Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-Q**

 

**(MarkOne)**

 

**x****      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934**

 

**For the quarterly period ended September 30,2009**

 

**OR**

 

**o****         TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the transition period from           to**

 

**COMMISSION****FILENUMBER 333-142076**

 

**IRIS BIOTECHNOLOGIES INC.**

(Exact Name of small business issuer as specified in its charter)

 

| **California**                   | ** ** | **77-0506396**       |
|----------------------------------|------------|----------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer     |
| incorporation or  organization)  |       | Identification  No.) |

 

**5201 Great America Parkway, Suite 320,Santa Clara, California 95054**

(Address of principal executive offices) (Zip Code)

 

Issuer’s telephone Number:**(408)867-2885**

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13or 15(d) of the Exchange Act during the past 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90days.   Yes x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files).   Yes o  No o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” “accelerated filer,” and “smallerreporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

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

 

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

 

As of November 3,2009 the issuer had 11,214,526 outstanding shares of Common Stock.

 

 

 

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Table of Contents

 

TABLE OF CONTENTS

 
| ** **   | ** **                                                                                 | **Page** |
|--------------|--------------------------------------------------------------------------------------------|----------|
|         |                                                                                       |     |
| PART I  |
| Item 1.      | Financial Statements                                                                       | 3        |
| Item 2.      | Management’s Discussion  and Analysis of Financial Condition and Results of Operation | 29       |
| Item 3.      | Quantitative and Qualitative  Disclosures About Market Risk                                | 32       |
| Item 4T      | Controls and Procedures                                                                    | 33       |
|         |                                                                                       |     |
| PART II |
|         |                                                                                       |     |
| Item 1.      | Legal Proceedings                                                                          | 33       |
| Item 1A.     | Risk Factors                                                                               | 33       |
| Item 2.      | Unregistered Sales of  Equity Securities and Use of Proceeds                               | 33       |
| Item 3.      | Defaults Upon Senior  Securities                                                           | 33       |
| Item 4.      | Submission of Matters to a  Vote of Security Holders                                       | 33       |
| Item 5.      | Other Information                                                                          | 33       |
| Item 6.      | Exhibits                                                                                   | 34       |
|         |                                                                                       |     |
| SIGNATURES   | 35                                                                                         |

 

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Table of Contents

 

**PART I**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

**INDEX TO FINANCIAL STATEMENTS**

 
| ** **                                                                                                                                                                                            | **Page** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Unaudited  Condensed Balance Sheets as of September 30, 2009 and December 31,  2008                                                                                                         | 4        |
|                                                                                                                                                                                                  |     |
| Unaudited  Condensed Statements of Losses for the three and nine months ended  September 30, 2009 and 2008 and the period February 16, 1999 (date  of inception) to September 30, 2009 | 5        |
|                                                                                                                                                                                                  |     |
| Unaudited Condensed Statement of Stockholders’  (deficit) Equity for the period February 16, 1999 (date of inception) to  September 30, 2009                                           | 6        |
|                                                                                                                                                                                                  |     |
| Unaudited  Condensed Statements of Cash Flows for the nine months ended  September 30, 2009 and 2008 and the period February 16, 1999 (date  of inception) to September 30, 2009       | 13       |
|                                                                                                                                                                                                  |     |
| Notes to the Unaudited Condensed Financial Statements                                                                                                                                                 | 14       |

 

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**CONDENSED BALANCE SHEETS**

** **

 
| ** **                                                                                                                                                                                            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                            | ** ** | **2009**               | ** ** | **2008**              | ** ** |
| ** **                                                                                                                                                                                            | ** ** | **(unaudited)**        | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                                                                                                |       |                   |       |                  |       |
| Current  assets:                                                                                                                                                                                      |       |                   |       |                  |       |
| Cash                                                                                                                                                                                                  |       | $                      | 3,957      |                  | $          | 990 |   |
| Total  current assets                                                                                                                                                                                 |       | 3,957                  |       | 990                   |       |
|                                                                                                                                                                                                  |       |                   |       |                  |       |
| Property,  plant and equipment, net of accumulated depreciation of $178,674 and $165,334  as of September 30, 2009 and December 31, 2008, respectively                                      |       | 53,345                 |       | 59,382                |       |
|                                                                                                                                                                                                  |       |                   |       |                  |       |
| Total  assets                                                                                                                                                                                         |       | $                      | 57,302     |                  | $          | 60,372 |   |
|                                                                                                                                                                                                  |       |                   |       |                  |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                                                  |       |                   |       |                  |       |
| Current  liabilities:                                                                                                                                                                                 |       |                   |       |                  |       |
| Accounts  payable and accrued liabilities                                                                                                                                                             |       | $                      | 41,550     |                  | $          | 10,131 |   |
| Notes  payable, related party                                                                                                                                                                         |       | 101,500                |       | 26,000                |       |
| Total  current liabilities                                                                                                                                                                            |       | 143,050                |       | 36,131                |       |
|                                                                                                                                                                                                  |       |                   |       |                  |       |
| Long  term debt:                                                                                                                                                                                      |       |                   |       |                  |       |
| Convertible  notes payable, related party                                                                                                                                                             |       | 38,000                 |       | —                |       |
|                                                                                                                                                                                                  |       |                   |       |                  |       |
| STOCKHOLDERS’  EQUITY (DEFICIT)                                                                                                                                                                  |       |                   |       |                  |       |
| Preferred  stock, no par or stated value; 5,000,000 shares authorized; no shares issued  and outstanding as of September 30, 2009 and December 31, 2008                                     |       | —                 |       | —                |       |
| Common  stock, no par or stated value; 20,000,000 shares authorized; 11,201,526 and  10,932,541 shares issued and outstanding as of September 30, 2009 and  December 31, 2008, respectively |       | 5,017,281              |       | 4,822,092             |       |
| Additional  paid in capital                                                                                                                                                                           |       | 1,918,560              |       | 1,277,363             |       |
| Common  stock subscription receivable                                                                                                                                                                 |       | (108,750               | )          | —                |       |
| Deferred  compensation                                                                                                                                                                                |       | —                 |       | (119,364              | )          |
| Deficit  accumulated during development stage                                                                                                                                                         |       | (6,950,839             | )          | (5,955,850            | )          |
| Total  stockholders’ equity (deficit)                                                                                                                                                            |       | (123,748               | )          | 24,241                |       |
|                                                                                                                                                                                                  |       |                   |       |                  |       |
| Total  liabilities and stockholders’ equity (deficit)                                                                                                                                            |       | $                      | 57,302     |                  | $          | 60,372 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**STATEMENTS OF LOSSES**

**(unaudited)**

 
| ** **                                                                    | ** ** | **For the three months ended September 30,** | ** ** | **For the nine months ended September 30,** | ** ** | **For the period from  February 16, 1999 (date  of inception) through** | ** ** |
|-------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2009**                                          | ** ** | **2008**                                         | ** ** | **2009**                                                                     | ** ** | **2008** | ** ** | **September 30, 2009** | ** ** |
| Operating  expenses:                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Selling,  general and administrative                                          |       | $                                                 | 40,522     |                                             | $          | 124,003                                                                      |       | $ | 950,904 |   | $ | 578,812 |   | $ | 3,561,054 |   |
| Research  and development (Note A)                                            |       | —                                            |       | 75,061                                           |       | 30,622                                                                       |       | 179,787 |   | 1,376,293 |   |
| Impairment  of intellectual property                                          |       | —                                            |       | —                                           |       | —                                                                       |       | — |   | 1,838,250 |   |
| Depreciation                                                                  |       | 4,457                                             |       | 3,555                                            |       | 13,340                                                                       |       | 10,081 |   | 178,674 |   |
| Total  operating expenses                                                     |       | 44,979                                            |       | 202,619                                          |       | 994,866                                                                      |       | 768,680 |   | 6,954,271 |   |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Net  loss from operations                                                     |       | (44,979                                           | )          | (202,619                                         | )          | (994,866                                                                     | )          | (768,680 | ) | (6,954,271 | ) |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Other  income (expense)                                                       |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Interest  income (expense)                                                    |       | (47                                               | )          | 334                                              |       | (47                                                                          | )          | 2,581 |   | 11,544 |   |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Net  loss before provision for income taxes                                   |       | (45,026                                           | )          | (202,285                                         | )          | (994,913                                                                     | )          | (766,099 | ) | (6,942,727 | ) |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Income  taxes                                                                 |       | —                                            |       | —                                           |       | 76                                                                           |       | 800 |   | 8,112 |   |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Net  Loss                                                                     |       | $                                                 | (45,026    | )                                                | $          | (202,285                                                                     | )          | $ | (994,989 | ) | $ | (766,899 | ) | $ | (6,950,839 | ) |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Loss  per common share-basic and fully diluted                                |       | $                                                 | (0.00      | )                                                | $          | (0.02                                                                        | )          | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.73 | ) |
|                                                                          |       |                                              |       |                                             |       |                                                                         |       |   |   |   |   |
| Weighted  average number of common shares outstanding-basic and fully diluted |       | 11,187,764                                        |       | 10,893,397                                       |       | 11,090,184                                                                   |       | 10,799,492 |   | 9,559,322 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

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**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF(DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                          | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                          | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                          | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development stage**   | ** ** | **Total**  | ** ** |
| Common stock issued in February 1999 in  exchange for intellectual property at $0.25 per share |       | —                    |       | $                      | —     |           | 7,200,000  |             | $          | 1,800,000                     |       | $              | —     |             | $          | —                       |       | $          | —     |   | $ | — |   | $ | 1,800,000 |   |
| Common stock issued in March 1999 in exchange  for services rendered at $0.25 per share        |       | —                    |       | —                 |       | 120,000        |       | 30,000           |       | —                        |       | —         |       | —           |       | —                       |       | 30,000     |       |
| Sale of common stock in March 1999 at $0.25  per share                                         |       | —                    |       | —                 |       | 220,000        |       | 55,000           |       | —                        |       | —         |       | —           |       | —                       |       | 55,000     |       |
| Fair value of options issued in March 1999 in  exchange for services rendered                  |       | —                    |       | —                 |       | —         |       | —           |       | 9,240                         |       | —         |       | —           |       | —                       |       | 9,240      |       |
| Common stock issued in April 1999 in exchange  for services rendered at $0.25 per share        |       | —                    |       | —                 |       | 33,000         |       | 8,250            |       | —                        |       | —         |       | —           |       | —                       |       | 8,250      |       |
| Sale of common stock in April 1999 at $0.25  per share                                         |       | —                    |       | —                 |       | 107,000        |       | 26,750           |       | —                        |       | —         |       | —           |       | —                       |       | 26,750     |       |
| Exercise of options in April  1999 at $0.25  per share                                         |       | —                    |       | —                 |       | 50,000         |       | 12,500           |       | —                        |       | —         |       | —           |       | —                       |       | 12,500     |       |
| Sale of common stock in August 1999 at $0.25  per share                                        |       | —                    |       | —                 |       | 50,000         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Fair value of options issued in September 1999  in exchange for services rendered              |       | —                    |       | —                 |       | —         |       | —           |       | 16,612                        |       | —         |       | —           |       | —                       |       | 16,612     |       |
| Sale of common stock in November 1999 at $0.25  per share                                      |       | —                    |       | —                 |       | 50,000         |       | 12,500           |       | —                        |       | —         |       | —           |       | —                       |       | 12,500     |       |
| Exercise of options in November 1999 at $0.50  per share                                       |       | —                    |       | —                 |       | 50,000         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Net loss                                                                                            |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (2,087,103                   | )          | (2,087,103 | )          |
| Balance at December 31, 1999                                                                   |       | —                    |       | $                      | —     |           | 7,880,000  |             | $          | 1,995,000                     |       | $              | 25,852     |             | $          | —                       |       | $          | —     |   | $ | (2,087,103 | ) | $ | (66,251 | ) |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

