations of the data obtained from
preclinical and clinical testing or negative, inconsistent or inconclusive
results obtained from preclinical or clinical trials could delay, limit or
prevent regulatory approval of a product candidate.
 
 Our
products could be subject to restrictions or withdrawal from the market and we
may be subject to penalties if we fail to comply with regulatory requirements,
or if we experience unanticipated problems with our products, when and if any of
them are approved.
 
 Any
product for which we obtain marketing approval, along with the manufacturing
processes, post-approval clinical data, labeling, advertising and promotional
activities for such product, will be subject to continual requirements of and
review by the FDA and other regulatory bodies. These requirements include, among
other things, submissions of safety and other post-marketing information and
reports, registration requirements, cGMP requirements relating to quality
control, quality assurance and corresponding maintenance of records and
documents, and requirements regarding the distribution of samples to physicians
and recordkeeping. Even if regulatory approval of a product is granted, the
approval may be subject to limitations on the indicated uses for which the
product may be marketed or to the conditions of approval, or contain
requirements for costly post-marketing testing and surveillance to monitor the
safety or efficacy of the product. Later discovery of previously unknown
problems with our products, manufacturers or manufacturing processes, or failure
to comply with regulatory requirements, may result in:
  •
              
              restrictions
      on such products, manufacturers or manufacturing
  processes;
  •
              
              warning
      letters;
  •
              
              withdrawal
      of the products from the market;
  •
              
              refusal
      to approve pending applications or supplements to approved applications
      that we submit;
  •
              
              required
      labeling changes;
  •
              
              required
      post-marketing studies or clinical
trials;
  •
              
              distribution
      and use restrictions;
  •
              
              voluntary
      recall;
  •
              
              fines;
  •
              
              suspension
      or withdrawal of regulatory
approvals;
  •
              
              refusal
      to permit the import or export of our
products;
  •
              
              product
      seizure; and
  •
              
              injunctions
      or the imposition of civil or criminal
  penalties.
 
 28
 Table of Contents
  Failure
to obtain regulatory approval in international jurisdictions would prevent us
from marketing our products abroad.
 
 We intend
to market our products, if approved, outside the United States. In order to
market our products in the European Union and other foreign jurisdictions, we
must obtain separate regulatory approvals and comply with numerous and varying
regulatory requirements. With respect to some of our product candidates, our
collaborator has, or we expect that a future collaborator will have,
responsibility to obtain regulatory approvals outside the United States, and we
will depend on our collaborators to obtain these approvals. The approval
procedure varies among countries and can involve additional testing and
additional review periods. The time required to obtain approval may differ from
and may be longer than that required to obtain FDA approval. The foreign
regulatory approval process may include all of the risks associated with
obtaining FDA approval as well as additional risks. We may not obtain foreign
regulatory approvals on a timely basis, if at all. Approval by the FDA does not
ensure approval by regulatory authorities in other countries or jurisdictions,
and approval by one foreign regulatory authority does not ensure approval by
regulatory authorities in other foreign countries or jurisdictions or by the
FDA, but a failure or delay in obtaining regulatory approval in one country may
negatively impact the regulatory process in others. We and our collaborators may
not be able to file for regulatory approvals and may not receive necessary
approvals to commercialize our products in any market.
  Risks
Related to Commercialization
 
 The
commercial success of any products that we may develop will depend upon the
degree of market acceptance by physicians, patients, healthcare payors and
others in the medical community.
 
 Any
products that we bring to the market may not gain market acceptance by
physicians, patients, healthcare payors and others in the medical community. If
these products do not achieve an adequate level of acceptance, we may not
generate material product revenues and we may not become profitable. The degree
of market acceptance of our product candidates, if approved for commercial sale,
will depend on a number of factors, including:
  •
              
              the
      prevalence and severity of any side
effects;
  •
              
              the
      efficacy and potential advantages over alternative
    treatments;
  •
              
              the
      ability to offer our product candidates for sale at competitive
      prices;
  •
              
              relative
      convenience and ease of
administration;
  •
              
              the
      willingness of the target patient population to try new therapies and of
      physicians to prescribe these
therapies;
  •
              
              the
      strength of marketing and distribution support;
  and
  •
              
              sufficient
      third-party coverage or
reimbursement.
 
 If
we are unable to establish sales and marketing capabilities or enter into
agreements with third parties to market and sell our product candidates, we may
be unable to generate product revenues.
 
 We do not have a sales organization and
have no experience in the sale, marketing or distribution of pharmaceutical
products. To achieve commercial success for any approved product, we must either
develop a sales and marketing organization or outsource these functions to third
parties. Currently, we plan to build a focused specialty sales and marketing
infrastructure to market or copromote some of our product candidates if and when
they are approved. There are risks involved with establishing our own sales and
marketing capabilities, as well as in entering into arrangements with third
parties to perform these services. For example, developing a sales force is
expensive and time-consuming and could delay any product launch. If the
commercial launch of a product candidate for which we recruit a sales force and
establish marketing capabilities is delayed as a result of FDA requirements or
other reasons, we would incur related expenses too early relative to the product
launch. This may be costly, and our investment would be lost if we cannot retain
our sales and marketing personnel. In addition, marketing and promotion
arrangements in the pharmaceutical industry are heavily regulated, and many
marketing and promotional practices that are common in other industries are
prohibited or restricted. These restrictions are often ambiguous and subject to
conflicting interpretations, but carry severe administrative, civil, and
criminal penalties for noncompliance. It may be costly to implement internal
controls to facilitate compliance by our sales and marketing
personnel.
 
 If
we are unable to obtain adequate reimbursement from third-party payors for any
products that we may develop or acceptable prices for those products, our
revenues and prospects for profitability will suffer.
 
 Most
patients will rely on Medicare and Medicaid, private health insurers and other
third-party payors to pay for their medical needs, including any drugs we or our
collaborators may market. If third-party payors do not provide adequate coverage
or reimbursement for any products that we may develop, our revenues and
prospects for profitability will suffer.
 
 Regulatory
approval to market a drug product does not assure that the product will be
eligible for coverage by third-party payors or, assuming it is covered, that it
will receive a profitable price. The process for obtaining third-party coverage
and payment is costly and time-consuming. We may need to conduct expensive
pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our
products. Our products may not be considered medically necessary or cost-
effective. Adequate third-party reimbursement may not be available to enable us
to maintain price levels sufficient to realize an appropriate return on our
investment in product development.
 
 29
 Table of Contents
  Coverage
through the Medicare prescription drug benefit program may increase demand for
our products, but participating suppliers are required to negotiate prices with
drug procurement organizations on behalf of Medicare beneficiaries. These prices
are likely to be lower than we might otherwise obtain. Future legislation might
allow government agencies to negotiate prices directly with drug companies,
which could lead to even lower prices. Drugs sold to state-operated Medicaid
programs are subject to mandatory rebate agreements that require quarterly
payments to states based on the drug’s average manufacturer price and best
price. Private, non-governmental third-party payors frequently base their
coverage policies and the prices they are willing to pay on the policies and
payment rates under the Medicare and Medicaid programs.
 
 A primary
trend in the United States healthcare industry is toward cost containment.
Third-party payors are challenging the prices charged for medical products and
services, and many third-party payors limit reimbursement for newly-approved
healthcare products. In particular, third-party payors may limit the indications
for which they will reimburse patients who use any products that we may develop.
Cost control initiatives could decrease the price we might establish for
products that we may develop, which would result in lower product revenues to
us.
 
 U.S. drug
prices may be further constrained by possible Congressional action regarding
drug reimportation into the United States. Legislation proposed in past
Congressional sessions would allow the reimportation of approved drugs
originally manufactured in the United States back into the United States from
other countries where the drugs are sold at a lower price. Some
governmental authorities in the U.S. are pursuing lawsuits to obtain
expanded reimportation authority. Such legislation, regulations, or judicial
decisions could reduce the prices we receive for any products that we may
develop, if approved, negatively affecting our revenues and prospects for
profitability. Alternatively, in response to legislation such as this, we might
elect not to seek approval for or market our products in foreign jurisdictions
in order to minimize the risk of reimportation, which could also reduce the
revenue we generate from our product sales. Even without legislation authorizing
reimportation, patients have been purchasing prescription drugs from Canadian
and other non-United States sources, which has reduced the price received by
pharmaceutical companies for their products.
 
 In
addition, in some foreign countries, particularly the countries of the European
Union, the pricing of prescription pharmaceuticals is subject to governmental
control. In these countries, pricing negotiations with governmental authorities
can take six to 12 months or longer after the receipt of regulatory marketing
approval for a product. To obtain reimbursement or pricing approval in some
countries, we may be required to conduct a clinical trial that compares the
cost-effectiveness of our product candidates or products to other available
therapies. The conduct of such a clinical trial could be expensive and result in
delays in commercialization of our products.
 
 If
product liability lawsuits are brought against us, we may incur substantial
liabilities and may be required to limit commercialization of any products that
we may develop.
 
 We face
an inherent risk of product liability exposure related to the testing of our
product candidates in human clinical trials, if any, and will face an even
greater risk if we commercially sell any products that we may develop. If we
cannot successfully defend ourselves against claims that our product candidates
or products caused injuries, we will incur substantial liabilities. Regardless
of merit or eventual outcome, liability claims may result in:
  •
              
              decreased
      demand for any product candidates or products that we may
      develop;
  •
              
              injury
      to our reputation;
  •
              
              withdrawal
      of clinical trial participants;
  •
              
              costs
      to defend the related litigation;
  •
              
              substantial
      monetary awards to trial participants or
  patients;
  •
              
              loss
      of revenue; and
  •
              
              the
      inability to commercialize any products that we may
    develop.
 
 We do not
have product liability insurance.  We intend to purchase insurance
coverage to include clinical trials and the sale of commercial products if we
obtain marketing approval for any products. Insurance coverage is increasingly
expensive. We may not be able to maintain insurance coverage at a reasonable
cost and we may not be able to obtain insurance coverage that will be adequate
to satisfy any liability that may arise. 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
face substantial competition which may result in others discovering, developing
or commercializing products before or more successfully than we do.
 
 The
development and commercialization of new drugs is highly competitive. We face
competition with respect to our current product candidates and any products we
may seek to develop or commercialize in the future from major pharmaceutical
companies, specialty pharmaceutical companies and biotechnology companies
worldwide. Our competitors may develop products that are more effective, safer,
more convenient or less costly than any that we are developing. Our competitors
may also obtain FDA or other regulatory approval for their products more rapidly
than we may obtain approval for ours. We believe that our most significant
competitors in the area of drugs that work by modulating the activity of ion
channels are large pharmaceutical companies which have internal ion channel drug
discovery groups as well as smaller more focused companies engaged in ion
channel drug discovery.
 
 There are
approved products on the market for all of the diseases and indications for
which we are developing products. In many cases, these products have well known
brand names, are distributed by large pharmaceutical companies with substantial
resources and have achieved widespread acceptance among physicians and patients.
In addition, we are aware of product candidates of third parties that are in
development, which, if approved, would compete against product candidates for
which we receive marketing approval.
 
 Many of
our competitors have significantly greater financial resources and expertise in
research and development, manufacturing, preclinical testing, conducting
clinical trials, obtaining regulatory approvals and marketing approved products
than we do. Smaller or early stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and
established companies. These third parties compete with us in recruiting and
retaining qualified scientific and management personnel, establishing clinical
trial sites and patient registration for clinical trials, as well as in
acquiring technologies complementary to or necessary for our programs or
advantageous to our business.
 
 30
 Table of Contents
  Our
business activities involve the use of hazardous materials, which require
compliance with environmental and occupational safety laws regulating the use of
such materials. If we violate these laws, we could be subject to significant
fines, liabilities or other adverse consequences.
 
 Our
research and development processes involve the controlled storage, use and
disposal of hazardous materials, biological hazardous materials and radioactive
compounds. Accordingly, we are subject to federal, state and local laws
governing the use, handling and disposal of these materials. Although we believe
that our safety procedures for handling and disposing of these materials comply
in all material respects with the standards prescribed by state and federal
regulations, we cannot completely eliminate the risk of accidental contamination
or injury from these materials. In addition, our collaborators may not comply
with these laws. In the event of an accident or failure to comply with
environmental laws, we could be held liable for damages that result, and any
such liability could exceed our assets and resources. Current or future
environmental laws or regulations may have a material adverse effect on our
operations, business and assets.
  Risks
Related to Employees and Growth
 
 If
we fail to attract and keep senior management and key scientific personnel, we
may be unable to successfully develop or commercialize our product
candidates.
 
 Our
success depends on our continued ability to attract, retain and motivate highly
qualified managerial and key scientific personnel. We consider retaining Mr.
Michael K. Wilhelm, our president and chief executive officer, and Dr. Hal N.
Siegel, our vice president and director of our science department, to be key to
our efforts to develop and commercialize our product candidates. All of our
employees are at-will employees and can terminate their employment at any time.
We currently maintain a key-man insurance policy on Mr. Wilhelm and Dr. Siegel
for $1,000,000 and $250,000 respectively, payable to the company, on their
lives. 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.
 
 There is
intense competition from other companies and research and academic institutions
for qualified personnel in the areas of our activities. If we cannot continue to
attract and retain, on acceptable terms, the qualified personnel necessary for
the continued development of our business, we may not be able to sustain our
operations or grow.
  Risks
Relating to Our Private Placements
 
 Mandatory
redemption of our convertible debentures could have a material adverse effect on
our liquidity and cash resources.
 
 If we are required to redeem all or any
portion of our outstanding convertible debentures, it may have a material
adverse effect on our liquidity and cash resources, and may impair our ability
to continue to operate. If we are required to repurchase all or a portion of the
debentures and do not have sufficient cash to make the repurchase, we may be
required to obtain third party financing to do so, and there can be no
assurances that we will be able to secure financing in a timely manner and on
favorable terms, which could have a material adverse effect on our financial
performance, results of operations and stock price. Furthermore, additional
equity financing may be dilutive to the holders of our common stock, and debt
financing, if available, may involve restrictive covenants, and strategic
relationships, if necessary to raise additional funds, may require that we
relinquish valuable rights.
 
 We
have pledged all of our assets, including our intellectual property, in our
subsidiaries as security for our outstanding secured convertible
debentures.
 
 Obligations
under our outstanding convertible debentures are guaranteed by our wholly-owned
subsidiary, ImmuneRegen, and secured by all of ImmuneRegen’s assets and
property, including its patents.  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 redeem or retire our convertible debentures upon maturity. Any
failure to redeem or retire the debentures 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.
 
 Conversion
of our outstanding convertible notes may adversely affect the market price of
our common stock and your rights in us may be reduced.
 
 We
currently have $8,268,889 in convertible debentures outstanding: $3,000,000 of
debentures are convertible at any time at the option of the holder into shares
of the common stock at a price equal to $1.50 per share (the “YA Global
Debentures”); $5,000,000 of debentures are convertible at any time at the option
of the holder into shares of the common stock at a price equal to $1.55 per
share; $68,889 of debentures are convertible at any time at the option of the
holder into shares of the common stock at a price equal to $0.56 per share; and,
$200,000 of debentures are convertible at any time at the option of the holder
into shares of the common stock at a price equal to $0.30 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 the YA Global Debentures, the conversion price of
the those 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 conversion of our outstanding convertible
debentures would have a dilutive effect on our future stockholders and could
result in an adverse effect on the market price of our common
stock.
 
 There
are restrictive covenants in our convertible debentures relating to our ability
to incur future indebtedness.
 
 Our
outstanding convertible debentures issued in August 2008 to three funds managed
by Brencourt Advisors, LLC (the “Brencourt Debentures”) limit our and
ImmuneRegen’s ability to incur indebtedness, other than certain types of
permitted indebtedness, without the vote of 67% of outstanding principal amount
of the Brencourt Debentures.  Additionally, the Brencourt Debentures
prohibit us and ImmuneRegen from entering into or creating any liens, other than
certain permitted liens, on our and ImmuneRegen’s assets or any income derived
from such assets without a vote of 67% of the outstanding principal of the
Brencourt Debentures.  Our principal source of liquidity has
historically been the sale of equity securities and debt
securities.  The holders of the Brencourt Debentures may not permit us
to incur additional indebtedness to fund our operations, which could cause a
material adverse effect on our business and results of operations.
 
 31
 Table of Contents
  General
Company Related Risks
 
 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 3,486,482 shares of common stock and
1,713,313 common stock purchase warrants have the right to register securities
for resale that they hold pursuant to registration rights agreements. We also
currently have $3 million in convertible debentures outstanding that are
convertible at any time at the option of the holder into shares of common stock
at a price equal to $1.50 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
these  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. We also have $5 million of 10% secured convertible
debentures due August 8, 2013 outstanding that are convertible at any time at
the option of the holder into shares of common stock at a price equal to $1.55
per share.  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.
 
 Additionally,
some of our stockholders 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 stockholder (or stockholders
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.
 
 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 FINRA OTC Bulletin
Board (the "OTCBB") under the symbol "IRBS". 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 NYSE Amex. 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.
 
 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.
 
 We
have never paid any dividends and we do not intend to pay dividends in the
foreseeable future.
 
 To date,
we have not declared or paid any cash dividends on our common stock and
currently intend to retain any future earnings for funding growth. We do
not anticipate paying any dividends in the foreseeable future. As a result,
you should not rely on an investment in our shares if you require dividend
income. Capital appreciation, if any, of our shares may be your sole source
of gain for the foreseeable future.
   32
 Table of Contents
 ITEM1B.  UNRESOLVED
STAFF COMMENTS
  Not
applicable to smaller reporting companies.
 ITEM2. DESCRIPTION
OF PROPERTY
 On
December 31, 2008 our corporate headquarters was located at 8767 E. Via de
Ventura, Suite 190, Scottsdale, Arizona 85258, where we leased
approximately 3,322 square feet of office space from November 1, 2007. Our
minimum monthly rent expense was $7,128 plus tax per month.
 
 On March
17, 2009 we agreed to an amendment to our two (2) year lease agreement with
Bay Colony Executive Center-West, a division of BC Management Company, Inc.,
effective April 1, 2009 to relocate our headquarters to a 1,943 square foot
suite within the Bay Colony Executive Center located at 8777 E. Via de Ventura,
Suite 280, Scottsdale, Arizona 85258 and extends our current lease obligation of
its office lease term to 48 months ending March 31, 2013.
 
