**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

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**FORM 10-Q**

 

**ý****QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period endedMarch 31, 2004**

 

**OR**

 

o**TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commission file number 0-18006**

 

**THE IMMUNERESPONSE CORPORATION**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                                                     |   | **33-0255679**                        |
|------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                             |   |                                  |
| **5931  Darwin Court****Carlsbad, California**                   |   | **92008**                             |
| (Address of  principal executive offices)                        |   | (Zip Code)                            |

 

Registrant’s telephone number, including areacode:  **(760) 431-7080**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes ý    No  o

 

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

 

As of April 30, 2004, there were 48,159,489 shares of our commonstock outstanding.

 

 

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**THE IMMUNE RESPONSE CORPORATION**

 

**INDEX**

 
| **Part I**     | **FINANCIAL INFORMATION** |                                                                                                     |
|----------------|---------------------------|----------------------------------------------------------------------------------------------------------|
|           |                      |                                                                                                     |
|           | Item 1.                   | Financial Statements  (unaudited):                                                                       |   |
|           |                      |                                                                                                     |   |
|           |                      | Condensed  Consolidated Balance Sheets -   March 31, 2004 and December 31, 2003           |   |
|           |                      |                                                                                                     |   |
|           |                      | Condensed  Consolidated Statements of Operations – Three months ended March 31,  2004 and 2003 |   |
|           |                      |                                                                                                     |   |
|           |                      | Condensed  Consolidated Statements of Cash Flows - Three months ended March 31,  2004 and 2003      |   |
|           |                      |                                                                                                     |   |
|           |                      | Notes to  Condensed Consolidated Financial Statements                                                    |   |
|           |                      |                                                                                                     |   |
|           | Item 2.                   | Management’s  Discussion and Analysis of Financial Condition and Results of Operations              |   |
|           |                      |                                                                                                     |   |
|           | Item 3.                   | Quantitative  and Qualitative Disclosures About Market Risk                                              |   |
|           |                      |                                                                                                     |   |
|           | Item 4.                   | Controls and  Procedures                                                                                 |   |
|           |                      |                                                                                                     |
| **Part II**    | **OTHER INFORMATION**     |                                                                                                     |
|           |                      |                                                                                                     |
|           | Item  1.                  | Legal  Proceedings                                                                                       |   |
|           |                      |                                                                                                     |   |
|           | Item 2.                   | Changes in Securities, Use of Proceeds  and Issuer Purchases of Equity Securities                        |   |
|           |                      |                                                                                                     |   |
|           | Item 3.                   | Defaults Upon  Senior Securities                                                                         |   |
|           |                      |                                                                                                     |   |
|           | Item 4.                   | Submission  of Matters to a Vote of Security Holders                                                     |   |
|           |                      |                                                                                                     |   |
|           | Item  5.                  | Other  Information                                                                                       |   |
|           |                      |                                                                                                     |   |
|           | Item 6.                   | Exhibits and  Reports on Form 8-K                                                                        |   |
|           |                      |                                                                                                     |
| **SIGNATURES** |                      |
|                |                           |                                                                                                          |  |  |

 

2

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**PART I –FINANCIAL INFORMATION**

 

**Item 1.  Financial Statements**

 

**The Immune Response Corporation**

**Condensed Consolidated BalanceSheets**

*(in thousands, except for shareamounts)*

 
|                                                                                                                                                                                            |   | **March 31,  2004** |   | **December 31,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|--------|-----------------------------|--------|
|                                                                                                                                                                                            |   | **(unaudited)**          |   |                        |   |
| **Assets**                                                                                                                                                                                      |   |                     |   |                        |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| Current  Assets:                                                                                                                                                                                |   |                     |   |                        |   |
| Cash  and cash equivalents                                                                                                                                                                      |   | $                        | 8,553  |                        | $      | 12,838 |   |
| Marketable  securities - available-for-sale                                                                                                                                                     |   | 5                        |   | 4                           |   |
| Other  current assets                                                                                                                                                                           |   | 228                      |   | 372                         |   |
|                                                                                                                                                                                            |   | 8,786                    |   | 13,214                      |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| Property  and equipment, net                                                                                                                                                                    |   | 4,970                    |   | 4,949                       |   |
| Licensed  technology, net                                                                                                                                                                       |   | 1,943                    |   | 2,119                       |   |
| Deposits  and other assets ($600 restricted as security for letter of credit)                                                                                                                   |   | 690                      |   | 690                         |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
|                                                                                                                                                                                            |   | $                        | 16,389 |                        | $      | 20,972 |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                   |   |                     |   |                        |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| Current  Liabilities:                                                                                                                                                                           |   |                     |   |                        |   |
| Accounts  payable                                                                                                                                                                               |   | $                        | 770    |                        | $      | 1,151 |   |
| Accrued  expenses                                                                                                                                                                               |   | 680                      |   | 1,112                       |   |
| Convertible  promissory notes, related party                                                                                                                                                    |   |                     |   | 3,899                       |   |
| Current  portion of accrued excess lease costs                                                                                                                                                  |   | 452                      |   | 452                         |   |
| Current  portion of deferred revenue                                                                                                                                                            |   | 56                       |   | 56                          |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
|                                                                                                                                                                                            |   | 1,958                    |   | 6,670                       |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| Convertible  promissory notes, related party, net of discount of $3,578 and $4,167 and  plus accrued interest of $720 and $575 at March 31, 2004 and  December 31, 2003, respectively |   | 4,350                    |   | 3,616                       |   |
| Accrued  excess lease costs                                                                                                                                                                     |   | 1,913                    |   | 1,990                       |   |
| Long-term  deferred revenue, net of current portion                                                                                                                                             |   | 309                      |   | 323                         |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
|                                                                                                                                                                                            |   | 8,530                    |   | 12,599                      |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| Stockholders’  Equity:                                                                                                                                                                     |   |                     |   |                        |   |
| Preferred  stock, 10,000,000 shares authorized; 688,146 Series A shares issued and  outstanding at March 31, 2004 with a liquidation preference aggregating  $4,207,000                    |   | 13,952                   |   | —                      |   |
| Common  stock, $.0025 par value, 170,000,000 shares authorized; 41,300,841 and 41,201,187  shares issued and outstanding at March 31, 2004 and December 31,  2003, respectively       |   | 103                      |   | 102                         |   |
| Warrants                                                                                                                                                                                        |   | 17,731                   |   | 17,777                      |   |
| Additional  paid-in capital                                                                                                                                                                     |   | 290,457                  |   | 290,346                     |   |
| Accumulated  other comprehensive income                                                                                                                                                         |   | 5                        |   | 4                           |   |
| Accumulated  deficit                                                                                                                                                                            |   | (314,389                 | )      | (299,856                    | )      |
|                                                                                                                                                                                            |   |                     |   |                        |   |
| Total  stockholders’ equity                                                                                                                                                                |   | 7,859                    |   | 8,373                       |   |
|                                                                                                                                                                                            |   |                     |   |                        |   |
|                                                                                                                                                                                            |   | $                        | 16,389 |                        | $      | 20,972 |   |

 

*See accompanying notes tocondensed consolidated financial statements.*

 

3

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**The ImmuneResponse Corporation**

**Condensed Consolidated Statements of Operations**

*(inthousands, except for per share amounts)*

*(unaudited)*

 

 
|                                                                                                |   | **Three  months ended March 31,** |    |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                                                                |   | **2004**                               |    | **2003** |   |
| Revenues:                                                                                           |   |                                   |    |   |   |
| Contract  research revenue                                                                          |   | $                                      | 7       |   | $ | 7 |   |
| Licensed  research revenue                                                                          |   | 7                                      |    | 17 |   |
|                                                                                                |   |                                   |    |   |   |
|                                                                                                |   | 14                                     |    | 24 |   |
|                                                                                                |   |                                   |    |   |   |
| Expenses:                                                                                           |   |                                   |    |   |   |
| Research  and development                                                                           |   | 3,120                                  |    | 2,477 |   |
| General  and administrative                                                                         |   | 838                                    |    | 1,035 |   |
| Exit  and disposal related costs                                                                    |   | —                                 |    | 285 |   |
|                                                                                                |   |                                   |    |   |   |
|                                                                                                |   | 3,958                                  |    | 3,797 |   |
|                                                                                                |   |                                   |    |   |   |
| Other  income and (expense):                                                                        |   |                                   |    |   |   |
| Investment  income                                                                                  |   | 22                                     |    | 8 |   |
| Interest  expense - including $589 and $1,102 of non-cash accretion in 2004 and 2003,  respectively |   | (753                                   | )       | (1,424 | ) |
| Beneficial  inducement cost                                                                         |   | (4,923                                 | )       | — |   |
| Loss  on extinguishment of debt                                                                     |   | (4,935                                 | )       | — |   |
|                                                                                                |   |                                   |    |   |   |
|                                                                                                |   | (10,589                                | )       | (1,416 | ) |
|                                                                                                |   |                                   |    |   |   |
| Net  loss                                                                                           |   | (14,533                                | )       | (5,189 | ) |
| Less  preferred stock dividends                                                                     |   | (89                                    | )       |   |   |
| Net  loss attributable to common stockholders                                                       |   | $                                      | (14,622 | ) | $ | (5,189 | ) |
|                                                                                                |   |                                   |    |   |   |
| Basic  and diluted loss per share:                                                                  |   |                                   |    |   |   |
| Net  loss                                                                                           |   | $                                      | (0.35   | ) | $ | (0.26 | ) |
| Net  loss attributable to common stockholders                                                       |   | $                                      | (0.35   | ) | $ | (0.26 | ) |
|                                                                                                |   |                                   |    |   |   |
| Weighted  average number of shares outstanding                                                      |   | 41,240                                 |    | 19,671 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

