FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

 (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                  Act of 1934

                  For the quarterly period ended September 30, 2006

                                       or

     ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
                              Exchange Act of 1934

           For the transition period from ___________ to _____________

                        COMMISSION FILE NUMBER: 033-05384

                          IR BIOSCIENCES HOLDINGS, INC.

             (Exact name of Registrant as specified in its charter)

          Delaware                                       13-3301899
-------------------------------                  ----------------------------
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)

            4021 N. 75th Street, Suite 201, Scottsdale, Arizona 85251
                (Address of principal executive offices) Zip Code

       Registrant's telephone number, including area code: (480) 922-3926

              (Former name, former address and former fiscal year,
                         if changed since last report)

Indicate by check mark whether  Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during
the preceding  twelve months or for such shorter  period that the Registrant was
required  to file  such  reports,  and  (2)  has  been  subject  to such  filing
requirements for the past 90 days.
Yes  X       No
   -----       -----


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

Yes          No  X
   -----       -----


The number of shares outstanding of Registrant's  common stock as of October 26,
2006 was 73,775,649.


Transitional Small Business Disclosure Format (check one):  Yes       No   X
                                                               -----     -----



                  IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS





PART I.         FINANCIAL INFORMATION                                Page Number





     Item 1. Financial Statements:

                Condensed Consolidated Balance Sheet as of
                September 30, 2006 (unaudited) ..............................F-1

                Condensed Consolidated Statement of Losses for the
                three and nine months ended September 30, 2006 and 2005,
                and for the period of inception (October 30, 2002) to
                September 30, 2006 (unaudited)...............................F-2

                Condensed Consolidated Statement of Stockholders' Equity
                (Deficit)from date of inception (October 30,
                2002) to September 30, 2006 (unaudited)...............F-3 to F-6

                Condensed Consolidated Statements of Cash Flows for
                the nine months ended September 30, 2006 and 2005, and
                for the period of inception (October 30, 2002) to
                September 30, 2006 (unaudited)  ......................F-7 to F-8

                Notes to Consolidated Financial Statements   ................F-9



     Item 2. Management's Discussion and Analysis of Financial
                Condition or Plan of Operation ................................3
     Item 3. Controls and Procedures .........................................11


PART II         OTHER INFORMATION

     Item 1. Legal Proceedings ...............................................12
     Item 2. Unregistered Sale of Equity Securities
                and Use of Proceeds   ........................................12
     Item 3. Defaults Upon Senior Securities .................................13
     Item 4. Submission of Matters to a Vote of
                Securities Holders ...........................................13
     Item 5. Other Information ...............................................14
     Item 6. Exhibits ........................................................15
             Signatures  .....................................................16

                                        2




ITEM 1. FINANCIAL INFORMATION

                  IR BioSciences Holdings, Inc. and Subsidiary
                          (A Development Stage Company)
         Condensed Consolidated Balance Sheet as of September 30, 2006
                                   (Unaudited)

                                                               September 30,
                                                                   2006
                                                                ------------
                                     Assets

Current assets

   Prepaid services and other current assets (note 1)           $     11,459
                                                                ------------
      Total current assets                                            11,459

   Deposits and other assets (note 1)                                  2,260
   Furniture and equipment, net of
      accumulated depreciation of $9,747                              20,928
                                                                ------------

      Total assets                                              $     34,647
                                                                ============

               Liabilities and Deficiency in Stockholders' Equity

Current liabilities

   Cash overdraft                                               $      9,681
   Accounts payable and accrued liabilities (note 3)               1,026,823
   Notes payable (note 5)                                            829,750
                                                                ------------
      Total current liabilities                                    1,866,254

Commitments and Contingencies

Deficiency in Stockholders' Equity

   Preferred stock, 0.001 par value:
      10,000,000 shares authorized,
      no shares issued and outstanding                                    --
   Common stock, $0.001 par value; 250,000,000 shares
      authorized; 73,775,649 shares issued and outstanding
      at September 30, 2006 (note 7)                                  73,773
   Additional paid-in capital (note 7)                            11,386,256
   Deferred Compensation                                            (691,939)
   Deficit Accumulated during the Development Stage              (12,599,697)
                                                                ------------
      Total deficiency in stockholders' equity                    (1,831,607)
                                                                ------------

Total liabilities and deficiency in stockholders' equity        $     34,647
                                                                ============

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

                                       F-1



                  IR BioSciences Holdings, Inc. and Subsidiary
                          (A Development Stage Company)
                   Condensed Consolidated Statements of Losses
                      For the three months and nine months
                       ended September 30, 2006 and 2005,
                         And for the period of inception
                    (October 30, 2002) to September 30, 2006
                                   (Unaudited)

<TABLE>
<CAPTION>

                                        For the         For the
                                         Three           Three                                      Cumulative from
                                         Months          Months       For the Nine    For the Nine  Inception (October
                                       Ended Sept      Ended Sept     Months Ended    Months Ended    30, 2002) to
                                        30, 2006       30, 2005      Sept 30, 2006   Sept 30, 2005   Sept 30, 2006
                                      ------------    ------------    ------------    ------------    ------------
<S>                                    <C>            <C>             <C>              <C>            <C>
Revenues                              $         --    $         --    $         --    $         --    $         --

Operating expenses:

   Selling, general and
      administrative expenses              598,045         507,445       1,761,161       1,939,800       9,885,462
   Merger fees and costs                        --              --              --              --         350,000
   Financing cost                               --         579,575              --       2,072,831          90,000
   Impairment of intangible
      asset costs                               --              --              --              --           6,393
                                      ------------    ------------    ------------    ------------    ------------
      Total operating expenses             598,045       1,087,020       1,761,161       4,012,631      10,331,855

Operating loss                            (598,045)     (1,087,020)     (1,761,161)     (4,012,631)    (10,331,855)

Other expense:

   Cost of penalty for late
      registration of shares                    --              --        (438,601)             --       2,192,160
   (Gain) loss from marking to
      market - warrant portion of
      penalty for late registration
      of shares                            (76,750)             --        (123,505)             --        (378,198)
   (Gain) loss from marking to
      market - stock portion of
      penalty for late registration
      of shares                           (373,572)             --        (445,673)             --        (760,058)
   Interest (income) expense                32,290          (5,925)         47,181          (4,607)      1,213,938
                                      ------------    ------------    ------------    ------------    ------------
      Total other (income) expense        (418,032)         (5,925)       (960,598)         (4,607)      2,267,842

  Income (loss) before income taxes       (180,013)     (1,081,095)       (800,563)     (4,008,024)    (12,599,697)

   Provision for income taxes                   --              --              --              --              --
                                      ------------    ------------    ------------    ------------    ------------
Net income (loss)                     $   (180,013)   $ (1,081,095)   $   (800,563)   $ (4,008,024)   $(12,599,697)
                                      ============    ============    ============    ============    ============

Net income (loss) per share -
   basic and diluted                  $     (0.003)   $      (0.02)   $      (0.01)   $      (0.06)   $      (0.28)
                                      ============    ============    ============    ============    ============

Weighted average shares outstanding
   basic and diluted                    71,429,544      69,337,210      70,165,289      67,103,634      44,892,577
                                      ============    ============    ============    ============    ============
</TABLE>


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

                                       F-2





                   IR Biosciences Holding, Inc. and Subsidiary
                          (A Development Stage Company)
       Condensed Consolidated Statement of Stockholders' Equity (Deficit)
         From date of inception (October 30, 2002) to September 30, 2006
                                   (Unaudited)


<TABLE>
<CAPTION>

                                                          Common Stock       Additional
                                                  ------------------------    Paid-In      Deferred    Accumulated
                                                    Shares         Amount      Capital   Compensation    Deficit       Total
                                                  -----------  -----------  -----------  ------------  -----------  -----------
<S>                                               <C>          <C>          <C>          <C>           <C>           <C>
Balance at October 30, 2002 (date of inception)            --  $        --  $        --            --  $        --  $        --

Shares of common stock issued at $0.0006
   per share to founders for license of
   proprietary right in December 2002              16,612,276       16,612       (7,362)           --           --        9,250

Shares of common stock issued at $0.0006 per
   share to founders for services rendered in
   December 2002                                    1,405,310        1,405         (623)           --           --          782

Shares of common stock issued at $0.1671 per
   share to consultants for services rendered
   in December 2002                                    53,878           54        8,946        (9,000)          --           --

Sale of common stock for cash  at $0.1671 per
   share in December 2002                             185,578          186       30,815            --           --       31,001

Net loss for the period from inception
   (October 30, 2002) to December 31, 2002                 --           --           --            --      (45,918)     (45,918)
                                                  -----------  -----------  -----------  ------------  -----------  -----------
Balance at December 31, 2002 (reflective of
   stock splits)                                   18,257,042       18,257       31,776        (9,000)     (45,918)      (4,885)

Shares granted to consultants at $0.1392 per
   share for services rendered in January 2003         98,776           99       13,651            --           --       13,750

Sale of shares of common stock for cash at
   $0.1517 per share in January 2003                  329,552          330       49,670            --           --       50,000

Shares granted to consultants at $0.1392 per
   share for services rendered in March 2003          154,450          154       21,346            --           --       21,500

Conversion of notes payable to common stock
   at $0.1392 per share in April 2003               1,436,736        1,437      198,563            --           --      200,000

Shares granted to consultants at $0.1413 per
   share for services rendered in April 2003           14,368           14        2,016            --           --        2,030

Sale of shares of common stock for cash at
   $0.2784 per share in May 2003                       17,960           18        4,982            --           --        5,000

Sales of shares of common stock for cash at
   $0.2784 per share in June 2003                      35,918           36        9,964            --           --       10,000

Conversion of notes payable to common stock
   at $0.1392 per share in June 2003                  718,368          718       99,282            --           --      100,000

Beneficial conversion feature associated with
   notes issued in June 2003                               --           --       60,560            --           --       60,560

Amortization of deferred compensation                      --           --           --         9,000           --        9,000

Costs of GPN Merger in July 2003                    2,368,130        2,368     (123,168)           --           --     (120,799)

Value of warrants issued with extended notes
   payable in October 2003                                 --           --      189,937            --           --      189,937

Value of Company  warrants  issued in
   conjunction  with  fourth  quarter  notes
   payable issued October through December 2003            --           --      207,457            --           --      207,457

 Value of warrants  contributed by founders in
   conjunction  with fourth quarter notes payable
   issued October through December 2003                    --           --      183,543            --           --      183,543

 Value of warrants issued for services in
   October through December 2003                           --           --       85,861            --           --       85,861

 Net loss for the year  ended
   December 31, 2003                                       --           --           --            --   (1,856,702)  (1,856,702)
                                                  -----------  -----------  -----------  ------------  -----------  -----------
 Balance at December 31, 2003                      23,431,300  $    23,431  $ 1,035,441            --  $(1,902,620) $  (843,748)

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

                                       F-3




                   IR Biosciences Holding, Inc. and Subsidiary
                          (A Development Stage Company)
       Condensed Consolidated Statement of Stockholders' Equity (Deficit)
           From date of inception (October 30, 2002) to September 30, 2006
                                   (Unaudited)

                                                          Common Stock       Additional
                                                  ------------------------    Paid-In      Deferred    Accumulated
                                                    Shares         Amount      Capital   Compensation    Deficit       Total
                                                  -----------  -----------  -----------  ------------  -----------  -----------

Shares granted at $1.00 per share pursuant to
   the Senior Note Agreement in January 2004          600,000          600      599,400      (600,000)          --           --

Shares issued at $1.00 per share to a
   consultant for services rendered in
   January 2004                                       800,000          800      799,200      (800,000)          --           --

Shares issued to a consultant at $0.62
   per share for services rendered in
   February 2004                                       40,000           40       24,760       (24,800)          --           --