 Our
minimum monthly rent expense under the amended lease is $3,400.25 plus tax per
month in the first year starting June 1, 2009 and will increase to $3,665.79
plus tax per month in the second year, $3,749.99 plus tax in the third year and
$3,845.52 plus tax in the fourth year.  In addition, as per the
amendment, we will be charged no rent for April and May 2009.  We are
also 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.  All other terms and
conditions of the original lease dated October 1, 2007, as filed on Form 8-K on
October 30, 2007, and all exhibits thereto shall remain in full force and
effect
 
 We
believe that our facilities are adequate for our current needs and suitable
additional space will be available in the future to replace existing facilities,
if necessary, or to 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 2008.
 
 
 33
 Table of Contents
 
 PART
II
  ITEM5. MARKET
FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
 Our
common stock is approved for quotation on the FINRA OTC Bulletin Board under the
symbol "IRBS". 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
                
                $
                0.95
                
                
                $
                0.202nd
      Quarter
                
                
                1.00
                
                
                
                0.603rd
      Quarter *
                
                
                1.18
                
                
                
                0.104th
      Quarter
                
                
                0.60
                
                
                
                0.082007High
                
                
                Low1st
      Quarter
                
                $
                1.70
                
                
                $
                1.202nd
      Quarter
                
                
                2.10
                
                
                
                1.203rd
      Quarter
                
                
                2.30
                
                
                
                1.404th
      Quarter
                
                
                1.60
                
                
                
                0.70
 ____
 
 *  On
July 10, 2008, we effected a 1-for-10 reverse stock split of our common stock
and simultaneously reduced our total authorized shares of common stock to
100,000,000
 
 On March
24, 2009 the closing price of our common stock as reported by the OTC Bulletin
Board was $0.03 per share. There were approximately 568 stockholders of record
of our common stock as of March 24, 2009. 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
 
 Sale ofConvertible
Debentures
 
 Purchase
Agreement with YA Global Investments, L.P.
 
 On
January 3, 2008, the Company entered into a securities purchase agreement with
YA Global Investments, L.P. (“YA Global”), pursuant to which YA Global 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 (the “YA
Global Debentures”) and (ii) warrants to acquire up to 7,500,000 additional
shares (pre 1-for-10 reverse stock split) of our common stock (the “YA Global
Warrants”) (the “Financing”). The initial closing of the Financing occurred on
January 3, 2008, at which time the Company sold to YA Global $2 million of the
YA Global Debentures and the YA Global Warrants. On June 12, 2008 the Company
sold an additional $1 million of the YA Global Debentures to YA Global pursuant
to the securities purchase agreement.  The $2 million secured
convertible debentures dated January 3, 2008 mature on December 31, 2010 and the
$1 million secured convertible debentures dated June 12, 2008 mature on May 31,
2011, unless extended by the holder. Obligations under the YA Global Debentures
are guaranteed by ImmuneRegen BioSciences, Inc. (“ImmuneRegen”).  On
August 8, 2008, the Company and YA Global amended the terms of the YA Global
Debentures to increase the annual interest rate of the bonds from 8% to 10% and
to adjust the conversion price to $1.50 per share.  Additionally,
under the amended debentures, YA Global may elect on or after December 31, 2009
to have the Company redeem up to $1.5 million of the YA Global Debentures as
well as the payment of a redemption premium of 20% of the principal amount
redeemed.  Additionally, on August 8, 2008, the Company and YA Global
agreed to reduce the exercise price of the YA Warrants to $2.00 and to reduce
the shares issuable upon exercise of the warrant to 750,000 in accordance with
the Company’s 1-for-10 reverse stock split that occurred on July 10,
2008.  On August 8, 2008, the Company issued YA Global additional
warrants to purchase up to 750,000 shares of the Company’s common stock on or
before December 31, 2012 at an exercise price of $2.00 per share.  The
securities were issued in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 promulgated thereunder.
 
 34
 Table of Contents
  Purchase
Agreement with Funds Managed by Brencourt Advisors, LLC
 
 On August
8, 2008, the Company entered into a securities purchase agreement with certain
funds for which Brencourt Advisors, LLC is the investment manager (the
“Buyers”), pursuant to which the Buyers agreed to purchase from the Company (i)
up to $5 million of 10% subordinated secured convertible debentures (the
“Brencourt Debentures”), which are convertible into shares of the Company’s
common stock, par value $0.001 per share (the “Common Stock”) and (ii) warrants
to acquire up to 2,500,000 additional shares of Common Stock (the “Brencourt
Warrants”) (the “Brencourt Financing”).  The Brencourt Warrants are
exercisable at an exercise price, subject to adjustments, of $2.00 per share
after the six month and one day anniversary from the date of issuance and have a
term of exercise equal to five years.  To the extent not previously
exercised, the Brencourt Warrants will automatically be exercised via cashless
exercise on February 8, 2014.  The closing of the Brencourt Financing
occurred on August 8, 2008, at which time the Company sold to the Buyers $5
million of the Brencourt Debentures and the Brencourt Warrants.   The
securities were issued in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act and Rule 506 promulgated
thereunder.
 
 Convertible Debentures Sold
For Accrued Interest
 
 On
September 30, 2008, we sold a 0% interest convertible debenture to YA Global,
who is an accredited investor, per the terms of a securities purchase
agreement.  The debentures have a five year term of exercise and a
minimum conversion price of $0.30 per share (post-split) as payment of
$70,424.66 in interest accrued on the YA Global Debentures during the three
months ended September 30, 2008, net of a credit of $1,536.12 to adjust interest
payments that were made through June 30, 2008.  The securities were
issued in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act and Rule 506 promulgated thereunder.
 
 On
December 31, 2008, per the terms of the amended Securities Purchase Agreement
with YA Global Investments, L.P. the Company issued a 0% interest convertible
debenture with a five year term of exercise and a minimum conversion price of
$0.30 per share as payment of $75,000.00 in interest accrued during the three
months ended December 31, 2008.  The securities were issued in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act and Rule 506 promulgated thereunder.
 
 On
December 31, 2008, per the terms of the amended Securities Purchase Agreement
with Funds Managed by Brencourt Advisors, LLC the Company issued three 0%
interest convertible debenture with a five year term of exercise and a minimum
conversion price of $0.30 per share as payment of an aggregate of $125,000.00 in
interest accrued during the three months ended December 31, 2008.  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.
 
 Issuances of Restricted
Shares of Common Stock to Certain Funds Managed by Brencourt Advisors, LLC for
Prepayment of Interest
 
 In August
2008, the Company issued an aggregate of 222,847 shares of common stock to three
note holders, who are accredited investors, for prepayment of interest for the
for the period ended September 30, 2008 in the amount of $73,611. The securities
were issued in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act and Rule 506 promulgated thereunder.
 
 In August
2008, the Company issued an aggregate of 378,422 shares of common stock to three
note holders, who are accredited investors, for prepayment of interest for the
last quarter of the term of the notes in the amount of $125,000. The securities
were issued in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act and Rule 506 promulgated thereunder.
 
 Issuances of Restricted
Shares of Common Stock for Accrued Interest
 
 On April
3, 2008, the Company issued 39,500 restricted shares of common stock to YA
Global Investments, L.P., who is an accredited investor, for accrued interest
through March 31, 2008 of $19,276. The securities were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
and Rule 506 promulgated thereunder.
 
 On July
2, 2008 we issued 28,220 shares of common stock to YA Global Investments, L.P.
(“YA Global”), who is an accredited investor, for accrued interest on a $2
million convertible debenture through June 30, 2008 of $19,726. The securities
were issued in reliance upon exemptions from registration pursuant to Section
4(2) under the Securities Act and Rule 506 promulgated thereunder.
 
 On July
2, 2008 we issued 2,822 shares of common stock to YA Global, who is an
accredited investor, for accrued interest on a $1 million convertible debenture
through June 30, 2008 of $1,973. The securities were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
and Rule 506 promulgated thereunder.
 
 Issuances of Restricted
Shares of Common Stock for Consulting
 
 On
February 15, 2008, the Board of Directors approved of the issuance of 100,000
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
and Rule 506 promulgated thereunder.
 
 Also on
February 15, 2008, the Board of Directors approved of the issuance of 30,000
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 and Rule 506 promulgated
thereunder.
 
 35
 Table of Contents
  Issuance of Restricted
Common Shares to CEO
 
 In August
2008, per the term of his employment agreement, the Company agreed to issue
833,334 shares of common stock to Michael K. Wilhelm, the Company’s President
and Chief Executive Officer. These shares were not issued as of December 31,
2008 and the fair value of these shares of $250,000 has been recorded as common
stock subscribed at December 31, 2008.
 
 Issuance of Common Stock Due
to Rounding
 
 Due to
the rounding of shares from the 1-for-10 reverse stock split, the Company issued
126 common shares.
 
 Exercise of
Warrants
 
 In July
2008, the Company issued an aggregate of 30,000 shares of common stock at $0.375
per share for the exercise of warrants by five investors, who are all accredited
investors.  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.
 
 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.  SELECTED
CONSOLIDATED FINANCIAL  DATA
  Not
applicable to smaller reporting companies.
  ITEM7.  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
  The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited consolidated financial statements and
the related notes that are included in this Report.
 
 Some
of the statements contained in this “Management’s Discussion and Analysis of
Financial Condition and Results of Operation” and elsewhere in this Report are
forward-looking statements that involve substantial risks and uncertainties. All
statements other than historical facts contained in this report, including
statements regarding our future financial position, business strategy and plans
and objectives of management for future operations, are forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as “believes,” “expects,” “anticipates,” “intends,”
“estimates,” “may,” “will,” “continue,” “should,” “plan,” “predict,” “potential”
and other similar expressions. We have based these forward-looking statements on
our current expectations and projections about future events and financial
trends that we believe may affect our financial condition, results of
operations, business strategy and financial needs. Our actual results could
differ materially from those anticipated in these forward-looking statements,
which are subject to a number of risks, uncertainties and assumptions described
in the “Risk Factors” section and elsewhere in this report.
 
 Company
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 stockholders voted to increase the number of authorized shares of
Common Stock to 250,000,000.On August 1, 2008, the Company effected
a 1-for-10 reverse stock split of all of its issued and outstanding shares of
common stock and simultaneously reduced its authorized shares of common stock to
100,000,000; par value remained unchanged.  Accordingly, the number of
shares and per share amounts included in the consolidated financial statements
and the accompanying notes included in the F- section have been adjusted to
reflect the Reverse Stock Split retroactively.  Unless otherwise indicated, all
references to number of share, per share amounts and earnings per share
information contained in this report give effect to the 1-for-10 reverse stock
split.
 
 ImmuneRegen
BioSciences, Inc. was incorporated in October 2002; all information contained
herein refers to the operations of ImmuneRegen BioSciences, Inc., our
wholly-owned operational subsidiary.
 
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 Table of Contents
  RECENT
EVENTS
 
 Sale
of Debentures and Warrants to YA Global
 
 Pursuant
to a Securities Purchase Agreement dated January 3, 2008, we sold to YA Global
Investments, L.P. (“YA Global”) a Secured Convertible Debenture dated January 3,
2008 in the principal sum of $2 million and a Secured Convertible Debenture
dated June 12, 2008 in the principal sum of $1 million (collectively, the “YA
Global Debentures”).  In addition, we sold YA Global warrants to
purchase 7,500,000 shares of our common stock (pre 1-for-10 reverse stock split)
on January 3, 2008 pursuant to the Securities Purchase Agreement.  The
YA Global Debentures are convertible into shares of our common
stock.  The $2 million Secured Convertible Debentures dated January 3,
2008 matures on December 31, 2010 and the $1 million Secured Convertible
Debenture matures on May 31, 2011, unless extended by the holder. Obligations
under the YA Global Debentures are guaranteed by ImmuneRegen BioSciences, Inc.
(“ImmuneRegen”)  The Company’s obligations under the YA Global
Debentures are secured by (i) all of the assets and property of ImmuneRegen and
(ii) by patent collateral of the Company and ImmuneRegen.  On August
8, 2008, the Company and YA Global amended the terms of the YA Global Debentures
to increase the annual interest rate of the bonds from 8% to 10% and to adjust
the conversion price to $1.50 (the “Amended
Debentures”).  Additionally, under the Amended Debentures, YA Global
may elect on or after December 31, 2009 to have the Company redeem up to $1.5
million of the YA Global Debentures as well as the payment of a redemption
premium of 20% of the principal amount redeemed.
 
 On August
8, 2008, the Company and YA Global agreed to reduce the exercise price of the
warrants to $2.00 and to reduce the number of shares issuable upon exercise of
the warrants to 750,000 in accordance with the Company’s 1-for-10 reverse stock
split that occurred on August 1, 2008.  On August 8, 2008, the Company
issued YA Global additional warrants to purchase up to 750,000 shares of the
Company’s common stock on or before December 31, 2012 at an exercise price of
$2.00 per share.
 
 Reverse
Stock Split
 
 On June
25, 2008 at the Annual Meeting of Stockholders, the Company’s stockholders
approved an amendment to the Company’s Certificate of Incorporation for a 1 for
10 reverse stock split and a reduction in the number of authorized shares of
common stock to 100 million On July 10, 2008, the Company effected a 1-for-10
reverse stock split of its common stock and simultaneously reduced its
authorized shares of common stock to 100,000,000; par value remained unchanged.
In conjunction with the reverse split we issued 126 common shares due to
rounding.
 
 Sale
of Debentures and Warrants to Funds Managed by Brencourt Advisors
 
 On August
8, 2008, we sold an aggregate of $5 million of secured convertible debentures,
which are convertible into shares of our common stock, and warrants to purchase
up to 2.5 million shares of our common stock to three funds for which Brencourt
Advisors, LLC is the investment manager (the “Buyers”).  Obligations
under the convertible debentures are guaranteed by ImmuneRegen and are secured
by (i) all of the assets and property of ImmuneRegen and (ii) by patent
collateral of the Company and ImmuneRegen.  The security interests
granted to the Buyers are subject to and subordinated to the senior security
interests granted by the Company and ImmuneRegen to YA Global.  The
convertible debentures mature on August 8, 2013, unless extended by the holder,
and accrue interest at the rate of 10% per annum and are convertible at any time
at the option of the holder into shares of the our common stock at a price equal
to $1.55 per share.  At any time after the six-month anniversary of
the issuance of the debentures, the Company may redeem a portion or all amounts
outstanding under the debentures prior to August 8, 2013 provided that certain
conditions to redemption have been satisfied.
 
 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 the potential drug candidate HomsperaTM and its
derivatives, Radilex® and Viprovex®. We have discovered activities of
Homspera that may potentially open commercialization opportunities in areas such
as human stem cell stimulation, immune stimulation and anti-infective activity,
vaccine adjuvancy, and wound healing. Our goals include developing these
potential drug candidates to meet the commercial need for beneficial effects in
conditions such as radiation therapy, influenza, anthrax and potentially other
microbial ailments as well as in wound healing and as cancer chemo- and/or
radiotherapy co-treatments and also to be used as possible countermeasures for
related homeland security threats, including radiological, chemical and
biological agents. 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
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. One aspect of this evaluation is
to consider the impact of Homspera on the mechanisms and pathology of fibrosis,
which is associated with scar formation, pulmonary injury and can occur
following exposure to ionizing radiation.
 
 We are
researching Radilex for use as a potential treatment for acute exposure to
radiation. We believe that a commercial market may exist for the use of Radilex
as it relates to the amelioration of certain side effects of cancer treatments,
whether chemotherapy or radiotherapy. Further, we believe that Radilex, if
developed, may be an acceptable candidate to be marketed to governmental
agencies for procurement into the Strategic National Stockpile for potential use
following radiological or nuclear threats.
 
 37
 Table of Contents
  We are
researching Viprovex for potential use in treatments of exposure to biological
agents, such as infectious disease, which include influenza and anthrax. 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. We believe that
Viprovex, if adequately developed, can be used in potential applications for
sale to governments for the treatment of exposure to anthrax and pandemic
influenza. In addition, 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 (for either prophylactic protection, such as influenza, or
therapy, such as cancer).  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 (PIND 63,255) and the other for the potential use of Viprovex
in the treatment of avian influenza (PIND 73,709). We have evaluated and/or
contracted with a number of FDA regulatory consultants 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 eight issued
patents, including two issued U.S. patents and six issued foreign patents, one
of which has been registered in nine countries in the European Union. We also
have 64 pending patent applications, including 17 pending U.S. utility
patent applications, 1 pending U.S. provisional application, 6 pending
international patent applications, and 40 pending foreign patent
applications. All inventions embodied in these applications and issued
patents have been assigned to the Company by the inventors.
 
 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 operating losses for the foreseeable future, primarily due
to our continued research and development activities attributable to 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, 2008 and 2007 was
limited. We spent approximately $1,291,710 and $541,589 in 2008 and 2007,
respectively, in research and development activities related to the development
of Radilex and Viprovex. From our inception in October 2002 until December 31,
2008, we have spent $2,859,896 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 decrease our research and
development spending to a total of approximately $500,000 in an effort to
further develop 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 increase our research
and development spending above this level.
 
 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 2010. 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, 2008, 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.
 
 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.
 
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 Table of Contents
  OFF-BALANCE
SHEET ARRANGEMENTS
 
 There
were no off-balance sheet arrangements made in 2008.
 
 REVENUES
 
 We have
not generated any revenues from operations from our inception. We believe we
will begin earning revenues from operations during calendar year 2010 as we
transition from a development stage company.
 
 COSTS
AND EXPENSES
 
 From our
inception through December 31, 2008, we have incurred losses of $24,556,491.
These expenses were associated principally with equity-based compensation to
employees and consultants, product development costs and professional services,
interest expense and equity based compensation to stockholders for the penalty
incurred for the late registration of shares.
 
 For the
twelve months ending December 31, 2008, Sales, General and Administrative
expenses (“SG&A”) were $5,024,013, a decrease of $492,310 or approximately
9% compared to SG&A expenses of $5,516,323 during the 12 months ended
December 31, 2007. The year over year decrease was primarily due to a decrease
of $2,107,825 for the costs of non-cash compensation which was mostly offset by
higher payroll costs of $1,405,528, higher legal and accounting costs of
$914,134 and higher research and development costs of 1,291,710.
 
 For the
twelve months ending December 31, 2008, Interest Expense (net) was $603,965 an
increase of approximately 1,060% compared to Interest Income (net) of $62,909
during the 12 months ended December 31, 2007. Interest Expense increased during
2008 and we expect it to increase further during the coming twelve months as we
will accrue a full year of interest expenses on the convertible debentures we
issued in January, June and August of 2008.
 
 NET LOSS
 
 For the
reasons stated above, our net loss for the twelve months ending December 31,
2008 was $5,807,353 or $0.49 per share versus a net loss for the twelve months
ending December 31, 2007 of $5,463,958 or $0.48 per share. For the period of
inception (October 30, 2002) through December 31, 2008, our net loss was
$24,556,491, or $3.53 per share. We expect that losses will continue at least
through the year ending December 31, 2011.
 
