**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**Form 10-Q**

 

**(Mark One)**

 

**x**** QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended September 30, 2008**

 

**OR**

 

**o**** TRANSITION REPORT UNDER SECTION 13OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from              to**

 

**COMMISSION****FILE NUMBER333-142076**

 

**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, California95054**

(Address of principal executive offices) (Zip Code)

 

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

 

Check whether the issuer (1) filedall reports required to be filed by Section 13 or 15(d) of theExchange Act during the past 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See definitions of “largeaccelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2of 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) |   |                             |

 

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o   No x

 

As of November 14, 2008the issuer had 10,909,431 outstanding shares of Common Stock.

 

 

 

----

 

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 | 26       |
| Item 3.    | Quantitative and Qualitative Disclosures  About Market Risk                                | 29       |
| Item 4T    | Controls and Procedures                                                                    | 30       |
|       |                                                                                       |     |
|       | PART II                                                                               |     |
|       |                                                                                       |     |
| Item 1.    | Legal Proceedings                                                                          | 30       |
| Item 1A.   | Risk Factors                                                                               | 30       |
| Item 2.    | Unregistered Sales of Equity Securities and  Use of Proceeds                               | 30       |
| Item 3.    | Defaults Upon Senior Securities                                                            | 30       |
| Item 4.    | Submission of Matters to a Vote of Security  Holders                                       | 30       |
| Item 5.    | Other Information                                                                          | 30       |
| Item 6.    | Exhibits                                                                                   | 31       |
|       |                                                                                       |     |
| SIGNATURES | 32                                                                                         |

 

2

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** **

**PART I**

 

**ITEM 1. FINANCIAL STATEMENTS.**

 

**INDEX TO FINANCIAL STATEMENTS**

 
| ** **                                                                                                                                                                             | **Page** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Unaudited Condensed Balance Sheets as of  September 30, 2008 and December 31, 2007                                                                                                     | 4        |
|                                                                                                                                                                                   |     |
| Unaudited  Condensed Statements of Losses for the three and nine months ended September  30, 2008 and 2007 and the period February 16, 1999 (date of inception) to  September 30, 2008 | 5        |
|                                                                                                                                                                                   |     |
| Unaudited Condensed Statement of  Stockholders’ Equity for the period February 16, 1999 (date of inception) to  September 30, 2008                                                | 6        |
|                                                                                                                                                                                   |     |
| Unaudited  Condensed Statements of Cash Flows for the nine months ended September 30, 2008  and 2007 and the period February 16, 1999 (date of inception) to September  30, 2008       | 11       |
|                                                                                                                                                                                   |     |
| Notes to the  Unaudited Condensed Financial Statements                                                                                                                                 | 12       |

 

3

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**CONDENSEDBALANCE SHEETS**

 
| ** **                                                                                                                                                                                                          | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                          | ** ** | **2008**               | ** ** | **2007**              | ** ** |
| ** **                                                                                                                                                                                                          | ** ** | **(unaudited)**        | ** ** | ** **            | ** ** |
| ASSETS                                                                                                                                                                                                              |       |                   |       |                  |       |
| Current assets:                                                                                                                                                                                                     |       |                   |       |                  |       |
| Cash                                                                                                                                                                                                                |       | $                      | 18,871     |                  | $          | 179,617 |   |
| Total current assets                                                                                                                                                                                                |       | 18,871                 |       | 179,617               |       |
|                                                                                                                                                                                                                |       |                   |       |                  |       |
| Property, plant and equipment, net of  accumulated depreciation of $161,267 and $151,186 as of September 30,  2008 and December 31, 2007, respectively (Note B)                                           |       | 61,788                 |       | 55,442                |       |
|                                                                                                                                                                                                                |       |                   |       |                  |       |
| Total assets                                                                                                                                                                                                        |       | $                      | 80,659     |                  | $          | 235,059 |   |
|                                                                                                                                                                                                                |       |                   |       |                  |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                                           |       |                   |       |                  |       |
| Current liabilities:                                                                                                                                                                                                |       |                   |       |                  |       |
| Accounts payable and accrued liabilities  (Note C)                                                                                                                                                                  |       | $                      | 26,244     |                  | $          | 38,029 |   |
| Total current liabilities                                                                                                                                                                                           |       | 26,244                 |       | 38,029                |       |
|                                                                                                                                                                                                                |       |                   |       |                  |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                                           |       |                   |       |                  |       |
| Preferred stock, no par or stated value;  5,000,000 shares authorized; no shares issued and outstanding as of  September 30, 2008 and December 31, 2007 (Note E)                                          |       | —                 |       | —                |       |
| Common stock, no par or stated value;  20,000,000 shares authorized; 10,905,431 and 10,655,377 shares issued and  outstanding as of September 30, 2008 and December 31, 2007,  respectively (Note E) |       | 4,769,692              |       | 4,208,066             |       |
| Additional paid in capital                                                                                                                                                                                          |       | 1,253,785              |       | 1,222,347             |       |
| Deferred compensation                                                                                                                                                                                               |       | (129,843               | )          | (161,063              | )          |
| Deficit accumulated during development  stage                                                                                                                                                                       |       | (5,839,219             | )          | (5,072,320            | )          |
| Total stockholders’ equity                                                                                                                                                                                     |       | 54,415                 |       | 197,030               |       |
|                                                                                                                                                                                                                |       |                   |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                     |       | $                      | 80,659     |                  | $          | 235,059 |   |

 

Theaccompanying notes are an integral part of these unaudited condensed financialstatements

 

4

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**CONDENSEDSTATEMENTS OF LOSSES**

**(unaudited)**

 
| ** **                                                                    | ** ** | ** **                                               | ** ** | ** **                                              | ** ** | ** **                                                                                      | ** ** | ** ** | ** ** | **For the period from** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|------------|------------|----------------------------------------|------------|
| ** **                                                                    | ** ** | **Three months ended September 30,** | ** ** | **Nine months ended September 30,** | ** ** | **February 16, 1999 (date of  inception) through September  30,** | ** ** |
| ** **                                                                    | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008**                                                                                        | ** ** | **2007**   | ** ** | **2008**                               | ** ** |
| Operating expenses:                                                           |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Selling, general and administrative                                           |       | $                                                        | 124,003    |                                                    | $          | 20,427                                                                                          |       | $          | 578,812    |                                   | $          | 171,763 |   | $ | 2,497,586 |   |
| Research and development (Note A)                                             |       | 75,061                                                   |       | 20,335                                                  |       | 179,787                                                                                         |       | 114,877    |       | 1,345,671                              |       |
| Impairment of intellectual property                                           |       | —                                                   |       | —                                                  |       | —                                                                                          |       | —     |       | 1,838,250                              |       |
| Depreciation                                                                  |       | 3,555                                                    |       | 1,492                                                   |       | 10,081                                                                                          |       | 4,279      |       | 161,267                                |       |
| Total operating expenses                                                      |       | 202,619                                                  |       | 42,254                                                  |       | 768,680                                                                                         |       | 290,919    |       | 5,842,774                              |       |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Net loss from operations                                                      |       | (202,619                                                 | )          | (42,254                                                 | )          | (768,680                                                                                        | )          | (290,919   | )          | (5,842,774                             | )          |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Other income (expense)                                                        |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Interest income (expense)                                                     |       | 334                                                      |       | 3,431                                                   |       | 2,581                                                                                           |       | 6,977      |       | 11,591                                 |       |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Net loss before provision for income taxes                                    |       | (202,285                                                 | )          | (38,823                                                 | )          | (766,099                                                                                        | )          | (283,942   | )          | (5,831,183                             | )          |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Income taxes                                                                  |       | —                                                   |       | —                                                  |       | 800                                                                                             |       | 825        |       | 8,036                                  |       |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Net Loss                                                                      |       | $                                                        | (202,285   | )                                                       | $          | (38,823                                                                                         | )          | $          | (766,899   | )                                      | $          | (284,767 | ) | $ | (5,839,219 | ) |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Loss per common share-basic and fully  diluted                                |       | $                                                        | (0.02      | )                                                       | $          | (0.00                                                                                           | )          | $          | (0.07      | )                                      | $          | (0.03 | ) | $ | (0.62 | ) |
|                                                                          |       |                                                     |       |                                                    |       |                                                                                            |       |       |       |                                   |       |
| Weighted average number of common shares  outstanding-basic and fully diluted |       | 10,893,397                                               |       | 10,633,155                                              |       | 10,799,492                                                                                      |       | 10,565,307 |       | 9,404,787                              |       |