Shares issued to a consultant at $0.40 per
   share for services rendered in March 2004        1,051,600        1,051      419,589      (420,640)          --           --

Shares issued to a consultant at $0.50 per
   share  for services rendered in March 2004         500,000          500      249,500      (250,000)          --           --

Shares sold for cash at $0.15 per share
   in March, 2004                                       8,000            8        1,192            --           --        1,200

Shares issued at $0.50 per share to
   consultants for services rendered in
   March 2004                                          20,000           20        9,980            --           --       10,000

Shares issued to a consultant at  $0.40 per
   share  for services rendered in March 2004           2,000            2          798            --           --          800

Shares issued to consultants at $0.32 per
   share for services rendered in March 2004           91,600           92       29,220            --           --       29,312

Shares to be issued to consultant at $0.41 per
   share in April 2004 for services to be
   rendered through March 2005                             --           --           --       (82,000)          --      (82,000)

Shares granted pursuant to the New Senior Note
   Agreement in April 2004                            600,000          600      149,400      (150,000)          --           --

Shares issued to officer at $0.32 per share for
   services rendered in April 2004                    200,000          200       63,800            --           --       64,000

Conversion of note payable to common stock at
   $0.10 per share in May 2004                        350,000          350       34,650            --           --       35,000

Beneficial Conversion Feature associated with
   note payable in May 2004                                --           --       35,000            --           --       35,000

Issuance of warrants to officers and founder
   for services rendered in May 2004                       --           --      269,208            --           --      269,208

Shares to a consultant at $0.20 per share as a
   due diligence fee in May 2004                      125,000          125       24,875            --           --       25,000

Shares issued to a consultant at $1.00 per
   share for services to be rendered over
   twelve months beginning May 2004                   500,000          500      499,500      (500,000)          --           --

Beneficial Conversion Feature associated with
   notes payable issued in June 2004                       --           --        3,000            --           --        3,000

Issuance of warrants to note holders in April,
   May, and June 2004                                      --           --       17,915            --           --       17,915

Issuance of warrants to employees and
   consultants for services rendered in
   April through June 2004                                 --           --        8,318            --           --        8,318

Shares issued in July  to a consultant at
   $0.10 for services to be rendered through
   July 2005                                          250,000          250       24,750       (25,000)          --           --

Shares issued to a consultant in July and
   September at $0.41 per share for services
   to be rendered through April 2005                  200,000          200       81,800            --           --       82,000

Shares issued to a consultant in September at
   $0.12 to $0.22 for services rendered
   through September 2004                             127,276          127       16,782            --           --       16,909

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

                                       F-4




                   IR Biosciences Holding, Inc. and Subsidiary
                          (A Development Stage Company)
       Condensed Consolidated Statement of Stockholders' Equity (Deficit)
           From date of inception (October 30, 2002) to September 30, 2006
                                   (Unaudited)

                                                          Common Stock       Additional
                                                  ------------------------    Paid-In      Deferred    Accumulated
                                                    Shares         Amount      Capital   Compensation    Deficit       Total
                                                  -----------  -----------  -----------  ------------  -----------  -----------

Shares issued in July to September 2004 as
   interest on note payable                           300,000          300       35,700            --           --       36,000

Issuance of warrants with notes payable in
   July and August 2004                                    --           --       72,252            --           --       72,252

Accrued deferred compensation in August 2004
   to a consultant for 100,000 shares at $0.10
   per share, committed but unissued                       --           --           --       (10,000)          --      (10,000)

Shares issued in August 2004 at $0.14 to a
   consultant for services to be performed
   through October 2004                               100,000          100       13,900       (14,000)          --           --

Shares issued in August 2004 at $0.125 per
   share for conversion of $30,000 demand loan        240,000          240       29,760            --           --       30,000

Shares issued in August 2004 at $0.16 per
   share to a consultant for services provided        125,000          125       19,875            --           --       20,000

Shares issued in October 2004 to employees at
   $0.16 to $0.25 per share                            48,804           49        8,335            --           --        8,384

Commitment to issue 100,000 shares of stock to
   a consultant at $0.23 per share for services
   to be provided through September 2005                   --           --           --       (23,000)          --      (23,000)

Sale of stock for cash in October at $0.125 per
   share, net of costs of $298,155                 18,160,000       18,160    1,345,763            --           --    1,363,923

Value of warrants issued with sale of common
   stock in October, net of costs                          --           --      607,922            --           --      607,922

Issuance of warrant to officer in October, 2004            --           --      112,697            --           --      112,697

Issuance of stock to investment bankers in
   October 2004 for commissions earned              4,900,000        4,900       (4,900)           --           --           --

Conversion of accounts payable to stock in
   October at $0.125 per share                      1,257,746        1,258      107,382            --           --      108,640

Value of warrants issued with accounts
   payable conversions                                     --           --       48,579            --           --       48,579

Conversion of demand loan to stock in October
   at $0.11 per share                                  93,300           93       10,170            --           --       10,263

Forgiveness of notes payable in October 2004               --           --       36,785            --           --       36,785

Issuance of stock to officer and director at
   $0.125 per share in October for conversion
   of liability                                     1,440,000        1,440      122,493            --           --      123,933

Value of warrants issued with officer and
   director conversion of liabilities                      --           --       56,067            --           --       56,047

Conversion of debt and accrued interest to
   common stock at $0.075 to $0.125 per share       6,703,151        6,703      417,514            --           --      424,217

Value of warrants issued with conversion
   of debt                                                 --           --      191,111            --           --      191,111

Conversion of note payable in October into
   common stock at $0.075 per share                    67,613           68        4,932            --           --        5,000

Issuance of warrants to note holders in
   October 2004                                            --           --      112,562            --           --      112,562

Value of shares issued to CFO as compensation         100,000          100       34,900            --           --       35,000

Value of warrants issued to members of
   advisory committees in November
   and December                                            --           --       16,348            --           --       16,348

Beneficial conversion feature associated with
   notes  payable                                          --           --      124,709            --           --      124,709

Shares issued in error to be cancelled                 (9,002)          (9)           9            --           --           --

Amortization of deferred compensation through
   December 31, 2004                                       --           --           --     2,729,454           --    2,729,454

Loss for the year ended
   December 31, 2004                                       --           --           --            --   (5,305,407)  (5,305,407)
                                                 ------------  -----------  -----------  ------------  -----------  -----------
Balance at December 31, 2004                       62,423,388       62,423    7,922,943      (169,986)  (7,208,027)     607,353
                                                 ------------  -----------  -----------  ------------  -----------  -----------

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

                                       F-5



                   IR Biosciences Holding, Inc. and Subsidiary
                          (A Development Stage Company)
       Condensed Consolidated Statement of Stockholders' Equity (Deficit)
           From date of inception (October 30, 2002) to September 30, 2006
                                   (Unaudited)

                                                          Common Stock       Additional
                                                  ------------------------    Paid-In      Deferred    Accumulated
                                                    Shares         Amount      Capital   Compensation    Deficit       Total
                                                  -----------  -----------  -----------  ------------  -----------  -----------

Sale of shares of common stock for cash at
   $0.20 per share in Mar 2005 for warrant
   exercise, net of costs                           6,600,778        6,600    1,184,256            --           --    1,190,856

Value of warrants issued to members
   of advisory committees in March 2005                    --           --      137,049            --           --      137,049

Deferred compensation in Feb 2005 to a
   consultant for 50,000 shares of stock at
   $0.65 per share.                                        --           --           --       (32,500)          --      (32,500)

Warrants exercised at $0.05 per share
   in June 2003                                        80,000           80        3,920            --           --        4,000

Value of warrants issued to members of
   advisory committee in June 2005                         --           --       70,781            --           --       70,781

Value of warrants issued to investors and
   service providers in June 2005                          --           --       32,991            --           --       32,991

Issuance of 232,153 shares of common
   stock in July 2005 for conversion of
   notes payable                                      232,153          232       64,771            --           --       65,003

Issuance of 100,000 shares of common stock
   in August 2005 to a consultant for
   services provided                                  100,000          100        9,900            --           --       10,000

Value of warrants issued to advisory
   committee in September 2005 for services                --           --       20,491            --           --       20,491

Amortization of deferred comp for the
   twelve months ended December, 2005                      --           --           --       199,726           --      199,726

Value of warrants issued in October
   and December 2005 to investors and
   service providers                                       --           --       18,399            --           --       18,399

Loss for the year ended
   December 31, 2005                                       --           --           --            --   (4,591,107)  (4,591,107)

                                                 ------------  -----------  -----------  ------------  -----------  -----------
Balance at December 31, 2005                       69,436,319       69,435    9,465,501        (2,760) (11,799,134)  (2,266,958)
                                                 ------------  -----------  -----------  ------------  -----------  -----------

Issuance of 100,000 shares of common stock
   in March 2006 to an officer,
   previously accrued                                100,000          100       41,316             --           --       41,416

Value of warrants issued to advisory
   committee in March 2006 for services                   --           --        8,399             --           --        8,399

Amortization of deferred comp for the
   three months ended March 31, 2006                      --           --           --          2,760           --        2,760

Loss for the three months ended
   March 31, 2006                                         --           --           --             --   (1,162,506)  (1,162,506)
                                                 ------------  -----------  -----------  ------------  -----------  -----------
Balance at March 31, 2006                          69,536,319      69,535    9,515,216             --  (12,961,640)  (3,376,889)
                                                 ------------  -----------  -----------  ------------  -----------  -----------

Issuance of common stock in May 2006
   To a consultant for services provided              34,464           34       16,164             --           --       16,198

Conversion of accrued interest to common
   Stock at $0.125 per share in May 2006              19,288           19        2,392             --           --        2,411

Conversion of accrued interest to common
   Stock at $0.125 per share in May 2006              16,324           16        2,025             --           --        2,041

Conversion of accrued interest to common
   Stock at $0.10 per share in May 2006               13,456           13        1,342             --           --        1,355

Common stock issued pursuant to the exercise
   Of warrants at $0.09 per share in June 2006         5,000            5          445             --           --          450

Value of warrants issued to members of
   Advisory committee in June 2006                        --           --        8,819             --           --        8,819

Income for three months ended June 30, 2006               --           --           --             --      541,956      541,956
                                                 ------------  -----------  -----------  ------------  -----------  -----------
Balance at June 30, 2006                           69,624,851      69,622    9,546,403             --  (12,419,684)  (2,803,659)
                                                 ------------  -----------  -----------  ------------  -----------  -----------

Issuance of penalty Common Stock,
   previously accrued                              4,150,798        4,151      867,517             --           --      871,668

Issuance of penalty warrants, previously
   accrued                                                --           --      182,236             --           --      182,236

Value of warrants issued to officers                      --           --       50,874             --           --       50,874

Value of options issued to officer                        --           --      735,731       (735,731)          --           --

Amortization of options to Chief Executive
   Officer                                                --           --           --         43,792           --       43,792

Value of warrants issued to members of
   Advisory committee in September 2006                   --           --        3,495             --           --        3,495

Loss for the three months ended
   September 30, 2006                                     --            --           --            --     (180,013)    (180,013)

                                                 ------------  -----------  -----------  ------------  -----------  -----------
Balance at September 30, 2006                      73,775,649       73,773   11,386,256      (691,939) (12,599,697)  (1,831,607)
                                                 ------------  -----------  -----------  ------------  -----------  -----------
</TABLE>


