UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





Form 10-Q





(Mark One)





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For the quarterly period ended June 30, 2011





OR





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





For the transition period from               to





COMMISSION FILE NUMBER 333-142076





IRIS BIOTECHNOLOGIES INC.


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





California

77-0506396(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)





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


(Address of principal executive offices) (Zip Code)





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





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





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No o





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





Large accelerated filer o

Accelerated filer  oNon-accelerated filer o

Smaller reporting company  x(Do not check if a smaller

reporting company)





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





As of August 12, 2011 the issuer had 12,184,751 outstanding shares of Common Stock.










1






TABLE OF CONTENTS
 
 PagePART IItem 1.
Financial Statements
3Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
17Item 4
Controls and Procedures
22PART IIItem 1.
Legal Proceedings
22Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
22Item 6.
Exhibits
22












2






PART I
 
 ITEM 1. FINANCIAL STATEMENTS.
 
 INDEX TO FINANCIAL STATEMENTS
 
 PageCondensed Balance Sheets as of June 30, 2011 (unaudited) and December 31, 2010
4Unaudited Condensed Statements of Income (Losses) for the three and six months ended June 30, 2011 and 2010 and the period February 16, 1999 (date of inception) to June 30, 2011
5Unaudited Condensed Statement of Stockholders’ Deficit for the six months ended June 30, 2011
6Unaudited Condensed Statements of Cash Flows for the six months ended June 30, 2011 and 2010 and the period February 16, 1999 (date of inception) to June 30, 2011
7Notes to the Unaudited Condensed Financial Statements
8
 
 
 
 3
   IRIS BIOTECHNOLOGIES, INC(a development stage company)CONDENSED BALANCE SHEETSJune 30,


December 31,2011


2010(unaudited)ASSETSCurrent assets:Cash

$
148


$
3,222Total current assets


148



3,222Property, plant and equipment, net of accumulated depreciation of $207,678 and $199,861 as of June 30, 2011 and December 31, 2010, respectively


24,341



32,158Total assets

$
24,489


$
35,380LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilities:Accounts payable

$
69,850


$
102,483Accrued liabilities


-



432,000Notes payable, related party


-



53,400Total current liabilities


69,850



587,883Long term debt:Convertible notes payable


25,000



25,000Convertible note payable, related party net of debt discount of $11,209 and $13,247 as of June 30, 2011 and December 31, 2010, respectively


56,995



89,332Total liabilities


151,845



702,215Commitments and contingenciesSTOCKHOLDERS' DEFICITPreferred stock, no par or stated value; 5,000,000 shares authorized; no shares issued and outstanding as of June 30, 2011 and December 31, 2010


-



-Common stock, no par or stated value; 20,000,000 shares authorized; 12,131,501 and 11,641,913 shares issued and outstanding as of June 30, 2011 and December 31, 2010,  respectively


6,054,683



5,527,508Additional paid in capital


2,191,861



2,101,945Common stock subscription receivable


(129,375
)


(163,750
)Deficit accumulated during development stage


(8,244,525
)


(8,132,538
)Total stockholders' deficit


(127,356
)


(666,835
)Total liabilities and stockholders' deficit

$
24,489


$
35,380The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
 
 4
 
 
 IRIS BIOTECHNOLOGIES, INC(a development stage company)CONDENSED STATEMENTS OF INCOME (LOSSES)(unaudited)Three months ended June 30,


Six months ended June 30,


For the period from

February 16, 1999 (date of inception) through2011


2010


2011


2010


June 30, 2011Operating expenses:Selling, general and administrative

$
101,741


$
150,391


$
229,337


$
279,138


$
4,505,120Research and development (Note 1)


32,950



49,096



78,999



49,096



1,933,220Impairment of intellectual property


-



-



-



-



1,838,250Depreciation


4,423



4,456



7,817



8,913



207,678Total operating expenses


139,114



203,943



316,153



337,147



8,484,269Net loss from operations


(139,114
)


(203,943
)


(316,153
)


(337,147
)


(8,484,269
)Other income (expense)Grant income


-



-



209,671



-



244,480Interest income (expense)


(2,465
)


(1,883
)


(5,505
)


(3,025
)


(4,737
)Net loss before provision for income taxes


(141,579
)


(205,826
)


(111,987
)


(340,172
)


(8,244,525
)Income taxes


-



-



-



-



-Net Loss

$
(141,579
)

$
(205,826
)

$
(111,987
)

$
(340,172
)