 Our
independent certified public accountants have stated in their report included in
this Form 10-K that we have incurred a net loss and negative cash flows from
operations of $5,807,353 and $4,769,496, respectively, for the year ended
December 31, 2008. This loss, in addition to a lack of operational history,
raises substantial doubt about our ability to continue as a going concern. We
currently have sufficient working capital to fund operations through December
2009.  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 December, 2009. 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.
 LIQUIDITY
AND CAPITAL RESOURCES
 
 At
December 31, 2008, we had current assets of $3,380,244 consisting of cash and
cash equivalents of $3,158,226,  and prepaid assets and other current
assets of $222,018.  Also, at December 31, 2008, we had current
liabilities of $2,362,926, consisting of accounts payable and accrued
liabilities of $862,926 and notes payable of $1,500,000. This resulted in
working capital of $1,017,318. During the twelve months ended December 31, 2008,
we used cash in operating activities of $4,769,496. From the date of inception
(October 30, 2002) to December 31, 2008, we had a net loss of $24,556,491 and
used cash of $13,219,476 in operating activities. We met our cash requirements
from our inception (October 30, 2002) through December 31, 2008 via the private
placement of $7,889,151 of our common stock and $8,573,628 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.
 
 In July
2008, we received a total of $11,250 from the exercise of an aggregate of 30,000
common stock purchase warrants of common stock at $0.375 per share by five
investors.
 
 In
December 2006, we completed a private placement, whereby we sold an aggregate of
$5,482,600 worth of units, consisting of shares of common stock and warrants, 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, that we would file with the SEC an appropriate
registration statement to register these shares along with the shares underlying
the warrants. In the event that we failed to comply with the filing deadline,
there was 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 such a
time as a registration statement that includes these shares and warrants is
filed or 12 months. Because we complied with the filing deadline, as of December
31, 2008, we are not subject to any penalty.
 
 39
 Table of Contents
  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 2002 to December 31, 2008, we were
able to obtain financing of $17,557,526 from the private placements of our
securities (which resulted in net proceeds to us of $16,462,779). In January
2008 we sold $2 million in secured convertible debentures which resulted in net
proceeds to us of $1,815,000.  In June 2008 we sold an additional $1
million of the secured convertible debentures as per the terms of the securities
purchase agreement with YA Global Investments L.P. In August 2008 we sold $5
million in secured convertible debentures to a group of funds managed by
Brencourt Advisors LLP.  Based on our current plan of operations all
of our current funding is expected to be depleted by the end of December 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.
 
 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.
 
 During
fiscal year 2009, we will pay our Chief Executive Officer, Chief Financial
Officer and Chief Scientific Officer an aggregate of $746,000 pursuant to their
employment agreements.
 
 We
currently have $8,268,889 in notes payable, of which $1,500,000 is current and
payable on December 31, 2009.    An additional $1,500,000
matures on December 31, 2010 and the remaining balance of $5,268,889 will mature
in 2013 and beyond.
 
 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 capital to meet our operating needs
through December 2009. Thereafter, we believe that we will require an additional
$3,500,000 to meet our expenses over the next 12 months.
 
 Acquisition or Disposition
of Plant and Equipment
 
 We
acquired $19,648 worth of property, plant or equipment for the year ended
December 31, 2008.  We do not anticipate the acquisition or
disposition of any significant property, plant or equipment during the next 12
months.
 
 Number of
Employees
 
 As of
December 31, 2008 we had ten full-time 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., Vice-President and Chief
Scientific Officer; three scientific program managers; one finance
department employee; and three administrative personnel.
 
 From our
inception through the period ended December 31, 2008, we have relied on the
services of outside consultants for services.
 
 None of
our employees are covered by collective bargaining agreements, and we believe
our relations with our employees are favorable.
 
 In the
first quarter of 2009 we made significant staff reductions, eliminating two
employees from the science department, one from the finance department and two
administrative personnel.  We currently have five full-time total
employees: Michael K. Wilhelm, our Chief Executive Officer; John N. Fermanis,
our Chief Financial Officer; Hal N. Siegel, Ph.D., Vice-President and Chief
Scientific Officer; one scientific program manager; and, one administrative
personnel. We do not anticipate our employment base will significantly
change during the next twelve months.
 
 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:
 
 40
 Table of Contents
  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 Company’s 2003 Stock Option, Deferred Stock and
Restricted Stock Plan as of December 31, 2008, and changes during the period
ended are presented below:
 
 Options
                  
                  
                  Weighted Average
                    Exercise
      PriceOutstanding
      at December 31, 2007
                  
                  
                  1,601,421
                  
                  
                  $
                  2.92Issued
                  
                  
                  189,747
                  
                  
                  $
                  0.37Exercised
                  
                  
                  -
                  
                  
                  
                  -Forfeited
      or expired
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at December 31, 2008
                  
                  
                  1,791,168
                  
                  
                  $
                  2.65Non-vested
      at December 31, 2008
                  
                  
                  375
                  
                  
                  $
                  0.78Exercisable
      at December 31, 2008
                  
                  
                  1,790,793
                  
                  
                  $
                  2.65
 
 Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2008 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, 2008, and the exercise price multiplied by the number
of options outstanding. As of December 31, 2008, total unrecognized stock-based
compensation expense related to stock options was $244. During the year ended
December 31, 2008 the Company charged $89,768 to operations related to
recognized stock-based compensation expense for employees and directors stock
options.
 
 Recent Accounting
Pronouncements
 
 In June
2008, the FASB issued EITF Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”).
EITF 07-5 supersedes EITF Issue No. 01-6, The Meaning of ‘Indexed to a
Company’s Own Stock’, and provides guidance in evaluating whether certain
financial instruments or embedded features can be excluded from the scope of
SFAS No. 133, Accounting for
Derivatives and Hedging Activities (“SFAS 133”). EITF 07-5 sets forth a
two-step approach that evaluates an instrument’s contingent exercise and
settlement provisions for the purpose of determining whether such instruments
are indexed to an issuer’s own stock (a requirement necessary to comply with the
scope exception under SFAS 133). EITF 07-5 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. We are currently assessing the impact related to the
adoption of EITF 07-5 on our financial instruments.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(“SFAS
141(R)”), which replaces SFAS No. 141, Business Combinations, and
requires an acquirer to recognize the assets acquired, the liabilities assumed
and any non-controlling interest in the acquired company at the acquisition
date, measured at their fair values as of that date, with limited exceptions.
SFAS 141(R) also requires the acquirer in a business combination achieved in
stages to recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquired company, at the full amounts of their
fair values. SFAS 141(R) makes various other amendments to authoritative
literature intended to provide additional guidance or conform the guidance in
that literature to that provided in SFAS 141(R). SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The potential impact of adopting SFAS 141(R) will depend on
the magnitude and frequency of our future acquisitions.
 
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”), which amends Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, to improve the relevance, comparability and transparency of
the financial information that a reporting entity provides in its consolidated
financial statements. SFAS 160 establishes accounting and reporting standards
that require the ownership interests in subsidiaries not held by the parent to
be clearly identified, labeled and presented in the consolidated statement of
financial position within equity, but separate from the parent’s equity. SFAS
160 also requires the amount of consolidated net income attributable to the
parent and to the non-controlling interest to be clearly identified and
presented on the face of the consolidated statement of operations. Changes in a
parent’s ownership interest while the parent retains its controlling financial
interest must be accounted for consistently, and when a subsidiary is
deconsolidated, any retained non-controlling equity investment in the former
subsidiary must be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any
non-controlling equity investment. SFAS 160 also requires entities to provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 applies prospectively to all entities that prepare consolidated financial
statements and applies prospectively for all fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. We do not
believe that its adoption will have a significant impact on our consolidated
financial statements.
  In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. . We do not believe that
its adoption will have a significant impact on our consolidated financial
statements.
  ITEM7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
 
 Not
applicable to a smaller reporting company.
  41
 Table of Contents
 
 ITEM8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
  
 
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FINANCIAL
STATEMENTS AND SCHEDULES
 DECEMBER
31, 2008 AND 2007
 
  FORMING
A PART OF ANNUAL REPORT
 PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934
 
 IR BIOSCIENCES HOLDINGS,
INC.
 (a
development stage company)
 
  IR
BioSciences Holdings, Inc.
 Index
to Consolidated Financial Statements
 
 Page No.Report of Independent Registered Certified Public Accounting
      Firm
                  F-2Consolidated Balance Sheet at December 31, 2008 and
      2007
                  F-3Consolidated Statements of Losses for the years ended December
      31, 2008 and 2007 and the period October 30, 2002 (Date of Inception)
      through December 31, 2008
                  F-4Consolidated Statements of Stockholders' Equity (Deficit) For
      the period October 30, 2002 (Date of Inception) through December 31,
      2008
                  F-5Consolidated Statements of Cash Flows for the years ended
      December 31, 2008 and 2007 and the period October 30, 2002 (Date of
      Inception) through December 31, 2008
                  F-16Notes to Consolidated Financial Statements
                  F-18
 
 F-1
 Table of Contents
  REPORTOF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING
FIRM
 
 The Board
of Directors
 IR
BioSciences Holdings, Inc.
 Scottsdale,
Arizona
 
 We have
audited the accompanying balance sheets of IR BioSciences Holdings, Inc., a
development stage company, as of December 31, 2008 and 2007, and the related
statements of losses, statement of stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 2008 and the period October
30, 2002 (date of inception) through December 31, 2008. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on the financial statements based upon
our audits.
 
 We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatements. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of IR BioSciences Holdings, Inc., a
development stage company, at December 31, 2008 and 2007 and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2008 and the period October 30, 2002 (date of inception) through
December 31, 2008 in conformity with accounting principles generally accepted 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 1, the Company has a
generated negative cash outflows from operating activities, experienced
recurring net operating losses, and is dependent on securing additional equity
and debt financing to support its business efforts. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to this matter are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 
 /s/RBSM
LLP
 New York,
New
York                                                           RBSM
LLP
 March 31,
2009
 
 F-2
 Table of Contents
 
  IRBioSciences Holdings, Inc. and
Subsidiary(A
      Development Stage Company)Consolidated
      Balance SheetsAs
      of December 31, 2008 and 2007
  2008
                                  
                                  
                                  2007AssetsCurrent
      assetsCash
      and cash equivalents
                                  
                                  $
                                  3,158,226
                                  
                                  
                                  $
                                  221,120Prepaid
      services and other current assets (Note 1)
                                  
                                  
                                  222,018
                                  
                                  
                                  
                                  86,716Total
      current assets
                                  
                                  
                                  3,380,244
                                  
                                  
                                  
                                  307,836Deposits
      (Note 1)
                                  
                                  
                                  7,378
                                  
                                  
                                  
                                  7,128Furniture
      and equipment, net of accumulated depreciation of $75,480 and $58,908,
      respectively  (Note 2)
                                  
                                  
                                  41,347
                                  
                                  
                                  
                                  38,271Total
      assets
                                  
                                  $
                                  3,428,969
                                  
                                  
                                  $
                                  353,235Liabilities
      and Stockholders' Equity (Deficit)Current
      liabilitiesAccounts
      payable and accrued liabilities (Note 3)
                                  
                                  
                                  862,926
                                  
                                  
                                  
                                  932,609Current
      portion of Notes Payable (Note 5)
                                  
                                  
                                  1,500,000
                                  
                                  
                                  
                                  -Total
      current liabilities
                                  
                                  
                                  2,362,926
                                  
                                  
                                  
                                  932,609Notes
      payable, net of discount of $1,474,937 and $0,
      respectively  (Note 5)
                                  
                                  
                                  5,293,952
                                  
                                  
                                  
                                  -Total
      liabilities
                                  
                                  
                                  7,656,878
                                  
                                  
                                  
                                  932,609Commitments
      and Contingencies  (Note 8)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Stockholders'
      DeficitPreferred
      stock, $0.001 par value: 10,000,000 shares authorized, no shares issued
      and outstanding
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock, $0.001 par value: 100,000,000 shares authorized; 12,264,191 shares
      (post reverse split) and11,432,254
      shares (post reverse split) issued and outstanding at December 31, 2008
      and December 31, 2007, respectively (Note 6)
                                  
                                  
                                  12,265
                                  
                                  
                                  
                                  11,432Additional
      paid-in capital
                                  
                                  
                                  20,066,317
                                  
                                  
                                  
                                  18,005,332Common
      stock subscribed (Note 6)
                                  
                                  
                                  250,000
                                  
                                  
                                  
                                  153,000Deficit
      accumulated during the development stage
                                  
                                  
                                  (24,556,491
                                  )
                                  
                                  
                                  (18,749,138
                                  )Total
      stockholder's deficit
                                  
                                  
                                  (4,227,909
                                  )
                                  
                                  
                                  (579,374
                                  )Total
      liabilities and stockholders' deficit
                                  
                                  $
                                  3,428,969
                                  
                                  
                                  $
                                  353,235
  
 
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
  F-3
 Table of Contents
  IRBioSciences Holdings, Inc. and
Subsidiary(A
      Development Stage Company)Consolidated
      Statements of LossesFor
      the years ended December 31, 2008 and 2007 and for theperiod
      of Inception (October 30, 2002) to December 31,
  2008
 
 For
      the Year Ended
                            December
      31,
                          
                          
                          For
      the Period October 30, 2002 to2008
                          
                          
                          2007
                          
                          
                          December
      31, 2008Revenues
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Operating
      expenses:Selling,
      general and administrative expenses
                          
                          $
                          5,024,013
                          
                          
                          $
                          5,516,323
                          
                          
                          $
                          21,109,954Merger
      fees and costs
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          350,000Impairment
      of intangible asset costs
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          6,393Total
      operating expenses
                          
                          
                          5,024,013
                          
                          
                          
                          5,516,323
                          
                          
                          
                          21,466,347Operating
      loss
                          
                          
                          (5,024,013
                          )
                          
                          
                          (5,516,323
                          )
                          
                          
                          (21,466,347
                          )Other
      expense:Cost
      of penalty for late registration of shares
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,192,160(Gain)
      loss from marking to market - warrant portionof penalty for late
      registration of shares
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (378,198
                          )(Gain)
      loss from marketing to market - stock portionof penalty for late
      registration of shares
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (760,058
                          )Financing
      cost
                          
                          
                          179,375
                          
                          
                          
                          -
                          
                          
                          
                          269,375Interest
      (income) expense, net
                          
                          
                          603,965
                          
                          
                          
                          (62,909
                          )
                          
                          
                          1,756,321Total
      other (income) expense
                          
                          
                          783,340
                          
                          
                          
                          (62,909
                          )
                          
                          
                          3,079,600Loss
      before income taxes
                          
                          
                          (5,807,353
                          )
                          
                          
                          (5,453,414
                          )
                          
                          
                          (24,545,947
                          )Provision
      for income taxes
                          
                          
                          -
                          
                          
                          
                          (10,544
                          )
                          
                          
                          (10,544
                          )Net
      loss
                          
                          $
                          (5,807,353
                          )
                          
                          $
                          (5,463,958
                          )
                          
                          
                          (24,556,491
                          )Net
      loss per share - basic and diluted
                          
                          $
                          (0.49
                          )
                          
                          $
                          (0.48
                          )
                          
                          $
                          (3.53
                          )Weighted
      average shares outstanding -basic and diluted
                          
                          
                          11,823,628
                          
                          
                          
                          11,422,194
                          
                          
                          
                          6,955,734
   The
accompanying notes are an integral part of these audited consolidated financial
statements.
  F-4
 Table of Contents
  IRBioSciences Holding, Inc. and Subsidiary(A
      Development Stage Company)Consolidated
      Statement of Stockholders' Equity (Deficit)From
      date of inception (October 30, 2002)  to December 31,
      2008
 
 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 $0.006 per share to founders for license of
      proprietary right in December 2002
                        
                        
                        1,661,228
                        
                        
                        
                        1,661
                        
                        
                        
                        7,589
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        9,250Shares
      of common stock issued at $0.006 per share to founders for services
      rendered in December 2002
                        
                        
                        140,531
                        
                        
                        
                        141
                        
                        
                        
                        641
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        782Shares
      of common stock issued at $1.671 per share to consultants for services
      rendered in December 2002
                        
                        
                        5,388
                        
                        
                        
                        5
                        
                        
                        
                        8,995
                        
                        
                        
                        (9,000
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -Sale
      of common stock for cash  at $1.671 per share in December
      2002
                        
                        
                        18,558
                        
                        
                        
                        19
                        
                        
                        
                        30,982
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        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)
                        
                        
                        1,825,704
                        
                        
                        $
                        1,826
                        
                        
                        $
                        48,207
                        
                        
                        $
                        (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
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
 
 Shares
      granted to consultants at $1.392 per share for services rendered in
      January 2003
                    
                    
                    9,878
                    
                    
                    
                    10
                    
                    
                    
                    13,740
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    13,750Sale
      of shares of common stock for cash at $1.517 per share in January
      2003
                    
                    
                    32,955
                    
                    
                    
                    33
                    
                    
                    
                    49,967
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    50,000Shares
      granted to consultants at $1.392 per share for services rendered in March
      2003
                    
                    
                    15,445
                    
                    
                    
                    15
                    
                    
                    
                    21,485
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    21,500Conversion
      of notes payable to common stock at $1.392 per share in April
      2003
                    
                    
                    143,674
                    
                    
                    
                    144
                    
                    
                    
                    199,856
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    200,000Shares
      granted to consultants at $1.413 per share for services rendered in April
      2003
                    
                    
                    1,437
                    
                    
                    
                    1
                    
                    
                    
                    2,029
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,030Sale
      of shares of common stock for cash at $2.784 per share in May
      2003
                    
                    
                    1,796
                    
                    
                    
                    2
                    
                    
                    
                    4,998
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,000Sales
      of shares of common stock for cash at $2.784 per share in June
      2003
                    
                    
                    3,592
                    
                    
                    
                    4
                    
                    
                    
                    9,996
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    10,000Conversion
      of notes payable to common stock at $1.392 per share in June
      2003
                    
                    
                    71,837
                    
                    
                    
                    72
                    
                    
                    
                    99,928
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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
                    
                    
                    236,813
                    
                    
                    
                    237
                    
                    
                    
                    (121,036
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (120,799
                    )Value
      of warrants issued with extended notes payable in October
    2003
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    189,937
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    189,937-Value
      of Company warrants issued in conjunction with fourth quarter notes
      payable issued October through December 2003
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    207,457
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    207,457Value
      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
                    
                    
                    2,343,130
                    
                    
                    $
                    2,343
                    
                    
                    $
                    1,056,529
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    (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
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
   Shares
      granted at $10.00 per share pursuant to the Senior Note Agreement in
      January 2004
                  