 

Theaccompanying notes are an integral part of these unaudited condensed financialstatements

 

5

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

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

**FROMFEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGH SEPTEMBER 30, 2008**

**(Unaudited)**

 
| ** **                                                                                          | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|--------------|------------|-------------------------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                          | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **during**                    | ** ** | ** **       | ** ** |
| ** **                                                                                          | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**   | ** ** | **Paid in Capital** | ** ** | **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 accompanying notes are an integral part of these unauditedcondensed financial statements

 

6

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| ** **                                                                                     | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|------------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|--------------|------------|-------------------------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                     | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **during**                    | ** ** | ** **       | ** ** |
| ** **                                                                                     | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**   | ** ** | **Paid in Capital** | ** ** | **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 accompanying notes are an integral part of these unauditedcondensed financial statements

 

7

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| ** **                                                                                   | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|--------------|------------|-------------------------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                   | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **during**                    | ** ** | ** **       | ** ** |
| ** **                                                                                   | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**   | ** ** | **Paid in Capital** | ** ** | **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 accompanying notes are an integral part of these unauditedcondensed  financial statements

 

8

----

 
| ** **                                                                                   | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|--------------|------------|-------------------------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                   | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **during**                    | ** ** | ** **       | ** ** |
| ** **                                                                                   | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**   | ** ** | **Paid in Capital** | ** ** | **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 accompanying notes are an integral partof these unaudited condensed  financial statements

 

9

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| ** **                                                                                       | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **       | ** ** | **Deficit accumulated** | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|--------------|------------|-------------------------------|------------|------------------|------------|------------------------------|------------|------------|------------|
| ** **                                                                                       | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **during**                    | ** ** | ** **       | ** ** |
| ** **                                                                                       | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**   | ** ** | **Paid in Capital** | ** ** | **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      |       |
| Fair value of vested options issued in exchange  for services rendered                           |       | —                    |       | —                 |       | —         |       | —       |       | 31,438                        |       | —           |       | —                       |       | 31,438     |       |
| Sale of common stock in June 2008 at  $2.25 per share                                       |       | —                    |       | —                 |       | 22,222         |       | 50,000       |       | —                        |       | —           |       | —                       |       | 50,000     |       |
| Sale of common stock in July 2008 at  $2.25 per share                                       |       | —                    |       | —                 |       | 35,555         |       | 80,000       |       | —                        |       | —           |       | —                       |       | 80,000     |       |
| Common stock issued in July 2008 at  $2.25 per share in exchange for services rendered      |       | —                    |       | —                 |       | 8,000          |       | 18,000       |       | —                        |       | —           |       | —                       |       | 18,000     |       |
| 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     |       |
| Amortization of deferred compensation                                                            |       | —                    |       | —                 |       | —         |       | —       |       | —                        |       | 31,220           |       | —                       |       | 31,220     |       |
| Net Loss                                                                                         |       | —                    |       | —                 |       | —         |       | —       |       | —                        |       | —           |       | (766,899                     | )          | (766,899   | )          |
|                                                                                             |       | —                    |       | $                      | —     |           | 10,905,431 |         | $          | 4,769,692                     |       | $                | 1,253,785  |                         | $          | (129,843   | )          | $ | (5,839,219 | ) | $ | 54,415 |   |

 

The accompanying notes are an integral partof these unaudited condensed financial statements

 

10

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Unaudited)**

 
| ** **                                                                 | ** ** | ** **                                                            | ** ** | ** **                                                                                          | ** ** | **For the period from** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                 | ** ** | **For the nine  months ended September 30,** | ** ** | **February 16, 1999 (date of  inception) through September 30,** | ** ** |
| ** **                                                                 | ** ** | **2008**                                                              | ** ** | **2007**                                                                                            | ** ** | **2008**                               | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                      |       |                                                                  |       |                                                                                                |       |                                   |       |
| Net loss                                                                   |       | $                                                                     | (766,899   | )                                                                                                   | $          | (284,767                               | )          | $ | (5,839,219 | ) |
| Adjustments to reconcile net loss to cash  (used in) operating activities: |       |                                                                  |       |                                                                                                |       |                                   |       |
| Depreciation                                                               |       | 10,081                                                                |       | 4,279                                                                                               |       | 161,267                                |       |
| Amortization of deferred compensation                                      |       | 31,220                                                                |       | —                                                                                              |       | 31,220                                 |       |
| Common stock issued in exchange for  services rendered                     |       | 76,000                                                                |       | —                                                                                              |       | 167,250                                |       |
| Common stock issued in exchange for  intellectual property                 |       | —                                                                |       | —                                                                                              |       | 1,800,000                              |       |
| Options and warrants issued in exchange for  services rendered             |       | 31,438                                                                |       | 25,913                                                                                              |       | 1,087,495                              |       |
| (Increase) decrease in:                                                    |       |                                                                  |       |                                                                                                |       |                                   |       |
| Prepaid expenses                                                           |       | —                                                                |       | 13,393                                                                                              |       | —                                 |       |
| Increase (decrease) in:                                                    |       |                                                                  |       |                                                                                                |       |                                   |       |
| Accounts payable and accrued liabilities                                   |       | (5,520                                                                | )          | (41,408                                                                                             | )          | 21,269                                 |       |
| Net cash (used in) operating activities:                                   |       | (623,680                                                              | )          | (282,590                                                                                            | )          | (2,565,491                             | )          |
|                                                                       |       |                                                                  |       |                                                                                                |       |                                   |       |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                      |       |                                                                  |       |                                                                                                |       |                                   |       |
| Acquisition of property, plant and  equipment                              |       | (22,692                                                               | )          | (9,160                                                                                              | )          | (218,081                               | )          |
| Net cash (used in) investing activities:                                   |       | (22,692                                                               | )          | (9,160                                                                                              | )          | (218,081                               | )          |
|                                                                       |       |                                                                  |       |                                                                                                |       |                                   |       |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                      |       |                                                                  |       |                                                                                                |       |                                   |       |
| Sale of common stock                                                       |       | 485,626                                                               |       | 621,000                                                                                             |       | 2,764,943                              |       |
| Exercise of common stock options                                           |       | —                                                                |       | —                                                                                              |       | 37,500                                 |       |
| Net (payments) proceeds, related party                                     |       | —                                                                |       | (92,000                                                                                             | )          | —                                 |       |
| Net cash provided by financing activities                                  |       | 485,626                                                               |       | 529,000                                                                                             |       | 2,802,443                              |       |
|                                                                       |       |                                                                  |       |                                                                                                |       |                                   |       |
| (Decrease) increase in cash and cash  equivalents                          |       | (160,746                                                              | )          | 237,250                                                                                             |       | 18,871                                 |       |
| Cash and cash equivalents beginning of  period                             |       | 179,617                                                               |       | 13,667                                                                                              |       | —                                 |       |
| Cash and cash equivalents end of period                                    |       | $                                                                     | 18,871     |                                                                                                | $          | 250,917                                |       | $ | 18,871 |   |
|                                                                       |       |                                                                  |       |                                                                                                |       |                                   |       |
| Supplemental disclosures of cash flow  information:                        |       |                                                                  |       |                                                                                                |       |                                   |       |
| Cash paid during the period for interest                                   |       | $                                                                     | —     |                                                                                                | $          | —                                 |       | $ | 277 |   |
| Cash paid during the period for taxes                                      |       | $                                                                     | 800        |                                                                                                | $          | 825                                    |       | $ | 1,102 |   |
| Common stock issued in exchange for  services                              |       | $                                                                     | 76,000     |                                                                                                | $          | —                                 |       | $ | 167,250 |   |
| Common stock issued in exchange for  intellectual property                 |       | $                                                                     | —     |                                                                                                | $          | —                                 |       | $ | 1,800,000 |   |
| Options and warrants issued in exchange for  services rendered             |       | $                                                                     | 31,438     |                                                                                                | $          | 25,913                                 |       | $ | 1,087,495 |   |

 

Theaccompanying notes are an integral part of these unaudited condensed financialstatements

 

11

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 **IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

Asummary of the significant accounting policies applied in the preparation ofthe accompanying unaudited condensed financial statements follows.

 

General

 

Theaccompanying unaudited condensed financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America for interim 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.

 

Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included. Accordingly,the results from operations for the three and nine month periods ended September 30,2008, are not necessarily indicative of the results that may be expected forthe year ended December 31, 2008. The unaudited condensed financialstatements should be read in conjunction with the December 31, 2007financial statements and footnotes thereto included in the Company’s Form 10-KSBfiled on March 31, 2008.

 

Businessand Basis of Presentation

 

IrisBioTechnologies Inc. (the “Company”) was incorporated on February 16, 1999under the laws of the State of California. The Company is in the developmentstage as defined under Statement on Financial Accounting Standards No.7,Development Stage Enterprises (“SFAS No.7”) and its efforts are principallydevoted to developing solutions for the detection and monitoring of monogenicand complex genomic diseases. The Company has not generated any revenue to dateand consequently its operations are subject to all risks inherent in theestablishment of a new business enterprise. For the period from inceptionthrough September 30, 2008, the Company has accumulated losses of$5,839,219.

 

Cashand Cash Equivalents

 

 Forpurposes of the Statements of Cash Flows, the Company considers all highlyliquid debt instruments purchased with a maturity date of three months or lessto be cash equivalents.

 

Propertyand Equipment

 

 Propertyand equipment are stated at cost. When retired or otherwise disposed, therelated carrying value and accumulated depreciation are removed from the respectiveaccounts and the net difference less any amount realized from disposition, isreflected in earnings. For financial statement purposes, property and equipmentare recorded at cost and depreciated using the straight-line method over theirestimated useful lives of 3 to 5 years.

 

Long-LivedAssets

 

 TheCompany has adopted Statement of Financial Accounting Standards No. 144 (“SFAS144”). The Statement requires that long-lived assets and certain identifiableintangibles held and used by the Company be reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. Events relating to recoverability may includesignificant unfavorable changes in business conditions, recurring losses, or aforecasted inability to achieve break-even operating results over an extendedperiod. The Company evaluates the recoverability of long-lived assets basedupon forecasted undiscounted cash flows. Should impairment in value beindicated, the carrying value of intangible assets will be adjusted, based onestimates of future discounted cash flows resulting from the use and ultimatedisposition of the asset. SFAS No. 144 also requires assets to be disposedof be reported at the lower of the carrying amount or the fair value less coststo sell.

 

12

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** **

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

IncomeTaxes

 

TheCompany follows Statement of Financial Accounting Standard No.109, Accountingfor Income Taxes (SFAS No.109) for recording the provision for income taxes.Deferred tax assets and liabilities are computed based upon the differencebetween the financial statement and income tax basis of assets and liabilitiesusing the enacted marginal tax rate applicable when the related asset orliability is expected to be realized or settled. Deferred income tax expenses orbenefits are based on the changes in the asset or liability during each period.If available evidence suggests that it is more likely than not that someportion or all of the deferred tax assets will not be realized, a valuationallowance is required to reduce the deferred tax assets to the amount that ismore likely than not to be realized. Future changes in such valuation allowanceare included in the provision for deferred income taxes in the period ofchange. Deferred income taxes may arise from temporary differences resultingfrom income and expense items reported for financial accounting and taxpurposes in different periods. Deferred taxes are classified as current ornon-current, depending on the classification of assets and liabilities to whichthey relate. Deferred taxes arising from temporary differences that are notrelated to an asset or liability are classified as current or non-currentdepending on the periods in which the temporary differences are expected toreverse.

 

NetIncome (loss) Per Common Share

 

TheCompany computes earnings per share under Financial Accounting Standard No. 128,“Earnings per Share” (“SFAS 128”). 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, 2008 and2007 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

 

Useof Estimates

 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect certain reported amounts and disclosures. Accordingly, actualresults could differ from those estimates.

 

Reclassifications

 

Certainreclassifications have been made in prior year’s financial statements toconform to classifications used in the current year.

 

Researchand Development

 

TheCompany accounts for research and development costs in accordance with theFinancial Accounting Standards Board’s Statement of Financial AccountingStandards No. 2 (“SFAS 2”), “Accounting for Research and Development Costs”.Under SFAS 2, 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 $75,061 and $20,335 for the threemonth periods ended September 30, 2008 and 2007, respectively; $179,787and $114,877 for the nine month periods ended September 30, 2008 and 2007,respectively, and $1,345,671 from the period from February 16, 1999 (dateof inception) to September 30, 2008.

 

13

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**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

Liquidity

 

Todate the Company has generated no revenues, has incurred expenses, and hassustained losses. As shown in the accompanying unaudited condensed****financialstatements, the Company incurred a net loss of $766,899 during the nine monthperiod ended September 30, 2008 and $284,767 during the nine month periodended September 30, 2007. For the period from inception through September 30,2008, the Company has accumulated losses of $5,839,219. Consequently, itsoperations are subject to all risks inherent in the establishment of a newbusiness enterprise.

 

Concentrationsof Credit Risk

 

Financialinstruments and related items, which potentially subject the Company toconcentrations of credit risk, consist primarily of cash, cash equivalents andrelated party receivables. The Company places its cash and temporary cashinvestments with credit quality institutions. At times, such investments may bein excess of the FDIC insurance limit. The Company periodically reviews itstrade receivables in determining its allowance for doubtful accounts. TheCompany does not have accounts receivable and allowance for doubtful accountsat September 30, 2008.

 

FairValue of Financial Instruments

 

Statementof Financial Accounting Standards No. 107, “Disclosures About Fair Valueof Financial Instruments,” requires disclosure of the fair value of certainfinancial instruments. The carrying value of cash and cash equivalents,accounts receivable, accounts payable and short-term borrowings, as reflectedin the balance sheets, approximate fair value because of the short-termmaturity of these instruments.

 

StockBased Compensation

 

EffectiveJanuary 1, 2006, the beginning of the Company’s first fiscal quarter of2006, the Company adopted the fair value recognition provisions of SFAS 123R,using the modified-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 SFAS 123R, 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 SFAS 123. Results for prior periods have not beenrestated, as provided for under the modified-prospective method.

 

SFAS123(R) requires forfeitures to be estimated at the time of grant andrevised, if necessary, in subsequent periods if actual forfeitures differ fromthose estimates. In the Company’s pro forma information required under SFAS 123for the periods prior to fiscal 2006, the Company accounted for forfeitures asthey occurred.

 

Uponadoption of SFAS 123(R), the Company is using the Black-Scholes option-pricingmodel as its method of valuation for share-based awards granted beginning infiscal 2006, which was also previously used for the Company’s pro formainformation required under SFAS 123. The Company’s determination of fair valueof share-based payment awards on the date of grant using an option-pricingmodel is affected by the Company’s stock price as well as assumptions regardinga number of highly complex and subjective variables. These variables include,but are not limited to the Company’s expected stock price volatility over theterm of the awards, and certain other market variables such as the risk freeinterest rate.

 

Forthe nine month period ended September 30, 2008, the Company granted167,696 employee options to purchase the Company’s common stock at $2.25 pershare over ten years, vesting in four years. The fair value of the vestedportion was charged to current period operations.

 

14

----

** **

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

RevenueRecognition

 

TheCompany recognizes revenue in accordance with Staff Accounting Bulletin No. 104,REVENUE RECOGNITION (“SAB104”), which superseded Staff Accounting Bulletin No. 101,REVENUE RECOGNITION IN FINANCIAL STATEMENTS (“SAB101”). SAB 101 requires thatfour basic criteria 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 oris subject to refund until such time that the Company and the customer jointlydetermine that the product has been delivered or no refund will be required.