$
(8,244,525
)Loss per common share-basic and fully diluted

$
(0.01
)

$
(0.02
)

$
(0.01
)

$
(0.03
)

$
(0.84
)Weighted average number of common shares outstanding-basic and fully diluted


12,106,713



11,380,726



12,076,446



11,325,289



9,847,903The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
 5
 
 IRIS BIOTECHNOLOGIES, INC(a development stage company)CONDENSED STATEMENT OF STOCKHOLDERS' DEFICITFROM JANUARY 1, 2011 THROUGH JUNE 30, 2011(unaudited)DeficitaccumulatedduringPreferred shares


Common shares


Additional


Subscription


DevelopmentStock


Amount


Stock


Amount


Paid in Capital


Receivable


stage


TotalBalance, January 1, 2011


-


$
-



11,641,913


$
5,527,508


$
2,101,945


$
(163,750
)

$
(8,132,538
)

$
(666,835
)Common stock issued in January 2011 in exchange for accounts payable ant accruals at $1.00 per share


-



-



66,000



66,000



-



-



-



66,000Common stock issued in January 2011 in exchange for accounts payable ant accruals at $1.11 per share


-



-



353,838



392,760



-



-



-



392,760Common stock issued in March 2011 at $1.00 per share in exchange for services rendered


-



-



8,000



8,000



-



-



-



8,000Common stock subscription offset by note payable


-



-



-



-



-



34,375



-



34,375Common stock issued in April 2011 at $0.95 per share in exchange for services rendered


-



-



8,000



7,600



-



-



-



7,600Common stock issued in April 2011 at $1.06 per shares as board compensation


-



-



37,750



40,015



-



-



-



40,015Common stock issued in May 2011 at $0.80 per share in exchange for services rendered


-



-



8,000



6,400



-



-



-



6,400Common stock issued in June 2011 at $0.80 per share in exchange for services rendered


-



-



8,000



6,400



-



-



-



6,400Fair value of vested options issued for services


-



-



-



-



89,916



-



-



89,916Net loss


-



-



-



-



-



-



(111,987
)


(111,987
)Balance, June 30, 2011


-


$
-



12,131,501


$
6,054,683


$
2,191,861


$
(129,375
)

$
(8,244,525
)

$
(127,356
)The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
 
 6
 
 IRIS BIOTECHNOLOGIES, INC(a development stage company)CONDENSED STATEMENTS OF CASH FLOWSFor the period fromSix months ended June 30,


February 16, 1999 (date of inception) through2011


2010


June 30,2011CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(111,987
)

$
(340,172
)

$
(8,244,525
)Adjustments to reconcile net loss to cash (used in) operating activities:Depreciation


7,817



8,913



207,351Amortization of deferred compensation


-



-



46,926Amortization of beneficial conversion feature relating to convertible debt


2,038



-



3,967Common stock issued in exchange for services rendered


68,415



124,930



611,954Impairment of intellectual property


-



-



1,800,000Options and warrants issued in exchange for services rendered


89,916



70,695



2,129,759Increase (decrease) in:Accounts payable and accrued liabilities


(5,873
)


(21,796
)


548,508Net cash provided by (used in ) operating activities:


50,326



(157,430
)


(2,896,060
)CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of property, plant and equipment


-



-



(221,591
)Net cash (used in) investing activities:


-



-



(221,591
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of note payable


-



81,454



81,454Proceeds from sale of common stock


-



108,252



2,940,845Exercise of common stock options


-



-



42,500Net (payments) proceeds, related party


(53,400
)


(26,450
)


53,000Net cash (used in) provided by financing activities


(53,400
)


163,256



3,117,799(Decrease)/ increase in cash and cash equivalents


(3,074
)


5,826



148Cash and cash equivalents beginning of period


3,222



442



-Cash and cash equivalents end of period

$
148


$
6,268


$
148Supplemental disclosures of cash flow information:Cash paid during the period for interest

$
-


$
-


$
277Cash paid during the period for taxes

$
-


$
-


$
-Convertible debt adjusted with subscription receivable

$
34,375


$
-


$
41,250Beneficial conversion feature of convertible notes payable

$
-


$
-


$
15,176Common stock issued in exchange for intellectual property

$
-


$
-


$
1,800,000The accompanying notes are an integral part of these unaudited condensed financial statements
 
 
 7
 
 
 
 
 
 IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
 
 
 NOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  A summary of the significant accounting policies applied in the preparation of the accompanying unaudited condensed financial statements follows.
  General
  The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.
  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Accordingly, the results from operations for the six month period ended June 30, 2011, are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. The unaudited condensed financial statements should be read in conjunction with the December 31, 2010 financial statements and footnotes thereto included in the Company’s Form 10-K filed on April 6, 2011.
  Business and Basis of Presentation
  Iris BioTechnologies Inc. (the “Company”) was incorporated on February 16, 1999 under the laws of the State of California. The Company is in the development stage as defined under Accounting Standards Codification subtopic 915-10 Development Stage Entities and its efforts are principally devoted to developing solutions for the detection and monitoring of monogenic and complex genomic diseases. The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise. For the period from inception through June 30, 2011, the Company has accumulated losses of $8,244,525.
  Cash and Cash Equivalents
  For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.
  Property and Equipment
  Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.
  Long-Lived Assets
  The Company follows Accounting Standards Codification subtopic 360-10, Property, plant and equipment (“ASC 360-10”). The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.
    8
  IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 Use of Estimates
  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates
  Income Taxes
  The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits 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 some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.
  Net Loss Per Common Share
  The Company computes earnings per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. For the three and six months ended June 30, 2011 and 2010 common stock equivalents derived from shares issuable on conversion of convertible notes and the exercise of options and warrants are not considered in the calculation of the weighted average number of common shares outstanding because they would be anti-dilutive, thereby decreasing the net loss per share.
  Research and Development
  The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenditures of $32,950 and $49,096 for the three months ended June 30, 2011 and 2010, respectively; $78,999 and $49,096 for the six months ended June 30, 2011 and 2010, respectively and $1,933,220 from the period from February 16, 1999 (date of inception) to June 30, 2011.
  During the six months ended June 30, 2011, the Company received $209,671 grant income under the a federal program entitled the Qualifying Therapeutic Discovery Project. The grant was only available to taxpayers with no more than 250 employees and covers up to 50 percent of qualified investment made in 2009 and 2010.
  9
  IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 Liquidity and Dependency of Key Management
  To date the Company has generated no revenues, has incurred expenses, and has sustained losses. As shown in the accompanying financial statements, the Company incurred a loss of $111,987 during the six months ended June 30, 2011 and $340,172 during the six months ended June 30, 2010. For the period from February 16, 1999 (date of inception) through June 30, 2011, the Company has accumulated losses of $8,244,525. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.
  The future success or failure of the Company is dependent primarily upon the continued efforts and financial support of Simon Chin, the Company’s Chief Executive Officer, Chief Financial Officer and the majority shareholder (see Note 3). As in the past, Mr. Chin has committed to provide all necessary funding needed to the meet the Company’s financial obligations through 2011.
  Concentrations of Credit Risk
  Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and related party receivables. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company periodically reviews its trade receivables in determining its allowance for doubtful accounts. The Company does not have accounts receivable and allowance for doubtful accounts at June 30, 2011 and December 31, 2010.
  Fair Value of Financial Instruments
  Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities, and short-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed. There were no items required to be measured at fair value on a recurring basis in the financial statement as of June 30, 2011.
  The company follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”) and Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company’s financial position, results of operations nor cash flows.
  
 10
  IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 Stock Based Compensation
  The Company follows the fair value recognition provisions of Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) using the modified-prospective transition method. Under this transition method, stock-based compensation expense was recognized in the financial statements for granted, modified, or settled stock options. Compensation expense recognized included 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 the provisions of ASC 718-10, and the estimated expense for the portion vesting in the 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 the original provisions of ASC 718-10. Results for prior periods have not been restated, as provided for under the modified-prospective method.
  ASC 718-10 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under ASC 718- 10 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.
  Upon adoption of ASC 718-10, the Company is using the Black-Scholes option-pricing model as its method of valuation for share-based awards granted beginning in fiscal 2006, which was also previously used for the Company’s pro forma information required under ASC 718-10 The Company’s determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.
  For the six months ended June 30, 2011 and 2010, the Company granted 285,000 and Nil employee stock options, respectively. The fair value of issued vesting options is $74,158 and $47,157 for the six months ended June 30, 2011 and 2010, respectively.
  Recent Accounting Pronouncements
  There were various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
  NOTE 2 - PROPERTY, PLANT, AND EQUIPMENT
  Property, plant and equipment at June 30, 2011 and December 31, 2010 are as follows:
 June 30, 2011

(unaudited)


December 31, 2010Computer equipment

$
61,201


$
61,201Office equipment


1,728



1,728Furniture and fixtures


3,586



3,586Manufacturing equipment


165,503



165,503232,018



232,018Less: accumulated depreciation


(207,677
)


(199,860
)$
24,341


$
32,158
 
 During the six months ended June 30, 2011 and 2010, depreciation expense charged to operations was $7,817 and $8,913, respectively, and $4,423 and $4,456 for the three months ended June 30, 2011 and 2010, respectively.
 