4

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**The ImmuneResponse Corporation**

**Condensed Consolidated Statements of Cash Flows**

*(inthousands)*

*(unaudited)*

 
|                                                                         |   | **Three  months ended March 31,** |    |
|------------------------------------------------------------------------------|--------|----------------------------------------|---------|
|                                                                         |   | **2004**                               |    | **2003** |   |
| Cash  Flows From Operating Activities:                                       |   |                                   |    |   |   |
| Net  loss                                                                    |   | $                                      | (14,533 | ) | $ | (5,189 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |   |                                   |    |   |   |
| Depreciation  and amortization                                               |   | 407                                    |    | 514 |   |
| Operating  expenses paid with common stock and warrants                      |   | 68                                     |    | 42 |   |
| Stock  option adjustments                                                    |   | (48                                    | )       | 115 |   |
| Deferred  revenue                                                            |   | (14                                    | )       | (13 | ) |
| Accrued  excess lease costs                                                  |   | (77                                    | )       | (91 | ) |
| Long-term  accrued interest                                                  |   | 145                                    |    | 275 |   |
| Accretion  of notes                                                          |   | 589                                    |    | 1,102 |   |
| Beneficial  inducement cost                                                  |   | 4,923                                  |    | — |   |
| Loss  on extinguishment of debt                                              |   | 4,935                                  |    | — |   |
| Interest  expense converted into Series A preferred stock                    |   | 219                                    |    | — |   |
| Changes  in operating assets and liabilities:                                |   |                                   |    |   |   |
| Other  current assets                                                        |   | 144                                    |    | (171 | ) |
| Accounts  payable                                                            |   | (381                                   | )       | 58 |   |
| Accrued  expenses                                                            |   | (432                                   | )       | (140 | ) |
| Net  cash used in operating activities                                       |   | (4,055                                 | )       | (3,498 | ) |
|                                                                         |   |                                   |    |   |   |
| Cash  Flows From Investing Activities:                                       |   |                                   |    |   |   |
| Purchase  of property and equipment                                          |   | (252                                   | )       | — |   |
| Other                                                                        |   | —                                 |    | 14 |   |
| Net  cash provided by (used in) investing activities                         |   | (252                                   | )       | 14 |   |
|                                                                         |   |                                   |    |   |   |
| Cash  Flows From Financing Activities:                                       |   |                                   |    |   |   |
| Payments  of equipment notes and capital leases                              |   | —                                 |    | (267 | ) |
| Net  proceeds from exercises of Unit Purchase Options                        |   | 42                                     |    | — |   |
| Proceeds  from issuance of promissory notes and warrants                     |   | —                                 |    | 2,000 |   |
| Net  offering costs for Series A preferred stock                             |   | (23                                    | )       | — |   |
| Net  proceeds from common stock purchases through employee plans             |   | 3                                      |    | — |   |
| Net  cash provided by financing activities                                   |   | 22                                     |    | 1,733 |   |
|                                                                         |   |                                   |    |   |   |
| Net  decrease in cash and cash equivalents                                   |   | (4,285                                 | )       | (1,751 | ) |
| Cash  and cash equivalents - beginning of year                               |   | 12,838                                 |    | 3,939 |   |
| Cash  and cash equivalents - end of period                                   |   | $                                      | 8,553   |   | $ | 2,188 |   |
|                                                                         |   |                                   |    |   |   |
| Supplemental  Disclosure of Cash Flow Information:                           |   |                                   |    |   |   |
| Interest  paid                                                               |   | $                                      | 14      |   | $ | 322 |   |
|                                                                         |   |                                   |    |   |   |
| Supplemental  Disclosure of Noncash Information:                             |   |                                   |    |   |   |
| Promissory  notes and interest converted into Series A preferred stock       |   | $                                      | 4,118   |   | $ | — |   |
| Common  stock issued for consulting services                                 |   | $                                      | 68      |   | $ | — |   |
| Unrealized  gain on marketable securities                                    |   | $                                      | 1       |   | $ | — |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

5

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**THE IMMUNERESPONSE CORPORATION**

**Notes to Condensed****Consolidated Financial Statements (unaudited)**

 

**Note 1 - Interim FinancialStatements:**

 

The accompanyingcondensed consolidated balance sheet as of March 31, 2004 and thecondensed consolidated statements of operations and of cash flows for the threemonths ended March 31, 2004 and 2003 have been prepared by The ImmuneResponse Corporation (the “Company”) and have not been audited.  The condensed consolidated financial statementsof the Company include the accounts of its wholly-owned subsidiary I.R.C.Inc.  All significant intercompanytransactions and accounts have been eliminated in consolidation.  These financial statements, in the opinionof management, include all adjustments (consisting only of normal recurringaccruals) necessary for a fair presentation of the financial position, resultsof operations and cash flows for all periods presented.  The financial statements should be read inconjunction with the financial statements and notes thereto included in theCompany’s Annual Report on Form 10-K filed for the year ended December 31,2003.  Interim operating results are notnecessarily indicative of operating results for the full year.

 

The preparation offinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

 

Certainreclassifications have been made to conform prior period financial informationto the current presentation.  Thesereclassifications had no effect on reported income or losses.

 

*Stock-BasedCompensation*

 

During April 2003,the Company repriced and accelerated the vesting of stock options to purchase664,007 shares previously granted to employees and outside directors.  The weighted average share price was reducedfrom $10.04 per share to $1.12 per share. This repricing was expensed using the intrinsic valuation methodrequired under APB No. 25.  The Companyrecorded additional employee compensation (benefit) expense of $(55,000) forthe repriced options during the three months ended March 31, 2004.

 

The Companymeasures its stock-based employee compensation using the intrinsic valuemethod.  The following disclosuresutilizing the intrinsic value method, and pro forma amounts, after applying thefair value method, related to stock-based awards made to employees that wereoutstanding as of March 31, 2004 and 2003.

 
|                                                                      |   | **Three  Months Ended  March 31,** |        |
|---------------------------------------------------------------------------|--------|-----------------------------------------|-------------|
|                                                                      |   | **2004**                                |        | **2003** |   |
| Net  loss attributable to common stockholders:                            |   |                                    |        |   |   |
| As  reported                                                              |   | $                                       | (14,622,000 | ) | $ | (5,189,000 | ) |
| Stock-based  employee compensation expense (benefit) included in net loss |   | (55,000                                 | )           | — |   |
| Fair  value of stock-based employee compensation                          |   | (966,000                                | )           | (124,000 | ) |
|                                                                      |   |                                    |        |   |   |
| Pro  forma                                                                |   | $                                       | (15,643,000 | ) | $ | (5,313,000 | ) |
|                                                                      |   |                                    |        |   |   |
| Net  loss per share (basic and diluted):                                  |   |                                    |        |   |   |
| As  reported                                                              |   | $                                       | (0.35       | ) | $ | (0.26 | ) |
|                                                                      |   |                                    |        |   |   |
| Pro  forma                                                                |   | $                                       | (0.38       | ) | $ | (0.27 | ) |

 

6

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**Note 2 - The Company:**

 

The Immune ResponseCorporation is a biopharmaceutical company dedicated to the development ofimmune-based therapies (IBT) for the prevention and treatment of humanimmunodeficiency virus (HIV) and select other disease states. All of ourproducts are still in the development stage. The company was co-founded by Dr.Jonas Salk, discoverer of the polio vaccine.  Our lead product candidate,REMUNEâ, is an IBTdesigned to induce a specific immune response in individuals already infectedby HIV and boost the body’s natural defense mechanisms in order to slow HIVdisease progression.  Data from clinical studies suggest REMUNEâmay induce a specific immune response to HIV thereby increasing the immunesystem’s own ability to defend against HIV.

 

We currently have threeactive IBT programs; REMUNEâand IR103 target HIV and NeuroVaxTMtargets multiple sclerosis. Both REMUNEâand NeuroVaxTM are currentlyin Phase II clinical trials while IR103 is expected to enter a Phase I clinicaltrial during the second quarter of 2004.