                  
                  60,000
                  
                  
                  
                  60
                  
                  
                  
                  599,940
                  
                  
                  
                  (600,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued at $10.00 per share to a consultant for services rendered in
      January 2004
                  
                  
                  80,000
                  
                  
                  
                  80
                  
                  
                  
                  799,920
                  
                  
                  
                  (800,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued to a consultant at $6.20 per share for services rendered in
      February 2004
                  
                  
                  4,000
                  
                  
                  
                  4
                  
                  
                  
                  24,796
                  
                  
                  
                  (24,800
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued to a consultant at $4.00 per share for services rendered in March
      2004
                  
                  
                  105,160
                  
                  
                  
                  105
                  
                  
                  
                  420,535
                  
                  
                  
                  (420,640
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued to a consultant at $5.00 per share for services rendered in March
      2004
                  
                  
                  50,000
                  
                  
                  
                  50
                  
                  
                  
                  249,950
                  
                  
                  
                  (250,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      sold for cash at $1.50 per share in March, 2004
                  
                  
                  800
                  
                  
                  
                  1
                  
                  
                  
                  1,199
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,200Shares
      issued at $5.00 per share to consultants for services rendered in March
      2004
                  
                  
                  2,000
                  
                  
                  
                  2
                  
                  
                  
                  9,998
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Shares
      issued to a consultant at  $4.00 per share for services rendered
      in March 2004
                  
                  
                  200
                  
                  
                  
                  0
                  
                  
                  
                  800
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  800Shares
      issued to consultants at $3.20 per share for services rendered in March
      2004
                  
                  
                  9,160
                  
                  
                  
                  9
                  
                  
                  
                  29,303
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  29,312Shares
      to be issued to consultant at $4.10 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
                  
                  
                  60,000
                  
                  
                  
                  60
                  
                  
                  
                  149,940
                  
                  
                  
                  (150,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued to officer at $3.20 per share for services rendered in
      April  2004
                  
                  
                  20,000
                  
                  
                  
                  20
                  
                  
                  
                  63,980
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  64,000Conversion
      of Note Payable to common stock at $1.00 per share in May
    2004
                  
                  
                  35,000
                  
                  
                  
                  35
                  
                  
                  
                  34,965
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  35,000
  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
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
  Beneficial
      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 $2.00 per share as a due diligence fee in May
      2004
                      
                      
                      12,500
                      
                      
                      
                      13
                      
                      
                      
                      24,988
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      25,00050,000
                      
                      
                      
                      50
                      
                      
                      
                      499,950
                      
                      
                      
                      (500,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Shares
      issued to a consultant at $10.00 per share for services to be rendered
      over twelve months beginning May 2004Beneficial
      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 $1.00 for services to be
      rendered through July 2005
                      
                      
                      25,000
                      
                      
                      
                      25
                      
                      
                      
                      24,975
                      
                      
                      
                      (25,000
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Shares
      issued to a consultant in July and September at $4.10 per share for
      services to be rendered through April 2005
                      
                      
                      20,000
                      
                      
                      
                      20
                      
                      
                      
                      81,980
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      82,000Shares
      issued to a consultant in September  at $1.20 to $2.20 for
      services rendered through September 2004
                      
                      
                      12,728
                      
                      
                      
                      13
                      
                      
                      
                      16,896
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      16,909Shares
      issued in July to September 2004 as interest on note
    payable
                      
                      
                      30,000
                      
                      
                      
                      30
                      
                      
                      
                      35,970
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      36,000Issuance
      of warrants with notes payable in July and August 2004
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      72,252
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      72,252
  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
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
   Accrued
      deferred compensation in August 2004 to a consultant for 10,000 shares at
      $1.00 per share, committed but unissued
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (10,000
                  )Shares
      issued in August 2004 at $1.40 to a consultant for services to be
      performed through October 2004
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  13,990
                  
                  
                  
                  (14,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Shares
      issued in August 2004 at $1.25 per share for conversion of $30,000 demand
      loan
                  
                  
                  24,000
                  
                  
                  
                  24
                  
                  
                  
                  29,976
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  30,000Shares
      issued in August 2004 at $1.60 per share to a consultant for services
      provided.
                  
                  
                  12,500
                  
                  
                  
                  13
                  
                  
                  
                  19,988
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000Shares
      issued to employees at $1.60 to $2.50 per share
                  
                  
                  4,880
                  
                  
                  
                  5
                  
                  
                  
                  8,379
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,384Commitment
      to issue 10,000 shares of stock to a consultant at $2.30 per share for
      services to be provided through September 2005
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23,000
                  )Sale
      of stock for cash in October at $1.25 per share, net of costs of
      $298,155
                  
                  
                  1,816,000
                  
                  
                  
                  1,816
                  
                  
                  
                  1,362,107
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  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
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  112,697
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  112,697Issuance
      of stock to investment bankers in October 2004 for commissions
      earned
                  
                  
                  490,000
                  
                  
                  
                  490
                  
                  
                  
                  (490
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Conversion
      of accounts payable to stock in October at $1.25 per share
                  
                  
                  125,775
                  
                  
                  
                  126
                  
                  
                  
                  108,514
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  108,640Value
      of warrants issued with accounts payable conversions
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  48,579
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  48,579Conversion
      of demand loan to stock in October at $1.10 per share
                  
                  
                  9,330
                  
                  
                  
                  9
                  
                  
                  
                  10,254
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,263Forgiveness
      of notes payable in October 2004
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36,785
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36,785
  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
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
  Issuance
      of stock to officer and director at $1.25 per share in October for
      conversion of liability
                    
                    
                    144,000
                    
                    
                    
                    144
                    
                    
                    
                    123,789
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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 $0.75 to $1.25 per
      share
                    
                    
                    670,315
                    
                    
                    
                    670
                    
                    
                    
                    423,547
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    424,217Value
      of warrants issued with conversion of debt
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    191,111
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    191,111Conversion
      of Note Payable of $5,000 plus accrued interest of $71
                    
                    
                    6,761
                    
                    
                    
                    7
                    
                    
                    
                    4,993
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,000Issuance
      of warrants to note holders in October 2004
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    112,562
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    112,562Value
      of shares issued to CFO as compensation
                    
                    
                    10,000
                    
                    
                    
                    10
                    
                    
                    
                    34,990
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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 in error to be cancelled
                    
                    
                    (900
                    )
                    
                    
                    (1
                    )
                    
                    
                    1
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    0Amortization
      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
                    
                    
                    6,242,339
                    
                    
                    $
                    6,242
                    
                    
                    $
                    7,979,124
                    
                    
                    $
                    (169,986
                    )
                    
                    $
                    -
                    
                    
                    $
                    (7,208,027
                    )
                    
                    $
                    607,353
  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
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
  Sale
      of shares of common stock for cash at $2.00 per share in March 2005 for
      warrant exercise, net of costs
                    
                    
                    660,078
                    
                    
                    
                    660
                    
                    
                    
                    1,190,196
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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 5,000 shares of common
      stock at $6.50 per share.
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (32,500
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (32,500
                    )Warrants
      exercised at $0.50 per share in June 2003
                    
                    
                    8,000
                    
                    
                    
                    8
                    
                    
                    
                    3,992
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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 23,215 shares of common stock in July 2005 for conversion of notes
      payable
                    
                    
                    23,215
                    
                    
                    
                    23
                    
                    
                    
                    64,980
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    65,003Issuance
      of 10,000 shares of common stock in August 2005  to a consultant
      for services provided
                    
                    
                    10,000
                    
                    
                    
                    10
                    
                    
                    
                    9,990
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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
                    )6,943,632
                    
                    
                    $
                    6,943
                    
                    
                    $
                    9,527,993
                    
                    
                    $
                    (2,760
                    )
                    
                    $
                    -
                    
                    
                    $
                    (11,799,134
                    )
                    
                    $
                    (2,266,958
                    )
  The
accompanying notes are an integral part of these audited consolidated financial
statements.
 
 F-11
 Table of Contents
 
 IR
      BioSciences Holding, Inc. and Subsidiary(A
      Development Stage Company)Consolidated
      Statement of Stockholders' Equity (Deficit)From
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
  Issuance
      of 10,000 shares to officer, previously accrued
                    
                    
                    10,000
                    
                    
                    
                    10
                    
                    
                    
                    41,406
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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
                    
                    
                    3,446
                    
                    
                    
                    3
                    
                    
                    
                    16,194
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    16,197Conversion
      of accrued interest to common stock at $1.25 per share in May,
      2006
                    
                    
                    1,929
                    
                    
                    
                    2
                    
                    
                    
                    2,409
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,411Conversion
      of accrued interest to common stock at $1.25 per share in May,
      2006
                    
                    
                    1,632
                    
                    
                    
                    2
                    
                    
                    
                    2,039
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,041Conversion
      of accrued interest to common stock at $1.00 per share in May,
      2006
                    
                    
                    1,345
                    
                    
                    
                    1
                    
                    
                    
                    1,354
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,355Common
      stock issued pursuant to the exercise of warrants at $0.90 per share in
      June 2006
                    
                    
                    500
                    
                    
                    
                    1
                    
                    
                    
                    450
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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
                    
                    
                    415,080
                    
                    
                    
                    415
                    
                    
                    
                    871,250
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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
                    
                    
                    3,426,625
                    
                    
                    
                    3,427
                    
                    
                    
                    4,610,122
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,613,549Common
      stock to be issued as commission for equity fund raising
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,483
                    )
                    
                    
                    -
                    
                    
                    
                    5,483
                    
                    
                    
                    -
                    
                    
                    
                    -Value
      of options issued to officer
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    185,472
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    185,472Value
      of shares issued to officer
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    32,120
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    32,120Loss
      for the year ended December 31, 2006
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,486,046
                    )
                    
                    
                    (1,486,046
                    )10,804,190
                    
                    
                    $
                    10,804
                    
                    
                    $
                    15,619,928
                    
                    
                    $
                    -
                    
                    
                    $
                    5,483
                    
                    
                    $
                    (13,285,180
                    )
                    
                    $
                    2,351,035
  The
accompanying notes are an integral part of these audited consolidated financial
statements.
 
 F-12
 Table of Contents
 
 IR
      BioSciences Holding, Inc. and Subsidiary(A
      Development Stage Company)Consolidated
      Statement of Stockholders' Equity (Deficit)From
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
  Common
      stock issued as commission for equity fund raising
                    
                    
                    548,260
                    
                    
                    
                    548
                    
                    
                    
                    4,935
                    
                    
                    
                    -
                    
                    
                    
                    (5,483
                    )
                    
                    
                    -
                    
                    
                    
                    -Common
      stock issued to consultant in January 2007 at $1.50 per
    share
                    
                    
                    29,804
                    
                    
                    
                    30
                    
                    
                    
                    44,676
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    44,706Common
      stock issued to consultants in January 2007 at $1.55 per
    share
                    
                    
                    40,000
                    
                    
                    
                    40
                    
                    
                    
                    61,960
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    62,000Common
      stock issued to consultants in January 2007 at $1.50 per
    share
                    
                    
                    10,000
                    
                    
                    
                    10
                    
                    
                    
                    14,990
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    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 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 in 2008 at $1.10 per
      share
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    33,000
                    
                    
                    
                    -
                    
                    
                    
                    33,000Common
      stock to be issued for finders fee in 2008 at $1.20 per
    share
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    120,000
                    
                    
                    
                    -
                    
                    
                    
                    120,000Loss
      for the year ended December 31, 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (5,463,958
                    )
                    
                    
                    (5,463,958
                    )11,432,254
                    
                    
                    $
                    11,432
                    
                    
                    $
                    18,005,332
                    
                    
                    $
                    -
                    
                    
                    $
                    153,000
                    
                    
                    $
                    (18,749,138
                    )
                    
                    $
                    (579,374
                    )
  The accompanying notes are
an integral part of these audited consolidated financial
statements.
 
 
 F-13
 Table of Contents
 IR
      BioSciences Holding, Inc. and Subsidiary(A
      Development Stage Company)Consolidated
      Statement of Stockholders' Equity (Deficit)From
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
  Common
      stock issued for consulting services previously accrued in November
      2007
                    
                    
                    30,000
                    
                    
                    
                    30
                    
                    
                    
                    32,970
                    
                    
                    
                    -
                    
                    
                    
                    (33,000
                    )
                    
                    
                    -
                    
                    
                    
                    -Common
      stock issued for finders fee previously accrued in November
      2007
                    
                    
                    100,000
                    
                    
                    
                    100
                    
                    
                    
                    119,900
                    
                    
                    
                    -
                    
                    
                    
                    (120,000
                    )
                    
                    
                    -
                    
                    
                    
                    -Value
      of warrants issued pursuant to convertible debt agreement in January
      2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    226,754
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    226,754Adjustment
      to value of warrants issued in January 2008 due to decrease in exercise
      price
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    60,092
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    60,092Value
      of options issued to advisory board in March 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,729
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3.729Value
      of options issued to employee  in January 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,428
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    5,428Value
      of options issued to consultants in July 2007
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,994
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    6,994Common
      stock issued for March 2008 interest payment at $0.488 per
      share
                    
                    
                    39,500
                    
                    
                    
                    39
                    
                    
                    
                    19,237
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    19,276Value
      of options issued to employees in March 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,708
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1,708Value
      of options issued to a Director in March 2008
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    19,625
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    19,625
  The
accompanying notes are an integral part of these audited consolidated financial
statements.
  F-14
 Table of Contents
 
 IR
      BioSciences Holding, Inc. and Subsidiary(A
      Development Stage Company)Consolidated
      Statement of Stockholders' Equity (Deficit)From
      date of inception (October 30, 2002)  to December 31,
      2008(continued)
 
 
 Common
      stock issued for June 2008 interest payment at $0.699 per share in July
      2008
                      
                      
                      28,220
                      
                      
                      
                      28
                      
                      
                      
                      19,698
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      19,726Common
      stock issued for June 2008 interest payment at $0.699 per share in July
      2008
                      
                      
                      2,822
                      
                      
                      
                      3
                      
                      
                      
                      1,969
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,972Common
      stock issued for interest payment at $0.33032 per share in August
      2008
                      
                      
                      95,825
                      
                      
                      
                      96
                      
                      
                      
                      31,557
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      31,653Common
      stock issued for interest payment at $0.33032 per share in August
      2008
                      
                      
                      2,228
                      
                      
                      
                      2
                      
                      
                      
                      734
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      736Common
      stock issued for interest payment at $0.33032 per share in August
      2008
                      
                      
                      124,794
                      
                      
                      
                      125
                      
                      
                      
                      41,097
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      41,222Common
      stock issued for pre-payment of interest payment at $0.33032 per share in
      August 2008
                      
                      
                      162,721
                      
                      
                      
                      163
                      
                      
                      
                      53,587
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      53,750Common
      stock issued for pre-payment of interest payment at $0.33032 per share in
      August 2008
                      
                      
                      3,785
                      
                      
                      
                      4
                      
                      
                      
                      1,246
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,250Common
      stock issued for pre-payment of interest payment at $0.33032 per share in
      August 2008
                      
                      
                      211,916
                      
                      
                      
                      212
                      
                      
                      
                      69,788
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      70,000Common
      stock issued pursuant to the exercise of warrants at $0.375 per share in
      June and July 2008
                      
                      
                      30,000
                      
                      
                      
                      30
                      
                      
                      
                      11,220
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      11,250Common
      stock issued for rounding due to reverse stock split in August
      2008
                      
                      
                      126
                      
                      
                      
                      1
                      
                      
                      
                      (1
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Common
      stock subscribed pursuant to agreement for capital raise in August
      2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      250,000
                      
                      
                      
                      -
                      
                      
                      
                      250,000Value
      of warrants issued pursuant to convertible debt agreement in August
      2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      286,846
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      286,846Value
      of warrants issued pursuant to convertible debt agreement in August
      2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      427,628
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      427,628Value
      of warrants issued pursuant to convertible debt agreement in August
      2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,946
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      9,946Value
      of warrants issued pursuant to convertible debt agreement in August
      2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      556,949
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      556,949Value
      of options issued to directors in November 2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      52,284
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      52,284Loss
      for the year ended December 31, 2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (5,807,353
                      )
                      
                      
                      (5,807,353
                      )Balance
      at December 31, 2008
                      
                      
                      12,264,191
                      
                      
                      $
                      12,265
                      
                      
                      $
                      20,066,317
                      
                      
                      $
                      -
                      
                      
                      $
                      250,000
                      
                      
                      $
                      (24,556,491
                      )
                      
                      $
                      (4,227,909
                      )
 
 The
accompanying notes are an integral part of these audited consolidated financial
statements.
   F-15
 Table of Contents
  IRBioSciences Holdings, Inc. and
Subsidiary(A
      Development Stage Company)Consolidated
      Statements of Cash Flows for the year endedDecember
      31, 2008 and 2007, and for the periodof
      Inception (October 20, 2002) to December 31,
  2008
   For
      the Year Ended
                                                      December
      31,
                                                    
                                                    
                                                    For
      the Period
                                                      October
      30, 2002 to2008
                                                    
                                                    
                                                    2007
                                                    
                                                    
                                                    December
      31, 2008Cash
      flows from operating activities:Net
      loss
                                                    
                                                    $
                                                    (5,807,353
                                                    )
                                                    
                                                    $
                                                    (5,463,958
                                                    )
                                                    
                                                    $
                                                    (24,556,491
                                                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Non-cash
      compensation
                                                    
                                                    
                                                    339,768
                                                    
                                                    
                                                    
                                                    2,488,843
                                                    
                                                    
                                                    
                                                    7,148,127Cost
      of penalty for late registration of shares - stock portion
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,631,726Cost
      of penalty for late registration of shares - warrant
    portion
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    560,434(Gain)
      loss from marking to market - stock portion of penalty for late
      registration of shares-
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (760,058
                                                    )(Gain)
      loss from marking to market - warrant portion of penalty for late
      registration of shares-
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (378,198
                                                    )Legal
      fees for note payable
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    20,125Placement
      fees for note payable
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    65,000Impairment
      of intangible asset
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    6,393Interest
      expense
                                                    
                                                    
                                                    418,473
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    574,880Amortization
      of discount on notes payable
                                                    
                                                    
                                                    218,280
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    1,225,215Depreciation
      and amortization
                                                    
                                                    
                                                    16,572
                                                    
                                                    
                                                    
                                                    14,916
                                                    
                                                    
                                                    
                                                    69,087Changes
      in operating assets and liabilities:Deposits
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (4,868
                                                    )
                                                    
                                                    
                                                    (4,868
                                                    )Prepaid
      services and other assets
                                                    