 
 11
 
 
 
 IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 NOTE 3 — RELATED PARTY CONVERTIBLE NOTES PAYABLE
  On September 24, 2009, the Company issued a note totaling $38,000 to a shareholder/director, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The notes are convertible into the Company’s common stock at a conversion rate of $2.25 per share. On November 3, 2010 and January 2, 2011, $6,875 and $31,125 of the outstanding note was offset by a common stock subscription receivable due to the Company. During the six months ended June 30, 2011 and 2010, the Company has charged $0 and $1,413, respectively to interest expense.
  One of our board members owns 40% of an entity that entered into a 5-year, 7.5% interest, and convertible note agreement with the Company for the amount of $71,454 in May 2010. The note is convertible at any time prior to maturity, at the holder’s option, into shares of our common stock at $1.13 per share. On January 2, 2011, $3,250 of the outstanding note payable was offset by a common stock subscription receivable due the Company. During the six months ended June 30, 2011, the Company has charged $4,575 to interest expense inclusive of debt discount amortization.
  In accordance with ASC 470-20, the Company recognized an embedded beneficial conversion feature present in the note. The Company allocated a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The Company recognized and measured an aggregate of $15,176 of the proceeds, which is equal to the intrinsic value of the embedded beneficial conversion feature, to additional paid-in capital and a discount against the note. The debt discount attributed to the beneficial conversion feature is charged to current period operations as interest expense using the effective interest method over the term of the note.
  During the six months ended June 30, 2011, the recorded an amortization of the discount of $2,038 as a charge against current period interest expense.
  Convertible related party notes at June 30, 2011 and December 31, 2010 are as follows:
 June 30, 2011

(unaudited)


December 31, 2010Convertible notes payable, related party

$
—


$
31,125Convertible note payable, related party net of debt discount of $11,209 and $13,247, respectively


56,995



58,207Total


56,995



89,332Less: current portion


—



—Long term portion

$
56,995


$
89,332
 
 Aggregate maturities of long-term debt as of June 30, 2011 are as follows:
  Year ended

AmountDecember 31, 2011

$
—December 31, 2012

—December 31, 2013

—December 31, 2014

—December 31, 2015 and above

68,204Total

68,204Less: Debt Discount

11,209Total

$
56,995
 
 
 
 12
 
 
 IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 The Company’s President and shareholders have advanced funds on a non-interest-bearing basis to the Company for working capital purposes since the Company’s inception in February 1999.  No formal repayment terms or arrangements exist. The net amount outstanding at June 30, 2011 and December 31, 2010 was $Nil and $53,400, respectively.
  NOTE 4 - LONG TERM CONVERTIBLE NOTE PAYABLE
  Long-term debt at June 30, 2011 and December 31, 2010 are as follows:
 June 30, 2011 (unaudited)


December 31, 2010Note payables

$
25,000


$
25,000Total


25,000



25,000Less: current portion


—



—Long term portion

$
25,000


$
25,000
  On October 9, 2009, the Company issued a $5,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $2.25 per share.
  On December 23, 2009, the Company issued a $10,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $2.25 per share.
  On January 10, 2010, the Company issued a $10,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $2.25 per share.
  NOTE 5 - STOCKHOLDER EQUITY
 
 Preferred stock
  The Company is authorized to issue 5,000,000 shares of no par preferred stock. From date of inception through June 30, 2011, the Company has not issued any preferred shares.
  Common stock
  During the six months ended June 30, 2011, the Company issued an aggregate of 489,588 shares of common stock for services in the amount of $527,175 out of which 419,838 shares of common stock were issued for a value of $458,760 related to prior accruals no gain or loss was recognised.
 13
 
 IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 NOTE 6 - WARRANTS AND OPTIONS
 
 Warrants
  The following table summarizes the changes in warrants outstanding and related prices for the shares of the Company’s common stock issued to shareholders at June 30, 2011:
  Exercise

Price

Number

Outstanding

Warrants Outstanding

Weighted Average

Remaining Contractual

Life (years)