 

***Note 3 - Going Concern:***

* *

The accompanyingconsolidated financial statements have been prepared on a going concern basis,which contemplates the realization of assets and the satisfaction ofliabilities in the normal course of business. The Company has incurred net losses since inception and has anaccumulated deficit of $314,389,000 as of March 31, 2004. The Company willnot generate meaningful revenues in the foreseeable future.

 

Thesefactors raised substantial doubt about the Company’s ability to continue as agoing concern.  Our independentcertified public accountants, BDO Seidman, LLP, indicated in their report onthe 2003 consolidated financial statements, that there is substantial doubtabout our ability to continue as a going concern.

 

Theconsolidated financial statements do not include any adjustments relating to therecoverability and classification of recorded asset amounts or the amounts andclassification of liabilities that might be necessary should the Company beunable to continue as a going concern.

 

OnJanuary 7, 2004, $3,899,000 of previously issued, related partyconvertible promissory notes plus accrued interest of approximately $219,000were converted into 688,146 shares of Series A convertible preferred stock (seeNote 5). On April 30, 2004 the Company raised approximately $11,900,000 grossproceeds through a private placement (see Note 7). The Company believes thatits current resources are sufficient to fund its planned operations, includingnecessary capital expenditures and new clinical trials, for at least the next12 months.

 

**Note 4 - Convertible Promissory Notes, Related Party(Current):**

** **

The convertiblepromissory notes totaling $3,899,000, described below, plus approximately$219,000 of accrued interest were converted into 688,146 shares of Series A convertible preferredstock on January 7,  2004 (see Note5).

 

On March 28, 2003,the Company issued to Cheshire Associates, LLC, a related party, a convertiblepromissory note in the amount of $2,000,000, bearing interest at the rate of 8%per annum, due March 28, 2004 (the “March Note”). The March Notewas convertible into 1,626,016 shares of common stock at a price of $1.23 pershare.

 

In May 2003, the Companyissued to Cheshire two convertible promissory notes in the aggregate amount of$1,080,000, bearing interest at the rate of 8% per annum, due May 2004 andJanuary 2004, respectively (the “May Notes”).  One of the May Notes, with a principal balance of $1,000,000, wasconvertible into shares of common stock on terms to be negotiated in good faithprior to its maturity date.  The $80,000May Note was convertible into 59,259 shares of common stock at a price of $1.35per share.

 

In June 2003, theCompany issued to Cheshire a convertible promissory note in the amount of$819,000, bearing interest at the rate of 8% per annum, due January 2004(the “June Note”).  TheJune Note was convertible into shares of common stock on terms to benegotiated in good faith prior to its maturity date.

 

7

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**Note 5 - Series A Preferred Stock:**

 

OnJanuary 7, 2004, $3,899,000 of previously issued, related partyconvertible promissory notes plus accrued interest of approximately $219,000were converted into 688,146 shares of Series A convertible preferred stock(Series A) at $5.984 per share. The holders of shares of Series A have theright to further convert each share of Series A into anywhere from four totwelve shares of common stock, depending on the date of conversion. The SeriesA votes with the holders of common stock as a single class.  The Series A is currently entitled to threevotes for each initial share of Series A received.

 

TheSeries A has dividend and liquidation preferences over common stockholders.  The holders of the Series Aare entitled to receive cumulative dividends on each share of Series A at therate of 9% per annum until the earliest of (i) July 7, 2006, (ii) the datethe Series A is redeemed and (iii) the date the Series A is converted intocommon stock.  At March 31, 2004accrued but undeclared dividends on the Series A amounted to $89,000. The liquidationpreference at March 31, 2004 aggregated $4,207,000.

 

In addition, the holders of Series A are entitled to protectiveprovisions that require 66 2/3% of theoutstanding Series A to approve, among other things, creating a new classof security with dividend or liquidation rights equal or senior to theSeries A convertible preferred stock, a liquidation or recapitalization orincreasing the number of shares reserved for issuance under our stock optionplans to greater than 10% of our outstanding capital stock (on an as ifconverted, fully-diluted basis).  TheSeries A also contains anti-dilution provisions.

 

Theconversion of $2,080,000 of convertible promissory notes into Series A resultedin a non-cash charge to operations of approximately $4,923,000 in the firstquarter of 2004 as a beneficial inducement cost, representing the differencebetween the fair value of the common stock into which the Series A isconvertible (at the most preferential rate) compared to the fair value of thecommon stock into which the related debt was convertible in accordance with FASNo. 84, “Induced Conversions of Convertible Debt.”

 

Conversionof the $1,819,000 of the remaining convertible promissory notes resulted in anon-cash charge to operations of approximately $4,935,000 in the first quarterof 2004 as a loss on the extinguishment of debt, representing the differencebetween the carrying value of the related debt and the fair value of the SeriesA issued.

 

**Note 6 - Net Loss per Share:**

 

Basicand diluted net loss per share is computed using the weighted average number ofcommon shares outstanding during the period. Potentially dilutive securities are excluded from the diluted net lossper share calculation, as the effect would be antidilutive.  Potentially dilutive shares not included are4,700,000 shares for outstanding employee stock options, 6,600,000 sharesissuable under convertible promissory notes, related party, 9,800,000 sharesissuable under warrants outstanding, 9,400,000 shares issuable under B warrantsoutstanding and 1,914,000 shares issuable under an option issued to theplacement agent for the private offering in December 2002.

 

**Note 7 - Subsequent Event:**

 

On April 30, 2004the Company sold through a private placement, approximately6,800,000 shares of common stock at $1.75 per share to a number ofinstitutional investors, for approximately $11,900,000 in gross proceeds.  Investors also received five-year warrantsto purchase an aggregate of approximately 2,031,000 shares of common stock at$2.75 per share.  The investors were notaffiliated with the Company, except for one investor which is an affiliate ofCheshire; that investor purchased 342,857 shares and 102,857 warrants for$600,000. Proceeds from the financing will be used to fund the Company’s ongoingclinical activities and for general corporate purposes.

 

8

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**Item 2.  Management’s****Discussion and Analysis of Financial Condition and Resultsof Operations**

 

The following discussioncontains forward-looking statements concerning our liquidity, capitalresources, financial condition, results of operation and timing of anticipatedrevenues and expenditures.  Suchstatements are subject to risks and uncertainties that could cause actualresults to differ materially from those projected.  Factors that could cause or contribute to such differencesinclude those discussed under “Risk Factors,” as well as those discussedelsewhere in this Form 10-K.  Thefollowing discussion should be read in conjunction with our consolidatedfinancial statements and notes thereto included elsewhere in thisForm 10-K.  Except for our ongoingobligation to disclose material information as required by federal securitieslaws, we undertake no obligation to publicly release the result of anyrevisions to these forward-looking statements that may be indicated in order toreflect events or circumstances after the date hereof or to reflect theoccurrence of unanticipated events.

 

**Overview**

 

We are a biopharmaceutical company whose products are inthe development stage.  We have acritical need to raise cash both in the near term and the medium term.Nonetheless, we believe our REMUNEâproductcould prove to have substantial value as part of a therapy for patientsinfected with HIV.

 

**Liquidityand Capital Resources**

 

As of March 31,2004, we had a consolidated accumulated deficit of $314,389,000. We have notgenerated revenues from the commercialization of any product. We expect tocontinue to incur substantial net operating losses over the next several years,which would imperil our ability to continue operations. We may not be able togenerate sufficient product revenue to become profitable on a sustained basis,or at all, and do not expect to generate sufficient product revenue before thethird quarter of 2008, if at all. We have operating and liquidity concerns dueto our significant net losses and negative cash flows from operations.  As a result of these and other factors, ourindependent certified public accountants, BDO Seidman, LLP, indicated, in theirreport on the 2003 consolidated financial statements, that there is substantialdoubt about our ability to continue as a going concern.

 

Since our inception in 1986, we have financed ouractivities primarily from public and private sales of equity, funding fromcollaborations with corporate partners, investment income and the issuance toentities affiliated with or related to Mr. Kimberlin, who is one of ourdirectors and our principal stockholder, of capital stock, convertible notesand warrants and short-term promissory notes.

 

As of March 31, 2004, the Company had outstandingapproximately $3,630,000 (net of discount of $3,578,000) of convertible,related party debt. All of the notes bear interest at a fixed rate of 8% peryear and are secured by the intellectual property of the Company.  Thenotes mature at various dates through November 2005.  The notes areconvertible into shares of the Company’s common stock at any time, at theoption of the investors.  The conversion prices are based on a percentageof the average closing bid prices of the Company’s common stock for a ten-daytrading period ended on the day preceding each closing.

 

In January 2004, ina transaction with a company related to Mr. Kimberlin, we converted $4,100,000of previously issued promissory notes and accrued interest into 688,000 sharesof Series A Convertible Preferred Stock. On April 30, 2004 we raised approximately $11,900,000 in grossproceeds through a private placement of common stock and warrants, primarily tounaffiliated investors. We believe that our current resources are sufficient tofund our planned operations, including necessary capital expenditures and newclinical trials, for at least the next 12 months.