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

                                       F-6

                  IR BioSciences Holdings, Inc. and Subsidiary
                          (A Development Stage Company)
          Condensed Consolidated Statements of Cash Flows For the nine
                    months ended September 30, 2006 and 2005,
               and for the period of inception (October 30, 2002)
                              to September 30, 2006
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                                    Cumulative from
                                                                                                       Inception
                                                                  For the Nine     For the Nine      (October 30,
                                                                  Months Ended     Months Ended    2002) to Sept 30,
                                                                  Sept 30, 2006    Sept 30, 2005          2006
                                                                 ----------------  --------------- -------------------
<S>                                                              <C>              <C>              <C>
Cash flows from operating activities:
   Net loss                                                    $     (800,563)     $   (4,008,024)     $   (12,599,697)

Adjustments to reconcile net loss to net cash
   used in operating activities:

   Non-cash compensation                                              144,087             462,773            4,064,940
   Cost of penalty for late registration of shares -
      stock portion                                                  (360,197)                 --            1,631,726
   Cost of penalty for late registration of shares -
      warrant portion                                                 (78,404)                 --              560,434
  (Gain) loss from marking to market - stock portion
      of penalty for late registration of shares                     (445,673)                 --             (760,058)
  (Gain) loss from marking to market - warrant portion
      of penalty for late registration of shares                     (123,505)                 --             (378,198)
   Legal fees for note payable                                         20,125                  --               20,125
   Placement fees for note payable                                     65,000                  --               65,000
   Impairment of intangible asset                                          --                  --                6,393
   Interest expense                                                        --               4,007              156,407
   Amortization of discount on notes payable                               --                  --            1,006,935
   Depreciation and amortization                                        5,885               2,401               35,103
   Changes in operating assets and liabilities:
     Prepaid services and other assets                                 28,048              (9,000)              31,282
     Accounts payable and accrued expenses                            571,918           2,064,910            1,227,871
                                                            -----------------   -----------------   ------------------

   Net cash used in operating activities                             (973,279)         (1,482,933)          (4,931,737)

Cash flows from investing activities:
   Acquisition of property and equipment                              (22,587)                 --              (30,674)
                                                            -----------------   -----------------   ------------------

   Net cash used in investing activities                              (22,587)                 --              (30,674)

Cash flows from financing activities:
   Proceeds from notes payable and cash advances                      719,875                  --            1,953,375
   Principal payments on notes payable and demand loans                    --             (14,997)            (264,997)
   Shares of stock sold for cash                                           --           1,190,857            3,259,902
   Proceeds from exercise of warrant                                      450               4,000                4,450
   Officer repayment of amounts paid on his behalf                         --                  --               19,880
   Cash paid on behalf of officer                                          --                  --              (19,880)
                                                            -----------------   -----------------   ------------------

   Net cash provided by financing activities                          720,325           1,179,860            4,952,730

Net increase (decrease) in cash and cash equivalents                 (275,541)           (303,703)              (9,681)

Cash and cash equivalents at beginning of period                      265,860             970,114                   --
                                                            -----------------   -----------------   ------------------
Cash and cash equivalents at end of period                     $       (9,681)     $      667,041      $        (9,681)
                                                            =================   =================   ==================


</TABLE>

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


                                       F-7



                  IR BioSciences Holdings, Inc. and Subsidiary
                          (A Development Stage Company)
          Condensed Consolidated Statements of Cash Flows For the nine
                    months ended September 30, 2006 and 2005,
               and for the period of inception (October 30, 2002)
                              to September 30, 2006
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                        Cumulative from
                                                                                          Inception
                                                          For the Nine   For the Nine    (October 30,
                                                          Months Ended   Months Ended   2002) to Sept 30,
                                                          Sept 30,2006   Sept 30,2005       2006
                                                          ------------   ------------   ------------
<S>                                                       <C>             <C>            <C>
Supplemental disclosures of cash flow information

Cash paid during the period for:
Interest                                                  $      1,027   $      1,486   $     44,580
                                                          ============   ============   ============

Taxes                                                     $         --   $         --   $         --
                                                          ============   ============   ============

Acquisition and capital restructure:
   Assets acquired                                                  --             --             --
   Liabilities assumed                                              --             --       (120,799)
   Common stock retained                                            --             --         (2,369)
   Adjustment to additional paid-in capital                         --             --        123,168
   Organization costs                                               --             --        350,000
                                                          ------------   ------------   ------------
Total consideration paid                                  $         --   $         --   $    350,000
                                                          ============   ============   ============

Common stock issued in exchange for proprietary rights    $         --   $         --   $      9,250
                                                          ============   ============   ============

Common stock issued in exchange for services              $     16,198   $     10,000   $  2,941,484
                                                          ============   ============   ============

Common stock issued in exchange for previously incurred
   debt and accrued interest                              $      5,807   $     65,003   $  1,066,401
                                                          ============   ============   ============

Common stock issued in exchange as interest               $         --   $         --   $     36,000
                                                          ============   ============   ============

Amortization of beneficial conversion feature             $         --   $         --   $    223,269
                                                          ============   ============   ============

Stock options and warrants issued in exchange for
   services rendered                                      $    786,605   $    261,312   $  1,558,986
                                                          ============   ============   ============

Debt and accrued interest forgiveness from note holders   $         --   $         --   $     36,785
                                                          ============   ============   ============

Common stock issued in satisfaction of amounts due
   to an Officer and a Director                           $         --   $         --   $    180,000
                                                          ============   ============   ============

Common stock issued in satisfaction of accounts payable   $         --   $         --   $    157,219
                                                          ============   ============   ============

Deferred compensation to a consultant accrued
   in March 2005                                          $         --   $         --   $  2,630,761
                                                          ============   ============   ============

Amortization of deferred compensation                     $     46,552   $    187,627   $    246,278
                                                          ============   ============   ============

Fair Value of common stock and warrants payable in
connection with late filing of registration statement     $  1,053,904   $  2,072,831   $  5,757,496
                                                          ============   ============   ============

Gaining from marking to market - stock portion of
   penalty for late registration of shares                $  (805,870)   $         --   $ (1,124,255)
                                                          ============   ============   ============

Gaining from marking to market - warrant portion of
   penalty for late registration of shares                $  (201,910)   $         --   $   (456,603)
                                                          ============   ============   ============

Impairment of intangible asset                            $         --   $         --   $      6,393
                                                          ============   ============   ============

Issuance of stock to Officer, previously accrued          $     41,416   $         --   $     41,416
                                                          ============   ============   ============

Value of warrants issued to members of advisory boards    $     20,714   $         --   $     20,714
                                                          ============   ============   ============

</TABLE>

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

                                       F-8

                          IR BIOSCIENCES HOLDINGS, INC.
                          (A DEVELOPMENT STAGE COMPANY)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2006
                                   (Unaudited)


NOTE 1 - SUMMARY OF ACCOUNTING POLICIES

General
-------

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB,  and therefore,  do
not include all the information  necessary for a fair  presentation of financial
position,  results of operations  and cash flows in conformity  with  accounting
principles generally accepted in the United States of America for a complete set
of financial statements.

In the opinion of management,  all adjustments  (consisting of normal  recurring
accruals) considered  necessary for a fair presentation have been included.  The
results  from  operations  for the  three-month  and  nine-month  periods  ended
September  30, 2006 are not  necessarily  indicative  of the results that may be
expected  for  the  year  ended  December  31,  2006.  The  unaudited  condensed
consolidated  financial  statements  should  be read  in  conjunction  with  the
December 31, 2005  financial  statements and footnotes  thereto  included in the
Company's  annual report on Form 10-KSB filed with the  Securities  and Exchange
Commission on March 28, 2006 and Form  10-KSB/A  filed with the  Securities  and
Exchange Commission on March 31, 2006.

Business and basis of presentation
----------------------------------

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

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

Reclassification
----------------

Certain  reclassifications  have been made to conform to prior  periods' data to
the  current  presentation.  These  reclassifications  had no effect on reported
losses.

                                       F-9


Stock based compensation
------------------------

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

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

A summary  of option  activity  under the Plan as of  September  30,  2006,  and
changes during the period ended are presented below:

                                                         Weighted
                                                         Average
                                                         Exercise
                                            Options       Price
                                           ---------    ---------
Outstanding at December 31, 2005             317,242    $    5.30
Issued                                     5,396,970    $    0.22
Exercised                                        --           --
Forfeited or expired                             --           --
                                           ---------    ---------
Outstanding at September 30, 2006          5,714,212    $    0.51

Non-vested at September 30, 2006           5,396,970    $    0.22
Exercisable at September 30, 2006            317,242    $    5.30

Aggregate  intrinsic  value of options  outstanding and exercisable at September
30, 2006 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 $0.22 as of September 29, 2006, and the exercise  price  multiplied by
the number of options outstanding.  As of September 30, 2006, total unrecognized
stock-based  compensation  expense  related to stock options was  $691,939.  The
total fair value of options  vested during the three months ended  September 30,
2006 was $0.

Interim financial statements
----------------------------

The  accompanying  balance  sheet as of September  30, 2006,  the  statements of
operations  for the three months ended  September 30, 2006 and 2005, and for the
period of inception (October 30, 2002) to September 30, 2006, and the statements
of cash flows for three and nine months ended  September 30, 2006 and 2005,  and
from the period of  inception  (October  30,  2002) to  September  30,  2006 are
unaudited.  These unaudited interim financial statements include all adjustments
(consisting of normal recurring accruals),  which, in the opinion of management,
are  necessary  for a fair  presentation  of the results of  operations  for the
periods presented. Interim results are not necessarily indicative of the results
to be expected for a full year.

Use of estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements,  and the  reported  amounts of revenues and expenses
during the reported  periods.  Actual results could materially differ from those
estimates.

                                      F-10


Long-lived assets
-----------------

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

Prepaid services and other current assets
------------------------------------------

Prepaid  services and other current  assets at September 30, 2006 consist of the
following:

Prepaid  interest   $ 9,452
Prepaid insurance     2,007
                    -------
                    $11,459
                    =======

Deposits and other assets
-------------------------
Deposits  and other  assets  consist of a deposit on leased  office space in the
amount of $2,260.


Furniture and equipment
-----------------------

Furniture and equipment are valued at cost.  Depreciation  and  amortization are
provided  over  the  estimated   useful  lives  up  to  seven  years  using  the
straight-line  method. The estimated service lives of property and equipment are
as follows:

       Computer equipment         3 years
       Laboratory equipment       3 years
       Furniture                  7 years

The amounts  depreciated  for the three months ended September 30, 2006 and 2005
were  $2,003 and $967,  respectively.  Depreciation  expense for the nine months
ended  September  30,  2006 and 2005 was $5,885 and  $1,705,  respectively.  The
amount  depreciated  from the  date of  inception  (October  30,  2002)  through
September 30, 2006 was $9,747.

                                      F-11


NOTE 2 - RELATED PARTY TRANSACTIONS


Cash Advances
-------------

In March 2006, the Company received a cash advance from a director in the amount
of  $50,000.  This  advance  bears  interest  at the rate of 12% per annum.  The
Company  converted  this  advance to a note  payable  during the quarter  ending
September 30, 2006.

In July 2006, the Company  received a cash advance from a director in the amount
of  $25,000.  This  advance  bears  interest  at the rate of 12% per annum.  The
Company repaid this cash advance on August 30, 2006 plus accrued interest in the
amount of $370.

Credit Cards
-----------
The Company has a line of credit  with Bank of America  for  $25,000.  Our Chief
Executive  Officer  Michael Wilhelm  co-signs this line of credit.  At month-end
September 30, 2006 the Company had an outstanding  balance on the credit card of
$20,587


NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------

Accounts payable and accrued liabilities consisted of the following at September
30, 2006:

Accounts payable and accrued liabilities  $   923,882
Accounts payable - shell company               34,926
Interest payable                               44,228
Credit cards                                   20,587
State income tax payable                        3,200
                                             --------
                                          $ 1,026,823
                                          ===========


                                      F-12


NOTE 4 - CASH ADVANCES

In March 2006, the Company received a cash advance from a director in the amount
of  $50,000.  This  advance  bears  interest  at the rate of 12% per annum.  The
Company converted this advance to a note payable in August 2006.