Weighted

Average

Exercise price

Number

Exercisable

Warrants Exercisable

Weighted

Average

Exercise Price$
0.13

40,000

2.97

$
0.13

40,000

$
0.13$
2.00

13,900

0.57

$
2.00

13,900

$
2.00$
2.25

23,629

1.64

$
2.25

23,629

$
2.2577,529





77,529,
  Transactions involving the Company’s warrant issuance are summarized as follows:
  Number of

Shares


Weighted

Average

Price Per ShareOutstanding at December 31, 2009


95,029


$
1.29Issued


—



—Exercised


—



—Canceled or expired


—



—Outstanding at December 31, 2010


95,029


$
1.29Issued


—



—Exercised


—



—Expired


(17,500
)


(2.00
)Outstanding at June 30, 2011


77,529


$
1.11
 
 Options
 
 Employee Options
  The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees under a stock option plan at June 30, 2011:
  Options Outstanding

Options ExercisableExercise

Prices (S)

Number

Outstanding

Weighted Average

Remaining

Contractual Life

(Years)

Weighted

Average

Exercise

Price (S)

Number

Exercisable

Weighted

Average

Exercise

Price$
0.13

80,000

7.97

$
0.13

80,000

$
0.130.15

400,000

2.97

0.15

400,000

0.150.80

85,000

9.71

0.80

3,542

0.801.00

761,875

4.63

1.00

761,875

1.001.11

200,000

9.51

1.11

8,333

1.112.25

167,696

6.91

2.25

129,266

2.251,694,571



0.88

1,383,016

0.82
  
 
 14
 
 IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
 Transactions involving employee stock options issued are summarized as follows:
 Number of Shares


Weighted Average

Price Per ShareOutstanding at December 31, 2009:


1,689,446


$
0.85Granted


—



—Exercised


(86,875
)


(0.71Canceled or expired


(121,000
)


(0.92Outstanding at December 31, 2010


1,481,571


$
0.86Granted


285,000



1.02Exercised


—



—Expired


(72,000
)


(0.50
)Outstanding at June 30, 2011:


1,694,571


$
0.88
  On January 2, 2011, the Company granted 200,000 employee stock options with an exercise price of $1.11 vesting over four years and expiring ten years from issuance. The fair value (as determined as described below) of $219,376 is charged ratably over the vesting term of the options.
  The fair value of these stock options granted and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:
  Significant assumptions:Risk-free interest rate at grant date

3.30
%Expected stock price volatility

155.50
%Expected dividend payout

—Expected option life-years (a)

10
 
 (a)The expected option life is based on contractual expiration dates
  On March 16, 2011, the Company granted 85,000 employee stock options with an exercise price of $0.80 vesting over four years and expiring ten years from issuance. The fair value (as determined as described below) of $66,389 is charged ratably over the vesting term of the options.
  The fair value of these stock options granted and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:
  Significant assumptions:Risk-free interest rate at grant date

3.22
%Expected stock price volatility

139.10
%Expected dividend payout

—Expected option life-years (a)

10
   (a)The expected option life is based on contractual expiration dates
  The fair value of the vested portion previously granted employee options of $41,439 and $23,578 was charged during the three months ended June 30, 2011 and 2010, respectively and $74,158 and $47,157 during the six months ended June 30, 2011 and 2010, respectively.
 
 
 
 15
 
 IRIS BIOTECHNOLOGIES INC.
 (A development stage company)
 NOTES TO THE CONDENSED FINANCIAL STATEMENTS
 JUNE 30, 2011
 (Unaudited)
  
  Non-employee options
  The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees under a stock option plan at June 30, 2011:
  Options Outstanding

Options ExercisableExercise

Prices

Number

Outstanding

Weighted Average

Remaining

Contractual Life

(Years)

Weighted

Average

Exercise

Price

Number

Exercisable

Weighted

Average

Exercise

Price$
0.50

40,000

0.87

$
0.50

40,000

$
0.501.00

110,000

4.71

1.00

110,000

1.001.40

105,000

7.74

1.40

72,917

1.40255,000



1.09

222,917

1.04
 
 Transactions involving non-employee stock options issued are summarized as follows:
 Number of Shares


Weighted Average

Price Per ShareOutstanding at December 31, 2009:


375,000


$
0.90Granted


—



—Exercised


—



—Canceled or expired


—



—Outstanding at December 31, 2010


375,000


$
0.90Granted


—



—Exercised


—



—Expired


(120,000
)