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**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                     | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                     | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                     | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development stage**   | ** ** | **Total**  | ** ** |
| Balance forward                                                                                |       | —                    |       | $                      | —     |           | 7,880,000  |             | $          | 1,995,000                     |       | $              | 25,852     |             | $          | —                       |       | $          | —     |   | $ | (2,087,103 | ) | $ | (66,251 | ) |
| Sale of common stock in June 2000 at $0.50 per  share                                     |       | —                    |       | —                 |       | 100,000        |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Sale of common stock in July 2000 at $0.50 per  share                                     |       | —                    |       | —                 |       | 250,000        |       | 125,000          |       | —                        |       | —         |       | —           |       | —                       |       | 125,000    |       |
| Sale of common stock in August 2000 at $0.50  per share                                   |       | —                    |       | —                 |       | 164,000        |       | 82,000           |       | —                        |       | —         |       | —           |       | —                       |       | 82,000     |       |
| Common stock issued in August 2000 at $0.50  per share in exchange for services rendered  |       | —                    |       | —                 |       | 20,000         |       | 10,000           |       | —                        |       | —         |       | —           |       | —                       |       | 10,000     |       |
| Sale of common stock in September 2000 at  $0.50 per share                                |       | —                    |       | —                 |       | 250,000        |       | 125,000          |       | —                        |       | —         |       | —           |       | —                       |       | 125,000    |       |
| Sale of common stock in November 2000 at $0.50  per share                                 |       | —                    |       | —                 |       | 100,000        |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Net loss                                                                                       |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (378,039                     | )          | (378,039   | )          |
| Balance at December 31, 2000                                                              |       | —                    |       | —                 |       | 8,764,000      |       | 2,437,000        |       | 25,852                        |       | —         |       | —           |       | (2,465,142                   | )          | (2,290     | )          |
| Fair value of options issued in January 2000  in exchange for services rendered           |       | —                    |       | —                 |       | —         |       | —           |       | 57,852                        |       | —         |       | —           |       | —                       |       | 57,852     |       |
| Sale of common stock in January 2001 at $0.50  per share                                  |       | —                    |       | —                 |       | 244,000        |       | 122,000          |       | —                        |       | —         |       | —           |       |                         |       | 122,000    |       |
| Net loss                                                                                       |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (266,224                     | )          | (266,224   | )          |
| Balance at December 31, 2001                                                              |       | —                    |       | —                 |       | 9,008,000      |       | 2,559,000        |       | 83,704                        |       | —         |       | —           |       | (2,731,366                   | )          | (88,662    | )          |
| Common stock issued in January 2002 at $0.50  per share in exchange for services rendered |       | —                    |       | —                 |       | 20,000         |       | 10,000           |       | —                        |       | —         |       | —           |       | —                       |       | 10,000     |       |
| Sale of common stock in March 2002 at $0.50  per share                                    |       | —                    |       | —                 |       | 50,000         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Sale of common stock in April 2002 at $0.50  per share                                    |       | —                    |       | —                 |       | 200,000        |       | 100,000          |       | —                        |       | —         |       | —           |       | —                       |       | 100,000    |       |
| Fair value of options issued in May 2002 in  exchange for services rendered               |       | —                    |       | —                 |       | —         |       | —           |       | 17,892                        |       | —         |       | —           |       | —                       |       | 17,892     |       |
| Sale of common stock in May 2002 at $0.50 per  share                                      |       | —                    |       | —                 |       | 60,000         |       | 30,000           |       | —                        |       | —         |       | —           |       | —                       |       | 30,000     |       |
| Sale of common stock in July 2002 at $0.50 per  share                                     |       | —                    |       | —                 |       | 80,000         |       | 40,000           |       | —                        |       | —         |       | —           |       | —                       |       | 40,000     |       |
| Sale of common stock in August 2002 at $0.50  per share                                   |       | —                    |       | —                 |       | 55,400         |       | 27,700           |       | —                        |       | —         |       | —           |       | —                       |       | 27,700     |       |
| Sale of common stock in September 2002 at  $0.50 per share                                |       | —                    |       | —                 |       | 50,000         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Sale of common stock in October 2002 at $0.50  per share                                  |       | —                    |       | —                 |       | 50,000         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Sale of common stock in November 2002 at $0.50  per share                                 |       | —                    |       | —                 |       | 144,000        |       | 72,000           |       | —                        |       | —         |       | —           |       | —                       |       | 72,000     |       |
| Net loss                                                                                       |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (184,721                     | )          | (184,721   | )          |
| Balance at December 31, 2002                                                              |       | —                    |       | $                      | —     |           | 9,717,400  |             | $          | 2,913,700                     |       | $              | 101,596    |             | $          | —                       |       | $          | —     |   | $ | (2,916,087 | ) | $ | 99,209 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

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**STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                   | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                   | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                   | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development stage**   | ** ** | **Total**  | ** ** |
| Balance forward                                                                              |       | —                    |       | $                      | —     |           | 9,717,400  |             | $          | 2,913,700                     |       | $              | 101,596    |             | $          | —                       |       | $          | —     |   | $ | (2,916,087 | ) | $ | 99,209 |   |
| Sale of common stock in January 2003 at $0.50  per share                                |       | —                    |       | —                 |       | 35,378         |       | 17,689           |       | —                        |       | —         |       | —           |       | —                       |       | 17,689     |       |
| Common stock issued in February 2003 at $0.50  in exchange for services rendered        |       | —                    |       | —                 |       | 20,000         |       | 10,000           |       | —                        |       | —         |       | —           |       | —                       |       | 10,000     |       |
| Sale of common stock in March 2003 at $0.50  per share                                  |       | —                    |       | —                 |       | 100,000        |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Common stock issued in March 2003 at $0.50 per  share in exchange for services rendered |       | —                    |       | —                 |       | 6,000          |       | 3,000            |       | —                        |       | —         |       | —           |       | —                       |       | 3,000      |       |
| Sale of common stock in July 2003 at $1.00 per  share                                   |       | —                    |       | —                 |       | 63,080         |       | 63,080           |       | —                        |       | —         |       | —           |       | —                       |       | 63,080     |       |
| Sale of common stock in September 2003 at  $1.00 per share                              |       | —                    |       | —                 |       | 25,000         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Sale of common stock in December 2003 at $1.00  per share                               |       | —                    |       | —                 |       | 32,597         |       | 32,597           |       | —                        |       | —         |       | —           |       | —                       |       | 32,597     |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (216,804                     | )          | (216,804   | )          |
| Balance at December 31, 2003                                                            |       | —                    |       | —                 |       | 9,999,455      |       | 3,115,066        |       | 101,596                       |       | —         |       | —           |       | (3,132,891                   | )          | 83,771     |       |
| Sale of common stock in August 2004 at $1.00  per share                                 |       | —                    |       | —                 |       | 2,000          |       | 2,000            |       | —                        |       | —         |       | —           |       | —                       |       | 2,000      |       |
| Sale of common stock in September 2004 at  $1.00 per share                              |       | —                    |       | —                 |       | 20,000         |       | 20,000           |       | —                        |       | —         |       | —           |       | —                       |       | 20,000     |       |
| Sale of common stock in November 2004 at $1.00  per share                               |       | —                    |       | —                 |       | 30,000         |       | 30,000           |       | —                        |       | —         |       | —           |       | —                       |       | 30,000     |       |
| Sale of common stock in December 2004 at $1.00  per share                               |       | —                    |       | —                 |       | 73,500         |       | 73,500           |       | —                        |       | —         |       | —           |       | —                       |       | 73,500     |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (205,640                     | )          | (205,640   | )          |
| Balance at December 31, 2004                                                            |       | —                    |       | —                 |       | 10,124,955     |       | 3,240,566        |       | 101,596                       |       | —         |       | —           |       | (3,338,531                   | )          | 3,631      |       |
| Sale of common stock in December 2005 at $1.00  per share                               |       | —                    |       | —                 |       | 28,900         |       | 28,900           |       | —                        |       | —         |       | —           |       | —                       |       | 28,900     |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (197,277                     | )          | (197,277   | )          |
| Balance at December 31, 2005                                                            |       | —                    |       | $                      | —     |           | 10,153,855 |             | $          | 3,269,466.0                   |       | $              | 101,596.0  |             | $          | —                       |       | $          | —     |   | $ | (3,535,808.0 | ) | $ | (164,746.0 | ) |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

8

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Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                   | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                   | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                   | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development stage**   | ** ** | **Total**  | ** ** |
| Balance forward                                                                              |       | —                    |       | $                      | —     |           | 10,153,855 |             | $          | 3,269,466                     |       | $              | 101,596    |             | $          | —                       |       | $          | —     |   | $ | (3,535,808 | ) | $ | (164,746 | ) |
| Sale of common stock in January 2006 at $1.00  per share                                |       | —                    |       | —                 |       | 50,000         |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Common stock issued in March 2006 at $1.00 per  share in exchange for services rendered |       | —                    |       | —                 |       | 20,000         |       | 20,000           |       | —                        |       | —         |       | —           |       | —                       |       | 20,000     |       |
| Fair value of options issued in March 2006 in  exchange for services rendered           |       | —                    |       | —                 |       | —         |       | —           |       | 896,532                       |       | —         |       | —           |       | —                       |       | 896,532    |       |
| Sale of common stock in May 2006 at $2.00 per  share                                    |       | —                    |       | —                 |       | 50,000         |       | 100,000          |       | —                        |       | —         |       | —           |       | —                       |       | 100,000    |       |
| Fair value of warrants issued in May 2006 in  exchange for services rendered            |       | —                    |       | —                 |       | —         |       | —           |       | 32,016                        |       | —         |       | —           |       | —                       |       | 32,016     |       |
| Sale of common stock in September 2006 at  $2.00 per share                              |       | —                    |       | —                 |       | 10,000         |       | 20,000           |       | —                        |       | —         |       | —           |       | —                       |       | 20,000     |       |
| Sale of common stock in October 2006 at $2.00  per share                                |       | —                    |       | —                 |       | 24,000         |       | 48,000           |       | —                        |       | —         |       | —           |       | —                       |       | 48,000     |       |
| Sale of common stock in December 2006 at $2.00  per share                               |       | —                    |       | —                 |       | 14,800         |       | 29,600           |       | —                        |       | —         |       | —           |       | —                       |       | 29,600     |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (1,139,559                   | )          | (1,139,559 | )          |
| Balance at December 31, 2006                                                            |       | —                    |       | —                 |       | 10,322,655     |       | 3,537,066        |       | 1,030,144                     |       | —         |       | —           |       | (4,675,367                   | )          | (108,157   | )          |
| Fair value of warrants issued in January 2007  in exchange for services rendered        |       | —                    |       | —                 |       | —         |       | —           |       | 25,913                        |       | —         |       | —           |       | —                       |       | 25,913     |       |
| Sale of common stock in January 2007 at $2.00  per share                                |       | —                    |       | —                 |       | 13,000         |       | 26,000           |       | —                        |       | —         |       | —           |       | —                       |       | 26,000     |       |
| Sale of common stock in February 2007 at $2.00  per share                               |       | —                    |       | —                 |       | 162,500        |       | 325,000          |       | —                        |       | —         |       | —           |       | —                       |       | 325,000    |       |
| Sale of common stock in March 2007 at $2.00  per share                                  |       | —                    |       | —                 |       | 122,500        |       | 245,000          |       | —                        |       | —         |       | —           |       | —                       |       | 245,000    |       |
| Sale of common stock in April 2007 at $2.00  per share                                  |       | —                    |       | —                 |       | 12,500         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Fair of options issued in November 2007 in  exchange for service fees                   |       | —                    |       | —                 |       | —         |       | —           |       | 166,290                       |       | —         |       | (166,290         | )          | —                       |       | —     |       |
| Sale of common stock in December 2007 at $2.25  per share                               |       | —                    |       | —                 |       | 22,222         |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Amortization of deferred compensation                                                        |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | 5,227            |       | —                       |       | 5,227      |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (396,953                     | )          | (396,953   | )          |
| Balance at December 31, 2007                                                            |       | —                    |       | $                      | —     |           | 10,655,377 |             | $          | 4,208,066                     |       | $              | 1,222,347  |             | $          | —                       |       | $          | (161,063   | ) | $ | (5,072,320 | ) | $ | 197,030 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

9

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Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                      | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                      | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                      | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**       | ** ** | **Total**  | ** ** |
| Balance forward                                                                                 |       | —                |       | $                  | —     |           | 10,655,377 |             | $          | 4,208,066                     |       | $              | 1,222,347  |             | $          | —                       |       | $          | (161,063   | ) | $ | (5,072,320 | ) | $ | 197,030 |   |
| Sale of common stock in January 2008 at $2.25  per share                                   |       | —                |       | —             |       | 22,222         |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Common stock issued in January 2008 at $2.25  per share in exchange for services rendered  |       | —                |       | —             |       | 4,000          |       | 9,000            |       | —                        |       | —         |       | —           |       | —                       |       | 9,000      |       |
| Sale of common stock in February 2008 at $2.25  per share                                  |       | —                |       | —             |       | 11,111         |       | 25,000           |       | —                        |       | —         |       | —           |       | —                       |       | 25,000     |       |
| Common stock issued in February 2008 at $2.25  per share in exchange for services rendered |       | —                |       | —             |       | 4,000          |       | 9,000            |       | —                        |       | —         |       | —           |       | —                       |       | 9,000      |       |
| Sale of common stock in March 2008 at $2.25  per share                                     |       | —                |       | —             |       | 68,055         |       | 153,125          |       |                          |       | —         |       |             |       |                         |       | 153,125    |       |
| Common stock issued in March 2008 at $2.25 per  share in exchange for services rendered    |       | —                |       | —             |       | 6,222          |       | 14,000           |       | —                        |       | —         |       | —           |       | —                       |       | 14,000     |       |
| Sale of common stock in April 2008 at $2.25  per share                                     |       | —                |       | —             |       | 30,000         |       | 67,501           |       | —                        |       | —         |       | —           |       | —                       |       | 67,501     |       |
| Common stock issued in April 2008 at $2.25 per  share in exchange for services rendered    |       | —                |       | —             |       | 4,000          |       | 9,000            |       | —                        |       | —         |       | —           |       | —                       |       | 9,000      |       |
| Sale of common stock in May 2008 at $2.25 per  share                                       |       | —                |       | —             |       | 22,222         |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Common stock issued in May 2008 at $2.25 per  share in exchange for services rendered      |       | —                |       | —             |       | 4,000          |       | 9,000            |       | —                        |       | —         |       | —           |       | —                       |       | 9,000      |       |
| Subtotal                                                                                        |       | —                |       | $                  | —     |           | 10,831,209 |             | $          | 4,603,692                     |       | $              | 1,222,347  |             | $          | —                       |       | $          | (161,063   | ) | $ | (5,072,320 | ) | $ | 592,656 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

10

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Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                       | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                       | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**       | ** ** | **Total**  | ** ** |
| Balance forward                                                                                  |       | —                |       | $                  | —     |           | 10,831,209 |             | $          | 4,603,692                     |       | $              | 1,222,347  |             | $          | —                       |       | $          | (161,063   | ) | $ | (5,072,320 | ) | $ | 592,656 |   |
| Fair value of vested options issued in exchange for  services rendered                           |       | —                |       | —             |       | —         |       | —           |       | 55,016                        |       | —         |       | —           |       | —                       |       | 55,016     |       |
| Sale of common stock in June 2008 at $2.25 per  share                                       |       | —                |       | —             |       | 22,222         |       | 50,000           |       | —                        |       | —         |       | —           |       | —                       |       | 50,000     |       |
| Common stock issued in July 2008 at $2.25 per  share in exchange for services rendered      |       | —                |       | —             |       | 8,000          |       | 18,000           |       | —                        |       | —         |       | —           |       | —                       |       | 18,000     |       |
| Sale of common stock in July 2008 at $2.25 per  share                                       |       | —                |       | —             |       | 35,555         |       | 80,000           |       | —                        |       | —         |       | —           |       | —                       |       | 80,000     |       |
| Common stock issued in September 2008 at $2.00  per share in exchange for services rendered |       | —                |       | —             |       | 4,000          |       | 8,000            |       | —                        |       | —         |       | —           |       | —                       |       | 8,000      |       |
| Sale of common stock in September 2008 at  $2.25 per share                                  |       | —                |       | —             |       | 4,445          |       | 10,000           |       | —                        |       | —         |       | —           |       | —                       |       | 10,000     |       |
| Common stock issued in October 2008 at $1.35  per share in exchange for services rendered   |       | —                |       | —             |       | 4,000          |       | 5,400            |       | —                        |       | —         |       | —           |       | —                       |       | 5,400      |       |
| Common stock issued in November 2008 at $1.95  per share in exchange for services rendered  |       | —                |       | —             |       | 8,000          |       | 15,600           |       | —                        |       | —         |       | —           |       | —                       |       | 15,600     |       |
| Sale of common stock in December 2008 at $2.25  per share                                   |       | —                |       | —             |       | 11,110         |       | 25,000           |       |                          |       | —         |       |             |       |                         |       | 25,000     |       |
| Common stock issued in December 2008 at $1.60  per share in exchange for services rendered  |       | —                |       | —             |       | 4,000          |       | 6,400            |       | —                        |       | —         |       | —           |       | —                       |       | 6,400      |       |
| Amortization of deferred compensation                                                            |       | —                |       | —             |       | —         |       | —           |       | —                        |       | —         |       | 41,699           |       | —                       |       | 41,699     |       |
| Net Loss                                                                                         |       | —                |       | —             |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (883,530                     | )          | (883,530   | )          |
| Balance, December 31, 2008                                                                  |       | —                |       | $                  | —     |           | 10,932,541 |             | $          | 4,822,092                     |       | $              | 1,277,363  |             | $          | —                       |       | $          | (119,364   | ) | $ | (5,955,850 | ) | $ | 24,241 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

11

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Table of Contents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF (DEFICIENCY IN) STOCKHOLDERS’ EQUITY**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHSEPTEMBER 30, 2009**

**(unaudited)**

 
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|-------------------------------|------------|----------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                       | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**                  | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                       | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**       | ** ** | **Total**  | ** ** |
| Balance forward                                                                                  |       | —                |       | $                  | —     |           | 10,932,541 |             | $          | 4,822,092                     |       | $              | 1,277,363  |             | $          | —                       |       | $          | (119,364   | ) | $ | (5,955,850 | ) | $ | 24,241 |   |
| Common stock issued in March 2009 at $1.03 per  share in exchange for services rendered     |       | —                |       | —             |       | 18,667         |       | 19,227           |       | —                        |       | —         |       | —           |       | —                       |       | 19,227     |       |
| Sale of common stock in March 2009 at $2.25  per share                                      |       | —                |       | —             |       | 10,066         |       | 22,650           |       | —                        |       | —         |       | —           |       | —                       |       | 22,650     |       |
| Fair value of vested options for services rendered                                               |       | —                |       | —             |       | —         |       | —           |       | 708,561                       |       | —         |       | —           |       | —                       |       | 708,561    |       |
| Cancelled outstanding non vested warrants for  services                                          |       | —                |       | —             |       | —         |       | —           |       | (119,364                      | )          | —         |       | 119,364          |       | —                       |       | —     |       |
| Fair value of warrants issued for services rendered                                              |       | —                |       | —             |       | —         |       | —           |       | 52,000                        |       | —         |       | —           |       | —                       |       | 52,000     |       |
| Common stock issued in April 2009 at $1.39 per  share in exchange for services rendered     |       | —                |       | —             |       | 6,154          |       | 8,554            |       | —                        |       | —         |       | —           |       | —                       |       | 8,554      |       |
| Common stock issued in April 2009 for options  exercised                                    |       | —                |       | —             |       | 176,250        |       | 108,750          |       | —                        |       | (108,750       | )          | —           |       | —                       |       | —     |       |
| Common stock issued in May 2009 at $1.30 per  share in exchange for services rendered       |       | —                |       | —             |       | 6,154          |       | 8,000            |       | —                        |       | —         |       | —           |       | —                       |       | 8,000      |       |
| Common stock issued in May 2009 for options  exercised                                      |       | —                |       | —             |       | 20,000         |       | 5,000            |       | —                        |       | —         |       | —           |       | —                       |       | 5,000      |       |
| Common stock issued in June 2009 at $1.30 per  share in exchange for services rendered      |       | —                |       | —             |       | 7,273          |       | 9,455            |       | —                        |       | —         |       | —           |       | —                       |       | 9,455      |       |
| Common stock issued in July 2009 at $0.46 per  share in exchange for services rendered      |       | —                |       | —             |       | 8,421          |       | 3,873            |       | —                        |       | —         |       | —           |       | —                       |       | 3,873      |       |
| Common stock issued in August 2009 at $1.00  per share in exchange for services rendered    |       | —                |       | —             |       | 8,000          |       | 8,000            |       | —                        |       | —         |       | —           |       | —                       |       | 8,000      |       |
| Common stock issued in September 2009 at $0.21  per share in exchange for services rendered |       | —                |       | —             |       | 8,000          |       | 1,680            |       | —                        |       | —         |       | —           |       | —                       |       | 1,680      |       |
| Net Loss, September 30, 2009                                                                |       | —                |       | —             |       | —         |       | —           |       | —                        |       | —         |       | —           |       | (994,989                     | )          | (994,989   | )          |
| Balance, September 30, 2009                                                                 |       | —                |       | $                  | —     |           | 11,201,526 |             | $          | 5,017,281                     |       | $              | 1,918,560  |             | $          | (108,750                     | )          | $          | —     |   | $ | (6,950,839 | ) | $ | (123,748 | ) |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

12

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Table ofContents

 

**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**STATEMENTS OF CASH FLOWS**

**(unaudited)**

 
| ** **                                                                 | ** ** | **For the nine months ended September 30,** | ** ** | **For the period from  February 16, 1999 (date of  inception) through** | ** ** |
|----------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                                                                  | ** ** | **2008**                                                                                    | ** ** | **September 30, 2009** | ** ** |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                     |       |                                                                      |       |                                                                                        |       |   |   |
| Net  loss                                                                  |       | $                                                                         | (994,989   | )                                                                                           | $          | (766,899 | ) | $ | (6,950,839 | ) |
| Adjustments  to reconcile net loss to cash (used in) operating activities: |       |                                                                      |       |                                                                                        |       |   |   |
| Depreciation                                                               |       | 13,340                                                                    |       | 10,081                                                                                      |       | 178,674 |   |
| Amortization  of deferred compensation                                     |       | —                                                                    |       | 31,220                                                                                      |       | 46,926 |   |
| Common  stock issued in exchange for services rendered                     |       | 58,789                                                                    |       | 76,000                                                                                      |       | 253,439 |   |
| Common  stock issued in exchange for intellectual property                 |       | —                                                                    |       | —                                                                                      |       | 1,800,000 |   |
| Options  and warrants issued in exchange for services rendered             |       | 760,561                                                                   |       | 31,438                                                                                      |       | 1,871,634 |   |
| (Increase)  decrease in:                                                   |       |                                                                      |       |                                                                                        |       |   |   |
| Prepaid  expenses                                                          |       | —                                                                    |       | —                                                                                      |       | — |   |
| Increase  (decrease) in:                                                   |       |                                                                      |       |                                                                                        |       |   |   |
| Accounts  payable and accrued liabilities                                  |       | 31,419                                                                    |       | (5,520                                                                                      | )          | 31,448 |   |
| Net  cash used in operating activities:                                    |       | (130,880                                                                  | )          | (623,680                                                                                    | )          | (2,768,718 | ) |
|                                                                       |       |                                                                      |       |                                                                                        |       |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                     |       |                                                                      |       |                                                                                        |       |   |   |
| Acquisition  of property, plant and equipment                              |       | (7,303                                                                    | )          | (22,692                                                                                     | )          | (221,918 | ) |
| Net  cash used in investing activities:                                    |       | (7,303                                                                    | )          | (22,692                                                                                     | )          | (221,918 | ) |
|                                                                       |       |                                                                      |       |                                                                                        |       |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                     |       |                                                                      |       |                                                                                        |       |   |   |
| Sale  of common stock                                                      |       | 22,650                                                                    |       | 485,626                                                                                     |       | 2,812,593 |   |
| Exercise  of common stock options                                          |       | 5,000                                                                     |       | —                                                                                      |       | 42,500 |   |
| Net  proceeds, related party                                               |       | 113,500                                                                   |       | —                                                                                      |       | 139,500 |   |
| Net  cash provided by financing activities                                 |       | 141,150                                                                   |       | 485,626                                                                                     |       | 2,994,593 |   |
|                                                                       |       |                                                                      |       |                                                                                        |       |   |   |
| Increase  (decrease) in cash and cash equivalents                          |       | 2,967                                                                     |       | (160,746                                                                                    | )          | 3,957 |   |
| Cash  and cash equivalents beginning of period                             |       | 990                                                                       |       | 179,617                                                                                     |       | — |   |
| Cash  and cash equivalents end of period                                   |       | $                                                                         | 3,957      |                                                                                        | $          | 18,871 |   | $ | 3,957 |   |
|                                                                       |       |                                                                      |       |                                                                                        |       |   |   |
| Supplemental  disclosures of cash flow information:                        |       |                                                                      |       |                                                                                        |       |   |   |
| Cash  paid during the period for interest                                  |       | $                                                                         | —     |                                                                                        | $          | — |   | $ | 277 |   |
| Cash  paid during the period for taxes                                     |       | $                                                                         | 76         |                                                                                        | $          | 800 |   | $ | 1,701 |   |
| Common  stock issued in exchange for services                              |       | $                                                                         | 58,789     |                                                                                        | $          | 76,000 |   | $ | 253,439 |   |
| Common  stock issued in exchange for intellectual property                 |       | $                                                                         | —     |                                                                                        | $          | — |   | $ | 1,800,000 |   |
| Options  and warrants issued in exchange for services rendered             |       | $                                                                         | 760,561    |                                                                                        | $          | 31,438 |   | $ | 1,871,634 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed financial statements

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

A summary of thesignificant accounting policies applied in the preparation of the accompanyingunaudited condensed financial statements follows.

 

General

 

The accompanyingunaudited condensed financial statements have been prepared in accordance withaccounting principles generally accepted in the United States of America forinterim financial information and with the instructions to Form 10-Q.Accordingly, they do not include all of the information and footnotes requiredby generally accepted accounting principles for complete financial statements.

 

In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. Accordingly,the results from operations for the three and nine month periods ended September 30,2009, are not necessarily indicative of the results that may be expected forthe year ended December 31, 2009. The unaudited condensed financialstatements should be read in conjunction with the December 31, 2008financial statements and footnotes thereto included in the Company’s Form 10-Kfiled on March 31, 2009.

 

Business and Basis ofPresentation

 

Iris BioTechnologies Inc.(the “Company”) was incorporated on February 16, 1999 under the laws ofthe State of California. The Company is in the development stage as definedunder Accounting Standards Codification subtopic 915-10 Development StageEntities and its efforts are principally devoted to developing solutions forthe detection and monitoring of monogenic and complex genomic diseases. TheCompany has not generated any revenue to date and consequently its operationsare subject to all risks inherent in the establishment of a new businessenterprise. For the period from inception through September 30, 2009, theCompany has accumulated losses of $6,950,839.

 

Cash and Cash Equivalents

 

For purposes of theStatements of Cash Flows, the Company considers all highly liquid debtinstruments purchased with a maturity date of three months or less to be cashequivalents.

 

Property and Equipment

 

Property and equipmentare stated at cost. When retired or otherwise disposed, the related carryingvalue and accumulated depreciation are removed from the respective accounts andthe net difference less any amount realized from disposition, is reflected inearnings. For financial statement purposes, property and equipment are recordedat cost and depreciated using the straight-line method over their estimateduseful lives of 3 to 5 years.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

 

Long-Lived Assets

 

The Company has adoptedAccounting Standards Codification subtopic 360-10, Property, plant andequipment (“ASC 360-10”). The Statement requires that long-lived assets andcertain identifiable intangibles held and used by the Company be reviewed forimpairment whenever events or changes in circumstances indicate that thecarrying amount of an asset may not be recoverable. Events relating torecoverability may include significant unfavorable changes in businessconditions, recurring losses, or a forecasted inability to achieve break-evenoperating results over an extended period. The Company evaluates therecoverability of long-lived assets based upon forecasted undiscounted cashflows. Should impairment in value be indicated, the carrying value ofintangible assets will be adjusted, based on estimates of future discountedcash flows resulting from the use and ultimate disposition of the asset. ASC360-10 also requires assets to be disposed of be reported at the lower of thecarrying amount or the fair value less costs to sell.

 

Income Taxes

 

The Company followsAccounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”)for recording the provision for income taxes. Deferred tax assets andliabilities are computed based upon the difference between the financialstatement and income tax basis of assets and liabilities using the enactedmarginal tax rate applicable when the related asset or liability is expected tobe realized or settled. Deferred income tax expenses or benefits are based onthe changes in the asset or liability during each period. If available evidencesuggests that it is more likely than not that some portion or all of thedeferred tax assets will not be realized, a valuation allowance is required toreduce the deferred tax assets to the amount that is more likely than not to berealized. Future changes in such valuation allowance are included in theprovision for deferred income taxes in the period of change. Deferred incometaxes may arise from temporary differences resulting from income and expenseitems reported for financial accounting and tax purposes in different periods.Deferred taxes are classified as current or non-current, depending on theclassification of assets and liabilities to which they relate. Deferred taxesarising from temporary differences that are not related to an asset orliability are classified as current or non-current depending on the periods inwhich the temporary differences are expected to reverse.

 

Net Income (loss) PerCommon Share

 

The Company computesearnings per share under Accounting Standards Codification subtopic 260-10,Earnings Per Share (“ASC 260-10”). Net loss per common share is computed bydividing net loss by the weighted average number of shares of common stock anddilutive common stock equivalents outstanding during the year. Dilutivecommon stock equivalents consist of shares issuable and the exercise of theCompany’s stock options and warrants (calculated using the treasury stockmethod). For the three and nine month periods ended September 30, 2009 and2008 common stock equivalents derived from shares issuable in the exercise ofoptions and warrants are not considered in the calculation of the weightedaverage number of common shares outstanding because they would beanti-dilutive, thereby decreasing the net loss per share.

 

Use of Estimates

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectcertain reported amounts and disclosures. Accordingly, actual results coulddiffer from those estimates.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

 

Reclassifications

 

Certain reclassificationshave been made in prior year’s financial statements to conform toclassifications used in the current year.

 

Research and Development

 

The Company accounts forresearch and development costs in accordance with the Accounting StandardsCodification subtopic 730-10, Research and Development (“ASC 730-10”). UnderASC 730-10, all research and development costs must be charged to expense asincurred. Accordingly, internal research and development costs are expensed asincurred. Third-party research and developments costs are expensed when thecontracted work has been performed or as milestone results have been achieved.Company-sponsored research and development costs related to both present andfuture products are expensed in the period incurred. The Company incurredresearch and development expenditures of $-0- and $75,061 for the three monthperiods ended September 30, 2009 and 2008, respectively; $30,622 and$179,787 for the nine months ended September 30, 2009 and 2008,respectively; and $1,376,293 from the period from February 16, 1999 (dateof inception) to September 30, 2009. The Company primarily uses stock orstock option for compensation, and key R&D equipment expenses were incurredin the second half of 2008.

 

Liquidity

 

To date the Company hasgenerated no revenues, has incurred expenses, and has sustained losses. Asshown in the accompanying unaudited condensed****financial statements, the Company incurred a net loss of $994,989during the nine month period ended September 30, 2009 and $766,899 duringthe nine month period ended September 30, 2008. For the period frominception through September 30, 2009, the Company has accumulated lossesof $6,950,839. Consequently, its operations are subject to all risks inherentin the establishment of a new business enterprise.

 

Concentrations of CreditRisk

 

Financial instruments andrelated items, which potentially subject the Company to concentrations ofcredit risk, consist primarily of cash, cash equivalents and related partyreceivables. The Company places its cash and temporary cash investments withcredit quality institutions. At times, such investments may be in excess of theFDIC insurance limit. The Company periodically reviews its trade receivables indetermining its allowance for doubtful accounts. The Company does not haveaccounts receivable and allowance for doubtful accounts at September 30,2009.

 

Fair Value of FinancialInstruments

 

Accounting StandardsCodification subtopic 825-10, Financial Instruments (“ASC 825-10”) requiresdisclosure of the fair value of certain financial instruments. The carryingvalue of cash and cash equivalents, accounts payable and accrued liabilities,and short-term borrowings, as reflected in the balance sheets, approximate fairvalue because of the short-term maturity of these instruments.  Allother significant financial assets, financial liabilities and equityinstruments of the Company are either recognized or disclosed in theconsolidated financial statements together with other information relevant formaking a reasonable assessment of future cash flows, interest rate risk andcredit risk. Where practicable the fair values of financial assets andfinancial liabilities have been determined and disclosed; otherwise onlyavailable information pertinent to fair value has been disclosed.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

 

Fair Value of FinancialInstruments (continued)

 

Effective January 1,2008, the company adopted Accounting Standards Codification subtopic 820-10,Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting StandardsCodification subtopic 825-10, Financial Instruments (“ASC 825-10”), whichpermits entities to choose to measure many financial instruments and certainother items at fair value. Neither of these statements had an impact on theCompany’s financial position, results of operations or cash flows.

 

Stock Based Compensation

 

Effective January 1,2006, the beginning of the Company’s first fiscal quarter of 2006, the Companyadopted the fair value recognition provisions of Accounting StandardsCodification subtopic 718-10, Compensation (“ASC 718-10”) using themodified-prospective transition method. Under this transition method,stock-based compensation expense was recognized in the financial statements forgranted, modified, or settled stock options. Compensation expense recognizedincluded the estimated expense for stock options granted on and subsequent to January 1,2006, based on the grant date fair value estimated in accordance with theprovisions of ASC 718-10, and the estimated expense for the portion vesting inthe period for options granted prior to, but not vested as of January 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of ASC 718-10. Results for prior periods have not beenrestated, as provided for under the modified-prospective method.

 

ASC 718-10 requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates. In theCompany’s pro forma information required under ASC 718-10 for the periods priorto fiscal 2006, the Company accounted for forfeitures as they occurred.

 

Upon adoption of ASC718-10, the Company is using the Black-Scholes option-pricing model as itsmethod of valuation for share-based awards granted beginning in fiscal 2006,which was also previously used for the Company’s pro forma information requiredunder SFAS 123. The Company’s determination of fair value of share-basedpayment awards on the date of grant using an option-pricing model is affectedby the Company’s stock price as well as assumptions regarding a number ofhighly complex and subjective variables. These variables include, but are notlimited to the Company’s expected stock price volatility over the term of theawards, and certain other market variables such as the risk free interest rate.

 

For the nine month periodended September 30, 2009, the Company granted 480,000 employee options topurchase the Company’s common stock at $0.13 - $0.15 per share over five - tenyears, vesting immediately and 105,000 non-employee options to purchase theCompany’s common stock at $1.40 per share over ten years, vesting in threeyears. The fair value of the vested portion was charged to current periodoperations.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

 

Revenue Recognition

 

The Company recognizesrevenue in accordance with Accounting Standards Codification subtopic 605-10,Revenue Recognition (“ASC 605-10”). ASC 605-10 requires that four basiccriteria must be met before revenue can be recognized: (1) persuasiveevidence of an arrangement exists; (2) delivery has occurred; (3) theselling price is fixed and determinable; and (4) collectibility isreasonably assured. Determination of criteria (3) and (4) are basedon management’s judgments regarding the fixed nature of the selling prices ofthe products delivered and the collectibility of those amounts. Provisions fordiscounts and rebates to customers, estimated returns and allowances, and otheradjustments are provided for in the same period the related sales are recorded.The Company defers any revenue for which the product has not been delivered or issubject to refund until such time that the Company and the customer jointlydetermine that the product has been delivered or no refund will be required.

 

ASC 605-10 incorporatesAccounting Standards Codification subtopic 605-25, Multiple-Element Arraignments(“ASC 605-25”). ASC 605-25 addresses accounting for arrangements that mayinvolve the delivery or performance of multiple products, services and/orrights to use assets. The effect of implementing ASC 605-25 on the Company’sfinancial position and results of operations was not significant.

 

From the date ofinception through September 30, 2009, the Company has not generated anyrevenue.

 

Recent AccountingPronouncements

 

With the exception ofthose stated below, there have been no recent accounting pronouncements orchanges in accounting pronouncements during the nine months ended September 30,2009, as compared to the recent accounting pronouncements described in theAnnual Report that are of material significance, or have potential materialsignificance, to the Company.

 

Effective July 1,2009, the Company adopted the Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) 105-10, *Generally Accepted Accounting Principles — Overall* (“ASC105-10”). ASC 105-10 establishes the *FASBAccounting Standards Codification*(the “Codification”) as the sourceof authoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity with U.S. GAAP. Rules and interpretive releases of the SECunder authority of federal securities laws are also sources of authoritativeU.S. GAAP for SEC registrants. All guidance contained in the Codificationcarries an equal level of authority. The Codification superseded all existingnon-SEC accounting and reporting standards. All other non-grandfathered,non-SEC accounting literature not included in the Codification isnon-authoritative. The FASB will not issue new standards in the form ofStatements, FASB Staff Positions or Emerging Issues Task Force Abstracts.Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will notconsider ASUs as authoritative in their own right. ASUs will serve only toupdate the Codification, provide background information about the guidance andprovide the bases for conclusions on the change(s) in the Codification.References made to FASB guidance throughout this document have been updated forthe Codification.

 

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Table of Contents

 

**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

 

Recent AccountingPronouncements (continued)

 

Effective January 1,2008, the Company adopted FASB ASC 820-10, *FairValue Measurements and Disclosures — Overall*(“ASC 820-10”) withrespect to its financial assets and liabilities. In February 2008, theFASB issued updated guidance related to fair value measurements, which isincluded in the Codification in ASC 820-10-55, *FairValue Measurements and Disclosures — Overall — Implementation Guidance andIllustrations*. The updated guidance provided a one year deferral ofthe effective date of ASC 820-10 for non-financial assets and non-financialliabilities, except those that are recognized or disclosed in the financialstatements at fair value at least annually. Therefore, the Company adopted theprovisions of ASC 820-10 for non-financial assets and non-financial liabilitieseffective January 1, 2009, and such adoption did not have a materialimpact on the Company’s results of operations or financial condition.

 

Effective April 1,2009, the Company adopted FASB ASC 820-10-65, *FairValue Measurements and Disclosures — Overall — Transition and Open EffectiveDate Information* (“ASC 820-10-65”). ASC 820-10-65 providesadditional guidance for estimating fair value in accordance with ASC 820-10when the volume and level of activity for an asset or liability havesignificantly decreased. ASC 820-10-65 also includes guidance on identifyingcircumstances that indicate a transaction is not orderly. The adoption of ASC820-10-65 did not have an impact on the Company’s results of operations orfinancial condition.

 

Effective April 1,2009, the Company adopted FASB ASC 825-10-65, *FinancialInstruments — Overall — Transition and Open Effective Date Information*(“ASC 825-10-65”). ASC 825-10-65 amends ASC 825-10 to require disclosures aboutfair value of financial instruments in interim financial statements as well asin annual financial statements and also amends ASC 270-10 to require thosedisclosures in all interim financial statements. The adoption of ASC 825-10-65did not have a material impact on the Company’s results of operations orfinancial condition.

 

Effective April 1,2009, the Company adopted FASB ASC 855-10, *SubsequentEvents — Overall*(“ASC 855-10”). ASC 855-10 establishes generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued. It requires the disclosure of the date through which anentity has evaluated subsequent events and the basis for that date — that is,whether that date represents the date the financial statements were issued orwere available to be issued. This disclosure should alert all users offinancial statements that an entity has not evaluated subsequent events after thatdate in the set of financial statements being presented. Adoption of ASC 855-10did not have a material impact on the Company’s results of operations orfinancial condition. The Company has evaluated subsequent events through November 3,2009, the date the financial statements were issued.

 

Effective July 1,2009, the Company adopted FASB ASU No. 2009-05, *Fair Value Measurements and Disclosures (Topic 820)* (“ASU2009-05”). ASU 2009-05 provided amendments to ASC 820-10, *Fair Value Measurements and Disclosures — Overall,*for the fair value measurement of liabilities. ASU 2009-05 providesclarification that in circumstances in which a quoted price in an active marketfor the identical liability is not available, a reporting entity is required tomeasure fair value using certain techniques. ASU 2009-05 also clarifies thatwhen estimating the fair value of a liability, a reporting entity is notrequired to include a separate input or adjustment to other inputs relating tothe existence of a restriction that prevents the transfer of a liability. ASU2009-05 also clarifies that both a quoted price in an active market for theidentical liability at the measurement date and the quoted price for theidentical liability when traded as an asset in an active market when noadjustments to the quoted price of the asset are required are Level 1 fairvalue measurements. Adoption of ASU 2009-05 did not have a material impact onthe Company’s results of operations or financial condition.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE A —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)**

 

Recent AccountingPronouncements (continued)

 

In October 2009, theFASB issued ASU 2009-13, *Multiple-DeliverableRevenue Arrangements,* (amendments to FASB ASC Topic 605, *Revenue Recognition*) (“ASU 2009-13”) andASU 2009-14, *Certain Arrangements ThatInclude Software Elements*, (amendments to FASB ASC Topic 985, *Software*) (“ASU 2009-14”). ASU2009-13 requires entities to allocate revenue in an arrangement using estimatedselling prices of the delivered goods and services based on a selling pricehierarchy. The amendments eliminate the residual method of revenue allocationand require revenue to be allocated using the relative selling pricemethod. ASU 2009-14 removes tangible products from the scope of softwarerevenue guidance and provides guidance on determining whether softwaredeliverables in an arrangement that includes a tangible product are covered bythe scope of the software revenue guidance. ASU 2009-13 and ASU 2009-14should be applied on a prospective basis for revenue arrangements entered intoor materially modified in fiscal years beginning on or after June 15,2010, with early adoption permitted. The Company does not expect adoption ofASU 2009-13 or ASU 2009-14 to have a material impact on the Company’s resultsof operations or financial condition.

 

FASB ASC 105,Generally Accepted Accounting Principles (“ASC 105” and formerly referred to asFAS 168) establishes the FASB Accounting Standards Codification as the sourceof authoritative accounting principles recognized by the FASB to be applied bynongovernmental entities in the preparation of financial statements inconformity with GAAP. Rules and interpretive releases of the Securitiesand Exchange Commission (SEC) under authority of federal securities laws arealso sources of authoritative GAAP for SEC registrants. ASC 105 is effectivefor financial statements issued for interim and annual periods ending after September 15,2009.

 

**NOTE B -PROPERTY, PLANT, AND EQUIPMENT**

 

Property, plant andequipment at September 30, 2009 and December 31, 2008 are as follows:

 
| ** **                      | ** ** | **September 30,  2009** | ** **   | **December 31,  2008** | ** ** |
|---------------------------------|------------|------------------------------|--------------|-----------------------------|------------|
| Computer  equipment             |       | $                            | 61,201       |                        | $          | 61,201 |   |
| Office  equipment               |       | 1,728                        |         | 1,728                       |       |
| Furniture  and fixtures         |       | 3,586                        |         | 3,586                       |       |
| Manufacturing  equipment        |       | 165,504                      |         | 158,201                     |       |
|                            |       | 232,019                      |         | 224,716                     |       |
| Less:  accumulated depreciation |       | (178,674                     | )            | (165,334                    | )          |
|                            |       | $                            |  53,345 |                        | $          | 59,382 |   |

 

During the three monthperiod ended September 30, 2009 and 2008, depreciation expense charged tooperations was $4,457 and $3,555, respectively.

During the nine monthperiod ended September 30, 2009 and 2008, depreciation expense charged tooperations was $13,340 and $10,081, respectively.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE C — ACCOUNTS PAYABLE AND ACCRUED LIABILITIES**

 

Accounts payable andaccrued liabilities at September 30, 2009 and December 31, 2008:

 
| ** **                             | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|----------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Accounts  payable and accrued expenses |       | $                            | 41,550     |                        | $          | 10,131 |   |
|                                        |            |                              |            |                             |            |  |  |

 

**NOTE D —RELATED PARTY TRANSACTIONS**

 

The Company’s Presidenthas advanced funds to the Company for working capital purposes since theCompany’s inception in February 1999.  No formal repayment terms orarrangements exist. The net amount outstanding at September 30, 2009and December 31, 2008 was $101,500 and $26,000, respectively.

 

**NOTE E —LONG TERM DEBT**

 

Long term debt at September 30,2009 and December 31, 2008:

 
| ** **                    | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
|-------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Notes  payable, related party |       | $                            | 38,000     |                        | $          | — |   |
|                               |            |                              |            |                             |            |  |  |

 

On September 24,2009, the Company issued two notes totaling $38,000 to a related party,unsecured and bearing an interest rate of 7.5% per annum, due five years fromdate of issuance.  The notes areconvertible into the Company’s common stock at a conversion rate of $2.25 pershare.

 

**NOTE F —STOCKHOLDER EQUITY**

 

Preferred stock

 

The Company is authorizedto issue 5,000,000 shares of no par or stated value preferred stock. From dateof inception through September 30, 2009, the Company has not issued anypreferred shares.

 

Common stock

 

The Company is authorizedto issue 20,000,000 shares of no par or stated value common stock. As of September 30,2009 the Company has 11,201,526 shares of common stock issued andoutstanding.

 

On April 9, 2003,the Company effected a two-for-one (2 for 1) stock split ofits outstanding shares of common stock, no par value. All referencesin the financial statements and the notes to financial statements, number ofshares, and share amounts have been retroactively restated to reflect thesplit.

 

In February 1999,the Company issued 7,200,000 shares of common stock in exchange for intellectualproperty valued at $1,800,000.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

 

**NOTE F —STOCKHOLDER EQUITY (continued)**

 

Common stock (continued)

 

During the year ended December 31,1999, the Company issued an aggregate of 153,000 shares of common stock toconsultants for services in the amount of $38,250. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered.

 

During the year ended December 31,1999, the Company issued an aggregate of 50,000 shares of common stock inconjunction with the exercise of common stock options at $0.50 per share and50,000 shares of common stock at $0.25 per share.

 

During the year ended December 31,2000, the Company issued an aggregate of 20,000 shares of common stock toconsultants for services in the amount of $10,000. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered.

 

During the year ended December 31,2002, the Company issued an aggregate of 20,000 shares of common stock toconsultants for services in the amount of $10,000. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered

 

During the year ended December 31,2003, the Company issued an aggregate of 26,000 shares of common stock toconsultants for services in the amount of $13,000. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered.

 

During the year ended December 31,2006, the Company issued an aggregate of 20,000 shares of common stock toconsultants for services in the amount of $20,000. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered.

 

During the year ended December 31,2008, the Company issued an aggregate of 50,222 shares of common stock toconsultants for services in the amount of $103,400. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered.

 

During the nine monthperiod ended September 30, 2009, the Company issued 62,669 shares ofcommon stock for services in the amount of $58,789. All valuations of commonstock issued for services were based upon the value of the services rendered,which did not differ materially from the fair value of the Company’s commonstock during the period the services were rendered.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE G —WARRANTS AND OPTIONS**

 

Warrants

 

The following tablesummarizes the changes in warrants outstanding and related prices for theshares of the Company’s common stock issued to shareholders at September 30,2009:

 
| **Exercise Price** | ** ** | **Number********Outstanding** | ** ** | **Warrants Outstanding********Weighted Average********Remaining Contractual********Life (years)** | ** ** | **Weighted********Average********Exercise price** | ** ** | **Number********Exercisable** | ** ** | **Warrants Exercisable********Weighted********Average********Exercise Price** | ** ** |
|-------------------------|------------|-------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|-------------------------------|------------|-----------------------------------------------------------------------------------------|------------|
| $                       |  0.13 |                          | 40,000     |                                                                                                                  | 4.72       |                                                   | $          | 0.13                          |       | 40,000                                                                                  |       | $ | 0.13 |   |
| $                       |  2.00 |                          | 31,400     |                                                                                                                  | 1.95       |                                                   | $          | 2.00                          |       | 31,400                                                                                  |       | $ | 2.00 |   |
| $                       |  2.25 |                          | 23,629     |                                                                                                                  | 3.39       |                                                   | $          | 2.25                          |       | 23,629                                                                                  |       | $ | 2.25 |   |
|                    |       | 95,029                        |       |                                                                                                                  |       |                                                   |       | 95,029                        |       |                                                                                    |       |

 

Transactions involvingthe Company’s warrant issuance are summarized as follows:

 
| ** **                              | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Price Per Share** | ** ** |
|-----------------------------------------|------------|----------------------------|------------|--------------------------------------------------|------------|
| Outstanding  at December 31, 2007  |       | 131,400                    |       | $                                                | 2.19       |   |
| Issued                                  |       | 2,778                      |       | 2.25                                             |       |
| Exercised                               |       | —                     |       | —                                           |       |
| Canceled  or expired                    |       | —                     |       | —                                           |       |
| Outstanding  at December 31, 2008  |       | 134,178                    |       | $                                                | 2.20       |   |
| Issued                                  |       | 42,517                     |       | 0.26                                             |       |
| Exercised                               |       | —                     |       | —                                           |       |
| Canceled  or expired                    |       | (81,666                    | )          | 2.25                                             |       |
| Outstanding  at September 30, 2009 |       | 95,029                     |       | $                                                | 1.29       |   |

 

During the year ended December 31,2008, in connection with the sale of the Company’s common stock; the Companyissued an aggregate of 2,778 warrants to purchase the Company’s common stock ata exercise price of $2.25 per share for five years.

 

During the nine monthsended September 30, 2009, in connection with the sale of the Company’scommon stock; the Company issued an aggregate of 2,517 warrants to purchase theCompany’s common stock at a exercise price of $2.25 per share for five years.

 

During the nine monthsended September 30, 2009, 81,666 non vested warrants previously issued inconnection with services were returned and canceled.

 

On June 19, 2009,the Company issued 40,000 warrants to purchase the Company’s common stock at anexercise price of $0.13 over five years, vesting immediately for servicesrendered.  Accordingly, the Company recorded fair value of the warrants of$52,000 current period expense.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE G —WARRANTS AND OPTIONS ( Continued)**

 

Warrants (continued)

 

The fair value of thewarrants issued and the significant assumptions used to determine those fairvalues, using a Black-Scholes option pricing model are as follows:

 
| **Significant assumptions:**      | ** ** | ** ** | ** ** |
|----------------------------------------|------------|------------|------------|
| Risk-free  interest rate at grant date |       | 2.82       | %          |
| Expected  stock price volatility       |       | 458.97     | %          |
| Expected  dividend payout              |       | —     |       |
| Expected  option life-years (a)        |       | 5          |       |

 

----

(a)The expected optionlife is based on contractual expiration dates

 

Options

 

Employee Options

 

The following table summarizesthe changes in options outstanding and the related prices for the shares of theCompany’s common stock issued to employees under a stock option plan at September 30,2009:

 
| ** **                     | ** ** | **Options Outstanding**  | ** ** | **Options Exercisable**                                                           | ** ** |
|--------------------------------|------------|-------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **Exercise********Prices (S)** | ** ** | **Number********Outstanding** | ** ** | **Weighted Average********Remaining********Contractual Life********(Years)** | ** ** | **Weighted********Average********Exercise********Price (S)** | ** ** | **Number********Exercisable** | ** ** | **Weighted********Average********Exercise********Price** | ** ** |
| $                              |  0.13 |                          | 80,000     |                                                                                   | 9.72       |   | $ | 0.13 |   | 80,000 |   | $ | 0.13 |   |
| 0.15                           |       | 400,000                       |       | 4.72                                                                                   |       | 0.15 |   | 400,000 |   | 0.15 |   |
| 0.50                           |       | 91,000                        |       | 1.42                                                                                   |       | 0.50 |   | 91,000 |   | 0.50 |   |
| 1.00                           |       | 950,750                       |       | 5.51                                                                                   |       | 1.00 |   | 866,850 |   | 1.00 |   |
| 2.25                           |       | 167,696                       |       | 8.65                                                                                   |       | 2.25 |   | 55,899 |   | 2.25 |   |
|                           |       | 1,689,446                     |       |                                                                                   |       | 0.85 |   | 1,493,749 |   | 0.74 |   |
|                                |            |                               |            |                                                                                        |            |  |  |  |  |  |  |  |  |  |

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE G —WARRANTS AND OPTIONS (continued)**

 

Employee Options(continued)

 

Transactions involvingemployee stock options issued are summarized as follows:

 
| ** **                               | ** ** | **Number of Shares** | ** ** | **Weighted Average********Price Per Share** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------------|------------|
| Outstanding  at December 31, 2007:  |       | 1,748,000                      |       | $                                                          | 0.73       |   |
| Granted                                  |       | 167,696                        |       | 2.25                                                       |       |
| Exercised                                |       | —                         |       | —                                                     |       |
| Canceled  or expired                     |       | —                         |       | —                                                     |       |
| Outstanding  at December 31, 2008   |       | 1,915,696                      |       | $                                                          | 0.86       |   |
| Granted                                  |       | 480,000                        |       | 0.15                                                       |       |
| Exercised                                |       | (176,250                       | )          | 0.62                                                       |       |
| Canceled  or expired                     |       | (530,000                       | )          | 0.33                                                       |       |
| Outstanding  at September 30, 2009: |       | 1,689,446                      |       | $                                                          | 0.85       |   |

 

During the year ended December 31,2008, the Company granted 167,696 employee stock options with an exercise priceof $2.25 vesting over four years and expiring ten years from issuance. The fair value of the vested portion (determined as described below) of $55,016was charged during the year ended December 31, 2008, and $70,736 wascharged during the period ended September 30, 2009

 

The weighted-average fairvalue of these stock options granted and the weighted-average significantassumptions used to determine those fair values, using a Black-Scholes optionpricing model are as follows:

 

For year ended December 31,2008:

 
| **Significant assumptions (weighted-average):** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|
| Risk-free  interest rate at grant date                    |       | 3.25       | %          |
| Expected  stock price volatility                          |       | 236.71     | %          |
| Expected  dividend payout                                 |       | —     |       |
| Expected  option life-years (a)                           |       | 10         |       |

 

----

(a)The expected optionlife is based on contractual expiration dates

 

On June 19, 2009,the Company granted 480,000 employee stock options with exercise prices of$0.13 and $0.15 vesting immediately and expiring five to ten years fromissuance.  The fair value of the vested portion (determined as describedbelow) of $624,000 was charged to current period earnings.

 

The fair value of thesestock options granted and the significant assumptions used to determine thosefair values, using a Black-Scholes option pricing model are as follows:

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE G —WARRANTS AND OPTIONS (continued)**

 

Employee Options(continued)

 
| **Significant assumptions :** | ** ** | ** **   | ** ** |
|-----------------------------------------|------------|--------------|------------|
| Risk-free  interest rate at grant date  |       | 2.82% - 3.79 | %          |
| Expected  stock price volatility        |       | 458.97       | %          |
| Expected  dividend payout               |       | —       |       |
| Expected  option life-years (a)         |       | 5- 10        |       |

 

----

(a)The expected optionlife is based on contractual expiration dates

 

Non employee options

 

The following tablesummarizes the changes in options outstanding and the related prices for theshares of the Company’s common stock issued to non employees under a stockoption plan at September 30, 2009:

 
| ** **                 | ** ** | **Options Outstanding**  | ** ** | **Options Exercisable**                                                           | ** ** |
|----------------------------|------------|-------------------------------|------------|----------------------------------------------------------------------------------------|------------|
| **Exercise********Prices** | ** ** | **Number********Outstanding** | ** ** | **Weighted Average********Remaining********Contractual Life********(Years)** | ** ** | **Weighted********Average********Exercise********Price** | ** ** | **Number********Exercisable** | ** ** | **Weighted********Average********Exercise********Price** | ** ** |
| $                          | 0.50       |                          | 200,000    |                                                                                   | 1.27       |   | $ | 0.50 |   | 200,000 |   | $ | 0.50 |   |
| 1.00                       |       | 110,000                       |       | 6.46                                                                                   |       | 1.00 |   | 110,000 |   | 1.00 |   |
| 1.40                       |       | 105,000                       |       | 9.49                                                                                   |       | 1.40 |   | 17,500 |   | 1.40 |   |
|                       |       | 415,000                       |       |                                                                                   |       | 0.86 |   | 327,500 |   | 1.09 |   |
|                            |            |                               |            |                                                                                        |            |  |  |  |  |  |  |  |  |  |

 

Transactions involvingnon employee stock options issued are summarized as follows:

 
| ** **                               | ** ** | **Number of Shares** | ** ** | **Weighted Average********Price Per Share** | ** ** |
|------------------------------------------|------------|--------------------------------|------------|------------------------------------------------------------|------------|
| Outstanding  at December 31, 2007:  |       | 410,000                        |       | $                                                          | 0.60       |   |
| Granted                                  |       | —                         |       | —                                                     |       |
| Exercised                                |       | —                         |       | —                                                     |       |
| Canceled  or expired                     |       | —                         |       | —                                                     |       |
| Outstanding  at December 31, 2008   |       | 410,000                        |       | $                                                          | 0.60       |   |
| Granted                                  |       | 105,000                        |       | 1.40                                                       |       |
| Exercised                                |       | (20,000                        | )          | (0.25                                                      | )          |
| Canceled  or expired                     |       | (80,000                        | )          | (0.38                                                      | )          |
| Outstanding  at September 30, 2009: |       | 415,000                        |       | $                                                          | 0.86       |   |

 

During the nine monthsended September 30, 2009, the Company granted 105,000 non employee stockoptions with an exercise price of $1.40 vesting over three years and expiringten years from issuance.  The fair value of the vested portion (determinedas described below) of $13,825 was charged to current period earnings.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

**NOTE G —WARRANTS AND OPTIONS (continued)**

 

Nonemployee options (continued)

 

The fair value of thesestock options granted and the significant assumptions used to determine thosefair values, using a Black-Scholes option pricing model are as follows:

 
| **Significant assumptions :** | ** ** | ** **     | ** ** |
|-----------------------------------------|------------|----------------|------------|
| Risk-free  interest rate at grant date  |       | 3.31%-3.53     | %          |
| Expected  stock price volatility        |       | 452.13%-508.50 | %          |
| Expected  dividend payout               |       | —         |       |
| Expected  option life-years (a)         |       | 9.49-9.74      |       |

 

----

(a)The expected optionlife is based on contractual expiration dates

 

****NOTE H - LOSSESPER SHARE****

 

The following tablespresent the computation of basic and diluted losses per share:

 
| ** **                                        | ** ** | **Three months  ended  September 30,********2009** | ** ** | **Three months  ended  September 30,********2008** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------------------|------------|--------------------------------------------------------------|------------|
| Net  income loss available to Common stockholders |       | $                                                            | (45,026    | )                                                            | $          | (202,285 | ) |
| Basic  and diluted earning (loss) per share       |       | $                                                            | (0.00      | )                                                            | $          | (0.02 | ) |
| Weighted  average common shares outstanding       |       | 11,187,764                                                   |       | 10,893,397                                                   |       |

 
| ** **                                        | ** ** | **Nine  months  ended  September 30,********2009** | ** ** | **Nine months  ended  September 30,********2008** | ** ** |
|---------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| Net  income loss available to Common stockholders |       | $                                                       | (994,989   | )                                                           | $          | (766,899 | ) |
| Basic  and diluted earning (loss) per share       |       | $                                                       | (0.09      | )                                                           | $          | (0.07 | ) |
| Weighted  average common shares outstanding       |       | 11,090,184                                              |       | 10,799,492                                                  |       |

 

In April 2003, a two(2) for one (1) stock split of the Company’s common stock wasaffected. Accordingly, all historical weighted average share and per shareamounts have been restated to reflect the stock split.

 

****NOTE I - INCOMETAXES****

 

ASC 740-10 requires therecognition of deferred tax liabilities and assets for the expected future taxconsequences of events that have been included in the financial statement ortax returns. Under this method, deferred tax liabilities and assets aredetermined based on the difference between financial statements and tax basesof assets and liabilities using enacted tax rates in effect for the year inwhich the differences are expected to reverse. Temporary differences betweentaxable income reported for financial reporting purposes and income taxpurposes are insignificant.

 

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**IRIS BIOTECHNOLOGIES INC.**

**(A development stage company)**

**NOTES TO THE CONDENSED FINANCIALSTATEMENTS**

**SEPTEMBER 30, 2009**

**(Unaudited)**

 

****NOTE I - INCOMETAXES (continued)****

 

For income tax reportingpurposes, the Company’s aggregate unused net operating losses approximate$6,950,000 which expires through 2026, subject to limitations of Section 382of the Internal Revenue Code, as amended. The deferred tax asset related to thecarry forward is approximately $2,363,000. The Company has provided a valuationreserve against the full amount of the net operating loss benefit, because inthe opinion of management based upon the earning history of the Company; it ismore likely than not that the benefits will not be realized. Due to significantchanges in the Company’s ownership, the Company’s future use of its existingnet operating losses may be limited.

 

Components of deferredtax assets as of September 30, 2009 are as follows:

 
| Noncurrent:                       |   |       |      |
|-----------------------------------|--------|------------|-----------|
| Net  operating loss carry forward |   | $          | 2,363,000 |   |
| Valuation  allowance              |   | (2,363,000 | )         |
| Net  deferred tax asset           |   | $          | —    |   |

 

**NOTE J —SUBSEQUENT EVENTS**

 

In themonth of October 2009, the Company issued an aggregate of 13,000 shares ofits common stock for services rendered and issued a long term convertible notepayable for $5,000 due five years from the date of issuance at 7.5% interestper annum The note is convertible at $2.25 per share of common stock .

 

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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS.**

 

**Forward-Looking Statements**

 

The information in this report containsforward-looking statements. All statements other than statements of historicalfact made in this report are forward looking. In particular, the statementsherein regarding industry prospects and future results of operations orfinancial position are forward-looking statements. These forward-lookingstatements can be identified by the use of words such as “believes,” “estimates,”“could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,”or “should” or other variations or similar words. No assurances can be giventhat the future results anticipated by the forward-looking statements will beachieved. Forward-looking statements reflect management’s current expectationsand are inherently uncertain. Our actual results may differ significantly frommanagement’s expectations.

 

The following discussion and analysis should be readin conjunction with our financial statements, included herewith. Thisdiscussion should not be construed to imply that the results discussed hereinwill necessarily continue into the future, or that any conclusion reachedherein will necessarily be indicative of actual operating results in thefuture. Such discussion represents only the best present assessment of ourmanagement.

 

**Overview**

 

Since inception onFebruary 16, 1999 through September 30, 2009, we have sustainedcumulative net losses of $6,950,839. Our losses have resulted primarily fromresearch and development expenses, patent costs and legal and accountingexpenses We have four issued patents. During the quarter ended September 30,2009, the Canadian patent office granted us a patent and allowed another one tobe granted. We launched our BioWindowsTM 2.0 medical informatics system in January 2009.As of October 2009, we have built a new chip manufacturing system with theflexibility not only to produce our breast cancer chips but also other productsfor various clinical and research applications that will improve efficacy andsave money. Also, our tracking process has been tested with 2D and 1D barcodescanners on both labeled and stamped products in conjunction with touch screenfunctions. In addition, we streamlined the automated patient sample processingprotocols.  Part of the process entails hospital internal reviewboard approval and we have successfully obtained that approval for our clinicalstudy.

 

This is in preparation for launching our clinical BreastCancerChipTM,which can be marketed as a CLIA laboratory tests without FDA approval, similarto Genomic Health’s Oncotype Dx test, or as a 510(k) product approved bythe FDA, enabling our test to be used in any certified laboratory. Frominception through September 30, 2009, we have not generated any revenuefrom operations. We expect to incur additional losses to perform furtherresearch and development activities. We have no debt with the exception ofrelated party notes. In order to accelerate our product introduction and togrow dynamically, we will need to raise additional funds. We do not currentlyhave any commercial products. There are some risks with respect to clinicaltesting, regulatory approval and review cycles and uncertainty of the costs. Netpositive cash inflows from any products developed may take several years toachieve.

 

Management plans to continue financing operations witha combination of equity issuances and debt arrangements. If adequate funds arenot available, we may be required to delay, reduce the scope of, or eliminateour research or development programs, or cease operations.

 

**History**

 

We were incorporated in the State of California on February 16,1999 and planned to sell theranostic (choosing therapy based upon personalizeddiagnostic results) products and services in the medical field. In an effort todevelop that business, we set up operations in three locations in California -Headquarters in Santa Clara, Laboratory in San Leandro, and Informatics Officein Eureka.

 

Beginning on March 11, 1999, Simon Chin, MBA, ourfounder, President and CEO, Secretary and principal shareholder, enteredinto Common Stock Purchase Agreements with various companies, investmentgroups and private individuals. On March 1, 2003, Daniel Farnum, M.D., anowner of Humboldt Orthopedics and a key shareholder, and Grace Osborne, MBA,President of GCO Recruiting, joined Mr. Chin on our board ofdirectors. On April 9, 2003, the board approved a 2 for 1 stock split,changed the authorized shares of common stock from 10 million to 20 million,and the authorized preferred stock remained at 5 million shares.

 

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**Plan of Operation**

 

We are a life science company focused on thedevelopment and commercialization of a nano-biochip gene expression kit and anartificial intelligence system to assist in establishing the foundation forpersonalized medicine, which will initially be utilized in the treatment ofbreast cancer. We are designing our products to be approved by the FDA, whichcan then be used in any certified laboratory. Starting at the point of a breastbiopsy diagnosis of cancer, the nano-biochip and informatics program aredesigned to enable a treating physician to quickly prescribe a personalizedtreatment regimen that will have the greatest probability of success for eachpatient’s particular type of cancer. Our product platform is expected to leadto more effective diagnosis and treatment not only for patients with breastcancer, but also for those with neurological disorders, heart disease, diabetesand other gene-related metabolic problems .

 

**Product Research and Development**

 

We anticipate spending, in order to accelerate ourgrowth, which is contingent upon raising additional funds, approximately$1,500,000 for product research and development activities related to ouranticipated product launch during the next twelve months.

 

**Acquisition of Plant and Equipment and Other Assets**

 

We do not anticipate the sale of any materialproperty, plant or equipment during the next 12 months. We do not anticipatethe acquisition of any material property, plant or equipment during the next 12months, unless we raise additional funds to accelerate our growth to fulfillthe unmet needs of a large, growing market.

 

**Number of Employees**

 

From our inception, we have principally relied on theservices of outside consultants and part-time employees for services. As of November 3,2009, we have five full time employees and 10 part-time employees. In order forus to attract and retain quality personnel, we anticipate we will have to offercompetitive salaries to future employees. We anticipate that it may becomedesirable to add additional full and or part time employees to dischargecertain critical functions during the next 12 months. This projected increasein personnel is dependent upon our ability to generate revenues and obtainsources of financing. There is no guarantee that we will be successful inraising the funds required or generating revenues sufficient to fund theprojected increase in the number of employees. As we continue to expand, wewill incur additional cost for personnel.

 

**Results of Operations**

 

As a development stage company, we have yet to earnrevenues from operations. We may experience fluctuations in operating resultsin future periods due to a variety of factors, including our ability to obtainadditional financing in a timely manner and on terms favorable to us, ourability to successfully develop our business model, the amount and timing ofoperating costs and capital expenditures relating to the expansion of ourbusiness, operations and infrastructure and the implementation of marketingprograms, key agreements, and strategic alliances, and general economicconditions specific to our industry.

 

As a result of limited capital resources and norevenues from operations since inception, we have relied on theissuance of equity securities to employees and non-employees in exchange forservices. Our management enters into equity compensation agreements withnon-employees if it is in our best interest under terms and conditionsconsistent with the requirements of Financial Accounting Standards Codification718-70, “Share-Based Compensation.” In order to conserve our limitedoperating capital resources, we anticipate continuing to compensatenon-employees with equity for services during the next twelve months. Thispolicy may have a material effect on our results of operations during thenext twelve months.

 

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**Three Months Ended September 30, 2009 Compared to ThreeMonths Ended September 30, 2008**

 

**Revenues**

 

We have generated no operating revenues fromoperations since our inception. We believe we will begin earning revenuesfrom operations in 2009 from actual operation as we transition from adevelopment stage company to that of an active growth stage company.

 

**Costs and Expenses**

 

From our inception through September 30, 2009, wehave incurred cumulative losses of $6,950,839. In addition, a significant partof the overall remaining costs are associated principally with equity-based compensationto employees and consultants, research and development costs and professionalservices rendered.

 

Selling, generaland administrative (“SG&A”) expenses decreased by $83,481 from$124,003 for the three months ended September 30, 2008 to $40,522 for thethree months ended September 30, 2009. SG&A expenses consisted ofaccounting, legal, consulting, public relations, startup and organizationalexpenses. SG&A expenses also included non-cash charges from the issuance ofstock, warrants and stock options in the amounts of $60,057 for the threemonths ended September 30, 2008 and $41,332 for the three months ended September 30,2009, a period to period decrease of $18,725. The remaining SG&A expenseswhich required cash amounted to approximately $(810) and $63,946 for the threemonths ended September 30, 2009 and 2008, respectively.The decrease is primarily from a reduction in professional serviceproviders and in staff salaries. We used stock in lieu of cash to conserve ourcash resources.

 

Research anddevelopment costs decrease from $75,061 for the three months ended September 30,2008 to $-0- for the three months ended September 30, 2009. We havechanged our focus from research and development to product commercialization.

 

As a result of theabove-mentioned expenses, net losses decreased from $202,285 for the threemonths ended September 30, 2008 to $45,026 for the three months ended September 30,2009.

 

**Nine Months Ended September 30, 2009 Compared to NineMonths Ended September 30, 2008**

 

**Revenues**

 

We have generated no operating revenues fromoperations from our inception. We believe we will begin earning revenues fromoperations in 2009 from actual operation as we transition from adevelopment stage company to that of an active growth stage company.

 

**Costs and Expenses**

 

From our inception through September 30, 2009, wehave incurred cumulative losses of $6,950,839. In addition, a significant partof the overall remaining costs are associated principally with equity-basedcompensation to employees and consultants, research and development costs andprofessional services rendered.

 

Selling, generaland administrative (“SG&A”) expenses increased by $372,092 from$578,812 for the nine months ended September 30, 2008 to $950,904 for thenine months ended September 30, 2009. SG&A expenses consisted ofaccounting, legal, consulting, public relations, startup and organizationalexpenses. SG&A expenses also included non-cash charges from the issuance ofstock, warrants and stock options in the amounts of $138,658 for the ninemonths ended September 30, 2008 and $819,350 for the nine months ended September 30,2009, a period to period increase of $680,692. The remaining SG&A expenseswhich required cash amounted to approximately $131,554 and $440,154 for the ninemonths ended September 30, 2009 and 2008, respectively. The decreaseis primarily from a reduction in professional service providers and in staffsalaries. We used stock in lieu of cash to conserve our cash resources.

 

Research anddevelopment costs decreased from $179,787 for the nine months ended September 30,2008 to $30,622 for the nine months ended September 30, 2009. Wecompensate with stock options.

 

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As a result of theabove-mentioned expenses, net losses increased from $766,899 for the ninemonths ended September 30, 2008 to $994,989 for the nine months ended September 30,2009.

 

**Liquidity and Capital Resources**

 

As of September 30, 2009, we had working capitaldeficit of $139,093 as compared to working capital deficit of $35,141 as of December 31,2008. Our cash position was $3,957 as of September 30, 2009 compared to$990 as of December 31, 2008. From inception to September 30, 2009 wehave incurred an operating cash flow deficit of $2,768,718, which has beenprincipally financed through the private placement of our common stock andborrowing from related parties. As of September 30, 2009, we have $38,000of convertible notes outstanding.

 

We expect to continue to incur additional losses andnegative cash flows from operating activities for the next two years.

 

Our available working capital and capital requirementswill depend upon numerous factors, including progress of our research anddevelopment programs, our progress in and the cost of pre-clinical and clinicaltesting, the timing and cost of obtaining regulatory approvals, the cost offiling and prosecuting patent claims and other intellectual property rights,completing technological and market developments, current and future licensingrelationships, the status of our competitors, and our ability to establishcollaborative arrangements with other organizations .

 

Our continued operations will depend on whether we areable to raise additional funds through various potential sources, such asequity and debt financing, collaborative and licensing agreements, strategicalliances, and our ability to realize the full potential of our technology indevelopment. Such additional funds may not become available on acceptableterms, if at all, and there can be no assurance that any additional fundingthat we do obtain will be sufficient to meet our needs in the long term.Through November 3, 2009, virtually all of our financing has been throughprivate placements of common stock and warrants. We intend to continue to fundoperations from cash on-hand and through the similar sources of capitalpreviously described for the foreseeable future. We can give no assurances thatany additional capital that we are able to obtain will be sufficient to meetour needs. We believe that we will continue to incur net losses and negativecash flows from operating activities for the next two years. Based on theresources available to us on November 3, 2009, we will need additionalequity or debt financing to meet our current operating needs.

 

**Off-Balance Sheet Arrangements**

 

We do not have anyoff-balance sheet arrangements.

 

**Inflation**

 

It is our opinion that inflation has not had a materialeffect on our operations.

 

**Critical Accounting Policies**

 

Our financial statements are prepared in accordancewith accounting principles generally accepted in the United States of America,which requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

The following accounting policies are critical infully understanding and evaluating our reported financial results:

 

**Accounting for Stock-Based Compensation**

 

We account for our stock options and warrants usingthe fair value method promulgated by ASC 718-10 which addresses the accountingfor transactions in which an entity exchanges its equity instruments for goodsor services. Therefore, our results include non-cash compensation expense as aresult of the issuance of stock options and warrants and we expect to recordadditional non-cash compensation expense in the future.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK.**

N/A

 

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**ITEM 4T. CONTROLS AND PROCEDURES.**

 

*Evaluationof Disclosure Controls and Procedures*. Under the supervision and with the participation ofour management, including our President, Chief Financial Officer and Secretary,we evaluated the effectiveness of the design and operation of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of theperiod covered by this report. Based upon that evaluation, our President, ChiefFinancial Officer and Secretary concluded that our disclosure controls andprocedures as of the end of the period covered by this report were effectivesuch that the information required to be disclosed by us in reports filed underthe Securities Exchange Act of 1934 is (i) recorded, processed, summarizedand reported within the time periods specified in the SEC’s rules andforms and (ii) accumulated and communicated to our management to allowtimely decisions regarding disclosure. A controls system cannot provideabsolute assurance, however, that the objectives of the controls system aremet, and no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, within a company have beendetected.

 

*Changesin Internal Control Over Financial Reporting.* During the most recent quarter ended September 30,2009, there has been no change in our internal control over financial reporting(as defined in Rule 13a-15(f) and 15d-15(f) under the ExchangeAct) ) that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

**PART II**

 

**ITEM 1. LEGAL PROCEEDINGS.**

 

We are not a party to any pending legal proceeding,nor is our property the subject of a pending legal proceeding, that is not inthe ordinary course of business or otherwise material to the financialcondition of our business. None of our directors, officers or affiliates isinvolved in a proceeding adverse to our business or has a material interestadverse to our business.

 

**ITEM 1A. RISK FACTORS.**

 

N/A

 

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OFPROCEEDS.**

 

During the nine months ended September 30, 2009,we issued and sold 10,066 shares of common stock for proceeds of $22,650. In connection with the sale of our common stock, we issued 2,517 warrants topurchase our common stock at $2.25 per share for the next five years,

 

In addition, during the nine months ended September 30,2009, we issued 62,669 shares of common stock to consultants for servicesrendered in the amount of $58,789. In connection with the issuance of suchshares, we relied on the exemption from registration provided by Section 4(2) ofthe Securities Act of 1933, as amended.

 

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES.**

 

None

 

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

 

None

 

**ITEM 5. OTHER INFORMATION.**

 

None

 

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**ITEM 6. EXHIBITS.**

 
| **Exhibit  Number** | ** ** | **Description of Exhibit**                                                                                                                                                      |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                      |
| 31.1                |       | Certifications required  by Rule 13a-14, as adopted pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                 |
| 32.1                |       | Certification of Chief  Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C.§  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002. |

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 
|                   | IRIS  BIOTECHNOLOGIES INC.                                                                                                                                             |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |                                                                                                                                                                   |
|                   | /s/ Simon Chin                                                                                                                                                         |
| November 9,  2009 | Simon Chin                                                                                                                                                             |
|                   | President, Chief  Executive Officer, Chief Financial Officer and Director (Principal Executive  Officer, Principal Accounting Officer and Principal Financial Officer) |
|                        |                                                                                                                                                                        |  |

 

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