 

We could raise an additional $16,700,000 if all of theClass B warrants issued as a result of Class A warrant exercises sinceJuly 7, 2003, which are redeemable by us if the price of our common stockis equal to or greater than $3.32, are exercised. The exercise price is $1.77per share. Because at that price it would be profitable for the warrant holdersto exercise their warrants rather than to allow the redemption to proceed, weassume they would choose to exercise. However, there is no assurance that ourstock price will rise to the $3.32 per share redemption trigger price. Also,there can be no assurances that all or any portion of the warrants will beexercised by the initial purchasers or by any subsequent holders.

 

**Inaddition, we could raise an additional $11,800,000 if all the warrants issuedin connection with the October 2003 private placement are exercised forcash. The warrants issued in the October 2003 private placement areredeemable by us if the price of our common stock is equal to or greater than$8.00 for 20 consecutive trading days. Because at that price it would beprofitable for the warrant holders to exercise their warrants rather than toallow the redemption to proceed, we assume they would choose to**

** **

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**exercise.However, there is no assurance that our stock price will rise to the $8.00 pershare redemption trigger price. Also, there can be no assurances that all orany portion of the warrants will be exercised by the initial purchasers or byany subsequent holders.**

** **

**Additionally,we could raise an additional $7,100,000 if all the warrants issued inconnection with the April 2004 private placement are exercised for cash.The warrants issued in the April 2004 private placement are exercisable bythe holders at any time between October 2004 and April 2009 at $2.75per share. However, there is no assurance that our stock price will rise to the$2.75 per share exercise price and/or that all or any portion of the warrantswill be exercised by the initial purchasers or by any subsequent holders.**

** **

Once we have used our current cash balances, we will beforced to look for alternative sources of funding which, even if available, maybe on terms substantially less favorable. If we are unable to raise adequate capital, we may be required to delay,or reduce the scope of, our research or development of REMUNEâ, IR103 and NeuroVaxTMor take other measures to cut costs, which would have a material adverse effecton us and likely result in our inability to continue as a going concern.

 

We will need to raise very substantial additional fundsover several years to conduct research and development, preclinical studies andclinical trials necessary to bring potential products to market and toestablish manufacturing and marketing capabilities. We anticipate that for theforeseeable future, the scale-up of the manufacturing process for REMUNEâ, IR103 and NeuroVaxTMand the cost of producing clinical supplies for ongoing and future REMUNEâ, IR103 and NeuroVaxTMstudies will continue to represent a significant portion of our overallexpenditures. Overall, future REMUNEâ, IR103 and NeuroVaxTMresearch and development expenditures are expected to increase from currentlevels in the event additional financing is obtained. Future spending forresearch and development may further increase if we enter into additionalcollaborations, but there can be no assurance that we will enter into any suchcollaborations. We anticipate additional capital improvements of approximately$750,000 to scale-up of the manufacturing process for REMUNEâ and IR103. Otheranticipated costs with respect to REMUNEâ, IR103 and NeuroVaxTMincluding investment in inventory, will depend on many factors including theneed for additional clinical trials and other factors, which will influence ourdetermination of the appropriate continued investment of our financialresources in this program.

 

Our future capital requirements will depend on manyfactors including whether the remaining warrants will be exercised by theinitial purchasers or by any subsequent holders. Other capital requirementfactors include continued scientific progress in our research and developmentprograms, the scope and results of preclinical studies and clinical trials, thetime and costs involved in obtaining regulatory approvals, the costs involvedin filing, prosecuting and enforcing patent claims, the costs involved indefending claims in class actions, competing technological and marketdevelopments, the cost of manufacturing scale-up and inventories, effectivecommercialization activities and arrangements and other factors not within ourcontrol. We intend to seek additional funding through additional research anddevelopment agreements with suitable corporate collaborators and through publicor private financing, if available. However, we cannot provide assurance thatsuch collaboration arrangements or any public or private financing will beavailable on acceptable terms, if at all. If we raise funds through future equity arrangements, significantfurther dilution to stockholders will result.

 

**Results ofOperations**

 

***Three Months EndedMarch 31, 2004 Compared to Three Months Ended March 31, 2003.***

 

We recorded revenues for the three months endedMarch 31, 2004 of $14,000 as compared to $24,000 for the correspondingperiod in 2003. The revenues were from the amortization of additionalmulti-year out-licensing contracts of various intellectual property and/orpatents that we own.  We expect noadditional revenues unless it is earned through corporate collaborations or newresearch and development agreements.  Wehave not received any revenues from the sale of products and do not expect toderive revenue from the sale of any products for the foreseeable future.

 

Our research and development expenditures for the threemonths ended March 31, 2004 were $3,120,000 as compared to $2,477,000 forthe corresponding period in 2003. The increase in research and developmentexpenses during the first quarter of 2004 is attributable to our increased HIVclinical development activity and manufacturing scale-up activities for REMUNEâand IR103.

 

Expenses associated with our scale-up of themanufacturing process for REMUNEâ and IR103 and thecost of producing clinical supplies for ongoing and future REMUNEâ and IR103 studies isexpected to increase during the next several quarters as we focus our financialresources on REMUNEâ and IR103. Clinicalstudy spending for our other development programs has decreased

 

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beginning in the second quarter of 2002. If we enterinto additional collaborations, research and development expenditures for ourother development programs would likely increase over their current levels.There can be no assurance that we will enter into any collaborations, thatexisting collaborations will not be terminated, or that we will be able toobtain other financing needed to continue our research and development efforts.

 

General and administrative expenses for the three monthsended March 31, 2004 were $838,000 as compared to $1,035,000 for thecorresponding period in 2003.  We expectgeneral and administrative expenses to remain consistent with prior years withsavings attributed to the September 2002 restructuring being offset bypossible increased consulting fees.

 

Interest expense increased to $753,000 for the threemonths ended March 31, 2004 as compared to $1,424,000 for thecorresponding period in 2003. The decrease during the first quarter of 2004 isattributable to an overall reduction in levels of debt.

 

Our net loss per share increased during the firstquarter of 2004 as a result of the increased net loss offset by the increase inour weighted average number of shares outstanding, due to several securitiesissuance transactions.

 

**CriticalAccounting Policies and Estimates**

 

We believe that patents and other proprietary rights areimportant to our business. Licensed technology is recorded at cost and isamortized over its estimated useful life. In December 1999, we acquiredlicenses to certain patent technology, which are being amortized over sevenyears. Changes in our estimates of useful lives may have a material effect onour financial statements.

 

We evaluate potential impairment of long-lived assets inaccordance with FAS No. 144, “Accounting for the Impairment or Disposal ofLong-Lived Assets.” FAS No. 144 requires that certain long-lived assets bereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be fully recoverable based onexpected undiscounted cash flows that result from the use and eventualdisposition of the asset. The amount of any impairment is measured as thedifference between the carrying value and the fair value of the impaired asset.

 

In accordance with FAS No. 144, we have identified our propertyand equipment and licensed technology as long-lived assets subject to annualimpairment review. Given our current financial status, our historical lossesand the indeterminable outcome of the development and approval of our products,there is substantial uncertainty as to our ability to recover our investment inthese long-lived assets through the generation of net future cash flows. Inlight of this uncertainty, we obtained an independent third-party appraisal ofthese long-lived assets in the first quarter of 2003. As a result of suchappraisal, we recognized substantial impairment charges related to property andequipment for the year ended December 31, 2002.

 

In September 2002,we implemented a restructuring program and management changes aimed at reducingcosts and refocusing our efforts on REMUNEâ.  The restructuring program reduced staff andcut spending at our headquarters while maintaining limited manufacturingcapacity at one of our production facilities in King of Prussia, Pennsylvania.  During May 2003, we disposed of excessassets, and during August 2003, we negotiated an early lease terminationfor our former vacated headquarters facility in southern California resultingin exit and disposal related costs of approximately $1,400,000.  During 2003, we recorded an additionalcharge of $2,000,000 related to the estimated net rental expense of our vacantmanufacturing facility in Pennsylvania. These costs have been accounted for in accordance with Emerging IssuesTask Force 94-3.

 

**CertainRisk Factors**

 

Our future operatingresults are subject to a number of factors, including:

 

**Ourfailure to successfully develop our product candidates,****REMUNE****â****,IR103 and NeuroVaxTM****maycause us to cease operations**

 

We have not completed thedevelopment of any products. As part of our restructuring program announced inSeptember 2002, we halted development of most of our products other thanREMUNEâ and NeuroVaxTM. Our other potential therapies, which were under development prior toSeptember 2002, would require significant additional research anddevelopment efforts, funding and regulatory 

 

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approvals if werecommence development in the future. We are dependent upon our ability tosuccessfully develop REMUNEâ, IR103 and NeuroVaxTMand our failure to do so may cause us to cease operations.