(0.50
)Outstanding at June 30, 2011:


255,000


$
1.09
 
 The fair value of the vested portion of previously granted non-employee options of $6,498 and $16,100 was charged during the three months ended June 30, 2011 and 2010, respectively and $15,757 and $23,537 during the six months ended June 30, 2011 and 2010, respectively
  NOTE 7 - INCOME TAXES
  ASC 740-10 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes are insignificant.
  NOTE 8 - SUBSEQUENT EVENTS
  In the month of August 2011, the Company issued an aggregate of 16,000 shares of its common stock for services rendered in July and August 2011 and in August 2011, 37,250 shares were issued as board of director fees for the quarter ended June 30, 2011.
   16
 
 ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  Forward-Looking Statements
  The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results 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 assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
  The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
  Overview
  Since inception on February 16, 1999 through June 30, 2011, we have sustained cumulative net losses of $8,244,525. Our losses have resulted primarily from research and development expenses, patent costs and legal and accounting expenses. From inception through June 30, 2011, we have not generated any revenue from operations. We expect to incur additional losses to perform further research and development activities. We have sufficient cash to operate for one year at the current burn rate with our CEO’s agreement to fund our operations. In order to accelerate our product introduction and to grow dynamically, we will need to raise additional funds. We do not currently have any commercial products. With additional funding, we expect to launch our nano-biochip products in less than a year.
  During the past two years, we have spent less than $10,000 for public relations. Due to the severe recession we felt that is was prudent to spend investor dollars on designing and building an advanced Nano-Biochip making system, streamlining the automated patient sample processing protocols and product tracking system, and interacting with physicians and patients to demonstrate the usefulness of our BioWindows medical informatics system. We have an extensive pipeline of disease chips including a BreastCancerChipTM, ColonCancerChipTM, NeuroChipTM, CardioChipTM, ComprehensiveCancerChipTM, and MetabolicChipTM.
  We have been in discussions with various entities in regard to launching our products in the US and abroad. We have also had discussions with equipment financing sources with respect to building or buying additional equipment, which would allow us to expand our manufacturing capacity. Under the US Qualifying Therapeutic Discovery Project (QTDP) Program, the maximum amount of a grant application was $5 million, but the maximum amount that the government actually gave for any grant was $245,000. We were awarded $245,000 in recognition of our patented Nano-BiochipTM and BioWindowsTM Medical Informatics System for optimizing personalized and targeted medical treatment.
  The selection criteria includes a company’s ability to diagnose diseases or conditions; to determine molecular factors related to diseases or conditions by developing molecular diagnostic guided therapeutic decisions; or to develop a product, process, or technology to further the delivery or administration of therapeutics. The award was given to projects that show reasonable potential to result in new therapies to treat areas of unmet medical needs or to prevent, detect or treat chronic or acute diseases and conditions; to reduce long-term health care costs in the U.S.; or to significantly advance the goal of curing cancer within the next 30 years.
   17
 
 There are some risks with respect to clinical testing, regulatory approval and review cycles and uncertaintyof thecosts. Netpositive cash inflows from any products developed may take several years to achieve. Managementplans to continue financing operations with a combination of equity issuances and debt arrangements. If adequatefunds are not available, we may be required to delay, reduce the scope of, or eliminate our research or developmentprograms, or cease operations.
  Management plans to continue financing operations with a combination of equity issuances and debt arrangements. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate our research or development programs, or cease operations.
  History
  We were incorporated in the State of California on February 16, 1999 and planned to sell theranostic (choosing therapy based upon personalized diagnostic results) products and services in the medical field. In an effort to develop that business, we set up operations in two locations in California - Headquarters in Santa Clara and Laboratory in San Leandro.
  Beginning on March 11, 1999, Simon Chin, MBA, our founder, President and CEO, Secretary and principal shareholder, entered into Common Stock Purchase Agreements with various companies, 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. Chin on our board of directors. On April 9, 2003, the board approved a 2 for 1 stock split, changed the authorized shares of common stock from 10 million to 20 million, and the authorized preferred stock remained at 5 million shares.
  Plan of Operation
  We are a life science company focused on the development and commercialization of Nano-BiochipsTM and an artificial intelligence system to assist in establishing the foundation for personalized medicine, which will initially be utilized in the treatment of breast cancer. The Nano-BiochipsTM have the ability to quickly and very accurately analyze the activity of multiple genes involved in a specific disease. Iris’s manufacturing system has the capability to produce a variety of chips with a choice of mRNA, microRNA, protein, or other biomarker probes for the diagnosis and prognosis of many diseases. Although we may market our products as CLIA laboratory tests, we are designing them to be approved by the FDA, which can then be used in any certified laboratory. Starting at the point of a breast biopsy diagnosis of cancer, the Nano-Biochip and informatics program are designed to enable a treating physician to quickly prescribe a personalized treatment regimen that will have the greatest probability of success for each patient’s particular type of cancer. Our product platform is expected to lead to more effective diagnosis and treatment not only for patients 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, in order to accelerate our growth, which is contingent upon raising additional funds, approximately $2,000,000 for product research and development activities related to our anticipated product launch during the next twelve months.
  Acquisition of Plant and Equipment and Other Assets
  We do not anticipate the sale of any material property, plant or equipment during the next 12 months. We do not anticipate the acquisition of any material property, plant or equipment during the next 12 months, unless we raise additional funds to accelerate our growth to fulfill the unmet needs of a large, growing market.
 