 

SAB104 incorporates Emerging Issues Task Force 00-21 (“EITF 00-21”),MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS. EITF 00-21 addresses accounting forarrangements that may involve the delivery or performance of multiple products,services and/or rights to use assets. The effect of implementing EITF 00-21 onthe Company’s financial position and results of operations was not significant.

 

Fromthe date of inception through September 30, 2008, the Company has notgenerated any revenue.

 

Recentaccounting pronouncements

 

InFebruary 2007, the FASB issued SFAS No. 159, “*The Fair Value Option for Financial Assets andFinancial Liabilities — Including an Amendment of FASB Statement No. 115* “ (“SFAS No. 159”).  SFAS No. 159 permits entities tochoose to measure many financial instruments and certain other items at fairvalue.  Most of the provisions of SFAS No. 159 apply only toentities that elect the fair value option. However, the amendment to SFAS No. 115“*Accounting for Certain Investments in Debtand Equity Securities* “ applies to all entities withavailable-for-sale and trading securities.  SFAS No. 159 iseffective as of the beginning of an entity’s first fiscal year that beginsafter November 15, 2007.  Early adoption is permitted as of thebeginning of a fiscal year that begins on or before November 15, 2007,provided the entity also elects to apply the provision of SFAS No. 157, “*Fair Value Measurements*”.  Theadoption of SFAS No. 159 is not expected to have a material impact on ourfinancial position, results of operations or cash flows.

 

InDecember 2007, the FASB issued SFAS No. 141(R), **“BusinessCombinations”** (“SFAS No. 141(R)”), which establishesprinciples and requirements for how an acquirer recognizes and measures in itsfinancial statements the identifiable assets acquired, the liabilities assumed,and any noncontrolling interest in an acquiree, including the recognition andmeasurement of goodwill acquired in a business combination. SFAS No. 141Ris effective as of the beginning of the first fiscal year beginning on or afterDecember 15, 2008. Earlier adoption is prohibited and the Company iscurrently evaluating the effect, if any that the adoption will have on itsfinancial position results of operations or cash flows.

 

InDecember 2007, the FASB issued SFAS No. 160, **“Noncontrolling Interest in ConsolidatedFinancial Statements, an amendment of ARB No. 51”** (“SFAS No. 160”),which will change the accounting and reporting for minority interests, whichwill be recharacterized as noncontrolling interests and classified as acomponent of equity within the consolidated balance sheets. SFAS No. 160is effective as of the beginning of the first fiscal year beginning on or afterDecember 15, 2008. Earlier adoption is prohibited and the Company iscurrently evaluating the effect, if any that the adoption will have on itsfinancial position results of operations or cash flows.

 

15

----

 

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

Recentaccounting pronouncements (continued)

 

InJune 2007, the Accounting Standards Executive Committee issued Statementof Position 07-1, “Clarification of the Scope of the Audit and Accounting GuideInvestment Companies and Accounting by Parent Companies and Equity MethodInvestors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1provides guidance for determining whether an entity is within the scope of theAICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP07-1 was originally determined to be effective for fiscal years beginning on orafter December 15, 2007, however, on February 6, 2008, FASB issued afinal Staff Position indefinitely deferring the effective date and prohibitingearly adoption of SOP 07-1 while addressing implementation issues.

 

InJune 2007, the FASB ratified the consensus in EITF Issue No. 07-3, “Accountingfor Nonrefundable Advance Payments for Goods or Services to be Used in FutureResearch and Development Activities” (EITF 07-3), which requires that nonrefundableadvance payments for goods or services that will be used or rendered for futureresearch and development (R&D) activities be deferred and amortized overthe period that the goods are delivered or the related services are performed,subject to an assessment of recoverability. EITF 07-3 will be effectivefor fiscal years beginning after December 15, 2007. The Company does notexpect that the adoption of EITF 07-3 will have a material impact on ourfinancial position, results of operations or cash flows.

 

InDecember 2007, the FASB ratified the consensus in EITF Issue No. 07-1,“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1defines collaborative arrangements and requires collaborators to present theresult of activities for which they act as the principal on a gross basis andreport any payments received from (made to) the other collaborators based onother applicable authoritative accounting literature, and in the absence ofother applicable authoritative literature, on a reasonable, rational andconsistent accounting policy is to be elected. EITF 07-1 also provides fordisclosures regarding the nature and purpose of the arrangement, the entity’srights and obligations, the accounting policy for the arrangement and theincome statement classification and amounts arising from the agreement.EITF 07-1 will be effective for fiscal years beginning after December 15,2008, which will be the Company’s fiscal year 2009, and will be applied as achange in accounting principle retrospectively for all collaborativearrangements existing as of the effective date. The Company has not yetevaluated the potential impact of adopting EITF 07-1 on our financialposition, results of operations or cash flows.

 

InMarch 2008, the FASB” issued SFAS No. 161, “*Disclosures about Derivative Instruments and HedgingActivities — an amendment to FASB Statement No. 133”* (“SFAS No. 161”)*.*   SFAS No. 161 isintended to improve financial standards for derivative instruments and hedgingactivities by requiring enhanced disclosures to enable investors to betterunderstand their effects on an entity’s financial position, financialperformance, and cash flows.  Entities are required to provideenhanced disclosures about: (a) how and why an entity uses derivativeinstruments; (b) how derivative instruments and related hedged items areaccounted for under SFAS No. 133 and its related interpretations; and (c) howderivative instruments and related hedged items affect an entity’s financialposition, financial performance, and cash flows.  It is effective forfinancial statements issued for fiscal years beginning after November 15,2008, with early adoption encouraged.  The Company is currentlyevaluating the impact of SFAS No. 161, if any, will have on our financialposition, results of operations or cash flows.

 

InApril 2008, the FASB issued FSP No. FAS 142-3,*“Determination of the Useful Life of IntangibleAssets”.*  This FSP amends the factors that should be consideredin developing renewal or extension assumptions used to determine the usefullife of a recognized intangible asset under SFAS No. 142,*“Goodwill and Other Intangible Assets”.*  We are required to adopt FSP 142-3 on September 1, 2009,earlier adoption is prohibited.  The guidance in FSP 142-3 fordetermining the useful life of a recognized intangible asset shall be appliedprospectively to intangible assets acquired after adoption, and the disclosurerequirements shall be applied prospectively to all intangible assets recognizedas of, and subsequent to, adoption.  The Company is currentlyevaluating the impact of FSP 142-3 on our financial position, results ofoperations or cash flows.

 

16

----

** **

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

Recentaccounting pronouncements (continued)

 

InMay 2008, the FASB issued SFAS No. 162, “*The Hierarchy of Generally Accepted Accounting Principles*” (“SFAS No. 162”).  SFAS No. 162identifies the sources of accounting principles and the framework for selectingthe principles used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles (the GAAP hierarchy).  SFAS No. 162will become effective 60 days following the SEC’s approval of the PublicCompany Accounting Oversight Board amendments to AU Section 411, “TheMeaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.” The Company does not expect the adoption of SFAS No. 162will have a material effect on our financial position, results of operations orcash flows.

 

InMay 2008, the FASB issued FSP Accounting Principles Board (“APB”) 14-1 “*Accounting for Convertible Debt Instruments That May BeSettled in Cash upon Conversion (Including Partial Cash Settlement)* “(“FSP APB 14-1”).  FSP APB 14-1 requires the issuer ofcertain convertible debt instruments that may be settled in cash (or otherassets) on conversion to separately account for the liability (debt) and equity(conversion option) components of the instrument in a manner that reflects theissuer’s non-convertible debt borrowing rate.  FSP APB 14-1 iseffective for fiscal years beginning after December 15, 2008 on aretroactive basis.  The Company is currently evaluating the potentialimpact, if any, of the adoption of FSP APB 14-1 on our financial position,results of operations or cash flows.

 

Otherrecent accounting pronouncements issued by the FASB (including its EmergingIssues Task Force), the AICPA, and the SEC did not, or are not believed bymanagement to, have a material impact on the Company’s present or futurefinancial statements.

 

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

 

Property,plant and equipment at September 30, 2008 and December 31, 2007 areas follows:

 
| ** **                     | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|--------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Computer equipment             |       | $                            | 61,201     |                        | $          | 54,052 |   |
| Office equipment               |       | 1,729                        |       | 1,729                       |       |
| Furniture and fixtures         |       | 3,586                        |       | 2,944                       |       |
| Manufacturing equipment        |       | 156,539                      |       | 147,903                     |       |
|                           |       | 223,055                      |       | 206,628                     |       |
| Less: accumulated depreciation |       | (161,267                     | )          | (151,186                    | )          |
|                           |       | $                            | 61,788     |                        | $          | 55,442 |   |

 

Duringthe three month period ended September 30, 2008 and 2007, depreciationexpense charged to operations was $3,555 and $1,492, respectively. During thenine month period ended September 30, 2008 and 2007, depreciation expensecharged to operations was $10,081 and $4,279, respectively

 

17

----

 

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

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

 

Accountspayable and accrued liabilities at September 30, 2008 and December 31,2007:

 
| ** **                            | ** ** | **September 30,  2008** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| Accounts payable and accrued expenses |       | $                            | 26,244     |                        | $          | 38,029 |   |
|                                       |            |                              |            |                             |            |  |  |

 

**NOTE D – RELATED PARTY TRANSACTIONS**

 

TheCompany’s President has advanced funds to the Company for working capitalpurposes since the Company’s inception in February 1999.  No formalrepayment terms or arrangements exist. The net amount of outstanding at September 30,2008 was $-0-.

 

**NOTE E – STOCKHOLDER EQUITY**

 

Preferredstock

 

TheCompany is authorized to issue 5,000,000 shares of no par or stated valuepreferred stock. From date of inception through September 30, 2008, theCompany has not issued any preferred shares.

 

Commonstock

 

TheCompany is authorized to issue 20,000,000 shares of no par or stated valuecommon stock. As of September 30, 2008, the Company has 10,905,431 sharesof common stock issued and outstanding.

 

OnApril 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.

 

InFebruary 1999, the Company issued 7,200,000 shares of common stock inexchange for intellectual property valued at $1,800,000.

 

Duringthe year ended December 31, 1999, the Company issued an aggregate of153,000 shares of common stock to consultants for services in the amount of$38,250. All valuations of common stock issued for services were based upon thevalue of the services rendered, which did not differ materially from the fairvalue of the Company’s common stock during the period the services wererendered.

 

Duringthe year ended December 31, 1999, the Company issued an aggregate of50,000 shares of common stock in conjunction with the exercise of common stockoptions at $0.50 per share and 50,000 shares of common stock at $0.25 pershare.

 

18

----

** **

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

**NOTE E –STOCKHOLDER EQUITY (continued)**

 

Commonstock (continued)

 

Duringthe year ended December 31, 2000, the Company issued an aggregate of20,000 shares of common stock to consultants for services in the amount of$10,000. All valuations of common stock issued for services were based upon thevalue of the services rendered, which did not differ materially from the fairvalue of the Company’s common stock during the period the services were rendered.

 

Duringthe year ended December 31, 2002, the Company issued an aggregate of20,000 shares of common stock to consultants for services in the amount of$10,000. All valuations of common stock issued for services were based upon thevalue of the services rendered, which did not differ materially from the fairvalue of the Company’s common stock during the period the services wererendered

 

Duringthe year ended December 31, 2003, the Company issued an aggregate of26,000 shares of common stock to consultants for services in the amount of$13,000. All valuations of common stock issued for services were based upon thevalue of the services rendered, which did not differ materially from the fairvalue of the Company’s common stock during the period the services wererendered.

 

Duringthe year ended December 31, 2006, the Company issued an aggregate of20,000 shares of common stock to consultants for services in the amount of$20,000. All valuations of common stock issued for services were based upon thevalue of the services rendered, which did not differ materially from the fairvalue of the Company’s common stock during the period the services wererendered.

 

Duringthe nine month period ended September 30, 2008, the Company issued anaggregate of 34,222 shares of common stock to consultants for services in theamount of $76,000. All valuations of common stock issued for services werebased upon the value of the services rendered, which did not differ materiallyfrom the fair value of the Company’s common stock during the period theservices were rendered.

 

19

----

 

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER30, 2008**

**(Unaudited)**

 

**NOTE F –WARRANTS AND OPTIONS**

 

Warrants

 

Thefollowing table summarizes the changes in warrants outstanding and relatedprices for the shares of the Company’s common stock issued to shareholders at September 30,2008:

 
| ** **              | ** ** | ** **      | ** ** | **Warrants Outstanding**  | ** ** | ** **              | ** ** | ** **      | ** ** | **Warrants Exercisable** | ** ** |
|-------------------------|------------|-----------------|------------|--------------------------------|------------|-------------------------|------------|-----------------|------------|-------------------------------|------------|
| ** **              | ** ** | ** **      | ** ** | **Weighted Average**      | ** ** | **Weighted**            | ** ** | ** **      | ** ** | **Weighted**                  | ** ** |
| ** **              | ** ** | **Number**      | ** ** | **Remaining Contractual** | ** ** | **Average**             | ** ** | **Number**      | ** ** | **Average**                   | ** ** |
| **Exercise Price** | ** ** | **Outstanding** | ** ** | **Life (years)**          | ** ** | **Exercise price** | ** ** | **Exercisable** | ** ** | **Exercise Price**       | ** ** |
| $                       | 2.00       |            | 31,400     |                           | 2.96       |                    | $          | 2.00            |       | 31,400                        |       | $ | 2.00 |   |
| 2.25                    |       | 100,000         |       | 4.12                           |       | 2.25                    |       | 20,833          |       | 2.25                          |       |
|                         |            |                 |            |                                |            |                         |            |                 |            |                               |            |  |  |  |

 

Transactionsinvolving the Company’s warrant issuance are summarized as follows:

 
| ** **                             | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Price Per Share** | ** ** |
|----------------------------------------|------------|----------------------------|------------|--------------------------------------------------|------------|
| Outstanding at December 31, 2006  |       | 17,500                     |       | $                                                | 2.00       |   |
| Granted                                |       | 113,900                    |       | 2.22                                             |       |
| Exercised                              |       | —                     |       | —                                           |       |
| Canceled or expired                    |       | —                     |       | —                                           |       |
| Outstanding at December 31, 2007  |       | 131,400                    |       | $                                                | 2.19       |   |
| Granted                                |       | —                     |       | —                                           |       |
| Exercised                              |       | —                     |       | —                                           |       |
| Canceled or expired                    |       | —                     |       | —                                           |       |
| Outstanding at September 30, 2008 |       | 131,400                    |       | $                                                | 2.19       |   |

 

Warrantsgranted during the year ended December 31, 2007 totaling 13,900 wereissued for services rendered. The warrants are exercisable until five yearsafter the date of issuance at a purchase price of $2.00 per share.  Thefair value (determined as described below) of $25,913 was charged to currentperiod earnings.

 

Theweighted-average fair value of these warrants granted and the weighted-averagesignificant assumptions used to determine those fair values, using aBlack-Scholes option pricing model are as follows:

 
| **For the year ended December 31, 2007:** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
|                                                                    |       |       |       |
| Significant assumptions (weighted-average):                             |       |       |       |
| Risk-free interest rate at grant date                                   |       | 4.81       | %          |
| Expected stock price volatility                                         |       | 158.46     | %          |
| Expected dividend payout                                                |       | —     |       |
| Expected option life-years (a)                                          |       | 5          |       |

 

----

(a) Theexpected warrant life is based on contractual expiration dates.

 

Duringthe year ended December 31, 2007, the Company granted 100,000 stockoptions with an exercise price of $2.25 vesting over four years and expiringfive years from issuance.  The fair value (as described below) of $166,290was recorded as deferred compensation and is amortized ratably over the fouryears to earnings. For the year ended December 31, 2007, the Companyrecorded amortization of $5,227 and $31,220 for the nine month period ended September 30,2008.