 

In May 1999 wediscontinued a Phase III clinical endpoint trial of REMUNEâbecause differences in clinical endpoints were not observed between treatmentgroups and extending the trial would have been unlikely to provide sufficientadditional clinical endpoints. The discontinuation of the Phase III trial hashad a material adverse effect on us. Additionally, the most recent pivotaltrial of REMUNEâ conducted byour former collaborative partner, Pfizer, was discontinued by us. See “—Pfizerhas terminated its collaboration with us, which has hindered the continueddevelopment and commercialization of REMUNEâ.”We cannot assure you that any future Phase III trials of REMUNEâwill be conducted. Furthermore, we cannot guarantee that we, or our corporatecollaborators, if any, will ever obtain any regulatory approvals of REMUNEâ.

 

Before the cessation ofthe development efforts of our products other than REMUNEâin September 2002, our technologies and other potential therapies were atearlier stages of development than REMUNEâand had not been shown to be safe or effective. Some of our technologies havenot been tested on humans. Even if we do continue development of our otherpotential products, regulatory authorities may not permit human testing of thepotential products based on these technologies. Even if human testing werepermitted, the products based on these technologies may not be successfullydeveloped or shown to be safe or effective.

 

The results of ourpre-clinical studies and clinical trials may not be indicative of futureclinical trial results. A commitment of substantial financial and otherresources to conduct time-consuming research, preclinical studies and clinicaltrials will be required if we are to develop any products. Delays in plannedpatient enrollment in clinical trials may result in increased costs, programdelays or both. None of our potential products may prove to be safe oreffective in clinical trials. Approval by the Food and Drug Administration, orother regulatory approvals, including export license permissions, may not beobtained and even if successfully developed and approved, our products may notachieve market acceptance. Any products resulting from our programs may not besuccessfully developed or commercially available for several years, if at all.

 

Moreover, unacceptabletoxicity or side effects could occur at any time in the course of humanclinical trials or, if any products are successfully developed and approved formarketing, during commercial use of our products. Although preliminary researchand clinical evidence have shown REMUNEâto be safe, the appearance of any unacceptable toxicity or side effects couldinterrupt, limit, delay or abort the development of any of our products or, ifpreviously approved, necessitate their withdrawal from the market.

 

**Ourcurrent cash position, significant financing requirements and limited access tofinancing may adversely affect our ability to develop products and continueoperations**

 

We have never generatedany revenue from product sales. As of March 31, 2004, we had anaccumulated deficit of approximately $314,389,000, cash and cash equivalents ofonly approximately $8,553,000 and working capital of only approximately$6,828,000. Because we do not anticipate generating any revenue from ourproducts until at least the third quarter of 2008, if at all, we will continueto have negative cash flow and will need to raise substantial additionalcapital to fund our operations beyond this time. We will need to raisesubstantial funds to continue our operations and to conduct research anddevelopment, preclinical studies and clinical trials necessary to bring ourpotential products to market and to establish manufacturing and marketingcapabilities.

 

We will continue to havelimited cash resources. There can be no assurance that we will be successful inconsummating any financing transaction or, if consummated, that the terms andconditions will not be unfavorable to us.

 

We could raise anadditional $16,700,000 if all of the Class B warrants that were issuedupon exercise of our Class A warrants are exercised. Our Class Bwarrants are redeemable by us if the price of our common stock is equal to orgreater than $3.32 for ten consecutive trading days. However, there can be noassurances that our stock price will rise to $3.32 so as to enable us to callthe Class B warrants for redemption, nor that (even in that event) all or anyportion of the warrants will be exercised by the initial purchasers or by anysubsequent holders.

 

In addition, we couldraise an additional $11,800,000 if all the warrants issued in connection withthe October 2003 private placement are exercised for cash. The warrantsissued in the October 2003 private placement are redeemable by us if theprice of our common stock is equal to or greater than $8.00 for 20 consecutivetrading days. We believe the proceeds there from would provide us withsufficient funds to fund our planned operations, including capital improvementsand new clinical trial costs, for an

 

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additional twelve months.However, there can be no assurances that our stock price will rise to $8.00 soas to enable us to call the warrants for redemption, nor that (even in thatevent) all or any portion of the warrants will be exercised by the initialpurchasers or by any subsequent holders.

 

**Additionally,we could raise an additional $7,100,000 if all the warrants issued inconnection with the April 2004 private placement are exercised for cash.The warrants issued in the April 2004 private placement are exercisable bythe holders at any time between October 2004 and April 2009 at $2.75per share. However, there is no assurance that our stock price will rise to the$2.75 per share exercise price and/or that all or any portion of the warrantswill be exercised by the initial purchasers or by any subsequent holders.**

** **

On September 9,2002, we commenced the implementation of a cost reduction strategy to focus ourcore competencies on efforts related to the research, development,commercialization and production of REMUNEâ.The cost reductions related to research, administrative and operational costshave been offset by increased costs relating to increasing our productioncapabilities at our King of Prussia, Pennsylvania facility and conductingadditional clinical trials.

 

The timing and amount ofour future capital requirements will depend on many factors, including (but notlimited to):

 

•                                          ourability to raise additional funding and the amounts raised, if any;

 

•                                          thetime and costs involved in obtaining regulatory approvals;

 

•                                          continuedscientific progress in our research and development programs;

 

•                                          thescope and results of preclinical studies and clinical trials;

 

•                                          thecost of manufacturing scale-up;

 

•                                          thecosts involved in filing, prosecuting and enforcing patent claims;

 

•                                          competingtechnological and market developments;

 

•                                          effectivecommercialization activities and arrangements;

 

•                                          thecosts of defending against and settling lawsuits; and/or

 

•                                          otherfactors not within our control or known to us.

 

Our access to capitalcould be limited if we do not progress in:

 

•                                          obtainingregulatory approvals;

 

•                                          ourresearch and development programs;

 

•                                          ourpreclinical and clinical trials; or

 

•                                          scalingup manufacturing.

 

Our access to capitalalso could be limited by:

 

•                                          overallfinancial market conditions;

 

•                                          applicableNasdaq rules and federal and state securities laws;

 

•                                          theperfected security interest in our intellectual property in respect of theaggregate $7,208,000 in convertible promissory notes issued to affiliatesand/or related parties of Kevin B. Kimberlin, (who is one of our directors and

 

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our principal stockholder(See “An existing stockholder owns approximately 14.7% of our outstandingcommon stock and has the rights to acquire an additional 26,400,559 shares ofour common stock, which could result in ownership of up to approximately 46.7% ofour outstanding shares and could allow him to control or influence stockholdervotes”);

 

•                                          theeffect of the potential for exercise of outstanding options and warrantsexercisable into approximately 20,900,000 shares of common stock;

 

•                                          theeffect of the potential for conversion of notes payable that were convertedinto approximately 688,000 shares of Series A Convertible Preferred Stockin January 2004.  The Series A isinitially convertible into 2,800,000 shares of common stock up to a maximum of8,300,000 shares of common stock;

 

•                                          theeffect of the potential for exercise of Class B warrants intoapproximately 9,400,000 shares of common stock; and

 

•                                          theissuance of the placement agent option to Spencer Trask Ventures, Inc.,(an affiliate of Mr. Kimberlin) and its transferees that is exercisablefor 1,913,939 shares of common stock and 1,437,658 Class A warrants, whichare not redeemable by us.

 

**Anexisting stockholder owns approximately 14.7% of our outstanding common stockand has the rights to acquire an additional 26,400,559 shares of our commonstock, which could result in ownership of up to approximately 46.7% of ouroutstanding shares and could allow him to control or influence stockholdervotes**

 

Kevin B. Kimberlin, amember of our Board of Directors, together with his affiliates and/or relatedparties, currently own of record approximately 14.7% of our outstanding sharesof common stock. He and they also have the right to acquire, through theconversions of notes and exercise of options and warrants beneficially owned bythem, 26,400,559 additional shares. If the notes, options and warrants were tobe converted and exercised in full, Mr. Kimberlin and his affiliatesand/or related parties would own approximately 46.7% of our outstanding sharesof common stock on a post-conversion/exercised basis. As a result of ownershipof our common stock and the ability to acquire additional shares,Mr. Kimberlin and his affiliates and/or related persons have the abilityto influence, and possibly control, substantially all matters requiringapproval by our stockholders, including the election of directors and theapproval of mergers or other business combination transactions. If yourinterests as a stockholder are different from his interests, you may not agreewith his decisions and you might be adversely affected thereby.

 

**Thelengthy product approval process and uncertainty of government regulatoryrequirements may delay or prevent us from commercializing products. We mustwork to re-establish our credibility with the FDA**

 

Clinical testing,manufacture, promotion, export and sale of our products are subject toextensive regulation by numerous governmental authorities in the United States,principally the FDA, and corresponding state and foreign regulatory agencies.This regulation may delay or prevent us from commercializing products.Noncompliance with applicable requirements can result in, among other things,fines, injunctions, seizure or recall of products, total or partial suspensionof product manufacturing and marketing, failure of the government to grantpre-market approval, withdrawal of marketing approvals and criminalprosecution.

 

The regulatory processfor new therapeutic drug products, including the required preclinical studiesand clinical testing, is lengthy and expensive. We may not receive necessaryFDA clearances for REMUNEâor any of our other potential products in a timely manner, or at all. Thelength of the clinical trial process and the number of patients the FDA willrequire to be enrolled in the clinical trials in order to establish the safetyand efficacy of our products is uncertain.

 

Even if additionalPhase III clinical trials of REMUNEâare initiated and successfully completed, the FDA may not approve REMUNEâfor commercial sale. We may encounter significant delays or excessive costs inour efforts to secure necessary approvals. Regulatory requirements are evolvingand uncertain. Future United States or foreign legislative or administrativeacts could also prevent or delay regulatory approval of our products. We maynot be able to obtain the necessary approvals for clinical trials,manufacturing or marketing of any of our products under development. Even ifcommercial regulatory approvals are obtained, they may include significant limitationson the indicated uses for which a product may be marketed.

 

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In addition, a marketedproduct is subject to continual FDA review. Later discovery of previouslyunknown problems or failure to comply with the applicable regulatoryrequirements may result in restrictions on the marketing of a product orwithdrawal of the product from the market, as well as possible civil orcriminal sanctions.

 

Among the otherrequirements for regulatory approval is the requirement that prospectivemanufacturers conform to the FDA’s Good Manufacturing Practices, or GMP,requirements. In complying with the FDA’s GMP requirements, manufacturers mustcontinue to expend time, money and effort in production, record keeping andquality control to assure that products meet applicable specifications andother requirements. Failure to comply and maintain compliance with the FDA’sGMP requirements subjects manufacturers to possible FDA regulatory action andas a result may have a material adverse effect on us. We, or our contractmanufacturers, if any, may not be able to maintain compliance with the FDA’sGMP requirements on a continuing basis. Failure to maintain compliance couldhave a material adverse effect on us.

 

The FDA has notdesignated expanded access protocols for REMUNEâas “treatment” protocols. The FDA may not determine that REMUNEâmeets all of the FDA’s criteria for use of an investigational drug fortreatment use. Even if REMUNEâ is allowedfor treatment use, third party payers may not provide reimbursement for thecosts of treatment with REMUNEâ. The FDAalso may not consider REMUNEâ or any otherof our products under development to be appropriate candidates for acceleratedapproval, expedited review or fast track designation.

 

The timing and substanceof most FDA discussions are, as a practical matter, discretionary.  Past events have raised doubts in the mindsof some persons at the FDA regarding our corporate credibility and the viabilityof REMUNEâ. Our efforts to re-establish our credibilitymay not succeed; but if they don’t, the FDA approvals that are indispensable ifwe are to survive and succeed may be delayed or denied despite any merit ourapplications may have.

 

Marketing any drugproducts outside of the United States will subject us to numerous and varyingforeign regulatory requirements governing the design and conduct of humanclinical trials and marketing approval. Additionally, our ability to exportdrug candidates outside the United States on a commercial basis is subject tothe receipt from the FDA of export permission, which may not be available on atimely basis, if at all. Approval procedures vary among countries and caninvolve additional testing, and the time required to obtain approval may be evenlonger than that required to obtain FDA approval. Foreign regulatory approvalprocesses include all of the risks associated with obtaining FDA approval setforth above, and approval by the FDA does not ensure approval by the healthauthorities of any other country, including those in Thailand.

 

Specifically, before wewill be permitted to export REMUNEâto Thailand for clinical use in that country, we need to meet a number ofregulatory requirements. One of those requirements is that we must ensure thatwe can manufacture REMUNEâ at ourUnited States manufacturing facility in a manner that is in “substantialcompliance” with current United States GMP requirements. We must provide theFDA with “credible scientific evidence” that REMUNEâwould be safe and effective under the conditions of proposed use in Thailand.Furthermore, the Thailand FDA must (i) formally request the FDA to approveexport of REMUNEâ to Thailand,(ii) certify to the FDA that it is aware that REMUNEâis not approved in the United States or in any of several other countries withcomprehensive drug review and approval systems and (iii) concur that thescientific evidence presented to the FDA is “credible scientific evidence thatREMUNEâ will be reasonably safe and effective” foruse in Thailand. There can be no assurance, however, that we will successfullymeet any or all of these requirements for the export of REMUNEâ,and if we are unable to successfully meet all regulatory requirements, we willnot be permitted by the FDA to export REMUNEâto Thailand for clinical use, even if the Thai government were to approveREMUNEâ for clinical use which it has not yet doneand might never do. There can be no assurance that Trinity Medical GroupUSA, Inc. and its affiliate, Trinity Medical Group, Co. Ltd., aThailand company, collectively, Trinity, our collaborative partner, will besuccessful in its efforts to obtain regulatory approval from the Thailand FDA.

 

**Technologicalchange and competition may render our potential products obsolete**

 

The pharmaceutical andbiotechnology industries continue to undergo rapid change, and competition isintense and we expect it to increase. Competitors may succeed in developingtechnologies and products that are more effective or affordable than any thatwe are developing or that would render our technology and products obsolete ornoncompetitive. Many of our competitors have substantially greater experience,financial and technical resources and production and development capabilitiesthan us. Accordingly, some of our competitors may succeed in obtainingregulatory approval for products more rapidly or effectively than us, ortechnologies and products that are more effective and/or affordable than anythat we are developing.

 

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**Our lackof commercial manufacturing and marketing experience may prevent us fromsuccessfully commercializing products**

 

We have not manufacturedany of our products in commercial quantities. We may not successfully make thetransition from manufacturing clinical trial quantities to commercialproduction quantities or be able to arrange for contract manufacturing and thiscould prevent us from commercializing products or limit our profitability fromour products. Even if REMUNEâis successfully developed and receives FDA approval, we have not demonstratedthe capability to manufacture REMUNEâin commercial quantities. Except for REMUNEâ,we have not demonstrated the ability to manufacture any of our treatments inlarge-scale clinical quantities. We rely on a third party for the finalinactivation step of the REMUNEâmanufacturing process. If the existing manufacturing operations proveinadequate, there can be no assurance that any arrangement with a third partycan be established on a timely basis or that we can establish othermanufacturing capacity on a timely basis.

 

We have no experience inthe sales, marketing and distribution of pharmaceutical or biotechnologyproducts. Thus, our products may not be successfully commercialized even ifthey are developed and approved for commercialization and even if we canmanufacture them.  In addition, ourcompetitors will have significantly greater marketing resources and power thanwe will.

 

The manufacturing processof our products involves a number of steps and requires compliance withstringent quality control specifications imposed by us and by the FDA.Moreover, our products can be manufactured only in a facility that hasundergone a satisfactory inspection and certification by the FDA. For thesereasons, we would not be able to quickly replace our manufacturing capacity ifwe were unable to use our manufacturing facilities as a result of a fire,natural disaster (including an earthquake), equipment failure or otherdifficulty, or if our manufacturing facilities are deemed not in compliancewith the GMP requirements, and the non-compliance could not be rapidlyrectified. Our inability or reduced capacity to manufacture our products wouldprevent us from successfully commercializing our products.

 

We may enter intoarrangements with contract manufacturing companies to expand our own productioncapacity in order to meet requirements for our products, or to attempt toimprove manufacturing efficiency. If we choose to contract for manufacturingservices, we may encounter costs, delays and /or other difficulties inproducing, packaging and distributing our clinical trials and finished product.Further, contract manufacturers must also operate in compliance with the GMPrequirements; failure to do so could result in, among other things, thedisruption of our product supplies. Our potential dependence upon third partiesfor the manufacture of our products may adversely affect our profit margins andour ability to develop and deliver products on a timely and competitive basis.

 

**Adversedeterminations concerning product pricing, reimbursement and related matterscould prevent us from successfully commercializing****REMUNE****âorany of our other products**

 

Our ability to earnrevenue on REMUNEâ or any otherof our products will depend in part on the extent to which reimbursement forthe costs of the products and related treatments will be available fromgovernment health administration authorities, private health coverage insurers,managed care organizations and other organizations. Failure to obtainappropriate reimbursement may prevent us from successfully commercializingREMUNEâ or any of our other products. Third-partypayers are increasingly challenging the prices of medical products andservices. If purchasers or users of REMUNEâor any of our other products are not able to obtain adequate reimbursement forthe cost of using the products, they may forego or reduce their use.Significant uncertainty exists as to the reimbursement status of newly approvedhealth care products and whether adequate third party coverage will beavailable.  In addition, many HIVpatients live in poor countries, which may be unable to afford to paysubstantial sums for their citizens’ HIV therapies.

 

**Oursuccess may depend upon the acceptance of****REMUNE****âbythe medical and HIV-activist communities**

 

Our ability to market andcommercialize REMUNEâdepends on the acceptance and utilization of REMUNEâby the medical and HIV-activist communities. Physician inertia may be a problemfor us as it is for many emerging medical products companies. We will need todevelop commercialization initiatives designed to increase awareness about usand REMUNEâ among targeted audiences, including publichealth and AIDS activists and community-based outreach groups in addition tothe investment community. Currently, 

 

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we have not developed anycommercialization initiatives. Without commercial acceptance of REMUNEâ,the product upon which we are completely dependent, we may not be able tosuccessfully commercialize REMUNEâ or generaterevenue.

 

**Hazardousmaterials and environmental matters could expose us to significant costs**

 

We may be required toincur significant costs to comply with current or future environmental laws andregulations. Although we do not currently manufacture commercial quantities ofour product candidates, we produce limited quantities of these products for ourclinical trials. Our research and development and manufacturing processesinvolve the controlled storage, use and disposal of hazardous materials,biological hazardous materials and radioactive compounds. We are subject tofederal, state and local laws and regulations governing the use, manufacture,storage, handling and disposal of these materials and some waste products.Although we believe that our safety procedures for handling and disposing ofthese materials comply with the standards prescribed by these laws andregulations, the risk of contamination or injury from these materials cannot becompletely eliminated. In the event of an incident, we could be held liable forany damages that result, and any liability could exceed our resources. Currentor future environmental laws or regulations may have a material adverse effecton our operations, business and assets.

 

**Pfizerterminated its collaboration with us, which has hindered the continueddevelopment and commercialization of****REMUNE****â**

 

We received inJuly 2001, a letter from Pfizer which indicated that Pfizer had elected toimmediately terminate, in their entirety, all of its rights and obligationsunder our agreement with them. Our agreement with Pfizer permitted thistermination. Although we retained all rights relating to REMUNEâupon Pfizer’s termination, we lost a significant source of funding. Followingthe termination of our agreement with Pfizer, we decided not to proceed withone of our clinical trials of REMUNEâdeveloped by Agouron (subsequently acquired by Pfizer). The termination of thisagreement has had, and may continue to have, a material adverse effect on ourstock price and, consequently, our ability to successfully raise additionalcapital.

 

**We maybe unable to enter into additional collaborations**

 

We are seeking additionalcollaborative arrangements to develop and commercialize our products. We maynot be able to negotiate collaborative arrangements on favorable terms in thefuture, or at all, and our current or future collaborative arrangements may notbe successful or continue.

 

**Ascollateral for the notes issued to parties affiliated with and/or related toMr. Kimberlin, one of our directors and principal stockholders, suchparties have a perfected security interest in our intellectual property.Pursuant to the security agreement, we must comply with covenants with respectto our intellectual property. The security interests and covenants could impairour ability to enter into collaborative and licensing arrangements.**

** **

**Ourpatents and proprietary technology may not be enforceable and the patents andproprietary technology of others may prevent us from commercializing products**

 

We have a portfolio of173 patents worldwide. Although we believe these patents to be protected andenforceable, the failure to obtain meaningful patent protection for ourpotential products and processes would greatly diminish the value of ourpotential products and processes.

 

In addition, whether ornot our patents are issued, or issued with limited coverage, others may receivepatents, which contain claims applicable to our products. Patents we are notaware of may adversely affect our ability to develop and commercializeproducts. Also, our patents related to HIV therapy have expiration dates thatrange from 2010 to 2017 and our patents related to autoimmune diseases haveexpiration dates that range from 2010 to 2019. The limited duration of ourpatents could diminish the value of our potential products and processes,particularly since we do not expect to generate any revenue from our productssooner than the third quarter of 2008, if at all.

 

The patent positions ofbiotechnology and pharmaceutical companies are often highly uncertain andinvolve complex legal and factual questions. Therefore, the breadth of claimsallowed in biotechnology and pharmaceutical patents cannot be predicted. Wealso rely upon non-patented trade secrets and know how, and others mayindependently develop substantially equivalent trade

 

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secrets or know how. Wealso rely on protecting our proprietary technology in part throughconfidentiality agreements with our current and former corporate collaborators,employees, consultants and some contractors. These agreements may be breached,and we may not have adequate remedies for any breaches. In addition, our tradesecrets may otherwise become known or independently discovered by ourcompetitors. Litigation may be necessary to defend against claims ofinfringement, to enforce our patents and/or to protect trade secrets.Litigation could result in substantial costs and diversion of managementefforts regardless of the results of the litigation. An adverse result inlitigation could subject us to significant liabilities to third parties,require disputed rights to be licensed or require us to cease using proprietarytechnologies.

 

Our products andprocesses may infringe, or be found to infringe, on patents not owned orcontrolled by us. If relevant claims of third-party patents are upheld as validand enforceable, we could be prevented from practicing the subject matterclaimed in the patents, or be required to obtain licenses or redesign ourproducts or processes to avoid infringement.

 

**Youcould suffer substantial dilution of your investment as a result of past andfuture financings**

 

We will continue to havelimited cash resources. Although our management recognizes the need to secureadditional financing, there can be no assurance that we will be successful inconsummating any financing transaction or, if consummated, that the terms andconditions of the financing will not be unfavorable to us.

 

In the last three yearswe have issued very large numbers of shares, plus other securities convertibleor exercisable for additional very large numbers of shares, in order to raisecash as required for our survival. Indeed, in 2003 alone, our weighted averagenumber of shares outstanding nearly tripled. As a result, pre-existingstockholders have been substantially diluted. Any further near- term financings will almost certainly involvesubstantial dilution of outstanding equity.

 

Our recent financingshave been primarily with related parties (affiliates of Mr. Kimberlin).  Any further near-term financings may also beprimarily with related parties.

 

Any subsequent offeringsmay also require the creation or issuance of a class or series of stock that byits terms ranks senior to the common stock with respect to rights relating todividends, voting and/or liquidation.

 

**Youcould suffer substantial dilution of your investment if warrants and options topurchase common stock are exercised for common stock**

 

As of April 30, 2004we had reserved approximately 5,000,000 shares of our common stock forpotential issuance upon the exercise of stock options or purchases under ouremployee stock purchase plan. Issuance of any of these additional shares couldsubstantially dilute your interest in us. Furthermore, we have warrantsoutstanding which, if exercised, will purchase approximately 25,500,000 sharesof our common stock and approximately 6,600,000 shares are issuable uponconversion of our outstanding convertible notes, subject to adjustment.Additionally, our placement agent in the December 2002 private placement,and its transferees, hold unit options to purchase up to 1,913,939 shares ofcommon stock and 1,437,658 Class A warrants, which are not redeemable byus, subject to adjustment. The Class A warrants are exercisable foradditional shares of common stock and Class B warrants, subject toadjustment. In addition, we may issue up to 1,250,000 shares of our commonstock to Trinity pursuant to our License and Collaboration Agreement. Inaddition, we will require substantial additional financings, which even ifsuccessful will probably require the issuance of very substantial amounts ofpotentially dilutive securities. See also “—You could suffer substantialdilution of your investment as a result of past and future financings.”

 

**Ourstock may become delisted and subject to penny stock rules, which may make itmore difficult for you to sell your securities**

 

If we are delisted fromthe Nasdaq for any reason, our common stock might be considered a penny stockunder regulations of the Securities and Exchange Commission, or the SEC, and ifso would be subject to rules that impose additional sales practice requirementson broker-dealers who buy and sell our securities. The additional burdensimposed upon broker-dealers by these requirements could discouragebroker-dealers from effecting transactions in our common stock, which couldseverely limit the market liquidity of the common stock and warrants and yourability to sell our securities in the secondary market. We cannot assure youthat we will be able to maintain our listing on the Nasdaq. Being delistedwould also hurt our ability to raise additional financing.

 

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**Legalproceedings could require us to spend substantial amounts of money and impairour operations**

 

Since July 2001,several complaints have been filed in the United States District Court for theSouthern District of California seeking an unspecified amount of damages onbehalf of an alleged class of persons, who purchased shares of our common stockat various times between May 17, 1999 and July 6, 2001.  The complaints have been consolidated into asingle action under the name *In re Immune Response Securities Litigation*by order of the Court and a consolidated, amended complaint was filed inJuly 2003.  The consolidated,amended complaint names us and certain of our former officers as defendants, aswell as Agouron Pharmaceuticals, Inc. and one of its officers.  The consolidated, amended complaint allegesthat we, Agouron and/or such officers violated federal securities laws bymisrepresenting and failing to disclose certain information about the resultsof clinical trials of REMUNEâ. On October 31, 2003 the defendants filed motions to dismiss theconsolidated, amended complaint.  Thecourt has not yet ruled on the motions. Although we intend to vigorously defend the actions, we cannot nowpredict or determine the outcome or resolution of these proceedings, or toestimate the amounts of, or potential range of, loss with respect to theseproceedings.  In addition, the timing ofthe final resolution of these proceedings is uncertain.  The range of possible resolutions of theseproceedings could include judgments against us or our former officers orsettlements that could require substantial payments by us, which could have amaterial adverse impact on our consolidated financial position, results ofoperations and cash flows.  Theseproceedings also might require substantial attention of our management team andtherefore divert their time and attention from our business and operations.