  18
   Number of Employees
  From our inception through the period ended June 30, 2011, we have principally relied on the services of outside consultants and part-time employees for services. As of August 12, 2011, we have five full time employees and 8 part-time employees. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. We anticipate that it may become desirable to add additional full and or part time employees to discharge certain critical functions during the next 12 months. This projected increase in personnel is dependent upon our ability to generate revenues and obtain sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees. As we continue to expand, we will incur additional cost for personnel.
  Results of Operations
  We are in the development stage and to date have not generated revenues. The risks specifically discussed are not the only factors that could affect future performance and results. In addition to the discussion in this prospectus concerning us, our business and our operations contain forward-looking statements. Such forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. We do not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by our Management over time means that actual events or results are occurring as estimated in the forward-looking statements herein.
  As a development stage company, we have yet to earn revenues from operations. We may experience fluctuations in operating results in future periods due to a variety of factors, including our ability to obtain additional financing in a timely manner and on terms favorable to us, our ability to successfully develop our business model, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure and the implementation of marketing programs, key agreements, and strategic alliances, and general economic conditions specific to our industry.
  As a result of limited capital resources and no revenues from operations since inception, we have relied on the issuance of equity securities to employees and non-employees in exchange for services. Our management enters into equity compensation agreements with non-employees if it is in our best interest under terms and conditions consistent with the requirements of Accounting Standards Codification Subtopic 718-10 Compensation (ASC 718- 10). In order to conserve our limited operating capital resources, we anticipate continuing to compensate non-employees with equity for services during the next twelve months. This policy may have a material effect on our results of operations during the next twelve months.
  Three Months Ended June 30, 2011 Compared to Three Months Ended June 30, 2010 Revenues
  We have generated no operating revenues from operations from our inception. We believe we will begin earning revenues from operations within a year as we transition from a development stage company to that of an active growth stage company.
  Costs and Expenses
  From our inception through June 30, 2011, we have incurred cumulative losses of $8,244,525. In addition, a significant part of the overall remaining costs are associated principally with equity-based compensation to employees and consultants, research and development costs and professional services rendered.
   19
  Selling, general and administrative (“SG&A”) expenses decreased by $48,650 from $150,391 for the three months ended June 30, 2010 to $101,741 for the three months ended June 30, 2011. SG&A expenses consisted of accounting, legal, consulting, public relations, startup and organizational expenses. SG&A expenses also included non-cash charges from the issuance of stock, warrants and stock options in the amounts of $64,602 for the three months ended June 30, 2011 and $119,359 for the three months ended June 30, 2010, a period to period decrease of $54,757. The remaining SG&A expenses, which required cash amounted to approximately $37,139 and $31,032 for the three months ended June 30, 2011 and 2010, respectively. We used stock in lieu of cash to conserve our cash resources.
  Research and development costs decreased from $49,096 for the three months ended June 30, 2010 to $32,950 for the three months ended June 30, 2011.
  As a result of the above-mentioned expenses, net losses decreased from $205,826 for the three months ended June 30, 2010 to a net loss of $141,579 for the three months ended June 30, 2011.
  Six Months Ended June 30, 2011 Compared to Six Months Ended June 30, 2010 Revenues
  We have generated no operating revenues from operations from our inception. We believe we will begin earning revenues from operations within a year as we transition from a development stage company to that of an active growth stage company.
  Costs and Expenses
  From our inception through June 30, 2011, we have incurred cumulative losses of $8,244,525. In addition, a significant part of the overall remaining costs are associated principally with equity-based compensation to employees and consultants, research and development costs and professional services rendered.
  SG&A expenses decreased by $49,801 from $279,138 for the six months ended June 30, 2010 to $229,337 for the six months ended June 30, 2011. SG&A expenses included non-cash charges from the issuance of stock, warrants and stock options in the amounts of $158,331 for the six months ended June 30, 2011 and $195,625 for the six months ended June 30, 2010, a period to period decrease of $37,294. The remaining SG&A expenses, which required cash amounted to approximately $71,006 and $83,513 for the six months ended June 30, 2011 and 2010, respectively. We used stock in lieu of cash to conserve our cash resources.
  Research and development costs increased from $49,096 for the six months ended June 30, 2010 to $78,999 for the six months ended June 30, 2011.
  During the six months ended June 30, 2011, we received $209,671 grant income from the U. S. Government for research previously done as compared to Nil for 2010.
  As a result of the above-mentioned expenses and the grant income, net losses decreased from $340,172 for the six months ended June 30, 2010 to a net loss of $111,987 for the six months ended June 30, 2011.
  
