UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-K





x
            ANNUAL REPORT PURSUANT TO
      SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
              OF
  1934For
      the fiscal year ended December 31,
2008




 ̈
            TRANSITION REPORT PURSUANT TO
      SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
              ACT OF
    1934For
      the transition period from
                  
      to




Commission
file number 001-32188




ORAGENICS,
INC.


(Exact
name of registrant as specified in its charter)





Florida
              
              59-3410522(State
      or Other Jurisdiction of
                Incorporation
      or Organization)
              
              (IRS
      Employer
                Identification
      No.)




13700
      Progress Blvd., Alachua, Florida
            32615(Address
      of Principal Executive Offices)
            (Zip
      Code)




(386)
418-4018


(Issuer’s
Telephone Number, Including Area Code)





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





Title
      of each class
                
                Name
      of each exchange on which registeredCommon
      stock, par value $.001 per share
                
                NYSE
      Euronext Paris Exchange





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


None





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


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


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


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈


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


Large
accelerated filer   ̈    Accelerated
filer   ̈    Non-accelerated
filer   ̈
(Do not check if a smaller reporting company) Smaller reporting
company  x


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


The
aggregate market value of the voting stock held by non-affiliates of the
registrant, as of June 30, 2008 was approximately $12,043,419 based upon a last
sales price of $0.55 as reported by the NYSE Alternext US (formerly known as the
American Stock Exchange).


As of
March 10, 2009 there were 38,316,585 shares of the registrant's Common Stock
outstanding.








Documents
Incorporated by Reference: Portions of the Proxy Statement for the registrant’s
2009 Annual Meeting of Shareholders are incorporated by reference into Part III
of this Form 10-K.




TABLE
OF CONTENTS




FORWARD-LOOKING
      STATEMENTS AND CERTAIN CONSIDERATIONS
                  
                  1PART
      IITEM 1.
                  
                  BUSINESS
                  
                  3ITEM 1A.
                  
                  RISK
      FACTORS
                  
                  26ITEM 1B.
                  
                  UNRESOLVED
      STAFF COMMENTS
                  
                  37ITEM 2.
                  
                  PROPERTIES
                  
                  37ITEM 3.
                  
                  LEGAL
      PROCEEDINGS
                  
                  38ITEM 4.
                  
                  SUBMISSION
      OF MATTER TO A VOTE OF SECURITY HOLDERS
                  
                  38PART
      II
                  
                  38ITEM 5.
                  
                  MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER'S
      PURCHASES OF EQUITY SECURITIES
                  
                  38ITEM 6.
                  
                  SELECTED
      FINANCIAL DATA
                  
                  39ITEM 7.
                  
                  MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
                  
                  39ITEM 7A.
                  
                  QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                  
                  49ITEM 8.
                  
                  FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
                  
                  49ITEM 9.
                  
                  CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
                  
                  49ITEM 9A.
                  
                  CONTROLS
      AND PROCEDURES
                  
                  49ITEM 9B.
                  
                  OTHER
      INFORMATION
                  
                  50PART
      III
                  
                  50ITEM 10.
                  
                  DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
                  
                  50ITEM 11.
                  
                  EXECUTIVE
      COMPENSATION
                  
                  51ITEM 12.
                  
                  SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      SHAREHOLDER MATTERS
                  
                  51ITEM 13.
                  
                  CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE
                  
                  51ITEM 14.
                  
                  PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                  
                  52PART
      IV
                  
                  52ITEM 15.
                  
                  EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES
                  
                  52SIGNATURES
                  
                  52REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                  
                  F-2BALANCE
      SHEETS
                  
                  F-3STATEMENTS
      OF OPERATIONS
                  
                  F-4STATEMENTS
      OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
                  
                  F-5STATEMENTS
      OF CASH FLOWS
                  
                  F-6NOTES
      TO FINANCIAL STATEMENTS
                  
                  F-7–F-19





FORWARD
LOOKING STATEMENTS AND CERTAIN CONSIDERATIONS


This
report, along with other documents that are publicly disseminated by us,
contains or might contain forward-looking statements within the meaning of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements
included in this report and in any subsequent filings made by us with the SEC
other than statements of historical fact, that address activities, events or
developments that we or our management expect, believe or anticipate will or may
occur in the future are forward-looking statements. These statements represent
our reasonable judgment on the future based on various factors and using
numerous assumptions and are subject to known and unknown risks, uncertainties
and other factors that could cause our actual results and financial position to
differ materially. We claim the protection of the safe harbor for
forward-looking statements provided in the Private Securities Litigation Reform
Act of 1995, Section 27A of the Securities Act and Section 21E of the
Exchange Act. Examples of forward-looking statements include:
(i) projections of revenue, earnings, capital structure and other financial
items, (ii) statements of our plans and objectives, (iii) statements
of expected future economic performance, and (iv) assumptions underlying
statements regarding us or our business. Forward-looking statements can be
identified by, among other things, the use of forward-looking language, such as
“believes,” “expects,” “estimates,” “may,” “will,” “should,” “could,” “seeks,”
“plans,” “intends,” “anticipates” or “scheduled to” or the negatives of those
terms, or other variations of those terms or comparable language, or by
discussions of strategy or other intentions.




Forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors that could cause the actual results to differ materially from those
contemplated by the statements. The forward-looking information is based on
various factors and was derived using numerous assumptions. Important factors
that could cause our actual results to be materially different from the
forward-looking statements include the following risks and other factors
discussed under the Item -1A “Risk Factors” in this Annual Report on Form 10-K.
These factors include:




•
            Our
      failure to raise capital,




•
            We
      have incurred significant operating losses since our inception and cannot
      assure you that we will generate revenue or
  profit,




•
            As
      a result of our lack of financial liquidity and negative shareholders’
      equity, our auditors have indicated there is uncertainty of our ability to
      continue as a “going concern,”




•
            If
      we fail to raise significant additional capital we may need to
      significantly curtail operations, marketing and development and it could
      cause us to be forced to cease operations or seek federal bankruptcy
      protection,




•
              If
      we raise capital it may be on terms that result in substantial dilution to
      our existing shareholders,




•
              We
      may be unable to achieve commercial viability and acceptance of our
      consumer products and our proposed
products,




•
            Orders
      we receive for our consumer products may be subject to terms and
      conditions that could result in their cancellation or the return of
      products to us,




•
            We
      may become dependent on a few large retail customers for sales of our
      consumer products,




•
              If
      we are unable to raise sufficient capital our license for our SMaRTTM
      Replacement Therapy and M 1140 with the University of Florida Research
      Foundation could be
terminated,




•
              We
      are subject to extensive and costly regulation by the FDA, applicable
      international regulators and other regulatory bodies, which must approve
      our product candidates in development and could restrict or delay the
      sales and marketing of such products in
  development,




•
              We
      may be unable to successfully operate
  internationally,




•
                We
      may be unable to improve upon, protect and/or enforce our intellectual
      property,


1




•
              We
      may be unable to enter into strategic collaborations or partnerships for
      the development, commercialization, manufacturing and distribution of our
      proposed product candidates or maintain strategic collaborations or
      partnerships,




•
            We
      may be adversely impacted by the current worldwide credit crisis and its
      impact on consumers and equity markets as well as our ability to obtain
      required additional funding to conduct our
  business,




•
              We
      are subject to significant
competition,




•
              As
      a public company, we must implement additional and expensive finance and
      accounting systems, procedures and controls as we grow our business and
      organization to satisfy new reporting requirements, which will increase
      our costs and require additional management
  resources.




We
caution investors that actual results or business conditions may differ
materially from those projected or suggested in forward-looking statements as a
result of various factors including, but not limited to, those described above
and in the Risk Factors section of this report. We cannot assure you that we
have identified all the factors that create uncertainties. Moreover, new risks
emerge from time to time and it is not possible for our management to predict
all risks, nor can we assess the impact of all risks on our business or the
extent to which any risk, or combination of risks, may cause actual results to
differ from those contained in any forward-looking statements. Readers should
not place undue reliance on forward-looking statements. Except as required by
applicable law, we undertake no obligation to publicly release the result of any
revision of these forward-looking statements to reflect events or circumstances
after the date they are made or to reflect the occurrence of unanticipated
events.


2





PART
I


ITEM
1. BUSINESS.





This
description contains certain forward-looking statements that involve risks and
uncertainties.  Our actual results could differ materially from the
results discussed in the forward-looking statements as a result of certain of
the risks set forth herein.  We assume no obligation to update any
forward-looking statements contained herein.





Overview





We are a
biopharmaceutical company focused on the discovery, development and
commercialization of a variety of products and technologies.  We are
located in Alachua, Florida, near the University of Florida where we have
experienced scientific and management teams in place in which to lead the
Company into what we anticipate will bean exciting new phase of
operations.  We have historically operated largely within the confines
of the United States.  Over the past several months we have positioned
ourselves for development of a global foundation, with international investors,
partners and customers.





Corporate
History




Oragenics
was founded in 1996 by Dr. Jeffrey Hillman and Dr. Robert Zahradnik to
commercialize the fruits of 25 years of research.  After earning a PhD
in Molecular Genetics at Harvard, Dr. Hillman began his basic research into the
concept of Replacement Therapy for preventing dental caries, or cavities, at the
Forsyth Institute in Boston. He was recruited to continue his research at the
University of Florida College of Dentistry in 1992. There, he continued to
pursue the development of a genetically engineered strain of Streptococcus mutans that
could prevent cavities by replacing the body's natural caries-causing strains of
S.
mutans.  His work in replacement therapy also led to other
discoveries such as MU 1140 and ProBiora3tm.




Corporate
Strategy




We are
currently transitioning from a company with a focus purely on discovery and
development to a company focused primarily on
commercialization.    Our overall strategy is to maximize
shareholder value by commercializing and developing products internally and by
seeking out alliances and strategic partnerships with major, global
pharmaceutical, diagnostics and consumer products companies.  To
maximize shareholder value, we may internally develop or commercialize some of
our technologies before entertaining investments or ventures from strategic
investors or partners.   As technologies proceed farther through
the regulatory process, they become significantly more valuable.  The
difference in value can be an order of magnitude higher.  As such, in
certain cases, the return on investment on clinical trials that we fund can be
exceptional.  We intend to take each technology on a case-by-case
basis to determine the most appropriate path to maximize shareholder value and
ROI.  We also intend on continuing the culture of innovation that
fostered the creation of many of our technologies.




Our
Technologies




We have a
number of technologies, products and platforms.  For ease in
understanding, we have broken them down into four distinct
groups.  Each technology can be characterized as an over-the-counter
consumer product or technology that requires the completion of all relevant FDA
clinical trials and FDA approval before it can be marketed.




(1)
            Consumer
      Healthcare


a.
            Oral
      probiotics that contain our ProBiora3TM
      technology (food additive);


b.
            Products
      for weight loss that revolve around our LPT3-04TM
      weight loss agent(food/nutritional
supplement);




(2)
            Antibiotics


a.
            DPOLTTM
      lantibiotic synthesis platform (for generation of drug
      products);


b.
            MU
      1140, mutacin
      (drug)


3




(3)
            Diagnostics


a.
            PIVIATTM (diagnostics
      and drugs) and


b.
            PCMATTM (diagnostics
      and drugs)




(4)
            Replacement
      Therapy


a.
            SMaRT
      Replacement TherapyTM
      (biological drug)





CONSUMER
HEALTHCARE:


Consumer
Healthcare has two product categories; (1) Oral Probiotics, and (2) Weight
Loss.





Oral
Probiotics:


Our oral
probiotics revolve around the ProBiora3TM
technology.





ProBiora3TM (Probiotics)





ProBiora3TM
employs three naturally occurring strains of beneficial bacteria which promote
oral health.  Probiotics are live microorganisms that confer a health
benefit to their host when administered in adequate amounts. The beneficial bacteria
in a probiotic formulation help to maintain a healthy balance with bacteria in
the body. Examples of common probiotic applications are yogurt containing live
cultures and acidophilus capsules to
improve digestion, plus products for improved immune system response and vaginal
and urinary tract health.





Oral
Biology




The oral
cavity provides an ecological niche for 400-700 bacterial species, some of which
are responsible for periodontal disease (gum disease) and dental caries (tooth
decay). Of all of the bacteria normally residing in a person’s mouth, only about
half a dozen are the primary cause of periodontal disease and dental
caries.





Regulatory
Status of Oral Probiotics




Probiotic
products that claim to confer a health benefit are generally able to enter the
market without the need for extensive regulatory filings and clinical testing.
This avenue, called GRAS (“Generally Recognized as Safe”), is available for
products that are generally recognized as safe do not make any claim that they
treat, prevent, or cure a disease, which would be considered to be drug claims.
We intend to market our probiotic product in reliance on GRAS without making
disease prevention claims.





Market
Opportunities





Oral
Care:  The oral care market is exceptionally large.  It has
been estimated by Packaged Facts that the over-the-counter (“OTC”) global oral
care market was in excess of $7.5 billion in retail in 2006.  At
present, ProBiora3tm is the
only comprehensive oral probiotic technology in the market.





Companion
Pets:  According to the APPA (“American Pet Products Association”), in
2006, approximately 63% of US households owned a pet, with 38.4 and 44.8 million
households owning cats and dogs respectively.  The APPA also estimates
that total pet industry expenditures in 2008 in the US was $43.2 billion with
$10.2 billion being spent on Supplies/OTC Medicine.





Probiotics
in general:  Probiotics products are relatively common in Asia and
Europe. The probiotics market in the U.S. is emerging, and products are
available that address gastrointestinal problems and other uses, especially as
nutritional supplements, food supplements, dietary aide, or other
non-prescription products. If successfully developed, we expect our technology
will be one of the first probiotics to be marketed for the promotion of oral
health.


4


Marketing
ProBiora3TM





To market
ProBiora3TM, we
have developed a bifurcated strategy.  We have branded the technology,
ProBiora3TM, as an
active ingredient for licensing and private labeling.  We also market
products containing ProBiora3TM under
our own house brand names.  Our house brand products will contain
different ratios, or blends, of the three natural strains contained in
ProBiora3TM and
potentially different delivery mechanisms such that each product will be
tailored to the needs of specific markets.  These products
are:





·
            EvoraPlusTM,
      a product with equal weight of all three strains that is optimally
      designed for the general consumer
market


·
            EvoraKidsTM,
      a product that has a greater concentration of the strain designed to
      address tooth health, which is more of an issue for
    children.


·
            Teddy’s PrideTM,
      a product that has a mixture that is overloaded with two strains which
      focus exclusively on gum health, a problem endemic with cats and
      dogs.





EvoraPlusTM was
launched in December 2008.  The next product we expect to take to
market is Teddy’s PrideTM, which
is expected to follow later this year.





EvoraPlusTM
Description & Manufacturing





EvoraPlusTM is a
probiotic mint packaged in a 60 unit box with four 15-dose blister
packs.  The intended use for EvoraPlusTM is for
the consumer to take one mint twice per day after brushing.  As such,
one box equals approximately one-month’s supply of the product.  It is
important to note that EvoraPlusTM is not
a casual use product, but rather a repetitive use product.  We believe
this feature is highly attractive since it provides recurring
revenues.  We have completely outsourced the manufacturing process to
a large, GMP certified manufacturer with the ability to scale production as
needed.





Competition
to the ProBiora3TMTechnology





Many
companies sell probiotics that are principally designed for digestive health,
vaginal and urinary tract health, and immune system support. Our product will
not compete directly with the products of these companies. Recently, researchers
at the University of Hiroshima in Japan have published studies indicating that
Lactobacillus reuteri
aids in the prevention of tooth decay.  Lactobacillus
reuteri is widely used as a probiotic for other indications and may be
used in the future for dental health. We are aware of a probiotic product from
BioGaia AB, containing a strain of lactobacillus reuteri, which
is on the market today and is targeted to maintain dental health. Another oral
probiotic therapy commercially available from TheraBreath (known as AKTIV K12
probiotic), available in a mouthwash and tablets; it is stated to be used for
bad breath and contains the bacterium, Streptococcus salivarius K12.
This bacterium principally colonizes the cheek and tongue surfaces in oral
cavity, and as such is promoted only for its activity as an aid for halitosis.
As compared to all of these competitors, Probiora3TM
potentially has greater beneficial actions for maintaining oral
health.





Weight
Loss:


The
Company’s weight loss products are based on the discovery of LPT3-04TM.





LPT3-04TM Brief
Description





LPT3-04TM is a
naturally occurring compound, which is normally consumed in the human diet in
small amounts.  Our scientists discovered that consumption of
significantly larger amounts results in dose dependent weight loss in
experimental animal models.  The mechanism of action appears to be
induction of apoptosis, or programmed cell death specifically in white fat
cells.  LPT3-04TM
consumption in the required amounts has been shown to be completely safe in
humans.


5


The
Weight Loss & Diet Control Market





According
to Marketdata, Inc., the US Weight Loss & Diet Control market was
approximately $59 billion in 2007.  Obesity is at epidemic proportions
and is a global problem.





Weight
Loss Marketing Strategy





Our
strategy for our weight loss technology is similar to that of our oral probiotic
in that we plan on developing a bifurcated strategy where we market the
technology under GRAS status as an active ingredient for licensing or private
labeling and we develop a house brand to market to consumers through similar
channels.  We plan on developing several products under the house
brand that vary by delivery mechanism.  We expect to also develop a
product for the pet market as well.  We expect to essentially use two
of the three channels that were developed for our oral probiotic; (1) DTC and
(2) Mass Retail.  We may also market directly to Medical Professionals
and Veterinary Offices.





ANTIBIOTICS:




DPOLTTM





The
cornerstone of our antibiotics division is our Synthetic Chemistry Platform,
DPOLTTM
(Differentially Protected Orthogonal Lantionine Technology), which affords us
the ability to synthesize a unique class of antibiotics known as
lantibiotics.





DPOLTTM Brief
Description





DPOLTTM is a
patented, novel organic chemistry synthesis platform that will enable large
scale, cost effective production of clinical grade MU 1140 and potentially 50
other known lantibiotics.  Over the past 80 years, efforts to devise
methods to investigate the usefulness of this class of antibiotics have met with
uniform failure.  We believe DPOLTTM can to
lead to 6-10 new antibiotics with novel mechanisms of action.  This
represents a substantial pipeline of antibiotics to replace ones that are
currently failing due to the development of bacterial resistance.





MU
1140





Through
his work with S. mutans
at the University of Florida, Dr. Hillman discovered MU 1140, or mutacin, a powerful
lantibiotic that is produced in the oral cavity by the natural parent of the
SMaRTTM
strain.  MU 1140 is an antibiotic that belongs to the novel class of
molecules called lantibiotics.  It is active against Gram positive
bacteria responsible for a variety of clinically important diseases such as MRSA
(methicillin-resistant Staphylococcus aureus) and
VRE (vancomycin-resistantEnterococcus faecalis).  In preliminary studies it has also
been shown to be active against both growing and non-replicating Mycobacterium tuberculosiscells.  Preclinical testing has demonstrated low toxicity,
efficacy in animal models of infection, and good pharmacological
properties.  Sensitive bacteria show minimal ability to develop
resistance to MU 1140.  In general, preclinical studies indicate that
it has the potential to replace current antibiotic drugs of last resort that are
increasingly failing.





Market
Opportunity





Two
million hospital acquired infections occur each year according to the Center for
Disease Control, and about 100,000 patients die each year. The critical care
market for antibiotics is about $7 billion in U.S.A. Cubicin®, a newer gram
positive lipopeptide antibiotic, had 2008 sales of $415 million in the
US.  The need for novel antibiotics is increasing as a result of the
growing resistance of target pathogens. The Center for Disease Control estimates
that bacteria resistant to known antibiotics cause 44% of hospital infections;
individual hospitals have resistant rates as high as 70% for many important gram
positive infections. Vancomycin, introduced in 1956, serves as the last line of
defense against certain life-threatening infections, but certain bacteria have
developed strains which resist even vancomycin.


6





Our
antibiotic, MU 1140, is a new broad spectrum antibiotic that has demonstrated
activity against a wide variety of disease-causing bacteria and a novel
mechanism of action.  Moreover, we believe there is no evidence for
development of pathogen resistance to MU 1140. In light of the fact that
pathogen resistance has become a major health problem associated with
antibiotics in use today, we believe MU 1140 offers the potential to fulfill a
significant and increasing medical need for non-resistant
antibiotics.





Preclinical
Studies





Our
scientists and others have conducted laboratory studies on MU 1140 to determine
its activity as an antibacterial agent. To test MU 1140’s ability to kill
bacteria, standard microbiological testing methods were employed. MU 1140 was
purified and incorporated into growth medium at different concentrations. The
medium was then inoculated with the bacterium under study, and its ability to
grow in the presence of MU 1140 was observed. The minimal inhibitory
concentration (MIC) of MU 1140 to inhibit growth of the test bacterium was
recorded. We believe the results of our laboratory studies demonstrate that MU
1140 is effective at killing a broad spectrum of bacteria, including Streptococcus pneumoniae,
causing the predominant type of pneumonia and bacterial endocarditis. The
antibiotic has also been shown to be effective against vancomycin-resistant
Staphylococcus aureus
and Enterococcus
faecalis.





MU 1140
was found to kill all gram-positive bacteria tested at concentrations comparable
to therapeutically effective antibiotics. A particularly interesting feature of
MU 1140 is that none of the sensitive species of bacteria tested was able to
acquire genetically stable resistance to purified MU 1140. During 2006 and 2007,
we completed a significant preclinical study and demonstrated that MU
1140-N is effective in an animal infection model of septicemia againstStaphylococcus
aureus.  In 2007, further pharmacodynamic studies were done
demonstrating the antimicrobial activity, its novel mechanism of action, synergy
with an aminoglycoside, and utility of MU 1140, especially against drug
resistant organisms, such as MRSA (methicillin-resistant Staphylococcus aureus),VRE,
(vancomycin-resistantEnterococcus faecalis), and Streptococcus pneumoniae, all
common and serious sources of infections in humans. Pilot pharmacokinetics
studies were done.





Intellectual
Property





We have
exclusively licensed the intellectual property for our MU 1140 technology from
the University of Florida Research Foundation, Inc. See the discussion regarding
our license in the Intellectual Property section under our Replacement Therapy
technology.





Progress





On
October 14, 2008, we announced the successful synthesis of an antibiotic using
our proprietary DPOLTTM technology. The molecule belongs to a class of
antibiotics called Lantibiotics that were first discovered over 80 years ago.
Although there are now over 50 different Lantibiotics known, this is the first
report of a cost-effective method for making one in sufficient amounts and with
sufficient purity to enable comprehensive testing and commercial viability. As a
first step in further development, we have retained Almac Sciences, a leading
contract manufacturer and a division of the Almac Group, to refine and scale-up
GMP production of the synthetic MU1140TM analogue to achieve sufficient
quantities for it to be fully tested for regulatory approval.  We
currently estimate that, once commenced, the regulatory process will take at
least four years of clinical testing and the application and approval of an NDA
by the FDA before this drug could be commercially available. Other synthetic
Lantibiotics are expected to follow as they are developed and
tested.





Competition





MU 1140
would compete directly with antibiotic drugs such as vancomycin and newer drugs,
Cubicin (daptomycin) and Zyvox (linezolid).  Given the growing
resistance of target pathogens to even new antibiotics, we believe that there is
ample room in the marketplace for additional antibiotics.





We are
aware of a mutacin peptide similar to MU 1140 patented in the U.S. by the
University of Laval in Quebec. Successful development of that technology would
constitute major competition for MU 1140.  Management believes that
the Laval peptide, if developed, would infringe on the MU 1140patent.


7





Many of
our competitors are taking approaches to drug development differing from our
approach, including traditional screening of natural products; e.g., genomics to
identify new targets, and combinatorial chemistry to generate new chemical
structures. Competition in the pharmaceutical industry is based on drug safety,
efficacy, ease of use, patient compliance, price, marketing, and distribution.
Commercial success of MU 1140 technology will depend on our ability and the
ability of our sub-licensees to compete effectively in all of these areas,
against other companies with existing and pipeline antibiotics to be
commercialized in the future. There can be no assurance that competitors will
not succeed in developing products that are more effective than MU 1140 or would
render MU 1140 obsolete and non-competitive.





Producers
of antibiotic products include many large, international pharmaceutical
companies, who have much greater financial and technical resources than us. We
intend to compete in the antibiotic market by obtaining a strategic partner with
an established product development record and sales force. There can be no
assurance that we will be able to obtain any such partner. If not, we will need
to develop our own product and channels of distribution for products based on
the MU 1140 technology. There can be no assurance that we will be able to do
so.





DIAGNOSTICS:





Our
Diagnostics division is driven by our two proprietary platforms for the
identification of genetic targets that can be used in diagnostic tests as well
as in vaccines and therapeutics.  The two platforms are PIVIATTM
(Proteomic-based In-Vivo Induced Antigen Technology) and PCMATTM
(Proteomic-based Change Mediated Antigen Technology).  What we believe
makes our platforms unique is that we focus on the infection or disease in vivo, or in the body,
rather than in vitro,
or in the test tube.  We believe that infections and diseases behave
differently in different environments and produce different proteins, or gene
targets.  One of the first major initiatives has proven this to be
true; our study on colorectal cancer.





Developing
a Diagnostic Test Using Gene Targets





The
process to develop a diagnostic test using gene targets has the following basic
steps:





(1)
            Identification of Gene
      Targets.  We use our proprietary platforms to identify
      gene targets for specific disease
states.





(2)
            Validation.  Once
      targets have been identified, they then need to be
      validated.  This can be done internally or by a
      third-party.





(3)
            Incorporation into a Diagnostic
      Test.  Validated targets can then be incorporated into a
      diagnostic test.  We could license the targets to a third-party
      diagnostics company.





Once a
test is developed, it would then need to go through the appropriate regulatory
process in order to be registered and marketed.  In the US, this will
typically require the filing of a 510K application with the FDA, to-date we have
not commenced any filings with the FDA regarding diagnostic tests using our gene
targets.





Our
revenues for out-licensing markers would typically be a combination of upfront
fees, milestone payments based on regulatory filings and approvals, and
royalties on the sale of diagnostic tests to end users.  Fees will
vary depending on the timing of a licensing arrangement.  Obviously,
gene targets that have been discovered and validated will command a higher
premium.  Our objective is to carry our gene targets as far down the
process as possible.  At present, we are developing techniques to
validate targets as quickly and efficiently as possible.  Eventually,
we would like to have all three steps performed internally.





PIVIATTM Brief
Description





PIVIATTM is a
platform technology that enables rapid identification of novel targets for use
in the diagnosis and treatment of human infectious diseases.  The
method is faster, more cost effective, and more sensitive than other methods
currently in use to identify such targets.  As an example, a recent
tuberculosis project has yielded 44 novel targets for Mycobacterium tuberculosisthat are currently being analyzed for their use in vaccine and diagnostic
strategies.


8


PCMATTM Brief
Description





PCMATTM is a
platform technology that was derived from and greatly extends the potential
applicability of PIVIATTM.  This
technology rapidly identifies proteins (and their genes) that are expressed when
a cell undergoes any sort of change.  PCMATTM has
been used to identify proteins of both plants and pathogens that are expressed
during infection.  Such genes are excellent targets for manipulation
to increase the resistance of the plant to infection.  It has also
been used to identify novel proteins of human bowel cells that are expressed
when the cell undergoes transformation to a cancerous cell. Such proteins are
excellent targets for new diagnostics and therapeutic
strategies.  PCMATTM has the
potential to study an extraordinary range of medical and agricultural
applications.





The
In Vitro Diagnostics (“IVD”) Market





In 2007,
according to Research and Markets, the global In Vitro Diagnostics market was in
excess of $38 billion with a forecasted compound annual growth rate of
6.7%.  The fastest growing segment of the In Vitro Diagnostics market
is molecular diagnostics, which has a compound annual growth rate of
15.4%.





Progress





On
September 29, 2008, we entered into a Collaboration Agreement with a major,
global diagnostics company regarding our gene targets for various stages of
colorectal cancer that we discovered using the PCMATTM platform. We have also
initiated a new internal program for both the PIVIATTM and PCMATTM platforms.
Under this initiativewe
expect to augment our development work by including the validation of gene
targets we have discovered through the use of the platforms. We anticipate that
this will in turn make our gene targets more valuable and decrease time to
market for any test that utilizes them.





REPLACEMENT
THERAPY:





SMaRT
Replacement TherapyTM





SMaRT
Replacement TherapyTM is a single, painless, one time, 5 minute topical treatment
that has the potential to offer lifelong protection against dental caries (tooth
decay). Dental caries is a worldwide epidemic that affects the majority of
populations in industrialized and developing countries. According to the World
Health Organization, tooth decay is the most prevalent chronic infectious
disease, affecting approximately 5 billion people. Much of the tooth decay in
low-income countries remains untreated until the teeth are
extracted.  Replacement therapy is suitable for use by the general
population. The ideal application would be to treat children when bacterial
colonization of their new tooth surfaces is occurring. Applied topically to the
teeth with a swab, the therapy can be administered by dentists to patients
during routine office visits.





Replacement
therapy represents a novel approach to preventing bacterial infections by
capitalizing on interactions between different strains or species of bacteria
inhabiting the same ecosystem. This approach involves permanently implanting a
harmless strain of bacteria in the host’s microflora. Once established, the
harmless strain prevents the colonization and outgrowth of potential pathogens,
including harmful bacteria that cause tooth decay.





Tooth
decay is characterized by the dissolution of enamel and dentin, eventually
resulting in the destruction of the entire tooth. The immediate cause of tooth
decay is lactic acid produced by microorganisms on the tooth
surface.  Studies suggest that of the 400 to 700 oral micro-organisms,
Streptococcus mutans (S.
mutans), a common bacterium found in virtually all humans, is the
principal causative agent in the development of tooth decay. Residing within
dental plaque, S.
mutans derives its energy from carbohydrate metabolism as it converts
dietary sugar to lactic acid which, in turn, erodes the tooth
enamel.





Our
replacement therapy technology is based on genetically altering the bacterium,
S. mutans, and employs
this genetically modified strain of S. mutans that does not
produce lactic acid. When applied to the teeth, this non-lactic acid-producing
organism can displace and permanently replace the indigenous lactic
acid-producing strains of S.
mutans, thereby potentially providing lifelong protection against most
forms of tooth decay.


9





Regulatory
Status





We have
conducted a FDA Phase I clinical trial and we have been approved for a FDA Phase
I(b) clinical trial.  We anticipate initiating this second Phase I
safety trial.  We also believe that SMaRT Replacement Therapy will be
an appealing technology for developing countries.  As such, we intend
on pursuing regulatory approval in Mexico as soon as our capital resources
permit.








Manufacturing,
Marketing and Distribution





The
manufacturing methods for producing our genetically modified strain of Streptococcus mutans are
standard fermentation techniques. These techniques involve culturing bacteria in
large vessels and harvesting them when mature by centrifugation or filtration.
The cells are then suspended in a pharmaceutical medium appropriate for
application in the human mouth. These manufacturing methods are commonplace and
readily available within the pharmaceutical industry. Upon successful completion
of Phase I clinical trials, we intend to consider sublicensing our replacement
therapy technology to one or more strategic partners that would be responsible
for advanced clinical development and commercialization including product
manufacturing, marketing, and distribution.





Market
Opportunity





Despite
the introduction of fluorides in public water systems, fluoridated toothpastes,
fluoride treatments in the dental office and dental sealants, tooth decay still
affects the majority of children and adults. There are a number of factors that
are likely to increase the incidence and frequency of tooth decay which
include:


·
            increasing
      consumption of dietary sugar;


·
            increasing
      consumption of bottled water, which generally does not contain fluoride;
      and


·
            increasing
      age of the population.





During
the last 20 years, sugar consumption has increased. Higher dietary intake of
sugar predisposes individuals to higher rates of tooth
decay.  Moreover, according to the Beverage Marketing Corporation, in
2005, U.S. consumers drank more bottled water than any other alcoholic or
non-alcoholic beverage, with the exception of carbonated soft drinks. Since
bottled water generally does not contain fluoride, the protective effects of
fluoridated public water systems are lost. With the aging of the population, the
incidence and frequency of tooth decay is likely to further increase as most of
the baby boomers upon reaching retirement age will have a relatively intact
dentition unlike previous generations. Therefore, more teeth will be at risk for
tooth decay.





Replacement
therapy represents a novel approach to preventing tooth decay.  The
technology confers potentially lifelong protection against tooth decay with one
treatment, is anticipated to be used by the general population and involves
minimal patient education and compliance.





Competition





We are
not aware of any direct competitors with respect to our licensed, patented
replacement therapy technology. However, there may be several ways to disable or
eradicate S. mutans. We
know that certain companies and several academic and research institutions are
developing and testing caries vaccines aimed at eradicating S. mutans. An alternative
approach involves topical application of adhesion-blocking synthetic peptides
that prevent S. mutans
from attaching to the tooth surface. Products that result in the elimination of
S. mutans from the
natural ecosystem would require major studies to determine whether such
eradication of naturally occurring bacteria might not create serious, unintended
consequences. The problem with eradicating S. mutans is that it disrupts
the natural ecosystem leaving a void for another pathogen potentially more
harmful than S. mutans
to dominate.





Any
product based on our replacement therapy technology will compete against
traditional oral care products used to combat tooth decay. These products
include fluoride-based toothpastes as well as fluoride treatments and tooth
sealants administered by dentists. These competitors could include, among
others, Colgate; Procter & Gamble; Unilever; GlaxoSmithKline; and Dentsply.
All of these companies are much larger and have far greater technical and
financial resources than us.


10





Our
In-Licensed Technology Agreements





Replacement
Therapy





We have
exclusively licensed the intellectual property for our replacement therapy
technology from the University of Florida Research Foundation, Inc., a non
profit Florida corporation (the “Florida Research Foundation”).  The
original license agreement was dated August 4, 1998 and was subsequently amended
on September 15, 2000, July 10, 2002, September 25, 2002 and March 17, 2003. The
amended license agreement provides us with an exclusive worldwide license to
make, use and sell products and processes covered by Patent No. 5,607,672,
entitled “Replacement Therapy for Dental Caries”, which was filed in the United
States Patent Office on June 7, 1995 and made effective on March 4,
1997.  The patent will expire on June 7, 2015. Our license is for the
period of the patent, subject to the performance of terms and conditions
contained therein. The patent covers the genetically altered strain of Streptococcus mutans which
does not produce lactic acid, a pharmaceutical composition for administering the
genetically altered strain and the method of preventing tooth decay by
administering the strain.  See “-Our Intellectual
Property”.





We issued
599,940 shares of our common stock to the Florida Research Foundation as partial
consideration for the initial license.





We
received notification from Celunol (formerly B.C. International Corporation) on
July 29, 2002 that a gene utilized in our licensed, patented strain of Streptococcus mutans
infringes a patent which it holds under a license from the Florida Research
Foundation.  On September 17, 2006, Celunol notified us regarding the
possibility of a sublicense.  As of this date, no further
communication has been received from Celunol. Their notification did not state
that they intended to pursue legal remedies. Our management does not believe the
gene in question infringes that patent. On February 12, 2007 Celunol and the
Diversa Corporation announced that they had signed a definitive merger agreement
and subsequently formed the Verenium Corporation.





MU 1140.





We have
exclusively licensed the intellectual property for our MU 1140 lantibiotic
technology from the Florida Research Foundation.  The original license
agreement was dated June 22, 2002, 1998 and was subsequently amended on
September 15, 2000, July 10, 2002,  September 25, 2002 and March 17,
2003. The amended license agreement provides us with an exclusive worldwide
license to make, use and sell products and processes covered by Patent No.
5,932,469 entitled “Antimicrobial Polypeptide and Methods of Use”.Our license is for the
period of the patent, subject to the performance of terms and conditions
contained therein.  See “-Our Intellectual Property.”





Common
Terms





In the
amended license agreements, the Florida Research Foundation has reserved the
right to use and sell products and services for research purposes only. The
amended license agreements also provide the Florida Research Foundation with a
license, for research purposes only, to any improvements that we make to the
products and processes covered by the patents.





We are
obligated to pay 5% of the selling price of any products developed from the
licensed technologies that we may sell as royalty to the Florida Research
Foundation.  In addition, if we sublicense any rights granted by the
amended license agreements, we are obligated to pay the Florida Research
Foundation twenty percent (20%) of all revenues received from the sublicenses
(excluding monies received solely for development costs).





We are
also obligated to make minimum annual royalty payments to the Florida Research
Foundation for the term of the amended license agreement in the amount of
$50,000 by the end of each year for each license agreement.   The
minimum royalty payments are required to be paid in advance on a quarterly
basis.  For the replacement therapy and Mutacin 1140 minimum royalty
payments, we must pay the Florida Research Foundation an aggregate of $100,000
which is required to be paid in equal quarterly installments of
$25,000.





Under the
terms of the amended license agreements, in each calendar year and in addition
to the royalty payment obligations, we are obligated to spend, or cause to be
spent, an aggregate of $1,000,000 on the research, development, and regulatory
prosecution of our replacement therapy and Mutacin 1140 technologies combined,
until a product which is covered wholly or partially by the claims of the
patent, or is manufactured using a process which is covered wholly or partially
by the claims of the patent, is sold commercially.  If we fail to make
these minimum research and development expenditures, the Florida Research
Foundation may terminate our license agreement.


11


We must
also pay all patent costs and expenses incurred by the Florida Research
Foundation for the preparation, filing, prosecution, issuance and maintenance of
the patent.





We have
agreed to indemnify and hold the Florida Research Foundation harmless from any
damages caused as a result of the production, manufacture, sale, use, lease,
consumption or advertisement of the product.





We are
required to maintain liability insurance coverage appropriate to the risk
involved in marketing the products, for which we obtained liability insurance
that expired in August, 2008 and renewed through March, 2010. There is no
assurance that we can obtain continued coverage on reasonable
terms.





The
amended license agreements further provide that the United States government
funded research grant No. RO1 DE04529 during the course of or under which the
licensed inventions covered by the patent were conceived.  As such the
United States Government is entitled, as a right, under the provisions of US law
to a nonexclusive, nontransferable, irrevocable, paid-up license to practice or
have practiced the inventions of such patents for governmental
purposes.





In
order to protect our license rights and their patents, we or the Florida
Research Foundation may have to file lawsuits and obtain injunctions. If we do
that, we will have to spend large sums of money for attorney fees in order to
obtain the injunctions. Even if we do obtain the injunctions, there is no
assurance that those infringing on our licenses or the Florida Research
Foundation’s patents will comply with the injunctions. Further, we may not have
adequate funds available to prosecute actions to protect or to defend the
licenses and patents, in which case those infringing on the licenses and patents
could continue to do so in the future.





Technical
Background Of Our Products And Platform Technologies





Consumer
Healthcare





Oral Care
Probiotic Products.ProBiora3TM is a blend of three naturally
occurring oral bacteria for use in the promotion of oral health.  The
human body is host to hundreds of species of microorganisms that are normally
non-pathogenic and in some cases are even required for good
health.  The concept of supplementing the diet with certain
microorganisms to promote health is well established for the gastrointestinal
tract, and these probiotic products are today a leading growth segment in the
nutrition industry. We have applied this same concept to oral health and
demonstrated that the regular introduction of select species of naturally
occurring oral bacteria can promote oral health by reducing the number of
pathogenic bacteria responsible for dental caries (tooth decay) and periodontal
(gum) disease.  Our probiotic system utilizes three separate, natural
species of bacteria, each with a specific function for maintaining a healthy
oral environment.  These strains may be administered together or
separately.





Through
our research we discovered a very strong inverse relationship between the
presence of certain species of viridans streptococci and the bacteria that are
thought to cause most types of periodontal disease.  In a healthy
periodontal site, Streptococcus oralis(previously called S.
sanguistype II) and Streptococcus uberisare
commonly found in significant amounts, while the levels of periodontal pathogens
including Tannerella
forsythensis(Tf),
Aggregatibacter actinomycetemcomitans(Aa), Porpyromonas gingivalis(Pg), Prevatella
intermedia(Pi),
Peptostreptococcus micros(Pm), Campylobacter rectus (Cr),
and Prevotella melaninogenica(Pmel)are
usually quite low.  The opposite situation prevails in disease sites
where, in fact, S. oralisand S. uberisare usually undetectable.  Our scientists have demonstrated
that the observed negative interactions between S. oralisand S. uberisand the various
periodontal pathogens is dose dependent.  Furthermore, our scientists
have demonstrated that S.
oralisand S. uberisinhibit the growth of periodontal pathogens by producing hydrogen
peroxide.





Our
research revealed that Probiora3 has also demonstrated other
features.  One feature of our Probiora3TM is that the production of
hydrogen peroxide by these microorganisms was demonstrated in pilot laboratory
experiments to be sufficient to produce a substantial whitening effect on tea
and chlorhexidine stained ceramic disks and, in separate experiments, to oxidize
volatile sulfur compounds (VSC) responsible for bad breath.  Another
feature of our ProBiora3TM technology is that it expressed the ability to
suppress the levels of Streptococcus mutans,the
principle etiologic agent of tooth decay.  Streptococcus rattusis a
very close relative of S.
mutans.In fact, until fairly recently, S. rattuswas considered to
be one of several subspecies of S. mutans.We have
isolated a particular, completely natural strain of S. rattus, called JH145,
which does not make lactic acid from metabolism of sugar.  The genetic
defect in JH145 has been identified as a spontaneous deletion mutation in the
middle of the structural gene for the enzyme lactate
dehydrogenase.  Since JH145 does not make lactic acid, it is virtually
incapable of causing tooth decay.


12


We have
discovered, developed, filed for international patent protection, and completed
a “proof-of-principle” clinical trial for our ProBiora3TM oral probiotic product
intended for maintenance of oral health.  See “—Our Intellectual
Property”.  A twice-daily administration of our proprietary blend of
naturally occurring oral bacteria, in a mouthwash format, was well tolerated by
the subjects and no safety issues were observed during the trial.  The
mouthwash was able to produce substantial decreases in the numbers of key
pathogenic bacteria in the saliva and periodontal sulci of young healthy adults,
most likely through the mechanisms of direct interaction and competitive
exclusion.  Probiora3 should be administered daily for maximum
benefit.  The stable product format allows incorporation into many
different types of deliveryvehicles such as mouthwash, chewing gum, lozenges,
and fast-dissolve tablets.





Weight Loss
Product LPT3-04TM.Through
our research we have identified a naturally occurring dietary ingredient,
LPT3-04TM, which, when added in sufficient amounts to the diet of laboratory
animals, has the effect of causing a dose-dependent loss in
weight.  This effect has been observed in double blind studies in a
number of rodent strains and in dogs, and anecdotally in humans.  At
optimal doses, and indeed at super-optimal doses, no deleterious side-effects
were observed during prolonged administration.  Our laboratory and
animal data provide intriguing evidence that LPT3-04TM can be used to induce
weight loss without observable adverse side-effects.  Our data further
indicate that LPT3-04TM acts to induce apoptosis (programmed cell death)
specifically in white adipose cells, probably using an unrecognized
pathway.





While we
believe LPT3-04TM can be marketed as a nutritional supplement for weight
management it would not be a suitable candidate for drug development, primarily
because the size of a daily dose is in grams and not milligram
quantities.  Upon completion of an ingredient dossier to satisfy the
safety requirements, we believe it can also be used as a food additive for
weight loss and weight management. We expect that this same regulatory path can
be followed in other key geographic areas.





Blinded
animal studies demonstrated a dose dependent effect of LPT3-04TM on both weight
loss and fat content.  In both Sprague-Dawley and Fisher rats,
statistically significant weight loss was observed in treated animals within
weeks.  The size of an animal’s mesenteric fat pad was inversely
proportional to the amount of LPT3-04TM in its diet.  The weight loss
was reversed by elimination of LPT3-04TM from the diet.  Zucker
diabetic fatty (ZDF) rats fed diet containing LPT3-04TM also showed a significant
reduction in weight gain compared to control animals, and preliminary evidence
indicated that onset of diabetes was delayed.  Treatment of
Sprague-Dawley rats with LPT3-04TM appears to be safe.  No treatment
related abnormalities were reported at necropsy of animals fed a diet
supplemented with LPT3-04TM for 26 weeks.  Histopathological
examination revealed no remarkable results for all of the organs and tissues
tested.  No adverse changes in hematology and blood chemistry were
observed.  No behavioral changes were noted during daily observations
in any of the animal studies conducted.  Total proteins from various
organs and tissues were extracted from LPT3-04TM treated and control
animals.  These samples were assayed for their content of the apoptosis
marker, BAD phosphorylated at position 136.  The data clearly demonstrated
a dose-dependent decrease in this marker in white adipose tissue (WAT) while no
such decrease was observed in brown adipose tissue or the other tissues
tested.  The results indicate that a high LPT3-04TM diet leads to
apoptosis specifically in white adipose tissue, probably via a currently
unrecognized pathway.





LPT3-04TM is a compound that has been
extensively studied in humans with regard to its role in the possible treatment
of several unrelated disorders, but it has not previously been studied for
weight loss.  At daily doses that were somewhat higher than the amount
proposed for use as an aid in weight loss, no significant side effects were
reported over the several month periods of the studies.  Subjects
occasionally complained of mild nausea and dry mouth, but these effects were
either self-resolving, or disappeared when use was
discontinued.  LPT3-04TM for weight loss has not been the subject of a
formal human trial to date.  However, information exists from a number
of individuals who have taken LPT3-04TM that demonstrates a level of
effectiveness that would be expected based on animal studies.





Antibiotics
Platform Technology





DPOLTTM Antibiotic
Synthesis Platform Technology.Differentially Protected
Orthogonal Lantionine Technology (DPOLTTM) is a solid/liquid phase peptide
synthesis platform technology that has broad application for the cost-effective
manufacture of a number of bioactive peptides, particularly lantibiotics, a
potentially important class of antibiotics.  Approximately fifty
lantibiotics have been identified, including our lead antibiotic, MU
1140.  Lantibiotics constitute a family of polycyclic peptides that
are produced by bacteria, and are highly modified
structurally.  Attempts to study lantibiotics for their potential
usefulness as therapeutic agents have been hindered by difficulties in producing
sufficiently pure material, in amounts adequate for preclinical
testing.


13


Many
strains of medically important bacteria have become increasingly resistant to
currently marketed antibiotics.  We are completing work to establish
proof-of-principle for the DPOLTTM platform technology and eventually to
synthesize a number of novel lantibiotic analogs that may be effective in
treating various infections, including ones caused by drug-resistant
bacteria.  Based on progress to date, we were awarded a Phase 2 SBIR
grant from NSF to support our continuing efforts to synthesize and produce an MU
1140 analog.





MU1140TM
Antibiotic.MU1140TM is a chromatographically purified
lantibiotic derived from a strain of Streptococcus
mutans.  MU1140  is a peptide belonging to a small
group of antibiotics called type A(I) lantibiotics.  Lantibiotics, as
a group, are ribosomally synthesized, they range in size from 19 to 34 amino
acids, and they have extensive posttranslational modifications.  The
defining characteristic of lantibiotics is that they contain the unusual amino
acids lanthionine (Lan) and/or -methyllanthionine (MeLan), as well as other
amino acids and functional groups not found elsewhere in nature.





MU1140 is
active at low concentrations against most Gram positive bacteria against which
it has been tested in
vitro, including methicillin resistant Staphylococcus aureus(MRSA)
and vancomycin resistantEnterococcus faecalis.It is also active against some Gram
negative pathogens, including Helicobacter pylori,the
bacterium responsible for most peptic ulcers.  Preclinical testing of
MU1140 suggests that it will be well suited to serve as a drug in the treatment
of a number of infectious agents that are currently resistant to other existing
antibiotics.  Our research has demonstrated that MU1140:





·
            has
      a broad spectrum of activity, principally against Gram positive
      bacteria;


·
            has
      demonstrated in preliminary studies bacteriocidal activity against both
      growing and dormant cells of Mycobacterium
      tuberculosis;


·
            is
      chemically stable and resistant to hydrolytic enzymes in vitro, including
      those present in human and murine
plasma;


·
            does
      not provoke a measurable immune response in experimental animals,
      indicating that allergy to MU 1140 will be
rare;


·
            showed
      negligible cytotoxicity when therapeutic doses were tested against yeast
      cells and fibroblast and kidney cell
lines;


·
            demonstrated
      in vivoefficacy
      in mouse and rat models in which animals were infected intraperitoneally
      with S. aureusand MU 1140 was administered intravenously at doses well below its
      maximum tolerated dose;


·
            has
      a novel mechanism of action that involves binding to and abducting Lipid
      II, which is required for cell wall biosynthesis (Science, 313:1636, 2006;
      Biochemistry, web release date Feb 12,
2008);


·
            attempts
      to find spontaneous, genetically stable resistant mutants to MU 1140 have
      been unsuccessful to date (interestingly, the producer strain has no
      immunity to its own antibiotic); relatively small increases in minimum
      inhibitory concentrations (MICs) following repeated subculture in
      sublethal concentrations of MU 1140 are probably due to self-limiting
      changes in the composition of target cell plasma
  membrane;


·
            demonstrated
      synergy with an aminoglycoside in a preliminary study;
  and


·
            binds
      reversibly to plasma proteins and, based on preliminary studies, has a
      half-life in the serum of Sprague-Dawley rats of approximately 2
      hours.





Our
research has optimized fermentation methods to obtain product yields sufficient
to undertake the above mentioned preclinical studies.  A simple and
fast chromatography method has also been devised to achieve MU 1140 with purity
equal to or greater than 95%.  Large scale, cost effective cGMP
production of an MU 1140 analog, for use as clinical trial material in human
safety and efficacy studies, is expected to be achieved using our proprietary
small peptide antibiotic synthesis platform technology, DPOLTTM.





The
various product features described above illustrate the potential of MU1140 to
serve as a therapeutic agent for the management of infections caused by certain
important Gram-positive pathogens.  We have exclusively in-licensed
this patented technology from the University of Florida Research Foundation,
Inc.  See”—Our In-Licensed Technology Agreements” and “Our
Intellectual Property.”





Diagnostics
Platform Technology





Proteomics-based
In Vivo Induced Antigen Technology (PIVIATTM).PIVIATTM
is a platform technology that efficiently identifies proteins of microbial
pathogens that are specifically expressed when the pathogen is engaged in an
actual infectious process involving a host that can mount a humoral (antibody)
immune response.  Such proteins are referred to as in vivoinduced (IVI), and
they are very likely targets for use in a variety of applications, such as the
development of new vaccine, diagnostic and antibiotherapy
strategies.


14


PIVIATTM has three major advantages over
other existing technologies for identifying IVI genes: 1) it does not rely on
animal models of infection, which may be misleading or may not exist at all for
many pathogens; 2) it can identify IVI genes that are turned on at any point in
the infectious process, rather than those that happen to be turned on at just a
single time point; 3) it can be used to identify IVI genes in any microbial
pathogen that can be grown in the laboratory, and is not limited to those that
can be genetically manipulated. In addition, compared to other existing methods
(e.g., microarrays, proteomic arrays) for identifying IVI genes/proteins,
PIVIATTM is significantly more sensitive, faster and less expensive.





The major
conceptual breakthrough that enables PIVIATTM to display all of these advantages
relative to other technologies stems from the recognition that the host makes
antibodies against the vast majority of the proteins manufactured by the
pathogen from the moment it enters the host until it is cleared by the host’s
defenses.  Thus, a serum samples from convalescent hosts have
antibodies that can be used to probe for IVI genes.  By pooling sera
from several different patients, PIVIATTM is able to find the widest possible
array of antigens produced during different stages of infection.  The
pooled serum is absorbed with whole cells and cellular extracts prepared from
the pathogen grown in vitroto remove antibodies reactive with constitutively produced
proteins.  The resulting adsorbed serum contains the subpopulation of
antibodies reactive against proteins expressed only during the actual infectious
process.  This adsorbed serum is used to capture proteins of the
pathogen (made by a genomic expression library) that are very likely to be
essential for virulence or survival of the pathogen in the human
host.





Since its
creation in 2000, PIVIATTM has been successfully applied to the identification of
IVI genes in a significant number of pathogens.  It is worth noting
that, even though a relatively recent technology, PIVIATTM has already
identified several targets that have been licensed and are under
development for clinical applications.  Most recently, PIVIATTM
analysis of Mycobacterium
tuberculosis, using rapid and sensitive proteomic methods,identified 44 novel IVI
proteins that were the subject of a PCT patent application filed in March
2007.  These currently are being validated by preeminent tuberculosis
experts to determine their potential usefulness in new diagnostic and vaccine
applications.





More than
30 peer reviewed publications detailing all aspects of PIVIATTM have
appeared.  We have a patent on this technology as well as patents
application pending.  See “—Our Intellectual
Property.”





Proteomics-based
Change Mediated Antigen Technology (PCMATTM).The
remarkable impact of PIVIATTM on the study of human and animal pathogens led us
to ask if this method could be made more general; to include, for example,
diseases of plants where the host does not mount an antibody
response.  The solution to this problem follows: infected plant tissue
can be harvested and snap frozen or otherwise treated to preserve antigens of
the pathogen that are present at the exact moment of collection.  At
the same time, proteins made by the plant in response to the infection are also
preserved.  When this tissue is mixed with adjuvant and used to
immunize an appropriate host, the immune serum that is obtained can be adsorbed
with in vitrogrown
cells of the pathogen to create a probe for identifying virulence/survival
proteins of the pathogen.  It can also be adsorbed with healthy plant
tissue to identify resistance genes of the host.  Proof of principle
has been accomplished using Xanthomonas campestrisinfection of the common bean plant, where we have identified both novel
virulence genes of the pathogen and novel resistance genes of the
host.





Further reflection on the PCMATTM method
brought to our attention that this method can also be used to study a vast array
of problems ranging from autoimmune diseases to biofilms to
cancer.  In the last of these, for example, an ongoing study by us
used surgically excised colon cancer tissue representing early, middle and late
stage disease.  The tissue samples were flash frozen and homogenates
were used to immunize an appropriate host.  The resulting antibodies
were adsorbed with homogenates of healthy tissue from the autologous human
subjects so that remaining antibodies were directed at proteins made by the
cancer cells but not by normal, healthy cells.  Proteins reactive with
these antibodies have been captured and identified using rapid, sensitive
proteomic methods and are the subject of a US provisional patent application
filed on July 21, 2008.  The collection of change mediated proteins
identified by PCMATTM, which are expressed when a normal bowel cell undergoes
transformation to become a cancer cell, has been licensed by a major diagnostic
company.





Change mediated proteins identified by
PCMATTM are expected to make excellent targets for new approaches to diagnose
diseases, for biomarkers to evaluate the efficacy of a treatment regimen, and
possibly in novel vaccine or antibiotherapy approaches.  In the case
of both plant and animal diseases, identification of change mediated proteins
may enable rationally-based strategies to help prevent, retard or cure the
disease.





We have several patent applications
pending on this technology.  See “—Our Intellectual
Property”.


15





Replacement
Therapy





SMaRTTMReplacement
TherapyTM.SMaRTTM Replacement TherapyTM is a professional/Rx
product intended for the prevention of dental caries (tooth
decay).  Dental caries remain a major health problem afflicting a
majority of the population in the United States and worldwide.  Lactic
acid production by the oral bacterium Streptococcus mutans has long
been known to be integral to the pathogenic process for dental
caries.  Oragenics, Inc.’s replacement therapy technology replaces the
indigenous, acid-producing S.
mutans with a SMaRT effector strain, which has been genetically modified
so as not to produce the acid associated with caries formation.





The
wild-type S mutans
originally used for construction of the SMaRTTM strain was isolated from a human
subject and was carefully selected based on its ability to produce the
antibiotic, MU1140.  MU1140 has been shown to kill all other strains
of S. mutansthat it
has been tested against.   The SMaRTTM effector strain was
generated by transforming this wild-type parent strain with recombinant DNA that
introduced a large deletion mutation in the gene for lactate dehydrogenase (LDH)
eliminating the strain’s ability to produce lactic acid.  The careful
genetic construction of the SMaRTTM strain using deletion mutations makes it
extremely genetically stable, as demonstrated by in vitrospontaneous
reversion frequencies that are less than 10-11.   To
further stabilize S. mutansagainst genetic instability caused by a process called transformation, a
deletion mutation was introduced into the chromosome that eliminated the comEgene, which is critical
for DNA uptake by S. mutansfrom its environment.





Our
SMaRTTM effector strain for the replacement therapy of dental caries has the
following advantages over existing decay-prevention technologies: (1) a single
treatment regimen involving application of SMaRTTM cells onto patients’ tooth
surfaces using a cotton tipped swab for five minutes has the potential to
provide lifelong protection against most tooth decay; (2) the possibility of
deleterious side-effects are negligible since the effector strain is essentially
identical to the microorganism which is found universally on the teeth of
humans; (3) minimal patient education and compliance is required.  The
SMaRTTM effector strain has been extensively and successfully tested in the
laboratory and in animal models with the following results
obtained:





·
            The
      SMaRTTM strain makes no lactic acid under any cultivation conditions
      tested.


·
            In
      place of lactic acid, the SMaRTTM strain makes the neutral compounds
      ethanol and acetoin in amounts comparable to other microorganisms that
      colonize the human oral cavity.


·
            The
      spontaneous reversion frequency for ldh was estimated at
      <10-11;
      furthermore, the exchange of DNA into and out of SMaRTTM is very low, based
      on results of in vitromixed culture and biofilm studies and an in vivocross-over
      rodent model study.


·
            The
      level of MU1140 production by SMaRTTM is comparable to its wild-type parent
      strain, which was previously shown to readily colonize the human oral
      cavity.


·
            The
      SMaRTTM strain aggressively displaces indigenous strains of S. mutans and
      preemptively colonizes its niche on the teeth of laboratory
      rats.





More than
30 peer reviewed publications detailing all aspects of replacement therapy and
the SMaRTTM technology have appeared.   We have in-licensed this
patented technology from the University of Florida Research Foundation,
Inc.  See “—Our Intellectual Property” and “—Our In-Licensed
Technology Agreements.”





Government
Regulations





The
formulation, manufacturing, processing, packaging, labeling, advertising
distribution and sale of our products are subject to regulation by federal
agencies, including, but not limited to:





•   the
      Food & Drug Administration (the “FDA”);•   the
      Federal Trade Commission (the “FTC”);•   the
      Drug Enforcement Administration (the “DEA”);•   the
      Consumer Product Safety Commission (the “CPSC”);•   the
      United States Postal Service (“USPS”);•   the
      Environmental Protection Agency (“EPA”); and•   the
      Occupational Safety and Health Administration
  (“OSHA”).


16


These
activities are also regulated by various agencies of the states, localities and
foreign countries in which our products are sold. In particular, the FDA, under
the Federal Food, Drug and Cosmetic Act (the “FDCA”) regulates the safety,
manufacturing, labeling and distribution of OTC drugs, medical devices, dietary
supplements, functional toiletries, and skin care products. In addition, the FTC
has primary jurisdiction to regulate the advertising of OTC drugs, medical
devices, dietary supplements, functional toiletries and skin care products and
the USPS regulates advertising claims with respect to such products sold by mail
order.  The National Advertising Division ("NAD") of the Council of
Better Business Bureaus oversees an industry-sponsored self-regulatory system
that permits competitors to resolve disputes over advertising claims. The NAD
has no enforcement authority of its own, but may refer matters that the NAD
views as violating FTC guides or rules to the FTC for further
action.  While we use our best efforts to adhere to the regulatory and
licensing requirements, as well as any other requirements affecting our
products, compliance with these often requires subjective legislative
interpretation. Consequently, we cannot assure that our compliance efforts will
be deemed sufficient by regulatory agencies and commissions enforcing these
requirements. Violation of these regulations may result in civil and criminal
penalties, which could materially and adversely affect our operations. Recent
events have suggested that the regulatory requirements governing our industry
may expand in the near future.





In
foreign countries these same activities may be regulated by Ministries of
Health, or other local regulatory agencies.  The manner in which
products sold in foreign countries are registered, how they are formulated, or
what claims may be permitted may differ from similar products and practices in
the U.S.





Generally
Recognized As Safe(“GRAS”) Status





Under the FDCA any substance that is
intentionally added to food is a food additive, that is subject to premarket
review and approval by the FDA, unless the substance is generally recognized,
among qualified experts, as having been adequately shown to be safe under the
conditions of its intended use, or unless the use of the substance is otherwise
excluded from the definition of a food additive.  The specific data
and information that demonstrate safety depend on the characteristics of the
substance, the estimated dietary intake, and the population that will consume
the substance.





Dietary
Supplements





The
Dietary Supplement Health and Education Act of 1994 (“DSHEA”) was enacted on
October 25, 1994. DSHEA amends the FDCA by defining dietary supplements, which
include vitamins, minerals, amino acids, nutritional supplements, herbs and
botanicals, as a new category of food separate from conventional food. DSHEA
provides a regulatory framework to ensure safe, quality dietary supplements and
to foster the dissemination of accurate information about such products. Under
DSHEA, the FDA is generally prohibited from regulating dietary supplements as
food additives or as drugs unless product claims, such as claims that a product
may diagnose, mitigate, cure or prevent an illness, disease or malady, permit
the FDA to attach drug status to a product. In such case, the FDA could require
pre-market approval to sell the product. Manufacturers are not required to
obtain prior FDA approval before producing or selling a dietary supplement
unless the ingredient is considered “new” or was not on the market as of October
15, 1994.





Dietary
supplement products may include truthful, non-misleading and substantiated
statements of nutritional support.  Examples of such claims are
statements describing general well-being resulting from consumption of a dietary
ingredient or the role of a nutrient or dietary ingredient in affecting or
maintaining a structure or function of the body.  These claims are
also known as “structure/function” claims.  FDA requires companies
which include structure/function claims on their labeling to notify the agency
of the claim within 30 days of first marketing the dietary supplement with the
identified claims.  FDA does not typically respond to these
notifications, but could issue a “courtesy letter” should the agency question
some aspect of the submission.  A dietary supplement that includes a
structure/function claim on its labeling is also required to include a
disclaimer stating that the FDA has not evaluated the claim.  FDA
distinguishes between structure/function claims which do not require FDA
pre-approval and disease-related health claims which require FDA prior approval
or the issuance of an authorizing regulation.  There can be no
assurance that the FDA will not determine that a particular statement of
nutritional support that we want to use is an "unauthorized health or disease
claim" or an unauthorized version of a "health claim." Such a determination
might prevent us from using the claim.





A product
marketed as a dietary supplement and subsequently approved for use as a drug or
biologic may continue to be sold and regulated as a dietary supplement unless
the FDA specifically finds that it is unsafe for use as a dietary supplement. A
substance that has not been marketed as a dietary supplement prior to its
approval as a drug or biologic, or prior to initiation of substantial clinical
investigations for such uses, may be sold as a dietary supplement only pursuant
to an FDA regulation authorizing its use as a dietary supplement.





The
FDA may take enforcement action against a dietary supplement if the FDA believes
the supplement presents a significant or unreasonable risk of illness or injury
under conditions of use suggested in the labeling or under ordinary conditions
of use. Under DSHEA, the FDA bears the burden of proof to show that a dietary
supplement presents a significant or unreasonable risk of illness or injury. The
FDA may also take enforcement action for unlawful promotion of a dietary
supplement.


17


The
FDA has finalized some of its regulations to implement DSHEA including those
relating to nutritional labeling requirements and nutritional support claims.
The FDA also has under development additional regulations and guidelines to
implement DSHEA. Newly adopted and future regulations may require expanded or
different labeling for our dietary supplements. We cannot determine what effect
these regulations, when fully implemented, will have on our business in the
future. These regulations could require the reformulation or discontinuance of
certain products, additional recordkeeping, warnings, notification procedures
and expanded documentation of the properties of certain products and scientific
substantiation regarding ingredients, product claims and safety. Failure to
comply with applicable FDA requirements can result in sanctions being imposed on
us or the manufacture of our products including, but not limited to, warning
letters, product recalls and seizures, injunctions or criminal
prosecution.





The
FDA has promulgated regulations relating to the manufacturing process for drugs,
which are known as current Good Manufacturing Practices, (GMP’s). In June
2007, the FDA published the final rule on GMP’s for dietary supplements, with an
effective date of June 25, 2008.  As authorized by DSHEA, the FDA
adopted GMPs specifically for Dietary Supplements. These new GMP regulations are
more detailed than the GMPs that previously applied to dietary supplements and
require, among other things, dietary supplements to be prepared, packaged and
held in compliance with specific rules, and require quality control provisions
similar to those in the GMP regulations for drugs.  We source all of
our dietary supplement products from outside suppliers. We believe the
manufacturing and distribution practices we utilize will comply with the new
rules.   As part of its regulatory authority, the FDA may
periodically conduct audits of the physical facilities, machinery, processes and
procedures that we, or our suppliers, use to manufacture products. The FDA may
perform these audits at any time without advanced notice. As a result of these
audits, the FDA may order us, or our suppliers, to make certain changes in
manufacturing facilities and processes. We may be required to make additional
expenditures to comply with these orders or the new GMP requirements, or
possibly discontinue selling certain products until we, or our suppliers, comply
with these orders and requirements. As a result, our business could be adversely
affected.





Although the regulation of dietary
supplements in some respects is less restrictive than the regulation of drugs,
there can be no assurance that dietary supplements will continue to be subject
to less restrictive regulation. In December 2006, the Dietary Supplement
and Nonprescription Drug Consumer Protection Act (the "AER Act") amended the
FDCA to require that manufacturers, packers, and distributors of dietary
supplements report serious adverse events to FDA. The AER Act became effective
on December 22, 2007. We expect to be in compliance with the AER
Act.





Our
advertising of dietary supplement products is also subject to regulation by the
Federal Trade Commission under the Federal Trade Commission Act, in addition to
state and local regulation. The Federal Trade Commission Act prohibits unfair
methods of competition and unfair or deceptive acts or practices in or affecting
commerce. The Federal Trade Commission Act also provides that the dissemination
or the causing to be disseminated of any false advertisement pertaining to drugs
or foods, which would include dietary supplements, is an unfair or deceptive act
or practice. Under the Federal Trade Commission’s Substantiation Doctrine, an
advertiser is required to have a “reasonable basis” for all objective product
claims before the claims are made. Failure to adequately substantiate claims may
be considered either deceptive or unfair practices. Pursuant to this Federal
Trade Commission requirement we are required to have adequate substantiation for
all material advertising claims made for our products.





In recent
years the Federal Trade Commission has initiated numerous investigations of
dietary supplement and weight loss products and companies. The Federal Trade
Commission is reexamining its regulation of advertising for dietary supplements
and has announced that it will issue a guidance document to assist supplement
marketers in understanding and complying with the substantiation requirement.
Upon release of this guidance document we will be required to evaluate our
compliance with the guideline and may be required to change our advertising and
promotional practices. We may be the subject of investigation in the future. The
Federal Trade Commission may impose limitations on our advertising of products.
Any such limitations could materially adversely affect our ability to
successfully market our products. The Federal Trade Commission has a variety of
processes and remedies available to it for enforcement, both administratively
and judicially, including compulsory processes, cease and desist orders, and
injunctions. Federal Trade Commission enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. A violation of such orders could have a
material adverse affect on our business, financial condition and results of
operations.





Governmental
regulations in foreign countries where our plans to commence or expand sales may
prevent or delay entry into the market or prevent or delay the introduction, or
require the reformulation, of certain of our products. Compliance with such
foreign governmental regulations is generally the responsibility of our
distributors for those countries. These distributors are independent contractors
over whom we have limited control.


18


We may
have certain products manufactured pursuant to contracts with customers who
distribute the products under their own or other trademarks. Such private label
customers are subject to government regulations in connection with their
purchase, marketing, distribution and sale of such products. We are subject to
government regulations in connection with our manufacturing, packaging and
labeling of such products. Our private label customers are independent companies
and their labeling, marketing and distribution of their products is beyond our
control. The failure of these customers to comply with applicable laws or
regulations could have a materially adverse effect on our business, financial
condition, results of operations and cash flows.





We may be
subject to additional laws or regulations by the Food and Drug Administration or
other federal, state or foreign regulatory authorities, the repeal of laws or
regulations which we consider favorable, such as the Dietary Supplement Health
and Education Act of 1994, or more stringent interpretations of current laws or
regulations, from time to time in the future. We are unable to predict the
nature of such future laws, regulations, interpretations or applications, nor
can we predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on our business in the future. The
Food and Drug Administration or other governmental regulatory bodies could,
however, require the reformulation of certain products to meet new standards,
the recall or discontinuance of certain products not able to be reformulated,
imposition of additional record keeping requirements, expanded documentation of
the properties of certain products, expanded or different labeling and
scientific substantiation. Any or all of such requirements could have a
materially adverse affect on our business, financial condition, results of
operations and cash flows.




The FDA
regulates the formulation, manufacturing, packaging, labeling and distribution
of OTC drug products under a "monograph" system that specifies active drug
ingredients that are generally recognized as safe and effective for particular
uses. If an OTC drug is not in compliance with the applicable FDA monograph, the
product generally cannot be sold without first obtaining the FDA approval of a
new drug application, a long and expensive procedure. There can be no assurance
that, if more stringent statutes are enacted for dietary supplements, or if more
stringent regulations are promulgated, we will be able to comply with such
statutes or regulations without incurring substantial expense.


The FDA
has broad authority to enforce the provisions of the FDCA applicable to dietary
supplements and OTC drugs, including powers to issue a public "warning letter"
to a company, to publicize information about illegal products, to request a
voluntary recall of illegal products from the market, and to request the
Department of Justice to initiate a seizure action, an injunction action, or a
criminal prosecution in the US courts.




FDA
Regulation — Approval of Biological Products and New Drug
Products


Under the
FDCA all “new drugs” and “biological products”, including over the counter “OTC”
products, are subject to pre-market approval by the FDA under the new drug
application (“NDA”) process. The FDC Act defines a “new drug” as a drug that is
not generally recognized among scientifically qualified experts as safe and
effective for use under the conditions stated in its labeling. A drug might also
be considered new if it has not been used, outside of clinical investigations,
to a material extent or for a material time under conditions described for a
product. A drug that is generally regarded as safe and effective is not a “new
drug” and therefore does not require pre-market approval.





Biological
products, like other drugs, are used for the treatment, prevention or cure of
disease in humans. In contrast to chemically synthesized small molecular weight
drugs, which have a well-defined structure and can be thoroughly characterized,
biological products are generally derived from living material—human, animal, or
microorganism— are complex in structure, and thus are usually not fully
characterized.  The Public Health Service (PHS)
Act defines a biological product as a “virus, therapeutic serum, toxin,
antitoxin, vaccine, blood, blood component or derivative, allergenic product, or
analogous product, applicable to the prevention, treatment, or cure of a disease
or condition of human beings.” FDA regulations and policies have established
that biological products include blood-derived products, vaccines, in vivo
diagnostic allergenic products, immunoglobulin products, products containing
cells or microorganisms, and most protein products.  Biological products
subject to the PHS Actalso meet the definition of drugsunder the Federal Food, Drug and Cosmetic Act
(FDCA).   Biological products are a subset of drugs;
therefore both are regulated under provisions of the FDCA.  However,
only biological products are licensed under the PHS Act.  The overall
development process is similar to that for drugs. The steps ordinarily required
before a biological product or new drug may be marketed in the United States
include:


•
            completion
      of preclinical studies according to good laboratory practice
      regulations;•
            the
      submission of an IND application to the FDA, which must become effective
      before human clinical trials may commence;


19




•
            performance
      of adequate and well-controlled human clinical trials according to good
      clinical practices to establish the safety and efficacy of the proposed
      biological product for its intended use;•
            satisfactory
      completion of an FDA pre-approval inspection of the manufacturing facility
      or facilities at which the product is manufactured, processes, packaged or
      held to assess compliance cGMP; and•
            the
      submission to, and review and approval by, the FDA of a biologics license
      application “BLA”, or new drug application (“NDA”), that includes
      satisfactory results of preclinical testing and clinical
      trials.





Preclinical
tests include laboratory evaluation of the product candidate, its formulation
and stability, as well as animal studies to assess the potential safety and
efficacy of the product candidate. The FDA requires that preclinical tests be
conducted in compliance with good laboratory practice regulations. The results
of preclinical testing are submitted as part of an IND application to the FDA
together with manufacturing information for the clinical supply, analytical
data, the protocol for the initial clinical trials and any available clinical
data or literature. A 30-day waiting period after the filing of each IND
application is required by the FDA prior to the commencement of clinical testing
in humans. In addition, the FDA may, at any time during this 30-day waiting
period or any time thereafter, impose a clinical hold on proposed or ongoing
clinical trials. If the FDA imposes a clinical hold, clinical trials cannot
commence or recommence without FDA authorization.





Clinical
trials to support BLAs and NDAs involve the administration of the
investigational product to human subjects under the supervision of qualified
investigators. Clinical trials are conducted under protocols detailing, among
other things, the objectives of the study, the parameters to be used in
monitoring safety and the efficacy criteria to be evaluated.  Clinical
trials are typically conducted in three sequential phases, but the phases may
overlap.





In
Phase I clinical trials, the initial introduction of the biological product
candidate into human subjects or patients, the product candidate is tested to
assess safety, dosage tolerance, absorption, metabolism, distribution and
excretion, including any side effects associated with increasing
doses.





Phase II
clinical trials usually involve studies in a limited patient population to
identify possible adverse effects and safety risks, preliminarily assess the
efficacy of the product candidate in specific, targeted indications; and assess
dosage tolerance and optimal dosage.





If
a product candidate is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials
are undertaken within an expanded patient population at multiple study sites to
further demonstrate clinical efficacy and safety, further evaluate dosage and
establish the risk-benefit ratio of the product and an adequate basis for
product labeling.





Phase IV,
or post-marketing, trials may be mandated by regulatory authorities or may be
conducted voluntarily. Phase IV trials are typically initiated to monitor
the safety and efficacy of a biological product in its approved population and
indication but over a longer period of time, so that rare or long-term adverse
effects can be detected over a much larger patient population and time than was
possible during prior clinical trials. Alternatively, Phase IV trials may
be used to test a new method of product administration, or to investigate a
product’s use in other indications. Adverse effects detected by Phase IV
trials may result in the withdrawal or restriction of a drug.





If
the required Phase I, II and III clinical testing is completed
successfully, the results of the required clinical trials, the results of
product development, preclinical studies and clinical trials, descriptions of
the manufacturing process and other relevant information concerning the safety
and effectiveness of the biological product or new drug candidate are submitted
to the FDA in the form of a BLA or NDA. In most cases, the BLA must be
accompanied by a substantial user fee. The FDA may deny a BLA or NDA if all
applicable regulatory criteria are not satisfied or may require additional data,
including clinical, toxicology, safety or manufacturing data. It can take
several years for the FDA to approve a BLA or NDA once it is submitted, and the
actual time required for any product candidate may vary substantially, depending
upon the nature, complexity and novelty of the product
candidate.





Before
approving an application, the FDA will inspect the facility or facilities where
the product is manufactured. The FDA will not approve a BLA unless it determines
that the manufacturing processes and facilities are in compliance with cGMP
requirements.


20




If
the FDA evaluations of the BLA or NDA and the manufacturing facilities are
favorable, the FDA may issue either an approval letter or an approvable letter.
The approvable letter usually contains a number of conditions that must be met
to secure final FDA approval of the BLAor NDA. When, and if, those conditions
have been met to the FDA’s satisfaction, the FDA will issue an approval letter.
If the FDA’s evaluation of the BLA, NDA or manufacturing facility is not
favorable, the FDA may refuse to approve the BLA or NDA or issue a
non-approvable letter that often requires additional testing or
information.





The
required testing, data collection, analysis and compilation of an IND and a new
biological or drug application are labor intensive and costly and may take a
great deal of time. Tests may have to be redone or new tests performed in order
to comply with FDA requirements.  It can take considerable time (e.g.
5-10 years) and resources to establish a Phase II or III clinical trial and
achieve enrollment sufficient to commence such trials and ultimately proceed
through to approval. Therefore, we cannot estimate with any certainty the length
or the costs of the approval process. We can offer no assurance that we will
ever receive FDA approval of products derived from our licensed, patented
technologies.





FDA
Regulation — Approval of
Medical Devices





The FDCA
defines a medical device, which would be subject to premarketing and
postmarketing regulatory controls as an instrument, apparatus, implement,
machine, contrivance, implant, in vitro reagent, or other similar or related
article, including a component part, or accessory which is:





·
            recognized
      in the official National Formulary, or the United States Pharmacopoeia, or
      any supplement to them,


·
            intended
      for use in the diagnosis of disease or other conditions, or in the cure,
      mitigation, treatment, or prevention of disease, in man or other animals,
      or


·
            intended
      to affect the structure or any function of the body of man or other
      animals, and which does not achieve any of it's primary intended purposes
      through chemical action within or on the body of man or other animals and
      which is not dependent upon being metabolized for the achievement of any
      of its primary intended purposes.





Medical
devices are also subject to extensive regulation by the FDA. To be commercially
distributed in the United States, medical devices must receive either 510(k)
clearance or pre-market approval, or PMA, from the FDA prior to marketing.
Devices deemed to pose relatively low risk are placed in either Class I or
II, which requires the manufacturer to submit a pre-market notification
requesting permission for commercial distribution, or 510(k) clearance. Devices
deemed by the FDA to pose the greatest risk, such as life-sustaining,
life-supporting or implantable devices, devices deemed not substantially
equivalent to a previously 510(k) cleared device and certain other devices are
placed in Class III which requires PMA.





To
obtain 510(k) clearance, a manufacturer must submit a pre-market notification
demonstrating that the proposed device is substantially equivalent in intended
use and in safety and efficacy to a previously 510(k) cleared device, a device
that has received PMA or a device that was in commercial distribution before
May 28, 1976. The FDA’s 510(k) clearance pathway usually takes from four to
twelve months, but it can last longer.





After
a device receives 510(k) clearance, any modification that could significantly
affect its safety or efficacy, or that would constitute a major change in its
intended use, requires a new 510(k) clearance or could require PMA. The FDA
requires each manufacturer to make this determination, but the FDA can review
any such decision. If the FDA disagrees with a manufacturer’s decision not to
seek a new 510(k) clearance, the agency may retroactively require the
manufacturer to seek 510(k) clearance or PMA. The FDA also can require the
manufacturer to cease marketing and/or recall the modified device until 510(k)
clearance or PMA is obtained.





A
product not eligible for 510(k) clearance must follow the PMA pathway, which
requires proof of the safety and efficacy of the device to the FDA’s
satisfaction. The PMA pathway is much more costly, lengthy and uncertain than
the 510(k) approval pathway. A PMA application must provide extensive
preclinical and clinical trial data and also information about the device and
its components regarding, among other things, device design, manufacturing and
labeling. As part of the PMA review, the FDA will typically inspect the
manufacturer’s facilities for compliance with quality system regulation
requirements, which impose elaborate testing, control, documentation and other
quality assurance procedures. Upon acceptance by the FDA of what it considers a
completed filing, the FDA commences an in-depth review of the PMA application,
which typically takes from one to two years, but may last longer. The review
time is often significantly extended as a result of the FDA asking for more
information or clarification of information already provided.


21




If
the FDA’s evaluation of the PMA application is favorable, and the applicant
satisfies any specific conditions (e.g., changes in labeling) and provides any
specific additional information (e.g., submission of final labeling), the FDA
will issue a PMA for the approved indications, which can be more limited than
those originally sought by the manufacturer. The PMA can include post-approval
conditions that the FDA believes necessary to ensure the safety and efficacy of
the device including, among other things, restrictions on labeling, promotion,
sale and distribution. Failure to comply with the conditions of approval can
result in an enforcement action, which could have material adverse consequences,
including the loss or withdrawal of the approval.





Even
after approval of a pre-market application, a new PMA or PMA supplement is
required in the event of a modification to the device, its labeling or its
manufacturing process.





FDA Regulation — Post-Approval
Requirements





Even if
regulatory clearances or approvals for our product candidates are obtained, our
products and the facilities manufacturing our products will be subject to
continued review and periodic inspections by the FDA. For example, as a
condition of approval of a new drug application, the FDA may require us to
engage in post-marketing testing and surveillance and to monitor the safety and
efficacy of our products. Holders of an approved new BLA, PMA or 510(k)
clearance product are subject to several post-market requirements, including the
reporting of certain adverse events involving their products to the FDA,
provision of updated safety and efficacy information, and compliance with
requirements concerning the advertising and promotion of their
products.





In
addition, manufacturing facilities are subject to periodic inspections by the
FDA to confirm the facilities comply with cGMP requirements. In complying with
cGMP, manufacturers must expend money, time and effort in the area of production
and quality control to ensure full compliance. For example, manufacturers of
biologic products must establish validated systems to ensure that products meet
high standards of sterility, safety, purity, potency and identity. Manufacturers
must report to the FDA any deviations from cGMP or any unexpected or
unforeseeable event that may affect the safety, quality, or potency of a
product. The regulations also require investigation and correction of any
deviations from cGMP and impose documentation requirements.





In
addition to regulations enforced by the FDA, we are also subject to regulation
under the Occupational Safety and Health Act, the Environmental Protection Act,
the Toxic Substances Control Act, the Resource Conservation and Recovery Act and
other federal, state and local regulations. Our research and development
activities involve the controlled use of hazardous materials, chemicals,
biological materials and radioactive compounds.





International Regulation





Our
product candidates are subject to regulation in every country where they will be
tested or used. Whether or not we obtain FDA approval for a product candidate,
we must obtain the necessary approvals from the comparable regulatory
authorities of foreign countries before we can commence testing or marketing of
a product candidate in those countries. The requirements governing the conduct
of clinical trials and the approval processes vary from country to country and
the time required may be longer or shorter than that associated with FDA
approval.





In the European Economic Area, composed of the 25 European Union Member
States, plus Norway, Iceland and Lichtenstein, marketing authorization
applications for medicinal products may be submitted under a centralized or
national procedure. Detailed preclinical and clinical data must accompany all
marketing authorization applications that are submitted in the European Union.
The centralized procedure provides for the grant of a single marketing
authorization, referred to as a community authorization, that is valid for the
entire European Economic Area. Under the national or decentralized procedure, a
medicinal product may only be placed on the market when a marketing
authorization, referred to as a national authorization, has been issued by the
competent authority of a European Economic Area country for its own territory.
If marketing authorization is granted, the holder of such authorization may
submit further applications to the competent authorities of the remaining member
states via either the decentralized or mutual recognition procedure. The
decentralized procedure enables applicants to submit an identical application to
the competent authorities of all member states where approval is sought at the
same time as the first application. We expect to position our products so that
we will be eligible to seek commercial approval of our products under either the
centralized or national procedure.


22





Under
the mutual recognition procedure, products are authorized initially in one
member state, and other member states where approval is sought are subsequently
requested to recognize the original authorization based upon an assessment
report prepared by the original authorizing competent authority. The other
member states then have 90 days to recognize the decision of the original
authorizing member state. If the member states fail to reach an agreement
because one of them believes that there are grounds for supposing that the
authorization of the medicinal product may present a potential serious risk to
public health, the disagreement may be submitted to the Committee for Medicinal
Products for Human Use of the European Medicines Agency for arbitration. The
decision of this committee is binding on all concerned member states and the
marketing authorization holder. Other member states not directly concerned at
the time of the decision are also bound as soon as they receive a marketing
application for the same product. The arbitration procedure may take an
additional year before a final decision is reached and may require the delivery
of additional data.





The
European Economic Area requires that manufacturers of medical devices obtain the
right to affix the CE Mark to their products before selling them in member
countries. The CE Mark is an international symbol of adherence to quality
assurance standards and compliance with applicable European medical device
directives. In order to obtain the right to affix the CE Mark to a medical
device, the medical device in question must meet the essential requirements
defined under the Medical Device Directive (93/42/ EEC) relating to safety and
performance, and the manufacturer of the device must undergo verification of
regulatory compliance by a third party standards certification provider, known
as a notified body. Provided that we enter into a long term manufacturing
contract with an entity that satisfies the requirements of the International
Standards Organization, we anticipate that we will file an application to obtain
the right to affix the CE Mark as needed.





In
addition to regulatory clearance, the conduct of clinical trials in the European
Union is governed by the European Clinical Trials Directive (2001/20/ EC), which
was implemented in May 2004. This directive governs how regulatory bodies in
member states may control clinical trials. No clinical trial may be started
without authorization by the national competent authority and favorable ethics
approval.





Manufacturing
facilities are subject to the requirements of the International Standards
Organization. In complying with these requirements, manufacturers must expend
money, time and effort in the area of production and quality control to ensure
full compliance.





Despite
efforts to harmonize the registration process in the European Union, the
different member states continue to have different national healthcare policies
and different pricing and reimbursement systems. The diversity of these systems
may prevent a simultaneous pan-European launch, even if centralized marketing
authorization has been obtained.





In
some cases, we may plan to submit applications with different endpoints or other
elements outside the United States due to differing practices and requirements
in particular jurisdictions. However, in cases where different endpoints will be
used outside the United States, we expect that such submissions will be
discussed with the FDA to ensure that the FDA is comfortable with the nature of
human trials being conducted in any part of the world. As in the United States,
post-approval regulatory requirements, such as those regarding product
manufacture, marketing, or distribution, would apply to any product that is
approved in Mexico or Europe.





Competition





Industry. Our industry is subject
to rapid and intense technological change. Competition is intense among
manufacturers of nutritional, non-prescription, and prescription
pharmaceuticals. We face, and will continue to face, retail, competition from
neutraceutical, pharmaceutical, biopharmaceutical, medical device and
biotechnology companies developing similar products and technologies both in the
United States and abroad, as well as numerous academic and research
institutions, governmental agencies and private organizations engaged in drug
funding or research and discovery activities both in the United States and
abroad. Academic institutions, government agencies and other public and private
research organizations may also conduct research, seek patent protection and
establish collaborative arrangements for discovery, research and clinical
development of technologies and products similar to ours.  We also
face competition from entities and healthcare providers using more traditional
methods. We believe there are a substantial number of products under development
by numerous neutraceutical, pharmaceutical, biopharmaceutical, medical device
and biotechnology companies, and it is likely that other competitors will
emerge.





Many
of our existing and potential competitors are large, well established
pharmaceutical, chemical or healthcare companies with considerably greater
research and product development capabilities and financial, scientific,
marketing and human resources than we do. As a result, these competitors may
succeed in developing competing products earlier than we do; obtain patents that
block or otherwise inhibit our ability to further develop and commercialize our
product candidates; obtain approvals from the FDA or other regulatory agencies
for products more rapidly than we do; or develop treatments or cures that are
safer or more effective than those we propose to develop. These competitors may
also devote greater resources to marketing or selling their products and may be
better able to withstand price competition. In addition, these competitors may
introduce or adapt more quickly to new technologies or scientific advances,
which could render our technologies obsolete, and may introduce products or
technologies that make the continued development, production, or marketing of
our product candidates uneconomical. These competitors may also be more
successful in negotiating third party licensing or collaborative arrangements
and may be able to take advantage of acquisitions or other strategic
opportunities more readily than we can.   These actions by
competitors or potential competitors could materially affect our business,
financial condition and results of operations. We cannot assure you that we will
be able to compete successfully.


23





Personnel.  Our ability to
compete successfully will also depend on our continued ability to attract and
retain skilled and experienced scientific, clinical development and executive
personnel, to identify and develop our product candidates and to exploit these
products and compounds commercially before others are able to develop
competitive products. Competition among biotechnology and biopharmaceutical
companies for qualified employees is intense, and there can be no assurance we
will be able to attract and retain qualified individuals. If we fail to do so,
this would have a material, adverse effect on the results of our
operations.  We do not maintain any life insurance on the lives of any
of our officers and directors. We are highly dependent on the services of our
directors and officers, particularly on those of Jeffrey Hillman. If one or all
of our officers or directors die or otherwise become incapacitated, our
operations could be interrupted or terminated.


We
believe the principal competitive factors affecting our markets include, but are
not limited to:
 
 •
                the
      safety and efficacy of our product
candidates;
 
 •
                the
      freedom to develop and commercialize our products, technology platforms
      and replacement therapy, including appropriate patent and proprietary
      rights protection;
 
 •
                the
      timing and scope of regulatory
approvals;
 
 •
                the
      cost and availability of our
products;
 
 •
                the
      availability and scope of third party reimbursement programs;
      and
 
 •
                the
      availability of alternative
treatments.
 
 We are
still in the process of determining, among other things:
 
 •
                if
      replacement therapy is safe and
effective;
 
 •
                the
      market acceptance of EvoraPlus and our weight loss
  product;
 
 •
                the
      timing and scope of regulatory approvals;
and
 
 •
                the
      availability and scope of third party reimbursement
    programs.




Accordingly,
we have a limited ability to predict how competitive our products, technology
platforms and replacement therapy will be in the market
place.





Our
Intellectual Property





We rely
upon a combination of licenses, patents, trade secrets, know-how, and licensing
opportunities to develop our business.  Our future prospects depend on
our ability to protect our intellectual property, particularly our
patents.  We also need to operate without infringing the proprietary
rights of third parties.





License
Agreements.We have exclusively licensed the intellectual
property for our Replacement Therapy and Mutacin 1140 technologies from the
University of Florida Research Foundation, Inc., a non profit, Florida
corporation.  The related patents to which our exclusive license
applies are U.S. patent 5,607,672, “Replacement Therapy for Dental Caries,” and
U.S. patent 5,932,469, “Antimicrobial Polypeptide and Methods of Use” (including
derivative patents: 6,391,285, 6,475,771, 6,964,760 and
7,067125).  See “Our In-licensed Technology
Agreements.”


24


Patents.We
attempt to protect our technology and products through patents and patent
applications. We have built a portfolio of patents and applications covering
certain of our technologies.  As of December 31, 2008, we hold one
issued U.S. patent and we have 7 non-provisional U.S. patent applications
directed toward our products and technologies.  Our pending
applications cover a range of technologies, including specific embodiments and
applications for treatment of various medical indications, improved application
methods and adjunctive utilization with other therapeutic
modalities.  We reassess the value of each patent at the time
maintenance fees are due, and in cases where maintaining the patent is judged to
be of no significant strategic value we decline to pay the fee.  The
patents and patent applications we have with respect to our products and
technologies are set forth below:





Consumer products. We filed a
patent application on our probiotic technology on August 10, 2004 (U.S. patent
application serial number 10/567592).  We also filed a patent
application entitled “Methods for Size and Weight Reduction” (U.S. patent
application serial number 11/265, 414).





Diagnostics.In our diagnostic division
we acquired the rights to our platform technology in November 2006 in connection
with our acquisition of IviGene Corporation.  We own patents and
applications directed toward the identification of polynucleotides
expressed during the process of infection: In Vivo Induced Antigen
Technology-U.S. Patent 7,033,748, and U.S. Patent Application Serial Nos.
10/092,243; 10/505,054 and 12/291,929; Method of Detection of Mycobacterium Tuberculosis,
U.S. Patent Application Serial No. 12/293,497 filed 3/13/07.





Antibiotics.In our Antibiotics division
we have filed a patent application directed at the intellectual property
surrounding the DPOLTTM
solid/liquid phase peptide synthesis platform technology, as well as associated
areas of lantibiotics technology, in the U.S. (Serial No. 11/502,805) and
internationally (August 2006).  In addition, we have the exclusive
license for our MU 1140 lantibiotic technology from the University of Florida
Research Foundation.  See “License Agreements” above.





ReplacementTherapy.We have licensed
Replacement Therapy technology, the use of recombinant Streptococcus strains to
combat dental caries, from the University of Florida Research
Foundation.  See License Agreements above.





We also
have applications pending and/or allowed in Australia, Canada, China, Hong Kong,
Israel, Japan, Mexico, New Zealand, South Korea, as well as in the European
Patent Office.  Because of the differences in patent laws and laws
concerning proprietary rights, the extent of protection provided by U.S. patents
or proprietary rights owned by us may differ from that of their foreign
counterparts.





Trademarks.Our
trademarks are of material importance to our business.  We have
developed many brand names and trademarks for our
products.  Accordingly, our future success may depend in part upon the
goodwill associated with our brand names.  We currently use the
following unregistered trademarks:  SMaRT Replacement TherapyTM, MU
1140TM, Probiora3TM, IVIATTM and CMATTM, LPT3 04TM and
DPOLTTM.   Oragenics is among our non-registered trademarks. We
currently have pending with the U.S. Patent & Trademark Office, applications
for registration of our principal brands, including the marks for EVORA,
EVORABRIGHT, EVORABRITE, EVORAKIDS, EVORAPET, EVORAPLUS, EVORAPRO, PROBIORA, and
PROBIORA3.





We also have rights to use other names
essential to our business.  Federally registered trademarks have a
perpetual life, as long as they are maintained and renewed on a timely basis and
used properly as trademarks, subject to the rights of third parties to seek
cancellation of the trademarks if they claim priority or confusion of
usage.  We regard our trademarks and other proprietary rights as
valuable assets and believe they have significant value in marketing our
products.





Protection of
Trade Secrets.We attempt to
protect our trade secrets, including the processes, concepts, ideas and
documentation associated with our technologies, through the use of
confidentiality agreements and non-competition agreements with our current
employees and with other parties to whom we have divulged such trade secrets. If
our employees or other parties breach our confidentiality agreements and
non-competition agreements or if these agreements are not sufficient to protect
our technology or are found to be unenforceable, our competitors could acquire
and use information that we consider to be our trade secrets and we may not be
able to compete effectively. Most of our competitors have substantially greater
financial, marketing, technical and manufacturing resources than we have and we
may not be profitable if our competitors are also able to take advantage of our
trade secrets.





Research
and Development Costs





We have
spent $1,955,488, $1,569,551 and $2,023,896 on research and development of our
technologies in 2008, 2007 and 2006, respectively.


25


Employees


As of
December 31, 2008, we had 17 full-time and no part-time employees. We have 6
employees in research and development and 11 in general and administrative,
which includes marketing and business development.  Seven of our
employees have received their Ph.D. We enjoy good employee relations. None of
our employees are members of any labor union, and we are not a party to any
collective bargaining agreement.





Available
Information





Our
website is www.oragenics.com.  On
our website we make available at no cost our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished as soon as reasonably practicable after we
electronically file such material with, or furnish them to, the United States
Securities and Exchange Commission (“SEC”).  The information contained
on our website is not a part of this annual report on Form 10-K.




ITEM
1A. RISK FACTORS.




You should carefully consider the
risks described below before making an investment decision in our securities.
These risk factors are effective as of the date of this Form 10-K and shall be
deemed to be modified or superseded to the extent that a statement contained in
our future filings modifies or replaces such statement. All of these risks may
impair our business operations. The forward-looking statements in this Form 10-K
involve risks and uncertainties and actual results may differ materially from
the results we discuss in the forward-looking statements. If any of the
following risks actually occur, our business, financial condition or results of
operations could be materially adversely affected. In that case, the trading
price of our stock could decline, and you may lose all or part of your
investment.




Risks
Related to Our Business





We
have a limited operating history with significant losses and expect to continue
to experience losses for the foreseeable future and our independent auditors
have expressed doubt about our ability to continue as a going
concern.




We have
yet to establish any history of profitable operations.  Our
profitability will require the successful commercialization of one or more of
the technologies we either license or own. Since our organization, we have
incurred operating losses and negative cash flow from operating activities as a
result of minimal sales coupled with our significant clinical development,
research and development, general and administrative, sales and marketing and
business development expenses. Furthermore, our cash burn rate and expenses have
recently increased significantly due to our aggressive commercialization,
marketing and international initiatives. We expect to incur losses for at least
the next several years as we expand our sales and marketing capabilities, make
use of the sales and marketing capabilities of third parties and continue our
clinical trials and research and development activities.  Losses have
totaled approximately:




$6,021,742
for the year ended December 31, 2008




$2,311,712
for the year ended December 31, 2007




$2,935,719
for the year ended December 31, 2006




These
losses, among other things, have had and will continue to have an adverse effect
on our working capital, total assets and stockholders’ (deficit) equity. In
light of our recurring losses, accumulated deficit and cash flow difficulties,
the report of our independent registered public accounting firm on our financial
statements for the fiscal year ended December 31, 2008 contains an explanatory
paragraph raising substantial doubt about our ability to continue as a going
concern. Our financial statements do not include any adjustments that may be
necessary in the event we are unable to continue as a going
concern.




We have
experienced losses from operations during the last three years and have an
accumulated deficit of $19,992,535 as of December 31, 2008.  We have
an operating cash flow deficit of $3,835,190 for the year ended December 31,
2008 and we sustained operating cash flow deficits of $1,913,760 and $2,224,538
in 2007 and 2006, respectively. In the fourth quarter of 2008, we incurred
significant additional expenses that were attributable to our delisting from the
NYSE Alternext and listing on the NYSE Euronext Alternext Paris Exchange (the
"New Paris Listing).   Our accounts payable and accrued expenses
have also increased due to the listing issues as well as due to other
operational changes instituted in connection with the launch of our consumer
products.  At December 31, 2008 and December 31, 2007, we had working
capital of approximately ($500,672) and $260,534, respectively.


26


Since
December 31, 2008, we have continued to incur additional expenses attributable
to our operations and our New Paris Listing.  The Company's principal
source of liquidity at December 31, 2008 was $1,165,933 in cash and cash
equivalents.  The Company currently does not have sufficient capital
to operate beyond mid-April 2009.





We
continue to require additional financing to operate through the remainder of the
year.





We do not
have sufficient capital to sustain our operations beyond April 2009 and we will
require additional financing as soon as possible. If we are not able to raise
additional capital, among other things:




·
            We
      could seek to reorganize under the protection of the Federal Bankruptcy
      Laws;


·
            We
      will need to scale back or cease our marketing and development
      efforts;


·
            We
      will be forced to cease operations;


·
            We
      will be unable to pursue further development of our
      technologies;


·
            We
      will be forced to sell off our technologies prior to maximizing their
      potential value;


·
            We
      will be unable to aggressively market our
  products;


·
            We
      will be unable to pursue patenting some of our technologies and
      development of our technologies and
products;


·
            We
      will have to lay-off personnel;


·
            We
      could be unable to continue to make public filings;
  and


·
            Our
      licenses for our SMaRTTM Replacement Therapy technology and MU 1140
      technology could be terminated.





There can
be no assurance that we will be able to raise additional capital and any of
these events would significantly harm our business.





Our business may be adversely
affected by the current economic recession.





The
domestic and international economies are experiencing a significant recession.
This recession has been magnified by the tightening of the credit markets. The
domestic and international markets may remain depressed for an undeterminable
period of time.  A prolonged recession could have a material adverse
effect on the Company's revenues, profits and its ability to obtain additional
financing if sales revenue is insufficient to sustain our operations as
needed.  In such event, we could be forced to limit our marketing and
development efforts and  significantly curtail or suspend our
operations, including laying-off employees, recording asset impairment
write-downs and other measures. We must generate significant revenues to achieve
and maintain profitability.




We
must spend at least $1 million annually on development of our MU 1140TM and
SMaRTTM Replacement Therapy technologies and $100,000 annually as minimum
royalties under our license agreements with the University of Florida Research
Foundation, Inc. We must also comply with certain other conditions of our
licenses. If we do not, our licenses to these and other technologies may be
terminated, and we may have to cease operations.





We hold
our MU 1140TM and SMaRTTM Replacement Therapy technologies under licenses from the
University of Florida Research Foundation, Inc. Under the terms of the licenses,
we must spend at least $1 million per year on development of those technologies
before the first commercial sale of products derived from those technologies. In
addition, we must pay $25,000 per quarter as minimum royalties to the University
of Florida Research Foundation, Inc. under our license agreements. The
University of Florida Research Foundation, Inc. may terminate our licenses in
respect of our MU 1140TM and our SMaRTTM Replacement Therapy technology and
technology if we breach our obligations to timely pay monies to it, submit
development reports to it or commit any other breach of the covenants contained
in the license agreements. There is no assurance that we will be able to comply
with these conditions. If our license is terminated, our investment in
development of our SMaRTTM Replacement TherapyTM and MU 1140TM technologies will
become valueless and we may have to cease operations.


27


Until
commercial sales of any products developed from these licensed technologies take
place, we will not be earning revenues from the sale of products derived from
them and will, therefore, have to raise the money we must spend on development
of our technologies by other means, such as commercialization and sale of our
consumer products, or the sale of our common stock. There is no assurance we
will achieve a sufficient level of sales to provide such funding or be able to
raise the financing necessary to meet our obligations under our licenses. If we
cannot, we may lose our licenses to these technologies and have to cease
operations.




We
are currently dependent upon a single company for the manufacture our
products.





Since we
currently have no manufacturing facilities, we are dependent upon establishing
relationships with independent manufacturers to supply our product needs. We
currently rely on one key contract manufacturer as our single source supplier
for ProBiora3TM and the EvoraTM line of products.  If our contract
manufacturer is unable or unwilling to produce these products we would not be
able to manufacture them until a qualified alternative manufacturer is
identified, which could impair our ability to commercialize these products and
harm our business.  We may not be able to find alternative
manufacturers on favorable terms to provide us with these services or at
all.  In addition, competitors who do own their own manufacturing may
have an advantage over us with respect to pricing, availability of product and
in other areas through their control of the manufacturing process.




The
manufacture of our products is a highly exacting and complex process, and if our
manufacturers or suppliers encounters problems manufacturing products, our
business could suffer.




The
manufacture of our products is a highly exacting and complex process, due in
part to strict regulatory requirements.  Problems may arise during
manufacturing for a variety of reasons, including equipment malfunction, failure
to follow specific protocols and procedures, problems with raw materials,
natural disasters, and environmental factors. In addition, certain suppliers are
currently used for certain products and materials. If problems arise during the
production of a batch of product, that batch of product may have to be
discarded. This could, among other things, lead to increased costs, lost
revenue, damage to customer relations, time and expense spent investigating the
cause and, depending on the cause, similar losses with respect to other batches
or products. If problems are not discovered before the product is released to
the market, recall and product liability costs may also be incurred. To the
extent our manufacturers or suppliers experiences significant manufacturing
problems, this could have a material adverse effect on our revenues and
profitability.




If we are unable
to maintain regulatory clearance or obtain approval for our technologies, we
will be unable to generate revenues and may have to cease
operations.




Only our
SMaRTTM Replacement Therapy technology has been granted clearance to begin Phase
1 human clinical trials by the FDA. Clinical trials on our SMaRTTM Replacement
Therapy are expected to take several years to fully complete. Our other drug
technologies have not been cleared for testing in humans. Our drug technologies
have not been cleared for marketing by the FDA or foreign regulatory authorities
and they will not be able to be commercially distributed in the United States or
any international markets until such clearances are obtained. Before regulatory
approvals can be obtained, our drug technologies will be subject to extensive
preclinical and clinical testing. These processes are lengthy and expensive. We
cannot assure that such trials will demonstrate the safety or effectiveness of
our drug technologies. There is a possibility that our technologies may be found
to be unsafe or ineffective or otherwise fail to satisfy regulatory
requirements. If we are unable to resolve the FDA’s concerns, we will not be
able to proceed further to obtain regulatory approval for that technology. If we
fail to maintain regulatory clearance for our SMaRTTM Replacement Therapy or fail
to obtain FDA clearance for our other drug technologies, we may have to cease
further development.


28


Many
of our product candidates are in the early development stage, and may not be
effective at a level sufficient to support a profitable business venture. If
they are not, we will be unable to create marketable products, and we may have
to cease operations.





Many of our product candidates are in
the early development stage. Although we have current data which indicates the
promise of the concept of our technologies (including, SMaRTTM Replacement
Therapy, MU 1140TM, PIVIATTM, PCMATTM, DPOLTTM and LPT3-04), we can offer you no
assurance that the technologies will be effective at a level sufficient to
support a profitable business venture. If they are not, we will be unable to
create marketable products, we will not generate revenues from our operations,
and we may have to cease operations. The science on which our technologies are
based may also fail due to flaws or inaccuracies on which the data are based, or
because the data are totally or partially incorrect, or not predictive of future
results. If our science proves to be flawed, incorrect or otherwise fails, we
will not be able to create a marketable product or generate revenues and we may
have to cease operations.





The
success of our research and development activities is uncertain. If they do not
succeed, we will be unable to generate revenues from our operations and we will
have to cease doing business.





We intend
to continue with research and development of our technologies for the purpose of
licensing these technologies to third parties for obtaining regulatory approval
to manufacture and market them. Research and development activities, by their
nature, preclude definitive statements as to the time required and costs
involved in reaching certain objectives. Actual costs may exceed the amounts we
have budgeted and actual time may exceed our expectations. If research and
development requires more funding than we anticipate, then we may have to reduce
technological development efforts or seek additional financing. There can be no
assurance that we will be able to secure any necessary additional financing or
that such financing would be available on favorable terms. Additional financings
could result in substantial dilution to existing shareholders. We anticipate,
subject to available funding, that we will remain engaged in research and
development for a considerable period of time, and there can be no assurance
that we will be able to generate adequate funding or revenue from operations to
do so.




Each
of the technologies we are commercializing and developing for eventual
commercialization will face various forms of competition from other products in
the marketplace.





The
pharmaceutical and biotechnology industries are characterized by intense
competition, rapid product development and technological change. Most of the
competition that the products developed from our technologies will face will
come from companies that are large, well established and have greater financial,
marketing, sales and technological resources than we have. Commercial success of
our technologies will depend on our ability and the ability of our sub licensees
to compete effectively in marketing and product development areas such as, but
not limited to, sales and branding, drug safety, efficacy, ease of use, patient
or customer compliance, price, marketing and distribution. There can be no
assurance that competitors will not succeed in developing and marketing products
that are more desirable or effective than the products developed from our
technologies or that would render our products obsolete and
non-competitive.




We
rely on the significant experience and specialized expertise of our senior
management and must retain and attract qualified scientists and other highly
skilled personnel in a highly competitive job environment to maintain and grow
our business.





Our
performance is substantially dependent on the continued services and on the
performance of our senior management and our limited number of research
scientists, who have experience and specialized expertise in our business. Our
performance also depends on our ability to retain and motivate our other key
employees. The loss of the services of our acting Chief Executive Officer and
Chief Financial Officer, David Hirsch, our Chief Scientific Officer, Dr. Jeffrey
D. Hillman, and our Chief Operating Officer, Robert Zahradnik and any of our
researchers could harm our ability to develop and commercialize our
technologies. We have no "key man" life insurance policies. We have an
employment agreement with Dr. Hillman, which automatically renews for one-year
terms unless 90 days written notice is given by either party.





Our
future success also depends on our ability to identify, attract, hire, train,
retain and motivate highly skilled technical, managerial and research personnel.
If we fail to attract, integrate and retain the necessary personnel, our ability
to maintain and build our business could suffer significantly.




29




It
is possible that our SMaRTTM Replacement Therapy technology will be less
effective in humans than it has been shown to be in animals. It is possible our
MU 1140TM technology will be shown to be ineffective or harmful in humans. If any
of these technologies are shown to be ineffective or harmful in humans, we will
be unable to generate revenues from them, and we may have to cease
operations.





To date
the testing of our SMaRTTM Replacement Therapy technology has been undertaken
solely in animals and a limited number of humans. Studies have proven our
genetically altered strain of S. mutans to be effective in preventing tooth
decay in animals. It is possible that our strain of S. mutans will be shown to be
less effective in preventing tooth decay in humans in clinical trials. If our
SMaRT Replacement Therapy technology is shown to be ineffective in preventing
tooth decay in humans, we will be unable to commercialize and generate revenues
from this technology. To date the testing of the antibiotic substance, Mutacin
has been undertaken solely in the laboratory and in animals. We have not yet
conducted human studies of Mutacin. It is possible that when these studies are
conducted, they will show that MU1140 is ineffective or harmful. If Mutacin is
shown to be ineffective or harmful, we will be unable to commercialize it and
generate revenues from sales of Mutacin. If we are unable to generate revenues
from our technologies, we may have to cease operations.




It
is possible we will be unable to find a method to produce Mutacin 1140 in
large-scale commercial quantities. If we cannot, we will be unable to generate
revenues from product sales, and we may have to cease operations.





Our
antibiotic technology, Mutacin 1140, is a substance produced by our genetically
altered strain of S.
mutans. To date, it has been produced only in laboratory cultures. In
March 2005 we successfully developed a methodology for manufacturing Mutacin
1140 in quantities sufficient to undertake the preclinical studies necessary to
prepare an Investigational New Drug (IND) application to the FDA. We believe we
will be able to optimize this methodology or the DPOLT synthetic chemistry
methodology to allow large-scale commercial production of the antibiotic.
However, these methodologies may not be feasible for cost effective, large-scale
manufacture of the MU1140 antibiotic. If we are not able to optimize either of
these methodologies, we will be unable to generate revenues from this technology
and we may have to cease operations.




If
clinical trials for our product candidates are unsuccessful or delayed, we will
be unable to meet our anticipated development and commercialization timelines,
which could cause our stock price to decline and we may have to cease
operations.





Before
obtaining regulatory approvals for the commercial sale of any drug products, we
must demonstrate through preclinical testing and clinical trials that our
products are safe and effective for use in humans. Conducting clinical trials is
a lengthy, time-consuming and expensive process.




Completion
of clinical trials may take several years. Commencement and rate of completion
of clinical trials may be delayed by many factors, including:




·
            lack
      of efficacy during the clinical
trials;


·
            unforeseen
      safety issues;


·
            slower
      than expected patient recruitment;
and


·
            government
      or regulatory delays.





Results
from preclinical testing and early clinical trials are often not predictive of
results obtained in later clinical trials. A number of new products have shown
promising results in clinical trials, but subsequently failed to establish
sufficient safety and efficacy data to obtain necessary regulatory approvals.
Data obtained from preclinical and clinical activities are susceptible to
varying interpretations, which may delay, limit or prevent regulatory approval.
In addition, regulatory delays or rejections may be encountered as a result of
many factors, including perceived defects in the design of the clinical trials
and changes in regulatory policy during the period of product development. Any
delays in, or termination of, our clinical trials will materially and adversely
affect our development and commercialization timelines, which would adversely
affect our business and cause our stock price to decline and may cause us to
cease operations.




30




We
intend to consider relying on third parties to pay the majority of costs
relating to regulatory approvals necessary to manufacture and sell products
using our technologies. If we are unable to obtain agreements with third parties
to fund such costs, we will have to fund the costs ourselves. We may be unable
to do so, and if we are not, we may have to cease operations.





We intend
to consider sublicensing our technologies to strategic partners prior to
commercialization. If we do so, our sub-licensees will pay the costs of any
remaining clinical trials, and manufacturing and marketing of our technologies.
If we are unable to sublicense our technologies, we will have to pay for the
costs of Phase II and III trials and new drug applications to the FDA ourselves.
We would also have to set up our own manufacturing facilities and find our own
distribution channels. This would greatly increase our future capital
requirements and we cannot be assured we would be able to obtain the necessary
financing. If we cannot obtain financing, we may have to cease
operations.




If
our expected collaborative partnerships do not materialize or fail to perform as
expected, we will be unable to develop our products as anticipated.





We expect
to enter into collaborative arrangements with third parties to develop certain
products by sublicensing our technologies to strategic partners. We cannot
assure you that we will be able to enter into these collaborations or that, if
entered, they will produce successful products. If we fail to maintain our
existing collaborative arrangements or fail to enter into additional
collaborative arrangements, the number of products from which we could receive
future revenues would decline.




Our
dependence on collaborative arrangements with third parties subjects us to a
number of risks. These collaborative arrangements may not be on terms favorable
to us. Agreements with collaborative partners typically allow partners
significant discretion in electing whether or not to pursue any of the planned
activities. We cannot control the amount and timing of resources our
collaborative partners may devote to products based on the collaboration, and
our partners may choose to pursue alternative products. Our partners may not
perform their obligations as expected. Business combinations or significant
changes in a collaborative partner’s business strategy may adversely affect a
partner’s willingness or ability to complete its obligations under the
arrangement. Moreover, we could become involved in disputes with our partners,
which could lead to delays or termination of the collaborations and
time-consuming and expensive litigation or arbitration. Even if we fulfill our
obligations under a collaborative agreement, our partner can terminate the
agreement under certain circumstances. If any collaborative partner were to
terminate or breach our agreement with it, or otherwise fail to complete its
obligations in a timely manner, our chances of successfully commercializing
products would be materially and adversely affected.




We
are subject to the risks of doing business in Mexico and
internationally.




We have
initiated steps to conduct a joint venture in Mexico through a subsidiary
related to the research, development, manufacture, registration, marketing and
commercialization of certain of our products.  While we anticipate
that this joint venture will provide us with certain advantages including
reduced costs for clinical trials and access to the Mexican market, we have no
experience in conducting business in Mexico.  We may encounter certain
risks of doing business in Mexico including:




·
            differences
      in protection of our intellectual property
  rights;


·
            unexpected
      changes in, or impositions of, legislative or regulatory requirements that
      may limit our ability to conduct research or sell our products and
      repatriate funds to the United
States;


·
            political
      and economic instability;


·
            fluctuations
      in foreign exchange rates;


·
            difficulty
      in staffing, developing and managing foreign operations as a result of
      distances, languages and cultural
differences;


·
            difficulties
      in enforcement of contractual
obligations;


·
            national
      and regional labor strikes or labor
  requirements;


·
            increased
      costs in maintaining international research, manufacturing, marketing
      operations;


·
            potential
      trade restrictions and exchange
controls;


·
            political
      instability; and


·
            the
      burden of complying with foreign
laws.





Our
exposure to these risks could cause us to be unable to attain the anticipated
benefits of our Mexican joint venture and our business could be adversely
impacted.




31




If
our intellectual property rights do not adequately protect our products or
technologies, or if third parties claim we are infringing their intellectual
property rights, others could compete against us more directly or we could
suffer significant litigation. Such results could prevent us from marketing our
products and hurt our profitability.





Our
success depends in part on our ability to obtain patents or rights to patents,
protect trade secrets, operate without infringing upon the proprietary rights of
others, and prevent others from infringing on our patents, trademarks and other
intellectual property rights. We will be able to protect our intellectual
property from unauthorized use by third parties only to the extent that it is
covered by valid and enforceable patents, trademarks and licenses. Patent
protection generally involves complex legal and factual questions and,
therefore, enforceability of patent rights cannot be predicted with certainty.
Patents, if issued, may be challenged, invalidated or circumvented. Thus, any
patents that we own or license from others may not provide adequate protection
against competitors. In addition, any future patent applications may fail to
result in patents being issued. Also, those patents that are issued may not
provide us with adequate proprietary protection or competitive advantages
against competitors with similar technologies. Moreover, the laws of certain
foreign countries do not protect intellectual property rights to the same extent
as do the laws of the United States.




In
addition to patents and trademarks, we rely on trade secrets and proprietary
know-how. We seek protection of these rights, in part, through confidentiality
and proprietary information agreements. These agreements may not provide
meaningful protection or adequate remedies for violation of our rights in the
event of unauthorized use or disclosure of confidential and proprietary
information. Failure to protect our proprietary rights could seriously impair
our competitive position.




In the
event of an infringement or violation, we may face litigation and may be
prevented from pursuing product development or commercialization. We may receive
in the future, notice of claims of infringement of other parties’ proprietary
rights. Infringement or other claims could be asserted or prosecuted against us
in the future and it is possible that past or future assertions or prosecutions
could harm our business. We received notification from Celunol (formerly B.C.
International Corporation) on July 29, 2002 that a gene utilized in our
licensed, patented strain of S. mutans infringes a patent
which it holds under a license. On September 17, 2006, Celunol notified
Oragenics regarding the possibility of sublicenses to date.  As of
this date, no further communication has been received from Celunol. Their
notification did not state that they intended to pursue legal
remedies.  Our management does not believe the gene in question
infringes that patent. We have sent them correspondence setting out our
position. If necessary, we would need to be prepared to assert our rights
vigorously with respect to such matter, which we may not be able to do without
sufficient funding. If litigation should ensue and we are unsuccessful in that
litigation, we could be enjoined for a period of time from marketing products
which infringe any valid patent rights held or licensed by Celunol and/or we
could owe substantial damages.  On February 12, 2007 Celunol and the
Diversa Corporation announced that they had signed a definitive merger
agreement.




We
are subject to substantial government regulation, which could materially
adversely affect our business.





The
production and marketing of products which may be developed from our
technologies and our ongoing research and development, preclinical testing and
clinical trial activities are subject to extensive regulation and review by
numerous governmental authorities. For example, while we plan to market
Probiora3TM and LPT3-04TM products in the United States under self proclaimed GRAS
(Generally Recognized As Safe) status; most of the technologies we are
developing must undergo rigorous preclinical and clinical testing and an
extensive regulatory approval process before they can be marketed in the United
States or internationally. If the FDA or any other governmental regulatory body
does not agree with our contention that certain of our products are exempt from
testing and approval, we could be required to undergo the regulatory authority
approval process.  This process makes it longer, harder and more
costly to bring products which may be developed from our technologies to market,
and we cannot guarantee that any of such products will be approved. The
pre-marketing approval process can be particularly expensive, uncertain and
lengthy, and a number of products for which FDA or other governmental regulatory
approval has been sought by other companies have never been approved for
marketing. In addition to testing and approval procedures, extensive regulations
also govern marketing, manufacturing, distribution, labeling, and record-keeping
procedures. If we do not comply with applicable regulatory requirements, such
violations could result in warning letters, non-approval, suspensions of
regulatory approvals, civil penalties and criminal fines, product seizures and
recalls, operating restrictions, injunctions, and criminal
prosecution.




32




Delays in
or rejection of FDA or other government entity approval of our technologies may
also adversely affect our business. Such delays or rejection may be encountered
due to, among other reasons, government or regulatory delays, lack of efficacy
during clinical trials, unforeseen safety issues, slower than expected rate of
patient recruitment for clinical trials, inability to follow patients after
treatment in clinical trials, inconsistencies between early clinical trial
results and results obtained in later clinical trials, varying interpretations
of data generated by clinical trials, or changes in regulatory policy during the
period of product development.  More stringent regulatory oversight in
product clearance and enforcement activities could result in our experiencing
longer approval cycles, more uncertainty, greater risk, and higher expenses.
Even if regulatory approval of a product is granted, this approval may entail
limitations on uses for which the product may be labeled and promoted. It is
possible, for example, that we may not receive FDA approval to market products
based on our licensed, patented technologies for broader or different
applications or to market updated products that represent extensions of our
basic technologies. In addition, we may not receive FDA approval to export our
products based on our licensed, patented technologies in the future, and
countries to which products are to be exported may not approve them for
import.




Any
manufacturing facilities would also be subject to continual review and
inspection. For example, the FDA has stated publicly that compliance with
manufacturing regulations will be scrutinized more strictly. A governmental
authority may challenge our compliance with applicable federal, state and
foreign regulations. In addition, any discovery of previously unknown problems
with one of our products or facilities may result in restrictions on the product
or the facility, including withdrawal of the product from the market or other
enforcement actions.




From time
to time, legislative or regulatory proposals are introduced that could alter the
review and approval process relating to our technologies. It is possible that
the applicable regulatory authority will issue additional regulations further
restricting the sale of our proposed products. Any change in legislation or
regulations that govern the review and approval process relating to our future
technologies could make it more difficult and costly to obtain approval for new
products based on our technologies, or to produce, market, and distribute such
products if approved.




U.S. and
foreign governmental regulations mandating price controls and limitations on
patient access to our products could impact our business, and our future results
could be adversely affected by changes in such regulations.  In the
U.S., pharmaceutical products are subject to increasing pricing
pressures.  Such pressures have increased as the result of the 2003
Medicare Modernization Act due to the enhanced purchasing power of the private
sector plans that negotiate on behalf of Medicare beneficiaries.  In
addition, if the 2003 Medicare Modernization Act were amended to impose direct
governmental price controls and access restrictions, it could have a significant
adverse impact on our future revenues and business. In addition, MCOs, as well
as Medicaid and other government agencies, continue to seek price
discounts.  Some states have implemented and other states are
considering price controls or patient-access constraints under the Medicaid
program and some states are considering price-control regimes that would apply
to broader segments of their populations that are not Medicaid eligible. Other
matters also could be the subject of U.S. federal or state legislative or
regulatory action that could adversely affect our business, including changes in
patent laws, the importation of prescription drugs from outside the U.S. at
prices that are regulated by the governments of various foreign countries,
restrictions on U.S. direct-to-consumer advertising or limitations on
interactions with healthcare professionals and the use of comparative
effectiveness methodologies that could be implemented in a manner that focuses
primarily on the cost differences and minimizes the therapeutic differences
among pharmaceutical products.




We
can offer you no assurance the government and the public will accept our
licensed patented technologies. If they do not, we will be unable to generate
sufficient revenues from our technologies, which may cause us to cease
operations.





The
commercial success of our MU 1140 and SMaRT Replacement Therapy, Probiora3,
LPT3-04 and other technologies will depend in part on government and public
acceptance of their production, distribution and use. Biotechnology has enjoyed
and continues to enjoy substantial support from the scientific community,
regulatory agencies and many governmental officials in the United States and
around the world. Future scientific developments, media coverage and political
events may diminish such support. Public attitudes may be influenced by claims
that health products based on biotechnology are unsafe for consumption or pose
unknown risks to the environment or to traditional social or economic practices.
Securing governmental approvals for, and consumer confidence in, such products
poses numerous challenges, particularly outside the United States. The market
success of technologies developed through biotechnology such as ours could be
delayed or impaired in certain geographical areas because of such factors.
Products based on our technologies may compete with a number of traditional
dental therapies and drugs manufactured and marketed by major pharmaceutical
companies and other biotechnology companies. Market acceptance of products based
on our technologies will depend on a number of factors including potential
advantage over alternative treatment methods. We can offer you no assurance that
dentists, physicians, patients or the medical and dental communities in general
will accept and utilize products developed from our technologies. If they do
not, we may be unable to generate sufficient revenues from our technologies,
which may cause us to have to cease operations.




33




We
may be exposed to product liability claims as products based on our technologies
are marketed and sold. Because our liability insurance coverage will have
limitations, if a judgment is rendered against us in excess of the amount of our
coverage, we may have to cease operations.





Because
we are testing new technologies, and will be involved either directly or
indirectly in the manufacturing and distribution of the technologies, we are
exposed to the financial risk of liability claims in the event that the use of
the technologies results in personal injury or death. There can be no assurance
that we will not experience losses due to product liability claims in the
future, or that adequate insurance will be available in sufficient amounts, at
an acceptable cost, or at all. A product liability claim, product recall or
other claim, or claims for uninsured liabilities or in excess of insured
liabilities, may have a material adverse effect on our business, financial
condition and results of operations. Although we currently carry general
liability insurance, such insurance may not be sufficient to cover any potential
liability. We could be sued for a large sum of money and held liable in excess
of our liability coverage. If we cannot pay the judgment, we may have to cease
operations.




Pharmaceutical
products can develop unexpected safety or efficacy concerns.


Unexpected
safety or efficacy concerns can arise with respect to marketed products, whether
or not scientifically justified, leading to product recalls, withdrawals, or
declining sales, as well as product liability, consumer fraud and/or other
claims.




There
is uncertainty relating to favorable third-party reimbursement. If we are not
able to obtain third party reimbursement for products based on our technologies,
it could limit our revenue.





Our
success in obtaining payment for a new product from third parties such as
insurers and government programs depends greatly on the ability to present data
which demonstrate positive outcomes and reduced utilization of other products or
services as well as cost data which show that treatment costs using the new
product are equal to or less than what is currently covered for other products.
If we are unable to obtain favorable third party reimbursement and patients are
unwilling or unable to pay for our products out-of-pocket, it could limit our
revenue and harm our business.




If
users of our proposed products are unable to obtain adequate reimbursement from
third-party payers, or if new restrictive legislation is adopted, market
acceptance of our proposed products may be limited and we may not achieve
revenues.





The
continuing efforts of government and insurance companies, health maintenance
organizations and other payers of healthcare costs to contain or reduce costs of
health care may affect our future revenues and profitability, and the future
revenues and profitability of our potential customers, suppliers and
collaborative partners and the availability of capital. For example, in certain
foreign markets, pricing or profitability of prescription pharmaceuticals is
subject to government control. In the U.S., given recent federal and state
government initiatives directed at lowering the total cost of health care, the
U.S. Congress and state legislatures will likely continue to focus on health
care reform, the cost of prescription pharmaceuticals and on the reform of the
Medicare and Medicaid systems. While we cannot predict whether any such
legislative or regulatory proposals will be adopted, the announcement or
adoption of such proposals could materially harm our business, financial
condition and results of operations.




Our
ability to commercialize our proposed products will depend in part on the extent
to which appropriate reimbursement levels for the cost of our proposed
formulations and products and related treatments are obtained by governmental
authorities, private health insurers and other organizations, such as HMOs.
Third-party payers are increasingly challenging the prices charged for medical
drugs and services. Also, the trend toward managed health care in the U.S. and
the concurrent growth of organizations such as HMOs, which could control or
significantly influence the purchase of health care services and drugs, as well
as legislative proposals to reform health care or reduce government insurance
programs, may all result in lower prices for or rejection of our
products.




34




We
have limited resources which exposes us to potential risks resulting from new
internal control requirements under Section 404 of the Sarbanes-Oxley Act of
2002.





While we
have evaluated our internal controls in order to allow management to report on
our internal controls, as required by Section 404 of the Sarbanes-Oxley Act of
2002, our independent registered public accounting firm has not issued its
attestation report on our internal controls due to temporary rules of the
SEC.  There can be no assurances that when our independent registered
public accounting firm performs its attestation work that it will concur with
management’s assessment.  Any failure to obtain the attestation report
from our independent registered public accounting firm on the identification of
material weaknesses by them could result in unexpected delays in further
implementing the requirements relating to internal controls; remediation actions
or the impact that these activities will have on our operations. We also expect
to incur additional expenses and diversion of management’s time as a result of
performing the system and process evaluation, testing and any remediation
required when our auditors perform their attestation work in order to comply
with the auditor attestation requirements.




We are a
small company with limited resources that will make it difficult for us to
comply with the auditor attestation requirements of Section 404 in a timely
fashion. If we are not able to comply with the requirements set forth in Section
404, we might be subject to sanctions or investigation by regulatory
authorities. Any such action could adversely affect our business and financial
results.




Current
levels of securities and financial market volatility are
unprecedented.




The
capital and credit markets have been experiencing volatility and disruption for
more than 12 months. In recent months, the volatility and disruption has reached
unprecedented levels. In some cases, the markets have produced downward pressure
on stock prices and credit availability for certain issuers which effects may or
may not be directly related to those issuers’ underlying financial strength. If
current levels of market disruption and volatility continue or worsen, there can
be no assurance that we will not experience an adverse effect, which may be
material, on our ability to access capital and on our business, financial
condition and results of operations.




Recent
legislative and regulatory initiatives to address difficult market and economic
conditions may not stabilize the U.S. financial system or economy or benefit
us.




On
October 3, 2008, former President Bush signed into law the Emergency Economic
Stabilization Act of 2008 in response to the financial crises affecting the
banking system and financial markets. The U.S. Department of the Treasury and
banking regulators are implementing a number of programs under this legislation
to address capital and liquidity issues in the banking system. Subsequently, on
February 17, 2009, President Obama signed the American Recovery and Reinvestment
Act, to stimulate the economy. There can be no assurance, however, as to the
actual impact that these programs and legislation or any other governmental
program will have on the financial markets, including the extreme levels of
volatility and limited credit availability currently being experienced, or on
the economy. The failure of any such program or the U.S. government to stabilize
the financial markets and a continuation or worsening of current financial
market conditions and the national and regional economy is expected to
materially and adversely affect our business, financial condition, results of
operations, access to credit and the trading price of our common
stock.




35




Risks
Related to our Common Stock





Our
common stock is not listed on a national U.S. securities exchange and the
application of the “penny stock” rules could adversely affect the market price
of our common stock as well as increase your transaction costs to sell those
shares.




Our
common stock trades on the OTC Bulletin Board which generally has
significantly less liquidity than securities traded on a national securities
exchange, not only in the number of shares that can be bought and sold, but also
through delays in the timing of transactions, reduction in securities analyst
and news media coverage, and lower market prices than might otherwise be
obtained. As a result, purchasers of shares of our common stock may find it
difficult to resell their shares at prices quoted in the market or at all. In
addition, if at any time our the trading price of our  stock is below
$5.00 per share it is subject to the SEC’s “penny stock”
rules.  Because the “penny stock” rules impose certain requirements on
brokers, they may be less willing to execute transactions in our
securities.  Furthermore, because of the limited market and generally
low volume of trading in our common stock, our common stock is more likely to be
affected by broad market fluctuations, general market conditions, fluctuations
in our operating results, changes in the market’s perception of our business,
and announcements made by us, our competitors or parties with whom we have
business relationships. Our ability to issue additional securities for financing
or other purposes, or to otherwise arrange for any financing we may need in the
future, may also be materially and adversely affected by the fact that our
securities are not traded on a national securities exchange.




Our
stock price historically has been volatile and our stock’s trading volume has
been low.





The
trading price of our common stock has been, and may be, subject to wide
fluctuations in response to a number of factors, many of which are beyond our
control. These factors include:




·
            quarter-to-quarter
      variations in our operating
results;


·
            the
      results of testing, technological innovations, or new commercial products
      by us or our competitors;


·
            governmental
      regulations, rules, and orders;


·
            general
      conditions in the healthcare, dentistry, or biotechnology
      industries;


·
            comments
      and/or earnings estimates by securities
  analysts;


·
            developments
      concerning patents or other intellectual property
  rights;


·
            litigation
      or public concern about the safety of our
  products;


·
            announcements
      by us or our competitors of significant acquisitions, strategic
      partnerships, joint ventures or capital
  commitments;


·
            additions
      or departures of directors, officers and key
  personnel;


·
            release
      of escrow or other transfer restrictions on our outstanding shares of
      common stock or sales of additional shares of common
  stock;


·
            potential
      litigation initiated against us;


·
            adverse
      announcements by our competitors;
and


·
            the
      additional sale of common stock by us in capital raising
      transactions.





Historically,
the daily trading volume of our common stock has been relatively low and on some
days our stock does not trade at all. We cannot guarantee that an active public
market for our common stock will be sustained or that the average trading volume
will increase. In addition, the stock market in general, has experienced
significant price and volume fluctuations. Volatility in the market price for
particular companies has often been unrelated or disproportionate to the
operating performance of those companies. Broad market factors may seriously
harm the market price of our common stock, regardless of our operating
performance. In addition, securities class action litigation has often been
initiated following periods of volatility in the market price of a company's
securities. A securities class action suit against us could result in
substantial costs, potential liabilities, and the diversion of management's
attention and resources. Since our initial public offering in June 2003 and
through December 31, 2008 our stock price has fluctuated from $5.00 to $0.20 per
share. To the extent our stock price fluctuates and/or remains low, it could
impair our ability to raise capital through the offering of additional equity
securities.




Trading
on the OTC Bulletin Board may be volatile and sporadic, which could depress the
market price of our common stock and make it difficult for our stockholders to
resell their shares.




Our
common stock is quoted on the OTC Bulletin Board service of the Financial
Industry Regulatory Authority (FINRA). Trading in stock quoted on the OTC
Bulletin Board is often thin and characterized by wide fluctuations in trading
prices, due to many factors that may have little to do with our operations or
business prospects. This volatility could depress the market price of our common
stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin
Board is not a stock exchange, and trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on a
quotation system like Nasdaq or a stock exchange like Amex. Accordingly,
shareholders may have difficulty reselling any of their shares.




36




Future
sales of our common stock may depress our stock price.





The
market price of our common stock could decline as a result of sales of
substantial amounts of our common stock in the public market, or the perception
that these sales could occur. In addition, these factors could make it more
difficult for us to raise funds through future offerings of common stock. As of
March 10, 2009, there were 38,316,585 shares of our common stock outstanding,
with another 5,777,778 shares of common stock issuable upon exercise of warrants
to investors, 4,570,000 shares issuable upon exercise of options outstanding and
an additional 430,000 shares available for option grants under our stock option
plans. The issuance of shares of our common stock underlying these options is
covered by an S-8 registration statement we filed with the SEC and upon exercise
of the options, such shares may be resold into the market.  We have
issued a significant number of shares in connection with private placements that
are available for resale as well as shares issuable upon exercise of warrants
also issued with respect to such private placements. Most recently, we issued
5,777,778 shares of our common stock with warrants to acquire an additional
5,777,778 shares of our common stock at an exercise price of $1.30 per share in
a private placement in June 2008. The resale of shares acquired from us in
private transactions, could cause our stock price to decline
significantly.





In
addition, from time to time, certain of our stockholders may be eligible to sell
all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act of 1933, which we refer to in this memorandum as the Securities
Act, subject to certain limitations. In general, pursuant to Rule 144, after
satisfying a six month holding period: (i) affiliated stockholders (or
stockholders whose shares are aggregated) may, under certain circumstances, sell
within any three month period a number of securities which does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume of the class during the four calendar weeks prior to such
sale and (ii) non-affiliated stockholders may sell without such
limitations, provided we are current in our public reporting obligations. Rule
144 also permits the sale of securities by non-affiliates that have satisfied a
one year holding period without any limitation or restriction. Any substantial
sale of our common stock pursuant to Rule 144 or pursuant to any resale
memorandum may have a material adverse effect on the market price of our
securities.




We
could issue additional common stock, which might dilute the book value of our
common stock.




Our board
of directors has authority, without action or vote of our shareholders, to issue
all or a part of our authorized but unissued shares. Such stock issuances could
be made at a price that reflects a discount or a premium from the then-current
trading price of our common stock. In addition, in order to raise capital, we
may need to issue securities that are convertible into or exchangeable for a
significant amount of our common stock. These issuances would dilute your
percentage ownership interest, which would have the effect of reducing your
influence on matters on which our shareholders vote, and might dilute the book
value of our common stock. You may incur additional dilution if holders of stock
options, whether currently outstanding or subsequently granted, exercise their
options, or if warrant holders exercise their warrants to purchase shares of our
common stock.





ITEM
1B. UNRESOLVED STAFF COMMENTS.





The
Company has received no written comments regarding its periodic reports or
current reports from the staff of the Securities Exchange Commission that were
issued 180 days or more preceding the end of its 2008 calendar year and that
remain unresolved.





ITEM2.PROPERTIES.





Our
administrative office and laboratory facilities are located at 13700 Progress
Boulevard, Alachua, Florida 32615. We began leasing this property pursuant to a
five-year operating lease in November 2004. The facility is approximately 5,300
square feet of which approximately 60% is laboratory space and the remainder is
office space and common areas. The twelve months rental for 2008 was
approximately $89,753, net of insurance, taxes and utilities that are paid by
us. Lease payments escalate by 3% annually. We paid no leasehold improvement in
2008, 2007 or 2006.  We also spent $17,501 and $12,906 in 2008 and
2007, respectively, for laboratory equipment to outfit our facility. On October
1, 2008 the Company leased office space for the Sales and Marketing personnel
located at 111 2nd Ave NE,
Suite 511, St. Petersburg, FL 33701.  The lease is approximately 610
square feet and is occupied by four employees.  The lease period for
the office space is six months in the amount of $1,965 per month net of
insurance, taxes and utilities that are paid by us.  The lease expires
on March 31, 2009 and is being negotiated for renewal.




37




Due to
the increase in our needs, on January 7, 2009, we leased an additional 1,500
square feet of office space in a facility located at 13420 Progress Blvd, Suite
100, Alachua FL 32615.  This facility is located in the same business
complex as our primary offices.  The lease for this office space is
for a one-year period with the option to extend thereafter.  Under the
lease, we are not responsible for building insurance, common area maintenance or
taxes.  The twelve month rental rate is $24,375.





ITEM   3.  LEGAL
PROCEEDINGS.





We are
not a party to any material legal proceedings and there are no material legal
proceedings pending with respect to our property. We are not aware of any legal
proceedings contemplated by any governmental authorities involving either us or
our property.  None of our directors, officers or affiliates is an
adverse party in any legal proceedings involving us, or has an interest in any
proceeding which is adverse to us.




ITEM
4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.





None
during the fourth quarter of the 2008 fiscal year covered by this
report.




PART
II





ITEM5.MARKETFORREGISTRANT’SCOMMONEQUITY,RELATEDSTOCKHOLDERMATTERSANDISSUERPURCHASESOF EQUITYSECURITIES.





Our
common stock began trading on the NYSE Alternext US (formerly known as the
American Stock Exchange) under the symbol ONI on May 20, 2004.  Our
common stock was de-listed from the NYSE Alternext US Exchange on December 19,
2008.  Following de-listing our common stock has been quoted on the
over-the counter (OTC) Bulletin Board under the ticker symbol
“ORNI.”  On December 18, 2008, our common stock was listed on the
Alternext Paris exchange under the symbol “ALONI.”  The following sets
forth the high and low sales prices for the common stock on the NYSE Alternext
US for the period in which we were listed and the high and low bid quotations
reflected on the OTC Bulletin Board for the periods applicable in the last two
fiscal years.




Period
                          
                          2008
                          
                          
                          2007High
                          
                          
                          Low
                          
                          
                          High
                          
                          
                          LowFirst
      quarter
                          
                          $
                          0.58
                          
                          
                          $
                          0.40
                          
                          
                          $
                          1.18
                          
                          
                          $
                          0.73Second
      quarter
                          
                          $
                          0.76
                          
                          
                          $
                          0.43
                          
                          
                          $
                          1.10
                          
                          
                          $
                          0.33Third
      quarter
                          
                          $
                          0.85
                          
                          
                          $
                          0.47
                          
                          
                          $
                          0.75
                          
                          
                          $
                          0.38Fourth
      quarter
                          
                          $
                          0.81
                          
                          
                          $
                          0.20
                          
                          
                          $
                          0.59
                          
                          
                          $
                          0.28




On March
12, 2009, the closing bid price of the common stock, as reported by the OTCBB,
was $0.27.   As of March 18, 2009, there were approximately
55registered
holders of our common stock according to Broadridge Corporation.  The
number of record holders does not reflect the number of beneficial owners of the
common stock for whom shares are held by banks, brokerage firms and
others.





Dividends




To date,
we have neither declared nor paid any dividends on our common stock nor do we
anticipate that such dividends will be paid in the foreseeable
future.  Rather, we intend to retain any earnings to finance the
growth and development of our business.  Any payment of cash dividends
on our common stock in the future will be dependent, among other things, upon
our earnings, financial condition, capital requirements and other factors which
the board of directors deems relevant.  In addition, restrictive
covenants contained in any financing agreements entered into in the future may
preclude us from paying any dividends.




38




ITEM
6 SELECTED FINANCIAL DATA.





Not applicable.




ITEM  7.  MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.





The
following information should be read in conjunction with the Financial
Statements, including the notes thereto, included elsewhere in this Form 10-K.
This discussion contains certain forward-looking statements that involve risks
and uncertainties. Our actual results and the timing of certain events could
differ materially from those discussed in these forward-looking statements as a
result of certain factors, including, but not limited to, those set forth herein
and elsewhere in this Form 10-K.





Overview





We are a
multi-faceted biopharmaceutical company focused on the discovery,
development and commercialization of a variety of products and
technologies.  We are located in Alachua, Florida, near the University of
Florida where we have experienced scientific and management teams in place in
which to lead us into an exciting new phase of operations.  We have
historically operated largely within the confines of the United
States.  Over the past several months we have positioned ourselves for
development of a global foundation, with potential international investors,
partners and customers.




We are
currently transitioning from a company with a historic focus on research and
development to a company with increased focus on immediate and long term
commercialization.   We possess a number of proprietary products
and technologies some of which we have begun to
commercialize.   We believe that each of our products and
platform technologies addresses potentially large market
opportunities.





We expect
to generate revenue through the sale of our consumer healthcare products. 
We have currently received orders for our lead branded consumer products,
Probiora3 and EvoraPlus, which we have begun to fulfill.  While we
were initially more optimistic about the level of sales interest for these
products when earlier this year our former Chief Executive Officer revealed our
internal sales estimates, which were intended for internal use only, we are
currently experiencing slower sales with our products at this time and such
internal estimates are no longer applicable and have been significantly revised
downward.  As the launch of Probiora3 and EvoraPlus progressed, we also
experienced a higher level of overall expenses associated
with: manufacturing, marketing and selling initiatives; our global
expansion efforts and international initiatives; our new listing on
the NYSE Alternext Paris; and our expanded general and administrative
needs, including for professional services, related to such items.  We do
not expect the increases in our expenses to continue into the
near future as we have gone into a more reduced expense operation which
will place certain initiatives on hold.





Given our
lowered expectations for sales of our products and the potential expected cash
flows from such activities as well as the previous higher level of expenses from
continued operations and increased accounts payable associated with our
marketing, development, current and previous fund raising strategies and other
strategic initiatives, we are in need of substantial additional funds in order
to continue our operations.  Our cash and cash equivalent position is
currently less than our total accounts payable.  We are continuing to
seek additional funding.  We currently do not have any commitments for
funding and there can be no assurances that we will be able to obtain funding or
implement any strategic options in the future to acquire funding.  Our
available capital resources are expected to be utilized to sustain operations
while we continue to explore opportunities to raise additional
capital.  Our working capital at December 31, 2008 was a deficit of
$500,672 and our cash and cash equivalents at December 31, 2008 were
$1,165,933.  Absent raising additional capital in the near term, we do
not have sufficient liquidity to enable us to continue to operate through April
2009 as our cash position has decreased. While additional capital may become
available through cash flows from the sale of our probiotic healthcare products
or through grants or the possible future exercises of outstanding warrants,
there can be no assurance of the same and portions of any such capital raised
will be required for payment of outstanding accounts payable versus future
operations.  If we issue additional debt or equity securities to raise
capital, these securities are likely to have rights, preferences or privileges
senior to those of our common stock, and or current shareholders may experience
substantial dilution.  In the event adequate capital is not raised or
sufficient cash flows generated we would likely need to significantly curtail
and possibly cease our operations until we are able to raise additional capital
and we could seek to reorganize under the protection of Federal Bankruptcy
Laws.  In addition, we expect to explore strategic alternatives that
may be available to us and for our technologies.


39





Recent
Developments





We
believe we are making great strides operationally based upon the following
significant recent events we announced over the past several
months:





Consumer
Healthcare





·      Marketing of
ProBiora3TMand
EvoraPlusTM.On December
12, 2008, the Company announced that its website for EvoraPlusTM was now
available for direct sales to consumers.  EvoraPlusTM is the
first comprehensive oral probiotic on the market.








·      Garden of Life.On February 4, 2009, we announced that Garden of Life has been awarded
rights to use our revolutionary oral-care probiotic ingredient, ProBiora3. This
agreement gives Garden of Life exclusive rights to use ProBiora3 in the natural
products market. ProBiora3 is a patent-pending probiotic formula containing a
blend of three bacteria that work above and below the gum line to address oral
health at its root cause.





·      Progress in
Marketing ProBiora3TMand
EvoraPlusTM.As of the date of this
report, we believe we have made significant progress in our efforts to market
ProBiora3TM and
EvoraPlusTM.   Regarding
ProBiora3, we are in meaningful discussions with several large consumer products
and pet care companies to incorporate the ProBiora3TM
technology into existing products and technologies.  We anticipate
licensing ProBiora3 for use in such products and producing Probiora3 and selling
it to third parties for incorporation in widely recognized
products.  We are also in later stage discussions with large consumer
products companies and companies in the dental space that are considering
private labeling agreements whereby we manufacture products through our
third-party manufacturer for them with their branding.  Lastly, we
have been successful in our efforts to sell our own product, EvoraPlus, which
can now be found at such sites as cvs.com, walgreens.com, target.com and
drugstore.com.  We anticipate that EvoraPlus will also be stocked and
available at many of the nation’s top retailers by the end of 2009.





Antibiotics





·      Successful
Synthesis of Lantibiotic using DPOLTTM.On October 14, 2008, we
announced the successful synthesis of an antibiotic using its proprietary DPOLTTM
technology. The molecule belongs to a class of antibiotics called Lantibiotics
that were first discovered over 80 years ago. Although there are now over 50
different Lantibiotics known, this is the first report of a synthetic method for
making one in sufficient amounts and with sufficient purity to enable
comprehensive testing and commercial viability. As a first step in further
development, we have retained Almac Sciences, a leading contract manufacturer
and a division of the Almac Group, to refine and scale-up GMP production of the
synthetic MU 1140 analogue to achieve sufficient quantities for it to be fully
tested for regulatory approval.  We currently estimate that the
regulatory process will take four years before this drug could become available.
We believe other synthetic Lantibiotics will follow as they are developed and
tested.




Diagnostics




·      Diagnostics
Collaboration Agreement.On September 29, 2008,
we entered into a Collaboration Agreement with a major, global diagnostics
company regarding our gene targets for various stages of colorectal cancer that
we discovered using the PCMATTM platform. We have also initiated a new internal
program for both the PIVIATTM and PCMATTM platforms. Under this initiativewe
expect to augment our development work by including the validation of gene
targets we have discovered through the use of the platforms. We anticipate that
this will in turn make our gene targets more valuable and decrease the time to
market for any tests that may utilize them.





Global
Reach





·      Formation of
Mexican Subsidiary.On November 28, 2008, we formed ONIBIOTEC
SAPI de C.V., our Mexican subsidiary.  We anticipate that this
subsidiary will provide us with several advantages including the ability to
conduct clinical trials at reduced costs and access to the Mexican market. We
expect to begin marketing EvoraPlusTM in Mexico in the near future as regulatory
approval has been achieved. We also expect to initiate further clinical trials
with the SMaRTTM Replacement Therapy. We have also begun collaborating with the
Instituto de Biolotecnología, Universidad Nacional Autónoma de México
(“IBUNAM”), the premier biotechnology institute in Mexico, which we believe is
generally recognized as having the best and brightest scientists in Mexico. We
are working with IBUNAM on several projects including projects to discover novel
gene targets using our PIVIATTM and PCMATTM platforms.


40





·      US Listing on
NYSE Euronext Alternext Paris.  In November, 2008, the Company
began the process of listing on the NYSE Euronext Alternext Paris
exchange.  We were sponsored by Bryan Garnier, a reputable European
investment banking firm.  We were approved in early December, and on
Monday, December 15, 2008, the Company’s shares on Alternext Paris were listed
but as the date of this filing no trading has occurred.





U.S.
Trading Market for Our Common Stock





·      Delisting from
NYSE Alternext and listing on (OTC) Bulletin Board.On December 10, 2008,
the Company received notice from NYSE Alternext US LLC (formerly known as the
American Stock Exchange* hereinafter the "Exchange" or "Alternext US") that the
Listings Qualifications Panel of the Exchange's Committee on Securities (the
"Panel"), denied the Company's appeal and affirmed the Staff's previous decision
to delist the Company's common stock. The notice from the Exchange indicated
that the Panel agreed with the Staff’s determination that the Company did not
meet the continued listing standards under the Alternext US Company Guide:
Section 1003(a)(ii) in that the Company's stockholders' equity is less than $4
million and it has sustained losses in three of its four most recent fiscal
years.   Accordingly, the delisting became effective at the close
of market on December 19, 2008.  On Monday, December 22, 2008,
quotations for the Company’s shares became available on the Over-the-Counter
(OTC) Bulletin Board under the ticker symbol ORNI. Quotes became available,
among other places, on the OTC.BB website www.otcbb.com.





Corporate
Name





·      The ONI BioPharma
name change was abandoned.On January 30, 2009, we announced that we
would not seek shareholder approval to change our corporate name to ONI
BioPharma Inc., but would continue to be registered as Oragenics,
Inc.  This action was taken to reduce investor confusion in light of
our delisting from the NYSE Alternext and listings on the (OTC) Bulletin Board
and NYSE Euronext Alternext Paris.





Management
Team





·      Dr. Martin
Handfield joins the Company.On Jan 1, 2009,Dr. Martin Handfield was
appointed to the new position of Director of Research and Development. Prior to
joining the Company, Dr. Handfield was a tenured faculty member at the Center
for Molecular Microbiology and Department of Oral Biology, University of
Florida. Martin received his Ph.D. from Laval University in Canada and is a
co-inventor of the Company’s IVIAT platform technology that enables the rapid
identification of novel and potentially important gene targets associated with
the natural onset and progression of human infections.





·      Management Team
Change. On
March 19, 2009, we announced that Stanley Stein resigned from his position as
the Company’s President and Chief Executive Officer, that David Hirsch was
appointed acting Chief Executive Officer and would remain as the Company’s Chief
Financial Officer, and that Robert Zahradnik, Vice President of Business
Development, was appointed acting Chief Operational Officer.





Business
Objectives and Milestones




We have a
number of products and platforms. For ease in understanding, we have broken
these products and platforms down into four distinct divisions as
follows:




·
            Consumer
      Healthcare, which consists of oral probiotics that revolve around
      the ProBiora3TM technology, and weight loss products that are centered on
      the LPT3-04TM weight loss agent;


·
            Antibiotics,
      which consists of the DPOLTTM lantibiotic synthesis platform and MU
      1140;


·
            Diagnostics,
      which consists of the PIVIATTM and PCMATTM platforms;
  and


·
            Replacement
      Therapy, which consists of our SMaRTTM Replacement Therapy
      technology.





Provided
we are able to raise additional capital, we expect to continue the progress we
have experienced to date. Since our inception, the Company has funded a
significant portion of its operations from the public and private sales of its
securities.  There have been no significant revenues from operations
during the last two years.  All of our revenues have been from
sponsored research agreements and various governmental grants.  At
this time we just started to generate revenues from sales of
products.  In Q4 2008, we began receiving minor purchase orders
and/or revenues from the sale of EvoraPlustm, our
oral probiotic.


41


Although,
management believes that we are now positioned over the next several months to
generate revenues from a number of our healthcare products, we will require
substantial capital to continue our business operations and we will continue to
need to seek capital to effectuate our business plan.





We have
experienced significant negative cash flow from operations to date, and we
expect to continue to experience significant negative cash flow in the future.
Our inability to generate sufficient funds from operations and external sources
will have a material adverse effect on our business, results of operations and
financial condition. If we are not able to raise additional funds, we will be
forced to significantly curtail or cease our operations or seek to reorganize
under the protection of Federal Bankruptcy Laws. See “Liquidity and Capital
Resources” below for additional information. Furthermore, with respect to
products that are not ready for immediate commercialization, we are taking what
we regard to be concrete steps in completing the research and development of
pending products and platforms. Consequently, our proofs of concept are
essentially complete, and we are taking the steps necessary to bring our product
portfolio to market, with the expectation, but not assurance that our products,
where necessary, will be approved for marketing.





Consumer
Healthcare





The goal
of our Consumer Healthcare unit is to successfully commercialize our oral
probiotics products and to launch a product that contains our weight loss agent
LPT3-04.





Oral Probiotics: Our goals are
to penetrate the mass and specialty retail channels for our branded products,
establish several private labeling relationships in a variety of channels where
we can leverage other companies’ brands and distribution and to successfully
negotiate licensing arrangements with major companies for the incorporation of
our ProBiora3TM
technology in several well-known and widely recognized consumer
products.





Weight Loss: We are currently
in the process of re-formulating the delivery mechanism of LPT3-04 such that it
provides an enhanced consumer experience.  Once this is finished, we
will conduct a clinical trial to fully establish efficacy.  After the
clinical trial has been completed and efficacy is established, we will then
begin marketing our first product in the weight loss category.  We
anticipate that this will occur by the end of 2009.





Antibiotics





We are
currently scaling production of Synthetic MU 1140.  We anticipate that
this process will be complete in the first half of 2009.  We then plan
on conducting pre-clinical testing.  If pre-clinical testing is
positively concluded, we will file an IND with the FDA, which will include a
protocol for Phase I clinical safety trials.





Diagnostics





The goal
of our Diagnostics unit is to utilize the PIVIATTM and
PCMATTM
platforms to identify and secure intellectual property rights to gene targets
associated with the natural onset and progression of infections, cancers and
other diseases in humans, animals, and agricultural products. We believe these
platforms provide a number of profitable business models from which to realize
value.  We are in the process of establishing a joint venture with the
Instituto de Biolotecnología, Universidad Nacional Autonoma de Mexico
(“IBUNAM”), which is the premier biotechnology institute in
Mexico.  IBUNAM has excellent facilities and a substantial talent base
from which the Company can draw.  We are in the process of initiating
several projects with scientists at IBUNAM.





SMaRT
Replacement TherapyTM





Our
Replacement Therapy Division is centered on SMaRT Replacement TherapyTM, our
product for dental caries (tooth decay).  We are currently
investigating the possibility of conducting clinical trials for SMaRT in
Mexico.  We believe that SMaRTReplacement
TherapyTM will be appealing to governments of emerging nations such as Mexico
since the healthcare systems of these countries are more focused on proactive or
preventative medicine.  SMaRT Replacement TherapyTM can
potentially provide substantial back-end savings to countries since the
long-term costs associated with dental caries are substantial.  We
have been approved by the FDA for a Phase I(b) clinical trial.  As
such, we are also investigating the possibility of beginning the Phase I(b)
clinical trial in the United States in the immediate future.


42





Global
Expansion





Our
technologies have global implications.  To address the potential
international implications of our products and technologies we have developed a
global strategy.  Although we are domiciled in the United States, we
believe that there are numerous advantages in accessing overseas talent and
markets for a variety of our products and technologies.





Some of
the international strategic initiatives that we currently have in progress are
as follows:





Europe





We have
several strategic initiatives underway in Europe.  Some of the
projects include:





Listing on the
NYSE Euronext Alternext – Paris Exchange.On December 15, 2008,
our common stock was listed on the Alternext – Paris
exchange.  Although there has been no trading volume, we believe the
listing of our stock on the Alternext will facilitate our access to potential
capital through both public and private offerings in Europe.  This
provides an alternative to raising capital exclusively in the United
States.  We view this as a strategic advantage, especially in times of
economic turbulence.





French
Subsidiary. We are currently in the process of establishing a subsidiary
in France, which we expect to be headquartered in Lyon.





The Production of
Synthetic MU 1140.  Almac Sciences, a top-tier European peptide
manufacturer, is currently scaling production of Synthetic MU
1140.  The Company may thereafter be positioned to conduct clinical
trials for a number of potential products in Europe.  Lastly, we plan
on establishing a major marketing initiative in Europe for our Consumer
Healthcare Products.  These products would also be expected to be
manufactured in Europe.





Mexico





ONIBIOTEC
SAPI de C.V., our Mexican Subsidiary is the first of several anticipated
subsidiaries in strategic locations worldwide.  We have several
initiatives in various stages in Mexico.  Some of the projects
include:





Collaboration
with the Instituto de Biolotecnología, Universidad Nacional Autonoma de Mexico
(“IBUNAM”). We are in the process
of establishing a joint venture with the Instituto de Biolotecnología,
Universidad Nacional Autonoma de Mexico (“IBUNAM”), which is the premier
biotechnology institute in Mexico.  IBUNAM has excellent facilities
and a substantial talent base from which the Company can draw.





SMaRT Replacement TherapyTM.We are currently
investigating the possibility of conducting clinical trials for SMaRT in
Mexico.  We believe that SMaRTTM will be
appealing to governments of emerging nations such as Mexico since the healthcare
systems of these countries are more focused on proactive or preventative
medicine.  SMaRT Replacement TherapyTM can
potentially provide substantial back-end savings to countries since the
long-term costs associated with dental caries are substantial.





Clinical
Trials.Mexico is expected to
provide a more cost effective environment for the conduct of clinical trials as
well as a regulatory environment where the focus is on the promotion of
preventative medicine, which should make our technologies and products more
appealing.





South
America





We are
also exploring partnerships or strategic collaborations in Chile, which may lead
to the licensing of our products in Chile or further collaborations similar to
that in Mexico.


43





Mutual
Recognition & Treaties





We are
contemplating several strategies that will allow us to leverage our Subsidiaries
and expedite or facilitate entry into alternative markets.  One such
example is through mutual recognition, which allows us regulatory approval
throughout Europe once one member country has given approval.  Also,
our Mexican Subsidiary will utilize Mexican treaty benefits with Spain in
furtherance of the commercialization of its products in
Spain.   Utilizing EU mutual recognition provisions, we expect to
further commercialize our consumer products and diagnostic platforms in other EU
member states on a cost-effective basis.





The above
actions, individually and in the aggregate, are expected to be costly to
undertake and complete and will require additional capital over and above what
we currently have available to us.  Our current available capital
limits our ability to fully market our products and develop our
technologies.  We expect to allocate our limited capital resources to
the development of our technologies while we continue to explore additional
capital raising opportunities.  There can be no assurances that such
additional capital will be available to us.  The time periods for the
expected continued development of our technologies have been extended from those
previously indicated due primarily to our insufficient capital position and the
time periods for the expected developments could change in the future depending
on the progress of our ability to negotiate a partnering arrangement, as well as
our efforts to raise additional capital.We have a contractual
obligation to pay a minimum royalty of $25,000 per quarter and spend or cause to
be spent an aggregate of $1,000,000 per annum toward research, development and
regulatory prosecution, in order to maintain our license with the University of
Florida Research Foundation, Inc. for our SMaRT Replacement TherapyTM and MU
1140TM technologies.  We believe we have exceeded the $1,000,000 per
annum threshold for research, development and regulatory prosecution in
2008.   If we are unable to make the minimum royalty payments in
the future, our license could be terminated which will substantially diminish
the value of our company.





Critical
Accounting Policies





Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America.  The preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect reported amounts and
related disclosures.  We consider an accounting estimate to be
critical if it requires assumptions to be made that were uncertain at the time
the estimate was made; and changes in the estimate or different estimates that
could have been made could have a material impact on our results of operations
or financial condition. Our financial statements do not include any significant
estimates that would have a material impact on our results of operations or
financial condition.





New
Accounting Pronouncements





See Notes to Financial Statements
– Item #1. Organization and Significant Accounting Policies:Recently Issued Accounting
Pronouncements.


44





Results
of Operations:




Operating
Results Summary
 For the
years and periods ended December 31, 2008, 2007 and 2006


Years ended
                    December 31
                  
                  
                  Three months ended
                    December 312008
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2008
                  
                  
                  2007Revenue
                  
                  $
                  233,539
                  
                  
                  
                  133,088
                  
                  
                  
                  66,176
                  
                  
                  
                  8,539
                  
                  
                  
                  26,743Cost
      of sales
                  
                  
                  14,864
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  14,864
                  
                  
                  
                  -Operating
      expenses:Research
      and development
                  
                  
                  1,955,488
                  
                  
                  
                  1,569,551
                  
                  
                  
                  2,023,896
                  
                  
                  
                  480,763
                  
                  
                  
                  460,254Selling,
      general and administrative
                  
                  
                  4,312,246
                  
                  
                  
                  902,655
                  
                  
                  
                  1,004,099
                  
                  
                  
                  2,502,833
                  
                  
                  
                  257,930Total
      operating expenses
                  
                  
                  6,267,734
                  
                  
                  
                  2,472,206
                  
                  
                  
                  3,027,995
                  
                  
                  
                  2,983,596
                  
                  
                  
                  718,184Loss
      from operations
                  
                  
                  (6,049,059
                  )
                  
                  
                  (2,339,118
                  )
                  
                  
                  (2,961,819
                  )
                  
                  
                  (2,989,921
                  )
                  
                  
                  (691,441
                  )Other
      income (expense):Interest
      income
                  
                  
                  32,511
                  
                  
                  
                  29,385
                  
                  
                  
                  24,931
                  
                  
                  
                  3,044
                  
                  
                  
                  6,590Interest
      expense
                  
                  
                  (10,054
                  )
                  
                  
                  -
                  
                  
                  
                  (855
                  )
                  
                  
                  (10,000
                  )
                  
                  
                  -Gain
      (loss) on sale of property and equipment
                  
                  
                  4,860
                  
                  
                  
                  (1,979
                  )
                  
                  
                  2,024
                  
                  
                  
                  -
                  
                  
                  
                  (1,979
                  )Total
      other income, net
                  
                  
                  27,317
                  
                  
                  
                  27,406
                  
                  
                  
                  26,100
                  
                  
                  
                  (6,956
                  )
                  
                  
                  4,611Loss
      before income taxes
                  
                  
                  (6,021,742
                  )
                  
                  
                  (2,311,712
                  )
                  
                  
                  (2,935,719
                  )
                  
                  
                  (2,996,877
                  )
                  
                  
                  (686,830
                  )Net
      Loss
                  
                  $
                  (6,021,742
                  )
                  
                  
                  (2,311,712
                  )
                  
                  
                  (2,935,719
                  )
                  
                  
                  (2,996,877
                  )
                  
                  
                  (686,830
                  )


For
the Quarters Ended December 31, 2008 and 2007





We had
$8,539 in revenue during the three months ended December 31, 2008 and $26,743
during the three months ended in December 31, 2007.  Revenue recorded
in Q4 2008 represents the initial  sales of ProBiora and EvoraPlus
products as we begin to commercialize the ProBiora technology; there was no
grant funding received during this period compared to $26,743 received in
2007.  Our operating expenses increased 315% to $2,983,596 in the
three months ended December 31, 2008 from $718,184 in the same period in
2007.  Research and development (R&D) expenses increased 4.5% to
$480,763 in the three months ended December 31, 2008 from $460,254 in the same
period in 2007.  The R&D increase is represented by $60,765 of
consulting expenses to support the development of Probiotics and Lilliput
technologies.  Selling, general and administration (S,G&A)
expenses increased 870% to $2,502,833 in the three months ended December 31,
2008 from $257,930 in same period in 2007. Almost half of this amount or
$1,104,969 is in legal fees associated with  services to expand our
global business in Mexico and France; a portion of legal expense also includes
costs associated with the change in our common stock listing from the NYSE
Alternext US LLC to the OTC Bulletin Board.  Other major S,G&A
increases include filing and registration fees $326,539, officer/staff salaries
and benefits $231,473, consulting services $211,788, selling and marketing
expenses of $129,553, and travel related expenses $72,522.





Interest
income decreased by 53.8% to $3,044 in the three months ended December 31, 2008
from $6,590 in the same period in 2007.  Interest expense of $10,000
was incurred in Q4 2008 representing costs to secure a credit line with
Signature Bank.





Our net
loss increased 336% to $2,996,877 during the three months ended December 31,
2008 from $686,830 loss in the same period in 2007.  The loss is
represented by the overall increase in G&A expenses.





For
the Years Ended December 31, 2008 and 2007





We had
$233,539 in revenue in the year ended December 31, 2008 as compared to $133,088
in 2007.  This is a result of a Small Business Innovation Research
(SBIR) grant for DPOLT, a National Science Foundation (NSF) grant for our
Mutacin technology and the initial sales of ProBiora and EvoraPlus
products.  Our operating expenses increased 154% to $6,267,734 for the
year ended December 31, 2008 from $2,472,206 in 2007.  Research
and development (R&D) expenses increased 24.6% to $1,955,488 in 2008 from
$1,569,551 in 2007.  The growth in R&D expense is represented by
R&D salaries $53,916, options expense $176,393, and consulting
services/clinical trials for Probiotics and Lilliput technologies
$140,365.  Selling, general and administration (S,G&A) expenses
increased 378% to $4,312,246 in 2008 from $902,655 in 2007.  The most
significant increase was in legal fees by $1,208,259 incurred during
Q4.  As mentioned above, the fees are directly related to services to
expand our global business in Mexico and France, and also including fees to the
change our common stock listing from the NYSE Alternext US LLC to the OTC
Bulletin Board.  Other major S,G&A increases include consulting
services for $523,279 to promote the company and investor relations, filing and
registration fees $358,342, officer/staff salaries and benefits $421,870,
options expense $175,747, selling and marketing expenses of $129,553, travel
related expenses $145,602, and accounting fees/services
$177,038.


45





Interest
income increased 10.6% to $32,511 in the year ended December 31, 2008 from
$29,385 in the year ended December 31, 2007.





Our total
net loss increased 161% to $6,021,742 in the year ended December 31, 2008 from
$2,311,712 in 2007.  The increase  in the net loss was
principally caused by the increase in S,G&A expenses for legal fees,
consulting services, filing and registration fees and
salaries/benefits.




For
the Years Ended December 31, 2007 and 2006




We had
$133,088 in revenue in the year ended December 31, 2007 as compared to
$66,176 in 2006. This is a result of two grants, one a Small Business Innovation
Research (SBIR) grant for DPOLT and the second from a NIH/NCI grant for our CMAT
technology. Our operating expenses decreased 18.3% to $2,472,206 for the year
ended December 31, 2007 from $3,027,995 in 2006. Research and development
(R&D) expenses decreased 22.4% to $1,569,551 in 2007 from $2,023,896 in
2006, reflecting the reduction in clinical and outside consultants expenses,
legal and patent expenses, stock option expense and a decrease in lab expenses,
totaling approximately $508,000. This R&D expense decrease was partially
offset by the increase in salary expenses in hiring a Director of our
Microbiology Lab, benefit expenses and vacation accruals of approximately
$56,000. General and administration (G&A) expenses decreased 10.1% to
$902,655 in 2007 from $1,004,099 in 2006, reflected by reduction in staff
expense, advertising fees, legal and accounting, and general office expenses of
approximately $195,000. This decrease was partially offset by our increase in
contracting with investor relations services of $84,328, the increase in our
stock option compensation expense of approximately $19,000 and increase in rent
and property taxes of approximately $12,000.




Interest
income increased 17.9% to $29,385 in the year ended December 31, 2007 from
$24,931 in the year ended December 31, 2006. There was no interest expense
in 2006.




Our total
net loss decreased 21.3% to $2,311,712 in the year ended December 31, 2007
from $2,935,719 in 2006. The decrease in our net loss was principally caused by
our reduced legal and patent fees and less expense for clinical trials, offset
by the increase in our stock option compensation expenses and the contract with
investor advisory services.





Liquidity
and Capital Resources





Since our
inception, we have funded our operations through the sale of equity securities
in private placements and our initial public offering, the sale of equity
securities and warrants in private placements, debt financings and grants. In
2009, the Company has received $100,000 of restricted funds as part of the
$500,000 NSF Phase II grant to advance development of its small peptide
antibiotic synthesis program using the Company’s proprietary DPOLTtm. This
federal grant will support studies focused on the synthesis and testing of our
lead antibiotic, MU 1140.  In 2008, restricted funds totaling $225,000
were received.





Our
operating activities used cash of $3,835,190 for the year ended
December 31, 2008 and $1,913,760 for the year ended December 31,
2007.  We had a working capital deficit of $500,672 as of December 31,
2008.  Cash used by operations in the year ended December 31,
2008 resulted primarily from the operating loss of $6,021,742.


Our
investing activities used cash of $13,072 for the year ended December 31,
2008 as a result of the acquisitions totaling $55,322 offset by the sale of
assets totaling $42,250.   Acquisitions in 2008 included a new
telephone system, computers and lab equipment.  We do not anticipate
any significant spending on additional property and equipment during
2009.





Our
financing activities provided $4,538,687 in cash for the year ended
December 31, 2008.  Of this balance $4,511,000 was provided by
proceeds from the placement of common stock and $ 27,688 represents net proceeds
from a short term note payable to finance D&O and employment related
practices liability insurance.  Additional details of these financings
are provided below:


46





Private Placement, June 2008 –On June 12, 2008, our Securities Purchase Agreement with accredited
investors became binding and we closed on $2,600,000 in equity based financing
with net proceeds of $2,515,000. We issued a total of 5,777,778 shares of
restricted common stock in the private placement. The shares were sold to
accredited investors at $0.45 per share.  Each participating investor
also received warrants to purchase shares of common stock at the price of $1.30
per share. One warrant was issued for each share of common stock issued for a
total of 5,777,778 shares that may be acquired upon exercise of the warrants.
The warrants are exercisable and expire May 30, 2013.  We intend to
use the net proceeds of the private placement, including any proceeds from
exercise of the warrants, for working capital and general corporate
purposes.





Warrant Exercises – Q1 2008 –On August 7, 2007, we closed on $1,171,591 in equity based
financing. We issued a total of 4,600,000 shares of restricted common stock and
warrants to acquire 4,600,000 shares of common stock in a private placement to
accredited investors. The shares were sold to accredited investors at $0.25 per
share, except that per AMEX requirements, our former CEO, Dr. Ronald Evens
acquired his shares at $0.44 per share, which was the closing share price on
August 7, 2007. Each warrant to purchase shares of common stock is
exercisable at the price of $0.58 per share. The unexercised warrants expired on
August 8, 2008 (the “August 2007 Warrants”). On January 31, 2008 we
amended the August 2007 Warrants, to reduce the exercise price to $0.44, which
was the fair market value on the date of the amendment for a designated period
of time (from January 28, 2008 to February 29, 2008).  In
February 2008, amended Warrants, of 4,536,364 were issued upon exercise at the
amended exercise price resulting in additional working capital proceeds to us of
$1,996,000. The remaining unexercised August 2007 warrants expired unexercised
on August 8, 2008.





Warrant Exercises Q1
2007.–On December 14,
2005, we issued a total of 2,937,500 shares of our common stock and warrants to
purchase 2,937,500 shares of our common stock in a private placement to
accredited investors. The issuance of the shares of common stock and warrants
was made pursuant to the exemptions from registration provided by
Section 4(2) of the Securities Act and Regulation D promulgated there
under. We received gross proceeds of $1,175,000 in the private placement and
incurred estimated costs of approximately $70,000 resulting in net proceeds of
approximately $1,105,000. The warrants representing shares of common stock were
exercisable by the accredited investors at any time over a two-year period at an
exercise price of $0.60 per share. On January 16, 2007, we called all
outstanding warrants associated with our December, 2005 private placement
pursuant to the terms of the warrant. A total of 997,500 warrants were exercised
that provided $478,500 in additional working capital and following the call of
the warrants no further warrants associated with the private placement remain
outstanding.





NSF SBIR Grants –On
February 15, 2008, we were awarded a two year NSF SBIR Phase II grant to
advance development of our small peptide antibiotic synthesis program using the
Company’s proprietary DPOLTtm. This
federal grant will support studies focused on the synthesis and testing of our
lead antibiotic, MU 1140. While the grant will total $500,000, to date we have
received $225,000 of these restricted funds with the remaining balance to be
issued during the remaining two-year grant period.





Short Term Note Payable –The
Company entered into a short term note payable in June 2008 with an interest
rate of 5.75% to finance D&O and employment related practices liability
insurance.  At December 31, 2008 the balance due was
$27,687.  There were no loans during the year 2007.





Line of Credit –On October
20, 2008, the Company obtained from Signature Bank of New York, a revolving line
of credit in the amount of up to $1,000,000, for the purpose of providing
working capital to the Company.  It is secured by cash collateral of
the Company in the same amount deposited with Signature Bank, bears interest at
the Prime Rate of Signature Bank, as effective from time to time, and has a
final maturity of October 20, 2009.  Other than submission of periodic
financial information of the Company to Signature Bank, the loan documentation
evidencing the revolving line of credit does not contain any financial
covenants.  On January 21, 2009, this line of credit was terminated by
the Company.





Our business is based on
commercializing entirely new and unique technologies, and our current business
plan contains a variety of assumptions and expectations that are subject to
uncertainty, including assumptions and expectations about manufacturing
capabilities, clinical testing cost and pricing, continuing technological
improvements, strategic licensing relationships and other relevant matters.
These assumptions take into account recent financings, as well as expected but
currently unidentified additional financings.  We have
experienced losses from operations during the last three fiscal years and have
an accumulated deficit of $19,992,535 as of December 31, 2008.  Cash
used in operations during 2008, 2007 and 2006 was $3,835,190, $1,913,760 and
$2,224,538, respectively.  At December 31, 2008, our principal source
of liquidity was $1,165,933 of cash and cash equivalents.  These
operating results occurred while developing and attempting to commercialize and
manufacture products from entirely new and unique technologies. Our business
plan requires significant spending related primarily to clinical testing
expenditures, as well as conducting basic research.  These factors
place a significant strain on our limited financial resources and adversely
affect our ability to continue as a going concern.  Our ultimate
success depends on our ability to continue to raise capital for our
operations.


47





Because
of our limited available financial resources, we have continued to adopt several
approaches to reduce expenditures by reducing our matching contributions for the
employee retirement plan, appreciably reducing travel and other operating costs,
decreasing the use of outside consultants and delaying the production of
additional supplies of our SmaRT Replacement TherapyTM technology to be used in
later clinical studies.  As of December 31, 2008 deferred payments
totaling $143,583 were owed to Jeffrey D. Hillman, David Hirsch, Stanley Stein
and $34,000 to members of the former Board of Directors and Audit Committee and
are included in the accompanying balance sheet in accounts payable and accrued
expenses as of December 31, 2008. These salary payments and meeting fees
were agreed to be deferred until such time as we obtain sufficient funding
that payment can be made.  There is no time period on the payment of
the deferred amounts concerning our officers and former
directors.  The deferrals of payments to our officers and former
directors, do not reduce our expenses, but serve to preserve our limited cash
resources to the extent necessary to maintain our operations.





Our
capital requirements for the remainder of 2009 will depend on numerous factors,
including the success of our commercialization efforts and of our research and
development, the resources we devote to develop and support our technologies and
the success of pursuing strategic licensing and funded product development
relationships with external partners. Subject to our ability to generate revenue
and cash flow from our consumer products and our ability to raise additional
capital through joint ventures and/or partnerships, we expect to need to incur
substantial expenditures to further commercialize or develop each of our
technologies including continued increases in costs related to research,
preclinical testing and clinical studies, as well as significant costs
associated with being a public company. We will require substantial funds to
conduct research and development and preclinical and Phase I clinical testing of
our licensed, patented technologies and to develop sublicensing relationships
for the Phase II and III clinical testing and manufacture and marketing of any
products that are approved for commercial sale. We must generate additional
capital resources to enable us to continue as a going concern. Our plans include
seeking financing, alliances or other partnership agreements with entities
interested in our technologies, or other business transactions that would
generate sufficient resources to assure continuation of our operations and
research and development programs as well as seeking equity
financing.





Our
future success depends on our ability to continue to raise capital and
ultimately generate revenue and attain profitability. We cannot be certain that
additional capital, whether through selling additional debt or equity securities
or obtaining a line of credit or other loan, will be available to us or, if
available, will be on terms acceptable to us. If we issue additional securities
to raise funds, these securities are likely to have rights, preferences, or
privileges senior to those of our common stock, and our current stockholders may
experience substantial dilution.





To date,
we have not obtained financing sufficient to support our plans going
forward.  Until such time as additional financing for our operations
is obtained, we expect to continue to need to curtail our spending and we could
cease operations.  While we continue to focus on our products and
technologies, we do not have sufficient capital resources to market our products
and complete the development of our technologies.  We had a working
capital deficit at December 31, 2008 of $500,672. Our currently available cash
and cash equivalents of $1,165,933 is insufficient to enable us to continue
to operate through April 2009.  Our cash and cash equivalent position
is currently less than our total accounts payable.  In the event
adequate capital is not raised we would need to curtail or cease all operations
until we are able to raise additional capital or we could seek to reorganize
under the protection of Federal Bankruptcy Laws.  In addition, we
expect to explore strategic alternatives that may be available to us and our
technologies.





Off-Balance
Sheet Arrangements





We have
no off-balance sheet arrangements.





Inflation





Inflation
affects the cost of raw materials, goods and services that we use. In recent
years, inflation has been modest. However, high energy costs and fluctuations in
commodity prices can affect the cost of all raw materials and components. The
competitive environment somewhat limits our ability to recover higher costs
resulting from inflation by raising prices. Although we cannot precisely
determine the effects of inflation on our business, it is management's belief
that the effects on revenues and operating results will not be
significant.  We do not believe that inflation has had a material
impact on our results of operations for the periods presented, except with
respect to payroll-related costs and other costs arising from or related to
government imposed regulations.


48


ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.




Not applicable.




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





Incorporated by reference to pages F-1
to F-19 at the end of this report.





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





None.




ITEM
9A. CONTROLS AND PROCEDURES.





Evaluation
of Disclosure Controls and Procedures





We
maintain “disclosure controls and procedures,” as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that
are designed to ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission rules and forms, and
that such information is accumulated and communicated to our management,
including our acting Chief Executive Officer (“acting CEO”) and Chief Financial
Officer (“CFO”), as appropriate, to allow timely decisions regarding required
disclosure. As a result of the recent resignation of the CEO, our CFO is serving
as the acting CEO.  We conducted an evaluation (the “Evaluation”),
under the supervision and with the participation of our acting CEO and our CFO,
of the effectiveness of the design and operation of our disclosure controls and
procedures (“Disclosure Controls”) as of the end of the period covered by this
report pursuant to Rule 13a-15 of the Exchange Act.  Based on this
Evaluation, our acting CEO and CFO concluded that our Disclosure Controls were
effective as of the end of the period covered by this report.





Changes
in Internal Controls





We have
also evaluated our internal controls for financial reporting, and there have
been no significant changes in our internal controls or in other factors that
could significantly affect those controls subsequent to the date of their last
evaluation.




Limitations
on the Effectiveness of Controls





Our
management, including our acting CEO and CFO, does not expect that our
Disclosure Controls and internal controls will prevent all errors and all fraud.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management or
board override of the control.




The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.





CEO
and CFO Certifications




Appearing
after the Signatures section of this report there are Certifications of the
acting CEO and the CFO. The Certifications are required in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications).
This Item of this report, which you are currently reading is the information
concerning the Evaluation referred to in the Section 302 Certifications and this
information should be read in conjunction with the Section 302 Certifications
for a more complete understanding of the topics presented.


49


Management’s
Report on Internal Control over Financial Reporting





The
management of Oragenics, Inc. is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rule 13a-15(f).  The Company’s internal control over
financial reporting is a process designed to provide reasonable assurance to the
Company’s management and board of directors regarding the reliability of
financial reporting and the preparation of the financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.





The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of
America, and that receipts and expenditures of the Company are being made only
in accordance with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the Company’s assets that
could have a material effect on the financial statements.





Because
of its inherent limitations, internal controls over financial reporting may not
prevent or detect misstatements.  All internal control systems, no
matter how well designed, have inherent limitations, including the possibility
of human error and the circumvention of overriding
controls.  Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to financial
statement preparation.  Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Our
management, under the supervision of the acting CEO and CFO, assessed the
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008.  In making this assessment, it used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control-Integrated Framework.  Based on our assessment, we
believe that, as of December 31, 2008, the Company’s internal control over
financial reporting was effective based on those criteria.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this annual report.





ITEM  9B.   OTHER
INFORMATION.




None.





PART
III




ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.




Information
with respect to our directors and executive officers, the Audit Committee of the
Board of Directors, the Nomination Committee of the Board of Directors (known as
the Corporate Governance Committee), and the Audit Committee financial expert,
will be contained in our 2009 Proxy Statement. The 2009 Proxy Statement is
expected to be filed on or before April 30, 2009. Such information is
incorporated herein by reference.




Code
of Ethics




We have
adopted a Code of Conduct, which is applicable to all of our directors and
employees, including our principal executive officer, our principal financial
officer and our controller. A copy of the Code of Conduct can be found on our
website at www.oragenics.com. Any
possible future amendments to or waivers from the Code of Conduct will be posted
on our website.


50




Section 16(a)
Beneficial Ownership Reporting Compliance




Information
regarding compliance with Section 16(a) of the Exchange Act is set forth
under the heading “Section 16(a) Beneficial Ownership Reporting Compliance”
will be in our 2009 Proxy Statement and is incorporated herein by
reference.





ITEM
11.  EXECUTIVE COMPENSATION.





The
information required by this Item 11 with respect to management remuneration and
transactions is incorporated herein by reference to our Proxy Statement under
the heading “Executive Compensation.”





ITEM12.SECURITYOWNERSHIPOFCERTAINBENEFICIALOWNERSANDMANAGEMENTANDRELATEDSTOCKHOLDER MATTERS.





The
information required by this Item 12 with respect to the security ownership of
certain beneficial owners and management is incorporated herein by reference to
our Proxy Statement under the heading “Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.”





Equity
Compensation Plan Information




We
maintain an equity-based compensation plan—the Amended and Restated 2002 Stock
Option and Incentive Plan (as amended, the “Incentive Plan”).  A
description of our equity based compensation plan can be found in Note 7 of the
Notes to Financial Statements. The Incentive Plan has been approved by our
shareholders. The following table sets forth the number of shares of our common
stock subject to outstanding options and rights under the Incentive Plan, the
weighted-average exercise price of outstanding options, and the number of shares
remaining available for future award grants under the Incentive Plan as of
December 31, 2008 (in thousands, except exercise price):




Equity Compensation Plan Information(a)
                      
                      
                      (b)
                      
                      
                      (c)Plan Category
                      
                      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
                        (excluding securities reflected in
                        column (a))Equity
      compensation plans approved by security holders
                      
                      
                      4,570,000
                      
                      
                      $
                      0.60
                      
                      
                      
                      430,000Equity
      compensation plans not approved by security holders(1)
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Total
                      
                      
                      4,570,000
                      
                      
                      $
                      0.60
                      
                      
                      
                      430,000









1 The
Company does not have any equity compensation plans that have not been approved
by security holders.  The Company does have warrants to acquire
5,777,778 shares of common stock outstanding at an exercise price of $1.30 per
share.  These warrants were issued in connection with a private
placement in June 2008.




ITEM   13.  CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.





The information required by this Item
13 with respect to transactions between us and certain related entities is
incorporated herein by reference to our Proxy Statement under the heading
“Certain Relationships.”


51




ITEM   14.  PRINCIPAL
ACCOUNTANT FEES AND SERVICES.




The
information required by this Item 14 is incorporated herein by reference to our
Proxy Statement under the heading “Principal Accountant Fees and
Services."




PART
IV




ITEM
15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.




a)       
The documents filed as part of
this report are as follows:




1. The
financial statements and accompanying report of independent registered public
accounting firm are listed in the Index to Financial Statements and are filed as
part of this report.




All
financial statement schedules are omitted because they are inapplicable, not
required or the information is included elsewhere in the financial statements or
the notes thereto.




2.
Exhibits required by Item 601 of Regulation S-K are submitted as a separate
section herein immediately following the “Exhibit Index”.




(b)      
Other
Exhibits




No
exhibits in addition to those previously filed or listed in item 15(a)
(2) and filed herein.




(c)       Not Applicable


52


SIGNATURES




Pursuant
to the requirements of Section 13 and 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this amended report to be signed on its
behalf by the undersigned, thereunto duly authorized.





Dated:  March
31, 2009





ORAGENICS, INC.(Registrant)By:
              
              /s/
      David B. HirschDavid
      B. Hirsch, Acting President Acting Chief Executive Officer, and Chief
      Financial Officer.
                (DULY
      AUTHORIZED OFFICER)




POWER
OF ATTORNEY




Each of
the undersigned officers and directors of Oragenics, Inc., hereby constitutes
and appoints David B. Hirsch, and Jeffrey D. Hillman, each their true and lawful
attorneys-in-fact and agents, for them and in their name, place and stead, in
any and all capacities, to sign their names to any and all amendments to this
Report on Form 10-K, and other related documents, and to cause the same to
be filed with the Securities and Exchange Commission, granting unto said
attorneys, full power and authority to do and perform any act and thing
necessary and proper to be done in the premises, as fully to all intents and
purposes as the undersigned could do if personally present, and the undersigned
for himself hereby ratifies and confirms all that said attorney shall lawfully
do or cause to be done by virtue hereof.




Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.





Signature
                
                Title
                
                Date/s/ David B. Hirsch
                
                Acting
      President, Acting Chief Executive Officer, and
                
                March
      30, 2009David
      B. Hirsch
                
                Chief
      Financial Officer (Principal Executive Officer,Principal
      Financial and Accounting Officer)s/ Jeffrey D. HillmanJeffrey
      D. Hillman
                
                Chief
      Scientific Officer and Director
                
                March
      30, 2009/s/ Richard Welch
                
                Chairman
      of the Board and Director
                
                March
      30, 2009Richard
      Welch/s/ Derek Hennecke
                
                Director
                
                March
      30, 2009Derek
      Hennecke/s/ Kevin H. Sills
                
                Director
                
                March
      30, 2009Kevin
      H. Sills/s/ Marc K. Siegel
                
                Director
                
                March
      30, 2009Marc
      K. Siegel




53


Oragenics,
Inc.




Financial
Statements




Years
ended December 31, 2008, 2007 and 2006




Contents




Index
      to Financial Statements
                            Pg
      F-1Report
      of Kirkland Russ Murphy & Tapp, P.A., Independent Registered Public
      Accounting Firm
                            Pg
      F-2Audited
      Financial StatementsBalance
      Sheets
                            Pg
      F-3Statements
      of Operations
                            Pg
      F-4Statements
      of Changes in Stockholders’ Equity (Deficit)
                            Pg
      F-5Statements
      of Cash Flows
                            Pg
      F-6Notes
      to Financial Statements
                            Pg
      F-7 –
F-19


F-1




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and


Shareholders
of Oragenics, Inc.




We have
audited the accompanying balance sheets of Oragenics, Inc. as of December 31,
2008 and 2007, and the related statements of operations, shareholders’ equity
(deficit), and cash flows for the years ended December 31, 2008, 2007and 2006.
These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based
on our audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting.  Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion of the effectiveness of the company’s internal control over financial
reporting.  Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Oragenics, Inc. as of December 31,
2008 and 2007, and the results of its operations and its cash flows for the
years ended December 31, 2008, 2007 and 2006 in conformity with accounting
principles generally accepted in the United States of America.




The
accompanying financial statements have been prepared assuming Oragenics, Inc.
will continue as a going concern.  As more fully described in Note 1,
the Company has incurred recurring operating losses, negative operating cash
flows and has an accumulated deficit.  These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern.  Management’s plans in regard to these matters are also
described in Note 1.  The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.




March 31, 2009
                  /s/
      Kirkland Russ Murphy & Tapp, PAClearwater,
      Florida
                  Certified
      Public
Accountants




F-2


Oragenics,
Inc.
 2008
                                  
                                  
                                  2007AssetsCurrent
      assets:Cash
      and cash equivalents
                                  
                                  $
                                  1,165,933
                                  
                                  
                                  
                                  475,508Accounts
      receivables, net
                                  
                                  
                                  6,286
                                  
                                  
                                  
                                  -Inventory
                                  
                                  
                                  11,814
                                  
                                  
                                  
                                  -Prepaid
      expenses and other current assets
                                  
                                  
                                  86,666
                                  
                                  
                                  
                                  116,520Total
      current assets
                                  
                                  
                                  1,270,699
                                  
                                  
                                  
                                  592,028Property
      and equipment, net
                                  
                                  
                                  323,424
                                  
                                  
                                  
                                  559,349Total
      assets
                                  
                                  $
                                  1,594,123
                                  
                                  
                                  
                                  1,151,377Liabilities
      and Shareholders' Equity (Deficit)Current
      liabilities:Accounts
      payable and accrued expenses
                                  
                                  $
                                  1,743,684
                                  
                                  
                                  
                                  331,494Short
      term note payable
                                  
                                  
                                  27,687
                                  
                                  
                                  
                                  -Total
      current liabilities
                                  
                                  
                                  1,771,371
                                  
                                  
                                  
                                  331,494Shareholders'
      equity (deficit):Preferred
      stock, no par value; 20,000,000 shares authorized; none issued and
      outstanding
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Common
      stock, $0.001 par value; 100,000,000 shares authorized; 38,316,585 and
      28,002,443 shares issued and outstanding as of December 31, 2008 and 2007,
      respectively
                                  
                                  
                                  38,316
                                  
                                  
                                  
                                  28,002Additional
      paid-in capital
                                  
                                  
                                  19,776,971
                                  
                                  
                                  
                                  14,762,674Accumulated
      deficit
                                  
                                  
                                  (19,992,535
                                  )
                                  
                                  
                                  (13,970,793
                                  )Total
      shareholders' equity (deficit)
                                  
                                  
                                  (177,248
                                  )
                                  
                                  
                                  819,883Total
      liabilities and shareholders' equity (deficit)
                                  
                                  $
                                  1,594,123
                                  
                                  
                                  
                                  1,151,377
 
 See
accompanying Report of Independent Registered Public Accounting Firm and notes
to the financial statements.




F-3





Oragenics,
Inc.
 Statements
of Operations
 For the
Years Ended December 31, 2008, 2007 and 2006
  Year Ended December 312008
                  
                  
                  2007
                  
                  
                  2006Revenue
                  
                  $
                  233,539
                  
                  
                  
                  133,088
                  
                  
                  
                  66,176Cost
      of sales
                  
                  
                  14,864
                  
                  
                  
                  -
                  
                  
                  
                  -Operating
      expenses:Research
      and development
                  
                  
                  1,955,488
                  
                  
                  
                  1,569,551
                  
                  
                  
                  2,023,896Selling,
      general and administration
                  
                  
                  4,312,246
                  
                  
                  
                  902,655
                  
                  
                  
                  1,004,099Total
      operating expenses
                  
                  
                  6,267,734
                  
                  
                  
                  2,472,206
                  
                  
                  
                  3,027,995Loss
      from operations
                  
                  
                  (6,049,059
                  )
                  
                  
                  (2,339,118
                  )
                  
                  
                  (2,961,819
                  )Other
      income (expense):Interest
      income
                  
                  
                  32,511
                  
                  
                  
                  29,385
                  
                  
                  
                  24,931Interest
      expense
                  
                  
                  (10,054
                  )
                  
                  
                  -
                  
                  
                  
                  (855
                  )Gain
      (loss) on sale of property and equipment
                  
                  
                  4,860
                  
                  
                  
                  (1,979
                  )
                  
                  
                  2,024Total
      other income, net
                  
                  
                  27,317
                  
                  
                  
                  27,406
                  
                  
                  
                  26,100Loss
      before income taxes
                  
                  
                  (6,021,742
                  )
                  
                  
                  (2,311,712
                  )
                  
                  
                  (2,935,719
                  )Net
      loss
                  
                  $
                  (6,021,742
                  )
                  
                  
                  (2,311,712
                  )
                  
                  
                  (2,935,719
                  )Basic
      and diluted net loss per share
                  
                  $
                  (0.17
                  )
                  
                  
                  (0.09
                  )
                  
                  
                  (0.15
                  )Shares
      used to compute basic and diluted net loss per share
                  
                  
                  35,069,261
                  
                  
                  
                  25,092,183
                  
                  
                  
                  20,038,177
  See accompanying Report of
Independent Registered Public Accounting Firm and notes to the financial
statements.   F-4





Oragenics,
Inc.
 Statements
of Changes in Shareholder’s Equity (Deficit)
 For the
Years Ended December 31, 2008, 2007 and 2006
 Common Stock
                                
                                
                                Additional
                                
                                
                                
                                
                                
                                TotalShares
                                
                                
                                Amount
                                
                                
                                Paid In
                                  Capital
                                
                                
                                Accumulated
                                  Deficit
                                
                                
                                Shareholders'
                                  Equity (Deficit)Balances
      at December 31, 2005
                                
                                
                                18,146,117
                                
                                
                                $
                                18,146
                                
                                
                                $
                                10,476,786
                                
                                
                                $
                                (8,723,362
                                )
                                
                                $
                                1,771,570Exercise
      of common stock warrants
                                
                                
                                2,390,000
                                
                                
                                
                                2,390
                                
                                
                                
                                1,424,610
                                
                                
                                
                                -
                                
                                
                                
                                1,427,000Issuance
      of common stock and warrants
                                
                                
                                1,683,640
                                
                                
                                
                                1,684
                                
                                
                                
                                572,354
                                
                                
                                
                                -
                                
                                
                                
                                574,038Issuance
      of common stock for the acquisition of iviGene Corporation
                                
                                
                                185,186
                                
                                
                                
                                185
                                
                                
                                
                                199,815
                                
                                
                                
                                -
                                
                                
                                
                                200,000Compensation
      credit relating to option issuances
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                241,385
                                
                                
                                
                                -
                                
                                
                                
                                241,385Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (2,935,719
                                )
                                
                                
                                (2,935,719
                                )Balances
      at December 31, 2006
                                
                                
                                22,404,943
                                
                                
                                $
                                22,405
                                
                                
                                $
                                12,914,950
                                
                                
                                $
                                (11,659,081
                                )
                                
                                $
                                1,278,274Exercise
      of common stock warrants
                                
                                
                                997,500
                                
                                
                                
                                997
                                
                                
                                
                                599,502
                                
                                
                                
                                -
                                
                                
                                
                                600,499Issuance
      of common stock and warrants
                                
                                
                                4,600,000
                                
                                
                                
                                4,600
                                
                                
                                
                                1,086,751
                                
                                
                                
                                -
                                
                                
                                
                                1,091,351Compensation
      expense relating to option issuances
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                161,471
                                
                                
                                
                                -
                                
                                
                                
                                161,471Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (2,311,712
                                )
                                
                                
                                (2,311,712
                                )Balances
      at December 31, 2007
                                
                                
                                28,002,443
                                
                                
                                $
                                28,002
                                
                                
                                $
                                14,762,674
                                
                                
                                $
                                (13,970,793
                                )
                                
                                $
                                819,883Exercise
      of common stock warrants
                                
                                
                                4,536,364
                                
                                
                                
                                4,536
                                
                                
                                
                                1,991,464
                                
                                
                                
                                -
                                
                                
                                
                                1,996,000Issuance
      of common stock and warrants, net of expenses
                                
                                
                                5,777,778
                                
                                
                                
                                5,778
                                
                                
                                
                                2,509,222
                                
                                
                                
                                -
                                
                                
                                
                                2,515,000Compensation
      expense relating to option issuances
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                513,611
                                
                                
                                
                                -
                                
                                
                                
                                513,611Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (6,021,742
                                )
                                
                                
                                (6,021,742
                                )Balances
      at December 31, 2008
                                
                                
                                38,316,585
                                
                                
                                $
                                38,316
                                
                                
                                $
                                19,776,971
                                
                                
                                $
                                (19,992,535
                                )
                                
                                $
                                (177,248
                                )
  See
accompanying Report of Independent Registered Public Accounting Firm and notes
to the financial statements.


F-5




Oragenics,
Inc.
 Statements
of Cash Flows
 For the
Years Ended December 31, 2008, 2007 and 2006
  Year
      Ended December 312008
                                                  
                                                  
                                                  2007
                                                  
                                                  
                                                  2006Cash
      flows from operating activities:Net
      loss
                                                  
                                                  $
                                                  (6,021,742
                                                  )
                                                  
                                                  
                                                  (2,311,712
                                                  )
                                                  
                                                  
                                                  (2,935,719
                                                  )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      and amortization
                                                  
                                                  
                                                  253,857
                                                  
                                                  
                                                  
                                                  273,230
                                                  
                                                  
                                                  
                                                  280,901Stock-based
      compensation expense
                                                  
                                                  
                                                  513,611
                                                  
                                                  
                                                  
                                                  161,471
                                                  
                                                  
                                                  
                                                  241,385Patents
      acquired from iviGene Corp
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  200,000(Gain)
      loss on sale of property and equipment
                                                  
                                                  
                                                  (4,860
                                                  )
                                                  
                                                  
                                                  1,979
                                                  
                                                  
                                                  
                                                  (2,024
                                                  )Changes
      in operating assets and liabilities:Accounts
      receivable, net
                                                  
                                                  
                                                  (6,286
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Inventory
                                                  
                                                  
                                                  (11,814
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Prepaid
      expenses and other current assets
                                                  
                                                  
                                                  29,854
                                                  
                                                  
                                                  
                                                  (42,649
                                                  )
                                                  
                                                  
                                                  38,176Accounts
      payable and accrued expenses
                                                  
                                                  
                                                  1,412,190
                                                  
                                                  
                                                  
                                                  3,921
                                                  
                                                  
                                                  
                                                  (47,257
                                                  )Net
      cash used in operating activities
                                                  
                                                  
                                                  (3,835,190
                                                  )
                                                  
                                                  
                                                  (1,913,760
                                                  )
                                                  
                                                  
                                                  (2,224,538
                                                  )Cash
      flows from investing activities:Purchase
      of property and equipment, net
                                                  
                                                  
                                                  (55,322
                                                  )
                                                  
                                                  
                                                  (12,906
                                                  )
                                                  
                                                  
                                                  (12,011
                                                  )Proceeds
      from sale of property and equipment, net
                                                  
                                                  
                                                  42,250
                                                  
                                                  
                                                  
                                                  3,046
                                                  
                                                  
                                                  
                                                  5,000Net
      cash used in investing activities
                                                  
                                                  
                                                  (13,072
                                                  )
                                                  
                                                  
                                                  (9,860
                                                  )
                                                  
                                                  
                                                  (7,011
                                                  )Cash
      flows from financing activities:Borrowings
      under short term note payable
                                                  
                                                  
                                                  79,518
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Payments
      on short term note payable
                                                  
                                                  
                                                  (51,831
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Net
      proceeds from issuance of common stock
                                                  
                                                  
                                                  4,511,000
                                                  
                                                  
                                                  
                                                  1,691,850
                                                  
                                                  
                                                  
                                                  2,001,038Net
      cash provided by financing activities
                                                  
                                                  
                                                  4,538,687
                                                  
                                                  
                                                  
                                                  1,691,850
                                                  
                                                  
                                                  
                                                  2,001,038Net
      increase (decrease) in cash and cash equivalents
                                                  
                                                  
                                                  690,425
                                                  
                                                  
                                                  
                                                  (231,770
                                                  )
                                                  
                                                  
                                                  (230,511
                                                  )Cash
      and cash equivalents at beginning of year
                                                  
                                                  
                                                  475,508
                                                  
                                                  
                                                  
                                                  707,278
                                                  
                                                  
                                                  
                                                  937,789Cash
      and cash equivalents at end of year
                                                  
                                                  $
                                                  1,165,933
                                                  
                                                  
                                                  
                                                  475,508
                                                  
                                                  
                                                  
                                                  707,278Supplemental
      disclosure of cash flow informationNon-Cash
      acquisition of iviGene Corporation
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  200,000Interest
      paid
                                                  
                                                  $
                                                  10,054
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  855
  See
accompanying Report of Independent Registered Public Accounting Firm and notes
to the financial statements.




F-6




Oragenics,
Inc.


Notes to
Financial Statements


December
31, 2008 and 2007




1.
Organization and Significant Accounting Policies




Oragenics,
Inc. (formerly known as Oragen, Inc.) (the Company) was incorporated in
November, 1996; however, operating activity did not commence until 1999. The
Company is dedicated to developing technologies associated with oral health,
broad spectrum antibiotics and other general health benefits.




Basis
of Presentation


The
accompanying financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
(GAAP) including the assumption of a going concern basis which contemplates the
realization of assets and the settlement of liabilities and commitments in the
normal course of business.  The Company incurred a net loss of
$6,021,742 for the year ended December 31, 2008 and as of that date had an
accumulated deficit of $19,992,535.  Cash used in operations for the
year ended December 31, 2008 was $3,835,190 and cash flow from operations
was negative throughout 2008.  The Company expects to incur
substantial expenditures to further develop each of its
technologies.  The Company believes the working capital at December
31, 2008 will be insufficient to meet the business objectives as presently
structured.   Management recognizes that the Company must
generate additional capital resources or consider modifications to its
technology development plans to enable it to continue as a going
concern.  Management’s plans include seeking financing, alliances or
other partnership agreements with entities interested in the Company’s
technologies, or other business transactions that would generate sufficient
resources to assure continuation of the Company’s operations and research and
development programs.




The
Company intends to seek additional funding through sublicensing arrangements,
joint venturing or partnering, sales of rights to technology, government grants
and public or private financings. The Company’s future success depends on its
ability to raise capital and ultimately generate revenue and attain
profitability. The Company cannot be certain that additional capital, whether
through selling additional debt or equity securities or obtaining a line of
credit or other loan, will be available to it or, if available, will be on terms
acceptable to the Company. If the Company issues additional securities to raise
funds, these securities may have rights, preferences, or privileges senior to
those of its common stock, and the Company’s current shareholders may experience
dilution. If the Company is unable to obtain funds when needed or on acceptable
terms, the Company may be required to curtail their current development
programs, cut operating costs and forego future development and other
opportunities. Without sufficient capital to fund their operations, the Company
will be unable to continue as a going concern. The accompanying financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




Use
of Estimates




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





Fair
Value of Financial Instruments




The fair
value of the Company’s cash and cash equivalents, accounts payable and accrued
expenses approximate their carrying values due to their short-term
nature.




Cash
and Cash Equivalents




Cash and
cash equivalents consist of all cash balances and highly liquid investments with
an original maturity of three months or less.  The Company’s cash and
cash equivalents are deposited in a financial institution and consist of demand
deposits and overnight repurchase agreement investments and at times deposits
are in excess of federally insured limits.




Inventory




Inventories
are stated at the lower of cost or market.  Cost, which includes
material, labor and overhead, is determined on a first-in, first-out
basis.




Property
and Equipment




Property
and equipment is stated at cost less accumulated depreciation and amortization.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets (three to seven years). Leasehold improvements are amortized
over the shorter of the estimated useful life or the lease term of the related
asset (five years).


F-7




Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




Business
Segments




Pursuant
to Statement of Financial Accounting Standards (SFAS) No. 131, Disclosure About Segments of a
Business Enterprise and Related Information, the Company is required to
report segment information. As the Company only operates principally in one
business segment, no additional reporting is required.




Stock-Based
Compensation




In
December 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure (FAS 148). FAS 148 amends an
earlier standard on accounting for stock-based compensation, Accounting for
Stock-Based Compensation (FAS 123), to provide alternative methods of transition
to the fair value based method of accounting for stock-based employee
compensation which is required beginning January 1, 2006. In December 2004,
FASB issued FASB Statement No. 123 (revised 2004), Share-Based Payment (“FAS
123(R)”),a revision of
FASB Statement No. 123, Accounting for Stock-Based
Compensation. FAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees,and amends FASB Statement No. 95, Statement of Cash Flows. FAS
123(R), which we have adopted in the first quarter of 2006, is generally similar
to Statement 123; however, it requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the financial
statements based on their fair values. The Company has elected to adopt the
Modified Prospective Method. This method requires the Company to prospectively
expense all new grants and unvested pre-adoption grants. The resulting
stock-based compensation expense is recorded over the service period in which
the employee or non-employee provides services to Oragenics, to the extent the
options or warrants do not vest at the grant date and are not subject to
forfeiture.




Net
Loss Per Share




During
all periods presented, the Company had securities outstanding that could
potentially dilute basic earnings per share in the future, but were excluded
from the computation of diluted net loss per share, as their effect would have
been antidilutive. Because the Company reported a net loss for all periods
presented, shares associated with the stock options and warrants are not
included because they are antidilutive. Basic and diluted net loss per share
amounts are the same for the periods presented. Net loss per share is computed
using the weighted average number of shares of common stock
outstanding.




Revenue
Recognition




The
Company recognizes revenue from the sales of product when title and risk of loss
pass to the customer, which is generally when product is shipped.




Grant
revenues are recognized as the reimbursable expenses are incurred over the life
of the related grant.




Impairment
of Long-Lived Assets




The
Company periodically reviews their long-lived assets for impairment and reduces
the carrying value to fair value whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. There were no
impairment losses recorded during the years ended December 31, 2008, 2007
and 2006.




Research
and Development Expenses




Expenditures
for research and development are expensed as incurred. The majority of the
Company’s activities are research and development related.




Income
Taxes




Income
taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and operating loss and tax
credit carryforwards.




Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is   recognized in operations
in the period that includes the enactment date. Deferred tax assets are reduced
to estimated amounts expected to be realized by the use of a valuation
allowance.


F-8




Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




Concentrations




The
Company is dependent on one major manufacturer of it’s EvoraPlus
products.




Recent
Issued Accounting Pronouncements




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement
No.115 (“SFAS 159”). SFAS 159 provides companies with an option to
measure, at specified election dates, certain financial instruments and other
items at fair value that are not currently measured at fair value. A company
that adopts SFAS 159 will report unrealized gains and losses on items for which
the fair value option has been elected in its financial results during each
subsequent reporting date. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between entities that choose
different measurement attributes for similar types of assets and liabilities.
SFAS 159 is effective for fiscal years beginning after November 15,
2007.   The Company has adopted SFAS 159 and it did not have a
significant impact on the financial statements.





In
June 2007, the FASB ratified the consensus reached by the Emerging Issues
Task Force (“EITF”) in EITF Issue No. 07-3, Accounting for Nonrefundable Advance
Payments for Goods or Services Received for Use in Future Research and Development
Activities (“EITF 07-3”), which requires that nonrefundable advance
payments for goods or services that will be used or rendered for future research
and development activities be deferred and amortized over the period that the
goods are delivered or the related services are performed, subject to an
assessment of recoverability. EITF 07-3 is effective for fiscal years beginning
after December 15, 2007.  EITF Issue No. 07-3 did not have a
significant impact on the Company’s financial statements.





In
December 2007, the FASB issued SFAS No. 141(R) (revised 2007), Business Combinations, which
replaces SFAS No. 141. SFAS No. 141(R) establishes
principles and requirements for how an acquirer in a business combination
recognizes and measures in its financial statements, the identifiable assets
acquired, the liabilities assumed, and any controlling interest; recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase; and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination. SFAS No. 141(R) is to be applied prospectively
to business combinations for which the acquisition date is on or after an
entity’s fiscal year that begins after December 15, 2008. The Company will
adopt this statement for acquisitions consummated after its effective
date.




In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements an amendment of ARB No. 51.
SFAS No. 160 establishes accounting and reporting standards for
noncontrolling interests in a subsidiary and for the deconsolidation of a
subsidiary. Minority interests will be recharacterized as noncontrolling
interests and classified as a component of equity. It also establishes a single
method of accounting for changes in a parent’s ownership interest in a
subsidiary and requires expanded disclosures. SFAS No. 160 is
effective for fiscal years beginning on or after December 15, 2008. The
implementation of this standard does not impact on our financial position and
results of operations.




In
February 2008, FASB issued a FSP to allow a one-year deferral of adoption of
SFAS No. 157 for non-financial assets and non-financial liabilities
that are recognized at fair value on a nonrecurring basis. The Company will
adopt the FSP on January 1, 2009 and we expect the adoption to not have an
impact on our financial position and results of
operations.




In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities — an amendment to FASB Statement
No. 133. SFAS No. 161 is intended to improve financial
standards for derivative instruments and hedging activities by requiring
enhanced disclosures to enable investors to better understand their effects on
an entity’s financial position, financial performance, and cash flows. Entities
are required to provide enhanced disclosures about: (a) how and why an
entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its
related interpretations; and (c) how derivative instruments and related
hedged items affect an entity’s financial position, financial performance, and
cash flows. SFAS No. 161 is effective for financial statements issued
for fiscal years beginning after November 15, 2008, with early adoption
encouraged.  SFAS No. 161 does not have an impact on the
Company’s financial statements and results of
operations.


F-9





Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007





In April
2008, the FASB issued FSP 142-3, Determination of the Useful Life of
Intangible Assets. FSP No. 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset





under
SFAS No. 142, Goodwill and Other Intangible
Assets. FSP No. 142-3 is effective for fiscal years beginning after
December 15, 2008. The implementation of this standard does not impact on
our consolidated financial position and results of
operations.




In June
2008, the FASB issued FSP EITF No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities.
Under EITF No. 03-6-1, unvested share-based payment awards that contain
rights to receive nonforfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS. EITF





No. 03-6-1
is effective for fiscal years beginning after December 15, 2008, and
interim periods within those years. The Company is not affected by the impact of
EITF No. 03-6-1 on its financial statements.





In
October 2008, the FASB issued FSP No. FAS 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active. FSP
No. 157-3 clarifies the application of SFAS No. 157, which the
Company adopted as of January 1, 2008, in cases where a market is not
active. The Company has considered the guidance provided by FSP No. 157-3
in its determination of estimated fair values as of December 31, 2008, and
there is not an impact to the financial statements and results of
operations.




2.
Property and Equipment, net




Property
and equipment, net consists of the following as of December 31, 2008 and
2007:




2008
            
            
            2007Furniture
      and fixtures
            
            $
            8,035
            
            
            $
            8,035Laboratory
      equipment
            
            
            825,193
            
            
            
            894,247Leasehold
      improvements
            
            
            481,606
            
            
            
            481,606Office
      and computer equipment
            
            
            82,915
            
            
            45,0921,397,749
            
            
            
            1,428,980Accumulated
      depreciation and amortization
            
            
            (1,074,325
            )
            
            
            (869,631
            )Property
      and equipment, net
            
            $
            323,424
            
            
            $
            559,349





Depreciation
and amortization expense for the years ending December 31, 2008, 2007, and 2006
were $253,857, $273,230 and $280,901 respectively.




3.
Related Party Transactions




At
December 31, 2008 deferred payments totaling $143,583 were owed to Jeffrey D.
Hillman, David Hirsch, Stanley Stein and $34,000 to the former members of the
Board of Directors and Audit Committee and are included in the accompanying
balance sheet in accounts payable and accrued expenses as of December 31, 2008.
 These salary payments and meeting fees were agreed to be deferred until
such time as we obtain sufficient funding that payment can be
made.  There is no time period on the payment of the deferred amounts
concerning our officers and former directors.  The deferrals of
payments to our officers and former directors, do not reduce our expenses, but
serve to preserve our limited cash resources to the extent necessary to maintain
our operations.  These amounts are non-interest bearing.




At
December 31, 2007, deferred payments totaling $52,500 were owed to our
former President and CEO, Robert T. Zahradnik and to the CSO, Jeffrey D. Hillman
and are included in the accompanying balance sheet in accounts payable and
accrued expenses at December 31, 2007.   After
Dr. Zahradnik’s resignation on December 31, 2007, the Company paid
this deferred compensation of $26,250 on January 15, 2008, no interest is
being accrued on these balances.




In July
2005, the Company entered into a severance agreement with its former Chief
Executive Officer (CEO) agreeing to continue payments of $15,000 per month for
one year post separation from employment with the Company. On July 1, 2007
the balance of the remaining severance amount owed was paid.




At
December 31, 2007 fees of $34,000 to the former Board of Directors and
Audit Committee were deferred. On September 7, 2006, the Board of Directors
and the Compensation Committee approved stock option grants to non-employee
directors in lieu of future cash fees for Board and Committee
services.


F-10




Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




As of
December 31, 2007, Dr. Robert Zahradnik resigned as President and CEO
and from the Board. The Board ratified a twelve month consulting agreement,
commencing on January 1, 2008, whereby he provided certain consulting and
advisory services to the Company. Dr Zahradnik compensation arrangement for his
consulting service consisted of cash compensation of $50,000 and 150,000 stock
options granted based on the terms stated in the Company’s 2002 stock option
plan. The options vest at various times within two years of the grant
date.  Dr. Zahradnik subsequently terminated his consulting
arrangement in early 2008 and became a full-time employee as the Director of
Business Development a under substantially similar compensation
arrangement.  More recently Dr. Zahradnik assumed a position of Chief
Operating Officer.





4.
Accounts Payable and Accrued Expenses





2008
              
              
              2007Legal
      fees
              
              $
              909,881
              
              
              $
              -Accounts
      payable trade
              
              
              493,799
              
              
              
              115,945Deferred
      compensation
              
              
              143,583
              
              
              
              86,500Consulting
      fees
              
              
              70,000
              
              
              
              55,000Vacation
              
              
              65,907
              
              
              
              49,049Royalties
      payable
              
              
              50,000
              
              
              
              25,000Other
              
              
              10,714
              
              
              
              -Total
      accounts payable and accrued expenses
              
              $
              1,743,884
              
              
              $
              331,494





Accounts
payable and accrued expenses as of December 31, 2008 and 2007 were $1,743,884
and $331,494, respectively.  Legal fees represent the most significant
expense totaling $909,881 as of December 31, 2008.  These fees were
incurred to support the legal activities related to the delisting from the NYSE
Alternext US (formerly known as the American Stock Exchange), listing on the
Alternext – Paris exchange, listing on the Over-the-Counter (OTC) Bulletin Board
exchange and global expansion activities in Mexico and France.  None
of the legal fees are litigation related.





5.
Short Term Note Payable





The
Company entered into a short term note payable in June of 2008 with an interest
rate of 5.75% to finance D&O and employment related practices liability
insurance at December 31, 2008, the balance due was $27,687.  There
were no loans during the fiscal year  2007.




6.
Line of Credit




The
Company opened a Line of Credit with Signature Bank, NY during
2008.  The line of credit was established for short term loans for
working capital purposes, provided the aggregate principal amount of loans at
any time outstanding would not exceed $1,000,000.  Signature Bank was
entitled to receive interest at a fluctuating rate per annum equal to the Prime
Rate and the interest rate was subject to change as the Prime Rate
changes.  The Company agreed to pay the Bank an additional
compensation facility fee in the amount of $10,000 which was payable upon the
Company’s acceptance.  The Line of Credit was fully secured by the
Company’s Signature Bank Fidelity Prime Fund money market.  As of
December 31, 2008 there were no amounts outstanding on the line of
credit.  The Company canceled the line of credit on January 24,
2009.


F-11




Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




7.
Shareholders’ Equity




Common
Stock




On
June 24, 2003, the Company completed the filing of 2,400,000 units at $1.25
per unit as an initial public offering (IPO) for gross proceeds of $3,000,000.
Each unit consisted of one share of the Company’s common stock, one-half Series
A Common Share Purchase Warrant and one-half Series B Common Share Purchase
Warrant. One whole Series A warrant allowed the holder to purchase a share of
the Company’s stock at $2.00 per share until December 24, 2003. All Series
A warrants were exercised before the expiration date providing proceeds to the
Company of $2,400,000. One whole Series B warrant allowed the holder to purchase
a share of the Company’s




stock at
$3.00 per share until March 24, 2004. A total of 995,400 Series B warrants
were exercised on or before March 24, 2004 providing proceeds of $2,986,200
and the remaining 204,600 Series B warrants expired unexercised on
March 24, 2004. In addition to receiving a cash commission for each share
sold, the underwriting agent for the IPO received 100,000 shares of common stock
of the Company and warrants to purchase 500,000 shares of common stock of the
Company at $1.25 per share until June 24, 2005. All 500,000 underwriter
warrants were exercised, of which 276,180 shares of common stock were issued in
2005 providing additional proceeds to the Company of $345,225. The cost of the
IPO, including the filing of a post effective amended registration statement in
October 2004, was $779,809 including the agent’s commission.




On
November 30, 2004, the Company completed a private placement of its stock,
through a placement agent, selling 25 units at $27,500 per unit totaling
$687,500. Each unit consisted of 10,000 shares of common stock and 5,000
warrants to purchase common stock at a price of $3.50 per share until
November 30, 2008. The total cost associated with this financing was
approximately $142,500 including the underwriter’s commission.




On
May 23, 2005, Oragenics entered into a financing arrangement whereby an
investor agreed to purchase from the Company up to $9,000,000 of its common
stock over a 30 month period. The arrangement provided that on each trading day,
the Company had the right to sell to the investor $15,000 of its common stock at
a price based upon the market price of the common stock. The investor did not
have the right or obligation to purchase shares of our common stock from us in
the event that the price of our common stock is less than $0.75. The Company
incurred costs of approximately $150,000 for legal, accounting, stock exchange,
and Oragenics, Inc. regulatory fees in connection with this financing
arrangement. During 2005, the Company sold 22,092 of its common stock to the
investor pursuant to the arrangement for total proceeds of $35,000. In December
2006, a post-effective amendment was filed with the SEC.  This was
terminated by the Company in accordance with the terms of the
agreement.




On
December 14, 2005, the Company issued a total of 2,937,500 shares of its
common stock and warrants to purchase 2,937,500 shares of our common stock in a
private placement to accredited investors. The Company received gross proceeds
of $1,175,000 in the private placement and incurred estimated costs of
approximately $70,000 resulting in net proceeds of approximately $1,105,000. The
warrants representing shares of common stock are exercisable by the accredited
investors at any time over a two-year period at an exercise price of $0.60 per
share. In connection with the termination of an investment advisor agreement,
the Company issued warrants on similar terms as those issued in the private
placement. The warrants represented the right to acquire 130,000 shares of
common stock, of which 95,000 were at an exercise price of $0.60 per share and
35,000 were at an exercise price of $0.40 per share.




On
March 6, 2006, the Company issued a total of 1,500,000 shares of our common
stock and warrants to purchase 1,500,000 shares of our common stock in a private
placement to accredited investors. The Company received gross proceeds of
$600,000 in the private placement and incurred estimated costs of approximately
$75,000 resulting in net proceeds of approximately $525,000. There was no
underwriter or placement agent associated with this transaction. Each warrant
was exercisable on or before February 8, 2008 to acquire one share of
common stock at a price of $0.60 per share.




On
November 17, 2006 we acquired the outstanding stock of iviGene Corporation
in exchange for 185,186 shares of our common stock to the holders of iviGene
Corporation, which included one of our directors, who received 20,480 shares.
Following the consummation of this transaction, Oragenics acquired all of
iviGene’s assets, including issued and pending patents to two broad based
platform technologies.




On
August 7, 2007, our Securities Purchase Agreement with accredited
investors, including a former director, became binding and we closed on
$1,171,591 in equity based financing. We issued a total of 4,600,000 shares of
restricted common stock in the private placement. The shares were sold to
accredited investors at $0.25 per share, except that per the exchange listing,
our former director acquired his shares at $0.44 per share, which was the
closing share price on August 7, 2007. Each participating investor also
received warrants to purchase shares of common stock at the price of $0.58 per
share. One warrant was issued for each share of common stock issued for a total
of up to 4,600,000 shares that may be acquired upon exercise of the warrants.
The warrants became exercisable in February, 2008 and expired on August 7, 2007
after one year from the date of issuance.


F-12




Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




On June
12, 2008, we issued an aggregate of 5,777,778 shares of common stock accredited
to investors, including an affiliate, George T. Hawes at a price of $0.45 per
share pursuant to a private offering of the Company’s stock.  Net
proceeds of $2,515,000 were received from this private offering.




In
November, 2008, the Company began the process of listing on the NYSE Euronext
Alternext Paris exchange.  We were sponsored by Bryan Garnier, a
reputable European investment banking firm.  We were approved in early
December, and on Monday, December 15, 2008, trading of the Company’s shares on
Alternext Paris commenced.





On
December 10, 2008, the Company received notice from NYSE Alternext US LLC
(formerly known as the American Stock Exchange* hereinafter the "Exchange" or
"Alternext US") that the Listings Qualifications Panel of the Exchange's
Committee on Securities (the "Panel"), denied the Company's appeal and affirmed
the Staff's previous decision to delist the Company's common stock. The notice
from the Exchange indicated that the Panel agreed with the Staffs determination
that the Company did not meet the continued listing standards under the
Alternext US Company Guide: Section 1003(a)(ii) in that the Company's
shareholders' equity is less than $4 million and it has sustained losses in
three of its four most recent fiscal years.   Accordingly, the
delisting became effective at the close of market on December 19,
2008.  On Monday, December 22, 2008, quotations for the Company’s
shares became available on the Over-the-Counter (OTC) Bulletin Board under the
ticker symbol ORNI. Quotes became available, among other places, on the OTCBB
website www.otcbb.com.





Warrants




On December 14,
2005, we issued a total of 2,937,500 shares of our common stock and warrants to
purchase 2,937,500 shares of our common stock in a private placement to
accredited investors. The issuance of the shares of common stock and warrants
was made pursuant to the exemptions from registration provided by
Section 4(2) of the Securities Act and Regulation D promulgated there
under. We received gross proceeds of $1,175,000 in the private placement and
incurred estimated costs of approximately $70,000 resulting in net proceeds of
approximately $1,105,000. The warrants representing shares of common stock were
exercisable by the accredited investors at any time over a two-year period at an
exercise price of $0.60 per share. On January 16, 2007, we called all
outstanding warrants associated with our December, 2005 private placement
pursuant to the terms of the warrant. During 2007, a total of 997,500 warrants
were exercised that provided $478,500 in additional working capital and
following the call of the warrants no further warrants associated with the
private placement remain outstanding.




On
January 11, 2008 the Company approved an amendment to the outstanding warrants
that were originally issued in connection with the Company’s private placement
on March 6, 2006.  The warrants were to expire on February 8, 2008 and
the Board of Directors determined it would be in the best interest of the
Company to amend the exercise price from $0.60 to $0.44 for the balance of the
remaining term.  The outstanding warrants totaled 1,500,000 shares of
common stock.  On February 8, 2008, we issued an aggregate of
1,150,000 shares of common stock to warrant holders in connection with their
exercise of the warrants at a reduced price of $0.44.  The warrants
were originally issued to accredited investors in connection with our March 6,
2006 private placement.  The 350,000 remaining unexercised warrants
expired as of February 8, 2008 in accordance with the terms of the
warrants.  Proceeds of $506,000 were received by us from the exercise
of the warrants.  As holders of these outstanding warrants, Jeffery
Hillman, our Chief Science Officer; Robert Zahradnik, our Chief Operating
Officer; and an affiliate, George Hawes; acquired 62,500 shares, 62,500 shares
and 737,500 shares, respectively.




On
January 29, 2008 the Company approved an amendment to the outstanding warrants
that were originally issue in connection with the Company’s private placement on
August 7, 2007.  The original warrants that totaled 4,600,000 shares
of common stock and expire on August 7, 2008, were amended prior to expiration
by the Board of Directors from the original $0.58 to $0.44.  This
amended price was only exercisable during the period from January 28, 2008 to
February 29, 2008.  On February 29, 2008, we issued an aggregate of
3,386,364 shares of common stock to warrant holders in connection with their
exercise of the warrants at a reduced exercised price of $0.44.  The
warrants were originally issued to accredited investors in connection with our
August 7, 2007 private placement.  The remaining 1,213,636 outstanding
warrants associated with this original private placement expired August 8, 2008
at an exercise price of $0.58.  Proceeds of $1,490,000 were received
from the exercise of warrants.  As part of this offering, George T.
Hawes, an affiliate, acquired 500,000 shares of the Company.





Coupled
with the private offering on June 12, 2008 investors also received warrants to
purchase 5,777,778 shares common stock at a price of $1.30 per
share.  These warrants expire five years from their date of
issuance.




F-13


Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




A summary
of the status of the Company’s outstanding and exercisable warrants as of
December 31, 2008 is presented below:




Shares
      Underlying
                      Warrant Outstanding
                    
                    Exercise Price
                    
                    Expiration Date5,777,778
                    
                    $
                    1.30
                    
                    5/30/2013




A summary
of the status of the Company’s outstanding and exercisable warrants as of
December 31, 2007 is presented below:





Shares
      UnderlyingWarrant Outstanding
                    
                    Exercise Price
                    
                    Expiration Date4,600,000
                    
                    $
                    0.58
                    
                    8/8/20081,465,000
                    
                    $
                    0.60
                    
                    2/8/200835,000
                    
                    $
                    1.59
                    
                    8/16/200825,000
                    
                    $
                    2.25
                    
                    11/30/200852,500
                    
                    $
                    2.75
                    
                    11/30/2008




Stock
Compensation Plan




The
Company’s 2002 Stock Option and Incentive Plan (the Plan) was adopted by the
Board of Directors (the Board). The purpose is to advance the interests of the
Company by affording certain employees and directors of the Company and key
consultants and advisors an opportunity to acquire or increase their proprietary
interests in the Company. The Plan authorizes the grant of stock options
(incentive and non-statutory), stock appreciation rights and restricted stock.
As of December 31, 2008 and 2007, the Company had not awarded stock
appreciation rights or restricted  stock under the Plan. The Company has
reserved an aggregate of 5,000,000 and 3,000,000 shares of common stock for
grants under the Plan at December 31, 2008 and 2007, respectively, of which
430,000 and 1,655,000 shares, respectively, are available for future grants as
of December 31, 2008 and  2007. The exercise price of each option
shall be determined by the Board and an option’s maximum term is ten
years.




In
September 2002, the Company issued 195,000 options that were re-priced upon the
change in the initial public offering price. As a result, these options were
subjected to variable accounting treatment. In accordance with Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation (FIN 44), stock options must be accounted
for as variable under such circumstances. Variable accounting requires companies
to re-measure compensation costs for the variable options until the options are
exercised, cancelled, or forfeited without replacement. Compensation is
dependent on fluctuations in the quoted stock prices for the Company’s common
stock. Such compensation costs will be recognized over a three-year vesting
schedule until the options are fully vested, exercised, cancelled, or forfeited.
During the years ended December 31, 2008 , 2007 and 2006, the Company
recognized a stock compensation expense of $513,611, $161,471 and $241,385,
respectively based on FAS 123 (R).





As of the
date of this filing there are approximately 5,855,278 warrants outstanding and
there are approximately 3,945,000 stock options have been granted that have not
been forfeited. The total number of outstanding warrants and unexercised stock
options is 9,800,278. If all warrants and stock options were exercised, the
total number of outstanding shares would be approximately
48,118,756.


F-14


Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




A summary
of the status of the Company’s outstanding stock options as of December 31,
2008 and 2007 and changes during the periods ending on those dates is presented
below:




Options
                  
                  
                  Option
                    Price
      Per
                    Share
                  
                  
                  Weighted
                    Average
                    Exercise
                    PriceOutstanding
      at December 31, 2006
                  
                  
                  1,255,000
                  
                  
                  $
                  0.53
      – 4.25
                  
                  
                  $
                  1.90Forfeited
                  
                  
                  (155,000
                  )
                  
                  
                  0.74
      – 1.25
                  
                  
                  
                  0.96Granted
                  
                  
                  245,000
                  
                  
                  
                  0.32
      – 1.03
                  
                  
                  
                  0.59Outstanding
      at December 31, 2007
                  
                  
                  1,345,000
                  
                  
                  $
                  0.32
      – 4.25
                  
                  
                  $
                  1.25Forfeited
                  
                  
                  (930,000
                  )
                  
                  
                  0.32
      – 4.25
                  
                  
                  
                  1.37Granted
                  
                  
                  4,155,000
                  
                  
                  
                  0.28
      – 2.00
                  
                  
                  
                  0.56Outstanding
      at December 31, 2008
                  
                  
                  4,570,000
                  
                  
                  $
                  0.28
      – 4.25
                  
                  
                  $
                  0.60Exercisable
      at end of year
                  
                  
                  1,913,335
                  
                  
                  $
                  0.28
      – 4.00
                  
                  
                  $
                  0.65





The
range of exercise price for outstanding options at December 31, 2008 is $0.28 to
$4.25 per share. The weighted-average per option fair value of options granted
during 2008 and 2007 was $0.56 and $0.59, respectively, and the weighted average
remaining contractual life of those options is 9.5 years and 8.3 years,
respectively.  Options vest over a period of two to three years from
respective grant dates and the options expire 10 years after the date of grant.
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:  weighted average risk-free interest rate of 2.08%;
dividend yields of 0%; weighted-average volatility factors of the expected
market price of the Company’s common stock of 27.2%; and an expected life of the
option of ten years.




8.
Licenses




The
Company has two license agreements with the University of Florida Research
Foundation, Inc. (“UFRF”) for their technologies. The Company issued 599,940
shares of common stock as partial consideration in 1998. The license agreements
provide for, among other things, the




Company
to make minimum annual research expenditures of $1,000,000 and to adhere to
specific milestones. Beginning in 2005, the Company was required to pay minimum
royalties on product sales of $50,000 annually per agreement. If the Company
fails to perform certain of its obligations, UFRF may terminate the license
agreements.  The Company’s milestones are in compliance with UFRF and
the Company had $50,000 and $25,000 of royalties payable to UFRF recorded in the
accompanying balance sheets  in accounts payable and accrued expenses
at December 31, 2008 and 2007, respectively.




In
February 2004, the Company licensed from iviGene Corporation (iviGene), a
company whose major shareholders also own a significant number of shares of the
Company’s common stock, applications of two novel technologies referred to as
IVIAT and CMAT. On November 17, 2006 we acquired the outstanding stock of
iviGene Corporation in exchange for 185,186 shares of our common stock to the
holders of iviGene Corporation, which included one of our directors, who
received 20,480 shares. Following the consummation of this transaction, iviGene
Corporation was dissolved and as a result, Oragenics acquired all of iviGene’s
assets, including issued and pending patents to two broad based platform
technologies. These technologies are capable of identifying gene and protein
biomarkers for application to the improve diagnosis and treatment of a wide
range of infectious diseases and cancers. Besides human diseases, other
potential applications for these technologies include animal disease, industrial
and marine biofilm formation and plant diseases.


F-15




Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




9.
Retirement Plan




In
January 2004, the Company established a defined contribution retirement plan,
replacing the previous plan that had been established in 2001. The new plan
covers all employees and provides for a Company match of up to 3% of all
employee contributions to the plan. During 2008, 2007, and 2006, employee
contributions were limited to $15,500, $15,500, and $15,000, respectively,
except for




individuals
50 years or older for which the contribution limitations were $20,500, $20,500,
and $20,000, respectively. Total matching contributions made by the Company in
2008, 2007, and 2006 were $17,644, $5,383, and $6,409,
respectively.




10.
Income Taxes




At
December 31, 2008 and 2007, the Company had temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and their respective income tax bases, as measured by enacted state and federal
tax rates, as follows:




2008
            
            
            2007Deferred
      tax assets:Net
      operating loss carryforward
            
            $
            7,075,638
            
            
            $
            5,030,163Compensation
      to Directors & Officers and consulting services
            
            
            38,601
            
            
            
            17,121Total
      deferred tax assets
            
            
            7,114,239
            
            
            
            5,047,284Less
      valuation allowance
            
            
            (7,114,239
            )
            
            
            (5,047,284
            )Total
      net deferred taxes
            
            $
            -
            
            
            $
            -




The
following is a reconciliation of tax computed at the statutory federal rate to
the income tax benefit in the statements of operations for the years ended
December 31, 2008, 2007 and 2006:




Years
      Ended December 312008
                
                
                2007
                
                
                2006Income
      tax benefit computed at statutory federalrate
      of 34%
                
                $
                (2,047,392
                )
                
                $
                (785,982
                )
                
                $
                (998,144
                )State
      income tax benefits, net of federal expense/benefit
                
                
                (218,589
                )
                
                
                (83,915
                )
                
                
                (106,567
                )Change
      in valuation allowance
                
                
                2,066,955
                
                
                
                814,662
                
                
                
                1,042,086Non-deductible
      expenses
                
                
                199,026
                
                
                
                61,144
                
                
                
                91,198Research
      and development credit
                
                
                —
                
                
                
                —
                
                
                
                (40,792
                )Other
                
                
                —
                
                
                
                (5,909
                )
                
                
                12,219Total
                
                $
                —
                
                
                $
                —
                
                
                $
                —




In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. Based upon the levels of
historical taxable income and projections of future taxable income over which
the deferred tax assets are deductible, the Company believes that it is more
likely than not that it will not be able to realize the benefits of some of
these deductible differences. Accordingly, a valuation allowance of $7,114,239
and $5,047,284 has been provided in the accompanying financial statements as of
December 31, 2008 and 2007, respectively. The 2008 net change in valuation
allowance related to deferred tax assets was an increase of $2,066,955 primarily
relating to net operating loss carryforwards.


F-16


Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




At
December 31, 2008, the Company has federal and state tax net operating loss
carryforwards of approximately $18,803,184. The federal and state tax loss
carryforward will expire through 2022, unless previously utilized. The Company
also has federal research and development tax credit carryforwards of
approximately $341,219. The federal tax credit carryforward will expire through
2022, unless previously utilized.




Pursuant
to Internal Revenue Service Code Sections 382 and 383, use of the Company’s net
operating losses and credit carryforwards may be limited if a cumulative change
in ownership of more than 50% occurs within a three-year period. However, the
Company does not believe such limitations will have a material impact upon the
utilization of these carryforwards.




In July
2006, the FASB issued Interpretation No. 48, which clarifies the accounting
for uncertainty in income taxes recognized in an entity’s financial statements
in accordance with FASB Statement No. 109 and prescribes a recognition
threshold and measurement attributes for financial statement disclosure of tax
positions taken or expected to be taken on a tax return. Under Interpretation
48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained
upon audit by the relevant taxing authority. An uncertain income tax position
will not be recognized if it has less than a 50% likelihood of being sustained.
Additionally, Interpretation 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.




The
Company adopted Interpretation 48 on January 1, 2007.  As a
result of the implementation of Interpretation 48, the Company recognized
a $252,827 increase in the liability for unrecognized tax benefits that are
related to research and development credits, which was accounted for as a
reduction to the January 1, 2007 balance of the deferred tax asset
valuation allowance. The entire amount of this unrecognized tax benefit, if
recognized, would result in an increase to the deferred tax asset valuation
allowance, and would not have an impact on the effective tax rate.




For the
years ended December 31, 2008 and 2007, the Company incurred $50,890 and
$37,502, respectively, of additional unrecognized tax benefits that resulted in
a decrease to the deferred tax asset valuation allowance, related to research
and development credits. The entire amount of this unrecognized tax benefit, if
recognized, would result in an increase to the deferred tax asset valuation
allowance, and would not have an impact on the effective tax rate.




The
Company files its income tax returns in the U.S. federal jurisdiction and in
Florida. With few exceptions, the Company is no longer subject to federal or
state income tax examinations by tax authorities for years before
2003.




A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:




Balance
      as of December 31, 2006
                                        
                                        $
                                        252,827Additions
      based on tax positions related to the current year
                                        
                                        
                                        37,502Additions
      for tax positions of prior years
                                        
                                        
                                        —Reductions
      for tax positions of prior years
                                        
                                        
                                        —Balance
      as of December 31, 2007
                                        
                                        $
                                        290,329Additions
      based on tax positions related to the current year
                                        
                                        
                                        50,890Additions
      for tax positions of prior years
                                        
                                        
                                        —Reductions
      for tax positions of prior years
                                        
                                        
                                        —Balance
      as of December 31, 2008
                                        
                                        $
                                        341,219




F-17





Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007




Included
in the balance at December 31, 2008 and 2007, are $341,219 and $290,329,
respectively, of tax positions for which there is uncertainty about the validity
of certain credits. The disallowance of the credits would impact the amount of
gross deferred tax assets reflected in the accompanying footnotes.




During
the years 2008, 2007 and 2006 the Company did not recognize any interest and
penalties. Due to the potential offset of the Company’s operating loss
carryforward for any future activity, the amount attributed to interest and
penalties would be immaterial.




11.
Commitments and Contingencies





The
Company’s facility is being leased from a real estate developer for a term of
five years subject to renewal provisions that include 3% increases in lease
payments. This operating lease agreement required the Company to pay a deposit
of $6,400 and provides for monthly lease payments of $6,793, exclusive of
utilities, insurance, sales taxes and real estate taxes. Rent expense under this
lease was $89,753, $89,524, and $84,131 for the years ended December 31,
2008, 2007, and 2006, respectively. On October 1, 2008 the Company leased office
space for the Sales and Marketing personnel located in St. Petersburg,
FL.  The lease is for approximately 610 square feet and is occupied by
four employees.  The lease period for the office space is six months
in the amount of $1,965 per month net of insurance, taxes and utilities that are
paid by us.  The lease expires on March 31, 2009 and is being
negotiated for renewal.




On
December 31, 2008 the Company entered into an additional operating lease for
office space necessary to accommodate accounting and IT
personnel.  The lease term is for one year and includes a deposit of
$2,500 and monthly payments of $2,031 exclusive of utilities, insurance, sales
taxes and real estate taxes.  In addition, the Company has entered
into operating leases for certain office equipment.




Future
annual minimum payments under all non-cancelable operating leases are
approximately as follows as of December 31, 2008:




Year
      ended:2009
                            
                            $
                            121,4002010
                            
                            
                            4,300$
                            125,700




F-18


Oragenics,
Inc.


Notes to
Financial Statements (continued)


December
31, 2008 and 2007





12.
Unaudited Quarterly Financial Information




The
quarterly interim financial information shown below has been prepared by the
Company’s management and is unaudited. It should be read in conjunction with the
audited financial statements appearing herein.




2008First
                              
                              
                              Second
                              
                              
                              Third
                              
                              
                              FourthRevenue
                              
                              $
                              125,000
                              
                              
                              $
                              —
                              
                              
                              $
                              100,000
                              
                              
                              $
                              8,539Total
      operating expenses
                              
                              
                              926,095
                              
                              
                              
                              1,111,553
                              
                              
                              
                              1,253,200
                              
                              
                              
                              2,983,596Net
      loss
                              
                              
                              (791,636
                              )
                              
                              
                              (1,095,112
                              )
                              
                              
                              (1,138,117
                              )
                              
                              
                              (2,996,877
                              )Loss
      per share:Basic
      and Diluted
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.08
                              )2007First
                              
                              
                              Second
                              
                              
                              Third
                              
                              
                              FourthRevenue
                              
                              $
                              33,088
                              
                              
                              $
                              26,673
                              
                              
                              $
                              46,584
                              
                              
                              $
                              26,743Total
      operating expenses
                              
                              
                              584,070
                              
                              
                              
                              627,631
                              
                              
                              
                              542,321
                              
                              
                              
                              719,205Net
      loss
                              
                              
                              (541,156
                              )
                              
                              
                              (596,392
                              )
                              
                              
                              (487,333
                              )
                              
                              
                              (686,832
                              )Loss
      per share:Basic
      and Diluted
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.03
                              )2006First
                              
                              
                              Second
                              
                              
                              Third
                              
                              
                              FourthRevenue
                              
                              $
                              —
                              
                              
                              $
                              —
                              
                              
                              $
                              66,176
                              
                              
                              $
                              —Total
      operating expenses
                              
                              $
                              865,131
                              
                              
                              $
                              801,831
                              
                              
                              $
                              634,132
                              
                              
                              $
                              711,330Net
      loss
                              
                              
                              (856,389
                              )
                              
                              
                              (796,713
                              )
                              
                              
                              (559,160
                              )
                              
                              
                              (707,887
                              )Loss
      per share:Basic
      and Diluted
                              
                              $
                              (0.05
                              )
                              
                              $
                              (0.04
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.03
                              )





13.
Subsequent Event





Effective
March 18, 2009, Mr. Stanley B. Stein resigned as President, Chief Executive
Officer and director of the Company, but will thereafter continue to provide
services to the Company as an advisor.  Mr. Stein’s resignation was
not due to any disagreement with the Company on any matter related to its
operations, policies or practices.  Under the severance contract, Mr.
Stein will receive nine months of base salary plus a monthly fee for fringe
benefits.




Mr. Stein
and the Company have simultaneously entered into a Separation Agreement which
ended his duties as an employee and director of the Company and entered into a
Consulting Agreement pursuant to which Mr. Stein will continue to provide
services to the Company on an as needed basis. The Consulting Agreement is
effective March 18, 2009.


F-19


EXHIBIT
INDEX




Incorporated
by Reference





Exhibit
                                              Number
                                            
                                            Exhibit
      Description
                                            
                                            Form
                                            
                                            File
      No
                                            
                                            Exhibit
                                            
                                            Filing
                                              Date
                                            
                                            Filed
                                              Herewith3.1
                                            
                                            Amended
      and Restated Articles of Incorporation
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            3.3
                                            
                                            10/16/023.2
                                            
                                            Bylaws
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            3.2
                                            
                                            10/16/024.1
                                            
                                            Specimen
      Stock Certificate
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            4.1
                                            
                                            10/16/024.2
                                            
                                            Securities
      Purchase Agreement, dated November 20, 2005, among the purchasers and
      Oragenics, Inc.
                                            
                                            S-3
                                            
                                            333-131015
                                            
                                            4.2
                                            
                                            01/13/064.3
                                            
                                            Registration
      Rights Agreement dated November 20, 2005, among the investors and
      Oragenics, Inc.
                                            
                                            S-3
                                            
                                            333-131015
                                            
                                            4.3
                                            
                                            01/13/064.4
                                            
                                            Securities
      Purchase Agreement dated January 6, 2006
                                            
                                            8-K
                                            
                                            001-32188
                                            
                                            4.1
                                            
                                            3/10/064.5
                                            
                                            Registration
      Rights Agreement dated January 6, 2006
                                            
                                            8-K
                                            
                                            001-32188
                                            
                                            4.2
                                            
                                            3/10/064.6
                                            
                                            Specimen
      Warrant Certificate dated March 7, 2006
                                            
                                            8-K
                                            
                                            001-32188
                                            
                                            4.3
                                            
                                            3/10/064.7
                                            
                                            First
      Amendment to March Warrant dated January 11, 2008
                                            
                                            8-K
                                            
                                            001-32188
                                            
                                            4.2
                                            
                                            1/11/084.8
                                            
                                            Stock
      Purchase Agreement by and among Oragenics, Inc. and iviGene Corporation
      and the stock holders of iviGene Corporation and amendment thereto
      (including registration rights)
                                            
                                            SB-2/A
                                            
                                            333-125660
                                            
                                            4.10
                                            
                                            12/22/064.9
                                            
                                            Securities
      Purchase Agreement and Form of Warrant Agreement dated August 7, 2007 (the
      “August Warrant”)
                                            
                                            10-QSB
                                            
                                            001-32188
                                            
                                            4.1
                                            
                                            8/13/074.10
                                            
                                            Registration
      Rights Agreement dated August 7, 2007 among the purchasers and Oragenics,
      Inc.
                                            
                                            10-QSB
                                            
                                            001-32188
                                            
                                            4.2
                                            
                                            8/13/074.11
                                            
                                            First
      Amendment to the August Warrant dated January 28, 2008
                                            
                                            8-K
                                            
                                            001-32188
                                            
                                            4.2
                                            
                                            1/17/084.12
                                            
                                            Securities
      Purchase Agreement between George Hawes, William Matlack and Oragenics,
      Inc. dated June 12, 2008 (including form of Warrant)
                                            
                                            8-K
                                            
                                            001-32188
                                            
                                            10.1
                                            
                                            6/16/0810.1
                                            
                                            License
      Agreement between the Company and the University of Florida Research
      Foundation, Inc. effective August 4, 1998 for Replacement Therapy for
      Dental Caries (the “Replacement Therapy License
Agreement”)
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            10.1
                                            
                                            10/16/0210.2
                                            
                                            First
      Amendment to Replacement Therapy License Agreement dated
      September 15, 2000
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            10.2
                                            
                                            10/16/0210.3
                                            
                                            Second
      Amendment to Replacement Therapy License Agreement dated June
      2002
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            10.3
                                            
                                            10/16/0210.4
                                            
                                            Third
      Amendment to Replacement Therapy License Agreement dated
      September 25, 2002
                                            
                                            SB-2
                                            
                                            333-100568
                                            
                                            10.4
                                            
                                            10/16/0210.5
                                            
                                            Fourth
      Amendment to Replacement Therapy License Agreement and Antimicrobial
      Polypeptide License Agreement dated March 2003
                                            
                                            SB-2/A-3
                                            
                                            333-100568
                                            
                                            10.36
                                            
                                            4/9/03









Exhibit
                                        Number
                                      
                                      Exhibit
      Description
                                      
                                      Exhibit
                                        Description
                                      
                                      File
      No
                                      
                                      Form
                                      
                                      Filing
      Date
                                      
                                      File No10.6
                                      
                                      License
      Agreement between the Company and the University of Florida Research
      Foundation, Inc. effective June 22, 2000 (the “Antimicrobial
      Polypeptide License Agreement”)
                                      
                                      SB-2
                                      
                                      333-100568
                                      
                                      10.5
                                      
                                      10/16/0210.7
                                      
                                      First
      Amendment to the Antimicrobial Polypeptide License Agreement dated
      September 15, 2000
                                      
                                      SB-2
                                      
                                      333-100568
                                      
                                      10.6
                                      
                                      10/16/0210.8
                                      
                                      Second
      Amendment to the Antimicrobial Polypeptide License Agreement dated
      June 10, 2002
                                      
                                      SB-2
                                      
                                      333-100568
                                      
                                      10.7
                                      
                                      10/16/0210.9
                                      
                                      Third
      Amendment to the Antimicrobial Polypeptide License Agreement dated
      September 25, 2002
                                      
                                      SB-2
                                      
                                      333-100568
                                      
                                      10.7
                                      
                                      10/16/0210.10+
                                      
                                      Amended
      and Restated 2002 Stock Option and Incentive Plan (including Form of Stock
      Option Agreement)
                                      
                                      10-QSB/A
                                      
                                      001-32188
                                      
                                      10.1
                                      
                                      9/29/0610.11
                                      
                                      First
      Amendment to Amended and Restated Stock Option Plan
                                      
                                      8-K
                                      
                                      001-32188
                                      
                                      4.2
                                      
                                      4/14/0810.12
                                      
                                      Proprietary
      Information and Invention Agreement between ourselves, Robert Zahradnik,
      Howard Kuramitsu, and Steven Projan
                                      
                                      SB-2
                                      
                                      333-100568
                                      
                                      99.23
                                      
                                      10/16/0210.13*
                                      
                                      Proprietary
      Information and Invention Agreement between the Company and Jeffrey D.
      Hillman
                                      
                                      SB-2
                                      
                                      333-100568
                                      
                                      99.4
                                      
                                      10/16/0210.14
                                      
                                      Employment
      Agreement of Jeffrey D. Hillman
                                      
                                      10-KSB
                                      
                                      000-50614
                                      
                                      10.43
                                      
                                      3/17/0410.15
                                      
                                      Lease
      Agreement between the Company and Hawley-Wiggins LLC dated
      January 28, 2004; Subordination Agreement dated April 14, 2004;
      and First Amendment dated November 15, 2004
                                      
                                      10-KSB
                                      
                                      001-32188
                                      
                                      10.46
                                      
                                      3/14/0510.16
                                      
                                      Revolving
      Line of Credit Agreement between Signature Bank and Oragenics Inc. dated
      October 20, 2008
                                      
                                      8-K
                                      
                                      001-32188
                                      
                                      10.1
                                      
                                      10/24/0810.17
                                      
                                      Employment
      Agreement of David Hirsch dated May 14, 2008 and the Addendum of June 27,
      2008
                                      
                                      10-Q
                                      
                                      001-32188
                                      
                                      10.1
                                      
                                      08/14/0823.1
                                      
                                      Consent
      of Kirkland Russ Murphy & Tapp, PA, an independent public accounting
      firm
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      X24.
                                      
                                      Powers
      of Attorney (included on signature page)31.1
                                      
                                      Rule
      13a-14(a)/15d-14(a) Certification
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      X31.2
                                      
                                      Rule
      13a-14(a)/15d-14(a) Certification
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      X32.1
                                      
                                      Section
      1350 Certifications
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      X32.2
                                      
                                      Section
      1350 Certifications
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      X