 

20

----

 

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER 30,2008**

**(Unaudited)**

 

**NOTE F – WARRANTS AND OPTIONS (continued)**

 

Theweighted-average fair value of these warrants granted and the weighted-averagesignificant assumptions used to determine those fair values, using aBlack-Scholes option pricing model are as follows:

 

Warrants (continued)

 
| **For the year ended December 31, 2007:** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------------|------------|------------|------------|
|                                                                    |       |       |       |
| Significant assumptions (weighted-average):                             |       |       |       |
| Risk-free interest rate at grant date                                   |       | 3.71       | %          |
| Expected stock price volatility                                         |       | 95.17      | %          |
| Expected dividend payout                                                |       | —     |       |
| Expected option life-years (a)                                          |       | 5          |       |

 

----

(a) Theexpected option life is based on contractual expiration dates

 

TheCompany did not grant warrants during the nine month period ended September 30,2008.

 

Options

 

EmployeeOptions

 

Thefollowing table summarizes the changes in options outstanding and the relatedprices for the shares of the Company’s common stock issued to employees under anon qualified stock option plan at September 30, 2008:

 
| ** **   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **                   | ** ** | **Weighted Average**    | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **   | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Exercise** | ** ** | **Number**                   | ** ** | **Contractual Life**    | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Prices**   | ** ** | **Outstanding**              | ** ** | **(Years)**                  | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $            | 0.25       |                         | 400,000    |                         | 0.41       |   | $ | 0.25 |   | 400,000 |   | $ | 0.25 |   |
| 0.50         |       | 356,000                      |       | 2.09                         |       | 0.50 |   | 356,000 |   | 0.50 |   |
| 1.00         |       | 992,000                      |       | 6.55                         |       | 1.00 |   | 737,000 |   | 1.00 |   |
| 2.25         |       | 167,696                      |       | 9.66                         |       | 2.25 |   | 13,975 |   | 2.25 |   |
|         |       |                         |       |                         |       |   |   |   |   |   |   |
|         |       | 1,915,696                    |       |                         |       | 0.84 |   | 1,506,975 |   | 0.86 |   |
|              |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |

 

21

----

 

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER 30,2008**

**(Unaudited)**

 

**NOTE F – WARRANTS AND OPTIONS (continued)**

 

EmployeeOptions (continued)

 

Transactionsinvolving employee stock options issued are summarized as follows:

 
| ** **                              | ** ** | ** **                     | ** ** | **Weighted Average**     | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Number of Shares** | ** ** | **Price Per Share** | ** ** |
| Outstanding at December 31, 2006:  |       | 1,748,000                      |       | $                             | 0.73       |   |
| Granted                                 |       | —                         |       | —                        |       |
| Exercised                               |       | —                         |       | —                        |       |
| Canceled or expired                     |       | —                         |       | —                        |       |
| Outstanding at December 31, 2007   |       | 1,748,000                      |       | $                             | 0.73       |   |
| Granted                                 |       | 167,696                        |       | 2.25                          |       |
| Exercised                               |       | —                         |       | —                        |       |
| Canceled or expired                     |       | —                         |       | —                        |       |
| Outstanding at September 30, 2008: |       | 1,915,696                      |       | $                             | 0.86       |   |

 

Duringthe year ended December 31, 2006, the Company granted 800,000 employeestock options with an exercise price of $1.00 expiring ten years fromissuance.  The fair value (determined as described below) of $788,160 wascharged to current period earnings.

 

Theweighted-average fair value of these stock options granted and theweighted-average significant assumptions used to determine those fair values,using a Black-Scholes option pricing model are as follows:

 

Forthe year ended December 31, 2006:

 
| **Significant assumptions (weighted-average):** | ** ** | ** **   | ** ** |
|-----------------------------------------------------------|------------|--------------|------------|
| Risk-free interest rate at grant date                     |       | 4.65 to 4.70 | %          |
| Expected stock price volatility                           |       | 148.41       | %          |
| Expected dividend payout                                  |       | —       |       |
| Expected option life-years (a)                            |       | 10           |       |

 

----

(a) Theexpected option life is based on contractual expiration dates.

 

Duringthe nine month period ended September 30, 2008, the Company granted167,696 employee stock options with an exercise price of $2.25 vesting overfour years and expiring ten years from issuance.  The fair value of thevested portion (determined as described below) of $31,438 was charged tocurrent period earnings.

 

Theweighted-average fair value of these stock options granted and theweighted-average significant assumptions used to determine those fair values,using a Black-Scholes option pricing model are as follows:

 

22

----

 

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER 30,2008**

**(Unaudited)**

 

**NOTE F – WARRANTS AND OPTIONS (continued)**

 

EmployeeOptions (continued)

 

Forthe nine month period ended September 30, 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) Theexpected option life is based on contractual expiration dates

 

Nonemployee options

 

Thefollowing table summarizes the changes in options outstanding and the relatedprices for the shares of the Company’s common stock issued to non employeesunder a non qualified stock option plan at September 30, 2008:

 
| ** **   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **                   | ** ** | **Weighted Average**    | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **   | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Exercise** | ** ** | **Number**                   | ** ** | **Contractual Life**    | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Prices**   | ** ** | **Outstanding**              | ** ** | **(Years)**                  | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $            | 0.25       |                         | 60,000     |                         | 0.64       |   | $ | 0.25 |   | 60,000 |   | $ | 0.25 |   |
| 0.50         |       | 240,000                      |       | 1.96                         |       | 0.50 |   | 240,000 |   | 0.50 |   |
| 1.00         |       | 110,000                      |       | 7.46                         |       | 1.00 |   | 92,500 |   | 1.00 |   |
|         |       |                         |       |                         |       |   |   |   |   |   |   |
|         |       | 410,000                      |       |                         |       | 0.60 |   | 392,500 |   | .60 |   |
|              |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |

 

Transactionsinvolving non employee stock options issued are summarized as follows:

 
| ** **                              | ** ** | ** **                     | ** ** | **Weighted Average**     | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Number of Shares** | ** ** | **Price Per Share** | ** ** |
| Outstanding at December 31, 2006:  |       | 410,000                        |       | $                             | 0.60       |   |
| Granted                                 |       | —                         |       | —                        |       |
| Exercised                               |       | —                         |       | —                        |       |
| Canceled or expired                     |       | —                         |       | —                        |       |
| Outstanding at December 31, 2007   |       | 410,000                        |       | $                             | 0.60       |   |
| Granted                                 |       | —                         |       | —                        |       |
| Exercised                               |       | —                         |       | —                        |       |
| Canceled or expired                     |       | —                         |       | —                        |       |
| Outstanding at September 30, 2008: |       | 410,000                        |       | $                             | 0.60       |   |

 

23

----

** **

**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER 30,2008**

**(Unaudited)**

 

**NOTE F – WARRANTS AND OPTIONS (continued)**

 

NonEmployee options (continued)

 

Duringthe year ended December 31, 2006, the Company granted 110,000 non employeestock options with an exercise price of $1.00 expiring ten years fromissuance.  The fair value (determined as described below) of $108,372 wascharged to current period earnings.

 

Theweighted-average fair value of these stock options granted and theweighted-average significant assumptions used to determine those fair values,using a Black-Scholes option pricing model are as follows:

 

Forthe year ended December 31, 2006:

 
| **Significant assumptions (weighted-average):** | ** ** | ** **   | ** ** |
|-----------------------------------------------------------|------------|--------------|------------|
| Risk-free interest rate at grant date                     |       | 4.65 to 4.70 | %          |
| Expected stock price volatility                           |       | 148.41       | %          |
| Expected dividend payout                                  |       | —       |       |
| Expected option life-years (a)                            |       | 10           |       |

 

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(a) Theexpected option life is based on contractual expiration dates.

 

 ****NOTE G -LOSSES PER SHARE****

 

Thefollowing table presents the computation of basic and diluted losses per share:

 
| ** **                                        | ** ** | **Three months  ended  September 30,** | ** ** | **Three months  ended  September 30,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                        | ** ** | **2008**                                         | ** ** | **2007**                                         | ** ** |
| Net income loss available to Common  stockholders |       | $                                                | (202,285   | )                                                | $          | (38,823 | ) |
| Basic and diluted earning (loss) per share        |       | $                                                | (0.02      | )                                                | $          | (0.00 | ) |
| Weighted average common shares outstanding        |       | 10,893,397                                       |       | 10,633,155                                       |       |

 
| ** **                                        | ** ** | **Nine months  ended  September 30,  2008** | ** ** | **Nine months  ended  September 30,  2007** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|
| Net income loss available to Common  stockholders |       | $                                                     | (766,899   | )                                                     | $          | (284,767 | ) |
| Basic and diluted earning (loss) per share        |       | $                                                     | (0.07      | )                                                     | $          | (0.03 | ) |
| Weighted average common shares outstanding        |       | 10,799,492                                            |       | 10,565,307                                            |       |

 

InApril 2003, a two (2) for one (1) stock split of the Company’scommon stock was affected. Accordingly, all historical weighted average shareand per share amounts have been restated to reflect the stock split.

 

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**IRISBIOTECHNOLOGIES INC.**

**(Adevelopment stage company)**

**NOTES TOTHE CONDENSED FINANCIAL STATEMENTS**

**SEPTEMBER 30,2008**

**(Unaudited)**

 

****NOTE H - INCOME TAXES****

 

FinancialAccounting Standard No. 109 requires the recognition of deferred taxliabilities and assets for the expected future tax consequences of events thathave been included in the financial statement or tax returns. Under thismethod, deferred tax liabilities and assets are determined based on thedifference between financial statements and tax bases of assets and liabilitiesusing enacted tax rates in effect for the year in which the differences areexpected to reverse. Temporary differences between taxable income reported forfinancial reporting purposes and income tax purposes are insignificant.

 

Forincome tax reporting purposes, the Company’s aggregate unused net operatinglosses approximate $5,800,000 which expires through 2025, subject tolimitations of Section 382 of the Internal Revenue Code, as amended. Thedeferred tax asset related to the carry forward is approximately $1,972,000.The Company has provided a valuation reserve against the full amount of the netoperating loss benefit, because in the opinion of management based upon theearning history of the Company; it is more likely than not that the benefitswill not be realized. Due to significant changes in the Company’s ownership,the Company’s future use of its existing net operating losses may be limited.

 

Componentsof deferred tax assets as of September 30, 2008 are as follows:

 
| Non current:                    |   |       |     |
|---------------------------------|--------|------------|----------|
| Net operating loss carryforward |   | $          | 1972,000 |   |
| Valuation allowance             |   | (1,972,000 | )        |
| Net deferred tax asset          |   | $          | —   |   |

 

**NOTE I – SUBSEQUENT EVENTS**

 

InOctober 2008, the Company issued 4,000 shares of common stock for servicesrendered.

 

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**ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS.**

 

**Forward-Looking Statements**

 

The information in thisreport contains forward-looking statements. All statements other thanstatements of historical fact made in this report are forward looking. Inparticular, the statements herein regarding industry prospects and futureresults of operations or financial position are forward-looking statements.These forward-looking statements 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 assurancescan be given that the future results anticipated by the forward-lookingstatements will be achieved. Forward-looking statements reflect management’scurrent expectations and are inherently uncertain. Our actual results maydiffer significantly from management’s expectations.

 

The following discussion andanalysis should be read in conjunction with our financial statements, includedherewith. This discussion should not be construed to imply that the resultsdiscussed herein will necessarily continue into the future, or that any conclusionreached herein will necessarily be indicative of actual operating results inthe future. Such discussion represents only the best present assessment of ourmanagement.

 

**Overview**

 

Since inception on February 16, 1999 through September 30,2008, we have sustained cumulative net losses of $5,830,219. Our losses haveresulted primarily from research and development expenses, patent costs andlegal and accounting expenses. We have four issued patents, and we have beenbeta-testing one of our BioWindowsTM medical informatics system for the past sixmonths. We are currently building a new commercial Nano-biochipTM manufacturingsystem and we now have automated patient sample preparation equipment. This isin preparation for launching our clinical BreastCancerChipTM. From inceptionthrough September 30, 2008, we have not generated any revenue fromoperations. We expect to incur additional losses to perform further researchand development activities. We have no debt. In order to accelerate our productintroduction and to grow dynamically, we will need to raise additional funds.We do not currently have any commercial products. There are some risks withrespect to clinical testing, regulatory approval and review cycles anduncertainty of the costs. Net positive cash inflows from any products developedmay take several years to achieve.

 

Management plans to continuefinancing operations with a combination of equity issuances and debtarrangements. If adequate funds are not available, we may be required to delay,reduce the scope of, or eliminate our research or development programs, or ceaseoperations.

 

**History**

 

We were incorporated in theState of California on February 16, 1999 and planned to sell theranostic(choosing therapy based upon personalized diagnostic results) products andservices in the medical field. In an effort to develop that business, we set upoperations in three locations in California - Headquarters in Santa Clara,Laboratory in San Leandro, and Informatics Office in Eureka.

 

Beginning on March 11,1999, Simon Chin, MBA, our founder, President and CEO, Secretary and principalshareholder, entered into Common Stock Purchase Agreements with variouscompanies, investment groups and private individuals. On March 1, 2003,Daniel Farnum, M.D., an owner of Humboldt Orthopedics and a key shareholder,and Grace Osborne, MBA, President of GCO Recruiting, joined Mr. Chinon our board of directors. On April 9, 2003, the board approved a 2for 1 stock split, changed the authorized shares of common stock from 10million to 20 million, and the authorized preferred stock remained at 5 millionshares.

 

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**Plan of Operation**

 

We are a life sciencecompany focused on the development and commercialization of a nano-biochip geneexpression kit and an artificial intelligence system to assist in establishingthe foundation for personalized medicine, which will initially be utilized inthe treatment of breast cancer. We are designing our products to be approved bythe FDA, which can then be used in any certified laboratory. Starting at thepoint of a breast biopsy diagnosis of cancer, the nano-biochip and informaticsprogram are designed to enable a treating physician to quickly prescribe apersonalized treatment regimen that will have the greatest probability ofsuccess for each patient’s particular type of cancer. Our product platform isexpected to lead to more effective diagnosis and treatment not only forpatients with breast cancer, but also for those with neurological disorders,heart disease, diabetes and other gene-related metabolic problems .

 

**Product Research and Development**

 

We anticipate spending, inorder to accelerate our growth, which is contingent upon raising additionalfunds, approximately $1,500,000 for product research and development activitiesrelated to our anticipated product launch during the next twelve months.

 

**Acquisition of Plant and Equipmentand Other Assets**

 

We do not anticipate thesale of any material property, plant or equipment during the next 12 months. Wedo not anticipate the acquisition of any material property, plant or equipmentduring the next 12 months, unless we raise additional funds to accelerate ourgrowth to fulfill the unmet needs of a large, growing market.

 

**Number of Employees**

 

From our inception, we haveprincipally relied on the services of outside consultants and part-timeemployees for services. As of November 14, 2008, we have five full timeemployees and 10 part-time employees. In order for us to attract and retainquality personnel, we anticipate we will have to offer competitive salaries tofuture employees. We anticipate that it may become desirable to add additionalfull and or part time employees to discharge certain critical functions duringthe next 12 months. This projected increase in personnel is dependent upon ourability to generate revenues and obtain sources of financing. There is noguarantee that we will be successful in raising the funds required orgenerating revenues sufficient to fund the projected increase in the number ofemployees. As we continue to expand, we will incur additional cost forpersonnel.

 

**Results of Operations**

 

As a development stagecompany, we have yet to earn revenues from operations. We may experiencefluctuations in operating results in future periods due to a variety offactors, including our ability to obtain additional financing in a timelymanner and on terms favorable to us, our ability to successfully develop ourbusiness model, the amount and timing of operating costs and capitalexpenditures relating to the expansion of our business, operations and infrastructureand the implementation of marketing programs, key agreements, and strategicalliances, and general economic conditions specific to our industry.

 

As a result of limitedcapital resources and no revenues from operations since inception, wehave relied on the issuance of equity securities to employees andnon-employees in exchange for services. Our management enters into equitycompensation agreements with non-employees if it is in our best interestunder terms and conditions consistent with the requirements of FinancialAccounting Standards No. 123 R, “Share-Based Compensation.” In order toconserve our limited operating capital resources, we anticipate continuingto compensate non-employees with equity for services during the nexttwelve months. This policy may have a material effect on our results ofoperations during the next twelve months.

 

**Three Months Ended September 30,2008 Compared to Three Months Ended September 30, 2007**

 

**Revenues**

 

We have generated no operating revenues fromoperations from our inception. We believe we will begin earning revenues fromoperations in 2008 from actual operation as we transition from adevelopment stage company to that of an active growth stage company.

 

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**Costs and Expenses**

 

From our inception through September 30,2008, we have incurred cumulative losses of $5,839,219. In addition, asignificant part of the overall remaining costs are associated principally withequity-based compensation to employees and consultants, research anddevelopment costs and professional services rendered.

 

Selling, general and administrative (“SG&A”) expenses increased by$103,576 from $20,427 for the three months ended September 30, 2007to $124,003 for the three months ended September 30, 2008. SG&Aexpenses consisted of accounting, legal, consulting, public relations, startupand organizational expenses. SG&A expenses also included non-cash chargesfrom the issuance of stock, warrants and stock options in the amounts of $-0- forthe three months ended September 30, 2007 and $60,057 for the threemonths ended September 30, 2008, a period to period increase of $60,057.The remaining SG&A expenses which required cash amounted to approximately$63,946 and $20,427 for the three months ended September 30, 2008 and2007, respectively. We used stock in lieu of cash to conserve our cashresources.

 

Research and development costs increased from $20,335 for the threemonths ended September 30, 2007 to $75,061 for the three months ended September 30,2008.

 

As a result of the above-mentioned expenses, net losses increased from$38,823 for the three months ended September 30, 2007 to $202,285 for thethree months ended September 30, 2008.

 

**Nine Months Ended September 30,2008 Compared to Nine Months Ended September 30, 2007**

 

**Revenues**

 

We have generated nooperating revenues from operations from our inception. We believe we will beginearning revenues from operations in 2008 from actual operation as wetransition from a development stage company to that of an active growthstage company.

 

**Costs and Expenses**

 

From our inception through September 30,2008, we have incurred cumulative losses of $5,839,219. In addition, asignificant part of the overall remaining costs are associated principally withequity-based compensation to employees and consultants, research anddevelopment costs and professional services rendered.

 

Selling, general and administrative (“SG&A”) expenses increased by$407,049 from $171,763 for the nine months ended September 30, 2007 to$578,812 for the nine months ended September 30, 2008. SG&A expensesconsisted of accounting, legal, consulting, public relations, startup andorganizational expenses. SG&A expenses also included non-cash charges fromthe issuance of stock, warrants and stock options in the amounts of $25,913 forthe nine months ended September 30, 2007 and $138,658 for the ninemonths ended September 30, 2008, a period to period increase of $112,745.The remaining SG&A expenses which required cash amounted to approximately$440,154 and $145,850 for the nine months ended September 30, 2008 and2007, respectively. We used stock in lieu of cash to conserve our cashresources.

 

Research and development costs increased from $114,877 for the ninemonths ended September 30, 2007 to $179,787 for the nine months ended September 30,2008.

 

As a result of the above-mentioned expenses, net losses increased from$284,767 for the nine months ended September 30, 2007 to $766,899 for thenine months ended September 30, 2008.

 

**Liquidity and Capital Resources**

 

As of September 30,2008, we had working capital deficit of $7,373 as compared to working capitalof $141,588 as of December 31, 2007. Our cash position was $18,871 as of September 30,2008 compared to $179,617 as of December 31, 2007. From inception to September 30,2008 we have incurred an operating cash flow deficit of $2,565,491, which hasbeen principally financed through the private placement of our common stock. Asof September 30, 2008, we have no long term debt.

 

We expect to continue toincur additional losses and negative cash flows from operating activities forthe next two years.

 

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Our available workingcapital and capital requirements will depend upon numerous factors, includingprogress of our research and development programs, our progress in and the costof pre-clinical and clinical testing, the timing and cost of obtainingregulatory approvals, the cost of filing and prosecuting patent claims andother intellectual property rights, completing technological and marketdevelopments, current and future licensing relationships, the status of ourcompetitors, and our ability to establish collaborative arrangements with otherorganizations .

 

Our continued operationswill depend on whether we are able to raise additional funds through variouspotential sources, such as equity and debt financing, collaborative andlicensing agreements, strategic alliances, and our ability to realize the fullpotential of our technology in development. Such additional funds may notbecome available on acceptable terms, if at all, and there can be no assurancethat any additional funding that we do obtain will be sufficient to meet ourneeds in the long term. Through November 14, 2008, virtually all of ourfinancing has been through private placements of common stock and warrants. Weintend to continue to fund operations from cash on-hand and through the similarsources of capital previously described for the foreseeable future. We can giveno assurances that any additional capital that we are able to obtain will besufficient to meet our needs. We believe that we will continue to incur netlosses and negative cash flows from operating activities for the next twoyears. Based on the resources available to us on November 14, 2008, wewill need additional equity or debt financing to meet our current operatingneeds.

 

**Off-Balance Sheet Arrangements**

 

We do not have anyoff-balance sheet arrangements.

 

**Inflation**

 

It is our opinion thatinflation has not had a material effect on our operations.

 

**Critical Accounting Policies**

 

Our financial statements areprepared in accordance with accounting principles generally accepted in theUnited States of America, which requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates.

 

The following accountingpolicies are critical in fully understanding and evaluating our reportedfinancial results:

 

**Accounting for Stock-BasedCompensation**

 

We account for our stockoptions and warrants using the fair value method promulgated by Statement ofFinancial Accounting Standards No. 123R “Share-Based Compensation” whichaddresses the accounting for transactions in which an entity exchanges itsequity instruments for goods or services. Therefore, our results includenon-cash compensation expense as a result of the issuance of stock options andwarrants and we expect to record additional non-cash compensation expense inthe future.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.**

 

N/A

 

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

 

*Evaluation of Disclosure Controls and Procedures*. Under the supervision and with theparticipation of our management, including our President, Chief FinancialOfficer and Secretary, we evaluated the effectiveness of the design andoperation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”))as of the end of the period covered by this report. Based upon that evaluation,our President, Chief Financial Officer and Secretary concluded that ourdisclosure controls and procedures as of the end of the period covered by thisreport were effective such that the information required to be disclosed by usin reports filed under the Securities Exchange Act of 1934 is (i) recorded,processed, summarized and reported within the time periods specified in the SEC’srules and forms and (ii) accumulated and communicated to ourmanagement to allow timely decisions regarding disclosure. A controls systemcannot provide absolute assurance, however, that the objectives of the controlssystem are met, and no evaluation of controls can provide absolute assurancethat all control issues and instances of fraud, if any, within a company havebeen detected.

 

*Changes in Internal Control Over Financial Reporting.* During the most recent quarter ended September 30,2008, 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 anypending legal proceeding, nor is our property the subject of a pending legalproceeding, that is not in the ordinary course of business or otherwisematerial to the financial condition of our business. None of our directors,officers or affiliates is involved in a proceeding adverse to our business orhas a material interest adverse to our business.

 

**ITEM 1A.RISK FACTORS.**

 

N/A

 

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

 

During the three monthsended September 30, 2008, we issued and sold 40,000 shares of common stockfor proceeds of $90,000.  In addition, we issued 12,000 shares of commonstock to consultants for services rendered in the amount of $26,000. Inconnection with the issuance of such shares, we relied on the exemption fromregistration provided by Section 4(2) of the 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 requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|   | IRIS BIOTECHNOLOGIES INC. |
|--------|---------------------------|

 
|                         | /s/ Simon Chin                                                                                                                                                         |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  November 14, 2008 | 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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