 
 20
 
 Liquidity and Capital Resources
  As of June 30, 2011, we had a working capital deficit of $69,702 as compared to a working capital deficit of $584,661 as of December 31, 2010. Our cash position was $148 as of June 30, 2011 compared to $3,222 as of December 31, 2010. From inception to June 30, 2011 we have incurred an operating cash flow deficit of $2,896,060, which has been principally financed through the private placement of our common stock, advances from related parties and issuance of notes payable. As of June 30, 2011, we have long-term debt of $56,995.
  We expect to continue to incur additional losses and negative cash flows from operating activities for the next two years.
  Our available working capital and capital requirements will depend upon numerous factors, including progress of our research and development programs, our progress in and the cost of pre-clinical and clinical testing, the timing and cost of obtaining regulatory approvals, the cost of filing and prosecuting patent claims and other intellectual property rights, completing technological and market developments, current and future licensing relationships, the status of our competitors, and our ability to establish collaborative arrangements with other organizations .
  Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing, collaborative and licensing agreements, strategic alliances, and our ability to realize the full potential of our technology in development. Such additional funds may not become available on acceptable terms, if at all, and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. Through August 12, 2011, virtually all of our financing has been through private placements of common stock and warrants. We intend to continue to fund operations from cash on-hand and through the similar sources of capital previously described for the foreseeable future. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs. We believe that we will continue to incur net losses and negative cash flows from operating activities for the next two years. Based on the resources available to us on August 12, 2011, we have sufficient cash to operate for one year at the current burn rate with our CEO’s agreement to continue fund our operations. We may need additional financing thereafter.
  Off-Balance Sheet Arrangements
  We do not have any off-balance sheet arrangements.
  Inflation
  It is our opinion that inflation has not had a material effect on our operations. Critical Accounting Policies
  Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
  The following accounting policies are critical in fully understanding and evaluating our reported financial results:
   21
 
 
 Accounting for Stock-Based Compensation
  We account for our stock options and warrants using the fair value method promulgated by Accounting Standards Codification subtopic 718-10, Compensation (“ASC 718-10”) which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Therefore, our results include non-cash compensation expense as a result of the issuance of stock options and warrants and we expect to record additional non-cash compensation expense in the future.
  ITEM 4. CONTROLS AND PROCEDURES.
  Evaluation of Disclosure Controls and Procedures . Under the supervision and with the participation of our management, including our President, Chief Financial Officer and Secretary, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-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 our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
  Changes in Internal Control Over Financial Reporting.During the most recent quarter ended June 30, 2011, 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 Exchange Act) ) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
  PART II
  ITEM 1. LEGAL PROCEEDINGS.
  We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  During the six months ended June 30, 2011, we issued 489,588 shares of common stock to consultants for services rendered in the amount of $527,175 out of which 419,838 common stock were issued for value $458,760 relates to accruals. In connection with the issuance of such shares, we relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.
  ITEM 6. EXHIBITS.
  ExhibitNumber

Description of Exhibit31.1

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.
   
 
  22
   SIGNATURES
  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
  IRIS BIOTECHNOLOGIES INC.August 15, 2011
By:
/s/ Simon ChinSimon ChinPresident, Chief Executive Officer, Chief Financial Officer and Director (Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer)