**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-KSB**

 

**(Mark One)**

 

**ý****                                ****ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31, 2004**

 

**OR**

 

**o****                                ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from        to        **

 

**Commission file number: 000-50341**

 

**PolarMolecular Holding Corporation**

(Exact Name of Registrant as Specified in itsCharter)

 
| **Delaware**                                                | ** ** | **42-1339746**                       |
|-------------------------------------------------------------|------------|--------------------------------------|
| (State of Incorporation or Organization)                    |       | (I.R.S. Employer Identification No.) |
|                                                        |       |                                 |
| **4600 S. Ulster Street  Suite 940  Denver, Colorado** | ** ** | **80237**                            |
| (Address of principal executive office)                     |       | (Zip Code)                           |

 

**(303) 221-1908**

(Registrant’s telephone number, including areacode)

 

Securities registered pursuant to Section 12(b) ofthe Act:

**None**

 

Securities registered pursuant to Section 12(g) ofthe Act:

**Common Stock, $0.01 par value**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days. Yes o No ý

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.o

 

Indicate by check markwhether the registrant is an accelerated filer (as defined in Rule 12b-2of the Act). Yes o No ý

 

Indicate by check markwhether the Registrant is a shell company (as defined in Exchange ActRule 12b-2). Yes o No ý

 

The aggregate market value ofthe voting and non-voting common equity held by non-affiliates as of June 30,2003, was approximately $7,145,419, based on the last reported sale price onthe OTC Bulletin Board on that date of $0.80 per share.

 

The number of shares ofCommon Stock outstanding as of December 14, 2005 was 136,775,473.

 

Documents Incorporated by Reference: Portions of the Registrant’s Definitive ProxyStatement to be filed with the Securities and Exchange Commission pursuant toRegulation 14A in connection with the 2004 Annual Meeting of Shareholders areincorporated by reference in Part III of this Report on Form 10-K.

 

 

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**TABLE OFCONTENTS**

 
| **PART I:**   | ** **                                                                                      |
|--------------------|-------------------------------------------------------------------------------------------------|
|               |                                                                                            |
| ITEM 1:            | Business                                                                                        |   |
|               |                                                                                            |   |
|               | Risk Factors                                                                                    |   |
|               |                                                                                            |   |
|               | Cautionary Statement on Forward Looking  Statements                                             |   |
|               |                                                                                            |   |
| ITEM 2:            | Properties                                                                                      |   |
|               |                                                                                            |   |
| ITEM 3:            | Legal Proceedings                                                                               |   |
|               |                                                                                            |   |
| ITEM 4:            | Submission of Matters to a Vote of Security  Holders                                            |   |
|               |                                                                                            |   |
| **PART II:**  | ** **                                                                                      |
|               | ** **                                                                                      |
| ITEM 5:            | Market for Registrant’s Common Equity and  Related Stockholder Matters                     |   |
|               |                                                                                            |   |
| ITEM 6:            | Management’s Discussion and Analysis of  Financial Condition and Results of Operations     |   |
|               |                                                                                            |   |
| ITEM 7:            | Financial Statements and Supplementary Data                                                     |   |
|               |                                                                                            |   |
| ITEM 8:            | Changes in and Disagreements with  Accountants on Accounting and Financial Disclosure           |   |
|               |                                                                                            |   |
| ITEM 8A:           | Controls and Procedures                                                                         |   |
|               |                                                                                            |   |
| ITEM 8B:           | Other Information                                                                               |   |
|               |                                                                                            |   |
| **PART III:** | ** **                                                                                      |
|               |                                                                                            |
| ITEM 9:            | Directors and Certain Executive Officers of  the Registrant                                     |   |
|               |                                                                                            |   |
| ITEM 10:           | Executive Compensation                                                                          |   |
|               |                                                                                            |   |
| ITEM 11:           | Security Ownership of Certain Beneficial  Owners and Management and Related Stockholder Matters |   |
|               |                                                                                            |   |
| ITEM 12:           | Certain Relationships and Related  Transactions                                                 |   |
|               |                                                                                            |   |
| ITEM 13:           | Exhibits                                                                                        |   |
|               |                                                                                            |   |
| ITEM 14:           | Principal Accountant Fees and Services                                                          |   |

 

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**PART I**

 

**ITEM 1. BUSINESS**

 

General

 

PolarMolecular Holding Corporation, a Delaware corporation, is a holding companywhose business and operations are conducted through its wholly-ownedsubsidiary, Polar Molecular Corporation, or Polar. Polar is based in Denver,Colorado and develops and markets fuel additives. Polar’s primary product,DurAlt®FC, is a patented fuel additive that has been proven effective atreducing combustion chamber deposits and reducing octane requirement increasein combustion engines. Polar’s business objective is to commercialize itsproprietary additive technologies that improve fuel economy, reduce greenhousegas emissions, and provide alternatives to leaded gasoline for the globalautomotive fuel market.

 

Polar,the wholly-owned subsidiary of Polar Molecular Holding Corporation, wasoriginally incorporated in Utah on June 15, 1983 and reincorporated inDelaware on March 12, 2001. A merger of MCC Merger Sub Corporation, asubsidiary of Murdock Communications Corporation (“Murdock”), and Polar wascompleted on July 14, 2003, with Polar continuing as the surviving corporation.All references to the Company mean Polar Molecular Holding Corporation and/orPolar.

 

DurAlt®FC

 

DurAlt®FC,Polar’s first commercial product, has been in limited use since 1985 as aretail after-market fuel additive and as a bulk treatment additive in largefleets and marine harbors. Product efficacy has been proven in numerouslaboratory and fleet tests performed by major oil companies, independentlaboratories, engine manufacturers, and published in two technical papers bythe International Society of Automotive Engineers. Retail market customersinclude Harley Davidson Motorcycle Company, Access Business Group/Quixtar Corporation,and several others. Harley Davidson, after a fleet test of DurAlt®FC adoptedthe product under private label in 1986 as “Harley Davidson Genuine FuelAdditive Formulated with DurAlt®FC”.

 

Thebenefits of DurAlt®FC on gasoline engines can best be understood in connectionwith two related concepts: octane number requirement and octane requirementincrease.

 

OctaneNumber Requirement. It is desirable to produce gasoline that will burn evenlyand completely without knocking (the premature ignition of a portion of thefuel in the combustion chamber of an internal combustion engine). Theanti-knock characteristics of a gasoline are directly related to the maximumefficiency obtainable from the engine and are indicated by the gasoline’soctane number – the higher this number, the less likely the gasoline is tocause knocking. In order to increase the octane number of gasoline and therebyreduce engine knocking, oil refiners blend “octane boosting” additives into thegasoline. Many commonly used “octane boosters,” such as lead and MTBE, havebeen determined later to have adverse environmental and health effects and havebeen phased out of gasoline in the U.S. and are being phased out of gasoline inmost international markets. The DurAlt®FC chemistry has been reviewed by theU.S. Environmental Protection Agency, or EPA, and other environmentalorganizations. In a letter dated May 8, 1986, the EPA has determined that,unlike lead and some other fuel additive technologies, DurAlt®FC is “substantiallysimilar” to unleaded gasoline, and therefore does not pose any greater healthrisk than, unleaded gasoline.

 

OctaneRequirement Increase. When a new gasoline engine is first started, carbon fromincomplete combustion creates deposits on the cylinder head and piston crownareas of the engine’s combustion chamber. These are known as combustion chamberdeposits. Over the first 10,000 to 15,000 miles of a new engine’s life, theaccumulation of combustion chamber deposits drives up the octane demand of theengine by five to ten octane numbers, so that higher octane fuel is oftenrequired to produce the same performance the engine had

 

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whenit was new. This phenomenon is known as octane requirement increase. As aresult, a car’s octane requirement increases over time. Because of octanerequirement increase, auto companies are forced to “de-tune” gasoline enginesby design, thereby sacrificing fuel economy and performance in order to preventengine knock and damage due to combustion chamber deposit buildup and the resultantincrease in octane demand.

 

DurAlt®FCtechnology does not increase the octane rating of gasoline, but it effectivelyachieves the same result by decreasing the octane requirement of automotiveengines and especially by reducing octane requirement increase. DurAlt®FCallows optimal engine performance on regular octane gasoline. This in turn,would permit oil companies to produce gasoline at appropriate octane levels asrequired by engine manufacturers, without resorting to the use ofoctane-boosting components that have harmful side effects. Polar is pursuingpractical applications of DurAlt®FC that it believes would have severalbeneficial effects, including:

 

Thefirst potential effect, and perhaps the most beneficial from a healthperspective, would be the reduction or total elimination of lead as anoctane-boosting gasoline additive in the many countries where it is still inuse.

 

Thesecond potential effect would be to provide automobile manufacturers worldwidewith the ability to design their engines to operate at more efficient settingsdue to reduced octane demand if DurAlt®FC-treated gasoline was used throughoutthe U.S. and worldwide markets.

 

Independentlaboratory and oil company test results demonstrate that DurAlt®FC can reduceoctane requirement increase by 55 to 80 percent in gasoline engines. Theseresults have the potential to enable auto companies to redesign their gasolineengines to run more efficiently, with fuel economy improvements of up to 5%, ifDurAlt®FC technology or its equivalent is used in all gasoline. Suchimprovements could produce corresponding benefits to consumers, energy suppliesand the environment. Carbon dioxide emissions from automobiles make up asubstantial portion of the greenhouse gases emitted into the atmosphere. Anyimprovement in fuel economy correlates into an equal reduction in greenhousegas emissions from automotive sources.

 

OtherApplications. DurAlt®FC provides documented benefits for diesel engines as wellas for gasoline engines. Adding DurAlt®FC to diesel fuel improves combustion,fuel economy and the lubricity of diesel fuel and assists in keeping injectorsclean. DurAlt®FC also improves diesel fuel cetane rating.  Although a large part of Polar’s currentfocus is on strategic development of the opportunity of DurAlt®FC as a gasolineadditive for oil refiners, Polar intends to expand its focus, when time andresources permit, to include the use of DurAlt®FC as a diesel additive for oilrefiners. In many countries, including several in Western Europe, the dieselmarket is as large as, or larger than, the gasoline market.

 

CurrentSales. Polar currently has two channels for sales.  The first channel is through an exclusivedistribution agreement with Access Business Group/Quixtar Corporation.  These sales are recognized as royalties onour income statement.  Sales through thisfirst channel account for approximately 61.8% of total revenues for the yearending December 31, 2004.  Thesecond channel is through direct sales.  Ourlargest customers for direct sales are Harley Davidson Motorcycle Company,ValvTect Petroleum Products, MotorVac Technologies, and Everbest Products, Inc.,who purchase DurAlt®FC for sales to consumers under private label. Theseafter-market sales preserve historical relationships and supplement Polar’sprimary business strategy, the direct sale to major oil companies and detergentadditive manufacturers for bulk treatment of gasoline and diesel fuelworldwide. Sales to customers vary significantly from year to year. During thefiscal year ended December 31, 2004, Everbest Products, Inc. andValvTect Petroleum Products accounted for 46.6% and 38.4% of product sales,respectively.  During the fiscal yearended December 31, 2003 ValvTect Petroleum Products accounted for 78.2% ofour product sales.

 

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MarketDrivers

 

Thegrowing severity of air pollution in major urban centers of the U.S. promptedfederal enactment of the Clean Air Act in 1970 and the Clean Air Act Amendmentsin 1990. These laws mandate reductions in known causes of air pollution,specifically including reduction of automobile exhaust emissions, developmentof cleaner automotive “reformulated” fuels, utilization of catalyticconverters, elimination of lead in gasoline, and the use of detergents ingasoline to preserve fuel economy and meet emissions standards. These were allmajor steps in a series of national and international actions that are nowdriving the worldwide potential for DurAlt®FC technology.

 

TheClean Air Act requires automobile manufacturers to meet standards for corporateaverage fuel economy, or CAFE, which become increasingly demanding year-by-year;however, Congress has imposed a temporary freeze on these standards in recentyears while the auto industry seeks to develop improvements, and considerationis given to broadening the legislated scope of the standards to cover lighttrucks, SUVs, and the like, which have become increasingly popular. DurAlt®FCtechnology performance features, based on test results from independentlaboratories and a major oil company, could allow auto manufacturers to improvefuel economy by as much as five percent. These improvements could assist theautomotive industry meet the standards for fuel economy once these standardsare resumed.

 

Dueto the need to preserve cleanliness and efficiency of fuel injection systems onautomobiles, the EPA has required oil refiners in the United States, since1995, to develop or use detergent additives to keep fuel injection and supplysystem valves clean in order to preserve fuel economy and meet emissionsstandards. Although these detergent additives preserve a vehicle’s fueleconomy, a negative side effect of these detergents is the build-up ofcombustion chamber deposits.   As aresult of the high molecular weight of the detergent additives, their usecauses deposits to accumulate in the combustion chamber resulting in misfiringin the engine and ultimately lower gas mileage. DurAlt®FC has been proven to reduce combustion chamber deposits.

 

TheEPA’s requirement for the use of catalytic converters on all gasoline poweredengines, coupled with health concerns, necessitated the elimination in the U.S.of all lead additives used to boost the octane rating in motor gasoline. TetraEthyl Lead, or TEL, destroys the catalyst in catalytic converter systems. Inview of the adverse health impact of TEL, especially in children, the U.N.World Health Organization, the EPA, the World Bank, and environmentalorganizations have called for the global elimination of lead additives ingasoline. This would also enable the implementation of catalytic converters onautomotive equipment in order to greatly reduce automobile emissions. Catalyticconverters alone reduce automotive emissions by over 90%.

 

MTBE,introduced as a gasoline component in many U.S. markets to reduce ozone-relatedemissions and boost octane levels in lieu of lead additives, has beendetermined to contaminate groundwater supplies and is being phased out of use.The anticipated “octane pool” shortage, due to MTBE phase-out, can be at leastpartially offset by the ability of DurAlt®FC to reduce octane requirementincrease, eliminating the need for higher octane fuel than is recommended bythe engine manufacturer.

 

Increasingconcerns over the risk of global warming, which is caused partly by greenhousegas emissions from automobiles, resulted in the 1998 Kyoto Protocols forreducing greenhouse gas emissions. The Kyoto Protocols have been adopted bymany countries. The U.S. government has not yet endorsed or ratified theProtocols, although the Bush administration acknowledges that greenhouse gasemissions are a concern. A number of oil companies, including BP Amoco andRoyal Dutch Shell, have publicly disclosed plans to reduce greenhouse gasemissions resulting from their processing operations.   The use of DurAlt®FC assists in reducinggreenhouse gas emissions and could become an integral part of both theprocessing of petroleum

 

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products,as well as, the final consumable product and could assist in meeting thestringent standards promulgated in the Kyoto Protocol.

 

TheWorld Wide Fuel Charter, published in December 1998 by the major automanufacturers worldwide, set a global standard for automotive fuels thatforbids the use of additives that are metallic or known to be toxic and setsminimum standards for combustion chamber deposits in engines. DurAlt®FC meetsthe requirements set forth for fuel additives in the World Wide Fuel Charter,and provides proven technology to reduce combustion chamber deposits and toaddress fuel economy and emissions objectives of the auto manufacturers intheir efforts to meet government environmental standards. DurAlt®FC’s abilityto reduce octane requirement increase in gasoline engines can be used to offsetoctane demand for gasoline engines as MTBE and Tetra Ethyl Lead are phased outof gasoline motor fuels, thus helping to counteract the resultant octane poolshortages in the U.S. and worldwide. DurAlt®FC has been ruled by the EPA to be “substantiallysimilar” to unleaded gasoline and thus equally as safe as unleaded gasoline,posing no added risk of toxicity or damage to sensitive automotive engineemission control systems. Polar believes that DurAlt®FC, if applied nationwideto gasoline base stocks, could enable auto manufacturers to design enginesettings that would increase average fuel economy by as much as 5%, without anincrease in their production costs. In addition, most cars, trucks and SUVsalready on the highway are equipped with knock sensors that prevent enginesfrom knocking and pinging. Because DurAlt®FC reduces octane demand in gasolineengines as they accumulate miles and engine deposits, the knock sensor is notactivated, resulting in fuel economy improvements and reduced greenhouse gasemissions without any adjustments in engine settings by auto manufacturers.This means that DurAlt®FC is able to increase fuel economy and engineperformance even if applied to only a portion of the nation’s gasoline. A studyperformed by Abt Associates Inc., dated December 14, 1995 and entitled “TheEconomics of Reducing Lead in Gasoline: Basic Principles and an Example fromthe Russian Refining Sector” found DurAlt®FC, to be the most cost-effectivemeans for eliminating lead additives in gasoline for the Russian oil sectorbecause of its ability to reduce octane requirement increase in gasolineengines.

 

BusinessStrategy

 

MajorOil Companies and Additive Manufacturers

 

In1998, Polar began to focus its business strategy on the sale of DurAlt®FC forbulk treatment of gasoline for the global market. Since then, Polar has reliedupon prior published test results of DurAlt®FC, prior contacts, and new membersof its management team to create new strategic relationships with thosecompanies to accomplish its objective. One advantage of Polar’s strategy isthat there are relatively few companies producing gasoline and gasolineadditives worldwide. Thus, with a small team of experts, Polar is able toconcentrate on these critical potential customers, understand their businessand tailor its approach to meet their needs. Polar’s business strategy is tosell DurAlt®FC technology to oil companies as well as detergent additivemanufacturers, and to cooperate with major automobile manufacturers to helpdrive demand for DurAlt®FC technology as a solution for all parties in meetingfuel economy and emissions standards.

 

Polarplans to work with leading detergent additive manufacturers to develop a marketfor Polar’s fuel additive technology with oil companies around the world.  The following details the Company’s plansrelated to various world markets:

 

U.S.Market

 

Inthe U.S., major oil and additive companies are faced with the need to respondto requirements of auto companies (such as the World Wide Fuel Charter) andregulatory requirements such as MTBE phase-out, in addition to their normalobjectives for profitability and growth. Polar intends to work cooperativelywith major

 

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U.S.automobile manufacturers who may benefit from the use of DurAlt®FC to marketPolar’s technology to oil companies.

 

WesternEurope

 

WesternEurope has already implemented lead phase-out and automotive emissionsstandards similar to those that have been implemented in the U.S.  As a result, Polar believes that similarbusiness strategies will succeed in the U.S. market and in Western Europe.Management believes that the Worldwide Joint Marketing Agreement entered intowith TotalFinaELF Additives, or TFEA, will enhance Polar’s ability to penetratethe European market. TFEA is a division of TotalFinaELF, the fourth largest oilcompany in the world and the largest in Europe. TFEA has already run extensivetests on DurAlt®FC technology, establishing its effectiveness in controllingcombustion chamber deposit buildup and substantially reducing octanerequirement increase in gasoline powered engines.  Market support from major auto companiescould also benefit oil companies that introduce DurAlt®FC into their gasolinein Western Europe.

 

OtherGlobal Markets

 

Polarbelieves that DurAlt®FC is a cost effective technology for reduction of lead ingasoline and as such, has a large potential market which includes many of thedeveloping countries in Africa, Eastern Europe, Latin America and parts of Asiaand the Middle East. Polar believes the test results obtained with DurAlt®FC byTotalFinaELF Research and other independent research laboratories in the U.S.and England, substantiate DurAlt®FC’s ability to assist in the phase-out oflead in motor gasoline by reducing octane requirement increase in gasolineengines, thus reducing the need for the octane-boosting feature of lead ingasoline.

 

Secondarymarkets

 

Inaddition to marketing to major oil companies, Polar believes there aresignificant opportunities around the world for use of DurAlt®FC in bulk treatingfuel, particularly diesel fuel, for use by large trucking and bus fleets,marine vessels, railroads and utility plants. In April of 2005, Polar expanded its market efforts with itsdistributors to increase sales of its fuel additive technology to fleetoperators and consumers as fuel prices increased in North America.

 

Production

 

Asit has done historically, Polar contracts its product manufacturing, storageand shipping activities with producers whose core competencies meet itsdemanding expectations. Polar’s policy is to cooperate in conjunction withestablished, reliable sources that enable Polar to assure quality control anddemand for products while eliminating the need for Polar to make large capitalinvestments in manufacturing plants and equipment. Polar has an exclusivemanufacturing agreement with Lockhart Chemical Company for the manufacture ofour products. In addition to manufacturing and quality assurance capabilities,this relationship gives Polar access to valuable information concerning rawmaterial purchasing, transportation, regulation, handling and storage ofpetroleum additives without developing or managing this capability andexpertise internally. Polar expects to apply this formula to the global marketin order to provide product and logistical support to meet its customers’requirements. Polar anticipates that, as its volumes increase, it will realizesavings both in raw material costs and in manufacturing costs per gallon.

 

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OtherProducts

 

Inaddition to DurAlt®FC, Polar has other patented products, which fill marketniches in the petroleum and refining industries. Polar currently commercializesthese products to a limited degree as bulk treatment additives sold toindependent fuel distributors of the major oil companies, and for use by fleetsand industrial applications.

 

Patentsand Trademarks

 

Polarhas obtained patents in the U.S. and worldwide to protect its intellectualproperty. Currently, Polar holds 6 U.S. patents and 34 foreign patents. TheU.S. patent for DurAlt®FC Plus Detergent, issued in December 2002, extendsPolar’s U.S. patent coverage for DurAlt®FC with detergents from 2005 until2023. None of Polar’s patents have been challenged in any of the jurisdictions,including the U.S., Germany and Japan, in which it holds patents. In June 2004,the Company, its founders, Otis, Mark, and A. Richard Nelson, and two of theCompany’s international scientists, Dr. Chandra Prakash and Dr. GilbertChapelet, applied for seven new DurAlt®FC technology combination patents.  The new patents protect the use of DurAlt®FCtechnology with key gasoline and fuel additive chemistries in the U.S.  In June 2005, these same seven patentswere filed under the Patent Cooperation Treaty. This international treaty provides protection for the DurAlt®FCintellectual property in 130 countries around the world.

 

Polar’spatents are encumbered by liens in favor of certain note holders, serviceproviders, consultants and officers. As of December 31, 2004, the totalamount of indebtedness covered by such liens was approximately $1.8 millioncomprised of approximately $700,000 including principal and interest owed toAffiliated Investments, L.L.C. $527,000 owed to a former service provider ofPolar and $615,000 owed to consultants and officers of Polar.

 

Competition

 

Polarbelieves that DurAlt®FC currently has no direct competition for its ability tocontrol combustion chamber deposit buildup and octane requirement increase ingasoline engines at low concentrations. Some detergent additive manufacturersmake limited claims addressing some, but not all, of Polar’s performanceclaims. DurAlt®FC is non-metallic, has been approved for bulk treatment ofunleaded gasoline by the EPA, and has independent performance claimverification by several auto company/engine manufacturers, oil companies,independent laboratories and environmental groups.

 

Thereare, however, numerous companies—including Lubrizol, Ethyl Corporation,Infineaum, Oronite, BASF and Octel—that are engaged in the business ofmanufacturing and selling additives for petroleum products. Although Polarbelieves that its products are different and superior to those currently on themarket, all of these other companies have substantially greater resources thanPolar, as well as established distribution networks and market share. Thesecompanies expend substantial sums on advertising to establish product identityand brand recognition and Polar will not, for the foreseeable future, be in aposition to establish product identity or brand recognition in this manner.Polar expects to face intense scrutiny and challenges of many kinds from theseor other well established companies in its attempt to introduce DurAlt®FC intothe market. Polar’s business strategy includes attempting to work with thesepotential competitors to combine DurAlt®FC with their products, creating acomplete gasoline additive package providing the benefits of DurAlt®FC and ourcompetitor’s detergents and other enhancers. However, there can be no assurancethat these potential competitors will be willing to cooperate with Polar, orthat these companies will place any purchase orders for DurAlt®FC or any otherof Polar’s products. There also can be no assurance that Polar will be able tointroduce and market DurAlt®FC or any of its products successfully.

 

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Employees

 

Asof October 31, 2005, Polar had four employees. In addition to its fouremployees, Polar also has consulting agreements with four other individuals,who have over 125 years combined experience in the automotive, chemicalmanufacturing, environmental and oil refining industries.

 

RISK FACTORS

 

Investorsin the Company should consider carefully, in addition to the other informationcontained in, or incorporated by reference into, this report, the followingrisk factors:

 

***Despite a history of niche marketretail sales, we are a development stage company with no assurances ofprofitability.***

 

Polar has added to its previous strategy of marketingits products to niche retail markets and has embarked on a new strategy topursue nationwide and worldwide bulk sales of its products to gasolinesuppliers for incorporation into commercial grade gasoline. Polar has notreceived a purchase order from any retail gasoline supplier, and there can beno assurance that we will receive any purchase orders from any of thesecompanies in the future. If we are unable to obtain purchase orders from ourpotential customers and begin producing net income, we may not be able tocontinue as a going concern. Throughout our history of operation, we have neverproduced net income and there can be no assurance that we will produce netincome in the future.

 

***We have significant capitalrequirements and a continuing need for additional financing.***

 

We believe that our capital requirements willcontinue to be significant, and our cash requirements may continue to exceedour cash flow from operations. In December 2003, we commenced a privateplacement of $1,000,000 in reliance on an exemption from the registrationrequirements of the Securities Act pursuant to Section 4(2). As of December 31,2004, we had received $920,893 from investors consisting of $796,500 in cashand exchange of notes payable and accrued interest of $124,393.  The investors purchased 9,208,925 units at aprice of $0.10 per unit, each unit consisting of one share of common stock anda warrant to purchase two additional shares of common stock at $0.10 per sharefor a two-year period. Management believes it needs to raise an additional $3million to $5 million to fund working capital requirements and implement itsmarketing and sales plan and therefore may need to undertake one or moreprivate placements in the future to raise such capital. Failure to obtainadditional financing when needed would have a material adverse effect on us,requiring us to curtail and possibly cease our operations. The terms of futuredebt or equity financings may involve the following risks to us and ourstockholders:

 

•                  Theholdings of our stockholders may be diluted if we sell shares of our commonstock at a discount to the market price of our common stock or issue warrantswith an exercise price or convertible securities with a conversion rate lessthan the market price of our common stock;

 

•                  Wemay issue equity securities with dividend rights, liquidation preferences,voting rights or other rights and preferences superior to those of our commonstock; or

 

•                  Wemay issue debt securities with substantial debt service requirements, highinterest rates or other terms that limit our ability to obtain additionalfinancing or to take advantage of business opportunities.

 

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•                  Asa result of net working capital deficiencies and indebtedness, we may not beable to continue as a going concern.

 

Ourconsolidated financial statements have been prepared assuming that we willcontinue as a going concern. As of December 31, 2004, the Company had anet working capital deficit of $4,683,000 as a result of recurring losses fromoperations and indebtedness. In addition, at December 31, 2004, theCompany had $1,950,000 in outstanding debt. We cannot be sure that we will beable to repay this debt on its terms or negotiate extensions or changes in thepayment terms with our other creditors. Accordingly, there is substantial doubtregarding our ability to continue as a going concern. Our independent auditorshave included in our audit report an explanatory paragraph relating to theCompany’s ability to continue as a going concern. Our consolidated financialstatements do not include any adjustments relating to the recoverability andclassification of asset carrying amounts or the amount and classification ofliabilities that might result should we not be able to continue as a goingconcern.

 

***Substantially all of our assets, including ourintellectual property, are subject to liens by our creditors, and thesecreditors could foreclose on substantially all of our assets if we default onour obligations.  We are currently indefault on a number of our notes payable.***

 

Polargranted a first priority lien on substantially all of its assets, including theCompany’s patents, as collateral for a promissory note in favor of AffiliatedInvestments, LLP in the principal amount of $549,000, with final payment due onJune 30, 2004. While Affiliated has entered into several agreementswaiving defaults of the Company under the original note and extending the duedate of the original note, the Company has not been able to repay this debt andis currently in default of this note. The total amount currently required to bepaid is approximately $750,000 including principal, accrued interest and a$50,000 extension fee negotiated with Affiliated in December 2003. We arecurrently seeking an additional extension on this note.  The default under this note allows Affiliatedto foreclose on substantially all of our assets. There can be no assurance thatwe will receive an additional extension from Affiliated or be in a position torepay this debt and free our assets from the related lien in the near future.

 

Ourpatents and trademarks are also subject to a contingent lien in favor ofcertain of the Company’s employees and advisors for deferred wages or servicesrendered without compensation, now existing or incurred in the future. Theamount of such liabilities at December 31, 2004 was approximately$560,000. Polar entered into a security agreement with these employees andadvisors that grants them a security interest in substantially all of ourassets, including the Company’s patents. This lien will become effective uponthe earlier of repayment of the Affiliated note or consent by Affiliated to thegrant of the security interest. The agreement further provides that the Companymay not grant any liens against its assets with superior rights or priority,other than those granted to Affiliated and liens securing up to an additional$400,000 in new debt. No such debt has been incurred as of December 31,2004. There can be no assurance that we will be in a position to pay ourobligations to the employees and advisors under this agreement and free ourassets of the contingent lien in the near future.

 

***We operate in a highly competitive industry,competing against numerous companies that enjoy substantially greater resourcesand well established market presence.***

 

Thereare numerous other companies, including Lubrisol, Ethyl Corporation, Infineum,Oronite, BASF and Octel, that are engaged in the business of manufacturing andselling detergent additives for petroleum products. All of these companies havesubstantially greater resources than we do and enjoy well established marketpresence, distribution networks and market share. It is likely that any or allof these other companies are in the process of, and have allocatedsubstantially more resources than we have, in developing their own productsthat are or would be competitive with the Company’s chemical additive products.If any one of these

 

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companiesis successful in its efforts to develop competitive chemical additive products,such a company would have substantially greater resources to market itscompeting products. Increased competition or our failure to competesuccessfully is likely to result in price reductions, fewer customer orders,reduced gross margins, increased marketing costs, failure to acquire or retainmarket share, or any combination of these problems.

 

***Future sales of shares of our common stock by ourstockholders could cause our stock price to fall.***

 

Ifour stockholders sell substantial amounts of shares of our common stock in thepublic market, the market price of our common stock could continue to fall. Theperception among investors that these sales will occur could also produce thiseffect.

 

Asof December 14, 2005, the Company had 136,775,473 shares of common stockoutstanding. In July 2003, the Company filed a registration statement on Form S-1to register 18,290,762 shares of our common stock held by certain originalMurdock stockholders, including a total of 7,315,152 shares of our common stockissuable upon exercise of outstanding warrants and 4,288,382 shares issued uponconsummation of the merger. Although the registration statement was filed on July 11,2003, the registration was subsequently withdrawn on August 2, 2004.  If the registration statement is resubmitted,the stockholders may sell their registered shares immediately.

 

Additionalshares of our common stock issuable upon the exercise of the Company’s stockoptions will be available for public resale once we file a registrationstatement covering shares issued under the Company’s Equity Incentive Plan. TheCompany adopted the Equity Incentive Plan in 2003 which provides that up to15,000,000 shares of common stock may be issued under the plan. As of October 31,2005, we had issued options to purchase 5,833,333 shares of common stock and2,350,000 shares of common stock in the form of stock bonus awards under theplan. As of October 31, 2005, there were 6,816,667 shares available forfuture grants under the plan. The resale of these additional shares into thepublic market may further adversely affect the market price of our commonstock.

 

***We rely on patents and similar protections for ourproprietary technology, but still may not be able to fully protect these keyassets.***

 

Werely primarily on a combination of United States and foreign patent andtrademark laws, trade secrets, confidentiality procedures and contractualprovisions to protect our proprietary rights, which are our key assets. Therecan be no assurance that the Company’s existing patents and trademarks will notbe invalidated, circumvented or challenged. There can also be no assurance thatany of our pending or future patent applications, whether or not beingcurrently challenged by applicable governmental patent examiners, will beissued with the scope of the claims sought, if at all. Furthermore, there canbe no assurance that others will not develop technologies that are similar orsuperior to the Company’s fuel additive technology or design around any patentsowned by us. Unauthorized parties may attempt to copy aspects of our productsor to obtain and use information we regard as proprietary. In addition, thelaws of some foreign countries do not protect proprietary rights as fully as dothe laws of the United States. There can be no assurance that our means ofprotecting our proprietary rights in the United States or abroad will beadequate or that others will not independently develop similar or superiortechnology.

 

***DurAlt®FC is our principal product line and ourfuture revenue depends on its commercial success.***

 

DurAlt®FCis our principal product line and our future revenue depends entirely on thecommercial success of DurAlt®FC. If customers do not purchase and successfullyimplement DurAlt®FC in large numbers, our revenue will not grow. Our patentshave a limited life span, and accordingly we will be able to retain exclusive

 

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rightsto our patented technology only for a limited period of time. Our currentpatent protection on most of our technology will expire on or before 2023. Wecannot assure you that the Company will be able to extend its patent protectionbeyond that time due to federal patent laws and regulations.

 

***Our common stock is subject to risks relating tolow priced stocks.***

 

Currentlyour common stock is considered a penny stock for purposes of SEC regulations.Those regulations define a “penny stock” to be any security that has a marketprice of less than $5.00 per share or an exercise price of less than $5.00 pershare (subject to certain exceptions), other than securities which are tradedon the New York Stock Exchange or American Stock Exchange or quoted on NASDAQ. Rules 15g-1through 15g-9 promulgated under the Securities Exchange Act of 1934, asamended, or the Exchange Act, impose sales practice and disclosure requirementson brokers and dealers who engage in certain transactions involving a “pennystock.” The additional sales practice and disclosure requirements imposed onbrokers and dealers could impede the sale of our common stock in the secondarymarket. In addition, the market liquidity for our common stock may be severelyadversely affected, which could have related adverse effects on the price ofour common stock. Under the penny stock regulations, a broker or dealer sellingpenny stock to anyone other than an established customer or an “accreditedinvestor” (generally, an individual with net worth in excess of $1,000,000 orannual income exceeding $200,000, or $300,000 together with his or her spouse)must make a special suitability determination for the purchaser and mustreceive the purchaser’s written consent to the transaction before the sale,unless the broker, the dealer or the transaction is otherwise exempt. Inaddition, the penny stock regulations require the broker or dealer to deliver,in advance of any transaction involving penny stock, a disclosure schedule preparedby the SEC relating to the penny stock market, unless the broker, the dealer,or the transaction is otherwise exempt. A broker or dealer is also required todisclose commissions payable to the broker or dealer and the registeredrepresentative and current quotation for the securities. In addition, a brokeror dealer is required to send monthly statements disclosing recent priceinformation with respect to the penny stock held in a customer’s account andinformation with respect to the limited market in penny stocks. Theserequirements may have the effect of reducing the level of trading activity ofour common stock, if any, in the secondary market, and our stockholders mayfind it difficult to sell their shares of our common stock.

 

***Our stock is currently trading on the “pink sheets”.***

 

Effectiveas of June 17, 2005 our shares of common stock were delisted from theNASDAQ Bulletin Board.  As we were inarrears with our filings with the SEC, our shares of common stock were noteligible to be traded on the over the counter bulletin board but continued tobe traded on the Pink Sheets under the symbol POMH.PK.  Stocks traded on the pink sheets are notviewed by investors as being as credible as stocks traded on the NASDAQbulletin board or the NASDAQ national markets. Stocks traded on the pink sheets are also not as liquid as stocks tradedon the other markets.  As a result, theshare price of a stock traded on the pink sheets could be negatively impacted.

 

***We rely on outside contractors to manufacture ourproducts.***

 

Werely on outside contractors to produce our products. Execution of our businessplan will require us to purchase much greater quantities of those products inthe future. The Company has an exclusive manufacturing agreement with LockhartChemical Company for the manufacture of our products. This contract expires on October 23,2007, and will be automatically renewed from year to year thereafter unlesscancelled by either party with 90 days written notice, prior to the thenscheduled termination date. The contract may be terminated by either party withoutany reason upon 90 days prior written notice. If we are unable to arrange foroutside contractors to produce product as needed due to strikes, labor orsupply shortages or

 

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terminationof this agreement, shipment of our products will be interrupted and ourbusiness may be materially adversely affected.

 

Furthermore,our products are manufactured by a cold blending process, which combinescertain chemicals. While these chemicals are widely available in bulk frommultiple potential suppliers, if a shortage of any of these chemicals shouldarise, we may not be able to obtain adequate supplies on a timely basis or at areasonable cost, and our business would be materially adversely affected.

 

***A limited number of stockholders collectively own asubstantial percentage of our common stock and could significantly influencematters requiring stockholder approval.***

 

Ourseven largest stockholders beneficially own more than 40% of our outstandingcommon stock. These stockholders may, if they act together, exercisesignificant influence over all matters requiring stockholder approval after themerger, including the election of directors and the determination ofsignificant corporate actions. In addition, stockholders holding approximately42% of the Company’s outstanding common stock as of October 31, 2005,entered into a voting agreement dated June 3, 2003, whereby they haveagreed to vote all of their outstanding shares in accordance with instructionsprovided by Mark Nelson, the Company’s co-founder, President and ChiefExecutive Officer.  This voting agreementalso restricts the ability of such stockholders to transfer, sell, assign,pledge or otherwise dispose of their outstanding shares. The concentration ofownership and/or the voting agreement could delay or prevent a change incontrol that might be beneficial to our stockholders.

 

***Our certificate of incorporation and bylaws andDelaware law contain provisions that could discourage a takeover.***

 

Provisionsof our certificate of incorporation and bylaws and Delaware law may discourage,delay or prevent a merger or acquisition that a stockholder may considerfavorable. These provisions include the following:

 

•                  authorizingthe board to issue preferred stock;

 

•                  prohibitingcumulative voting in the election of directors; and

 

•                  limitingthe persons who may call special meetings of stockholders.

 

Ourcertificate of incorporation and bylaws also provide for a classified board inwhich only a third of the total board members will be elected at each annualstockholders meeting.

 

***We have not paid any dividends on our common stock.***

 

Wehave not paid any cash dividends on our common stock. Some of our currentfinancing agreements contain restrictions on the payment of dividends. We donot anticipate paying any cash dividends in the foreseeable future.

 

***Protecting directors and officers from liabilitymay expose us to potential large expenses.***

 

Ourcertificate of incorporation allows us to reimburse our officers and directors fordamages they may be subject to from litigation. These charter documents also require us to advance money to any officeror director for costs in connection with suits brought against the officer ordirector in their capacity as such if the law does not prevent us from doingso. Any officer or director requesting advance money must first sign a writtenundertaking to reimburse us in the event that it is ultimately determined thatthe officer or director is not

 

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entitledto indemnification. We may experience significant cash flow problems if we arerequired to either reimburse, or advance money, to our officers or directorsfor such purposes.

 

***We depend on the services of key executives andmanagement, the loss of whom could materially harm our business***

 

Ourfuture success significantly depends on the continued service and performanceof our executive officers, directors, consultants and key associates.  As some of these individuals, including Polar’sfounders, have been associated with the Company since its start up, they havedeveloped the Company’s many products and patents and will be involved inexpanding new patent applications around the world.  Their expertise with Polar’s technology andtheir experience within the automotive, chemical manufacturing, environmentaland oil refining industries cannot be replicated.  In addition, the contacts obtained by theseassociates over their years with the Company are significant.  The loss of any of these individuals would bea serious set back for the Company.

 

***Litigation or assessments could have a materialadverse affect on our business***

 

Duringthe normal course of business, we are subject to complaints or allegations fromcurrent and former associates. In addition, we might also be subject tocomplaints or litigation from stockholders, vendors, other creditors anddistributors.  The company is currentlyinvolved in litigation concerning a dispute related to debt obtained by MurdockCommunications immediately prior to our merger with Murdock.  We may be adversely affected by publicityresulting from this litigation, regardless of whether such litigation is valid,or whether we are liable.  A lawsuit orclaim could result in an adverse decision or result that could have a materialadverse affect on our business.

 

Fromtime-to-time, the Company has been party to various assessments of taxes,penalties and interest from federal, state and local agencies. We providereserves in our financial statements for these and other matters. Theapproximate amounts of these reserves are reviewed periodically to determinetheir adequacy. Although we believe that our current reserves are adequate inlight of our analyses of the potential outcomes of the matters, there can be noguarantees that we will not have to recognize additional charges as matters areultimately resolved. Any resulting charges could be significant.

 

**CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS**

 

Wehave made forward-looking statements in this document and in other documentsreferred to in this 10-K, which are based on current expectations and subjectto risks and uncertainties. All statements other than statements of historicalfact included in this prospectus, including without limitation, statementscontained in the “Summary,” “Risk Factors,” “Business” and “Management’sDiscussion and Analysis” sections regarding the financial condition, operatingresults, business prospects, or any other aspect of future operations of theCompany, are forward-looking statements. Although the Company believes that theforward-looking statements are reasonable, the Company cannot assure you thatsuch forward-looking statements will prove to have been correct. We generallyidentify forward-looking statements in this prospectus using words like “believe,”“intend,” “expect,” “estimate,” “may,” “should,” “plan,” “project,” “contemplate,”“anticipate,” “predict” or similar expressions. These statements involve knownand unknown risks, uncertainties, and other factors that may cause our or ourindustry’s actual results, level of activity, performance, or achievements tobe materially different from any future results, levels of activity,performance, or achievements expressed or implied by these forward-lookingstatements. Accordingly, to the extent that this Form 10-K containsforward-looking statements regarding the financial condition, operatingresults, business prospects, or any other aspect of the companies, please beadvised that the Company’s actual financial condition, operating results, and

 

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businessperformance may differ materially from that projected by the Company inforward-looking statements. The differences may be caused by a variety offactors, including but not limited to the following:

 

•                  accessto adequate funds to meet the Company’s financial needs and to repay its pastdue debt, and the Company’s ability to continue as a going concern if it isunable to access adequate financing;

 

•                  legalaction by the Company’s creditors for the repayment of past due indebtednessand the ability of the Company to continue as a going concern if any suchaction is taken;

 

•                  failureto receive product orders;

 

•                  changesin general economic conditions;

 

•                  competition

 

•                  governmentregulatory changes;

 

•                  changesin key personnel; and

 

•                  otherspecific risks described in this report under “Risk Factors.”

 

Inaddition, the business and operations of the companies are subject tosubstantial risks which increase the uncertainty inherent in theforward-looking statements. In light of the significant uncertainties inherentin the forward-looking information included herein, the inclusion of suchinformation should not be regarded as a representation by the Company or anyother person that the objectives or plans of the Company will be achieved.

 

**ITEM 2.PROPERTIES**

 

TheCompany’s corporate office is located in Denver, Colorado. The Company leasesthis office under a five-year lease which expires in June 2007. Annualrental costs, including CAM, insurance and real estate taxes, under the leaseare approximately $50,000. We believe that our existing facilities are adequateto meet our requirements for the near term and that additional space will beavailable on commercially reasonable terms if needed.

 

**ITEM 3.LEGAL PROCEEDINGS**

 

Ina letter from her attorney dated May 5, 2003, Melissa Polich, a formerChief Financial Officer of Polar, who was terminated for cause, demandedpayment for amounts claimed to be due and unpaid for consulting work for Polarcompleted prior to her employment, for wages claimed to be due and unpaid as aresult of her employment with Polar, for expense reimbursements claimed to beowed to her by Polar and for contractual claims relating to a consultingcontract and an employment contract. Ms. Polich has demanded in excess of$302,000 and 47,445 shares of Polar’s common stock in these wage andcontractual claims. We responded to Ms. Polich’s letter on May 29,2003, disputing any and all amounts claimed. Since that date, there has been no further action on this matter by theformer employee. Polar disputes these claims and will continue to do so if andwhen necessary. The Company believes that the outcome of this dispute will nothave a material adverse effect on the Company’s financial condition.

 

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Ina letter from his attorney dated May 6, 2003, Tom Ritter, a formeremployee of Polar, who was terminated for cause, demanded payment for wagesclaimed to be due and unpaid as a result of his employment with Polar. Mr. Ritterhas demanded $49,202 in wage and contract claims. We responded to Mr. Ritter’sletter on May 29, 2003, disputing any and all amounts claimed.  Since that date, there has been no furtheraction on this matter by the former employee. Polar disputes this claim andwill continue to do so if and when necessary.  The Company believes that the outcome of thisdispute will not have a material adverse effect on the Company’s financialcondition.

 

Ina letter from his attorney dated January 14, 2004, Paul Tunink, a formeremployee of Murdock, demanded payment for an unspecified amount for wagesclaimed to be due and unpaid as a result of his employment with Murdock. Polarand its attorneys have not determined the validity of the claim. Prior to themerger, approximately $142,000 was accrued by Murdock and is included inaccrued liabilities. The Company believes that the outcome of this dispute willnot have a material adverse effect on the Company’s financial condition.

 

TheCompany was notified in 2004 of arbitration claims filed by a former smalldistributor, PowerRight Holdings Limited (or “PowerRight”) against both theCompany and against Everbest Products, Inc. (or “Everbest”) pursuant to anExclusive Distribution Agreement (or the “Agreement”) entered into by the threeparties.  After entering into theAgreement, PowerRight’s first and only order was 12 drums of DurAlt purchasedfrom Everbest, packaged in 2 ounce bottles and sold by PowerRight from a smallretail outlet. PowerRight accepted the product delivered and confirmed itssatisfactory performance. The product was manufactured by Lockhart Chemicals(or “Lockhart”), the Company’s contract manufacturer, who is responsible forproducing product to the Company’s specifications and quality requirements.Subsequently, PowerRight attempted to negotiate with the Company for expandedexclusive distribution rights including oil companies throughout Asia.  When the Company refused this request,PowerRight then claimed that the product it had received and subsequently solddid not meet the Company’s quality requirements. Lockhart asserts the productwas produced to the Company’s quality and specifications requirements, butoffered to replace the product and PowerRight refused. PowerRight unilaterallyterminated the Agreement, and is now claiming damages in excess of $41 million,primarily for future lost profits under the now terminated Agreement. TheCompany believes that all of the claims of PowerRight are without any factualbasis, lack any legal merit, and are in retaliation for the Company’s refusalto expand PowerRight marketing rights. Everbest has filed damage claims againstPowerRight for failure to perform under the Agreement. The Company has alsofiled a counter claim against PowerRight seeking damages for failing to performthe agreement, for costs of defending against PowerRight’s claims, and forviolations by PowerRight of Polar’s trademark and intellectual property rights.

 

Inpreparation for arbitration scheduled for August 2005, all partiespresented depositions. However, PowerRight failed to respond to interrogatoryquestions and requests for documents made by Polar prior to the depositions.The counsel for PowerRight requested a continuance of the arbitration for 90days to permit the parties to explore a settlement.  Although the continuance was granted,PowerRight did not negotiate in good faith. Instead, on October 14, 2005, the counsel for PowerRight submitteda settlement proposal to Polar and Everbest that was not satisfactory to eitherPolar or Everbest.

 

Itis Polar’s belief, and our attorneys concur, that we have meritorious defensesto the claims of PowerRight, and that Polar has damage claims againstPowerRight that are meritorious.  Althoughit is possible that PowerRight may prevail on one or more of its claims, it isour opinion, and our attorneys concur, that it is more likely than not that thearbitrator will find in favor of Polar rather than PowerRight.  As part of the arbitration process, paymentis required to be made to the arbitrator by the parties by November 28,2005.  If payment is not made, thearbitration may be dismissed.  If thearbitration is dismissed PowerRight may or may

 

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notpursue its claims in Federal or State court. However, the contract between PowerRight, Everbest Products and Polarrequire that all disputes under the contract be resolved by bindingarbitration.

 

InJune 2005, Polar was served with a complaint alleging that Polar owes$500,000 plus interest and attorney fees due under a promissory note dated June 30,2003 allegedly signed by Murdock Communications Company and Polar MolecularHolding Corporation payable to Republic Credit Corporation.  The note was signed by Wayne Wright, who wasappointed by Murdock Communications to Polar’s Board of Directors.  Wright had no authority to execute apromissory note for Polar Molecular Holding Corporation.  The note was not disclosed to Polar and Polarreceived no benefits associated with the execution of the note.  Polar is vigorously contesting the claims ofRepublic in this lawsuit and has filed a third party complaint against Wrightwho signed the loan document without authority, and against Thomas Berthel, acontrolling shareholder of Murdock Communications, and Berthel Fisher, thebrokerage firm that was a paid consultant for Murdock Communications in themerger with Polar.  Polar believes, andour attorneys concur that the Company has meritorious defenses to the claims ofRepublic.  Further, Polar and it’sattorneys believe that the company has meritorious claims in the third partycomplaint which would require Wright, Berthel and Berthel Fisher to pay anyamounts due Republic.  This matter iscurrently set to commence in Denver District Court in March 2006.  At this time, no discovery has occurred by anyof the parties.

 

InSeptember 2005, a former law firm for the Company filed a complaint inMichigan seeking unpaid legal fees in the amount of approximately $140,000.  The amount sought includes approximately$90,000 of legal fees and $50,000 of interest. The legal fees primarily relate to a change of domicile for the Companyand the completion of a proxy whose only matter was to elect directors.  The Company has retained counsel to contestthese claims and believes that it owes substantially less than the amountclaimed. At this time, no discovery has occurred by either party.  The Company believes that the outcome of thiscase will not have a material adverse effect on the Company’s financialcondition.

 

InOctober 2005 we became aware of a complaint filed by a shareholder in September 2005seeking the Company to hold an annual meeting of shareholders.  The Company has filed a motion to dismissthis complaint in its entirety, as the Company had scheduled an annual meetingfor December 31, 2005 prior to receiving this suit.  The complaint also alleges that certainofficers, directors and former directors, among other things, breached theirfiduciary duties as officers and/or directors of the Company and have put theirpersonal interests ahead of the interests of Polar and its shareholders andstockholders.  The Company also filed amotion to dismiss these claims.  Thecompany cited the substantial amounts of deferred compensation, unpaid expensesand additional debt and capital contributions made by the officers, directorsand former directors as indications of their commitment to the Company andtheir appropriate behavior related to their duties to the Company.  For the year ended December 31, 2004,certain officers and consultants, who are also directors named in thecomplaint, forgave $1,200,000 in compensation in exchange for stock that isrestricted for eighteen months.  Inaddition, certain officers, consultants and directors named in the complainthave contributed to the ongoing operation of the Company through the deferralof their wages, expenses and fees and through their contributions to the equityaccount and the granting of debt to the Company.  Amounts in excess of $600,000 have beendeferred, contributed or loaned to the Company by these officers, consultantsand directors.  These actions clearlyreflect that the officers and directors have not committed any wrongs to theCompany or its shareholders but have sacrificed their own livelihood and assetsto the benefit of the Company.  TheCompany’s legal counsel believes that Polar has meritorious defenses against thiscomplaint and that the complaint is frivolous.

 

**ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

Nomatters were submitted to a vote of security holders during the fourth quarterof 2004.

 

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**PART II**

 

**ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERMATTERS**

 

HistoricalTrading Information and Dividend Policy

 

TheCompany’s Common Stock was listed on the Over the Counter Bulletin Board underthe symbol “POMH”.  Effective as of June 17,2005 our shares of common stock were delisted from NASDAQ.  As we were in arrears with our filings withthe SEC, our shares of common stock were not eligible to be traded on the overthe counter bulletin board but continued to be traded on the Pink Sheets underthe symbol POMH.PK.

 

Thefollowing table sets forth the high and low bid quotations for the Common Stockas reported on the Over the Counter Bulletin Board. Such transactions reflectinterdealer prices, without retail mark-up, mark-down or commission and may notnecessarily represent actual transactions. The prices shown prior to July 14,2003 represent those related to the former Murdock Communications Corporation,trading under the symbol MURC.

 
| ** **  | ** ** | **Common Stock** | ** ** |
|-------------|------------|------------------|------------|
| **Quarter** | ** ** | **High**         | ** ** | **Low** | ** ** |
| Fiscal 2003 |       |             |       |   |   |
| First       |       | $                | 0.47       |   | $ | 0.21 |   |
| Second      |       | 1.65             |       | 0.23 |   |
| Third       |       | 0.88             |       | 0.14 |   |
| Fourth      |       | 0.20             |       | 0.09 |   |
|        |       |             |       |   |   |
| Fiscal 2004 |       |             |       |   |   |
| First       |       | 0.40             |       | 0.11 |   |
| Second      |       | 0.32             |       | 0.14 |   |
| Third       |       | 0.16             |       | 0.04 |   |
| Fourth      |       | 0.10             |       | 0.04 |   |
|             |            |                  |            |  |  |  |  |

 

TheCompany previously had Redeemable Common Stock Purchase Warrants (“Warrants”)that were quoted on the Over the Counter Bulletin Board under the symbol “POMHW.”  These Warrants expired on April 19, 2004per the original terms of the Warrants. As a result of the expiration of the Warrants, historical prices ofthese Warrants are no longer disclosed.

 

AtDecember 14, 2005, there were approximately 611 holders of record of theCompany’s Common Stock. We believe that we have approximately 1,186 beneficialowners of shares of our common stock. In many instances, a registeredstockholder is a broker or other entity holding shares in street name for oneor more customers who beneficially own the shares. Our transfer agent isComputershare Trust Company, Inc., 350 Indiana Street, Suite 800,Golden, Colorado, 80401.  Computershare’stelephone number is 303-262-0700.