                                                    
                                                    114,447
                                                    
                                                    
                                                    
                                                    (7,317
                                                    )
                                                    
                                                    
                                                    70,472Accounts
      payable and accrued expenses
                                                    
                                                    
                                                    (69,683
                                                    )
                                                    
                                                    
                                                    516,346
                                                    
                                                    
                                                    
                                                    1,108,680Net
      cash used in operating activities
                                                    
                                                    
                                                    (4,769,496
                                                    )
                                                    
                                                    
                                                    (2,456,038
                                                    )
                                                    
                                                    
                                                    (13,219,476
                                                    )Cash
      flows from investing activities:Acquisition
      of property and equipment
                                                    
                                                    
                                                    (19,648
                                                    )
                                                    
                                                    
                                                    (24,945
                                                    )
                                                    
                                                    
                                                    (85,077
                                                    )Net
      cash used in investing activities
                                                    
                                                    
                                                    (19,648
                                                    )
                                                    
                                                    
                                                    (24,945
                                                    )
                                                    
                                                    
                                                    (85,077
                                                    )Cash
      flows from financing activities:Proceeds
      from notes payable and cash advances
                                                    
                                                    
                                                    7,715,000
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    9,668,375Principal
      payments on notes payable and demand loans
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (50,000
                                                    )
                                                    
                                                    
                                                    (1,094,747
                                                    )Shares
      of stock sold for cash
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    7,873,451Proceeds
      from exercise of warrant
                                                    
                                                    
                                                    11,250
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    15,700Officer
      repayment of amounts paid on his behalf
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    19,880Cash
      paid on behalf of officer
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (19,880
                                                    )Net
      cash provided by financing activities
                                                    
                                                    
                                                    7,726,250
                                                    
                                                    
                                                    
                                                    (50,000
                                                    )
                                                    
                                                    
                                                    16,462,779Net
      increase (decrease) in cash and cash equivalents
                                                    
                                                    
                                                    2,937,106
                                                    
                                                    
                                                    
                                                    (2,530,983
                                                    )
                                                    
                                                    
                                                    3,158,226Cash
      and cash equivalents at beginning of period
                                                    
                                                    
                                                    221,120
                                                    
                                                    
                                                    
                                                    2,752,103
                                                    
                                                    
                                                    
                                                    -Cash
      and cash equivalents at end of period
                                                    
                                                    $
                                                    3,158,226
                                                    
                                                    
                                                    $
                                                    221,120
                                                    
                                                    
                                                    $
                                                    3,158,226
   
 F-16
 Table of Contents
  IR
      BioSciences Holdings, Inc. and Subsidiary(A
      Development Stage Company)Consolidated
      Statements of Cash Flows for the year endedDecember
      31, 2008 and 2007, and for the periodof
      Inception (October 20, 2002) to December 31,
  2008
 (continued)
  Supplemental
      disclosures of cash flow information:Cash
      paid during the period for:Interest
                  
                  $
                  40,998
                  
                  
                  $
                  9,737
                  
                  
                  $
                  127,051Taxes
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  8,115Acquisition
      and capital restructure:Assets
      acquired
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -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
                  
                  
                  $
                  3,177,483Common
      stock issued in exchange for previously incurred debt and accrued
      interest
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,066,401Common
      stock issued in exchange for interest
                  
                  $
                  114,585
                  
                  
                  $
                  -
                  
                  
                  $
                  150,585Amortization
      of beneficial conversion feature
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  223,269Stock
      options and warrants issued in exchange for services
      rendered
                  
                  $
                  339,768
                  
                  
                  $
                  2,258,843
                  
                  
                  $
                  3,718,260Debt
      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 in March 2005
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  2,630,761Amortization
      of deferred compensation
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  202,486Fair
      value of common stock and warrants in payable in connection with late
      filing of registration statement
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  3,684,664Gain
      from marking to market - stock portion of penalty for late registration of
      shares
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  (1,124,255
                  )Gain
      from marking to market - warrant portion of penalty for late registration
      of shares
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  (456,603
                  )Impairment
      of intangible asset
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  6,393Issuance
      of stock to Officer, previously accrued
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  41,416Value
      of warrants issued to members of advisory board
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  22,688Services
      for note payable
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  9,750Issuance
      of shares for accounts payable
                  
                  $
                  -
                  
                  
                  $
                  44,706
                  
                  
                  $
                  44,706Issuance
      of shares as commission for equity fundraising
                  
                  $
                  -
                  
                  
                  $
                  5,483
                  
                  
                  $
                  5,483Value
      of warrants issued for financing
                  
                  $
                  1,568,215
                  
                  
                  $
                  -
                  
                  
                  $
                  1,568,215
  The
accompanying notes are an integral part of these audited consolidated financial
statements
  F-17
 Table of Contents
 
 
 NOTE1- 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 its wholly-owned
subsidiary ImmuneRegen BioSciences, Inc., the Company is engaged in the research
and development of potential drug candidates for use 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. The Company’s research and development efforts are at a very
early stage and the Company’s potential drug candidates have only undergone
pre-clinical testing in small animals. From its inception through the date of
these consolidated 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.
 
 On July 10, 2008, the Company effected
a 1-for-10 reverse stock split of its common stock and simultaneously reduced
its authorized shares of common stock to 100,000,000; par value remained
unchanged.  Accordingly, the effect of the reverse-split has been
presented in the accompanyingconsolidatedfinancial statement and footnote
disclosures with a retroactive adjustment to earlier
periods presented.
 
 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, 2008 and 2007, the
Company incurred losses from operations of $5,807,353 and $5,463,958,
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 consolidated 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 consolidated 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.
 
 Long-lived
Assets
  The Company adopted Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of,” and the accounting and reporting
provisions of APB Opinion No. 30, “Reporting the Results of Operations for a
Disposal of a Segment of a Business.” The Company periodically evaluates the
carrying value of long-lived assets to be held and used in accordance with SFAS
144. SFAS 144 requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets’ carrying amounts. In that event, a loss is recognized based on the
amount by which the carrying amount exceeds the fair market value of the
long-lived assets. Loss on long-lived assets to be disposed of is determined in
a similar manner, except that fair market values are reduced for the cost of
disposal.
  F-18
 Table of Contents
 
 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, 2008.
 
 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 2008, 2007 and 2006, 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 consolidated financial statements, the Company has incurred
a net loss of $24,556,491 from its inception (October 30, 2002) through December
31, 2008. The Company incurred a net loss of $5,807,353 and $4,769,496 from
operations during the years ended December 31, 2008 and 2007, respectively. The
Company has net working capital of $1,017,318 with cash and cash equivalents of
$3,158,226 at December 31, 2008 versus a net working capital deficit of $624,773
and cash and cash equivalents of $221,120 at December 31,
2007.
 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 recognized 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 2008, and 2007 and the period
from October 30, 2002 (date of inception) to December 31, 2008 were $1,291,710,
$541,589, and $2,859,896 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,
2008.
 
 Comprehensive
Income
 
 Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income," establishes standards for reporting and displaying of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. Among other disclosures, SFAS 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company does not have any items of comprehensive income in any
of the periods presented.
 Stock Based
Compensation
 
 The
Company accounts for stock-based compensation under the provisions of SFAS
123R,Share-Based
Payment (“SFAS 123R”). This statement requires the Company to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. That cost is
recognized over the period in which the employee is required to provide service
in exchange for the award, which is usually the vesting period.
 
 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.
 
 F-19
 Table of Contents
  Fair Value of Financial
Instruments
 
 Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards
No. 157, Fair Value
Measurements (SFAS 157), which provides a framework for measuring fair
value under GAAP. SFAS 157 defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. SFAS 157
requires that valuation techniques maximize the use of observable inputs and
minimize the use of unobservable inputs. SFAS 157 also establishes a fair value
hierarchy, which prioritizes the valuation inputs into three broad
levels.
  There are
three general valuation techniques that may be used to measure fair value, as
described below:
  a) Market approach – Uses prices and other
relevant information generated by market transactions involving identical or
comparable assets or liabilities. Prices may be indicated by pricing guides,
sale transactions, market trades, or other sources;
  b) Cost approach – Based on the amount
that currently would be required to replace the service capacity of an asset
(replacement cost); and
  c) Income approach – Uses valuation
techniques to convert future amounts to a single present amount based on current
market expectations about the future amounts (includes present value techniques,
and option-pricing models). Net present value is an income approach where a
stream of expected cash flows is discounted at an appropriate market interest
rate.
  Financial
assets and liabilities are valued using either level 1 inputs based on
unadjusted quoted market prices within active markets or using level 2 inputs
based primarily on quoted prices for similar assets or liabilities in active or
inactive markets.  For certain long-term debt, fair value is based on
present value techniques using inputs derived principally or corroborated from
market data. Using level 3 inputs using management’s assumptions about the
assumptions market participants would utilize in pricing the asset or liability.
In the Company’s case this entailed assumptions used in pricing models for
attached warrant calculations. Valuation techniques utilized to determine fair
value are consistently applied.
  The
Company’s long-term debt is the only item that is subject to SFAS 157 as of
December 31, 2008 as follows:
  Other
      observable inputs (level 1)
                    
                    $
                    6,793,952Un-observable
      inputs (level 3)
                    
                    $
                    -
  Prepaid services and other
current assets
 
 Prepaid
services and other current assets at December 31, 2008 and December 31, 2007
consist of the following:
 
 December
      31, 2008
                  
                  
                  December
      31, 2007Prepaid
      monitoring fees
                  
                  $
                  140,625
                  
                  
                  $
                  -Prepaid
      insurance
                  
                  
                  44,929
                  
                  
                  
                  29,502Prepaid
      services
                  
                  
                  22,834
                  
                  
                  
                  27,500Prepaid
      car lease
                  
                  
                  11,865
                  
                  
                  
                  27,689Salary
      advance
                  
                  
                  1,765
                  
                  
                  
                  2,025Total prepaid services and other current assets
                  
                  $
                  222,018
                  
                  
                  $
                  86,716
 
 Deposits and other
assets
 
 The
balance consists of a deposit on leased office space in the amount of $7,378 and
$7,128 as of December 31, 2008 and 2007,
respectively.
 F-20
 Table of Contents
  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
      yearsWebsite
                  5
      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, 2008 or 2007.
 
 Reclassifications
 
 Certain
reclassifications have been made in prior year's consolidated financial
statements to conform to classifications used in the current year.
 
 Recent Accounting
Pronouncements
 
 In June
2008, the FASB issued EITF Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”).
EITF 07-5 supersedes EITF Issue No. 01-6, The Meaning of ‘Indexed to a
Company’s Own Stock’, and provides guidance in evaluating whether certain
financial instruments or embedded features can be excluded from the scope of
SFAS No. 133, Accounting for
Derivatives and Hedging Activities (“SFAS 133”). EITF 07-5 sets forth a
two-step approach that evaluates an instrument’s contingent exercise and
settlement provisions for the purpose of determining whether such instruments
are indexed to an issuer’s own stock (a requirement necessary to comply with the
scope exception under SFAS 133). EITF 07-5 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. We are currently assessing the impact related to the
adoption of EITF 07-5 on our financial instruments.
 
 In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations(“SFAS
141(R)”), which replaces SFAS No. 141, Business Combinations, and
requires an acquirer to recognize the assets acquired, the liabilities assumed
and any non-controlling interest in the acquired company at the acquisition
date, measured at their fair values as of that date, with limited exceptions.
SFAS 141(R) also requires the acquirer in a business combination achieved in
stages to recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquired company, at the full amounts of their
fair values. SFAS 141(R) makes various other amendments to authoritative
literature intended to provide additional guidance or conform the guidance in
that literature to that provided in SFAS 141(R). SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The potential impact of adopting SFAS 141(R) will depend on
the magnitude and frequency of our future acquisitions.
 
  In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements(“SFAS 160”), which amends Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, to improve the relevance, comparability and transparency of
the financial information that a reporting entity provides in its consolidated
financial statements. SFAS 160 establishes accounting and reporting standards
that require the ownership interests in subsidiaries not held by the parent to
be clearly identified, labeled and presented in the consolidated statement of
financial position within equity, but separate from the parent’s equity. SFAS
160 also requires the amount of consolidated net income attributable to the
parent and to the non-controlling interest to be clearly identified and
presented on the face of the consolidated statement of operations. Changes in a
parent’s ownership interest while the parent retains its controlling financial
interest must be accounted for consistently, and when a subsidiary is
deconsolidated, any retained non-controlling equity investment in the former
subsidiary must be initially measured at fair value. The gain or loss on the
deconsolidation of the subsidiary is measured using the fair value of any
non-controlling equity investment. SFAS 160 also requires entities to provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 applies prospectively to all entities that prepare consolidated financial
statements and applies prospectively for all fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2008. We do not
believe that its adoption will have a significant impact on our consolidated
financial statements.
  In March
2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. We do not believe that
its adoption will have a significant impact on our consolidated financial
statements.
  F-21
 Table of Contents
 
 NOTE
2 - PROPERTY, PLANT AND EQUIPMENT
 
 The
Company's property and equipment at December 31, 2008 and December 31, 2007
consists of the following:
  December
      31, 2008
                    
                    
                    December
      31, 2007Office
      Equipment
                    
                    $
                    49,909
                    
                    
                    $
                    45,670Office
      Fixtures and Furniture
                    
                    
                    30,568
                    
                    
                    
                    19,758Website
                    
                    
                    27,100
                    
                    
                    
                    22,500Licensed
      Proprietary Rights
                    
                    
                    9,250
                    
                    
                    
                    9,250116,827
                    
                    
                    
                    97,178Accumulated
      Depreciation and Amortization
                    
                    
                    (75,480
                    )
                    
                    
                    (58,908
                    )$
                    41,347
                    
                    
                    $
                    38,270
 
 Depreciation
and amortization expense included as a charge to income amounted to $16,572,
$14,916, and $69,087 for the years ended December 31, 2008 and 2007 and from the
period of inception (October 30, 2002) to December 31, 2008,
respectively.
 
 NOTE
3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
 
 Accounts
payable and accrued liabilities at December 31, 2008 and December 31, 2007 are
as follows:
 
 December
      31, 2008
                  
                  
                  December
      31, 2007Accounts
      payable and accrued liabilities
                  
                  $
                  776,319
                  
                  
                  $
                  852,411Accounts
      payable - Pre-merger
                  
                  
                  34,926
                  
                  
                  
                  34,926Interest
      payable
                  
                  
                  3,215
                  
                  
                  
                  3,215Accrued
      payroll
                  
                  
                  -
                  
                  
                  
                  2,092Credit
      cards
                  
                  
                  45,266
                  
                  
                  
                  36,765State
      income tax payable
                  
                  
                  3,200
                  
                  
                  
                  3,200$
                  862,926
                  
                  
                  $
                  932,609
 
 NOTE
4 - RELATED-PARTY TRANSACTIONS
 
 Credit Card Lines 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, 2008 and 2007, the Company had an outstanding balance on
the credit card of $21,474 and $21,027, respectively.
 
 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, 2008 and 2007, the Company had an outstanding balance on
the credit card of $23,792 and $15,739, respectively.
 
 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 Company also
agreed to defend and indemnify, to the fullest extent permitted by the Company'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 200,000 shares (post-split) of the Company's
common stock at an exercise price equal to the fair market value per share on
the date option is granted.
 
 F-22
 Table of Contents
  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, 2008, Mr. Wilhelm received $90,750 and
$59,250 as a target incentive bonus for the consummation of a debt financing
with an unaffiliated third party in January and June,
respectively.  In addition, Mr. Wilhelm received $150,000 and 833,334
shares (post-split) of common stock with a fair value of $250,000.00 as a target
incentive bonus for the consummation of a debt financing with an unaffiliated
third party.  During the twelve months ended December 31, 2008, the
Company charged to operations the fair value of $250,000, for the stock issuance
to Mr. Wilhelm.
 
 Mr.
Wilhelm did not receive any options during the twelve months ended December 31,
2008.
 
 During
the twelve months ended December 31, 2007, options held by Mr. Wilhelm to
purchase an aggregate of 202,395 shares (post-split) of common stock were vested
under with a fair value of $471,457 were vested.  In addition, Mr.
Wilhelm was granted ten year options to purchase an additional 200,000 shares
(post-split) of common stock at a price of $1.66 per share, and 50,000 shares
(post-split) of common stock at $1.95 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 N. 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 10,000 shares (post-split) of the Company's common stock, which
were earned at the rate of 1/12 or 833 (post-split) 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 10,000 shares
(post-split) to Mr. Fermanis. This amount is carried in accrued liabilities at
December 31, 2006.
 
 On April
3, 2008, the Company entered into a new employment agreement with John Fermanis
effective January 1, 2008 continuing his employment as Chief Financial Officer
of the Company and its wholly owned subsidiary, ImmuneRegen BioSciences, Inc.
for a period of two years.  Mr. Fermanis’ previous employment
agreement with the Company expired on December 31, 2007. On the same day, the
Company also approved a change of control agreement with Mr. Fermanis effective
January 1, 2008.
 
 Pursuant
to terms of the employment agreement, Mr. Fermanis will be compensated at an
annual base salary of $130,000 for the first year and $140,000 for the second
year.  Mr. Fermanis will also be eligible for discretionary bonuses
under the Company’s stock option plan during his employment.  The
employment agreement has a term of two years, subject to early termination
provisions.
 
 In
connection with Mr. Fermanis’ new employment agreement, the Company also entered
into a change of control agreement.
 
 Pursuant
to the terms of the change of control agreement, the Company agrees to pay Mr.
Fermanis his salary for a period of 18 months from the date of an involuntary
termination, payable in accordance with the Company’s compensation
practice.  Involuntary termination is defined as the termination of
Mr. Fermanis’s employment by the 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.  The change of control agreement commences
on the effective date and continues until the earlier of (i) the termination of
Mr. Fermanis’s employment with Company if the termination is prior to a change
of control or (ii) subsequent to a change of control date the earlier of (x) the
termination of Mr. Fermanis’s employment absent involuntary termination or (y)
the one-year anniversary of a change of control.
 
 Mr.
Fermanis did not receive any options during the twelve months ended December 31,
2008.
 
 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.
 
 F-23
 Table of Contents
  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 20,000 shares
(post-split) of common stock of the Company. The options are exercisable at
$2.00 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.
 
 On
December 19, 2008, the "Company, through its wholly-owned subsidiary ImmuneRegen
BioSciences, Inc., approved a new employment agreement with Hal N. Siegel as
Vice President and Chief Scientific Officer of the Company. Mr. Siegel, who is
also a member of the Company's Board of Directors and has served as Vice
President and Chief Scientific Officer of the Company since November, 2007, also
entered into a change of control agreement with the Company. The effective date
of these agreements is October 24, 2008.
 
 Pursuant
to terms of the employment agreement, Mr. Siegel will be compensated at an
annual base salary of $225,000 for the first year and $247,500 for the second
year.  Mr. Siegel also is entitled to a sign-on cash bonus of $20,000.
Fifty percent of the sign-on bonus ($10,000) shall be paid upon the signing of
this agreement and fifty percent ($10,000) shall be paid within 90 days of
signing this agreement.  Mr. Siegel will also be eligible for bonuses
in the form of cash or discretionary stock awards under the Company's stock
option plan upon approval of the Company's Board of Directors. The employment
agreement has a term of two years, subject to early termination provisions. The
Company may terminate the employment agreement at any time for cause, as defined
in the employment agreement, and with 30 days notice without cause. Mr. Siegel
may terminate the employment agreement for any reason with 30 days notice. Upon
termination of Mr. Siegel'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 an amount equal to six
months salary, whichever is greater, along with any accrued vacation at the time
of the termination. Pursuant to the terms of the employment agreement, Mr.
Siegel may not compete against the Company, and he may not solicit the Company's
customers during the term of the agreement and for a period of three years
following the termination of his employment agreement. Mr. Siegel also may not
disclose any confidential information regarding the Company during or within
three years after his employment.
 
 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 of 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 the 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. The
change of control agreement commences on the Effective Date and continues until
the earlier of (i) the termination of Mr. Siegel's employment with Company, if
the termination is prior to a change of control or (ii) subsequent to a Change
of Control Date the earlier of (x) the termination of Mr. Siegel's employment
absent involuntary termination or (y) the one-year anniversary of a change of
control.
 
 Dr.
Siegel did not receive any options during the twelve months ended December 31,
2008.
 
 During
the year ended December 31, 2007, Dr. Siegel was granted ten-year options to
purchase 110,000 shares of common stock (post-split) at $1.66 per share, and
50,000 shares of common stock (post-split) at $1.95 per share. The Company
charged to operations the fair value of $182,050 and $81,112, respectively, for
these option grants to Dr. Siegel.
 
 Board
Of Directors
 
 During
the year ended December 31, 2008, the Company granted to a board members
ten-year options to purchase an aggregate of 25,000 shares of common stock at a
price of $0.66 and additional ten-year options to purchase an aggregate of
150,000 shares of common stock at a price of $0.15 per share. The Company
charged to operations the fair value of $71,909 for these option grants to board
members.
 
 During
the year ended December 31, 2007, the Company granted to board members ten-year
options to purchase an aggregate of 325,000 shares of common stock at a price of
$1.66 per share. The Company charged to operations the fair value of
$537,834 for these option grants to board members.
 
 NOTE
5 - NOTES PAYABLE
 
 Restructure With Regard to
Debentures Held by YA Global Investments, L.P.
 
 On July
18, 2008 YA Global Investments, L.P. agreed to waive application of the
provisions of debentures it holds pursuant to the amendment to the Company’s
Certificate of Incorporation.  Further, the Company has agreed to
increase the share reserve as defined in the debenture.  In addition,
the Company and YA Global have agreed to amend the debentures to reduce the
conversion price of the debenture from $2.00 to $1.50.
 
 Waiver and Amendment of YA
Global Investments, L.P. Debentures and Warrants and Issuance of Additional
Warrants
 
 The
Company previously issued to YA Global a Secured Convertible Debenture dated
January 3, 2008 in the principal sum of $2 million and a Secured Convertible
Debenture dated June 12, 2008 in the principal sum of $1 million (collectively,
the “YA Convertible Debentures”) pursuant to a Securities Purchase Agreement
dated January 3, 2008 (the “YA Agreement”).  The YA Convertible
Debentures are convertible into shares of the Company’s Common Stock (the “YA
Conversion Shares”).  Pursuant to the YA Agreement, the Company also
issued to YA Global warrants (the “YA Warrants”) to purchase 7,500,000 shares of
Common Stock (the “YA Warrant Shares”).  On August 8, 2008, in
consideration for YA Global’s consent to the Company conducting and closing the
Financing, the Company and YA Global agreed to amend the YA Convertible
Debentures to increase the annual interest rate from 8% to 10% and adjust the
Conversion Price to $1.50 (the “Amended Debentures”).  Additionally,
under the Amended Debentures, YA Global may elect on or after December 31, 2009
to have the Company redeem up to $1.5 million of the YA Global Debentures as
well as the payment of a redemption premium of 20% of the principal amount
redeemed.  The Company may also pay the interest on the Amended
Debentures, at the Company’s option, in cash, 0% interest convertible debentures
with a five year term of exercise and a minimum conversion price of $0.30 per
share, or, subject to the satisfaction of certain specified equity conditions,
in shares of the Company’s Common Stock.  All overdue accrued and
unpaid interest to be paid on the Amended Debentures shall be subject to a late
fee at an interest rate equal to the lesser of 18% per annum or the maximum rate
permitted by applicable law that accrues daily until all overdue amounts are
paid in full.
  F-24
 Table of Contents
  In
addition, the Company and YA Global agreed to amend the YA Warrants to adjust
the exercise price of the warrants to $2.00 (the “YA Warrant Amendment”) and to
reduce the YA Warrant Shares to 750,000 pursuant to the terms of the YA Warrants
as a result of the Company’s 1 for 10 reverse stock split.  The
Company also agreed to issue to YA Global additional warrants to purchase an
additional 750,000 shares of Common Stock on or before December 31, 2012 (the
“Expiration Date”) at an exercise price of $2.00, subject to adjustment (the “YA
Additional Warrants”).  Holders of the YA Additional Warrants are
limited in their right to exercise the YA Additional Warrants if, upon giving
effect to such exercise, it would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 9.99% of the
outstanding shares of the Common Stock following such exercise, except within 60
days of the Expiration Date.  The YA Additional 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.
 
 Note Issued To YA Global
Investments, L.P. For Accrued Interest
 
 On
September 30, 2008, per the terms of the amended Securities Purchase Agreement
with YA Global, the Company issued a 0% interest convertible debenture with a
five year term of exercise and a minimum conversion price of $0.30 per share as
payment of $70,424.66 in interest accrued during the three months ended
September 30, 2008, net of a credit of $1,536.12 to adjust interest payments
that were made through June 30, 2008.
 
 On
December 31, 2008, per the terms of the amended Securities Purchase Agreement
with YA Global, the Company issued a 0% interest convertible debenture with a
five year term of exercise and a minimum conversion price of $0.30 per share as
payment of $75,000 in interest accrued during the three months ended December
31, 2008.
 
 Purchase Agreement with
Funds Managed by Brencourt Advisors, LLC
 
 On August
8, 2008, the Company entered into a Securities Purchase Agreement with certain
funds for which Brencourt Advisors, LLC is the investment manager (the
“Buyers”), pursuant to which the Buyers agreed to purchase from the Company (i)
up to $5 million of 10% subordinated secured convertible debentures (the
“Convertible Debentures”), which shall be convertible into shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”) and (ii)
warrants to acquire up to 2,500,000 additional shares of Common Stock (the
“Warrants”) (the “Financing”).  The Warrants are exercisable after the
six month and one day anniversary from the date of issuance and have a term of
exercise equal to five years.
 
 The
closing of the Financing occurred on August 8, 2008, at which time the Company
sold to the Buyers $5 million of the Convertible Debentures and the
Warrants.  Obligations under the Convertible Debentures are guaranteed
by ImmuneRegen BioSciences, Inc., the Company’s wholly-owned subsidiary (the
“Guarantor”). The Company’s obligations under the Convertible Debentures are
secured by (i) all of the assets and property of the Guarantor pursuant to a
Security Agreement by and between the Company and the Guarantor in favor of the
Buyers; and (ii) by Patent Collateral of the Company and the Guarantor in
accordance with a Patent Security Agreement by and among the Company, the Buyers
and the Guarantor.  The security interests granted to the Buyers are
subject to and subordinated to the senior security interests granted by the
Company and Guarantor to YA Global Investments, L.P.  Notwithstanding
the subordinated security interests granted to the Buyers, the Company is
permitted to pay and the Buyers may receive any regularly scheduled payment of
principal, interest, liquidated damages, buy-in compensation or other amounts
due and payable on the Financing.
  The
Convertible Debentures mature on August 8, 2013, unless extended by the holders,
and accrue interest at the rate of 10% per annum.  Interest is payable
in cash quarterly on the last day of each calendar quarter beginning on
September 30, 2008, or at the Company’s option (i) if “Equity Conditions” (as
defined in the Convertible Debentures) are satisfied, it may be paid by the
issuance of Common Stock or (ii) by issuance of a 0% interest convertible
debenture with a five year term of exercise and a minimum conversion price of
$0.30 per share.  The Company was required to prepay interest for the
first and last quarters of the term of the Convertible
Debentures.  The prepaid interest was paid by the issuance of an
aggregate of 378,421 shares of common stock to note holders for prepayment of
interest in the amount of $125,000 for the last quarter of the term and
allocated against the debt discount. This will be amortized over the term of the
note. The Convertible Debentures are convertible at any time at the option
of the holders into shares of the Company’s Common Stock at a price equal to
$1.55 per share.
 At any
time after the six-month anniversary of the issuance of the Convertible
Debentures, the Company may redeem a portion or all amounts outstanding under
the Convertible Debentures prior to August 8, 2013 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
Convertible 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 9.98% 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 at the
“Mandatory Default Amount” as defined in the Convertible
Debentures.
  In the
event the Company effects any “Fundamental Transaction” as defined in the
Convertible Debentures, including a merger or consolidation of the Company,
completion of a tender offer or exchange offer, or sale of substantially all of
its assets, the holder has the right to receive, upon any subsequent conversion
of the Convertible Debentures, the same kind and amount of securities, cash
and/or property that the holder would have been entitled to receive upon the
occurrence of the Fundamental Transaction if it held one share of Common Stock
for each conversion share of Common Stock (the “Alternate
Consideration”).  In addition, any successor to the Company or
surviving entity shall 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 including the right to convert into
the Alternate Consideration.
 
 The
Warrants have an exercise price, subject to adjustments, of $2.00 per share and
are exercisable at any time on or after February 8, 2009 and prior to February
8, 2014.  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.  To the extent not
previously exercised, the Warrants will automatically be exercised via cashless
exercise on February 8, 2014.  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 4.99% of the Company’s then outstanding Common Stock.
 
 If, at
anytime beginning from the 6 month anniversary date of the Purchase Agreement,
the Company fails to satisfy the current public information requirements under
Rule 144, the Company is required to pay to the Buyers an amount in cash equal
to 2% of the aggregate subscription amount of the Buyers’ securities on the day
of such failure and on every 30th day, bearing interest at the rate of 1.5% per
month, until it is cured or such information is not required.  Subject
to any prior rights granted to YA Global Investments, L.P., the Buyers have a
right to participate in up to an amount equal to 50% of any subsequent financing
that involves the issuance of the Company’s capital stock or indebtedness for so
long as the Convertible Debentures are outstanding.   The Buyers
also have registration rights in that it may include the shares issued and
issuable pursuant to the Convertible Debentures and Warrants in certain
registration statements filed by the Company.
 
 F-25
 Table of Contents
  Note Issued To Funds Managed
by Brencourt Advisors, LLC For Accrued Interest
 
 On
December 31, 2008, per the terms of the amended Securities Purchase Agreement
with Funds Managed by Brencourt Advisors, LLC the Company issued three 0%
interest convertible debenture with a five year term of exercise and a minimum
conversion price of $0.30 per share as payment of an aggregate of $125,000 in
interest accrued during the three months ended December 31, 2008.
 
 As of
December 31, 2008 and 2007 notes payable consist of:
  December
      31, 2008
                            
                            
                            December
      31,2007YA
      Global Investments, L.P. Debentures
                            
                            $
                            3,000,000
                            
                            
                            $
                            -Note
      Issued To YA Global Investments, L.P. For Accrued Interest
                            
                            
                            143,889
                            
                            
                            
                            -Brencourt
      Advisors, LLC Debentures
                            
                            
                            5,000,000
                            
                            
                            
                            -Note
      Issued To Brencourt Advisors, LLC For Accrued Interest
                            
                            
                            125,000
                            
                            
                            
                            -Less:
      Debt discount
                            
                            
                            (1,474,937)Total
      note payable
                            
                            
                            6,793,952
                            
                            
                            
                            -Less:
      current portion of notes payable
                            
                            
                            1,500,000
                            
                            
                            
                            -Total
      long term portion of notes payable
                            
                            
                            5,293,952
                            
                            
                            
                            -
  Aggregate
maturities of long-term debt as of December 31, 2008 are as
follows:
 
 For the twelve months ended
      December 31
                        
                        Amount2009
                        
                        
                        1,500,0002010
                        
                        
                        1,500,000201120122013
      and beyond
                        
                        
                        5,268,889$
                        8,268,889
 
 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, 2008. The Company has authorized 100,000,000 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. On June 27, 2008, 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 250,000,000 to 450,000,000.  On
July 10, 2008, the Company effected a 1-for-10 reverse stock split of its common
stock and simultaneously reduced its authorized shares of common stock to
100,000,000; par value remained unchanged.  Accordingly, the effect of
the reverse-split has been presented in the accompanying financial statement and
footnote disclosures with aretroactive adjustment to earlier
periods presented.
As of December 31, 2008 the
Company has 12,264,191 shares of common stock issued and
outstanding.
  During
the year ended December 31, 2002, the Company issued an aggregate of 145,919
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 1,661,228 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 18,558 shares of common stock
(post-split) in exchange for $31,001, net of costs and fees.
  During
the year ended December 31, 2003, the Company issued an aggregate of 26,759
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 215,510 shares of common stock in exchange for
$300,000 of previously incurred debt. The Company also issued an aggregate of
38,343 shares of common stock (post-split) in exchange for $65,000 net of costs
and fees. In July, 2003, the Company issued 236,813 in connection with the
Company's acquisition and merger with GPN Network, Inc. (see Note
1.)
 
 F-26
 Table of Contents
  During
the year ended December 31, 2004, the Company issued an aggregate of 548,128
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 30,000 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 685,506 shares of
common stock in exchange for $630,591 of previously incurred debt and accrued
interest. In addition, the Company issued 59,000 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
774,506 shares of common stock. The Company also sold an aggregate of 1,816,000
shares of common stock in exchange for $1,971,045 cash, net of costs and fees.
The Company also sold 800 shares of common stock for $1,200. The Company also
issued an aggregate of 490,000 shares of common stock  to its
investment bankers as fees. The Company also issued 125,775 shares of common
stock in settlement of $157,219 of accounts payable. In addition, the Company
issued an aggregate 144,000 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 10,000 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 23,215 shares of common stock as with a fair value of $65,003 in
exchange for previously issued debt and accrued interest. In addition, 660,078
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 8,000
shares of common stock for cash of $4,000 pursuant to the exercise of a warrant
at a price of $0.50 per share.
 
 During
the year ended December 31, 2006, the Company issued 10,000 shares of common
stock to its Chief Financial Officer with a fair value of $41,416, which was
previously accrued.  The Company also issued 3,446 shares of S-8
common stock at $1.25 per share to a consultant for services provided for
business development. In addition, the Company issued 1,929 shares of common
stock at $1.25 per share to an investor for the conversion of accrued interest.
The Company issued 1,632 shares of common stock at $1.25 per share to an
investor for the conversion of accrued interest. The Company issued 1,345 shares
of common stock at $1.00 per share to an investor for the conversion of accrued
interest. The Company issued 500 shares of common stock at $0.90 per share for
the exercise of warrants by an investor. The Company issued 415,080 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 584,260 shares of common
stock as commission for the Company’s equity financing. In addition, the Company
issued 29,804 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 29,804 shares of common stock at a
price of $1.50 per share to an employee in satisfaction on a liability
previously accrued.  The Company also issued 40,000 shares of common
stock at a price of $1.55 per share to a consultant for services to be performed
through June 2007.  In addition, the Company issued 10,000 shares of
common stock at a price of $1.50 per share to a consultant for services to be
performed through March 2007.
 
 During
the year ended December 31, 2008, the Company issued 293,389 shares of common
stock as payment for accrued interest of $114,585.  In addition, the
Company issued 378,422 shares of common stock for pre-payment of $125,000 of
interest.  The Company issued 30,000 shares to a consultant for
services at $1.10 per share.  The company issued 100,000 shares of
common stock, valued at $120,000, as a finders fee.  The Company also
issued 30,000 shares for the exercise of warrants at $0.375.  Due to
the rounding of shares from the 1-for-10 reverse stock split, the Company issued
126 common shares.  The Company agreed to issue 833,334 shares as a
target incentive bonus to an officer; however, as these shares were not issued
in 2008, the Company recorded the fair value of these shares, $250,000, as
common stock subscribed.
 
 Mr.
Wilhelm received $150,000 and 833,334 shares of common stock with a fair value
of $250,000.00 as a target incentive bonus for the consummation of a debt
financing with an unaffiliated third party.  During the twelve months
ended December 31, 2008, the Company charged to operations the fair value of
$250,000, for the stock issuance to Mr. Wilhelm.
 
 Private Placement of Common
Stock
 
 In
October 2004, the Company completed a private placement of its common stock (the
"Private Placement") whereby the Company sold an aggregate of $2,450,000 worth
of units (each a "Unit" and collectively, the "Units") to accredited investors
(as defined by Rule 501 under the Securities Act of 1933, as amended) (the
transaction is referred to herein as the "Private Placement"). The Company
received proceeds of $1,971,845 after costs of the issuance of
$298,155.
 
 Included
in the $2,450,000 sale was conversion of $180,000 of accrued salary and
consulting fees due to an officer and a Director of the Company. The number of
shares of common stock issued pursuant to the Private Placement was 1,960,000,
along with warrants to purchase an additional 908,000 shares, plus warrants to
purchase an additional 72,000 shares issued to the officer and Director. The
Company also issued an additional 490,000 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) $1.25; 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 five dollars
($5.00) 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 46,120 shares and warrants to purchase an additional 18,160
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 524,231 shares of common
stock and warrants to purchase an additional 206,419 shares of common stock at a
price of $5.00 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.
 
 F-27
 Table of Contents
  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 980,000 warrants and an additional 206,419 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 163,440 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 669,415 along with warrants to purchase an additional 334,708
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 125,775, along with warrants to
purchase an additional 62,887 shares.
 
 On
January 24, 2005, the Company made a tender offer to certain of the Company's
stockholders whereby the exercise price of certain warrants issued in October
2004 (the "Warrants") would be reduced from $5.00 to $2.00 per share. In March
2005, 660,078 shares of common stock were sold pursuant to this offer for
aggregate proceeds of $1,320,156 less costs of $129,300.
 
 In June
2005, the Company issued 8,000 shares of common stock pursuant to the exercise
of a warrant at a price of $0.50 per share.
 
 In July
2005, the Company issued 23,215 shares of common stock at a price of $2.80 per
share pursuant to the conversion of a note payable.
 
 In August
2005, the Company issued 10,000 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 10,000 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 3,446 shares of S-8 common stock at $1.25 per share to
a consultant for services provided for business development.
 
 In May
2006, the Company issued 1,929 shares of common stock at $1.25 per share to an
investor for the conversion of accrued interest.
 
 In May
2006, the Company issued 1,632 shares of common stock at $1.25 per share to an
investor for the conversion of accrued interest.
 
 In May
2006, the Company issued 1,345 shares of common stock at $1.00 per share to an
investor for the conversion of accrued interest.
 
 In June
2006, the Company issued 500 shares of common stock at $0.90 per share for the
exercise of warrants by an investor.
 
 In August
2006, the Company issued 415,080 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 $1.60, 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 $5.00 per share. We issued in the private
placement an aggregate of 3,426,625 shares of our common stock and warrants to
purchase 1,713,313 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 34,266 shares and 17,133 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 548,260 shares of our common stock upon the closing of
the private placement.
  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."
  F-28
 Table of Contents
  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.
 
 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 1,422,813, along with warrants to purchase an additional 711,406
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 1,685,688, along with warrants to purchase an additional 842,844
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 318,125, along with warrants to purchase an additional 159,063
shares.
 
 In
January 2007, the Company issued 548,260 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 29,804 shares of common stock at a price of
$1.50 per share to an employee in satisfaction of a liability previously
accrued.
 
 In
January 2007, the Company issued 40,000 shares of common stock at a price of
$1.55 per share to a consultant for services to be performed through June
2007.
 
 In
January 2007, the Company issued 10,000 shares of common stock at a price of
$1.50 per share to a consultant for services to be performed through March
2007.
 
 In
February 2008, pursuant to an agreement dated, November 5, 2007, the
Company agreed to issue 30,000 shares of common stock to a consultant for
services to be provided over the next year.
 
 In
February 2008, pursuant to an agreement dated, November 20, 2007, the
Company agreed to issue 100,000 shares of common stock to a consultant for
services provided.
 
 In March
2008, the Company issued 39,500 shares of common stock to a note holder for
accrued interest in the amount of $19,276.
 
 In July
2008, the Company issued 28,220 shares of common stock to a note holder for
accrued interest in the amount of $19,726 through June 30, 2008.
 
 In July
2008, the Company issued 2,822 shares of common stock to a note holder for
accrued interest in the amount of $1,972 through June 30, 2008.
 
 In July
2008, the Company issued 30,000 shares of common stock at a price of $1.10 per
share to a consultant for services to be performed through November
2008.
 
 In July
2008, the Company issued 100,000 shares of common stock at a price of $1.20 per
share to a consultant for services.
 
 In July
2008, the Company issued an aggregate of 30,000 shares of common stock at $0.375
per share for the exercise of warrants by five investors.
 
 In August
2008, the Company issued an aggregate of 222,847 shares of common stock to note
holders for prepayment of interest for the period ended September 30, 2008
in the amount of $73,611.
 
 In August
2008, the Company issued an aggregate of 378,422 shares of common stock to note
holders for prepayment of interest for the last quarter of the term of the notes
in the amount of $125,000.
 
 In August
2008, the Company issued 126 shares of common stock to investors for rounding
associated with the 1-for-10 reverse stock split of its common stock on July 10,
2008.
 
 In August
2008, per the term of his employment agreement, the Company agreed to issue
833,334 shares of common stock to Michael K. Wilhelm, the Company’s President
and Chief Executive Officer. These shares were not issued as of December 31,
2008 and the fair value of these shares of $250,000 has been recorded as common
stock subscribed at December 31, 2008.
 
 F-29
 Table of Contents
  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 1,960,000 shares of our common stock and
warrants to purchase 980,000 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 46,120 shares and 18,160 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 415,080 shares
and warrants to purchase an additional 163,440 shares, respectively. This
resulted in a decrease in the number of share issuable 247,511 (with a fair
value of $816,785) and a decrease in the number of warrant shares of 97,459
(with a fair value of $177,789). This resulted in a net realized gain of
$994,574.
 
 In August
2006, we issued 415,080 shares and warrants to purchase 163,440 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
646,532 shares (post-split). The options will have a term not to exceed ten
years from the date of the grant.
 
 On June
28, 2006, our stockholders voted to 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 360,000 to 2,000,000.
 
 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 189,697 shares of common stock
with an exercise price of $2.3 1 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 350,000 shares of
common stock with an exercise price of $2.20 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.
 
 In
October 2006, the Company issued options to purchase 20,000 shares of
common stock with an exercise price of $2.00 to an employee.
 
 In
January 2007, the Company issued options to purchase 10,000 shares of common
stock with an exercise price of $1.275 per share to an employee. The options
vest 1,250 every quarter for the next two years. The amount will be charged to
operations as the options vest.
 
 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 100,000 shares of common stock at an exercise price per share equal
to $1.66 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 100,000 shares of common stock at $1.66
to vest within 30 days.
 
 In July
2007, the Company issued options to purchase 400,000 shares of common stock with
an exercise price of $1.66 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 206,000 shares of common stock with
an exercise price of $1.95 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 325,000 shares of common stock with
an exercise price of $1.66 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
 
 F-30
 Table of Contents
  In July
2007, the Company issued options to purchase 59,000 shares of common stock with
exercise prices ranging from $1.66 to $1.95 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 10,000 shares of common stock with
an exercise price of $1.95 to a consultant.  These options vest 1,200
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 granted to Dr. Zeldis
under the Company’s 2003 Stock Option, Deferred Stock and Restricted Stock Plan,
a non-qualified stock option to purchase 100,000 shares of common
stock.  On March 31, 2008, the Company granted 25,000 of these options
with an exercise price of $0.66. The options vested 30 days after
issuance.  The Company charged to operations the amount of $19,625,
the value of the options, during the year ended December 31,
2008.   On November 26, 2008, the Company granted the remaining
75,000 stock options with an exercise price of $0.15.  The options
vested 30 days after issuance.  The Company charged to operations the
amount of $26,142, the value of the options, during the year ended December 31,
2008.
 
 In
December 2007, the Company agreed to issue options to purchase 11,747 shares of
common stock to members of its advisory boards. The company charged to
operations $6,875, the value of the options during the year ended December 31,
2007.  In March 2008, these options were issued with an exercise price
of $2.50.
 
 In March
2008, the Company issued options to purchase 3,000 shares of common stock with
an exercise price of $0.78 per share to two employees, options to purchase 50%
or 1,500 shares vest in 30 days and options to purchase the remaining 50%
or 1,500 shares vest over twelve months.  The amount will be charged
to operations as the options vest.  The Company charged to operations
the fair value of $1,708 during the year ended December 31,
2008.
 On
November 26, 2008, the Company granted 75,000 stock options with an exercise
price of $0.15 to a Director.  The options vested 30 days after
issuance.  The Company charged to operations the amount of $26,142,
the value of the options, during the year ended December 31, 2008.
 
 During
the year ended December 31, 2008, options to purchase a total of 199,372 shares
of common stock were vested, comprised of 175,000 options held by directors,
7,625 held by employees and 16,747 held by consultants.  The Company
charged to operations the amount of $89,768 for the value of the options during
the year ended 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, 2008.  The effect of the
1-for-10 reverse-split has been presented in the accompanying tables and related
disclosures.
  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)$
                        0.10-2.20
                        
                        
                        
                        1,558,000
                        
                        
                        
                        7.06
                        
                        
                        $
                        0.10-2.20
                        
                        
                        
                        1,557,625
                        
                        
                        
                        7.062.30-2.50
                        
                        
                        
                        201,444
                        
                        
                        
                        2.52
                        
                        
                        
                        2.30-2.50
                        
                        
                        
                        201,444
                        
                        
                        
                        2.523.10
                        
                        
                        
                        100
                        
                        
                        
                        1.95
                        
                        
                        
                        3.10
                        
                        
                        
                        100
                        
                        
                        
                        1.953.30
                        
                        
                        
                        10,303
                        
                        
                        
                        1.64
                        
                        
                        
                        3.30
                        
                        
                        
                        10,303
                        
                        
                        
                        1.644.40
                        
                        
                        
                        15,000
                        
                        
                        
                        1.50
                        
                        
                        
                        4.40
                        
                        
                        
                        15,000
                        
                        
                        
                        1.50250.00
                        
                        
                        
                        6,321
                        
                        
                        
                        1.25
                        
                        
                        
                        250.00
                        
                        
                        
                        6,321
                        
                        
                        
                        1.251,791,168
                        
                        
                        
                        6.45
                        
                        
                        
                        
                        
                        
                        
                        1,790,793
                        
                        
                        
                        6.45
  
 F-31
 Table of Contents
  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
                      
                      
                      6,321
                      
                      
                      $
                      250.00Granted
                      
                      
                      --
                      
                      
                      
                      --Exercised
                      
                      
                      --
                      
                      
                      
                      --Expired
                      
                      
                      --
                      
                      
                      
                      --Outstanding
      at December 31, 2004
                      
                      
                      6,321
                      
                      
                      $
                      250.00Granted
                      
                      
                      25,403
                      
                      
                      
                      3.95Exercised
                      
                      
                      --
                      
                      
                      
                      --Expired
                      
                      
                      --
                      
                      
                      
                      --Outstanding
      at December 31, 2005
                      
                      
                      31,724
                      
                      
                      $
                      52.98Granted
                      
                      
                      559,697
                      
                      
                      
                      2.23Exercised
                      
                      
                      --
                      
                      
                      
                      --Expired
                      
                      
                      --
                      
                      
                      
                      --Outstanding
      at December 31, 2006
                      
                      
                      591,421
                      
                      
                      $
                      4.95Granted
                      
                      
                      1,010,000
                      
                      
                      
                      1.70Exercised
                      
                      
                      -
                      
                      
                      
                      -Expired
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      at December 31, 2007
                      
                      
                      1,601,421
                      
                      
                      $
                      2.92Granted
                      
                      
                      189,747
                      
                      
                      
                      0.37Exercised
                      
                      
                      --
                      
                      
                      
                      --Expired
                      
                      
                      --
                      
                      
                      
                      --Outstanding
      at December 31, 2008
                      
                      
                      1,791,168
                      
                      
                      
                      2.65
 
 Aggregate
intrinsic value of options outstanding and exercisable at December 31, 2008 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, 2008, and the exercise price multiplied by the number
of options outstanding. As of December 31, 2008, total unrecognized stock-based
compensation expense related to stock options was $244. During the year ended
December 31, 2008 the Company charged $89,768 to operations related to
recognized stock-based compensation expense for employees and directors stock
options.
 
 Warrants
 
 At
December 31, 2002, the Company had outstanding warrants to purchase 2,694 shares
of common stock at $8.35 per share.
 
 During
the year ended December 31, 2003, the Company issued warrants to purchase 16,957
shares of common stock at prices ranging from $1.25 to $10.00 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 24,500 shares of its common stock at a price
of $10.00 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 note agreements, the
Company issued warrants to purchase 39,100 shares of its common stock at a price
of $10.00 per share.
 
 As an
additional incentive to investors in secured convertible promissory notes, the
Company provided five-year warrants to purchase that number of shares of common
stock equal to one-half the initial principal amount of the notes. The exercise
price of the warrants is equal to 60% of the price per share paid by investors
in a future equity financing. The 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 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 44,449 shares of common stock at $0.75 per share were issued. The
value of these warrants was computed utilizing the Black-Scholes valuation
model, and the total value of these warrants, or $112,562 was charged to
operations during the twelve months ended December 31, 2004.
 
 F-32
 Table of Contents
  The
Company has outstanding warrants to purchase 25,000 shares of common stock (post
split) at $3.00 (post-split) per share which were issued in 2002 by its
predecessor company GPN Network.
 
 In April
through June 2004, the Company issued warrants to purchase 3,250 shares at price
ranging from $2.50 to $20.00 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 50,000 shares of common stock at a price of $2.50 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 44,898
shares at a price of $1.25 (post-split) 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 5,000
shares of its common stock at a price of $1.25 per share and a warrant to
purchase 1,000 shares of its common stock at a price of $0.75 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.
 
 In
October 2004, the Company issued warrants to purchase 908,000 shares of its
common stock at a price of $5.00 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 72,000
shares of its common stock at a price of $5.00 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 334,708 shares of its
common stock at a price of $5.00 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 62,887 shares of its
common stock at a price of $5.00 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 7,750 shares of its
common stock at prices ranging from $2.50 to $20.00 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 74,428 shares of its
common stock at prices ranging from $0.50 to $20.00 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
26,803 shares of common stock at prices ranging from $1.25 to $10.00 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
36,681 shares of common stock at prices ranging from $0.38 to $10.00 per share
to consultants and advisory board members. The Company also cancelled warrants
to purchase 12,353 shares of common stock at a price of $20.00 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 8,000 shares
of common stock at a price of $0.50 per share were exercised.
 
 During
the three months ended September 30, 2005, the Company issued warrants to
purchase 7,725 shares of common stock at prices ranging from $1.25 to $10.00 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 6,247 shares
of common stock at prices ranging from $1.25 to $10.00 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
6,150 shares of common stock at prices ranging from $1.25 to $10.00 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.
 
 F-33
 Table of Contents
  During
the three months ended June 30, 2006, the Company issued warrants to purchase
8,465 shares of common stock at prices ranging from $2.00 to $10.00 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 500 shares of the Company's common stock at a price of $0.90 per
share.
 
 During
the three months ended September 30, 2006, the Company issued warrants to
purchase 4,600 shares of common stock at prices ranging from $2.00 to $10.00 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.
  During
the three months ended September 30, 2006, the Company issued warrants to
purchase 30,000 shares of common stock at $2.50 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 6,250 shares of common stock at $1.58 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 163,440 shares of common stock at a price of $5.00 per
share 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 711,406 shares of its
common stock at a price of $5.00 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 842,844 shares of its
common stock at a price of $5.00 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 159,063 shares of its
common stock at a price of $5.00 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 4,350 shares of common stock at prices ranging from $2.00 to $10.00 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 500,000 shares of common stock to
a consultant.  The warrants vest 75,000 immediately and 17,708 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.  Pursuant to an agreement dated June 6, 2008,
the Company cancelled 336,458 of these common stock purchase warrants that were
previously outstanding.  The Company credited to operations the amount
of $38,599, representing the value of the warrants that vested during period
ending December 31, 2008.
 
 In July
2008, five accredited investors exercised warrants to purchase an aggregate of
30,000 shares of the Company’s common stock at a price of $0.375 per
share.
 
 In
January 2008, the Company issued warrants to purchase 750,000 shares of common
stock pursuant to a financing agreement. These warrants were valued using the
guidance of EITF 00-27, resulting in a value of $226,754. In August 2008, the
Company and YA Global agreed to amend the warrants to adjust the exercise price
to $2.00 and to reduce the shares to 750,000 pursuant to the terms of the
warrant as a result of the Company’s 1 for 10 reverse stock split, thereby
increasing the value of the warrants by $60,092.  The value of these
warrants was taken as a discount to the convertible note, and will be amortized
over the three year life of the note.  As of December 31, 2008, the
remaining discount to the convertible notes payable is $200,901.
 
 In August
2008, the Company and YA Global agreed to issue to YA Global warrants to
purchase an additional 750,000 shares of Common Stock on or before December 31,
2012 at an exercise price of $2.00, subject to adjustment.  Holders of
the warrants are limited in their right to exercise the warrants if, upon giving
effect to such exercise, it would cause the aggregate number of shares of common
stock beneficially owned by the holder and its affiliates to exceed 9.99% of the
outstanding shares of the common stock following such exercise, except within 60
days of the expiration date.  These 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.  These warrants were valued using the guidance of EITF
00-27, resulting in a value of $286,846.  The value of these warrants
was taken as a discount to the convertible note, and will be amortized over the
three year life of the note.  As of December 31, 2008, the remaining
discount to the convertible notes payable is $237,390.
 
 In August
2008, the Company issued warrants to purchase 1,075,000 shares of common stock
pursuant to a financing agreement. The warrants have an exercise price,
subject to adjustments, of $2.00 per share and are exercisable at any time on or
after February 8, 2009 and prior to February 8, 2014.  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.  To the extent not previously exercised, the warrants
will automatically be exercised via cashless exercise on February 8,
2014.  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 4.99% of the
Company’s then outstanding common stock.  These warrants were valued
using the guidance of EITF 00-27, resulting in a value of
$427,658.  The value of these warrants was taken as a discount to the
convertible note, and will be amortized over the five year life of the
note.  As of December 31, 2008, the remaining discount to the
convertible notes payable is $392,020.
 
 F-34
 Table of Contents
  In August
2008, the Company issued warrants to purchase 25,000 shares of common stock
pursuant to a financing agreement. The warrants have an exercise price,
subject to adjustments, of $2.00 per share and are exercisable at any time on or
after February 8, 2009 and prior to February 8, 2014.  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.  To the extent not previously exercised, the warrants
will automatically be exercised via cashless exercise on February 8,
2014.  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 4.99% of the
Company’s then outstanding common stock.  These warrants were valued
using the guidance of EITF 00-27, resulting in a value of $9,946.  The
value of these warrants was taken as a discount to the convertible note, and
will be amortized over the five year life of the note.  As of December
31, 2008, the remaining discount to the convertible notes payable is
$9,117.
 
 In August
2008, the Company issued warrants to purchase 1,400,000 shares of common stock
pursuant to a financing agreement. The warrants have an exercise price,
subject to adjustments, of $2.00 per share and are exercisable at any time on or
after February 8, 2009 and prior to February 8, 2014.  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.  To the extent not previously exercised, the warrants
will automatically be exercised via cashless exercise on February 8,
2014.  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 4.99% of the
Company’s then outstanding common stock.  These warrants were valued
using the guidance of EITF 00-27, resulting in a value of
$556,949.  The value of these warrants was taken as a discount to the
convertible note, and will be amortized over the five year life of the
note.  As of December 31, 2008, the remaining discount to the
convertible notes payable is $510,537.
 
 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,
2008. These warrants were granted in lieu of cash for compensation for services
performed of financing expenses and in connection with placement of convertible
debentures.  The effect of the 1-for-10 reverse-split has been
presented in the accompanying tables and related
disclosures.
 
 Warrants
      Outstanding
                        
                        
                        Warrants
      ExercisableWeighted
                        
                        
                        
                        
                        
                        
                        
                        
                        WeightedAverage
                        
                        
                        Weighted
                        
                        
                        
                        
                        
                        AverageRemaining
                        
                        
                        Average
                        
                        
                        
                        
                        
                        RemainingExercise
                        
                        
                        Number
                        
                        
                        Contractual
                        
                        
                        Exercise
                        
                        
                        Number
                        
                        
                        ContractualPrices
                        
                        
                        Outstanding
                        
                        
                        Life
      (years)
                        
                        
                        Price
                        
                        
                        Exercisable
                        
                        
                        Life
      (years)$
                        0.50-1.00
                        
                        
                        
                        19,080
                        
                        
                        
                        0.57
                        
                        
                        $
                        0.50-1.00
                        
                        
                        
                        19,080
                        
                        
                        0.571.25-2.20
                        
                        
                        
                        4,154,073
                        
                        
                        
                        4.60
                        
                        
                        
                        1.25-2.20
                        
                        
                        
                        4,154,073
                        
                        
                        4.602.30-5.60
                        
                        
                        
                        2,834,017
                        
                        
                        
                        2.14
                        
                        
                        
                        2.30-5.60
                        
                        
                        
                        2,834,017
                        
                        
                        2.1410.00
                        
                        
                        
                        13,150
                        
                        
                        
                        0.58
                        
                        
                        
                        10.00
                        
                        
                        
                        13,150
                        
                        
                        0.5820.00
                        
                        
                        
                        655
                        
                        
                        
                        0.57
                        
                        
                        
                        20.00
                        
                        
                        
                        655
                        
                        
                        0.577,020,975
                        
                        
                        
                        3.59
                        
                        
                        
                        
                        
                        
                        
                        7,020,975
                        
                        
                        3.59
 
 Transactions
involving warrants are summarized as follows:
 
 Number
      of Shares
                      Underlying
      Warrants
                    
                    
                    Weighted
      Average
                      Exercise
      Price Per ShareOutstanding
      at December 31, 2003
                    
                    
                    83,251
                    
                    
                    $
                    8.23Granted
                    
                    
                    1,683,120
                    
                    
                    
                    4.68Exercised
                    
                    
                    (660,078
                    )
                    
                    
                    5.00Cancelled or expired
                    
                    
                    --
                    
                    
                    
                    --Outstanding
      at December 31, 2004
                    
                    
                    1,106,293
                    
                    
                    $
                    4.75Granted
                    
                    
                    75,747
                    
                    
                    
                    4.36Exercised
                    
                    
                    (8,000
                    )
                    
                    
                    0.50Canceled or expired
                    
                    
                    (12,353
                    )
                    
                    
                    20.00Outstanding
      at December 31, 2005
                    
                    
                    1,161,687
                    
                    
                    $
                    4.59Granted
                    
                    
                    1,936,567
                    
                    
                    
                    3.21Exercised
                    
                    
                    (500
                    )
                    
                    
                    0.90Cancelled or expired
                    
                    
                    (32,600
                    )
                    
                    
                    10.00Outstanding
      at December 31, 2006
                    
                    
                    3,065,154
                    
                    
                    $
                    3.66Granted
                    
                    
                    500,000
                    
                    
                    
                    2.83Exercised
                    
                    
                    -
                    
                    
                    
                    -Cancelled or expired
                    
                    
                    (49,090
                    )
                    
                    
                    3.76Outstanding
      at December 31, 2007
                    
                    
                    3,516,064
                    
                    
                    $
                    3.54Granted
                    
                    
                    4,000,000
                    
                    
                    
                    2.00Exercised
                    
                    
                    (30,000
                    )
                    
                    
                    0.38Cancelled or expired
                    
                    
                    (465,090
                    )
                    
                    
                    3.79Outstanding
      at December 31, 2008
                    
                    
                    7,020,974
                    
                    
                    $
                    2.66
  F-35
 Table of Contents
  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:
 
 2008
                            
                            2007Significant
      assumptions (weighted-average):Risk-free
      interest rate at grant date
                            
                            2.50
      to 4.25%
                            
                            4.75%Expected
      stock price volatility
                            
                            82.54
      to 169.3%
                            
                            87.71%Expected
      dividend payout
                            
                            
                            -
                            
                            
                            -Expected
      warrant life-years
                            
                            3
      to 5.5
                            
                            3
      to 5
 
 NOTE
8 - COMMITMENTS AND CONTINGENCIES
 
 Office
Leases
 
 As of
March 17, 2009, our corporate headquarters are located at 8777 E. Via de
Ventura, Scottsdale, Arizona, 85258, where we have leased approximately 1,943
square feet of office space through March 31, 2013. Our rent expense for the
first two months of occupancy will be $0 per month; months 3-12 will be
$3,400.25 plus tax per month and will increase to $3,665.79 plus tax per month
in months 13-24.
 
 Rent
expense amounted to $86,166 for the year ended December 31, 2008, $38,778 for
the year ended December 31, 2007 and $256,505 for the period from October 30,
2002 (inception) through December 31, 2008.
  Future
minimum payments under non-cancelable leases with terms in excess of one year as
of December 31, 2008 were as follows:
 
 2009
                    
                    $
                    56,0002010
                    
                    
                    43,1942011
                    
                    
                    44,748Total
                    
                    $
                    143,942
 
 Employment and Consulting
Agreements
 
 The
Company has employment agreements with the President/Chief Executive Officer,
Chief Financial Officer and Senior Director Of Product
Development And Regulatory Affairs.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 employment
agreements include financial commitments related to severance and change of
control provisions.
 
 The
Company has consulting agreements with outside contractors to provide financial
and scientific advisory services. The Agreements are generally for a term of 12
months from inception.
 
 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.
 
 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 $16,315,000 which expire through 2028, subject to limitations
of Section 382 of the Internal Revenue Code, as amended. The deferred tax asset
related to the carry forward is approximately $5,710,250. 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.
  F-36
 Table of Contents
  Components
of deferred tax assets as of December 31, 2008 are as follows:
  Non
      Current:Net
      operating loss carry forward
                    
                    $
                    5,710,250Valuation
      allowance
                    
                    
                    (5,710,250
                    )Net
      deferred tax asset
                    
                    $
                    -
 
 NOTE
10 - SUBSEQUENT EVENTS
  Convertible Debentures Sold
For Accrued Interest
  Amendment to
Lease
 On March
31, 2009, we sold a 0% interest convertible debenture to YA Global, who is an
accredited investor, per the terms of a securities purchase agreement. The
debentures have a five year term of exercise and a minimum conversion price of
$0.30 per share as payment of $75,000.00 in interest accrued during the three
months ended March 31, 2009.
  On March
31, 2009, we sold 0% interest convertible debenture to four note holders, who
are accredited investors, per the terms of a securities purchase agreement. The
debentures have a five year term of exercise and a minimum conversion price of
$0.30 per share as payment of an aggregate of $125,000.00 in interest accrued
during the three months ended March 31, 2009.
  Shares Issued to President
and CEO
 On March
17, 2009 we agreed to an amendment to our two (2) year lease agreement with Bay
Colony Executive Center-West, a division of BC Management Company, Inc.,
effective April 1, 2009 to relocate our headquarters to a 1,943 square foot
suite within the Bay Colony Executive Center located at 8777 E. Via de Ventura,
Suite 280, Scottsdale, Arizona 85258 and extends our current lease obligation of
its office lease term to 48 months ending March 31, 2013.  Our minimum
monthly rent expense under the amended lease is $3,400.25 plus tax per month in
the first year starting June 1, 2009 and will increase to $3,665.79 plus tax per
month in the second year, $3,749.99 plus tax in the third year and $3,845.52
plus tax in the fourth year.  In addition, as per the amendment, we
will be charged no rent for April and May 2009.  We are 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.
 
 In August
2008, per the term of his employment agreement, the Company agreed to issue
833,334 shares of common stock with a fair value of $250,000.00 to Michael K.
Wilhelm, the Company’s President and Chief Executive Officer, as a target
incentive bonus for the consummation of a debt financing with an unaffiliated
third party. In January 2009, the Company issued these shares to Michael K.
Wilhelm.
   42
 
 ITEM9.  CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  None.
  ITEM9A. 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 Securities Exchange Act of 1934, as amended (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 on form 10-K, our management,
under the supervision and with the participation of the Company's Chief
Executive Officer and Chief Financial (and principal accounting) Officer,
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) of the Exchange Act).  Based upon that evaluation and
due to the material weakness existing in our internal controls as of
December 31, 2007 (described below) which has not been fully remediated as
of December 31, 2008, we have concluded that as of December 31, 2008, our
disclosure controls and procedures were ineffective.
 
 Changes in internal
controls.
 
 A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis.  Material
weaknesses would permit information required to be disclosed by the Company in
the reports that it files or submits to not be recorded, processed, summarized
and reported, within the time periods specified in the Securities Exchange
Commission’s rules and forms.  In our Amendment No. 1 to our Annual Report
on Form 10-KSB/A for the year ended December 31, 2007, we identified a material
weakness consisting of limited resources and a limited number of employees,
namely the lack of an audit committee, an understaffed financial and accounting
function, and the need for additional personnel to prepare and analyze financial
information in a timely manner and to allow review and on-going monitoring and
enhancement of our controls.
 
 In 2008
we took various steps to remediate the deficiencies that gave rise to this
material weakness.  We formed an audit committee in June
2008.  Additionally, in the second quarter ended June 30, 2008, we
restructured our existing personnel in order to create a full-time equivalent
position in our accounting and analysis processes.  We also took other
measures, including evaluating and improving our existing internal control
documentation and procedures to develop clear identification of key financial
and reporting controls and using an external consultant to review our control
procedures to assure compliance and enhancement, as needed, to existing
controls, to remediate the material weakness.  In the fourth quarter,
we provided additional education to our employees regarding our code of ethics,
standard operating procedures, stock trading policy and our whistle blower
hotline.  During the fourth quarter we continued to evaluate our
internal control documentation.  Although we made progress towards
remediation of the deficiencies giving rise to the material weakness, we are
unable to conclude that the material weakness described above was remediated as
of December 31, 2008.
 
 43
 Table of Contents
  There
were no other changes in our internal controls over financial reporting during
the quarter ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 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.
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report.
 ITEM9B.  OTHER
INFORMATION
 
 
 None.
  
 44
 Table of Contents
 
 PART
III
 
 ITEM10.  DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 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 2008 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-K/A, not
later than the end of the 120-day period.
 ITEM 11. 
EXECUTIVE
COMPENSATION
 
 
 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 2008 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-K/A, not
later than the end of the 120-day period.
  ITEM 12. 
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 The
information required by this Item 12 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 2008 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-K/A, not
later than the end of the 120-day period.
  ITEM 13. 
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE  The
information required by this Item 13 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-K/A, not later than the end of
the 120-day period.
 ITEM 14. 
PRINCIPAL
ACCOUNTANT FEES AND SERVICES  The
information required by this Item 14 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-K/A, not later than the end of
the 120-day period.
   45
 Table of Contents
    ITEM15.  EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
  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).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).3.1(h)
                    Certificate
      of Amendment filed with the Delaware Secretary of State on June 27,
      2008.3.1(i)
                    Certificate
      of Amendment filed with the Delaware Secretary of State on July 10,
      2008.3.2
                    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).   46
 Table of Contents
  Exhibit
      Number
                            Description
      of Exhibit
 4.3
                      Amendment
      No. 1 to IR BioSciences Holdings, Inc. 2003 Stock Option, Deferred Stock
      and Restricted Stock Plan (incorporated by reference to Annex B to the
      definitive Proxy Statement on Schedule 14A filed with the Securities and
      Exchange Commission on June 5, 2006).4.4
                      Amendment
      No. 2 (titled “Amendment No. 3”) to IR BioSciences Holdings, Inc. 2003
      Stock Option, Deferred Stock and Restricted Stock Plan (incorporated by
      reference to Appendix B to the definitive Proxy Statement on Schedule 14A
      filed with the Securities and Exchange Commission on May 9,
      2008).4.5
                      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).4.6
                      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).4.7
                      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).4.8
                      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).4.8
                      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).4.10
                      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).4.11
                      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).4.12
                      8%
      Secured Convertible Debenture due May 31, 2011 in the amount of
      $1,000,000, issued to YA Global Investments, L.P., dated June 12, 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 June 17,
      2008)4.13
                      Amendment
      Number 1 to 8% Secured Convertible Debenture in the amounts of $2,000,000
      and $1,000,000, issued to YA Global Investments, L.P., dated January 3,
      2008 and June 12, 2008, respectively (incorporated by reference from
      Exhibit 4.1 to the Current Report on Form 8-K as filed with the Securities
      and Exchange Commission on July 23, 2008).4.14
                      Waiver
      of Application of Provisions Under Secured Convertible Debenture between
      the Company and YA Global Investments, L.P. dated July 18, 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 July 23,
      2008).4.15
                      Form
      of 10% Secured Convertible Debenture due August 8, 2013 dated August 8,
      2008 issued to Funds Managed by Brencourt Advisors LLC (incorporated by
      reference from Exhibit 4.1 to the Current Report on Form 8-K as filed with
      the Securities and Exchange Commission on August 11,
  2008).4.16
                      Form
      of Common Stock Purchase Warrant dated August 8, 2008 issued to Funds
      Managed by Brencourt Advisors LLC (incorporated by reference from Exhibit
      4.2 to the Current Report on Form 8-K as filed with the Securities and
      Exchange Commission on August 11, 2008)   47
 Table of Contents
  Exhibit
      Number
                              Description
      of Exhibit
  4.17
                          Amendment
      Number 2 to 8% Secured Convertible Debenture in the amount of $2,000,000
      issued to YA Global Investments, L.P., dated January 3, 2008 (incorporated
      by reference from Exhibit 4.3 to the Current Report on Form 8-K as filed
      with the Securities and Exchange Commission on August 11,
      2008).4.18
                          Amendment
      Number 2 to 8% Secured Convertible Debenture in the amount of $1,000,000
      issued to YA Global Investments, L.P., dated June 12, 2008 (incorporated
      by reference from Exhibit 4.4 to the Current Report on Form 8-K as filed
      with the Securities and Exchange Commission on August 11,
      2008)4.19
                          Amendment
      Number 1 to Common Stock Purchase Warrant, issued to YA Global
      Investments, L.P., dated August 8, 2008 (incorporated by reference from
      Exhibit 4.5 to the Current Report on Form 8-K as filed with the Securities
      and Exchange Commission on August 11, 2008)4.20
                          Common
      Stock Purchase Warrant, issued to YA Global Investments, L.P., dated
      August 8, 2008 incorporated by reference from Exhibit 4.6 to the Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      August 11, 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).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).
   48
 Table of Contents
   Exhibit
      Number
                                Description
      of Exhibit
  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 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).10.8
                        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).10.9
                        Severance
      Agreement dated November 7, 2005 by and between the Registrant and Michael
      K. Wilhelm (incorporated by reference to exhibit 10.3 of the Registrant's
      quarterly report on Form 10-QSB for the three months ended September 30,
      2005).10.10
                        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).10.11
                        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).10.12
                        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).10.13
                        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).10.14
                        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).10.15
                        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).10.16
                        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).10.17
                        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).10.18
                        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).10.19
                        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).10.20
                        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).10.21
                        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).10.22
                        Agreement
      dated August 14, 2007 by and between the Company and Dr. Robert J. Hariri
      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 August
      17, 2007).10.23
                        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).   49
 Table of Contents
  Exhibit
      Number
                                Description
      of Exhibit
  10.24
                        Amendment
      for an Extension to Lease Term and to Relocate to Suite 280 at the Bay
      Colony Executive Center - East dated March 17, 2009 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 March 20,
      2009).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).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 January 1, 2008 by and between the Company and John Fermanis(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
      8, 2008).10.34
                        Change of Control
      Agreement dated January 1, 2008 by and between the Company and John
      Fermanis (incorporated by reference from Exhibit 10.2 to the
      Current Report on Form 8-K as filed with the Securities and Exchange
      Commission on April 8, 2008).10.35
                        Securities
      Purchase Agreement, dated as of August 8, 2008, by and among the Company,
      ImmuneRegen BioSciences, Inc., and certain funds managed by Brencourt
      Advisors, LLC (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 11,
      2008).10.36
                        Guaranty
      Agreement dated as of August 8, 2008, executed by ImmuneRegen BioSciences,
      Inc. in favor of certain funds managed by Brencourt Advisors, LLC (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 11,
      2008).10.37
                        Security
      Agreement dated as of August 8, 2008, by and among the Company,
      ImmuneRegen BioSciences, Inc., and certain funds managed by Brencourt
      Advisors, LLC (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 11, 2008).10.38
                        Patent
      Security Agreement dated as of August 8, 2008, by and among the Company,
      ImmuneRegen BioSciences, Inc. and certain funds managed by Brencourt
      Advisors, LLC (incorporated by reference from Exhibit 10.4 to the Current
      Report on Form 8-K as filed with the Securities and Exchange Commission on
      August 11, 2008).10.39
                        Employment Agreement
      dated October 24, 2008 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
      December 22, 2008).10.40
                        Change of Control
      Agreement dated October 24, 2008 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
      December 22, 2008).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 RBSM LLP   50
 Table of Contents
  Exhibit
      Number
                                Description
      of Exhibit
  31.1
                            Certification of Chief Executive Officer pursuant to
      Item 601(b)(31) of Regulation S-K, 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-K, 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.
  
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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, 2009.
   IR
      BIOSCIENCES HOLDINGS, INC.Date:
      March 31, 2009
                By:
                /s/
      Michael K.
      WilhelmMichael
      K. WilhelmPresident
      and Chief Executive Officer
  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
                                    
                                    Chief
      Executive Officer, President and Director (Principal Executive
      Officer)
                                    
                                    March
      31, 2009/s/John
      N.
      Fermanis
                                    
                                    Chief
      Financial Officer (Principal Financial and Accounting
    Officer)
                                    
                                    March
      31, 2009/s/Theodore
      E. Staahl,
      M.D.
                                    
                                    Director
                                    
                                    March
      31, 2009/s/Hal
      N. Siegel,
      Ph.D.
                                    
                                    Director
                                    
                                    March
      31, 2009/s/Lance
      K. Gordon,
      Ph.D.
                                    
                                    Director
                                    
                                    March
      31, 2009/s/Robert
      J. Hariri, M.D.,
      Ph.D.
                                    
                                    Director
                                    
                                    March
      31, 2009/s/Jerome
      B. Zeldis, M.D.,
      Ph.D.
                                    
                                    Director
                                    
                                    March
      31,
2009


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