In June of 2006,  the Company  received a cash  advance  from an investor in the
amount of $20,000. This advance bears interest at the rate of 12% per annum. The
Company converted this advance to a note payable in August 2006.

In July 2006, the Company received a cash advance from a director in the amount
Of  $25,000.  This  advance  bears  interest  at the rate of 12% per annum.  The
Company repaid this cash advance on August 30, 2006 plus accrued interest in the
Amount of $370.

NOTE 5 - NOTES PAYABLE

On April 13, 2006, the Company entered into an unsecured
Senior Promissory Note in the amount of $500,000. Following
the payment of commissions and expenses, the Company
received net proceeds of approximately $439,875. The
outstanding principal amount of the Note, plus interest at
the rate of 12% per annum, is payable in cash on or before
the earlier of (i) April 12, 2007 or (ii) the date upon
which the Company sells any of its equity or debt securities
in a financing transaction, or a series of financings, with
gross proceeds equal to $1,000,000; provided, however, that
a subsequent financing transaction will not include (x)
issuances of common stock to employees, (y) the exercise of
any options to purchase shares of common stock that are
outstanding as of the date hereof, or (z) the grant,
issuance or exercise of options or common stock under the
Company's stock, option, deferred stock and restricted stock
plan for the purpose of satisfying the Company's payables.
In an event of default, as defined in the note, the note
shall become immediately due and payable, and during the
continuation of an event of default, the Company must pay
interest on the note in an amount equal to 2% per month
until the event of default is cured or waived. During the
three months ended September 30, 2006, the Company accrued
interest in the amount of $15,333 on this note.                         $500,000





In June 2006, the Company issued a note payable in the
amount of $9,750 in exchange for consulting services. This
note bears interest at the rate of 7% per annum. During the
three months ended September 30, 2006, the Company accrued
interest in the amount of $172 on this note.                               9,750



On July 27, 2006, the Company entered into an unsecured
Senior Promissory Note in the amount of $250,000. Following
the payment of commissions and expenses, the Company
received net proceeds of approximately $210,000. The
outstanding principal amount of the Note, plus interest at
the rate of 12% per annum, is payable in cash on or before
the earlier of (i) July 27, 2007 or (ii) the date upon which
the Company sells any of its equity or debt securities in a
financing transaction, or a series of financings, with gross
proceeds equal to $1,000,000; provided, however, that a
subsequent financing transaction will not include (x)
issuances of common stock to employees, (y) the exercise of
any options to purchase shares of common stock that are
outstanding as of the date hereof, or (z) the grant,
issuance or exercise of options or common stock under the
Company's stock, option, deferred stock and restricted stock
plan for the purpose of satisfying the Company's payables.
In an event of a default, as defined in the note, the note
shall become immediately due and payable, and during the
continuation of an event of default, the Company must pay
interest on the note in an amount equal to 2% per month
until the event of default is cured or waived. During the
three months ended September 30, 2006 the Company accrued
interest in the amount of $10,833 on this note.                          250,000

In August 2006, the cash advance in the amount of $20,000
the Company received from an investor was converted into a
promissory note payable. This note bears interest at the
rate of 12% per annum. During the three months and nine
months ended September 30, 2006, the Company accrued
interest in the amount of $605 and $677, respectively, on
this note.                                                                20,000

In August 2006, the cash advance in the amount of $50,000
the Company received from a director was converted into a
promissory note payable. This note bears interest at the
rate of 12% per annum. During the three months and nine
months ended September 30, 2006, the Company accrued
interest in the amount of $1,512 and $3,172, respectively,
on this note.                                                             50,000



Total notes payable as of September 30, 2006                           $ 829,750
                                                                       ---------


                                      F-13

NOTE 6 - PENALTY FOR LATE REGISTRATION OF SHARES

During the three months ended March 31, 2006,  the Company  accrued the issuance
of  1,383,600  shares of common  stock and  warrants to  purchase an  additional
544,800 shares of common stock pursuant to a penalty  calculation with regard to
the late registration of shares sold in a private placement in October 2004. The
Company charged to operations  $456,588 and $105,339,  respectively,  during the
three  months ended March 31, 2006  representing  the fair value of these shares
and warrants,  respectively.  During the three months ended March 31, 2006,  the
Company also marked to market the value of the 5,242,307  shares and warrants to
purchase an additional  2,064,187  shares which were outstanding at December 31,
2005.  This  resulted  in a charged to  operations  of  $52,423  and a credit to
operations  of $6,868 for these  previously  outstanding  shares  and  warrants,
respectively.  At March  31,  2006,  the  Company  had  obligations  to issue an
aggregate of 6,625,907  shares and warrants to purchase an additional  2,608,987
shares,  respectively,  and had charged to operations the amount of $555,973 for
the cost of  issuance  of shares  and  warrants.  The  Company  also  charged to
operations  the  amount  of  $52,423  as a  loss  from  marking  to  market  the
outstanding stock portion of the penalty, and recognized a gain in the amount of
$6,868  representing  marking to market the  outstanding  warrant portion of the
penalty.

In August  2006,  the Company  reached an  agreement  with the  investors in the
private placement of October 2004 which limits the number of warrants and shares
which the Company is obligated to issue  pursuant to the penalty  calculation to
an  aggregate  of 18% of the number of  original  number of shares and  warrants
issued in the October 2004 private  placement.  This agreement limits the number
of shares and  warrants  issuable  pursuant  to the  penalty  calculation  to an
aggregate of 4,150,798  shares and warrants to purchase an additional  1,634,400
shares, respectively. This results in a decrease in the number of share issuable
2,475,107  (with a fair  value of  $816,785)  and a  decrease  in the  number of
warrant shares of 974,587 (with a fair value of $177,789). This results in a net
realized  gain of $994,574  during the three months ended June 30, 2006.  During
the three  months  ended June 30,  2006,  the Company  also marked to market the
value of the previously  issued  penalty shares and warrants,  which resulted in
realized gains of $72,101 and $46,755, respectively.

In August 2006,  the Company  issued  4,150,798  shares and warrants to purchase
1,634,400  shares and relieved  accrued  liabilities in the aggregate  amount of
$1,504,226. During the three months ended September 30, 2006, the Company valued
the  4,150,798  shares (with a fair value of $871,668)  and  1,634,400  warrants
(with a fair value  $182,236) on the date the shares were issued.  This resulted
in a net realized gain of $450,323.

                                      F-14

NOTE 7 - EQUITY

Common stock
------------

In March 2006,  the Company  issued  100,000 shares of common stock to its Chief
Financial Officer.  These shares had been earned,  and were accrued,  during the
year ended December 31, 2005.

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

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

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

In May 2006, the Company issued 13,456 shares of common stock at $0.10 per share
to an investor for the conversion of accrued interest.

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

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

Warrants
--------

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

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

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

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

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

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

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

The  following  table  summarizes  the changes in warrants  outstanding  and the
related  prices  for  the  shares  of  the  Company's  common  stock  issued  to
non-employees  of the  Company.  These  warrants  were  granted  in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.

         Warrants Outstanding                        Warrants Exercisable
   -----------------------------------    --------------------------------------
                          Weighted                                  Weighted
                          Average        Weighted                   Average
                          Remaining      Average                    Remaining
Exercise    Number        Contractual    Exercise     Number        Contractual
Prices      Outstanding   Life (years)   Price        Exercisable   Life (years)
--------    -----------   ------------   ---------    -----------   ------------

$ .05-.10       514,780       2.63        $.05-.10       514,780         2.63
 .125-.22     1,031,319       2.72        .125-.22     1,031,319         2.72
  .25-.56    11,235,805       2.85         .25-.56    11,235,805         2.85
     1.00       933,811       1.43           1.00        933,811         1.43
     2.00        85,203       2.57           2.00         85,203         2.57
            -----------   ------------               -----------     -----------
             13,800,918       2.73                    13,800,918         2.73
            ===========   ============               ===========     ===========

Transactions involving warrants are summarized as follows:

                                        Number of Shares    Weighted Average
                                          (post-split)      Price Per Share
                                                              (post-split)
                                         ---------------    ------------------

   Outstanding at December 31, 2005           11,616,865                .46
      Granted                                     61,500                .67
      Exercised                                       --                 --
      Cancelled or expired                            --                 --
                                              ----------          ---------
   Outstanding at March 31, 2006              11,678,365                .46
      Granted                                     84,653                .67
      Exercised                                   (5,000)               .09
      Canceled or expired                             --                 --
                                              ----------           --------
   Outstanding at June 30, 2006               11,758,018                .46
      Granted                                  2,042,900                .46
      Exercised                                       --                 --
      Cancelled or expired                            --                 --
                                              ----------           --------
   Outstanding at September 30, 2006          13,800,918                .46
                                              ==========           ========

                                      F-15


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:

                                                       2006           2005
                                                       ----           ----
 Significant assumptions (weighted-average):
     Risk-free interest rate at grant date        4.5% to 4.75%       3.75%
     Expected stock price volatility               83% to 73%      93% to 179%
     Expected dividend payout                           --             --
     Expected option life-years (a)                   3 to 5         3 to 5


Options
-------

In July 2006, the Company issued options to purchase  1,893,970 shares of common
stock to our Chief Executive Officer.  The options vest 50% after ninety days of
continued employment and the balance in equal monthly installments for 12 months
thereafter.

In September  2006, the Company issued options to purchase  3,500,000  shares of
common stock 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.

The Company valued these options using the  Black-Scholes  valuation  model, and
charged the fair value of $735,731 to deferred  compensation  at  September  30,
2006. This amount will be charged to operations as the options become vested.

The  Company  charged to  operations  the amount of $43,792 for the value of the
options during the three months ended September 30, 2006.

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


          Options Outstanding                        Options Exercisable
   -----------------------------------    --------------------------------------
                         Weighted                                   Weighted
                         Average         Weighted                   Average
                         Remaining       Average                    Remaining
Exercise   Number        Contractual     Exercise     Number        Contractual
Prices     Outstanding   Life (years)    Price        Exercisable   Life (years)
--------   -----------   ------------    ---------    -----------   ------------

$25.00        63,212         3.75         $25.00       63,212         3.75
 0.231     1,896,970         4.79           0.231          --           --
 0.22      3,500,000         4.95           0.22           --           --
 0.31          1,000         4.45           0.31        1,000         4.45
 0.33        103,030         4.11           0.33      103,030         4.11
 0.44        150,000         3.84           0.44      150,000         3.84
             -------                                  -------
            5,714,212                                 317,242
             =======                                  =======

Options not vested are not exercisable.

Transactions  involving  stock  options  issued to employees  are  summarized as
follows:

                                                         Weighted Average
                                     Number of Shares     Price Per Share
                                     ----------------    ----------------
Outstanding at December 31, 2005         317,242             $ 5.30
    Granted                                   --                 --
    Exercised                                 --                 --
    Expired                                   --                 --
                                     ----------------    ----------------
Outstanding at March 31, 2006            317,242             $ 5.30
    Granted                                   --                 --
    Exercise                                  --                 --
    Expired                                   --                 --
                                     ----------------    ----------------
Outstanding at June 30, 2006             317,242             $ 5.30
    Granted                            5,396,970               0.22
    Exercise                                  --                 --
    Expired                                   --                 --
                                      ---------------     ----------------
Outstanding at September 30, 2006      5,714,212             $ 0.51
                                     ================    ================

                                      F-16


Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------

During the three months ended March 31, 2006,  the Company  accrued the issuance
of  1,383,600  shares of common  stock and  warrants to  purchase an  additional
544,800 shares of common stock pursuant to a penalty  calculation with regard to
the late  registration  of shares sold in a private  placement in October  2004.
During the three months ending June 30, 2006, the Company  accrued no additional
shares of common stock or warrants pursuant to the penalty  calculation  pending
the  conclusion of an agreement  with the investors in the private  placement of
October  2004 to limit the number of shares and  warrants  which the  Company is
obligated to issue pursuant to the penalty  calculation.  The Company charged to
operations  $456,588 and $105,339,  respectively,  during the three months ended
March  31,  2006  representing  the fair  value of these  shares  and  warrants,
respectively.  During the three months  ended March 31,  2006,  the Company also
marked to market the value of the  5,242,307  shares and warrants to purchase an
additional  2,064,187  shares which were  outstanding at December 31, 2005. This
resulted  in a charge to  operations  of $52,423 and a credit to  operations  of
$6,868 for these previously  outstanding shares and warrants,  respectively.  At
March 31, 2006,  the Company had  obligations to issue an aggregate of 6,625,907
shares and warrants to purchase an additional  2,608,987  shares,  respectively,
and had charged to operations the amount of $555,973 for the cost of issuance of
shares and  warrants.  The  Company  also  charged to  operations  the amount of
$52,423 as a loss from marking to market the  outstanding  stock  portion of the
penalty,  and recognized a gain in the amount of $6,868 representing  marking to
market the outstanding warrant portion of the penalty.

In August  2006,  the Company  reached an  agreement  with the  investors in the
private placement of October 2004 which limits the number of warrants and shares
which the Company is obligated to issue  pursuant to the penalty  calculation to
an aggregate of 18% of the number of original  shares and warrants issued in the
October 2004 private  placement.  This agreement limits the number of shares and
warrants  issuable  pursuant  to the  penalty  calculation  to an  aggregate  of
4,150,798  shares and  warrants  to  purchase an  additional  1,634,400  shares,
respectively.  This  results in a decrease  in the number of shares  issuable of
2,475,107  (with a fair  value of  $816,785)  and a  decrease  in the  number of
warrant shares issuable of 974,587 (with a fair value of $177,789). This results
in a net realized gain of $994,574  during the three months ended June 30, 2006.
During the three months  ended June 30, 2006,  the Company also marked to market
the value of the previously  issued penalty shares and warrants,  which resulted
in realized gains of $72,101 and $46,755, 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.  The  registration
statement was originally  filed with the  Securities and Exchange  Commission on
November 24, 2004, and amended by pre-effective  amendments no. 1, 2, 3 and 4 on
July  20,  2005,  November  16,  2005,  February  22,  2006 and  April 7,  2006,
respectively.

During the three months ended  September 30, 2006, the Company issued  4,150,798
shares of common stock and warrants to purchase an additional  1,634,400  shares
of common stock in full  satisfaction  of the penalty due to  investors  for the
late registration of shares,  and relieved accrued  liabilities in the aggregate
amount of $1,053,904.


NOTE 8 - SUBSEQUENT EVENTS

On October 4, 2006, IR BioSciences Holdings, Inc. effected an initial closing of
a private  placement,  whereby the Company sold an aggregate of $2,276,500 worth
of units  ("Units")  to  accredited  investors  as defined by Rule 501 under the
Securities Act of 1933, as amended.

On October 4, 2006, the Company repaid  investors in two promissory  notes:  The
April 13, 2006 Note for $500,000  principal plus accrued interest of $28,500 and
the July 27, 2006 Note for $250,000 principal plus accrued interest of $5,583.

On October 6, 2006, the Company  repaid a promissory  note to an investor in the
August 1, 2006 Note for $20,000 principal plus accrued interest of $733.

On October 12, 2006,  the Company  repaid a note payable in the amount of $9,750
plus  accrued  interest of $237.  The note was made in June 2006 in exchange for
consulting services.

On  October  26,  2006,  the  Company  effected  a second  closing  of a private
placement, 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 (this private placement and the private placement that closed on October
4, 2006 is collectively referred to herein as the "Private Placement").

Pursuant  to the  terms  of  the  subscription  agreement  used  in the  Private
Placement, each Unit was sold for $25,000 and consisted of (i) 156,250 shares of
common stock of the Company;  and (ii) a warrant to purchase,  at any time prior
to the fifth anniversary  following the final closing of the Private  Placement,
78,125 shares of Common Stock at an exercise  price of $0.50 per share.  A total
of  14,228,125  shares and  7,114,063  warrants  were sold to  investors  at the
initial  closing of the Private  Placement and a total of 16,856,875  shares and
8,428,438  warrants were sold to investors in the second  closing of the Private
Placement.  The Company  agreed to file a registration  statement,  covering the
securities  sold in the Private  Placement,  not before 180 days after the final
closing  of the  Private  Placement  and not later than 190 days after the final
closing of the Private Placement.  The shares and warrants were offered and sold
to investors in reliance upon exemptions from  registration  pursuant to Section
4(2) under the  Securities  Act of 1933,  as amended,  and Rule 506  promulgated
thereunder.  In addition,  the Company may elect to redeem the warrants (but not
less than all the  warrants),  upon certain  conditions  and after  providing at
least thirty-days written notice to warrant holders.

In  connection  with the Private  Placement,  the Company  issued an  additional
2,276,500  shares of Common Stock to the placement agent or its designees,  upon
the initial  closing of the Private  Placement.  In connection  with the Private
Placement,  the Company issued an additional 2,697,100 shares of Common Stock to
the placement  agent or its  designees,  upon the second  closing of the Private
Placement.  The shares were issued as  consideration  for the placement  agent's
services in  connection  with the Private  Placement.  The shares were issued in
reliance upon  exemptions from  registration  pursuant to Section 4(2) under the
Securities  Act of 1933, as amended,  and Rule 506  promulgated  thereunder.  In
addition,  the placement  agent received  $700,399 in commission and expenses as
compensation for its services,  $349,776 and $350,623 for the initial and second
closing respectively.

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

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

                                      F-17


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Special Note Regarding Forward-looking Statements

Some of the statements  under "Risk  Factors,"  "Business" and elsewhere in this
Quarterly Report on Form 10-QSB  constitute  forward-looking  statements.  These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to
be  materially   different  from  any  future   results,   levels  of  activity,
performance,  or  achievements  expressed  or  implied  by such  forward-looking
statements.  Such factors  include,  among other things,  those  described under
"Risk Factors" and elsewhere in this Quarterly  Report on Form 10-QSB and in the
"Risk  Factors"  section  of our  annual  report on Form  10-KSB  filed with the
Securities  and Exchange  Commission on March 28, 2006 and Form  10-KSB/A  filed
with the Securities and Exchange Commission on March 30, 2006.

In some cases, you can identify  forward-looking  statements by terminology such
as  "may,"   "will,"   "should,"   "could,"   "expects,"   "plans,"   "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.

Although  we believe  that the  expectations  reflected  in the  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity,  performance,  or  achievements.  Moreover,  neither  we nor any other
person  assumes  responsibility  for  the  accuracy  and  completeness  of  such
statements. We are under no duty to update any of the forward-looking statements
after the date of this report.

The  following  information  should be read in  conjunction  with the  financial
statements  and the notes  thereto.  The  analysis  set forth  below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.

Overview
--------

         IR BioSciences Holdings, Inc. is a development-stage  biopharmaceutical
company. Through our wholly owned subsidiary,  ImmuneRegen BioSciences, Inc., we
are engaged in the research and development of potential  drugs.  Our goal is to
develop  therapeutics to be used for the protection of the body from exposure to
harmful  agents such as toxic  chemicals and radiation,  as well as,  biological
agents, including influenza and anthrax.

         Our drug development  efforts are based on patents for the use of Sar9,
Met  (O2)11-Substance P, an analog of the naturally occurring human neuropeptide
Substance P. We use the generic name Homspera(R) to refer to the synthetic Sar9,
Met  (O2)11-Substance P peptide. 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.

         Our current focus is on the  development of two potential  applications
based on the use of Sar9, Met (O2)11-Substance P, Radilex(R) and Viprovex(R). We
are  developing  Radilex for use as a potential  treatment for acute exposure to
radiation.  Viprovex  is being  developed  for use in  potential  treatments  of
maladies caused by exposure to toxic chemicals, such as formalin, and biological
agents,  such as influenza and anthrax.  To date we have sponsored seven studies
and co-sponsored  three radiation studies all of which were conducted  utilizing
rodents.  We have sponsored three studies on the potential  treatment of anthrax
exposure  and three  studies on avian  influenza,  all of which  were  conducted
utilizing rodents.  Additionally, our co-founder, Dr. Mark Witten, has sponsored
a rodent  study  using  Viprovex as a potential  treatment  for  exposure to the
chemical, formalin.

         We have filed patent applications and provisional patent  applications,
where   applicable,   for  the  use  of  the   active   ingredient   Sar9,   Met
(O2)11-Substance  P in applications  that we are researching.  We own two issued
U.S. and two issued foreign  patents and two pending Patent  Cooperation  Treaty
(PCT)  applications.   We  also  have  nine  pending  U.S.   provisional  patent
applications and 16 pending foreign provisional patent applications.

         Our  potential  drug   candidates,   Radilex  and  Viprovex  and  other
technologies  based on the use of 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 based on the use of
Homspera have yet been tested in large animals or humans.  There is no guarantee
that  regulatory  authorities  will ever permit large animal or human testing of
Radilex, Viprovex or any other potential products derived from Homspera. Even if
such testing is permitted, none of Radilex, Viprovex or any other potential drug
candidates, if any, derived from Homspera may be successfully developed or shown
to be safe or effective.

                                        3


         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. Delays in planned patient enrollment in our
future  clinical trials may result in increased  costs,  program delays or both.
None of our  potential  applications  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 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 based on the use of 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.


RESULTS OF OPERATIONS  FOR THE THREE MONTH PERIODS ENDED  SEPTEMBER 30, 2006 AND
SEPTEMBER 30, 2005

Revenue
-------

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

Sales, General, and Administrative Expenses
-------------------------------------------

         Sales, general, and administrative  expenses ("SG&A") were $598,045 for
the  three  months  ended   September  30,  2006,  an  increase  of  $90,600  or
approximately  18%  compared to SG&A of $507,445  during the three  months ended
September  30,  2005.  The  increase is  primarily  due to higher costs for debt
placement  fees.  For the three months  ended  September  30, 2006,  this amount
consisted primarily of officer compensation of $89,461, research and development
of $96,639,  legal and accounting  fees of $103,350,  other  consulting  fees of
$85,375,  payroll and related costs of $125,325,  public relations and marketing
of $18,850,  non-cash  compensation  costs of $98,161 and debt placement fees of
$26,400.

         The Company expects SG&A to increase during the coming twelve months as
we  continue  to build  out the  Company's  infrastructure  and to  develop  the
Company's potential drugs and therapeutics.

Interest (Income)/Expense (net)
-------------------------------

         Interest expense (net) was $32,290 for the three months ended September
30,  2006,  an increase of $38,215 or  approximately  645%  compared to interest
income  of  $5,925 for the three  months  ended  September  30,  2005.  Interest
expense was increased  because the Company entered into notes payable during the
three months ended September 30, 2006.

         The Company  expects  interest  expense to  decrease  during the coming
twelve  months as the Company has paid off  outstanding  Notes  Payable with the
proceeds from the Private Placement.

Net Loss
--------

         For the reasons  stated  above our net loss for the three  months ended
September 30, 2006 was  $180,013,  or $0.003 per share a decrease of $890,460 or
approximately  82%  compared to a net loss of  $1,081,095  for the three  months
ended September 30, 2005.

         Our  independent  certified  public  accountants  have  stated in their
report  included  in SEC  Form  10-KSB/A  that we have  incurred  a net loss and
negative cash flows from operations of $4,591,107 and $1,884,113,  respectively,
for the year ended  December  31,  2005.  This loss,  in  addition  to a lack of
operational history, raises substantial doubt about our ability to continue as a
going concern. 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 operations, will be completely dependent on additional debt and

                                        4


equity financing arrangements.  There is no assurance that any financing will be
sufficient  to fund our  capital  expenditures,  working  capital and other cash
requirements  for the fiscal year ending  December 31, 2006. 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.

         The Company expects losses to increase during the coming twelve months.
The Company  does not expect to begin to generate  revenue in the coming  twelve
months,  and our costs are likely to  increase  as  continue  our  research  and
development efforts on our early,  pre-clinical stage products and build out our
corporate infrastructure.

Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------

         During the three months ended March 31, 2006,  the Company  accrued the
issuance  of  1,383,600  shares of common  stock and  warrants  to  purchase  an
additional 544,800 shares of common stock pursuant to a penalty calculation with
regard to the late registration of shares sold in a private placement in October
2004.  During the three  months  ending June 30,  2006,  the Company  accrued no
additional   shares  of  common  stock  or  warrants  pursuant  to  the  penalty
calculation  pending the  conclusion  of an agreement  with the investors in the
private  placement  of October  2004 to limit the number of shares and  warrants
which the Company is obligated to issue pursuant to the penalty calculation. The
Company charged to operations  $456,588 and $105,339,  respectively,  during the
three  months ended March 31, 2006  representing  the fair value of these shares
and warrants,  respectively.  During the three months ended March 31, 2006,  the
Company also marked to market the value of the 5,242,307  shares and warrants to
purchase an additional  2,064,187  shares which were outstanding at December 31,
2005.  This  resulted  in a charge  to  operations  of  $52,423  and a credit to
operations  of $6,868 for these  previously  outstanding  shares  and  warrants,
respectively.  At March  31,  2006,  the  Company  had  obligations  to issue an
aggregate of 6,625,907  shares and warrants to purchase an additional  2,608,987
shares,  respectively,  and had charged to operations the amount of $555,973 for
the cost of  issuance  of shares  and  warrants.  The  Company  also  charged to
operations  the  amount  of  $52,423  as a  loss  from  marking  to  market  the
outstanding stock portion of the penalty, and recognized a gain in the amount of
$6,868  representing  marking to market the  outstanding  warrant portion of the
penalty.

         In August 2006, the Company  reached an agreement with the investors in
the private  placement  of October  2004 which limits the number of warrants and
shares  which  the  Company  is  obligated  to  issue  pursuant  to the  penalty
calculation to an aggregate of 18% of the number of original shares and warrants
issued in the October 2004 private  placement.  This agreement limits the number
of shares and  warrants  issuable  pursuant  to the  penalty  calculation  to an
aggregate of 4,150,798  shares and warrants to purchase an additional  1,634,400
shares,  respectively.  This  results  in a  decrease  in the  number  of shares
issuable  of  2,475,107  (with a fair value of  $816,785)  and a decrease in the
number of warrant  shares  issuable of 974,587  (with a fair value of $177,789).
This  results in a net realized  gain of $994,574  during the three months ended
June 30, 2006.  During the three  months  ended June 30, 2006,  the Company also
marked to market the value of the previously issued penalty shares and warrants,
which resulted in realized gains of $72,101 and $46,755, respectively.

         On July 10, 2006 the Company  withdrew  its  Registration  Statement on
Form SB-2 that was filed to register the  securities  issued in the October 2004
private placement.

         During the three months ended  September 30, 2006,  the Company  issued
4,150,798  shares of  common  stock  and  warrants  to  purchase  an  additional
1,634,400  shares of common  stock in full  satisfaction  of the  penalty due to
investors for the late registration of shares, and relieved accrued  liabilities
in the aggregate amount of $1,053,904.

RESULTS OF OPERATIONS  FOR THE NINE MONTH  PERIODS ENDED  SEPTEMBER 30, 2006 AND
SEPTEMBER 30, 2005

Revenue
-------

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

                                        5


Selling, general and administrative expenses
--------------------------------------------

         Selling,  general and  administrative  expenses were $1,761,161 for the
nine  months  ended  September  30,  2006 which is a decrease  of $178,639 or 9%
compared to SG&A of $1,939,800 for the nine months ended September 30, 2005. The
decrease is primarily due to lower costs of non-cash compensation.  This expense
is  primarily  comprised  of  non-cash  compensation  of  $115,380,   legal  and
accounting fees of $462,662,  payroll and related costs of $405,261,  consulting
fees of $230,145,  public relations and marketing costs of $63,992, research and
development  costs of  $254,148,  officer's  compensation  of $279,961  and debt
placement fees of $66,400.

Interest expense (net)
----------------------

         Interest  expense was $47,181 for the nine months ended  September  30,
2006, an increase of $51,788 or 1124% compared to interest income  of $4,607 for
the nine months ended September 30, 2005. Interest expense was increased because
the Company  entered into notes payable  during the nine months ended  September
30, 2006.

         The Company  expects  interest  expense to  decrease  during the coming
twelve  months as the Company has paid off  outstanding  Notes  Payable with the
proceeds from the Private Placement.

Net loss
--------

         For the reasons above,  primarily  lower SG&A expenses and the one-time
adjustment for the late registration  penalty,  the net loss for the nine months
ended September 30, 2006 was $800,563,  a decrease of $3,207,461 or 80% compared
to a net loss of $4,008,024 for the nine months ended September 30, 2005.

Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------

         During the three months ended March 31, 2006,  the Company  accrued the
issuance  of  1,383,600  shares of common  stock and  warrants  to  purchase  an
additional 544,800 shares of common stock pursuant to a penalty calculation with
regard to the late registration of shares sold in a private placement in October
2004.  During the three  months  ending June 30,  2006,  the Company  accrued no
additional   shares  of  common  stock  or  warrants  pursuant  to  the  penalty
calculation  pending the  conclusion  of an agreement  with the investors in the
private  placement  of October  2004 to limit the number of shares and  warrants
which the Company is obligated to issue pursuant to the penalty calculation. The
Company charged to operations  $456,588 and $105,339,  respectively,  during the
three  months ended March 31, 2006  representing  the fair value of these shares
and warrants,  respectively.  During the three months ended March 31, 2006,  the
Company also marked to market the value of the 5,242,307  shares and warrants to
purchase an additional  2,064,187  shares which were outstanding at December 31,
2005.  This  resulted  in a charge  to  operations  of  $52,423  and a credit to
operations  of $6,868 for these  previously  outstanding  shares  and  warrants,
respectively.  At March  31,  2006,  the  Company  had  obligations  to issue an
aggregate of 6,625,907  shares and warrants to purchase an additional  2,608,987
shares,  respectively,  and had charged to operations the amount of $555,973 for
the cost of  issuance  of shares  and  warrants.  The  Company  also  charged to
operations  the  amount  of  $52,423  as a  loss  from  marking  to  market  the
outstanding stock portion of the penalty, and recognized a gain in the amount of
$6,868  representing  marking to market the  outstanding  warrant portion of the
penalty.

         In August 2006, the Company  reached an agreement with the investors in
the private  placement  of October  2004 which limits the number of warrants and
shares  which  the  Company  is  obligated  to  issue  pursuant  to the  penalty
calculation to an aggregate of 18% of the number of original shares and warrants
issued in the October 2004 private  placement.  This agreement limits the number
of shares and  warrants  issuable  pursuant  to the  penalty  calculation  to an
aggregate of 4,150,798  shares and warrants to purchase an additional  1,634,400
shares,  respectively.  This  results  in a  decrease  in the  number  of shares
issuable  of  2,475,107  (with a fair value of  $816,785)  and a decrease in the
number of warrant  shares  issuable of 974,587  (with a fair value of $177,789).
This  results in a net realized  gain of $994,574  during the three months ended
June 30, 2006.  During the three  months  ended June 30, 2006,  the Company also
marked to market the value of the previously issued penalty shares and warrants,
which resulted in realized gains of $72,101 and $46,755, respectively.

         On July 10, 2006 the Company  withdrew  its  Registration  Statement on
Form SB-2 that was filed to register the  securities  issued in the October 2004
private placement.

         During the nine months ended  September  30, 2006,  the Company  issued
4,150,798  shares of  common  stock  and  warrants  to  purchase  an  additional
1,634,400  shares of common  stock in full  satisfaction  of the  penalty due to
investors for the late registration of shares, and relieved accrued  liabilities
in the aggregate amount of $1,053,904.

PLAN OF OPERATIONS

         We expect to  continue  to incur  increasing  operating  losses for the
foreseeable  future,  primarily  due to our continued  research and  development
activities  attributable to Radilex,  Viprovex or any other proposed product, if
any, derived from Homspera and general and administrative activities.

                                        6


Product Research and Development
--------------------------------

         We incurred an expense of $254,148 for the nine months ended  September
30, 2006 in research and  development  activities  related to the development of
Radilex and  Viprovex  versus an expense of $108,439  for the nine months  ended
September  30,  2005.  Due to our  liquidity  and limited  cash  available,  our
spending on research and development  activities was limited. From our inception
in October 2002, we have spent $519,468 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  (CRO)  for
consulting  related  to our  studies  and  costs  of  performing  such  studies.
Significant costs relating to research and development,  such as consulting fees
for Drs.  Witten and Siegel,  among others,  have been  classified in consulting
fees for consistency of financial reporting.

         We  anticipate  that  during  the next 12 months we will  increase  our
research and development  spending to a total of approximately  $2,000,000 in an
effort to  further  develop  Radilex  and  Viprovex.  If we are  unable to raise
additional capital, our research and development activities may be lessened. The
drug development,  clinical trial and regulatory  process is lengthy,  expensive
and uncertain and subject to numerous risks.

         The basis for our  research  and  development  efforts in regard to the
potential  uses of Homspera is derived from  observations  made during  research
funded  by the Air Force  Office of  Scientific  Research  in early  1994 by our
co-founders  Dr. Mark Witten and Dr. David  Harris.  During this research it was
observed  that  the  exposure  of  animals  to  jet  fuel  (JP-8)   resulted  in
pathological changes in the lungs and immune systems of those exposed.  Based on
the results of these  studies,  we believe that the  administration  of Homspera
prevented some of the effects of JP-8 jet fuel exposure in the lungs, as well as
having a positive  effect on the immune system.  However,  there is no guarantee
that our  interpretation  of the  results  of  these  studies  will  prove to be
accurate after further testing.

         Our initial  pre-clinical  applications  that we are researching are in
(i) the  treatment  of the effects on the body  caused by exposure to  radiation
(Radilex)  and (ii)  infectious  disease  and  exposure to toxic  chemicals  and
harmful  biological  materials  (Viprovex).  In addition to these two  potential
applications,  we continue to explore the potential  capabilities  of Sar9,  Met
(O2)11-Substance  P 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.

         Research  and  Development  for  the  use of  Radilex  in  Radiological
         Exposure Applications.
         ------------------------------------------------------------

         On  January  14,  2004,  we  received  a  Pre-Investigational  New Drug
Application  (PIND)  number  for the use of  Radilex  (PIND No.  63,255)  in the
treatment of acute radiation syndrome.

         To  date  we  have  sponsored  seven  studies  and  co-sponsored  three
radiation  studies all of which were conducted  utilizing  rodents to study dose
response  to  radiation,  the impact on  survival  and to  distinguish  survival
response using different  forms of drug delivery.  In each of these studies mice
were exposed to varying levels of radiation. In the opinion of management, these
studies have  demonstrated  in C57BL/6 mouse model studies that  Radilex-treated
mice exhibited survival rates of up to 50% at 90 days post-radiation exposure to
an otherwise  lethal dose of whole body  ionizing  radiation.  Additionally,  we
believe the results  indicated that these mice had normal immune system function
at the 90-day  post-radiation time point compared to longitudinal  control mice.
We believe these animal  studies  provide  support for our  continued  effort to
develop  Radilex to treat the effects of acute radiation  syndrome.  There is no
assurance that our interpretation of the results of the studies will prove to be
accurate after further testing.

         Currently, we are sponsoring additional pre-clinical studies on mice in
an  attempt to confirm  the  potential  efficacy  of Radilex in  treating  acute
radiation  syndrome.  In parallel with these studies we are also determining the
protocols  that we hope will allow us to initiate large animal  clinical  trials
that will be necessary for  establishing  efficacy per the animal efficacy rule.
Assuming  adequate  funding is  available  to us, we expect  these large  animal
studies to begin within the next 12 to 18 months. In addition,  we are designing
protocols for toxicology and human safety studies that will be needed to support
a New Drug Application (NDA).


         Research  and  Development  for the use of  Viprovex  in  Chemical  and
         Biological Exposure Applications.
         ------------------------------------------------------------

         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 flu
was issued on December 19, 2005 (PIND No. 73,709).

                                        7


         We are  researching  the efficacy of Viprovex as a potential  treatment
for exposure to various  chemical  agents,  including  formalin,  and biological
agents, including influenza and anthrax.

         In addition to our early pilot studies, we have completed three studies
on anthrax and one on avian influenza.  It is the opinion of management that the
results of these  studies  may  underlie  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.  There is no assurance that our  interpretation  of the results of the
studies will prove to be accurate after further testing.

         If product development or approval does not occur as scheduled our time
to reach market will be lengthened  and our costs will  substantially  increase.
Additionally,  we may be requested  to expand our findings to gather  additional
data or we may not achieve the desired results. If so, we may have to design new
protocols and conduct additional studies. This will increase our costs and delay
the time to market for Radilex for use as a possible therapeutic for exposure to
acute  radiation and Viprovex for use as a the potential  treatment for exposure
to  chemical  and  biological  agents.  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.

OFF-BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements as of September 30, 2006.

REVENUES

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

COSTS AND EXPENSES

         From our inception  through September 30, 2006, we have incurred losses
of $12,610,320.  These expenses were associated  principally  with  equity-based
compensation to employees and consultants, cost of penalty for late registration
of shares, product development costs and professional services.


LIQUIDITY AND CAPITAL RESOURCES

         At September 30, 2006, we had current  assets of $11,459  consisting of
other  current  assets of $11,459.  At September  30, 2006,  we also had current
liabilities   of  $1,866,254,   consisting  of  accounts   payable  and  accrued
liabilities  of  $1,026,823,  notes  payable of $829,750  and cash  overdraft of
$9,681.  This resulted in net working  capital  deficit at September 30, 2006 of
$1,854,795.  During the nine months ended  September 30, 2006,  the Company used
cash in operating  activities of $973,279.  From the date of inception  (October
30, 2002) to September 30, 2006,  the Company has had a net loss of  $12,610,320
and has used cash of $4,931,737 in operating activities.

         We have  never  generated  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. We met our cash requirements from our inception through September 30, 2006
via the  private  placement  of  $3,264,352  net of costs of our  common  stock,
$1,195,307 of this was from the exercise of common stock  purchase  warrants net
of costs.  An  additional  $1,688,378  was  received  from the issuance of notes
payable, net of repayments.

         In July 2006,  the Company  received a cash  advance from a Director in
the amount of $25,000 to be used as an upfront  payment for a  radiation  study.
This advance bears interest at the rate of 12% per annum.  This cash advance was
not used, as no upfront payment was required,  and  subsequently,  principal and
interest was returned on August 30, 2006.

         Effective July 25, 2006, the Company  entered into an unsecured  senior
promissory note in the amount of $250,000 with an accredited investor. Following
the payment of commissions  and expenses,  the Company  received net proceeds of
approximately $210,000.

         Effective August 1, 2006, we converted two cash advances into unsecured
senior promissory notes, in the respective amounts of $50,000 and $20,000,  with
individual  accredited  investors,  one  of  whom,  Theodore  E.  Staahl,  was a
Director.  Following the payment of fees and expenses,  we received net proceeds
of approximately  $68,600.  The outstanding  principal amount of each note, plus
interest  at the rate of 12% per  annum,  is  payable  in cash on or before  the
earlier  of (i) one year from the date of such note or (ii) the date upon  which
the  Company  sells  any  of  its  equity  or  debt  securities  in a  financing
transaction,  or a series of financings, with gross proceeds equal to $1,000,000
or more; provided,  however,  that a subsequent  financing  transaction will not
include (x)  issuances of common  stock to  employees  of the  Company,  (y) the
exercise  of any  options  to  purchase  common  stock of the  Company  that are
outstanding  as of the date  hereof,  or (z) the grant,  issuance or exercise of
options  or common  stock of the  Company  under the  Company's  stock,  option,
deferred  stock and  restricted  stock plan for the  purpose of  satisfying  the
Company's payables.

         Pursuant  to  our  employment   agreement  with  Michael  Wilhelm,  our
President  and Chief  Executive  Officer,  dated  December 16, 2002,  we paid an
annual salary of $125,000 and $175,000 to Mr. Wilhelm during the first and

                                        8


second years of his employment, respectively.  Thereafter we paid through August
10, 2005,  an annual  salary of $250,000.  On August 10, 2005, we entered into a
new employment  agreement with Mr. Wilhelm.  The new employment  agreement calls
for a  salary  at the  rate  of  $275,000  per  annum  and  provides  for  bonus
incentives.   Mr.  Wilhelm's  salary  is  payable  in  regular  installments  in
accordance with the customary payroll practices of our company.

         Pursuant to our employment  agreement with John N. Fermanis,  our Chief
Financial Officer,  dated February 15, 2005, we paid an annual salary of $60,000
until the company  completed a financing of $500,000 or more.  This  occurred on
March 4, 2005 when the company  completed a Tender Offer for  warrants  totaling
$1,211,000 net of fees. From March 4, 2005,  until December 31, 2005, we paid an
annual  salary of $85,000.  Thereafter,  we will pay an annual salary of $98,000
for the second year ending  December  31, 2006 and an annual  salary of $112,000
for the third year ending December 31, 2007. Mr.  Fermanis' salary is payable in
regular  installments in accordance with the customary  payroll practices of our
company.

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

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

         Since  our  inception,  we have  been  seeking  additional  third-party
funding.  During such time,  we have  retained a number of different  investment
banking firms to assist us in locating available funding;  however,  we have not
yet been successful in obtaining any of the long-term  funding needed to make us
into a  commercially  viable  entity.  During the period  from  October  2004 to
September 2006, we were able to obtain  financing of $3,590,136 from a series of
private  placements of our securities  (which  resulted in net proceeds to us of
$3,264,352). In October, 2006, we obtained additional funding of $4,973,600 from
the first two closings of a private  placement which resulted in net proceeds to
us of  $3,401,660.  Based on our current plan of  operations  all of our current
funding is expected to be  depleted  by the end of January  2007.  If we are not
successful  in generating  sufficient  liquidity  from  operations or in raising
sufficient  capital  resources,  it would have a material  adverse effect on our
business, results of operations, liquidity and financial condition.

         While we have  successfully  raised capital to meet our working capital
and financing needs in the past through debt and equity  financings,  additional
financing  will be required in order to implement  our business plan and to meet
our current and projected cash flow deficits from  operations  and  development.
There can be no  assurance  that we will be able to  consummate  future  debt or
equity  financings in a timely manner on a basis  favorable to us, or at all. If
we are unable to raise needed funds 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.
Until  such  time,  if at all,  as we  receive  adequate  funding,  we intend to
continue to defer payment of all of our  obligations  which are capable of being
deferred, which actions have resulted in some vendors demanding cash payment for
their goods and services in advance,  and other vendors  refusing to continue to
do  business  with  us.  In the  event  that  we  are  successful  in  obtaining
third-party  funding, we do not expect to generate a positive cash flow from our
operations  for  at  least  several  years,   if  at  all,  due  to  anticipated
expenditures  for  research  and  development  activities,   administrative  and
marketing activities, and working capital requirements and expect to continue to
attempt to raise further capital through one or more further private placements.
Based  on our  operating  expenses  and  anticipated  research  and  development
activities,  we believe that we will require an additional  $3.5 million to meet
our expenses over the next 12 months.

         On  October 4,  2006,  the  Company  effected  an initial  closing of a
private placement,  whereby the Company sold an aggregate of $2,276,500 worth of
units  ("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").

         On October 26, 2006, the Company effected a second closing of a private
placement, 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 transaction is referred to herein as the "Private Placement").

         Pursuant to the terms of the subscription agreement, each Unit was sold
for $25,000 and consisted of (i) 156,250  shares of Common Stock of the Company;
and (ii) a warrant  to  purchase,  at any time  prior to the  fifth  anniversary
following  the final closing of the Private  Placement,  78,125 shares of Common
Stock at an exercise price of $0.50 per share. A total of 14,228,125  shares and
7,114,063  warrants were sold to investors at the initial closing of the Private
Placement.  The Company  agreed to file a registration  statement,  covering the
securities  sold in the Private  Placement,  not before 180 days after the final
closing  of the  Private  Placement  and not later than 190 days after the final
closing of the Private Placement.  The shares and warrants were offered and sold
to investors in reliance upon exemptions from  registration  pursuant to Section
4(2) under the  Securities  Act of 1933,  as amended,  and Rule 506  promulgated
thereunder.  In addition,  the Company may elect to redeem the warrants (but not
less than all the  warrants),  upon certain  conditions  and after  providing at
least thirty-days written noticeto warrant holders.

         In  connection  with the  Private  Placement,  the  Company  issued  an
additional  2,276,500  shares  of  Common  Stock to the  placement  agent or its
designees, upon the initial closing of the Private Placement. In connection with
the Private  Placement,  the Company  issued an additional  2,697,100  shares of
Common Stock to the placement agent or its designees, upon the second closing of
the Private Placement. The shares were issued as consideration for the placement
agent's  services  in  connection  with the Private  Placement.  The shares were
issued in reliance upon  exemptions from  registration  pursuant to Section 4(2)
under  the  Securities  Act of  1933,  as  amended,  and  Rule  506  promulgated
thereunder. In addition, the placement agent received $700,399 in commission and
expenses as compensation for its services, $349,776 and $350,623 for the initial
and second closing respectively.

Acquisition or Disposition of Plant and Equipment
-------------------------------------------------

         We did not  dispose  or  acquire  any  significant  property,  plant or
equipment  during  the  second  quarter  ended  September  30,  2006.  We do not
anticipate the sale of any significant  property,  plant or equipment during the
next twelve months.

Number of Employees
-------------------

         From our inception through the period ended September 30, 2006, we have
relied on the services of outside  consultants  for services and currently  have
three full-time  employees.  Our full-time employees are Michael K. Wilhelm, our
Chief Executive Officer;  John Fermanis,  our Chief Financial Officer;  and, the
third serves in an  administrative  role.  In order for us to attract and retain
quality personnel,  we anticipate we will have to offer competitive  salaries to
future  employees.  We do not anticipate our employment base will  significantly
change  during the next  twelve  months,  other than the  addition of two senior
level  appointments,  including  a Senior  Director of Product  Development  and
Regulatory Affairs.

         As we continue to expand, we will incur additional costs for personnel.
This projected  increase in personnel is dependent upon our generating  revenues
and  obtaining  sources  of  financing.  There is no  guarantee  that we will be
successful in raising the funds  required or generating  revenues  sufficient to
fund the projected increase in the number of employees.

                                        9


Trends, Risks and Uncertainties
-------------------------------

         We have sought to identify  what we believe to be the most  significant
risks to our business,  but we cannot predict whether, or to what extent, any of
such risks may be realized  nor can we  guarantee  that we have  identified  all
possible risks that might arise. Investors should carefully consider all of such
risk factors  before  making an  investment  decision with respect to our Common
Stock.


                                  RISK FACTORS

Other than with respect to the following  risk factors,  which have been updated
and restated in their entirety below,  there have been no material  changes from
the risk  factors  disclosed  in the  "Risk  Factors"  section  of our the "Risk
Factors"  section of our annual report on Form 10-KSB filed with the  Securities
and  Exchange  Commission  on March 28,  2006 and Form  10-KSB/A  filed with the
Securities and Exchange Commission on March 30, 2006.

                     RISKS RELATED TO OUR FINANCIAL RESULTS

WE HAVE  LIMITED CASH  RESOURCES,  AN  ACCUMULATED  DEFICIT,  ARE NOT  CURRENTLY
PROFITABLE AND EXPECT TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.

         As  of  September  30,  2006,  we  had a  working  capital  deficit  of
$1,860,195.  This amount consists of current assets of $11,459, accounts payable
and accrued current liabilities of $1,032,223, including notes payable $829,750.
We have  incurred a  substantial  net loss for the period from our  inception in
October 2002 to September 30, 2006, and are currently experiencing negative cash
flow.  We expect to  continue to  experience  negative  cash flow and  operating
losses through at least 2009 and possibly thereafter.  As a result, we will need
to generate significant revenues to achieve profitability.

WE MAY FAIL TO  BECOME  AND  REMAIN  PROFITABLE  OR WE MAY BE UNABLE TO FUND OUR
CONTINUING LOSSES, IN WHICH CASE OUR BUSINESS MAY FAIL.

         We are  focused  on  product  development  and have not  generated  any
revenue  to  date.  We do not  believe  we  will  begin  earning  revenues  from
operations  until the calendar  year 2009 as we  transition  from a  development
stage company.  We have incurred  operating losses since our inception.  Our net
loss for the  nine  months  ended  September  30,  2006  was  $1,212,493.  As of
September 30, 2006, we had an accumulated deficit of $13,011,627.

WE WILL BE REQUIRED TO RAISE  ADDITIONAL  CAPITAL TO FUND OUR OPERATIONS.  IF WE
CANNOT RAISE  NEEDED  ADDITIONAL  CAPITAL IN THE FUTURE,  WE WILL BE REQUIRED TO
CEASE OPERATIONS.

         Based  on  our  current  plans,  we  believe  our  existing   financial
resources, and interest earned thereon, will be sufficient to meet our operating
expenses and capital requirements through January 2007. However,  changes in our
research and development plans or other events affecting our operating  expenses
may result in the expenditure of such cash before that time. We estimate that we
will  require  approximately  $2.0  million  over the next 16 months in order to
finance our research and development  efforts,  fund operating expenses,  pursue
regulatory clearances and prosecute and defend our intellectual property rights.
We may seek such  additional  funding  through  public or private  financing  or
through collaborative arrangements with strategic partners.

                                       10


         You should be aware that in the future:

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

         o  any available additional financing may not be adequate.


         If we cannot  raise  additional  funds when  needed,  or on  acceptable
terms,  we will not be able to continue our drug discovery  efforts.  We require
substantial  working capital to fund our  operations.  Since we do not expect to
generate  significant  revenues  in the  foreseeable  future,  in  order to fund
operations,  we will be  completely  dependent  on  additional  debt and  equity
financing  arrangements.  There  is no  assurance  that  any  financing  will be
sufficient  to fund our  capital  expenditures,  working  capital and other cash
requirements  beyond January 2007. Our working  capital  deficit as of September
30, 2006 was  $1,860,195.  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.



ITEM 3. CONTROLS AND PROCEDURES

(a) 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  Quarterly  Report,  we
conducted an evaluation, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer,  of our disclosure controls
and  procedures  (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange
Act). Based on that evaluation,  our Chief Executive Officer and Chief Financial
Officer have concluded that, as of September 30, 2006, such disclosure  controls
and  procedures  were  effective in ensuring that required  information  will be
disclosed  on a timely basis in our  periodic  reports  filed under the Exchange
Act.

(b) Changes in internal controls

         There have been no  changes  in our  internal  control  over  financial
reporting identified in connection with the evaluation required by paragraph (d)
of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter
ended September 30, 2006 that has materially  affected,  or is reasonably likely
to materially affect, our internal control over financial reporting.

                                       11


PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

         The Company is not a party to any material  legal  proceedings.  Please
refer to the Company's  report on Form 10-K/A Amendment No. 1 for 2005 regarding
litigation and claims as of December 31, 2005.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         In August 2006, the Company  reached an agreement with the investors in
the private  placement  of October  2004 which limits the number of warrants and
shares  which  the  Company  is  obligated  to  issue  pursuant  to the  penalty
calculation  to an aggregate  of 18% of the number of original  number of shares
and warrants issued in the October 2004 private placement. This agreement limits
the number of shares and warrants issuable  pursuant to the penalty  calculation
to an  aggregate  of  4,150,800  shares and  warrants to purchase an  additional
1,634,400  shares,  respectively.  These shares and warrants  were issued in the
three month  period ended  September  30, 2006.  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.

                                       12


         During the three  months ended  September  30, 2006 we have accrued the
issuance of 46,000 common stock purchase warrants to members of our Bioterrorism
Advisory  Board and  Scientific  Advisory  Board for  participation  during  the
quarter.  These warrants were issued  pursuant to the terms of their  respective
agreements  with us. The exercise  prices of these  warrants range from $0.20 to
$1.00 per share.  The warrants  expire  three years after date of issuance.  The
warrants will bear a restrictive  legend  regarding the sale or transfer of such
or the  underlying  securities.  The  warrants  were  issued  in  reliance  upon
exemptions from  registration  pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated  thereunder.  There were less than
35 investors  and each investor had such  knowledge and  experience in financial
and business  matters that the investor was capable of evaluating the merits and
risks of investing in the warrants.  No general  solicitation or advertising was
undertaken in connection with the offer and sale of these shares.  Each investor
was also provided  with access to our Exchange Act reports  including our annual
report on Form 10-KSB and our quarterly reports on Form 10-QSB.

         Pursuant to the term of his employment  agreement,  our Chief Financial
Officer,  John N. Fermanis,  is to receive 62,500 warrants.  The warrants expire
five years after date of  issuance.  The warrants  were issued in reliance  upon
exemptions from  registration  pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated  thereunder.  There were less than
35 investors  and each investor had such  knowledge and  experience in financial
and business  matters that the investor was capable of evaluating the merits and
risks of investing in the warrants.  Each investor was also provided with access
to our Exchange Act reports  including  our annual report on Form 10-KSB and our
quarterly reports on Form 10-QSB.

         For  collateralization  of  promissory  notes in 2004, we issued to our
Chief  Executive  officer,  Michael K. Wilhelm,  300,000  common stock  purchase
warrants.  These  warrants  expire  five  years from the date of  issuance.  The
warrants were issued in reliance upon exemptions from  registration  pursuant to
Section  4(2)  under  the  Securities  Act of  1933,  as  amended,  and Rule 506
promulgated thereunder.  There were less than 35 investors and each investor had
such  knowledge  and  experience  in  financial  and  business  matters that the
investor  was capable of  evaluating  the merits and risks of  investing  in the
warrants.  Each  investor  was also  provided  with access to our  Exchange  Act
reports  including our annual report on Form 10-KSB and our quarterly reports on
Form 10-QSB.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.



ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.


                                       13


ITEM 5: OTHER INFORMATION

On July 14, 2006, pursuant to the term of his employment  agreement our Board of
Directors  granted  a  one-time   nonstatutory   option  to  purchase  1,896,970
discretionary  incentive  stock  options to our  President  and Chief  Executive
Officer,  Michael K. Wilhelm, per his employment  agreement.  The options have a
per share exercise price of $0.231, 110% of the closing price on the date of the
grant,  and a term of five years.  The options were granted in  furtherance of a
resolution  by our Board on August 8, 2005 pursuant to which the options were to
be  granted  at such time that the  Company's  2003  Stock  Plan is  amended  to
authorize  additional shares, which was effected by approval of our shareholders
on June 28, 2006.

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

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

Private Placement
-----------------
On  October 4,  2006,  the  Company  effected  an  initial  closing of a private
placement,  whereby the Company sold an aggregate of  $2,276,500  worth of units
("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").

On  October  26,  2006,  the  Company  effected  a second  closing  of a private
placement, 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 transaction is referred to herein as the "Private Placement").

Pursuant  to the  terms of the  subscription  agreement,  each Unit was sold for
$25,000 and consisted of (i) 156,250 shares of Common Stock of the Company;  and
(ii) a warrant to purchase, at any time prior to the fifth anniversary following
the final closing of the Private Placement,  78,125 shares of Common Stock at an
exercise  price of $0.50 per share.  A total of 14,228,125  shares and 7,114,063
warrants were sold to investors at the initial closing of the Private Placement.
The Company  agreed to file a  registration  statement,  covering the securities
sold in the Private  Placement,  not before 180 days after the final  closing of
the Private Placement and not later than 190 days after the final closing of the
Private Placement. The shares and warrants were offered and sold to investors in
reliance upon  exemptions from  registration  pursuant to Section 4(2) under the
Securities  Act of 1933, as amended,  and Rule 506  promulgated  thereunder.  In
addition,  the Company may elect to redeem the  warrants  (but not less than all
the warrants),  upon certain conditions and after providing at least thirty-days
written noticeto warrant holders.

In  connection  with the Private  Placement,  the Company  issued an  additional
2,276,500  shares of Common Stock to the placement agent or its designees,  upon
the initial  closing of the Private  Placement.  In connection  with the Private
Placement,  the Company issued an additional 2,697,100 shares of Common Stock to
the placement  agent or its  designees,  upon the second  closing of the Private
Placement.  The shares were issued as  consideration  for the placement  agent's
services in  connection  with the Private  Placement.  The shares were issued in
reliance upon  exemptions from  registration  pursuant to Section 4(2) under the
Securities  Act of 1933, as amended,  and Rule 506  promulgated  thereunder.  In
addition,  the placement  agent received  $700,399 in commission and expenses as
compensation for its services,  $349,776 and $350,623 for the initial and second
closing respectively.

                                       14

ITEM 6. EXHIBITS

(a)  Exhibits

4.1               Form of Warrant by and between the  Registrant and each of the
                  investors who entered into the  Subscription  Agreements filed
                  as Exhibit 10.1 and 10.2 herewith.

10.1              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 thereto.

10.2              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 thereto.

31.1              Certification  of Chief  Executive  Officer  pursuant  to Item
                  601(b)(31) of Regulation  S-B, as adopted  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

31.2              Certification  of Chief  Financial  Officer  pursuant  to Item
                  601(b)(31) of Regulation  S-B, as adopted  pursuant to Section
                  302 of the Sarbanes-Oxley Act of 2002.

32.1              Certifications  of  Chief  Executive  Officer  pursuant  to 18
                  U.S.C.  Section 1350 as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.*

32.2              Certifications  of  Chief  Financial  Officer  pursuant  to 18
                  U.S.C.  Section 1350 as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.*

                  o     * 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.


                                       15

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized, on November 13, 2006.


     IR BioSciences Holdings, Inc.

                                            By:  /s/ Michael K. Wilhelm
                                            ----------------------------------
                                            Michael K. Wilhelm
                                            President, Chief Executive Officer




                                       16