 

TheCompany has not paid any cash dividends on its Common Stock in the last threeyears. The Company does not anticipate paying any cash dividends in theforeseeable future.

 

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**Recent Sales of Unregistered Securities**

 

*Stock sales*

 

In June 2005, the Company issued1,400,000 unregistered shares in exchange for $60,000.

 

In July 2005, the Company issued 205,400unregistered shares in exchange for $10,270.

 

*Stock issued for services*

 

In March 2005, the Company issued 1,000,000unregistered shares to a financial advisor as part of the Company’s contractualobligation.

 

In September 2005, the board approvedthe issuance of 1,267,602 of unregistered shares of common stock for thesatisfaction of a vendor payable in the amount of $68,000.

 

In May 2005, the Company issued 75,000unregistered shares to a consultant as part of the Company’s contractualobligation.

 

In October 2005, the Company issued533,332 unregistered shares to an investor relations firm in exchange forservices valued at $26,667.

 

*Stock issued for note receivable*

 

In January 2005, the Company issued1,000,000 unregistered shares to a consultant in exchange for a $70,000note.  The note bears interest at3.85%.  The note plus interest is due on January 9,2006.

 

*Stock issued along with notes payable*

 

Between January and March 2005, theCompany issued 424,000 unregistered shares along with notes payable in theamount of $132,000.  All of the noteswere of a short term nature.

 

In May 2005, the Company issued 520,000 unregisteredshares related to a loan $10,000 that originated in November 2001.

 

In November 2005, the Company issued100,000 unregistered shares related to extensions of various notes payable.

 

*Additional restricted shares issued inexchange for unrestricted shares*

 

Throughout the year, the Company issued4,759,522 unregistered shares in exchange for unrestricted shares of current stockholders.  Two unregistered shares were issued for eachunrestricted share forfeited.

 

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**ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS**

 

Thefollowing is a discussion of the Company’s financial condition, results ofoperations and capital resources. The discussion and analysis should be read inconjunction with the Company’s consolidated financial statements and notesthereto included elsewhere within this Form 10-K.

 

**General**

 

Themerger between Polar and Murdock Communications closed on July 14, 2003.The merger has been treated for accounting and financial reporting purposes asa reverse acquisition of Murdock by Polar. As such, the financial statements ofthe Company now reflect Polar on a historical basis, and the followingdiscussion and analysis relates solely to the operations and financialcondition of Polar.

 

**Overview**

 

Duringthe periods included in the following discussion, management focused on itsmarketing strategy and securing the financing/capital needed to implement thatmarketing strategy. The Company has historically marketed and sold its productsto niche retail markets but has developed a new strategy to pursue worldwidebulk sales of its products to gasoline suppliers for incorporation intocommercial grade gasoline. As a result of this new strategy, there has beenless effort spent on sales to existing niche customers and more emphasis placedon developing relationships with major oil companies and additivemanufacturers, and developing a distribution network for the secondary markets.Each of these target markets and customers requires longer lead times todevelop than the niche retail customers. Management believes that although norevenue has been realized to date and there are no apparent short term revenuesanticipated from these sources, management believes that this strategy willresult in the best future economic results for the Company.  Progress has been made in implementing thismarketing strategy, including the joint marketing agreement with TotalFinaElfAdditives executed in September 2001 and recent efforts to increase salesin secondary markets.

 

Inaddition, a significant portion of management’s time has been spent identifyingsources of capital required to implement its marketing plan. See “Liquidity andCapital Resources.”

 

At December 31, 2004, the Company had a working capital deficit of$4,683,000, stockholders’ deficit of $4,731,000,and has incurred significant losses from operations since its inception.In addition, as of December 31, 2004, the Company is in default on debtobligations totaling $1,759,000.  Thesefactors indicate substantial doubt regarding the Company’s ability to continueoperations as a going concern, which contemplates the realization of assets andliquidation of liabilities in the normal course of business.  Although the Company continues to beoptimistic regarding the future prospects related to its marketing plansdescribed above, the Company has yet to generate sufficient revenue volumes toinsure its continued operation in the future.

 

**Results of Operations**

 

**Revenues**

 

TheCompany has two primary sources of revenue, product sales and royalties.Product sales represent shipments of product to customers. Royalties representamounts earned by the Company under licensing agreements. For the periodspresented below, all royalties reported have been earned pursuant to a 1995 licenseagreement with Alticor, the parent of Amway Corporation, Access Business Groupand Quixtar.

 

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Thefollowing table summarizes the revenue reported for each source:

 
| ** **      | ** ** | ** **        | ** ** | ** **        | ** ** | **Nine Months**   | ** ** |
|-----------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **      | ** ** | **Year Ended**    | ** ** | **Year Ended**    | ** ** | **Ended**         | ** ** |
| ** **      | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** |
| ** **      | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2002**          | ** ** |
| Product sales   |       | $                 | 156,000    |              | $          | 66,000            |       | $ | 55,000 |   |
| Royalties       |       | 252,000           |       | 350,000           |       | 129,000           |       |
| Total  revenues |       | $                 | 408,000    |              | $          | 416,000           |       | $ | 184,000 |   |

 

TheCompany has changed the focus of its product marketing from its previousstrategy of marketing to niche retail markets and has embarked on a newstrategy to pursue worldwide bulk sales of its products to gasoline suppliersfor incorporation into commercial grade gasoline. As such, there has been lesseffort spent on sales to existing niche customers.

 

ProductSales. Product sales to these niche retail customers vary significantly fromyear to year. The following table sets forth the percentage of product saleseach year for customers whose sales are 5% or greater of total product sales,in the year ended December 31, 2004, December 31, 2003 and the ninemonths ended December 31, 2002:

 
| ** **                         | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** |
|------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| **Customer**                       | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2002**          | ** ** |
| Egan’s Pit Stop               |       | 0.9               | %          | 1.1               | %          | 22.7              | %          |
| Everbest Products, Inc.       |       | 46.6              | %          | —            |       | 70.1              | %          |
| Harley Davidson Motorcycle Company |       | 0.0               | %          | 6.0               | %          | —            |       |
| ValvTect Petroleum Products        |       | 38.4              | %          | 78.2              | %          | —            |       |
| All Others                         |       | 14.1              | %          | 14.7              | %          | 7.2               | %          |

 

Royalties.Royalties earned are reported based on consumption data provided by AccessBusiness Group, a subsidiary of Alticor, our only source of royalty revenues.In the year ended December 31, 2004, royalties from Access Business Group were$252,000.  Management expects that futureroyalties will be consistent with historical levels.

 

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**Operating Expenses**

 

Thefollowing table summarizes operating expenses for the years ended December 31,2004, December 31, 2003 and the nine months ended December 31, 2002:

 
| ** **                                               | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** |
|----------------------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                               | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2002**          | ** ** |
| Cost of product sales                                    |       | $                 | 44,000     |              | $          | 50,000            |       | $ | 52,000 |   |
| Salaries                                                 |       | 763,000           |       | 332,000           |       | 540,000           |       |
| Travel and entertainment expenses                        |       | 114,000           |       | 52,000            |       | 50,000            |       |
| General and Administrative                               |       | 1,381,000         |       | 1,662,000         |       | 616,000           |       |
| Allowance for advances to merger candidate               |       | —            |       | 45,000            |       | 270,000           |       |
| Expense related to stock and option grants  for services |       | 881,000           |       | 1,095,000         |       | 23,000            |       |
| Amortization and depreciation                            |       | 18,000            |       | 68,000            |       | 59,000            |       |
|                                                     |       |              |       |              |       |              |       |
| Total  expenses                                          |       | $                 | 3,201,000  |              | $          | 3,304,000         |       | $ | 1,610,000 |   |

 

**Fiscal 2004 compared to fiscal 2003**

 

Salaryexpense increased $431,000, or 130%, to $763,000 for the year ended December 31,2004 from $332,000 for the year ended December 31, 2003. The increasereflects the costs associated with the hiring of staff to market the DurAltproducts, a full year of CFO support in fiscal 2004 versus a part year infiscal 2003 and normal pay adjustments.

 

Generaland administrative expenses decreased $281,000, or 17%, to $1,381,000 for theyear ended December 31, 2004 from $1,662,000 for the year ended December 31,2003.  This decrease was primarily the resultof extra expenses incurred in fiscal 2003 associated with the completion of themerger with Murdock Communications. Accounting, legal and merger expenses decreased $149,000, $340,000 and$51,000, respectively in fiscal 2004 compared to fiscal 2003.  These decreases were partially offset byincreases in investor relations expenses of $96,000 and consulting fees of$76,000.

 

Expensefor stock and options for services decreased $214,000 to $881,000 for the yearended December 31, 2004 from $1,095,000 for the year ended December 31,2003. The 2003 amount consists primarily of expenses related to the equityincentive stock grant and expenses related to the issuance of shares related toa success fee associated with the merger. The 2004 amount consists primarily of the granting of restricted sharesof common stock for services that had a market value in excess of the grantvalue.  The 2004 amount also includes theexpense associated with shares granted to investment banks and investorrelations firms who performed services for the Company in 2004.

 

**Fiscal 2003 compared to fiscal 2002**

 

Salariesexpense decreased $208,000, or 39%, to $332,000 for the year ended December 31,2003 from $540,000 for the nine months ended December 31, 2002. Thedecrease reflects salary expenses not incurred in 2003 as a result of theCompany’s former Chief Financial Officer and other employees leaving theCompany in the last quarter of 2002 and the first quarter of 2003.  This decrease was partially offset by thehiring of a new Chief Financial Officer in August 2003.

 

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Generaland administrative expenses increased $1,046,000 to $1,662,000 for the yearended December 31, 2003 from $616,000 for the nine months ended December 31,2002, primarily due to legal, accounting and other costs of approximately$595,000 associated with the completion of the merger, increased consultingfees of approximately $302,000 related to product marketing and $134,000related to corporate development, and an overall increase in expenses due tothe twelve month period compared to the prior period of only nine months.

 

Allowancefor advances to merger candidate represents payments made to Murdock prior tothe merger for working capital purposes. Since the merger was accounted for asan acquisition of Murdock by Polar, and a recapitalization of Polar with nogoodwill recorded, the advances were expensed as incurred.

 

Expensefor stock and options for services increased $1,072,000 to $1,095,000 for theyear ended December 31, 2004 from $23,000 for the nine months ended December 31,2002. The increase is principally due to a grant of 2,850,000 shares of commonstock to certain officers, directors, key employees and consultants of theCompany, in September 2003, resulting in a recorded expense of $485,000.In addition, the Company issued 711,829 shares in connection with servicesrendered by Houlihan Smith for financial advisory services rendered inconnection with the merger with Murdock, resulting in a recorded expense of$463,000.

 

**Interest Expense.**

 

Thefollowing table summarizes interest expense for the years ended December 31,2004, the nine months ended December 31, 2002 and the year ended March 31,2002:

 
| ** **       | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** |
|------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **       | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2002**          | ** ** |
|             |       |              |       |              |       |              |       |
| Interest Expense |       | $                 | 408,000    |              | $          | 431,000           |       | $ | 167,000 |   |
|                  |            |                   |            |                   |            |                   |            |  |  |  |

 

Interestexpense, including amortization of debt discount, decreased $23,000 to $408,000for the year ended December 31, 2004 from $431,000 for the year ended December 31,2003. This decrease was primarily due to the average outstanding balance ofdebt during fiscal 2004 being lower than fiscal 2003.

 

Interestexpense, including amortization of debt discount, increased $264,000 to$431,000 for the year ended December 31, 2003 from $167,000 for the ninemonths ended December 31, 2002. The increase is principally due toincreased borrowings related to the merger, during the first six months of 2003($60,000); additional interest expense related to issuance of 2,350,383 sharesof common stock for conversion of debt in February 2003 ($22,000); andinterest expense recognized for issuance of 275,000 shares of common stock asconsideration for lending $55,500 to the Company in November, 2003 ($49,000).

 

**Net Loss**

 

Thefollowing table summarizes the net loss for the years ended December 31,2004 and 2003 and the nine months ended December 31, 2002:

 

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| ** **                                  | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** | **Deccember 31,** | ** ** |
|---------------------------------------------|------------|-------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                  | ** ** | **2004**          | ** ** | **2003**          | ** ** | **2002**          | ** ** |
| Net loss                                    |       | $                 | 3,195,000  |              | $          | 3,319,000         |       | $ | 1,592,000 |   |
| Basic and diluted net loss per common share |       | $                 | 0.03       |              | $          | 0.05              |       | $ | 0.03 |   |

 

Thenet loss decreased $124,000 to $3,195,000 for the year ended December 31,2004 from $3,319,000 for the year ended December 31, 2003.  The decrease primarily resulted from thereduction in expenses associated with the merger in 2003.  This reduction was partially offset by highersalary, consulting and investor relations expenses in 2004.  A more detailed explanation is providedabove.

 

Thenet loss for the year ended December 31, 2003 included severalnon-recurring items related to the merger, including legal and accounting costs($595,000); advances to Murdock, the merger candidate ($45,000), and shares ofcommon stock issued to a consultant ($463,000) for services rendered inconnection with the merger. Excluding these items, net loss would have been$2,216,000 or $0.03 per share.

 

**Liquidity and Capital Resources**

 

Asdiscussed in more detail below, the Company has $1,949,000 of notes payable, ofwhich $1,759,000 are in default as of December 31, 2004, together withaccrued interest of approximately $297,000. In addition, accounts payable at December 31,2004 were $1,201,000. The Company has also embarked on a sales and marketingstrategy to pursue nationwide and worldwide bulk sales of its products togasoline suppliers for incorporation into commercial grade gasoline aimed atachieving sales of a greater volume of product. At December 31, 2004, theCompany had a working capital deficiency of $4,683,000. Management believesthat additional capital will be required to satisfy the liabilities discussedabove and provide the working capital needed to fund ongoing and plannedoperations. As discussed below, the Company has commenced activities that managementbelieves will result in procurement of the additional capital required.However, if the Company is not able to obtain the additional capital, it maynot be able to continue operations.

 

TheCompany is obligated to repay a note payable of $549,000 plus accrued interest of$294,000 and an extension fee of $50,000 to Affiliated Investments.  The note has been extended to January 7,2005.  As the note was not paid on theextended due date, the Company is currently in default of this note.  This note is secured by substantially all theassets of the Company, including a first priority lien on the Company’spatents.

 

Aspart of the settlement agreement dated June 30, 2003 with Republic CreditCorporation I (“Republic”) the Company provided Republic with a promissory notein the principal amount of $500,000 upon consummation of the merger. TheRepublic promissory note was due on July 14, 2004.  This note is currently in default. The Companyis currently contesting the validity of this note (see “Item 3. Legal Proceedings”of this document).

 

TheCompany has several additional notes outstanding in the aggregate principalamount of $478,000. These notes are either past due or have no stated maturitydate. In addition, as of October 31, 2005, the Company was past due in thepayment of approximately $1,180,000 to trade vendors. The Company plans to negotiatewith several vendors to restructure or settle the amounts owed.

 

Previously,the Company had retained Transition Partners, LLP (“Transition”), a merchantbanking firm located in Boulder, Colorado, to assist the Company in developinga capital formation plan. Although the Company had engaged Transition on October 24,2003, the Transition agreement was later terminated for cause on July 2,2004.  Transition advised the Companywith respect to a private placement of $1,000,000 that the Company commenced inDecember 2003. Although the Company raised approximately $921,000 from

 

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investors,consisting of $797,500 in cash and an exchange of notes payable and accruedinterest of $124,000, as of December 31, 2004, the majority of the fundsraised were through the efforts of the employees and directors of Polar.  The investors purchased 9,208,925 units at aprice of $0.10 per unit, each unit consisting of one share of common stock anda warrant to purchase two additional shares of common stock at $0.10 per sharefor a two-year period.  The proceeds ofthis offering were used for general working capital purposes.

 

TheCompany continues to seek additional funding either through the placement ofadditional equity or debt or through entering into a joint marketing agreementwith a third party.  While the Company ismaking progress in its efforts to secure additional operating capital, therecan be no assurance that the Company will be able to obtain the amounts ofoperating capital anticipated, or additional operating capital adequate tosustain future operations. In addition to efforts to raise additional capital,the Company continues to engage in discussions with its creditors torestructure indebtedness.

 

**Related Party Transactions**

 

Asof December 31, 2004 and 2003, the Company had accrued compensation,expenses and consulting due to certain officers and directors in the amount ofapproximately $189,000 and $1,283,000 respectively, which were partially offsetby advances to officers and directors of approximately nothing and $341,000respectively.  The Company also had notespayable to directors of approximately $48,000 and $137,000 as of December 31,2004 and 2003.  The total accruedcompensation is collateralized by a second priority lien on the Company’spatents.

 

Duringthe year ended December 31, 2004, the Company exchanged stock for accruedwages owed to certain directors and officers and accrued consulting fees owedto certain directors.  A total of 4,642,647shares of restricted stock were issued to officers and directors in exchangefor $286,526 of accrued wages and $177,738 of accrued consulting fees.

 

OnFebruary 7, 2003, the Company advanced $100,000 to an officer and directorin the form of a promissory note.  Thenote matures in February 2007 and requires annual interest payments at therate of the prime rate plus 1%.  Thenote, plus accrued interest of $7,000, was paid off in May 2004.

 

**Off Balance Sheet Arrangements**

 

TheCompany does not have any off balance sheet arrangements.

 

**Table of Contractual Obligations**

 

Thefollowing table summarizes the contractual obligations of the Company:

 
| ** **                  | ** ** | ** ** | ** ** | **Obligations due by period** | ** ** |
|-----------------------------|------------|------------|------------|-------------------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **Less than**                 | ** ** | **1 to 3** | ** ** | **3 to 5** | ** ** | **More than** | ** ** |
| ** **                  | ** ** | **Total**  | ** ** | **1 year**                    | ** ** | **years** | ** ** | **years** | ** ** | **5 years** | ** ** |
| Debt obligations            |       | $          | 1,949,000  |                          | $          | 1,799,000 |   | $ | — |   | $ | 150,000 |   | $ | — |   |
| Operating lease obligations |       | 71,000     |       | 29,000                        |       | 42,000 |   | — |   | — |   |
|                        |       |       |       |                          |       |   |   |   |   |   |   |
| Total                       |       | $          | 2,020,000  |                          | $          | 1,828,000 |   | $ | 42,000 |   | $ | 150,000 |   | $ | — |   |

 

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**Critical Accounting Policies and Estimates**

 

Thepreparation of financial statements in accordance with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financial statements andthe reported expenses during the reporting period. Management bases itsestimates on historical experience and on various other assumptions andinformation that it believes to be reasonable under the circumstances, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities. Actual results may differ from estimates underdifferent assumptions or conditions.

 

Criticalaccounting policies are discussed in Note 1 to the consolidated financialstatements. Management believes that policies related to revenue recognitionare particularly important. As such, revenue from product sales are recognizedonly after product has been shipped to the customer and collectibility islikely. Royalty revenue is recognized based upon consumption or sales datareceived from the customer and an evaluation that collectibility is likely.

 

Policiesrelated to items of expense involve management making an assessment about thelikelihood that a liability exists and a determination of the amount of thatliability. Determining the timing and amounts for recognizing most expenseitems is straightforward; such items include stock based compensation, taxes,valuation allowances for deferred tax assets, allowance for doubtful accountsand legal proceedings, among others. In each case, management evaluates theavailable facts and determines if recognition of an expense or liability isappropriate. While management makes such estimates, actual results could differfrom those estimates.

 

**Impact of New Accounting Pronouncements**

 

Thereare no new accounting pronouncements that have not been implemented by theCompany that would have a significant effect on the financial condition orresults of operations as reported.

 

InDecember 2003, the Financial Accounting Standards Board (FASB) issued FASBInterpretation Number 46-R “Consolidation of Variable Interest Entities.” FIN 46-R,which modifies certain provisions and effective dates of FIN 46, sets forth thecriteria to be used in determining whether an investment in a variable interestentity should be consolidated. These provisions are based on the generalpremise that if a company controls another entity through interests other thanvoting interests, that company should consolidate the controlled entity. TheCompany currently does not consolidate any entities under the provisions of FIN46-R.

 

InNovember 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151amends the accounting for abnormal amounts of idle facility expense, freight,handling costs, and wasted material (spoilage) under the guidance in ARB 43, Chapter4, “Inventory Pricing.” Paragraph 5 of ARB 43, Chapter 4, previously statedthat “...under some circumstances, items such as idle facility expense, excessivespoilage, double freight, and rehandling costs may be so abnormal as to requiretreatment as current period charges....” This Statement requires that those itemsbe recognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. This statement is effectivefor inventory costs incurred during fiscal years beginning after June 15,2005. Management does not expect adoption of SFAS 151 to have a material impacton the Company’s financial statements.

 

InDecember 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets,”an amendment to APB Opinion 29, “Accounting for Nonmonetary Transactions.” SFAS153 eliminates certain differences in the

 

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guidancein APB Opinion 29 as compared to the guidance contained in standards issued bythe International Accounting Standards Board. The amendment to APB Opinion 29eliminates the fair value exception for nonmonetary exchanges of similarproductive assets and replaces it with a general exception for exchanges ofnonmonetary assets that do not have commercial substance. Such an exchange hascommercial substance if the future cash flows of the entity are expected tochange significantly as a result of the exchange. SFAS 153 is effective fornonmonetary asset exchanges occurring in periods beginning after June 15,2005. Earlier application is permitted for nonmonetary asset exchangesoccurring in periods beginning after December 16, 2004. Management doesnot expect adoption of SFAS 153 to have a material impact on the Company’sfinancial statements.

 

InDecember 2004, the FASB issued SFAS 123(R), “Share-Based Payment.” SFAS123(R) amends SFAS 123, “Accounting for Stock-Based Compensation,” and APBOpinion 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) requiresthat the cost of share-based payment transactions (including those withemployees and non-employees) be recognized in the financial statements. SFAS123(R) applies to all share-based payment transactions in which an entityacquires goods or services by issuing (or offering to issue) its shares, shareoptions, or other equity instruments (except for those held by an ESOP) or byincurring liabilities (1) in amounts based (even in part) on the price ofthe entity’s shares or other equity instruments, or (2) that require (ormay require) settlement by the issuance of an entity’s shares or other equityinstruments. This statement is effective (1) for public companiesqualifying as SEC small business issuers, as of the first fiscal year beginningafter December 15, 2005, or (2) for all other public companies, as ofthe first fiscal year or interim period beginning after June 15, 2005, or (3) forall nonpublic entities, as of the first fiscal year beginning after December 15,2005. Management is currently assessing the effect of SFAS 123(R) on theCompany’s financial statements.

 

InMay 2005, the FASB issued SFAS 154. This Statement replaces APB Opinion No. 20,“Accounting Changes”, and SFAS 3, “Reporting Accounting Changes in InterimFinancial Statements”, and changes the requirements for the accounting for andreporting of a change in accounting principle. This Statement applies to allvoluntary changes in accounting principle. It also applies to changes requiredby an accounting pronouncement in the unusual instance that the pronouncementdoes not include specific transition provisions. When a pronouncement includesspecific transition provisions, those provisions should be followed. TheCompany does not believe the adoption of this pronouncement will have amaterial impact on the financial statements.

 

**ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

Theconsolidated financial statements and supplementary information filed as partof this Item 8 are listed under Part IV, Item 15, “Exhibits, FinancialStatement Schedules and Reports on Form 8-K” and contained in this Form 10-Kat page F-1.

 

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

 

EffectiveJanuary 18, 2005, the firm of Hein & Associates LLP (“Hein”), theCompany’s independent accountant during the period from September 23, 2003to January 18, 2005, resigned as the Company’s independentaccountant.  Hein cited their additionalstaffing requirements necessitated by their other clients Sarbanes-Oxleyreporting requirements as the reason for their resignation. Hein had auditedour financial statements for the years ended December 31, 2003 and 2002.

 

Inconnection with the audit of our financial statements as of December 31,2003 and 2002, and through the date of this Report, there were no disagreementswith Hein on any matter of accounting principles or practices, financialstatement disclosure, or auditing scope of procedures, which disagreements, ifnot resolved to the satisfaction of Hein, would have caused them to makereference in connection with its reports to the subject matter of thedisagreements. In addition, during the Company’s two most recent fiscal yearsand subsequent interim periods, no reportable events, as defined in Item304(a)(1)(v) of Regulation S-K, occurred.

 

Exceptas noted in the following sentence, the audit report of Hein on our financialstatements as of December 31, 2003 and 2002, did not contain an adverseopinion or disclaimer of opinion, nor was it qualified or modified as touncertainty audit scope, or accounting principles. However, as disclosed in ourForm 10-K for our fiscal year ended December 31, 2003, Hein in itsaudit report dated February 16, 2004 included an explanatory paragraphregarding Polar Molecular Holding Corporation’s ability to continue as a goingconcern.

 

Inaddition, effective February 10, 2005 we retained the firm of WheelerWasoff, P.C. to audit our financial statement for the year ending December 31,2004. This change in independent accountants was approved by our auditcommittee of the Board of Directors. During the years ended December 31,2003 and 2002, and the subsequent interim periods through February 10,2005, we did not consult with Wheeler Wasoff, P.C. regarding the application ofaccounting principles to a specified transaction, the type of audit opinionthat might be rendered on our financial statements or any other matters orreportable events as set forth in Items 304(a)(2)(i) and (ii) ofRegulation S-B.

 

**ITEM 8A.CONTROLS AND PROCEDURES**

 

TheCompany’s Chief Executive Officer has evaluated the effectiveness of theCompany’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e)) as of the end of the period covered by this report. Based on thisevaluation, the Chief Executive Officer has concluded that, as of December 31,2004, the Company’s disclosure controls and procedures are effective inalerting them on a timely basis to material information relating to the Companyrequired to be included in the Company’s periodic filings under the ExchangeAct.

 

Duringthe quarter ended December 31, 2004, there were no changes in the Company’sinternal control over financial reporting that materially affected, or arereasonably likely to affect, our internal control over financial reporting.

 

Whilewe believe our internal controls are adequate and that there are no materialweaknesses, it should be noted that our disclosure controls and procedures andour internal controls will not necessarily prevent all error or fraud, and canthus not provide absolute assurance that all control issues or fraud can bedetected.

 

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**ITEM8B. OTHER INFORMATION**

 

Therewere no items to be reported on Form 8-K during the fourth quarter of theyear covered by this Form 10-KSB, that have not been reported.

 

**PART III**

 

**ITEM 9.****     DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT**

 

Summary information concerning the Company’s directors and executiveofficers is set forth below. The board of directors consists of six members.The following individuals are the current directors:

 
| **Name**                  | ** ** | **Age** | ** ** | **Term  Expires** | ** ** | **Position(s)**                                                             | ** ** |
|---------------------------|------------|---------|------------|-------------------|------------|-----------------------------------------------------------------------------|------------|
| Mark L. Nelson            |       | 58      |       | 2006              |       | President,  Chief Executive Officer and Chairman  of the Board of Directors |       |
| Chandra B. Prakash, Ph.D. |       | 70      |       | 2004              |       | Director and Vice President                                                 |       |
| Walter Fay                |       | 85      |       | 2005              |       | Director                                                                    |       |
| Richard J. Socia          |       | 62      |       | 2006              |       | Director                                                                    |       |
| Wayne Wright              |       | 59      |       | 2006              |       | Director                                                                    |       |
| Robert MacKenzie          |       | 62      |       | 2006              |       | Director                                                                    |       |

 

**Mark L. Nelson**serves as the Company’s Chairman of the Board of Directors, President and ChiefExecutive Officer. Mr. Nelson is one of Polar’s co-founders and one of theinventors of Polar’s products. He has served as the Chairman and ChiefExecutive Officer of Polar since December 1994 and President since February 1995.Mr. Nelson currently has overall responsibility for activities related tobusiness and market development, establishment of strategic alliances, legalaffairs and capital formation.

 

**Richard J. Socia** hasserved as a director of the Company since December 1994. He has been theprincipal of Owner Realty Company, a full service real estate firm in Michigan,since 1969. He is also principal owner of Shoreline Financial Group, a fullservice mortgage company in The State of Michigan.

 

**Chandra B. Prakash, Ph.D.**has served as a director of the Company since the merger in July 2003 andas Vice President of Environmental & Vehicle/Fuel Regulations since1997. From 1990 until April 1997, Dr. Prakash was Head ofTransportation Fuels with the Federal Department of Environment in Canada. Dr. Prakashholds a doctorate degree in Chemical Engineering from the University of BritishColumbia, Vancouver, Canada, and has published and presented 65 technicalpapers in national and international journals and conferences.

 

**Walter Fay** hasserved as a director of the Company, since the merger in July 2003. Mr. Fayretired from General Motors in 1982 where he spent nearly 30 years, serving invarious accounting and financial positions.

 

**Wayne Wright** hasserved as a director of the Company since 1997. Mr. Wright has beensemi-retired since 2001. He previously served as President of PriorityInternational Communications, Inc.

 

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(a wholly-owned subsidiary of Murdock from October 1997 to July 2001)from March 1997 to July 2001 and as Chairman of the Board of PriorityInternational Communications, Inc. from 1996 to 1997.

 

**Robert J. MacKenzie**was appointed as a director of the Company in November 2005.  Previously, he has served on the Board ofDirectors of the Polar Molecular Corporation, the wholly owned subsidiary ofPolar Molecular Holding Corporation.  Mr. MacKenziehas been associated with the real estate industry since 1995.  Prior to 1995, he successfully owned andoperated a restaurant for 33 years.

 

**Audit Committee Financial Expert**

 

The Audit Committee of the Board of Directors of the Company overseesthe Company’s corporate accounting and financial reporting process. Threedirectors comprise the Audit Committee: Walter Fay, Richard Socia and RobertMacKenzie. None of the members of the Audit Committee has been identified by theCompany as an “audit committee financial expert,” as defined in the applicable rules ofthe SEC, because the Company is listed on the Pink Sheets which has no suchrequirement.

 

**Section 16(a) Beneficial OwnershipReporting Compliance**

 

Section 16(a) of the Securities Exchange Act of 1934 requiresthe Company’s directors and executive officers, and persons who own more thanten percent of a registered class of the Company’s equity securities, to filewith the SEC initial reports of ownership and reports of changes in ownershipof Common Stock and other equity securities of the Company. Officers, directorsand greater than ten percent stockholders are required by SEC regulation tofurnish the Company with copies of all Section 16(a) forms they file.

 

To the Company’s knowledge, based solely on a review of the copies ofsuch reports furnished to the Company during the fiscal year ended December 31,2004, some Section 16(a) filings are delinquent.  We anticipate that these delinquent filingswill be submitted shortly and that all Section 16(a) filingrequirements will be complied with.

 

**Code of Ethics**

 

The Company has adopted a Code of Ethics that applies to, among others,its executive officers, principal financial officer, and other persons, if any,performing similar functions.  A copy isattached as an exhibit to this document

 

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**ITEM 10.****                      EXECUTIVECOMPENSATION**

 

**Compensation of Executive Officers**

 

**Summary Compensation Table**

 

The following table shows all the cash compensation paid or to be paidby the Company, as well as certain other compensation paid or accrued, duringthe fiscal years indicated, to the Company’s Chief Executive Officer (the “NamedExecutive Officer”). There were no other executive officers who received totalannual salary and bonus in excess of $100,000 in the fiscal year ended December 31,2004.

 
| ** **                              | ** ** | ** **              | ** ** | **Long-tern compensation** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|----------------------------|------------|
| ** **                              | ** ** | **Annual Compensation** | ** ** | **Stock**                  | ** ** | **Securities  Underlying** | ** ** |
| ** **                              | ** ** | **Year (1)**            | ** ** | **Salary ($)(2)**          | ** ** | **Bonus(3)** | ** ** | **Awards ($)** | ** ** | **Options (#)** | ** ** |
| Name and Principal Position             |       |                    |       |                       |       |   |   |   |   |   |   |
| Mark L. Nelson                          |       | 12/31/2004              |       | 200,000                    |       | 100,000 |   | — |   | — |   |
| President,  Chief Executive Officer and |       | 12/31/2003              |       | 150,000                    |       | — |   | — |   | 300,000 |   |
| Chairman of  the Board of Directors     |       | 12/31/2002              |       | 112,500                    |       | — |   | — |   | — |   |

 

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(1) Thefiscal year ended December 31, 2002 was nine months from March 31,2002 to December 31, 2002.

 

(2) Salaryin the following amounts has been accrued but not yet paid to Mr. Nelsonfor the fiscal years ending December 31, 2004 and 2003 and the nine monthsended March 31, 2002, respectively: $85,544, $89,678, and $112,500.

 

(3) Abonus for services for 2004 was awarded by the compensation committee during2005 but has not been paid.

 

**Stock Option Grants and Exercises**

 

Polar grants options to its executive officers under its EquityIncentive Plan.  As of December 31,2004, options to purchase 5,883,333 shares were outstanding under the IncentivePlans and options to purchase 6,816,667 shares remained available for grant.

 

During the year end December 31, 2004, there were no option grantsfor the Named Executive Officer.

 

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***Aggregate Option Exercises in Fiscal Year2005 and Year-End Option Values***

 

The following table sets forth the number of shares of common stockcovered by the stock options held by the chief executive officer of Polar as ofthe end of fiscal year 2004. The value of unexercised in-the-money options isbased on the closing price of the common stock as reported by the Pink Sheetservice on the last day of the most recent fiscal year, December 31, 2004,minus the exercise price, multiplied by the number of shares underlying theoptions.

 
| **Name**       | ** ** | **Shares  Acquired On  Exercise (#)** | ** ** | **Value  Realized ($)** | ** ** | **Number of Securities  Underlying Unexercised  Options at Fiscal Year-End  (#)  Exercisable/Unexercisable** | ** ** | **Value of Unexercised In-the  Money Options at Fiscal Year  end ($)  Exercisable/Unexercisable  (1)** |
|----------------|------------|---------------------------------------|------------|-------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|
| Mark L. Nelson |       | —                                |       | —                  |       | 365,289                                                                                                      | —     |                                                                                                   | 8 | — |
|                |            |                                       |            |                         |            |                                                                                                              |            |                                                                                                        |  |  |

 

----

(1)          Amountsrepresent the fair market value of the underlying common stock at December 31,2004 of $0.05 per share less the exercise price.

 

***Equity Compensation Plan Information***

 

The following table provides certain information with respect to theCompany’s equity incentive plan in effect as of December 31, 2004:

 
| ** **                   | ** ** | **Number of securities to  be issued upon exercise  of outstanding options,  warrants and rights** | ** ** | **Weighted average  exercise price of  outstanding options, warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation  plans** | ** ** |
|------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|
| Polar Equity Incentive  Plan |       | 8,183,333                                                                                          |       | $                                                                                      | 0.15       |                                                                                                 | 6,816,667  |   |
|                              |            |                                                                                                    |            |                                                                                        |            |                                                                                                      |            |  |

 

***Employment and Termination Agreements***

 

**Mark Nelson.** On March 6,2001, Polar entered into an employment agreement with Mr. Nelson to serveas Polar’s chief executive officer and president. Under the employmentagreement Polar will pay Mr. Nelson a base salary of not less than$150,000 plus additional compensation, bonuses and commissions, if any, asshall be determined in the sole discretion of the board of directors of theCompany.  Mr. Nelson is entitled toparticipate in Polar’s present and future employee benefit plans for health,life and disability insurance.  Mr. Nelson’semployment with Polar can be terminated by the Company with or without cause. Mr. Nelson’semployment contract entitles Mr. Nelson to a seat on the Company’s boardof directors.

 

There are no family relationships between Mr. Nelson and any ofPolar’s other directors or executive officers. Except for the employmentagreement described herein, there are no transactions between Polar and Mr. Nelsonrequiring disclosure.

 

30

----

 

***Indemnification Agreements***

 

Polar has indemnified the members of the board of directors, pursuantto which Polar has agreed to advance expenses and indemnify such personsagainst certain liabilities incurred in connection with their services toPolar. In the event of a proceeding brought against an indemnified person by orin the right of Polar, that person shall not be entitled to indemnification if heor she is adjudged to be liable to Polar, or if applicable law prohibits suchindemnification; provided, however, that, if applicable law so permits,indemnification shall nevertheless be made by Polar in such event if, and onlyto the extent, determined by the Court of Chancery of the State of Delaware, oranother court in which such proceeding is brought or is pending.

 

**Compensation of Directors**

 

The Company does not pay fees to non-employee directors of the Companyfor service on the Board of Directors or any of the Board’s committees. Themembers of the Board are eligible for reimbursement of their expenses incurredin connection with attendance at Board meetings in accordance with Companypolicy.

 

All directors of the Company are eligible to participate in the Company’sEquity Incentive Plan. Option grants to non-employee directors arediscretionary. During the fiscal year ended December 31, 2004, the Companydid not grant any options to non-employee directors.

 

**ITEM 11.****                      SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS**

 

The following table shows the amount of common stock of Polarbeneficially owned as of December 14, 2005 based on 136,775,473 shares ofcommon stock outstanding on such date by:

 

each director and executive officer of theCompany,

 

each person known by Polar to beneficiallyown more than 5% of our outstanding common stock based upon our review ofdocuments filed by them with the SEC and/or information available from ourstock transfer agent, Computershare, with respect to the ownership of ourshares of common stock.

 

and by all directors and executive officersas a group.

 

Beneficial ownership of common stock includes shares that areindividually or jointly owned, as well as shares of which the individual hassole or shared investment or voting authority. Beneficial ownership of commonstock also includes shares that could be purchased by the exercise of options,warrants or notes at or within 60 days of December 14, 2005.  The amounts set forth in the table asbeneficially owned include shares owned, if any, by spouses and relativesliving in the same home, as to which beneficial ownership may be disclaimed asset forth in the notes following the table.

 

31

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| **Name (1)**                                                 | ** ** | **Number of  Shares** | ** ** | **Percentage of  Common Stock  Ownership** | ** ** |
|--------------------------------------------------------------|------------|-----------------------|------------|--------------------------------------------|------------|
| Mark L. Nelson                                               |       | 51,472,197            | (2)        | 37.6                                       | %          |
| Chandra B. Prakash, Ph.D                                     |       | 2,089,468             | (3)        | 1.5                                        | %          |
| Walter Fay                                                   |       | 2,438,842             | (4)        | 1.8                                        | %          |
| Richard Socia                                                |       | 2,729,836             | (5)        | 2.0                                        | %          |
| Wayne Wright                                                 |       | 1,116,729             | (6)        | 0.8                                        | %          |
| Robert MacKenzie                                             |       | 854,543               | (7)        | 0.6                                        | %          |
| All  Directors and Executive Officers as a group (5 persons) |       | 51,472,197            | (8)        | 37.6                                       | %          |
| Voting  Agreement Group                                      |       | 51,472,197            | (9)        | 37.6                                       | %          |

 

----

(1) Thistable is based upon information supplied by officers, directors and principalstockholders, information provided by our stock transfer agent, Computershare,and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated, theaddress of each person in this table is c/o Polar Molecular Corporation, 4600S. Ulster Street, Suite 940, Denver, Colorado 80237.

 

(2) Consistsof 51,472,197 shares subject to a Voting Agreement between the Company, assuccessor to Polar, Mr. Nelson and certain other stockholders of theCompany dated June 3, 2003, of which Mr. Nelson has sole voting powerover such shares, consisting of 46,061,383 shares and options and warrants topurchase 5,410,814 shares exercisable within 60 days. This amount includes (i) 6,212,959shares directly owned by Mr. Nelson and (ii) 365,457 shares subjectto stock options held by Mr. Nelson that are exercisable within 60 days.

 

(3) Consistsof (i) 1,502,197 shares directly owned by Mr. Prakash and (ii) 587,271shares subject to stock options held by Mr. Prakash that are exercisablewithin 60 days. Mr. Prakash is a party to the Voting Agreement between theCompany, as successor to Polar, and certain other stockholders of the Companydated June 3, 2003, pursuant to which Mr. Nelson has sole votingpower over all shares held by Mr. Prakash.

 

(4) Consistsof (i) 2,338,842 shares held by the Walter A Fay Living Trust U/A 1/4/82,of which Mr. Fay is trustee and (ii) 50,000 shares subject to stockoptions held by Mr. Fay that are exercisable within 60 days. Mr. Fayis a party to the Voting Agreement between the Company, as successor to Polar,and certain other stockholders of the Company dated June 3, 2003, pursuantto which Mr. Nelson has sole voting power over all shares held by Mr. Fay.

 

(5) Consistsof (i) 2,020,180 shares directly owned by Mr. Socia, (ii) 300,000shares subject to stock options held by Mr. Socia that are exercisablewithin 60 days (iii) 409,656 shares held by Debbi J. Patterson Socia, Mr. Socia’sspouse. Mr. Socia is a party to the Voting Agreement between the Company,as successor to Polar, and certain other stockholders of the Company dated June 3,2003, pursuant to which Mr. Nelson has sole voting power over all sharesheld by Mr. Socia.

 

(6) Consistsof (i) 916,729 shares directly owned, (ii) 50,000 shares held by theMitchell Investment Trust, of which Mr. Wright is trustee and (iii) 150,000shares subject to stock options exercisable within 60 days.

 

(7) Consistsof (i) 554,543 shares directly owned by Mr. MacKenzie, (ii) 300,000shares subject to stock options held by Mr. MacKenzie that are exercisablewithin 60 days.  Mr. MacKenzie is aparty to the Voting Agreement between the Company, as successor to Polar, andcertain other stockholders of the Company dated June 3, 2003, pursuant towhich Mr. Nelson has sole voting power over all shares held by Mr. MacKenzie.

 

(8) Includes(i) 51,472,197 shares subject to a Voting Agreement between the Company,as successor to Polar, and certain stockholders of the Company dated June 3,2003, consisting of 46,061,383 shares and options and warrants to purchase5,410,814 shares exercisable within 60 days.

 

(9) Consistsof 51,472,197 shares subject to a Voting Agreement between the Company, assuccessor to Polar, Mr. Nelson and certain other stockholders of theCompany dated June 3, 2003, of which Mr. Nelson has sole voting powerover such shares, consisting of 46,061,383 shares and options and warrants topurchase 5,410,814 shares exercisable within 60 days.

 

32

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**ITEM 12.****                      CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS**

 

As of December 31, 2004 and 2003, the Company had accruedcompensation, expenses and consulting due to certain officers and directors inthe amount of approximately $189,000 and $1,283,000 respectively, which werepartially offset by advances to officers and directors of approximately nothingand $341,000 respectively.  The Companyalso had notes payable to directors of approximately $48,000 and 137,000 as of December 31,2004 and 2003.  The total accruedcompensation is collateralized by a second priority lien on the Company’spatents.

 

During the year ended December 31, 2004, the Company exchangedstock for accrued wages owed to certain directors and officers and accruedconsulting fees owed to certain directors. 4,642,647 shares of restricted stock were issued to officers anddirectors in exchange for $286,526 of accrued wages and $177,738 of accruedconsulting fees.

 

On February 7, 2003, the Company advanced $100,000 to an officerand director in the form of a promissory note. The note matures in February 2007 and requires annual interestpayments at the rate of the prime rate plus 1%. The note, plus accrued interest of $7,000, was paid off in May 2004.

 

*Employment Agreements*

 

We have entered into employment agreements with certain of our namedexecutive officers. For the details of these agreements, please see “EmploymentAgreements” above.

 

*Compensation Committee Interlocks and InsiderParticipation*

 

Mark L. Nelson is a member of the Compensation Committee and also thepresident and chief executive officer of Polar.

 

33

----

 

**ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K**

 
| (a)       | Documents filed as part of this report on Form 10-K or  incorporated by reference.                                                                                                                          |
|-----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |                                                                                                                                                                                                             |
|  (1) | Our consolidated financial statements are listed on the “Index to  Financial Statements” on Page F-1 to this report.                                                                              |
|      |                                                                                                                                                                                                             |
|  (2) | Financial Statement Schedules (omitted because not applicable or not  required. Information is disclosed in the notes to the financial statements).                                                              |
|      |                                                                                                                                                                                                             |
|  (3) | The following exhibits are filed with this report on Form 10-K  or incorporated by reference.                                                                                                               |
|      |                                                                                                                                                                                                             |
| 2.1       | Agreement and Plan of Merger, dated as of December 19, 2001,  among Murdock Communications Corporation, MCC Merger Sub Corporation and  Polar Molecular Corporation. (8)                                    |
|      |                                                                                                                                                                                                             |
| 2.2       | First Amendment to Agreement and Plan of Merger, dated as of August 1,  2002, among Murdock Communications Corporation, MCC Merger Sub Corporation  and Polar Molecular Corporation. (8)                    |
|      |                                                                                                                                                                                                             |
| 2.3       | Second Amendment to Agreement and Plan of Merger, dated as of November 26,  2002, among Murdock Communications Corporation, MCC Merger Sub Corporation  and Polar Molecular Corporation. (8)                |
|      |                                                                                                                                                                                                             |
| 2.4       | Third Amendment to Agreement and Plan of Merger effective as of January 30,  2003, among Murdock Communications Corporation, MCC Merger Sub Corporation  and Polar Molecular Corporation. (8)               |
|      |                                                                                                                                                                                                             |
| 2.5       | Fourth Amendment to Agreement and Plan of Merger dated as of May 12,  2003, among Murdock Communications Corporation, MCC Merger Sub Corporation  and Polar Molecular Corporation. (8)                      |
|      |                                                                                                                                                                                                             |
| 3.1       | Certificate of Incorporation of Polar Molecular Corporation. (8)                                                                                                                                                 |
|      |                                                                                                                                                                                                             |
| 3.2       | Bylaws of Polar Molecular Corporation. (8)                                                                                                                                                                       |
|      |                                                                                                                                                                                                             |
| 3.3       | Certificate of Incorporation of Polar Molecular Holding Corporation.  (8)                                                                                                                                        |
|      |                                                                                                                                                                                                             |
| 3.4       | Bylaws of Polar Molecular Holding Corporation. (8)                                                                                                                                                               |
|      |                                                                                                                                                                                                             |
| 4.1       | Form of Common Stock Purchase Warrant Agreement between Murdock  Communications Corporation and Firstar Trust Company. (1)                                                                                  |
|      |                                                                                                                                                                                                             |
| 4.2       | Form of Redeemable Warrant. (1)                                                                                                                                                                             |
|      |                                                                                                                                                                                                             |
| 4.3       | First Amendment to Common Stock Purchase Warrant Agreement, dated as  of September 30, 1999, between Murdock Communications Corporation and  Firstar Trust Company. (4)                                     |
|      |                                                                                                                                                                                                             |
| 4.4       | Second Amendment to Common Stock Purchase Warrant Agreement, dated as  of April 14, 2000, between Murdock Communications Corporation and  Firstar Bank, N.A. (8)                                            |
|      |                                                                                                                                                                                                             |
| 4.5       | Third Amendment to Common Stock Purchase Warrant Agreement, dated as  of October 9, 2000, between Murdock Communications Corporation and  Firstar Bank, N.A. (8)                                            |
|      |                                                                                                                                                                                                             |
| 4.6       | Fourth Amendment to Common Stock Purchase Warrant Agreement, dated as  of October 2001, between Murdock Communications Corporation and Firstar  Bank, N.A. (8)                                              |
|      |                                                                                                                                                                                                             |
| 4.7       | Fifth Amendment to Common Stock Purchase Warrant Agreement and  Joinder Agreement, dated as of October 18, 2002, between Murdock  Communications Corporation and Computershare Trust Company, Inc. (8) |

 

34

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| 10.1   | Letter Agreement dated November 4, 2002 between Murdock  Communications Corporation and Berthel Fisher & Company Financial  Services, Inc. (8)                                                                                                                                          |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                       |
| 10.2   | Form of Convertible Note of Murdock Communications Corporation  due May 29, 2003 (5)                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.3   | Compromise, Settlement and Mutual Release Agreement, dated as of June 20,  2002, among Republic Credit Corporation I, Murdock Communications Corporation  and Silent Woman, L.L.C. (6)                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.4   | Amendment to Compromise, Settlement and Mutual Release Agreement,  dated as of September 1, 2002, among Buckeye Retirement Co., L.L.C.,  Ltd., Murdock Communications Corporation and Guy O. Murdock. (8)                                                                                             |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.5   | Second Amendment to Compromise, Settlement and Mutual Release  Agreement, dated as of June 27, 2003, among Buckeye Retirement Co.,  L.L.C., Murdock Communications Corporation and Guy O. Murdock (10)                                                                                                |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.6   | Compensation Agreement, dated August 1, 2002, between Murdock  Communications Corporation and Pirinate Consulting Group, L.L.C. (7)                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.7   | First Amendment to Compensation Agreement between Murdock and  Pirinate Consulting Group, L.L.C., dated January 3, 2003. (8)                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.8   | Second Amendment to Compensation Agreement between Murdock  Communications Corporation and Pirinate Consulting Group, L.L.C., dated June 24,  2003. (9)                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.9   | Compromise, Settlement and Mutual Release Agreement, dated as of August 1,  2002, between Murdock Communications Corporation and Buckeye Retirement Co.,  L.L.C. (7)                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.10  | Amendment, Modification and Extension Agreement, dated as of November 16,  2002, among Republic Credit Corporation I, Murdock Communications Corporation  and Silent Woman, L.L.C. (8)                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.11  | Second Amendment, Modification and Extension Agreement, dated January 28,  2003, among Republic Credit Corporation I, Murdock Communications Corporation  and Silent Woman, L.L.C. (8)                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.12  | Third Amendment to Compromise Settlement and Mutual Release  Agreement, dated as of May 12, 2003, among Republic Credit Corporation  I, Murdock Communications Corporation and Silent Woman, L.L.C. (8)                                                                                               |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.13  | Fourth Amendment to Compromise, Settlement and Mutual Release  Agreement, dated as of June 30, 2003, among Republic Credit Corporation  I, Murdock Communications Corporation and Silent Woman, L.L.C. (10)                                                                                           |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.14  | Letter Agreement between Murdock and Dave Kirkpatrick for conversion  of service fees to equity, dated January 27, 2003. (8)                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.15  | Letter Agreement between Murdock and Wayne Wright for conversion of  service fees to equity, dated January 27, 2003. (8)                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.16  | Letter Agreement between Murdock and Berthel Fisher &  Company for settlement of outstanding fees, dated January 9, 2003.  (8)                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.17  | Letter Agreement between Murdock and MCC Investment Company regarding  outstanding debt, dated January 3, 2003. (8)                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                       |
| 10.18  | Mutual Settlement and Release Agreement, dated November 7, 2002,  among John S. Rance, Steven E. Rance, Robert M. Upshaw, Fernando Ficachi and  Berthel Fisher & Company, Thomas J. Berthel, Ronald O. Brendengen,  Eugene I. Davis, Thomas E. Chaplin, Guy O. Murdock, Steven J. Ehlert and |

 

35

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|   | Murdock Communications Corporation and any and all of its current and  former directors, officers, agents and employees. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.19  | First Amendment to Mutual Settlement and Release Agreement, dated as  of June 27, 2003, among John S. Rance, Steven E. Rance, Robert M.  Upshaw, Fernando Ficachi and Berthel Fisher & Company, Thomas J.  Berthel, Ronald O. Brendengen, Eugene I. Davis, Thomas E. Chaplin, Guy O.  Murdock, Steven J. Ehlert and Murdock Communications Corporation and any and  all of its current and former directors, officers, agents and employees. (10)                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.20  | Investor Rights Agreement between Polar and Affiliated Investments,  L.L.C. dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.21  | Purchase Agreement between Polar and Affiliated Investments, L.L.C.  dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.22  | Promissory Note of Polar in favor of Affiliated Investments, L.L.C.  in the principal amount of $600,000 dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.23  | Security Agreement between Polar and Affiliated Investments, L.L.C.  dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.24  | Loan Extension and Release and Waiver Agreement between Polar and  Affiliated Investments L.L.C. dated as of February 28, 2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.25  | First Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of May 31,  2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.26  | Second Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of October 1,  2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.27  | Third Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of January 31,  2003. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.28  | Fourth Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of June 20,  2003. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.29  | Fifth Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of December 19,  2003. (13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.30  | Agreement Regarding Dispersal of Escrow Funds and Further Security  Interest dated as of June 20, 2003 between Polar and Affiliated  Investments, L.L.C. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.31  | License Agreement between Polar and Amway Corporation dated as of May 23,  1995. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.32  | Placement Agreement between Polar and Berthel Fisher &  Company Financial Services, Inc. dated as of December 21, 2001, as  amended by Amendment A dated as of December 21, 2001, by Amendment B  dated as of February 28, 2002, by Amendment C dated as of March 27,  2002, by Amendment D dated as of April 30, 2002, by Amendment E dated as  of May 15, 2002, by Amendment F dated as of June 13, 2002, by  Amendment G dated as of July 12, 2002, by Amendment H dated as of August 30,  2002, by Amendment I dated as of September 30, 2002, by Amendment J  dated as of September 30, 2002 and by Amendment K dated as of January 20,  2003. (8) |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.33  | Consulting Agreement between Polar and Gilbert Chapelet dated as of July 1,  2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.34  | Consulting Agreement between Polar and Jim Clarke dated as of June 21,  2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 10.35  | Security Agreement among Polar and Holme Roberts & Owen LLP,  Mark L. Nelson, Chandra Prakash, Alan L. Smith, Melissa Polich, Gerard  Gorman, Deborah Pilkington, Delores Coy-DeJongh, and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

 

36

----

 
|   | Reising Ethington Barnes Kisselle Learman & McCullogh, P.C.  dated December 18, 2001, as amended. (8)                                                                                                                                                                                       |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                      |
| 10.36  | Second Amendment to Security Agreement by and between Polar and Holme  Roberts & Owen LLP, Mark L. Nelson, Chandra Prakash, Alan L. Smith,  Deborah Pilkington, Delores Coy-DeJongh, and Reising Ethington Barnes  Kisselle Learman & McCullogh, P.C. dated January 31, 2003. (13) |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.37  | Amended and Restated Security Agreement dated as of February 4,  2003, by and among Polar and each of the Lenders set forth on Schedule I  thereto. (8)                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.38  | Reaffirmation of Assignments of United States and Foreign Patents  between Polar and Otis L. Nelson, Jr., Mark L. Nelson, and A. Richard  Nelson dated as of October 19, 2001. (8)                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.39  | Promissory Note of Mark L. Nelson in favor of Polar in the principal  amount of $100,000 dated as of February 7, 2003. (8)                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.40  | Exclusive Aftermarket Distributorship of PMC Products in the Republic  of South Korea dated as of October 11, 2002 between Polar and Pacific  Crest, L.L.C. (8)                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.41  | Amended and Restated Master Distribution Agreement by and between Polar  Molecular Corporation and Lockhart Chemical Company dated as of August 14,  2003. (11)                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.42  | Manufacturing Agreement by and between Polar Molecular Corporation  and Lockhart Chemical Company dated as of October 23, 2002. (13)                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.43  | Exclusive Distribution Agreement by and among Polar Molecular  Corporation, PowerRight Holdings Limited and Everbest Products dated as of September 2003.  (12)                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.44  | TotalFinaElf Additives Joint Marketing Agreement. (13)                                                                                                                                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.45  | Form of Polar Molecular Holding Corporation Equity Incentive  Plan. (8)                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.46  | Registration Rights Agreement, dated as of June 30, 2003, among  Polar Molecular Holding Corporation, Murdock Communications Corporation,  Daniel C. Cadle, Republic Credit Corporation, John S. Rance, Steven E. Rance,  Robert M. Upshaw, Fernando Ficachi and Buckeye Retirement Co., L.L.C. (10) |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.47  | Letter Agreement with Transition Partners Limited dated October 24,  2003. (13)                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.48  | Letter Agreement with Bolder Venture Partners dated February 9,  2004. (13)                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.49  | Voting Agreement dated June 3, 2003 between Polar and the  stockholders named on Schedule I thereto. (13)                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.50  | Settlement Agreement and Mutual Release dated as of July 14,  2003 by and among Polar Molecular Corporation, Polar Molecular Holding Corporation,  and GRQ, L.L.C. (13)                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.51  | Form of Warrant Certificate for A Common Stock Purchase  Warrants. (14)                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.52  | Form of Warrant Certificate for B Common Stock Purchase  Warrants. (14)                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.53  | Debt Restructuring Agreement with Bolder Venture Partners and  Transition Partners Limited dated April 1, 2004. (15)                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.54  | Settlement Agreement between Polar Molecular Holding Corporation, and  Holmes, Robert and Owens dated May 7, 2004. (15)                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                      |
| 10.55  | Private placement engagement letter and indemnification between Polar  Molecular Holding Corporation and Dominick & Dominick dated June 30,  2004. (15)                                                                                                                                     |

 

37

----

 
| 10.56  | Sixth Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of August 23,  2004. (15)                                          |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                     |
| 10.57  | Seventh Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of October 13,  2004. (15)                                       |
|   |                                                                                                                                                                                                     |
| 10.58  | Eighth Amendment to the Loan Extension and Release and Waiver  Agreement between Polar and Affiliated Investments L.L.C. dated as of December 22,  2004. (15)                                       |
|   |                                                                                                                                                                                                     |
| 10.59  | Private placement engagement letter and indemnification between Polar  Molecular Holding Corporation and Dominick & Dominick dated February 1,  2005. (15)                                 |
|   |                                                                                                                                                                                                     |
| 10.60  | Letter Agreement between Lockhart Holdings, Inc and Polar Molecular  Corporation for conversion of service fees to equity, dated September 28,  2005. (15)                                          |
|   |                                                                                                                                                                                                     |
| 10.61  | Settlement Agreement between Polar Molecular Holding Corporation, and  Holmes, Robert and Owens dated November 30, 2005. (15)                                                                       |
|   |                                                                                                                                                                                                     |
| 10.62  | Code of Conduct for Polar Molecular Holding Corporation’s Chief  Executive Officer and Principal Accounting Officer dated December 2,  2005. (15)                                              |
|   |                                                                                                                                                                                                     |
| 21     | List of Subsidiaries. (15)                                                                                                                                                                               |
|   |                                                                                                                                                                                                     |
| 31.1   | Certification of Chief Executive Officer of Periodic Report Pursuant  to Rule 13a – 14(a) and Rule 15d – 14(a) (Section 302  of the Sarbanes-Oxley Act of 2002). (15) |
|   |                                                                                                                                                                                                     |
| 32.1   | Certificate of Principal Executive Officer pursuant to 18 U.S.C. 1350  (Section 906 of the Sarbanes-Oxley Act of 2002). (15)                                                                        |

 

----

| (1)    | Filed as an exhibit to the Company’s Registration Statement on Form SB-2  (File No. 333-05422C) and incorporated herein by reference.               |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                               |
| (2)    | Filed as exhibit to the Company’s registration statement on Form SB-2  (File No. 333-78399) and incorporated herein by reference.                   |
|   |                                                                                                                                                               |
| (3)    | Filed as an exhibit to the Company’s Quarterly Report on Form 10-QSB  for the quarter ended June 30, 1999 and incorporated herein by  reference.    |
|   |                                                                                                                                                               |
| (4)    | Filed as an exhibit to Murdock’s Annual Report on Form 10-KSB  for the year ended December 31, 1999 and incorporated herein by  reference.          |
|   |                                                                                                                                                               |
| (5)    | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2000 and incorporated herein by  reference.      |
|   |                                                                                                                                                               |
| (6)    | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended June 30, 2002 and incorporated herein by  reference.      |
|   |                                                                                                                                                               |
| (7)    | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended September 30, 2002 and incorporated herein by  reference. |
|   |                                                                                                                                                               |
| (8)    | Filed as an exhibit to the Company’s Registration Statement on Form S-4  (File No. 333-103167) and incorporated herein by reference.                |
|   |                                                                                                                                                               |
| (9)    | Filed as an exhibit to the Company’s Registration Statement on Form S-8  (File No. 333-106635) and incorporated herein by reference.                |
|   |                                                                                                                                                               |
| (10)   | Filed as an exhibit to the Company’s Registration Statement on Form S-1  (File No. 333- 106987) and incorporated herein by reference.               |

 

38

----

 
| (11)   | Filed as an exhibit to the Company’s Periodic Report on Form 8-K  filed with the SEC on August 22, 2003 and incorporated herein by  reference.  |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                           |
| (12)   | Filed as an exhibit to the Company’s Periodic Report on Form 8-K  filed with the SEC on October 8, 2003 and incorporated herein by  reference.  |
|   |                                                                                                                                                           |
| (13)   | Filed as an exhibit to the Company’s Annual Report on Form 10-K  for the year ended December 31, 2003 and incorporated herein by  reference.    |
|   |                                                                                                                                                           |
| (14)   | Filed as an exhibit to the Company’s Quarterly Report on Form 10-Q  for the quarter ended March 31, 2004 and incorporated herein by  reference. |
|   |                                                                                                                                                           |
| (15)   | Filed herewith                                                                                                                                                 |

 

**ITEM 14.****                      AUDIT ANDOTHER FEES**

 

Wheeler Wasoff, PC served as our independent auditors for the fiscalyear ending December 31, 2004. Our audit committee has selected WheelerWasoff, PC to be our independent auditors for the 2005 fiscal year.Ratification of the selection of Wheeler Wasoff, PC by our stockholders is notrequired by law, regulation or Nasdaq rules.

 

Representatives of Wheeler Wasoff, PC are expected to be present at theannual meeting to answer appropriate questions from the stockholders and willbe given an opportunity to make a statement on behalf of Wheeler Wasoff, PCshould they desire to do so. None of our directors or executive officers hasany substantial interest, direct or indirect, in Wheeler Wasoff, PC.

 

We incurred the following fees to our auditors, Wheeler Wasoff, PC, andour former auditors Hein & Associates LLP for the fiscal years ended December 31,2004 and December 31, 2003

 
| **Fiscal Year Ending**          | ** ** | **Audit Fees** | ** ** | **Audit  Related  Fees** | ** ** | **Tax Fees** | ** ** | **All Other  Fees** | ** ** | **Total** | ** ** |
|---------------------------------|------------|----------------|------------|--------------------------|------------|-------------------|------------|--------------------------|------------|-----------|------------|
|                            |       |           |       |                     |       |              |       |                     |       |      |       |
| December 31, 2003          |       |           |       |                     |       |              |       |                     |       |      |       |
| Hein &  Associates LLP |       | 106,294        |       | —                   |       | —            |       | —                   |       | 106,294   |       |
| Wheeler  Wasoff, PC             |       | —         |       | —                   |       | —            |       | —                   |       | —    |       |
| Total Fiscal  2003              |       | 106,294        |       | —                   |       | —            |       | —                   |       | 106,294   |       |
|                            |       |           |       |                     |       |              |       |                     |       |      |       |
| December 31, 2004          |       |           |       |                     |       |              |       |                     |       |      |       |
| Hein &  Associates LLP |       | 54,631         |       | —                   |       | —            |       | —                   |       | 54,631    |       |
| Wheeler  Wasoff, PC             |       | —         |       | —                   |       | —            |       | —                   |       | —    |       |
| Total Fiscal  2004              |       | 54,631         |       | —                   |       | —            |       | —                   |       | 54,631    |       |

 

39

----

 

*Audit Fees*

 

Audit fees consisted of audit and quarterly reviews of the consolidatedfinancial statements for the fiscal years ended December 31, 2004 and 2003or services normally provided by our accountants in connection with statutoryand regulatory filings.  All servicesperformed by the principal accountant were performed by Wheeler Wasoff, PC orHein & Associates LLP.

 

*Audit Related Fees*

 

Audit related fees for fiscal 2004 represent the aggregate fees forassurance and related services performed by our principal accountant that arereasonably related to the performance of the audit or the review of ourquarterly financial statements and are not reported in audit fees describedabove.

 

*Tax Fees*

 

The Company did not obtain any tax advice and consequently, there wereno tax fees paid for fiscal 2004 or 2003 to Wheeler Wasoff, PC or Hein &Associates LLP.

 

*All Other Fees*

 

The Company did not obtain any other services and consequently, thereare no other fees paid for fiscal 2004 or 2003 to Wheeler Wasoff, PC or Hein &Associates LLP.

 

*Audit Committee Pre-approval of Fees*

 

The audit committee meets with the independent auditors prior to theaudit to discuss the planning and staffing of the audit and to approve theproposed fee for the audit and any required special services. The auditcommittee is notified in advance of and pre-approves, any proposed engagementof the independent auditor to provide non-audit services to Polar. The auditcommittee adopted a pre-approval policy for services by its independentaccountant to comply with Securities and Exchange Commission Release No. 33-8183pursuant to which all services provided by the principal auditor arepre-approved by the chairman of the audit committee. The audit committeepre-approved all services performed by the principal accountants for fiscalyear 2004 in accordance with the pre-approval policy.

 

40

----

 

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed January 5,2006 on its behalf by the undersigned, thereunto duly authorized.

 
| POLAR MOLECULAR HOLDING CORPORATION              |   |
|--------------------------------------------------|--------|
|                                             |   |
| Registrant                                       |   |
|                                             |   |
| By:                                              |   |
|  /s/ Mark L. Nelson                         |   | Date: January 5, 2006 |
|    Mark L.  Nelson                     |   |   |
|  Chairman, President and Chief              |   |   |
|  Executive Officer                          |   |   |
|  Principal Financial and Accounting Officer |   |   |

 

Pursuantto the requirement of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Registrant, and in thecapacities and on the date indicated.

 
| By:                                                   |   |                       |
|-------------------------------------------------------|--------|----------------------------|
|    /s/ Mark L. Nelson                       |   | Date: January 5, 2006 |
|    Mark L. Nelson, Chairman of the Board    |   |                       |
|                                                  |   |                       |
|                                                  |   |                       |
|  /s/ Walter Fay                                  |   | Date: January 5, 2006 |
| Walter Fay, Director                                  |   |                       |
|                                                  |   |                       |
|                                                  |   |                       |
|  /s/ Chandra B. Prakash                          |   | Date: January 5, 2006 |
| Chandra B. Prakash, Ph.D, Vice President and Director |   |                       |
|                                                  |   |                       |
|                                                  |   |                       |
| s/ Richard J. Socia                                   |   | Date: January 5, 2006 |
| Richard J. Socia, Director                            |   |                       |
|                                                  |   |                       |
|                                                  |   | Date:                      |
| Wayne Wright, Director                                |   |                       |

 

41

----

 

CONSOLIDATED FINANCIAL STATEMENTS

 

As required under “Item 8: ConsolidatedFinancial Statements and Supplementary Data,” the consolidated financialstatements of Polar Molecular Holding Corporation are provided in this sectionas follows:

 

**INDEX TO FINANCIAL STATEMENTS**

 
| **Reports of Independent Registered Public Accounting Firms**                                                                                                          |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                   |   |
| **Consolidated Balance Sheets – December 31, 2004 and 2003**                                                                                                      |   |
|                                                                                                                                                                   |   |
| **Consolidated Statements of Operations – For the years ended December 31, 2004,  and 2003 and the nine months ended December 31, 2002**                          |   |
|                                                                                                                                                                   |   |
| **Consolidated Statement of Changes in Stockholders’ Deficit – For the years ended  December 31, 2004 and 2003 and the nine months ended December 31, 2002** |   |
|                                                                                                                                                                   |   |
| **Consolidated Statements of Cash Flows – For the years ended December 31, 2004  and 2003 and the nine months ended December 31, 2002**                           |   |
|                                                                                                                                                                   |   |
| **Notes to Financial Statements**                                                                                                                                      |   |

 

42

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors

Polar Molecular HoldingCorporation

Denver, Colorado

 

We have audited theaccompanying consolidated balance sheet of Polar Molecular Holding Corporationas of December 31, 2004, and the related consolidated statements of operations,changes in stockholders’ deficit, and cash flows for the year ended December31, 2004.  These financial statements arethe responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditprovides a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Polar Molecular HoldingCorporation as of December 31, 2004 and the results of its operations and itscash flows for the year ended December 31, 2004, in conformity with accountingprinciples generally accepted in the United States of America.

 

The accompanying financialstatements have been prepared assuming that the Company will continue as agoing concern.  As discussed inNote 3 to the financial statements, the Company has suffered material recurringlosses from operations and has a material liquidity and net capital deficiencythat raise substantial doubt about its ability to continue as a goingconcern.  In addition, as of December 31,2004, the Company was in default on debt obligations totaling $1,759,000.  Management’s plans in regard to these mattersare also described in Note 3.  Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

Wheeler Wasoff, PC

 

Denver, Colorado

November 25, 2005

 

F-1

----

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Board of Directors

Polar Molecular HoldingCorporation

Denver, Colorado

 

We have audited the consolidatedbalance sheet of Polar Molecular Holding Corporation as of December 31, 2003,and the related consolidated statements of operations, changes in stockholders’deficit, and cash flows for the year ended December 31, 2003 and the ninemonths ended December 31, 2002.  Thesefinancial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinionon these financial statements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the financial position of Polar Molecular Holding Corporationas of December 31, 2003 and the results of its operations and its cash flowsfor the year ended December 31, 2003 and the nine months ended December 31,2002, in conformity with U.S. generally accepted accounting principles.

 

The accompanying financialstatements have been prepared assuming that the Company will continue as agoing concern.  As discussed in Note 3 tothe financial statements, the Company has suffered recurring losses fromoperations and has a net capital deficiency that raise substantial doubt aboutits ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note3.  The financial statements do notinclude any adjustments that might result from the outcome of this uncertainty.

 

HEIN & ASSOCIATES LLP

 

Denver, Colorado

February 16, 2004

 

F-2

----

 

**POLAR MOLECULAR HOLDING CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

Asof December 31, 2004 and 2003

inthousands, except share data

 
| ** **                                                                                                              | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| ASSETS                                                                                                                  |       |     |       |     |       |
| Current  assets:                                                                                                        |       |     |       |     |       |
| Cash and cash equivalents                                                                                               |       | $        | —     |     | $          | 2 |   |
| Accounts receivable, less allowances of $45  and $0, respectively                                                       |       | 64       |       | 25       |       |
| Prepaid expenses                                                                                                        |       | 9        |       | 7        |       |
| Total current assets                                                                                                    |       | 73       |       | 34       |       |
|                                                                                                                    |       |     |       |     |       |
| Note  receivable, officer                                                                                               |       | —   |       | 100      |       |
| Deferred  financing costs                                                                                               |       | —   |       | 47       |       |
| Property,  plant and equipment, net                                                                                     |       | 12       |       | 25       |       |
| Patent and  trademarks, net                                                                                             |       | 91       |       | 47       |       |
|                                                                                                                    |       |     |       |     |       |
| Total assets                                                                                                            |       | $        | 175        |     | $          | 253 |   |
|                                                                                                                    |       |     |       |     |       |
| LIABILITES  AND STOCKHOLDERS’ DEFICIT                                                                              |       |     |       |     |       |
| Current  liabilities:                                                                                                   |       |     |       |     |       |
| Bank overdraft                                                                                                          |       | $        | 7          |     | $          | — |   |
| Accounts payable                                                                                                        |       | 1,201    |       | 1,507    |       |
| Accrued payroll and payroll taxes                                                                                       |       | 757      |       | 1,002    |       |
| Other accrued liabilities                                                                                               |       | 865      |       | 667      |       |
| Deposits                                                                                                                |       | 126      |       | 142      |       |
| Current portion of long term debt, and  notes with no stated maturity                                                   |       | 1,800    |       | 1,386    |       |
| Current portion of capital lease obligation                                                                             |       | —   |       | 6        |       |
| Total current liabilities                                                                                               |       | 4,756    |       | 4,710    |       |
|                                                                                                                    |       |     |       |     |       |
| Long term debt                                                                                                          |       | 150      |       | —   |       |
|                                                                                                                    |       |     |       |     |       |
| Commitments  and contingencies (Notes 3 and 6)                                                                          |       |     |       |     |       |
|                                                                                                                    |       |     |       |     |       |
| Stockholders’  deficit                                                                                             |       |     |       |     |       |
| Preferred stock, undesignated, 50,000,000  shares authorized for total preferred stock, none outstanding                |       |     |       |     |       |
| Commn stock - $0.01 par value, 200,000,000  shares authorized, 125,490,617 and 96,021,045 shares issued and outstanding |       | 1,255    |       | 960      |       |
| Additional paid-in capital                                                                                              |       | 18,960   |       | 15,211   |       |
| Common stock warrants                                                                                                   |       | —   |       | 1,180    |       |
| Deferred stock based compensation                                                                                       |       | —   |       | (57      | )          |
| Treasury stock, 250,000 shares at cost                                                                                  |       | (94      | )          | (94      | )          |
| Accumulated deficit                                                                                                     |       | (24,852  | )          | (21,657  | )          |
| Total stockholders’ deficit                                                                                        |       | (4,731   | )          | (4,457   | )          |
|                                                                                                                    |       |     |       |     |       |
| Total liabilities  and stockholders’ deficit                                                                       |       | $        | 175        |     | $          | 253 |   |

 

**Seeaccompanying notes to these consolidated financial statements**

 

F-3

----

 

**POLAR MOLECULAR HOLDING CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

Fiscalyears ended December 31, 2004 and 2003 and the nine months ended December 31,2002

inthousands, except share data

 
| ** **                                                   | ** ** | **For the Year  Ended  December 31,  2004** | ** ** | **For the Year  Ended  December 31,  2003** | ** ** | **For the Nine  Months  Ended  December 31,  2002** | ** ** |
|--------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|-----------------------------------------------------|------------|
| Revenues:                                                    |       |                                        |       |                                        |       |                                                |       |
| Product sales                                                |       | $                                           | 156        |                                        | $          | 66                                                  |       | $ | 55 |   |
| Royalties                                                    |       | 252                                         |       | 350                                         |       | 129                                                 |       |
| Total revenues                                               |       | 408                                         |       | 416                                         |       | 184                                                 |       |
|                                                         |       |                                        |       |                                        |       |                                                |       |
| Operating  expenses:                                         |       |                                        |       |                                        |       |                                                |       |
| Cost of product sales                                        |       | 44                                          |       | 50                                          |       | 52                                                  |       |
| Salaries                                                     |       | 763                                         |       | 332                                         |       | 540                                                 |       |
| Travel and entertainment expenses                            |       | 111                                         |       | 52                                          |       | 50                                                  |       |
| General and administrative                                   |       | 1,384                                       |       | 1,662                                       |       | 616                                                 |       |
| Allowance for advances to merger candidate                   |       | —                                      |       | 45                                          |       | 270                                                 |       |
| Expenses related to stock and option grants  for services    |       | 881                                         |       | 1,095                                       |       | 23                                                  |       |
| Amortization and depreciation                                |       | 18                                          |       | 68                                          |       | 59                                                  |       |
| Total operating expenses                                     |       | 3,201                                       |       | 3,304                                       |       | 1,610                                               |       |
|                                                         |       |                                        |       |                                        |       |                                                |       |
| Loss from  operations                                        |       | (2,793                                      | )          | (2,888                                      | )          | (1,426                                              | )          |
|                                                         |       |                                        |       |                                        |       |                                                |       |
| Other income  (expense)                                      |       |                                        |       |                                        |       |                                                |       |
| Interest expense                                             |       | (408                                        | )          | (431                                        | )          | (167                                                | )          |
| Interest income                                              |       | 7                                           |       | —                                      |       | —                                              |       |
| Other income (expense)                                       |       | (1                                          | )          | —                                      |       | 1                                                   |       |
| Total other income (expense)                                 |       | (402                                        | )          | (431                                        | )          | (166                                                | )          |
| Net loss                                                     |       | $                                           | (3,195     | )                                           | $          | (3,319                                              | )          | $ | (1,592 | ) |
|                                                         |       |                                        |       |                                        |       |                                                |       |
| Basic and  diluted loss per common share                     |       | $                                           | (0.03      | )                                           | $          | (0.05                                               | )          | $ | (0.03 | ) |
|                                                         |       |                                        |       |                                        |       |                                                |       |
| Basic and  diluted weighted average common share outstanding |       | 115,248,000                                 |       | 72,557,000                                  |       | 50,313,000                                          |       |

 

**Seeaccompanying notes to these consolidated financial statements**

 

F-4

----

 

**POLAR MOLECULAR HOLDING CORPORATION**

**CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT**

For the years ended December 31, 2004 and 2003 and the nine monthsended December 31, 2002

in thousands, except share data

 
| ** **                                          | ** ** | ** **        | ** ** | ** **  | ** ** | **Additional** | ** ** | ** **   | ** ** | ** **      | ** ** | ** **      | ** ** | **Deferred**     | ** ** | ** ** | ** ** |
|-----------------------------------------------------|------------|-------------------|------------|-------------|------------|----------------|------------|--------------|------------|-----------------|------------|-----------------|------------|------------------|------------|------------|------------|
| ** **                                          | ** ** | **Common  Stock** | ** ** | **Paid-in** | ** ** | ** **     | ** ** | **Treasury** | ** ** | **Accumulated** | ** ** | **Stock-based** | ** ** | ** **       | ** ** |
| ** **                                          | ** ** | **Shares**        | ** ** | **Amount**  | ** ** | **Capital**    | ** ** | **Warrants** | ** ** | **Stock**       | ** ** | **Deficit**     | ** ** | **Compensation** | ** ** | **Total**  | ** ** |
| Balances, March 31, 2002                            |       | 49,394,796        |       | $           | 494        |           | $          | 13,176       |       | $               | —     |            | $          | —           |       | $          | (16,746    | ) | $ | (11 | ) | $ | (3,087 | ) |
| Stock issued with  debt                             |       | 470,080           |       | 5           |       | 5              |       | —       |       | —          |       | —          |       | —           |       | 10         |       |
| Stock issued for  interest and extension of notes   |       | 745,789           |       | 7           |       | 9              |       | —       |       | —          |       | —          |       | —           |       | 16         |       |
| Stock issued for  services                          |       | 261,158           |       | 3           |       | 3              |       | —       |       | —          |       | —          |       | —           |       | 6          |       |
| Warrants issued  with debt                          |       | —            |       | —      |       | 10             |       | —       |       | —          |       | —          |       | —           |       | 10         |       |
| Stock options  granted to employees and consultants |       | —            |       | —      |       | 11             |       | —       |       | —          |       | —          |       | (8               | )          | 3          |       |
| Net loss                                            |       | —            |       | —      |       | —         |       | —       |       | —          |       | (1,592          | )          | 14               |       | (1,578     | )          |
|                                                |       |              |       |        |       |           |       |         |       |            |       |            |       |             |       |       |       |
| Balances, December 31, 2002                         |       | 50,871,823        |       | 509         |       | 13,214         |       | —       |       | —          |       | (18,338         | )          | (5               | )          | (4,620     | )          |
| Shares issued in  connection with merger            |       | 18,594,122        |       | 186         |       | (2,909         | )          | 1,051        |       | (94             | )          | —          |       | —           |       | (1,766     | )          |
| Stock issued for  services                          |       | 8,206,626         |       | 82          |       | 958            |       | —       |       | —          |       | —          |       | —           |       | 1,040      |       |
| Stock cancelled                                     |       | (1,920,625        | )          | (19         | )          | 19             |       | —       |       | —          |       | —          |       | —           |       | —     |       |
| Stock issued for  interest                          |       | 702,640           |       | 7           |       | 9              |       | —       |       | —          |       | —          |       | —           |       | 16         |       |
| Stock options  exercised                            |       | 7,643,828         |       | 76          |       | 1,330          |       | —       |       | —          |       | —          |       | —           |       | 1,406      |       |
| Conversion of  notes                                |       | 11,422,631        |       | 114         |       | 2,465          |       | —       |       | —          |       | —          |       | —           |       | 2,579      |       |
| Stock options  granted to employees and consultants |       | —            |       | —      |       | 80             |       | 129          |       | —          |       | —          |       | (52              | )          | 157        |       |
| Sale of common  stock                               |       | 500,000           |       | 5           |       | 45             |       | —       |       | —          |       | —          |       | —           |       | 50         |       |
| Net loss                                            |       | —            |       | —      |       | —         |       | —       |       | —          |       | (3,319          | )          | —           |       | (3,319     | )          |
|                                                |       |              |       |        |       |           |       |         |       |            |       |            |       |             |       |       |       |
| Balances, December 31, 2003                         |       | 96,021,045        |       | 960         |       | 15,211         |       | 1,180        |       | (94             | )          | (21,657         | )          | (57              | )          | (4,457     | )          |
| Stock issued for  services                          |       | 1,785,312         |       | 18          |       | 178            |       | —       |       | —          |       | —          |       | —           |       | 196        |       |
| Stock issued for  interest                          |       | 41,425            |       | —      |       | 166            |       | —       |       | —          |       | —          |       | —           |       | 166        |       |
| Warrant  expiration                                 |       | —            |       | —      |       | 1,180          |       | (1,180       | )          | —          |       | —          |       | —           |       | —     |       |
| Warrants  exercised                                 |       | 6,385,889         |       | 64          |       | 105            |       | —       |       | —          |       | —          |       | —           |       | 169        |       |
| Conversion of  notes                                |       | 1,202,500         |       | 12          |       | 108            |       | —       |       | —          |       | —          |       | —           |       | 120        |       |
| Stock granted to  employees and consultants         |       | 9,511,016         |       | 95          |       | 1,355          |       | —       |       | —          |       | —          |       | —           |       | 1,450      |       |
| Amortization of  stock options previously granted   |       | —            |       | —      |       | —         |       | —       |       | —          |       | —          |       | 57               |       | 57         |       |
| Sale of common  stock                               |       | 8,972,001         |       | 90          |       | 573            |       | —       |       | —          |       | —          |       | —           |       | 663        |       |
| Gypsy exchange  for retirement of debt              |       | 1,571,429         |       | 16          |       | 84             |       | —       |       | —          |       | —          |       | —           |       | 100        |       |
| Net loss                                            |       | —            |       | —      |       | —         |       | —       |       | —          |       | (3,195          | )          | —           |       | (3,195     | )          |
|                                                |       |              |       |        |       |           |       |         |       |            |       |            |       |             |       |       |       |
| Balances, December 31, 2004                         |       | 125,490,617       |       | $           | 1,255      |           | $          | 18,960       |       | $               | —     |            | $          | (94              | )          | $          | (24,852    | ) | $ | — |   | $ | (4,731 | ) |

 

***See accompanying notes to these consolidated financial statements.***

 

F-5

----

 

**POLAR MOLECULAR HOLDING CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

Fiscalyears ended December 31, 2004 and 2003 and the nine months ended December 31,2002

in thousands

 
| ** **                                                                   | ** ** | **For the Year Ended  December 31, 2004** | ** ** | **For the Year Ended  December 31, 2003** | ** ** | **For the Nine  Months Ended  December 31, 2002** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| Cash flows  from operating activities:                                       |       |                                      |       |                                      |       |                                              |       |
| Net loss                                                                     |       | $                                         | (3,195     | )                                         | $          | (3,319                                            | )          | $ | (1,592 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |                                      |       |                                      |       |                                              |       |
| Depreciation and amortization                                                |       | 18                                        |       | 68                                        |       | 59                                                |       |
| Allowance for advances to merger candidate                                   |       | —                                    |       | 45                                        |       | 270                                               |       |
| Common stock and warrants issued for  interest                               |       | 166                                       |       | 16                                        |       | 20                                                |       |
| Common stock and options issued for  services                                |       | 1,769                                     |       | 1,197                                     |       | 19                                                |       |
| Amortization of debt discount and issuance  cost                             |       | 47                                        |       | 18                                        |       | 8                                                 |       |
| Amortization of deferred stock based  compensation                           |       | 57                                        |       | —                                    |       | —                                            |       |
| Changes in operating assets and  liabilities:                                |       |                                      |       |                                      |       |                                              |       |
| Accounts receivable                                                          |       | (39                                       | )          | (11                                       | )          | 20                                                |       |
| Inventory                                                                    |       | —                                    |       | 9                                         |       | —                                            |       |
| Prepaid expenses                                                             |       | (2                                        | )          | (7                                        | )          | —                                            |       |
| Other assets                                                                 |       | 47                                        |       | (47                                       | )          | —                                            |       |
| Bank overdraft                                                               |       | 7                                         |       | —                                    |       | —                                            |       |
| Accounts payable                                                             |       | 12                                        |       | 881                                       |       | 15                                                |       |
| Deferred revenue                                                             |       | —                                    |       | (340                                      | )          | (129                                              | )          |
| Accrued liabilities                                                          |       | (8                                        | )          | 725                                       |       | 291                                               |       |
| Net cash used in operating activities                                        |       | (1,121                                    | )          | (765                                      | )          | (1,019                                            | )          |
|                                                                         |       |                                      |       |                                      |       |                                              |       |
| Cash flows  from investing activities:                                       |       |                                      |       |                                      |       |                                              |       |
| Patent additions                                                             |       | (45                                       | )          | —                                    |       | (30                                               | )          |
| Purchase of equipment                                                        |       | (3                                        | )          | (2                                        | )          | (16                                               | )          |
| Advance to officer                                                           |       | 100                                       |       | (100                                      | )          | —                                            |       |
| Net cash used in investing activities                                        |       | 52                                        |       | (102                                      | )          | (46                                               | )          |
|                                                                         |       |                                      |       |                                      |       |                                              |       |
| Cash flows  from financing activites:                                        |       |                                      |       |                                      |       |                                              |       |
| Cash received from note borrowings                                           |       | 294                                       |       | 401                                       |       | 1,145                                             |       |
| Cash payments on note borrowings                                             |       | (53                                       | )          | (3                                        | )          | —                                            |       |
| Cash paid on capital lease                                                   |       | (6                                        | )          | (12                                       | )          | (7                                                | )          |
| Cash received from sale of common stock                                      |       | 663                                       |       | 50                                        |       | —                                            |       |
| Cash received in merger                                                      |       | —                                    |       | 4                                         |       | —                                            |       |
| Proceeds from options and warrants  exercised                                |       | 169                                       |       | 356                                       |       | —                                            |       |
| Net cash provided by financing activities                                    |       | 1,067                                     |       | 796                                       |       | 1,138                                             |       |
| Increase  (decrease) in cash                                                 |       | (2                                        | )          | (71                                       | )          | 73                                                |       |
|                                                                         |       |                                      |       |                                      |       |                                              |       |
| Cash,  beginning of period                                                   |       | 2                                         |       | 73                                        |       | —                                            |       |
| Cash, end of  period                                                         |       | $                                         | —     |                                      | $          | 2                                                 |       | $ | 73 |   |

 

***See accompanying notes to these consolidated financial statements.***

 

F-6

----

 
| ** **                              | ** ** | ** **             | ** ** | ** **             | ** ** | **For the Nine**      | ** ** |
|-----------------------------------------|------------|------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **For the Year Ended** | ** ** | **For the Year Ended** | ** ** | **Months Ended**      | ** ** |
| ** **                              | ** ** | **December 31, 2004**  | ** ** | **December 31, 2003**  | ** ** | **December 31, 2002** | ** ** |
| Supplemental  cash flow information     |       |                   |       |                   |       |                  |       |
| Cash payments for:                      |       |                   |       |                   |       |                  |       |
| Interest                                |       | $                      | 10         |                   | $          | —                |       | $ | 18 |   |
| Income taxes                            |       | —                 |       | —                 |       | —                |       |
|                                    |       |                   |       |                   |       |                  |       |
| Non-cash financing activites:           |       |                   |       |                   |       |                  |       |
| Conversion of services to stock         |       | 1,450                  |       | —                 |       | —                |       |
| Conversion of notes payable to stock    |       | 120                    |       | 2,084                  |       | —                |       |
| Conversion of accrued interest to stock |       | 166                    |       | 409                    |       | —                |       |
| Conversion of accounts payable to stock |       | 318                    |       | 86                     |       | —                |       |
| Stock put to company for notes payable  |       | (243                   | )          | —                 |       | —                |       |
| Advances to merger candidate            |       | —                 |       | (607                   | )          | (270                  | )          |
| Assumption of liabilities with merger   |       | —                 |       | 1,207                  |       | —                |       |
|                                         |            |                        |            |                        |            |                       |            |  |  |  |

 

***See accompanying notes to these consolidated financial statements.***

 

F-7

----

 

**POLAR MOLECULAR HOLDING CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

For the years ended December 31, 2004 and 2003 and the nine monthsended December 31, 2002

 

**1.****                            ORGANIZATIONAND NATURE OF OPERATIONS**:

 

PolarMolecular Holding Corporation, a Delaware corporation, (the “Company”) wasformerly known as Murdock Communications Corporation.  A merger of Murdock CommunicationsCorporation, a shell corporation, and Polar Molecular Corporation (“PMC”) wascompleted on July 14, 2003.  The mergerhas been treated for accounting and financial reporting purposes as a reverseacquisition of Murdock by PMC, since the former PMC stockholders control theCompany after the merger.  Under this accountingtreatment, PMC is deemed for accounting purposes to be the acquiring entity andMurdock the acquired entity. Accordingly, the transaction has been treated as a recapitalization ofPMC, with no goodwill recorded.  Thefinancial statements of the Company after the merger now reflect PMC on ahistorical basis.   All references to theCompany mean Polar Molecular Holding Corporation and/or PMC.  As of the date of the merger, Murdock hadtotal assets of $12,000 and total liabilities of $1,178,000, which were assumedby Polar.  The liabilities assumedinclude: accounts payable $305,000, accrued expenses $342,000 and notes payable$531,000.

 

The Companymarkets its proprietary petroleum additives for use in crude and refinedpetroleum products.  85% of the Company’srevenues currently originate from two customers and 100% of the Company’sroyalties currently originate from one customer.  All revenues and royalties are currentlygenerated within the United States.

 

2.                             **SIGNIFICANTACCOUNTING POLICIES**:

 

*Basis ofConsolidation* – The accompanying financial statements include the statements of the Companyand its wholly-owned subsidiary Polar Molecular Corporation.  All intercompany transactions and accountsare eliminated in consolidation.

 

*Cash andCash Equivalents* – The Company considers allhighly liquid debt securities purchased with an original maturity of threemonths or less to be cash equivalents.

 

*AccountsReceivable* – Trade receivables consist of uncollateralizedcustomer obligations due under normal trade terms, generally requiring paymentwithin 30 days of the invoice date.  Pastdue receivables do not bear interest. Management reviews trade receivables periodically and reduces thecarrying amount by a valuation allowance that reflects management’s bestestimate of the amount that may not be collectable.

 

A provisionfor uncollectible accounts of $45,000 was recorded at December 31, 2004.  No provision for uncollectible accounts was recordedat December 31, 2003. The provision for uncollectible accounts was the only baddebt recognized by the company during the year ending December 31, 2004.  The Company did not recognize any bad debtsin the year ending December 31, 2003 or the nine months ended December 31,2002.

 

*Inventories*– Inventories consist primarily of packaging materials and finishedproducts.  Inventories are stated at thelower of cost (first-in, first-out method) or market.  There were no inventories on hand at December31, 2004 or December 31, 2003.

 

F-8

----

 

*IncomeTaxes* – The Company accounts for income taxesunder the liability method, whereby current and deferred tax assets andliabilities are determined based on tax rates and laws enacted as of thebalance sheet date.  Deferred tax expenserepresents the change in the deferred tax asset/liability balance.  Because of the Company’s continued netlosses, there are no liabilities accrued for income taxes and there is avaluation allowance for the full amount of the deferred tax asset based uponthe Company’s estimate that the net loss carryforwards will expire before theyare utilized.

 

*Propertyand Equipment* – Property and equipment is statedat cost.  Depreciation is computedprincipally using the double declining balance method over 5 to 7 years.

 

Expendituresfor maintenance and repairs which do not materially extend the useful lives ofproperty and equipment are expensed as incurred.  When property or equipment is sold orotherwise disposed of, the cost and related accumulated depreciation areremoved from the respective accounts with the resulting gain or loss reflectedin earnings as other income (expense). Property and equipment consists of the following:

 

| ** **                                      | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|------------------------|------------|
|                                            |       |                   |       |                   |       |
| Machinery  and equipment                        |       | $                      | 99,000     |                   | $          | 96,000 |   |
| Furniture  and fixtures                         |       | 14,000                 |       | 14,000                 |       |
| Property and equipment before depreciation      |       | 113,000                |       | 110,000                |       |
| Less accumulated depreciation and  amortization |       | (101,000               | )          | (85,000                | )          |
|                                            |       |                   |       |                   |       |
| Property and  equipment, net                    |       | $                      | 12,000     |                   | $          | 25,000 |   |

 

Depreciation expense for the years ended December 31, 2004 and 2003 andthe nine months ended December 31, 2002 was $17,000, $15,000, and $16,000, respectively.

 

*RevenueRecognition* – The Company recognizes revenue asits products are sold, delivery has occurred, collectibility is reasonablyassured, and the Company’s obligations related to the product are substantiallycomplete.**

 

*ProductSales* – Product sales include the amounts chargedfor products shipped to customers, plus the freight charges to ship the productfrom the manufacturer to the customer. Depreciation expense is not included with product costs.**

 

*Royalties*– Royalties are recognized when the customer reports actual sales or usage.  Royalties are associated with one royaltyagreement with Business Access Group, a subsidiary of Alticor.  Formerly, Alticor was known as AmwayCorporation.

 

*DeferredRevenue* – Deferred revenue consists of sales whichwere billed and cash received in advance. Deferred revenue is being recognized based on subsequent sales asreported by the customer.  As of December31, 2004 and 2003 all advanced billings had been earned.**

 

F-9

----

 

*Deferred Financing Costs*– Costs incurred in connection with obtaining debt or obtaining extensions arecapitalized as deferred financing costs and are amortized to interest expenseover the life of the related debt or extension. As of December 31, 2004 theCompany had no deferred financing costs. As of December 31, 2003 the company had $47,000 of deferred financingcosts.  The Company recognized $47,000and $3,000 of amortization expense related to deferred financing costs for theyears ended December 31, 2004 and 2003, respectively.

 

*Cost ofProduct Sales* – Cost of product sales includes thedirect cost of the product and the freight charges to ship the product from themanufacturer to the customer.

 

*General andAdministrative Expenses* – General andadministrative expenses include costs for legal, accounting and consultingservices, patent amortization, depreciation, payroll taxes and other generaland administrative costs.

 

*Use ofEstimates* – The preparation of the Company’sfinancial statements in conformity with generally accepted accountingprinciples requires the Company’s management to make estimates and assumptionsthat affect the amounts reported in these financial statements and accompanyingnotes.  Actual results could differ fromthose estimates.

 

Significantestimates include the life and realization of the Company’s capitalized costsassociated with its patents and determination of the fair value of stockoptions and warrants, valuation of deferred tax assets, and evaluation of legalproceedings (see the litigation section of Note 6, “Commitments andContingencies”, for a discussion related to our estimates for litigation).  Due to lack of capital to adequately marketits product, the limited market for the Company’s stock, and otheruncertainties it is reasonably possible these estimates could materially changein the next year.

 

*Stock-BasedCompensation* – The Company accounts forstock-based compensation for employees using the intrinsic value methodprescribed in Accounting Principles Board Opinion No. 25, Accounting for StockIssued to Employees, and related interpretations.  Accordingly, compensation cost for optionsgranted to employees is measured as the excess, if any, of the market price ofthe Company’s common stock at the measurement date (generally, the date ofgrant) over the amount an employee must pay to acquire the common stock.

 

SFAS No. 123, “Accountingfor Stock-Based Compensation,” requires that options, warrants, and similarinstruments which are granted to non-employees for goods or services berecorded at fair value on the grant date. Fair value is generally determined under an option pricing model usingthe criteria set forth in SFAS 123.  TheCompany did not adopt SFAS No. 123 to account for stock-based compensation foremployees but is subject to the pro forma disclosure requirements.

 

SFAS No. 123requires the Company to provide pro forma information regarding net income asif compensation costs for the Company’s option plans and other awards had beendetermined in accordance with the fair value based method prescribed in SFASNo. 123.  The Company estimates the fairvalue of each award at the grant date by using the Black-Scholes option-pricingmodel with the following weighted-average assumptions:

 

F-10

----

 

| ** **                | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** | **Nine Months  Ended  December 31,  2002** | ** ** |
|---------------------------|------------|------------------------------------|------------|------------------------------------|------------|--------------------------------------------|------------|
| Expected  volatility      |       | 470                                | %          | 253                                | %          | 100                                        | %          |
| Risk-free  interest rate  |       | 3.5                                | %          | 3.4                                | %          | 3.1 - 4.5                                  | %          |
| Expected  dividends       |       | —                             |       | —                             |       | —                                     |       |
| Expected  term (in years) |       | 5                                  |       | 5                                  |       | 2 - 4                                      |       |

 
| ** **                                              | ** ** | **Year Ended  December 31,  2004** | ** ** | **Year Ended  December 31,  2003** | ** ** | **Nine Months  Ended  December 31,  2002** | ** ** |
|---------------------------------------------------------|------------|------------------------------------|------------|------------------------------------|------------|--------------------------------------------|------------|
| Net loss, as  reported                                  |       | $                                  | 3,195,000  |                               | $          | 3,319,000                                  |       | $ | 1,592,000 |   |
| Pro forma  stock compensation expense                   |       | 10,000                             |       | 642,000                            |       | —                                     |       |
| Employee  stock compensation under the intrinsic method |       | —                             |       | (3,000                             | )          | —                                     |       |
|                                                    |       |                               |       |                               |       |                                       |       |
| Pro forma net loss                                      |       | $                                  | 3,205,000  |                               | $          | 3,958,000                                  |       | $ | 1,592,000 |   |
|                                                    |       |                               |       |                               |       |                                       |       |
| Net loss per  share, basic and diluted, as reported     |       | $                                  | (0.03      | )                                  | $          | (0.05                                      | )          | $ | (0.03 | ) |
| Pro forma  stock compensation expense                   |       | —                             |       | (0.01                              | )          | —                                     |       |
| Employee  stock compensation under the intrinsic method |       | —                             |       | —                             |       | —                                     |       |
|                                                    |       |                               |       |                               |       |                                       |       |
| Pro forma net loss per basic and diluted  share         |       | $                                  | (0.03      | )                                  | $          | (0.06                                      | )          | $ | (0.03 | ) |

 

*Loss PerShare* – Loss per share is presented in accordancewith the provisions of SFAS No. 128, Earnings per Share.  Basic EPS is calculated by dividing theincome or loss available to common stockholders by the weighted number ofcommon shares outstanding for the period. Diluted EPS reflects the potentialdilution that could occur if securities or other contracts to issue common stockwere exercised or converted into commonstock.  Common stock equivalents, whichare comprised of options, warrants and convertible notes to purchase or convertinto 32,614,759, 30,332,013, and 18,740,143 shares of common stock as ofDecember 31, 2004, December 31, 2003 and December 31, 2002, respectively,have been omitted from earnings per share because the inclusion would beanti-dilutive.  Basic and diluted EPSwere the same for the years ended December 31, 2004, and December 31, 2003 andthe nine months ended December 31, 2003.

 

*Impairment of Long-LivedAssets* – In theevent that facts and circumstances indicate that the carrying value oflong-lived assets may be impaired, an evaluation of recoverability would beperformed.  If an evaluation is required,the estimated future undiscounted cash flows associated with the asset would becompared to the asset’s carrying amount to determine if a write-down to marketvalue or discounted cash flow value is required.

 

F-11

----

 

*Fair Value of FinancialInstruments* – TheCompany estimates that the fair value of all of its financial instrumentsapproximates the carrying value.  TheCompany’s financial instruments consist of notes payable and accountsreceivable.

 

*Research and DevelopmentCosts* – Thesecosts are expensed as incurred.  Researchand development related expenses were approximately $0, $62,000 and $11,000 forthe years ended December 31, 2004 and 2003 and the nine months ended December31, 2002, respectively.

 

*Trademarks and Patents* – Trademarks and patents consist of legalcosts incurred to obtain the Company’s trademark and patents.  Patents are being amortized over 17 years.

 

*Advertising* – The Company expenses advertising costs asincurred.  As the Company does notadvertise, we incurred no advertising expense in the years ended December 31,2004 and 2003 and the nine months ending December 31, 2002.  Marketing related expenses were approximately$42,000, $68,000, and $27,000 for the years ended December 31, 2004 and 2003and the nine months ended December 31, 2002, respectively.

 

*Reclassification**–*Certain 2003 amounts have been reclassifiedto conform to 2004 presentation.  Thisreclassification has no impact on net loss.

 

*Recently IssuedPronouncements**–* There are no newaccounting pronouncements that have not been implemented that would have asignificant effect on the financial condition or results of operations asreported.

 

InDecember 2003, the Financial Accounting Standards Board (FASB) issued FASB InterpretationNumber 46-R “Consolidation of Variable Interest Entities.” FIN 46-R, whichmodifies certain provisions and effective dates of FIN 46, sets forth thecriteria to be used in determining whether an investment in a variable interestentity should be consolidated. These provisions are based on the generalpremise that if a company controls another entity through interests other thanvoting interests, that company should consolidate the controlled entity. TheCompany currently does not consolidate any entities under the provisions of FIN46-R.

 

InNovember 2004, the FASB issued SFAS 151, “Inventory Costs.” SFAS 151 amends theaccounting for abnormal amounts of idle facility expense, freight, handlingcosts, and wasted material (spoilage) under the guidance in ARB 43, Chapter 4, “InventoryPricing.” Paragraph 5 of ARB 43, Chapter 4, previously stated that “...under somecircumstances, items such as idle facility expense, excessive spoilage, doublefreight, and rehandling costs may be so abnormal as to require treatment ascurrent period charges....” This Statement requires that those items berecognized as current-period charges regardless of whether they meet thecriterion of “so abnormal.” In addition, this Statement requires thatallocation of fixed production overheads to the costs of conversion be based onthe normal capacity of the production facilities. This statement is effectivefor inventory costs incurred during fiscal years beginning after June 15, 2005.Management does not expect adoption of SFAS 151 to have a material impact onthe Company’s financial statements.

 

InDecember 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets,” anamendment to APB Opinion 29, “Accounting for Nonmonetary Transactions.” SFAS153 eliminates certain differences in the guidance in APB Opinion 29 ascompared to the guidance contained in standards issued by the

 

F-12

----

 

InternationalAccounting Standards Board. The amendment to APB Opinion 29 eliminates the fairvalue exception for nonmonetary exchanges of similar productive assets andreplaces it with a general exception for exchanges of nonmonetary assets thatdo not have commercial substance. Such an exchange has commercial substance ifthe future cash flows of the entity are expected to change significantly as aresult of the exchange. SFAS 153 is effective for nonmonetary asset exchangesoccurring in periods beginning after June 15, 2005. Earlier application ispermitted for nonmonetary asset exchanges occurring in periods beginning afterDecember 16, 2004. Management does not expect adoption of SFAS 153 to have amaterial impact on the Company’s financial statements.

 

In December 2004, the FASBissued SFAS 123(R), “Share-Based Payment.” SFAS 123(R) amends SFAS 123, “Accountingfor Stock-Based Compensation,” and APB Opinion 25, “Accounting for Stock Issuedto Employees.” SFAS 123(R) requires that the cost of share-based paymenttransactions (including those with employees and non-employees) be recognizedin the financial statements. SFAS 123(R) applies to all share-based paymenttransactions in which an entity acquires goods or services by issuing (oroffering to issue) its shares, share options, or other equity instruments(except for those held by an ESOP) or by incurring liabilities (1) in amountsbased (even in part) on the price of the entity’s shares or other equityinstruments, or (2) that require (or may require) settlement by theissuance of an entity’s shares or other equity instruments. This statement iseffective (1) for public companies qualifying as SEC small business issuers, asof the first fiscal year beginning after December 15, 2005, or (2) for allother public companies, as of the first fiscal year or interim period beginningafter June 15, 2005, or (3) for all nonpublic entities, as of the first fiscalyear beginning after December 15, 2005.  As disclosed in Note 1 of notes to theconsolidated financial statements, based on the current assumptions andcalculations used, had we recognized compensation expense based on the fairvalue of awards of equity instruments, net loss would have increased byapproximately $10,000, $639,000 and $0 for fiscal 2004, 2003 and 2002,respectively. We have not yet determined the method of adoption or the effect ofadopting SFAS No. 123R and have not determined whether the adoption will resultin future amounts similar to the current pro forma disclosures under SFAS No.123.  As there are no financial covenantsunder our debt agreements the implementation of SFAS No. 123R will not resultin any technical violations of these agreements.

 

InMay 2005, the FASB issued SFAS 154. This Statement replaces APB Opinion No. 20,“Accounting Changes”, and SFAS 3, “Reporting Accounting Changes in InterimFinancial Statements”, and changes the requirements for the accounting for andreporting of a change in accounting principle. This Statement applies to allvoluntary changes in accounting principle. It also applies to changes requiredby an accounting pronouncement in the unusual instance that the pronouncementdoes not include specific transition provisions. When a pronouncement includesspecific transition provisions, those provisions should be followed. TheCompany does not believe the adoption of this pronouncement will have a materialimpact on the financial statements.

 

3.                             **CONTINUED OPERATIONS**:

 

At December 31, 2004, theCompany had a working capital deficit of $4,683,000, shareholders’ deficit of $4,731,000, and has incurred significantlosses from operations since its inception. In addition, as of December 31,2004, the Company was in default on debt obligations totaling $1,759,000.  These factors indicate substantial doubtabout the Company’s ability to continue operations as a going concern, whichcontemplates the realization of assets and liquidation of liabilities in thenormal course of business.  The

 

F-13

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financial statements do notinclude any adjustments that might be necessary should the Company be unable tocontinue operations. The Company has taken the following steps to improve itsoperations:

 

As the first step in theCompany’s business strategy to sell DurAltÒ FC to major oil and additive companies forbulk treatment of gasoline worldwide, in September 2001 the Company enteredinto a Marketing Agreement with TFEA, a business unit of TotalFinaELF (TFE),pursuant to which the Company has agreed to create and market a combined fueladditive package consisting of its DurAltÒ FC and TFEA’s gasoline and diesel detergentadditives.  The agreement targetspotential sales for the combined additive package in Europe, North and SouthAmerica, Asia and Africa.  Although theCompany is optimistic regarding the prospects associated with this agreement, theCompany has not received a purchase order under this agreement.

 

In addition to marketing tomajor oil and additive companies, the Company is marketing its products tosecondary markets, defined as fleet and marine operators and industrial andutility plants.  In that regard, in August2003, the Company signed an exclusive worldwide distribution agreement withLockhart Chemical Company, which provides Lockhart with a limited license tomanufacture the product for sales under the contract and requires Lockhart topay a royalty to the Company of approximately $7.00 per gallon sold.  The Company has not yet received anyroyalties under this contract.

 

The Company continues tomarket its product through a 1995 license agreement with Alticor, the parent ofAmway Corporation, Access Business Group and Quixtar.  As the result of the recent escalation infuel prices, sales of the Company’s products have increased through thischannel. The Company is also negotiating with Alticor in an attempt to expandthe distribution of the product to other countries under a new agreement.

 

The Company continues tonegotiate with other potential partners and distributors to access additionalchannels of distribution and new markets.

 

4.                             **PATENTS****:**

 

In February 1993, PMCentered into bankruptcy.  When it emergedin December of 1994, PMC qualified for fresh start accounting.  The patents were assigned $325,000 of thereorganizational value.  Upon emergencefrom bankruptcy, PMC began to amortize the cost over the average remaining lifeof all its patents at the reorganization date, which was 9 years.  PMC capitalized an additional $167,000 oflegal costs incurred through December 31, 2004 relating to the existing patentsand new patents which combine DurAlt with various gasoline detergentchemistries.  These costs are also beingamortized over their estimated remaining useful life.

 

The Company recordedamortization $1,000, $58,000 and $48,000 for the years ended December 31, 2004and 2003 and the nine months ended December 31, 2002, respectively.  The Company evaluates the realizability ofits patents based on estimated cash flows to be generated from suchassets.  To the extent impairment isidentified, the Company will recognize a write-down of the related assets. Todate, no impairment has been identified.

 

F-14

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The patents are encumberedby liens in favor of certain note holders, consultants and employees andofficers. As of December 31, 2004, the total amount of indebtedness covered bysuch liens was approximately $1.8 million.

 

5.                             **RELATED PARTY TRANSACTIONS**:

 

As of December 31, 2004 and2003, the Company had accrued compensation, expenses and consulting due tocertain officers and directors in the amount of approximately $189,000 and$1,283,000, respectively, which were partially offset by advances to officersand directors of approximately $0 and $341,000, respectively.  The Company also had notes payable todirectors of approximately $48,000 and $137,000 as of December 31, 2004 and2003, respectively.  The total accruedcompensation is collateralized by a second priority lien on the Company’spatents.

 

During the year endedDecember 31, 2004, the Company exchanged stock for accrued wages owed tocertain directors and officers and accrued consulting fees owed to certaindirectors.  A total of 4,642,647 sharesof restricted stock were issued to officers and directors in exchange for$286,526 of accrued wages and $177,738 of accrued consulting fees.

 

On February 7, 2003, theCompany advanced $100,000 to an officer and director in the form of apromissory note.  The note matures inFebruary 2007 and requires annual interest payments at prime rate plus 1%.  The note, plus accrued interest of $7,000,was paid in May 2004.

 

6.                             **COMMITMENTS AND CONTINGENCIES**:

 

*Operating Leases* – The Company is leasing office space inDenver, Colorado.  The lease expires inJune 2007.

 

Future minimum leasepayments under operating leases are as follows:

 
| **Years ending  December 31,**      | ** ** | **Amount** | ** ** |
|-------------------------------------|------------|------------|------------|
| 2005                                |       | $          | 29,000     |   |
| 2006                                |       | 29,000     |       |
| 2007                                |       | 13,000     |       |
| 2008                                |       | —     |       |
| 2009                                |       | —     |       |
| Therafter                           |       | —     |       |
|                                |       |       |       |
| Total future minimum lease payments |       | $          | 71,000     |   |

 

Thetable, as presented above, includes only the non-cancelable portion of ourlease as we are only obligated for that term. Our lease also contains aprovision that requires the payment of common area maintenance charges and realestate taxes. Amounts in this table do not reflect these additional amounts asthey are variable expenses subject to fluctuations with no minimum payments.

 

F-15

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Total rent expense foroffice space and equipment was $65,000, $62,000 and $50,000 for the years endedDecember 31, 2004 and 2003 and the nine months ended December 31, 2002,respectively.

 

*Tax Contingencies*

 

From time-to-time, the Companyhas been party to various assessments of taxes, penalties and interest fromfederal, state and local agencies. Tax reserves are accrued based upon ourestimates of the ultimate settlement of the contingencies. Actual amountsrequired to settle those obligations may exceed our estimates.

 

*Litigation*

 

From time to time, lawsuitsare filed against the Company in the ordinary course of business. Such lawsuitstypically involve claims from customers, former or current associates, andothers.  A number of such claims mayexist at any given time. Other than the matters described below, the Company iscurrently not a party to any litigation that management believes could have amaterial adverse effect on the Company’s consolidated financial position orresults of operations.

 

In May 2003, the Companyreceived demands from two former Polar employees seeking back wages, unpaidconsulting fees, shares of the Company’s stock and contractual claims.  The Company responded to these demands in May2003 and has not received any further communication from the former employeesor their attorneys.  The Company believesthat the outcome of these disputes will not have a material adverse effect onthe Company’s financial condition.

 

In January 2004, a formerMurdock employee demanded an unspecified amount for wages claimed to be due andunpaid as a result of his employment with Murdock.  The Company has not determined the validityof the claim and believes that the any amounts owed are included in theliabilities assumed when Polar merged with Murdock.  The Company believes that the outcome of thisdispute will not have a material adverse effect on the Company’s financialcondition.

 

The Company was notified in2004 of arbitration claims filed by a former small distributor, PowerRightHoldings Limited (or “PowerRight”) against both the Company and againstEverbest Products, Inc. (or “Everbest”) pursuant to an Exclusive DistributionAgreement (or the “Agreement”) entered into by the three parties.  After entering into the Agreement, PowerRight’sfirst and only order was 12 drums of DurAlt purchased from Everbest, packagedin 2 ounce bottles and sold by PowerRight from a small retail outlet.PowerRight accepted the product delivered and confirmed its satisfactoryperformance. The product was manufactured by Lockhart Chemicals (or “Lockhart”),the Company’s contract manufacturer, who is responsible for producing productto the Company’s specifications and quality requirements. Subsequently,PowerRight attempted to negotiate with the Company for expanded exclusivedistribution rights including oil companies throughout Asia.  When the Company refused this request,PowerRight then claimed that the product it had received and subsequently solddid not meet the Company’s quality requirements. Lockhart asserts the productwas produced to the Company’s quality and specifications requirements, butoffered to replace the product and PowerRight refused. PowerRight unilaterallyterminated the Agreement, and is now claiming damages in excess of $41 million,primarily for future lost profits under the now terminated Agreement. TheCompany believes that all of the claims of PowerRight are without any factualbasis, lack any legal merit, and are in

 

F-16

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retaliation for the Company’srefusal to expand PowerRight marketing rights. Everbest has filed damage claimsagainst PowerRight for failure to perform under the Agreement. The Company hasalso filed a counter claim against PowerRight seeking damages for failing toperform under the Agreement, for costs of defending against PowerRight’sclaims, and for violations by PowerRight of Polar’s trademark and intellectualproperty rights.

 

In preparation forarbitration scheduled for August 2005, all parties presented depositions.However, PowerRight failed to respond to interrogatory questions and requestsfor documents made by Polar prior to the depositions. The counsel forPowerRight requested a continuance of the arbitration for 90 days to permit theparties to explore a settlement. Although the continuance was granted, PowerRight did not negotiate ingood faith.  Instead, on October 14,2005, the counsel for PowerRight submitted a settlement proposal to Polar andEverbest that was not satisfactory to either Polar or Everbest.

 

It is Polar’s belief, andour attorneys concur, that we have meritorious defenses to the claims ofPowerRight, and that Polar has damage claims against PowerRight that aremeritorious.  Although it is possiblethat PowerRight may prevail on one or more of its claims, it is our opinion,and our attorneys concur, that it is more likely than not that the arbitratorwill find in favor of Polar rather than PowerRight.  As part of the arbitration process, payment wasrequired to be made to the arbitrator by both parties by November 20,2005.  Since payment to the arbitratorwas not made by either party, the arbitration may be dismissed.  If the arbitration is dismissed PowerRightmay or may not pursue its claims in Federal or State court.  However, the contract between PowerRight,Everbest Products and Polar require that all disputes under the contract beresolved by binding arbitration.  TheCompany does not anticipate that the outcome of this matter will have amaterial impact on the Company’s financial position.

 

In June 2005, Polar wasserved with a complaint alleging that Polar owes $500,000 plus interest andattorney fees due under a promissory note dated June 30, 2003 allegedly signedby Murdock Communications Company and Polar Molecular Holding Corporationpayable to Republic Credit Corporation. The note was signed by Wayne Wright, who was appointed by MurdockCommunications to Polar’s Board of Directors. Wright had no authority to execute a promissory note for Polar MolecularHolding Corporation.  The note was notdisclosed to Polar and Polar received no benefits associated with the executionof the note.  Polar is vigorouslycontesting the claims of Republic in this lawsuit and has filed a third partycomplaint against Wright who signed the loan document without authority, andagainst Thomas Berthel, a controlling shareholder of Murdock Communications,and Berthel Fisher, the brokerage firm that was a paid consultant for MurdockCommunications in the merger with Polar. Polar believes, and our attorneys concur that the Company hasmeritorious defenses to the claims of Republic. Further, Polar and it’s attorneys believe that the Company hasmeritorious claims in the third party complaint which would require Wright,Berthel and Berthel Fisher to pay any amounts due Republic.  This matter is currently set to commence inDenver District Court in March 2006.  Atthis time, no discovery has occurred by either party.  The note is recognized as a liability by theCompany in the amount of $500,000 in fiscal 2003.

 

F-17

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7.                             **SIGNIFICANTCUSTOMERS**:

 

Sales tocustomers vary significantly from year to year. The following table sets forth the percentage of product sales each yearfor customers whose sales are 10% or greater of total product sales, in theyears ended December 31, 2004 and 2003 and the nine months ended December 31,2002:

 

| **Customer**                 | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                         |       |     |       |     |       |     |       |
| Egan’s Pit  Stop        |       | 0.9      | %          | 1.1      | %          | 22.7     | %          |
| Everbest  Products, Inc.     |       | 46.6     | %          | —   |       | 70.1     | %          |
| ValvTect  Petroleum Products |       | 38.4     | %          | 78.2     | %          | —   |       |
| All Others                   |       | 14.1     | %          | 20.7     | %          | 7.2      | %          |

 

F-18

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8.                             **DEBT**:

 

The Companyhas the following debt at December 31, 2004 and 2003:

 
| ** **                                                                                                                                                                                                                                                            | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------|------------|-----------|------------|
| Bridge loan, collateralized by patents, interest at 15% originally  payable on December 31, 2003. Final maturity had been extended to June 30,  2004. The Company is currently in default of the terms of the note.                                                   |       | $         | 549,000    |      | $          | 649,000 |   |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |   |   |
| Note payable, unsecured, interest at 7% per annum, payable July 14,  2004. The Company is currently in default of the terms of the note. The  Company is currently contesting the validity of this note (see Note 6).                                                 |       | 500,000   |       | 500,000   |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Note payable, unsecured, no interest, payable monthly beginning June  1, 2004. The Company is currently in default of the terms of this note.                                                                                                                         |       | 543,000   |       | —    |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Note payable, collateralized by royalty payments. Interest only  payments of $6,000 payable quarterly as of November 1, 2004. The noteholder  has the option to convert their interest into 1,500,000 shares of Polar  common stock at anytime during the assignment. |       | 150,000   |       | —    |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Notes payable, unsecured, interest at 12% per annum, which matured in  December 2001 and are currently in default, issued with 271,670 shares of  common stock resulting in an original discount of approximately $11,000 that  is fully amortized.                   |       | 30,000    |       | 30,000    |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Note payable, unsecured, interest at 12% per annum, which matured in  January 2004. During the year ended December 31, 2004, the notes were  converted to 1,041,425 shares of common stock, which included $4,000 of  accrued interest expense.                       |       | —    |       | 100,000   |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Notes payable upon completion of bridge financing with interest  payable at prime +1%.                                                                                                                                                                                |       | 40,000    |       | 40,000    |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Assorted notes payable in denominations of $5,000 to $25,000,  unsecured. The majority of the notes have terms of less than one month. The  notes bear interest at fixed dollar amounts. The Company is currently in  default of the terms of these notes.            |       | 137,000   |       | 67,000    |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Total                                                                                                                                                                                                                                                                 |       | 1,949,000 |       | 1,386,000 |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Less: Current portion                                                                                                                                                                                                                                                 |       | 1,799,000 |       | 1,386,000 |       |
|                                                                                                                                                                                                                                                                  |       |      |       |      |       |
| Debt, net of current portion                                                                                                                                                                                                                                          |       | $         | 150,000    |      | $          | — |   |

 

F-19

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As of December31, 2004, the Company is in default of various notes payable in the totalamount of $1,759,000.  As of December 1,2005, the Company had not cured these defaults nor has the Company obtainedwaivers related to these defaults.  Allof the notes payable are short term with the exception of the $150,000 notecollateralized with by royalty payments. The following debt payments are due by year:

 
| **Years ending  December 31,** | ** ** | **Amount** | ** ** |
|--------------------------------|------------|------------|------------|
| 2005                           |       | $          | 1,799,000  |   |
| 2006                           |       | —     |       |
| 2007                           |       | —     |       |
| 2008                           |       | —     |       |
| 2009                           |       | —     |       |
| Thereafter                     |       | 150,000    |       |
|                           |       |       |       |
| Total future debt payments     |       | $          | 1,949,000  |   |

 

9.                             **STOCKHOLDER’SEQUITY**:

 

*CommonStock* – In the year ended December 31, 2004, 8,972,001shares of common stock were sold. Proceeds from the sale of this stock were $663,000.  As part of this sale of stock, 6,472,000shares were sold as part of a unit with two warrants.  The warrants provide the holder the abilityto purchase a share of Polar common stock at $0.10 per share for a two yearperiod.  However, the warrant exerciseperiod may accelerate if certain share price thresholds are achieved.

 

In the yearsended December 31, 2004 and 2003 and the nine months ended December 31, 2002,there were 41,425, 702,640 and no shares of common stock, respectively, issuedfor the payment of $166,000, $16,000 and $0, of interest, respectively.

 

In the yearsended December 31, 2004 and 2003 and the nine months ended December 31, 2002, 6,385,889,7,643,828, and no shares, respectively, were issued for the exercise of warrantand stock options.  Proceeds for theexercises totaled $169,000, $1,406,000 and nothing, respectively.  Of these, 4,696,961 shares were issued on acashless basis resulting from the exchange of warrants.

 

In the yearsended December 31, 2004 and 2003 and the nine months ended December 31, 2002, 11,296,328,8,206,626 and 261,158 shares, respectively, were issued to officers, directors,consultants and vendors for services valued at $1,646,000, $1,040,000 and$6,000, respectively.  In the year endedDecember 31, 2003, 1,920,625 shares previously granted were forfeited back tothe Company.  The weighted average grantdate fair value of the common stock was $0.15 for the year ended December 31,2004 and $.13 for the year ended December 31, 2003.  Compensation expense was calculated based onthe quoted market price on the grant date or, prior to the merger, the fairvalue as determined by an independent valuation.

 

In the yearsended December 31, 2004 and 2003 and the nine months ended December 31, 2002, 1,202,500,11,422,631 and no shares of common stock were issued for conversion of $120,000,$2,579,000 and $0 of notes payable and accrued interest, respectively.  On December 6, 2004, the recipient of1,357,500 shares of Polar stock, that were granted in fiscal 2004, put thestock back to the

 

F-20

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company at$0.20 per share per the terms of their original settlement agreement.  The Company incorporated the value of thoseshares into a $243,000 note payable to this vendor.

 

In the yearended December 31, 2004, an investor acquired 1,428,572 shares of registeredstock by forfeiture from certain shareholders. In return for the acquisition of these registered shares, the investorpaid $100,000 to Affiliated Financial to pay off a portion of the Company’sdebt.  Simultaneously, the Company issued1,571,429 shares of unregistered stock in a “gypsy exchange” to theshareholders who forfeited their registered shares.

 

*PreferredStock* – The Company has authorized the issuance ofa total of 50,000,000 shares of undesignated preferred stock.  As of December 31, 2004, no shares have beendesignated or issued.

 

*TreasuryStock*– As of December 31, 2004, the Company owned250,000 shares of treasury stock.  Thetreasury stock is valued at cost and increase stockholder’s deficit byapproximately $94,000.  During the yearended December 31, 2004, there was no change in the amount of treasury stockowned by the Company.

 

*Anti-DilutionAgreement* – In 1996, the Company sold 130,578shares of its common stock for$1.91 a share in a private placement toa limited liability company (LLC). The Company granted the LLC a right of first refusal to participate in any future privateplacements of the Company’scommon stock prior to anypublic offering. In addition, if the Company agreed that if it sold shares below$1.91, it would be required to issueshares at a cost sufficient to preservethe ownership of the Company bythe LLC. In fiscal 1999, the Company issued 33,159 shares under this provision.Upon closing of the Merger in 2003, the Company issued 440,181 additionalshares under the anti-dilution provision, plus $15,000, to settle a claim by the LLC. This Agreement terminated in fiscal 2003 and there are no additionalshares to be issued under this Agreement.

 

F-21

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*StockWarrants* – The following is a table of warrantsissued during the nine months ended December 31, 2002; the years ended December31, 2003 and 2004:

 
| ** **                               | ** ** | **Number of  Warrants** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|------------------------------------------|------------|-------------------------|------------|----------------------------------------|------------|
| Outstanding,  March 31, 2002             |       | 10,269,258              |       | $                                      | 0.63       |   |
| Warrants  granted                        |       | 5,729,594               |       | 0.25                                   |       |
| Warrants  granted                        |       | 335,082                 |       | 0.60                                   |       |
| Warrants  granted                        |       | 496,198                 |       | 0.00                                   |       |
|                                     |       |                    |       |                                   |       |
| Outstanding,  December 31, 2002          |       | 16,830,132              |       | 0.48                                   |       |
| Warrants  granted                        |       | 1,870,629               |       | 0.21                                   |       |
| Warrants  granted                        |       | 1,762,800               |       | 0.02                                   |       |
| Warrants  granted                        |       | 32,152                  |       | 0.60                                   |       |
| Warrants  granted                        |       | 2,334,528               |       | 0.16                                   |       |
| Warrants  granted                        |       | 350,000                 |       | 0.10                                   |       |
| Warrants  assumed in merger              |       | 12,096,854              |       | 2.41                                   |       |
| Warrants  exercised                      |       | (7,511,653              | )          | 0.21                                   |       |
| Warrants  expired                        |       | (1,866,762              | )          | 0.70                                   |       |
|                                     |       |                    |       |                                   |       |
| Outstanding,  December 31, 2003          |       | 25,898,680              |       | 1.35                                   |       |
| Warrants  granted                        |       | 1,500,000               |       | 0.07                                   |       |
| Warrants  granted                        |       | 18,417,850              |       | 0.10                                   |       |
| Warrants  granted                        |       | 166,666                 |       | 0.13                                   |       |
| Warrants  granted                        |       | 2,564,211               |       | 0.15                                   |       |
| Warrants  granted                        |       | 166,666                 |       | 0.26                                   |       |
| Warrants  granted                        |       | 166,668                 |       | 0.39                                   |       |
| Warrants  exercised                      |       | (6,385,889              | )          | 0.10                                   |       |
| Warrants  forfeited in cashless exercise |       | (4,696,961              | )          | 0.10                                   |       |
| Warrants  expired                        |       | (10,583,132             | )          | 2.18                                   |       |
|                                     |       |                    |       |                                   |       |
| Outstanding,  December 31, 2004          |       | 27,214,759              |       | 0.49                                   |       |
|                                          |            |                         |            |                                        |            |  |

 

In the yearsended December 31, 2004, and December 31, 2003, and the nine months endedDecember 31, 2002, 1,000,000, 2,334,528 and no options and warrants weregranted at the market price of the Company’s stock, respectively.  20,148,727, 2,112,800, and 496,198 optionsand warrants were granted below the market price of the Company’s stock,respectively.  And the remaining 1,833,334,1,902,781, and 6,064,676 options and warrants were at or above the market priceof the Company’s stock, respectively.  AtDecember 31, 2004, 24,124,336 options and warrants were exercisable with aweighted average exercise price of $0.42.

 

### *Equity Incentive Plan* – In 2003, the Company adopted an Equity IncentivePlan, the terms of which provide for the grant of incentive stock options,non-qualified stock options, restricted stock awards,

 

F-22

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### *stock bonuses, stockunits, stock appreciation rights and other stock grants to certain keyemployees and consultants of the Company. The Plan is administered by a committee of the Board of Directors.  The Committee is granted the authority anddiscretion under the Plan to select participants that are either employees ofthe Company (including officers and/or directors) or consultants.  The Committee is also granted the discretionto determine the awards to be made pursuant to the plan, including the numberof awards, the time and manner in which such awards are to be granted, theconditions upon which such awards may be exercised or retained, and other termsand requirements of the various compensation incentives.  The Plan provides that 15,000,000 shares ofcommon stock may be issued under the Plan as various forms ofcompensation.  The Plan limits the amountof options or stock appreciation rights any one individual may receive to2,000,000.*

### * *

Upon the occurrence of aCorporate Reorganization or Change in Control, as defined in the Plan, theCommittee has the discretion to:

 

•                  Declare all options andstock appreciation rights fully exercisable;

•                  Declare that all restrictionswith respect to restricted stock and other awards have lapsed;

•                  Declare any or all stockunits immediately payable;

•                  Provide for the assumptionor substitution of any or all awards under the Plan; or

•                  Make any other provision forthe outstanding awards (including termination of the awards) as the Committeedeems appropriate.

 

The Board of Directors mayterminate the Plan at anytime and may amend or modify the plan from time totime; provided that no such amendment or modification may become effectivewithout the requisite stockholder approval, if required.  Unless otherwise terminated by the Board ofDirectors, the Plan will terminate at the close of business on the 10 –yearanniversary of the effective date of the Plan, and no awards will be granted pursuantto the Plan after such termination.

 

F-23

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The following is a table ofnon-qualified options issued under this the Equity Incentive Plan through theyear ended December 31, 2004:

 
| ** **                       | ** ** | **Number of  Options** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
|----------------------------------|------------|------------------------|------------|----------------------------------------|------------|
| Outstanding,  December 31, 2002  |       | —                 |       | $                                      | —     |   |
| Non-qualified  options granted   |       | 133,333                |       | 0.23                                   |       |
| Non-qualified  options granted   |       | 4,300,000              |       | 0.17                                   |       |
|                             |       |                   |       |                                   |       |
| Outstanding,  December 31, 2003  |       | 4,433,333              |       | 0.17                                   |       |
| Non-qualified  options granted   |       | 500,000                |       | 0.17                                   |       |
| Non-qualified  options forfeited |       | (50,000                | )          | 0.17                                   |       |
| Non-qualified  options granted   |       | 1,000,000              |       | 0.05                                   |       |
|                             |       |                   |       |                                   |       |
| Outstanding,  December 31, 2004  |       | 5,883,333              |       | 0.15                                   |       |
|                                  |            |                        |            |                                        |            |  |

 

At December31, 2004, 5,383,333 options granted under the Equity Incentive Plan wereexercisable and 500,000 were not exercisable as they were not vested.  All options granted were at the market priceof the Company’s common stock on the day of the grant.

 

In fiscal2003, in addition to the options granted, the Company issued stock bonuses tocertain officers, directors and employees totaling 2,850,000 shares, of which1,350,000 shares were later forfeited and either exchanged for options or afuture grant of stock.  The market priceof the Company’s common stock on the date of grant was $0.17.  Accordingly, the Company recordedcompensation expense in the amount of $485,000 in the year ended December 31,2003.

 

F-24

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The followingtable sets forth the shares available for future grants under the Plan as of December31, 2004:

 
| Total shares approved                                  |   | 15,000,000 |   |
|--------------------------------------------------------|--------|------------|--------|
| Non-qualified  options granted                         |   | (4,433,333 | )      |
| Stock bonus  awards                                    |   | (1,500,000 | )      |
|                                                   |   |       |   |
| Shares available, December 31, 2003                    |   | 9,066,667  |   |
|                                                   |   |       |   |
| Forfeiture  of previously granted stock                |   | 50,000     |   |
| Forfeiture  of previously granted non-qualified option |   | 50,000     |   |
| Options  award exchanged for stock                     |   | (500,000   | )      |
| Stock  surrendered for option award                    |   | 500,000    |   |
| Stock bonus  awards                                    |   | (1,350,000 | )      |
| Options  granted                                       |   | (1,000,000 | )      |
|                                                   |   |       |   |
| Shares available, December 31, 2004                    |   | 6,816,667  |   |

 

The following tablesummarizes information about all warrants and options outstanding as ofDecember 31, 2004:

 
|                          |       | **Outstanding Warrants/Options** |       | **Exercisable Warrants/Options**                                |       |
|-------------------------------|------------|----------------------------------|------------|-----------------------------------------------------------------|------------|
| **Range of  Exercise Prices** | ** ** | **Number of  Shares**            | ** ** | **Weighted  Average  Remaining  Contractual  Life  (in years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $                             | 0.001      |                             | to         |                                                            | $          | 0.10 |   | 13,982,586 |   | 4.6 |   | $ | 0.08 |   | 13,482,586 |   | $ | 0.08 |   |
| $                             | 0.11       |                             | to         |                                                            | $          | 0.30 |   | 10,287,084 |   | 3.8 |   | 0.16 |   | 7,196,662 |   | 0.17 |   |
| $                             | 0.31       |                             | to         |                                                            | $          | 0.60 |   | 4,989,205 |   | 3.3 |   | 0.34 |   | 4,989,205 |   | 0.34 |   |
| $                             | 0.61       |                             | to         |                                                            | $          | 1.00 |   | 744,936 |   | 0.8 |   | 0.88 |   | 744,936 |   | 0.88 |   |
| $                             | 1.01       |                             | to         |                                                            | $          | 1.50 |   | 1,184,804 |   | 0.3 |   | 1.32 |   | 1,184,804 |   | 1.32 |   |
| $                             | 1.51       |                             | to         |                                                            | $          | 2.00 |   | 38,409 |   | 0.1 |   | 1.53 |   | 38,409 |   | 1.53 |   |
| $                             | 2.01       |                             | to         |                                                            | $          | 3.00 |   | 1,371,068 |   | 0.1 |   | 2.19 |   | 1,371,067 |   | 2.19 |   |
| $                             | 3.01       |                             | to         |                                                            | $          | 3.50 |   | 500,000 |   | 4.5 |   | 3.50 |   | 500,000 |   | 3.50 |   |
|                          |       |                             |       |                                                            |       |   |   |   |   |   |   |   |   |   |   |
|                          |       |                             |       |                                                            |       | 33,098,092 |   | 3.7 |   | $ | 0.35 |   | 29,507,669 |   | $ | 0.38 |   |

 

F-25

----

 

**10.****                              ****Income Taxes:**

 

Deferred tax assets and (liabilities) were comprised of the following(in 000’s):

 
| ** **                                         | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|----------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| Deferred tax  assets:                              |       |                   |       |                   |       |
| Net operating loss carryforwards                   |       | $                      | 6,010      |                   | $          | 4,700 |   |
| Accrued expenses                                   |       | 312                    |       | 400                    |       |
| Merger related expenses                            |       | 588                    |       | —                 |       |
| Stock option                                       |       | 145                    |       | 20                     |       |
|                                               |       |                   |       |                   |       |
| Total deferred tax assets                          |       | 7,055                  |       | 5,120                  |       |
|                                               |       |                   |       |                   |       |
| Less valuation allowance                           |       | (7,052                 | )          | (5,120                 | )          |
|                                               |       |                   |       |                   |       |
| Net deferred tax assets after valuation  allowance |       | 3                      |       | —                 |       |
|                                               |       |                   |       |                   |       |
| Deferred tax  liabilities:                         |       |                   |       |                   |       |
| Patents                                            |       | (3                     | )          | —                 |       |
|                                               |       |                   |       |                   |       |
| Total deferred tax liabilities                     |       | (3                     | )          | —                 |       |
|                                               |       |                   |       |                   |       |
| Net deferred tax asset                             |       | $                      | —     |                   | $          | — |   |

 

F-26

----

 

The income tax expense (benefit) is comprised of the following (in 000’s):

 
| ** **                       | ** ** | **Fiscal year ended:** | ** ** | **Nine months  ended:** | ** ** |
|----------------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                       | ** ** | **December 31,  2004** | ** ** | **December 31,  2003**  | ** ** | **December 31,  2002** | ** ** |
| Current tax  expense (benefit):  |       |                   |       |                    |       |   |   |
| Federal                          |       | $                      | (883       | )                       | $          | (778 | ) | $ | (182 | ) |
| State                            |       | (80                    | )          | (93                     | )          | (20 | ) |
|                             |       |                   |       |                    |       |   |   |
| Total                            |       | (963                   | )          | (871                    | )          | (202 | ) |
|                             |       |                   |       |                    |       |   |   |
| Deferred tax  expense (benefit): |       |                   |       |                    |       |   |   |
| Federal                          |       | 883                    |       | 778                     |       | 182 |   |
| State                            |       | 80                     |       | 93                      |       | 20 |   |
|                             |       |                   |       |                    |       |   |   |
| Total                            |       | 963                    |       | 871                     |       | 202 |   |
|                             |       |                   |       |                    |       |   |   |
| Income tax  expense (benefit):   |       | $                      | —     |                    | $          | — |   | $ | — |   |

 

The following is a reconciliation of income taxes at the federalstatutory rate of 34% to the Company’s income tax expense (benefit) (in 000’s):

 
| ** **                                                           | ** ** | **Fiscal year ended:** | ** ** | **Nine months  ended:** | ** ** |
|----------------------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                                                           | ** ** | **December 31,  2004** | ** ** | **December 31,  2003**  | ** ** | **December 31,  2002** | ** ** |
|                                                                 |       |                   |       |                    |       |   |   |
| Income tax provision computed at statutory  federal income tax rates |       | $                      | (1,086     | )                       | $          | (1,128 | ) | $ | (541 | ) |
| Non-deductible costs                                                 |       | 23                     |       | 754                     |       | 10 |   |
| Increase (decrease) in valuation allowance                           |       | 1,932                  |       | 448                     |       | 550 |   |
| State income tax provision, net of federal  benefit                  |       | —                 |       | (101                    | )          | (48 | ) |
| Other, net                                                           |       | (869                   | )          | 27                      |       | 29 |   |
|                                                                 |       |                   |       |                    |       |   |   |
| Income tax expense (benefit)                                         |       | $                      | —     |                    | $          | — |   | $ | — |   |

 

F-27

----

 

All income from continuing operations and related income tax expensewas attributable to domestic operations. As of December 31, 2004, the Companyhad federal net operating loss carryforwards of approximately $16.2 millionexpiring at various dates through 2024. These operating loss carryforwards are likely to be subject to InternalRevenue Code Section 382 limitations due to previous changes in the ownershipstructure of the corporation.

 

In assessing the realizability of deferred tax assets, managementconsiders whether it is more likely than not that some portion or all of thedeferred tax assets will not be realized. The ultimate realization of deferredtax assets is dependent upon the generation of future taxable income during theperiods in which those temporary differences become deductible. Managementconsiders the scheduled reversal of deferred tax liabilities, projected futuretaxable income, and tax planning strategies in making this assessment. Duringfiscal 2004, the Company continued to recognize a valuation allowance for theentire amount of the deferred tax asset as it is more likely than not that someportion or all of the deferred tax asset will not be realized due to thecontinued generation of income tax losses by Polar.

 

**11.****                               SUBSEQUENTEVENTS**: (unaudited)

 

*NotesPayable*

 

In January 2005, the Company borrowed$150,000 and assigned $6,000 of their quarterly right, title and interest inand to the quarterly Amway royalty payments. The assignment calls for a quarterly payment of $6,000 for a period often years.  At anytime during theassignment, the assignee can convert their interest into 1,500,000 shares ofthe Company’s common stock.

 

During the period of January 2005 throughOctober 2005, the Company entered into numerous notes payable with current stockholders.  The Company borrowed approximately $155,000and paid approximately $85,000 during this period to current stockholders.  The Company also reissued a note to a stockholderfor an earlier note plus interest.  Allof these notes were short term notes and included interest payments plus theissuance of shares of stock.

 

In November 2005, the Company reached asettlement agreement with its former attorney, Holme, Roberts and Owen LLP (“HRO”).Per the settlement agreement, HRO will accept as full settlement of the Company’s$543,000 liability to HRO the payment of $108,600 in cash and the issuance toHRO of a warrant to purchase at a price of $0.10 per share a total of 2,710,00shares of Polar common stock.  Thewarrant shall be exercisable at any time from the date of its issuance throughthe five year anniversary of such issuance date.  The warrant can be exercised on a cashlessbasis.  The payment of $108,600 shall bethe date that Polar has earned net profits and raised capital equal to anamount sufficient to retire Polar’s current obligation to AffiliatedInvestments, LLC in full plus $300,000.

 

In November 2005, the Company issued a $19,000note payable bearing interest at 9% in exchange for past due invoices payableto their former independent registered public accounting firm, Hein &Associates.  The note requires monthlypayments of $1,500.

 

F-28

----

 

*Stock sales*

 

In June 2005, the Company issued 1,400,000unregistered shares for $60,000.

 

In July 2005, the Company issued 205,400unregistered shares for $10,270.

 

*Stock issued for services*

 

In March 2005, the Company issued 1,000,000 unregisteredshares to a financial advisor related to a contractual obligation of theCompany.

 

In September 2005, the board approved theissuance of 1,267,602 of unregistered shares of common stock for thesatisfaction of a vendor payable in the amount of $68,000.

 

In May 2005, the Company issued unregistered 75,000shares to a consultant related to a contractual obligation of the Company.

 

In October 2005, the Company issued unregistered533,332 shares to an investor relations firm in exchange for services valued at$26,667.

 

*Stock issued for note receivable*

 

In January 2005, the Company issued 1,000,000unregistered shares to a consultant in exchange for a $70,000 note.  The note bears interest at 3.85%.  The note plus interest is due on January 9,2006.

 

*Stock issued along with notes payable*

 

Between January and March 2005, the Companyissued 424,000 unregistered shares along with notes payable in the amount of$132,000.  All of the notes were of ashort term nature.

 

In May 2005, the Company issued 520,000 unregisteredshares related to a $10,000 loan that originated in November 2001.

 

In November 2005, the Company issued 100,000 unregisteredshares related to extensions of various notes payable.

 

*Additional restricted shares issued inexchange for unrestricted shares*

 

Throughout the year, the Company issued4,759,522 unregistered shares in exchange for unrestricted shares of current stockholders.  Two unregistered shares were issued for eachunrestricted share forfeited.

 

F-29

----

 

EXHIBITS:

 
| 2.1    |   | Agreement and Plan of  Merger, dated as of December 19, 2001, among Murdock Communications  Corporation, MCC Merger Sub Corporation and Polar Molecular Corporation. (8)                                |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                    |
| 2.2    |   | First Amendment to  Agreement and Plan of Merger, dated as of August 1, 2002, among Murdock  Communications Corporation, MCC Merger Sub Corporation and Polar Molecular  Corporation. (8)               |
|   |   |                                                                                                                                                                                                    |
| 2.3    |   | Second Amendment to  Agreement and Plan of Merger, dated as of November 26, 2002, among Murdock  Communications Corporation, MCC Merger Sub Corporation and Polar Molecular  Corporation. (8)           |
|   |   |                                                                                                                                                                                                    |
| 2.4    |   | Third Amendment to  Agreement and Plan of Merger effective as of January 30, 2003, among Murdock  Communications Corporation, MCC Merger Sub Corporation and Polar Molecular  Corporation. (8)          |
|   |   |                                                                                                                                                                                                    |
| 2.5    |   | Fourth Amendment to  Agreement and Plan of Merger dated as of May 12, 2003, among Murdock  Communications Corporation, MCC Merger Sub Corporation and Polar Molecular  Corporation. (8)                 |
|   |   |                                                                                                                                                                                                    |
| 3.1    |   | Certificate of  Incorporation of Polar Molecular Corporation. (8)                                                                                                                                       |
|   |   |                                                                                                                                                                                                    |
| 3.2    |   | Bylaws of Polar Molecular  Corporation. (8)                                                                                                                                                             |
|   |   |                                                                                                                                                                                                    |
| 3.3    |   | Certificate of  Incorporation of Polar Molecular Holding Corporation. (8)                                                                                                                               |
|   |   |                                                                                                                                                                                                    |
| 3.4    |   | Bylaws of Polar Molecular  Holding Corporation. (8)                                                                                                                                                     |
|   |   |                                                                                                                                                                                                    |
| 4.1    |   | Form of Common Stock  Purchase Warrant Agreement between Murdock Communications Corporation and  Firstar Trust Company. (1)                                                                             |
|   |   |                                                                                                                                                                                                    |
| 4.2    |   | Form of Redeemable  Warrant. (1)                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                    |
| 4.3    |   | First Amendment to Common  Stock Purchase Warrant Agreement, dated as of September 30, 1999, between  Murdock Communications Corporation and Firstar Trust Company. (4)                                 |
|   |   |                                                                                                                                                                                                    |
| 4.4    |   | Second Amendment to Common  Stock Purchase Warrant Agreement, dated as of April 14, 2000, between Murdock  Communications Corporation and Firstar Bank, N.A. (8)                                        |
|   |   |                                                                                                                                                                                                    |
| 4.5    |   | Third Amendment to Common  Stock Purchase Warrant Agreement, dated as of October 9, 2000, between  Murdock Communications Corporation and Firstar Bank, N.A. (8)                                        |
|   |   |                                                                                                                                                                                                    |
| 4.6    |   | Fourth Amendment to Common  Stock Purchase Warrant Agreement, dated as of October 2001, between Murdock  Communications Corporation and Firstar Bank, N.A. (8)                                          |
|   |   |                                                                                                                                                                                                    |
| 4.7    |   | Fifth Amendment to Common  Stock Purchase Warrant Agreement and Joinder Agreement, dated as of October  18, 2002, between Murdock Communications Corporation and Computershare Trust  Company, Inc. (8) |
|   |   |                                                                                                                                                                                                    |
| 10.1   |   | Letter Agreement dated  November 4, 2002 between Murdock Communications Corporation and Berthel  Fisher & Company Financial Services, Inc. (8)                                                      |
|   |   |                                                                                                                                                                                                    |
| 10.2   |   | Form of Convertible Note  of Murdock Communications Corporation due May 29, 2003 (5)                                                                                                                    |

 

F-30

----

 
| 10.3   |   | Compromise, Settlement and  Mutual Release Agreement, dated as of June 20, 2002, among Republic Credit  Corporation I, Murdock Communications Corporation and Silent Woman, L.L.C.  (6)                                                                                                                                                                                                                                         |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.4   |   | Amendment to Compromise,  Settlement and Mutual Release Agreement, dated as of September 1, 2002, among  Buckeye Retirement Co., L.L.C., Ltd., Murdock Communications Corporation and  Guy O. Murdock. (8)                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.5   |   | Second Amendment to  Compromise, Settlement and Mutual Release Agreement, dated as of June 27,  2003, among Buckeye Retirement Co., L.L.C., Murdock Communications  Corporation and Guy O. Murdock (10)                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.6   |   | Compensation Agreement,  dated August 1, 2002, between Murdock Communications Corporation and Pirinate  Consulting Group, L.L.C. (7)                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.7   |   | First Amendment to  Compensation Agreement between Murdock and Pirinate Consulting Group, L.L.C.,  dated January 3, 2003. (8)                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.8   |   | Second Amendment to  Compensation Agreement between Murdock Communications Corporation and  Pirinate Consulting Group, L.L.C., dated June 24, 2003. (9)                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.9   |   | Compromise, Settlement and  Mutual Release Agreement, dated as of August 1, 2002, between Murdock  Communications Corporation and Buckeye Retirement Co., L.L.C. (7)                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.10  |   | Amendment, Modification  and Extension Agreement, dated as of November 16, 2002, among Republic Credit  Corporation I, Murdock Communications Corporation and Silent Woman, L.L.C.  (8)                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.11  |   | Second Amendment,  Modification and Extension Agreement, dated January 28, 2003, among Republic  Credit Corporation I, Murdock Communications Corporation and Silent Woman,  L.L.C. (8)                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.12  |   | Third Amendment to  Compromise Settlement and Mutual Release Agreement, dated as of May 12, 2003,  among Republic Credit Corporation I, Murdock Communications Corporation and  Silent Woman, L.L.C. (8)                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.13  |   | Fourth Amendment to  Compromise, Settlement and Mutual Release Agreement, dated as of June 30,  2003, among Republic Credit Corporation I, Murdock Communications Corporation  and Silent Woman, L.L.C. (10)                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.14  |   | Letter Agreement between  Murdock and Dave Kirkpatrick for conversion of service fees to equity, dated  January 27, 2003. (8)                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.15  |   | Letter Agreement between  Murdock and Wayne Wright for conversion of service fees to equity, dated  January 27, 2003. (8)                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.16  |   | Letter Agreement between  Murdock and Berthel Fisher & Company for settlement of outstanding fees,  dated January 9, 2003. (8)                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.17  |   | Letter Agreement between  Murdock and MCC Investment Company regarding outstanding debt, dated January  3, 2003. (8)                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.18  |   | Mutual Settlement and  Release Agreement, dated November 7, 2002, among John S. Rance, Steven E.  Rance, Robert M. Upshaw, Fernando Ficachi and Berthel Fisher & Company,  Thomas J. Berthel, Ronald O. Brendengen, Eugene I. Davis, Thomas E. Chaplin,  Guy O. Murdock, Steven J. Ehlert and Murdock Communications Corporation and  any and all of its current and former directors, officers, agents and  employees. (8) |

 

F-31

----

 
| 10.19  |   | First Amendment to Mutual  Settlement and Release Agreement, dated as of June 27, 2003, among John S.  Rance, Steven E. Rance, Robert M. Upshaw, Fernando Ficachi and Berthel Fisher  & Company, Thomas J. Berthel, Ronald O. Brendengen, Eugene I. Davis,  Thomas E. Chaplin, Guy O. Murdock, Steven J. Ehlert and Murdock  Communications Corporation and any and all of its current and former  directors, officers, agents and employees. (10)                                                                                                                                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.20  |   | Investor Rights Agreement  between Polar and Affiliated Investments, L.L.C. dated as of October 25,  2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.21  |   | Purchase Agreement between  Polar and Affiliated Investments, L.L.C. dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.22  |   | Promissory Note of Polar  in favor of Affiliated Investments, L.L.C. in the principal amount of  $600,000 dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.23  |   | Security Agreement between  Polar and Affiliated Investments, L.L.C. dated as of October 25, 2001. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.24  |   | Loan Extension and Release  and Waiver Agreement between Polar and Affiliated Investments L.L.C. dated as  of February 28, 2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.25  |   | First Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of May 31, 2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.26  |   | Second Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of October 1, 2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.27  |   | Third Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of January 31, 2003. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.28  |   | Fourth Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of June 20, 2003. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.29  |   | Fifth Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of December 19, 2003. (13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.30  |   | Agreement Regarding  Dispersal of Escrow Funds and Further Security Interest dated as of June 20,  2003 between Polar and Affiliated Investments, L.L.C. (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.31  |   | License Agreement between  Polar and Amway Corporation dated as of May 23, 1995. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.32  |   | Placement Agreement  between Polar and Berthel Fisher & Company Financial Services, Inc. dated  as of December 21, 2001, as amended by Amendment A dated as of December 21,  2001, by Amendment B dated as of February 28, 2002, by Amendment C dated as  of March 27, 2002, by Amendment D dated as of April 30, 2002, by Amendment E  dated as of May 15, 2002, by Amendment F dated as of June 13, 2002, by  Amendment G dated as of July 12, 2002, by Amendment H dated as of August 30,  2002, by Amendment I dated as of September 30, 2002, by Amendment J dated as  of September 30, 2002 and by Amendment K dated as of January 20, 2003. (8) |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.33  |   | Consulting Agreement  between Polar and Gilbert Chapelet dated as of July 1, 2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.34  |   | Consulting Agreement  between Polar and Jim Clarke dated as of June 21, 2002. (8)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.35  |   | Security Agreement among  Polar and Holme Roberts & Owen LLP, Mark L. Nelson, Chandra Prakash, Alan  L. Smith, Melissa Polich, Gerard Gorman, Deborah Pilkington, Delores  Coy-DeJongh, and Reising Ethington Barnes Kisselle Learman & McCullogh,  P.C. dated December 18, 2001, as amended. (8)                                                                                                                                                                                                                                                                                                                                                  |

 

F-32

----

 
| 10.36  |   | Second Amendment to  Security Agreement by and between Polar and Holme Roberts & Owen LLP,  Mark L. Nelson, Chandra Prakash, Alan L. Smith, Deborah Pilkington, Delores  Coy-DeJongh, and Reising Ethington Barnes Kisselle Learman & McCullogh,  P.C. dated January 31, 2003. (13)           |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.37  |   | Amended and Restated  Security Agreement dated as of February 4, 2003, by and among Polar and each  of the Lenders set forth on Schedule I thereto. (8)                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.38  |   | Reaffirmation of  Assignments of United States and Foreign Patents between Polar and Otis L.  Nelson, Jr., Mark L. Nelson, and A. Richard Nelson dated as of October 19,  2001. (8)                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.39  |   | Promissory Note of Mark L.  Nelson in favor of Polar in the principal amount of $100,000 dated as of February  7, 2003. (8)                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.40  |   | Exclusive Aftermarket  Distributorship of PMC Products in the Republic of South Korea dated as of  October 11, 2002 between Polar and Pacific Crest, L.L.C. (8)                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.41  |   | Amended and Restated  Master Distribution Agreement by and between Polar Molecular Corporation and  Lockhart Chemical Company dated as of August 14, 2003. (11)                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.42  |   | Manufacturing Agreement by  and between Polar Molecular Corporation and Lockhart Chemical Company dated  as of October 23, 2002. (13)                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.43  |   | Exclusive Distribution  Agreement by and among Polar Molecular Corporation, PowerRight Holdings  Limited and Everbest Products dated as of September 2003. (12)                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.44  |   | TotalFinaElf Additives  Joint Marketing Agreement. (13)                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.45  |   | Form of Polar Molecular  Holding Corporation Equity Incentive Plan. (8)                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.46  |   | Registration Rights  Agreement, dated as of June 30, 2003, among Polar Molecular Holding  Corporation, Murdock Communications Corporation, Daniel C. Cadle, Republic  Credit Corporation, John S. Rance, Steven E. Rance, Robert M. Upshaw,  Fernando Ficachi and Buckeye Retirement Co., L.L.C. (10) |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.47  |   | Letter Agreement with  Transition Partners Limited dated October 24, 2003. (13)                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.48  |   | Letter Agreement with  Bolder Venture Partners dated February 9, 2004. (13)                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.49  |   | Voting Agreement dated  June 3, 2003 between Polar and the stockholders named on Schedule I thereto.  (13)                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.50  |   | Settlement Agreement and  Mutual Release dated as of July 14, 2003 by and among Polar Molecular  Corporation, Polar Molecular Holding Corporation, and GRQ, L.L.C. (13)                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.51  |   | Form of Warrant  Certificate for A Common Stock Purchase Warrants. (14)                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.52  |   | Form of Warrant  Certificate for B Common Stock Purchase Warrants. (14)                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.53  |   | Debt Restructuring  Agreement with Bolder Venture Partners and Transition Partners Limited dated  April 1, 2004. (15)                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.54  |   | Settlement Agreement  between Polar Molecular Holding Corporation, and Holmes, Robert and Owens  dated May 7, 2004. (15)                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.55  |   | Private placement  engagement letter and indemnification between Polar Molecular Holding  Corporation and Dominick & Dominick dated June 30, 2004. (15)                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                  |
| 10.56  |   | Sixth Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of August 23, 2004. (15)                                                                                                                                            |

 

F-33

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| 10.57  |   | Seventh Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of October 13, 2004. (15)                   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                            |
| 10.58  |   | Eighth Amendment to the  Loan Extension and Release and Waiver Agreement between Polar and Affiliated  Investments L.L.C. dated as of December 22, 2004. (15)                   |
|   |   |                                                                                                                                                                            |
| 10.59  |   | Private placement  engagement letter and indemnification between Polar Molecular Holding  Corporation and Dominick & Dominick dated February 1, 2005. (15)                  |
|   |   |                                                                                                                                                                            |
| 10.60  |   | Letter Agreement between  Lockhart Holdings, Inc and Polar Molecular Corporation for conversion of  service fees to equity, dated September 28, 2005. (15)                      |
|   |   |                                                                                                                                                                            |
| 10.61  |   | Settlement Agreement  between Polar Molecular Holding Corporation, and Holmes, Robert and Owens  dated November 30, 2005. (15)                                                  |
|   |   |                                                                                                                                                                            |
| 10.62  |   | Code of Conduct for Polar  Molecular Holding Corporation’s Chief Executive Officer and Principal  Accounting Officer dated December 2, 2005. (15)                          |
|   |   |                                                                                                                                                                            |
| 21     |   | List of Subsidiaries. (15)                                                                                                                                                      |
|   |   |                                                                                                                                                                            |
| 31.1   |   | Certification of Chief  Executive Officer of Periodic Report Pursuant to Rule 13a – 14(a) and Rule  15d – 14(a) (Section 302 of the Sarbanes-Oxley Act of 2002). (15) |
|   |   |                                                                                                                                                                            |
| 32.1   |   | Certificate of Principal  Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the  Sarbanes-Oxley Act of 2002). (15)                                              |

 

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| (1)    |   | Filed as an exhibit to the  Company’s Registration Statement on Form SB-2 (File No. 333-05422C) and  incorporated herein by reference.              |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                     |
| (2)    |   | Filed as exhibit to the  Company’s registration statement on Form SB-2 (File No. 333-78399) and  incorporated herein by reference.                  |
|   |   |                                                                                                                                                     |
| (3)    |   | Filed as an exhibit to the  Company’s Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999  and incorporated herein by reference.    |
|   |   |                                                                                                                                                     |
| (4)    |   | Filed as an exhibit to  Murdock’s Annual Report on Form 10-KSB for the year ended December 31, 1999  and incorporated herein by reference.          |
|   |   |                                                                                                                                                     |
| (5)    |   | Filed as an exhibit to the  Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000  and incorporated herein by reference.      |
|   |   |                                                                                                                                                     |
| (6)    |   | Filed as an exhibit to the  Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002  and incorporated herein by reference.      |
|   |   |                                                                                                                                                     |
| (7)    |   | Filed as an exhibit to the  Company’s Quarterly Report on Form 10-Q for the quarter ended September 30,  2002 and incorporated herein by reference. |
|   |   |                                                                                                                                                     |
| (8)    |   | Filed as an exhibit to the  Company’s Registration Statement on Form S-4 (File No. 333-103167) and  incorporated herein by reference.               |
|   |   |                                                                                                                                                     |
| (9)    |   | Filed as an exhibit to the  Company’s Registration Statement on Form S-8 (File No. 333-106635) and  incorporated herein by reference.               |
|   |   |                                                                                                                                                     |
| (10)   |   | Filed as an exhibit to the  Company’s Registration Statement on Form S-1 (File No. 333- 106987) and  incorporated herein by reference.              |
|   |   |                                                                                                                                                     |
| (11)   |   | Filed as an exhibit to the  Company’s Periodic Report on Form 8-K filed with the SEC on August 22, 2003  and incorporated herein by reference.      |
|   |   |                                                                                                                                                     |
| (12)   |   | Filed as an exhibit to the  Company’s Periodic Report on Form 8-K filed with the SEC on October 8, 2003  and incorporated herein by reference.      |

 

F-34

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| (13)   |   | Filed as an exhibit to the  Company’s Annual Report on Form 10-K for the year ended December 31, 2003 and  incorporated herein by reference.    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                 |
| (14)   |   | Filed as an exhibit to the  Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004  and incorporated herein by reference. |
|   |   |                                                                                                                                                 |
| (15)   |   | Filed herewith                                                                                                                                       |

 

F-35

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