 

**Ourcertificate of incorporation and bylaws include provisions that could makeattempts by stockholders to change management more difficult**

 

The approval of 66 2/3%of our voting stock is required to approve specified transactions and to takespecified stockholder actions, including the calling of special meetings ofstockholders and the amendment of any of the anti-takeover provisions,including those providing for a classified board of directors, contained in ourcertificate of incorporation. Further, pursuant to the terms of our stockholderrights plan, we have distributed a dividend of one preferred stock purchaseright for each outstanding share of common stock. These rights will causesubstantial dilution to the ownership of a person or group that attempts toacquire us on terms not approved by our Board of Directors and may have theeffect of deterring hostile takeover attempts. The substantial aggregate equitypositions of Mr. Kimberlin and his affiliates and/or related parties wouldmake a hostile takeover attempts very unlikely. The practical effect of theseprovisions is to require a party seeking control of us to negotiate with ourBoard of Directors, which could delay or prevent a change in control. Theseprovisions could limit the price that investors might be willing to pay in thefuture for our securities and make attempts by stockholders to changemanagement more difficult.

 

We are subject to theanti-takeover provisions of Section 203 of the Delaware GeneralCorporation Law, which prohibits us from engaging in a “business combination”with an “interested stockholder” for a period of three years after the date ofthe transaction in which the person first becomes an “interested stockholder,”unless the business combination is approved in a prescribed manner. Theapplication of Section 203 also could have the effect of delaying orpreventing a change of control.

 

**We havea new management team. If we lose our key personnel or are unable to attractand retain additional personnel, we may be unable to successfully develop ourtechnology**

 

Since 2001, we havereplaced most of the key members of our executive management. There can be noassurances that we will not lose additional members of our executive managementteam or, if so, whether we would be able to hire adequate replacements.

Additionally, our abilityto conduct business, raise additional financing and commercialize REMUNEâor our other products may be hindered if we lose additional executive officersor experienced personnel with historical knowledge of our business,transactions, science and technology. Currently, our most experienced executiveofficer has been with us for less than two years.

 

In addition, recruitingand retaining qualified scientific personnel to assist in scaling up ourmanufacturing facilities and performing future research and development workwill be critical to our success. It has been particularly difficult for us toretain personnel in light of the performance of our common stock and theincurrence of substantial net operating losses. We do not have sufficientpersonnel to fully execute our business plan, and there is currently a shortageof skilled executives and scientists, which is likely to continue. As a result,competition for experienced executives and scientists from numerous companiesand academic and other research institutions may limit our ability to hire orretain new executives and other qualified personnel on acceptable terms. If wefail to attract and retain sufficient qualified personnel, we may not be ableto develop or implement our technology.

 

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**Productliability exposure may expose us to significant liability**

 

We face an inherentbusiness risk of exposure to product liability and other claims and lawsuits inthe event that the development or use of our technology or prospective productsis alleged to have resulted in adverse effects. We may not be able to avoidsignificant liability exposure. We may not have sufficient insurance coverage,and we may not be able to obtain sufficient coverage at a reasonable cost. Aninability to obtain product liability insurance at acceptable cost or tootherwise protect against potential product liability claims could prevent orinhibit the commercialization of our products. A product liability claim couldhurt our financial performance. Even if we avoid liability exposure,significant costs could be incurred that could hurt our financial performanceand condition.

 

## **Item 3.****                    ****Quantitative****andQualitative Disclosures about Market Risk**

##  

We invest our excess cashprimarily in U.S. government securities and money market accounts.  These instruments have maturities of twoyears or less when acquired.  We do notutilize derivative financial instruments, derivative commodity instruments orother market risk sensitive instruments, positions or transactions.  Furthermore, our debt is at fixedrates.  Accordingly, we believe that,while the instruments we hold are subject to changes in the financial standingof the issuer of such securities, we are not subject to any material risksarising from changes in interest rates, foreign currency exchange rates, commodityprices, equity prices or other market changes that affect market risk sensitiveinstruments.

 

## **Item 4.****                    ****Controlsand Procedures**

 

Dr. John N. Bonfiglio,our principal executive officer and Mr. Michael K. Green, our principalfinancial officer, after evaluating the effectiveness of our disclosurecontrols and procedures (as defined in Securities Exchange Act Rule 13a-15(e))have concluded that, as of March 31, 2004, our disclosure controls andprocedures are effective.

 

**PART II – OTHER INFORMATION**

 

## **Item 1.****                    ****LegalProceedings**

 

Since July 2001, several complaints have been filed in the UnitedStates District Court for the Southern District of California seeking anunspecified amount of damages on behalf of an alleged class of persons, whopurchased shares of our common stock at various times between May 17, 1999and July 6, 2001.  The complaintshave been consolidated into a single action under the name *In re Immune Response SecuritiesLitigation* by order of the Court and a consolidated, amendedcomplaint was filed in July 2003. The consolidated, amended complaint names us and certain of our formerofficers as defendants, as well as Agouron Pharmaceuticals, Inc. and one of itsofficers.  The consolidated, amendedcomplaint alleges that we, Agouron and/or such officers violated federalsecurities laws by misrepresenting and failing to disclose certain informationabout the results of clinical trials of REMUNEâ.  On October 31, 2003 the defendantsfiled motions to dismiss the consolidated, amended complaint.  The court has not yet ruled on themotions.  Although we intend tovigorously defend the actions, we can not now predict or determine the outcomeor resolution of these proceedings, or estimate the amounts of, or potentialrange of, loss with respect to these proceedings.  In addition, the timing of the final resolution of theseproceedings is uncertain.  The range ofpossible resolutions of these proceedings could include judgments against us orour former officers or settlements that could require substantial payments byus, which could have a material adverse impact on our consolidated financialposition, results of operations and cash flows.  These proceedings also might require substantial attention of ourmanagement team and therefore divert their time and attention from our businessand operations.

 

## **Item 2.****                    ****Changes****in Securities, Use of Proceeds and Issuer Purchases of Equity Securities**

 

OnJanuary 7, 2004, $3,899,000 of previously issued, related partyconvertible promissory notes plus accrued interest of approximately $219,000were converted by Cheshire Associates, LLC, an affiliate of our director andprincipal stockholder Kevin Kimberlin, into 688,146 shares of Series Aconvertible preferred stock at $5.984 per share. As a conversion, this qualifiedfor the 

 

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SecuritiesAct Section 3(a)(9) exemption from registration. The holders of shares ofSeries A convertible preferred stock have the right to further converteach share of Series A convertible preferred stock into anywhere from fourto twelve shares of common stock, depending on the date of conversion. TheSeries A convertible preferred stock has dividend and liquidationpreferences prior and in preference to common stock holders. In addition the holdersof Series A convertible preferred stock are entitled to protectiveprovisions that require 66 2/3% of the outstandingSeries A convertible preferred stock to approve, among other things,creating a new class of security with dividend or liquidation rights equal orsenior to the Series A convertible preferred stock, a liquidation orrecapitalization or increasing the number of shares reserved for issuance underour stock option plans to greater than 10% of our outstanding capital stock.

 

## **Item 3.****                    ****Defaults****Upon Senior Securities**

 

None

 

## **Item 4.****                    ****Submission****of Matters to a Vote of Security Holders**

##  

None

 

## **Item 5.****                    ****OtherInformation**

##  

DuringApril 2004, the Board of Directors approved the appointment of David P.Hochman to our Board of Directors to replace Jed B. Trosper following hisresignation.

 

**Item 6.****                    ****Exhibits****and Reports on Form 8-K**

 

a)              Exhibits

 
| **Exhibit  Number** |   | **Description  of Document**                                                                                                                                       |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                               |
| 10.155              |   | Lease dated December 15, 1997 by and among the Company and The  Childs Family Investment Partnership, L.P. and The A. J. Gardner Family  Trust, U/T/A 3/5/81. |
|                |   |                                                                                                                                                               |
| 31.1                |   | Certification of the Principal Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|                |   |                                                                                                                                                               |
| 31.2                |   | Certification of the Principal Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|                |   |                                                                                                                                                               |
| 32.1                |   | Certification pursuant to Section 1350 of Chapter 63 of U.S.C.  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                    |
|                |   |                                                                                                                                                               |
| 32.2                |   | Certification pursuant to Section 1350 of Chapter 63 of U.S.C.  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                    |

 

b)               Reports on Form 8-K

 

On February 11,2004, we filed a Form 8-K reporting, under items 5 and 7, the issuance onFebruary 5, 2004, of a press release announcing our early release of amarket-trading lockup restriction on certain securities.

 

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**SIGNATURES**

** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned thereunto duly authorized.

 
|                     | THE  IMMUNE RESPONSE CORPORATION |
|--------------------------|----------------------------------|
|                     |                             |   |
|                     |                             |   |
| Date:  May 12, 2004 | By:                              | /s/  Michael K. Green |   |
|                     |                             | Michael  K. Green, |
|                     |                             | Chief  Financial Officer |
|                          |                                  |  |  |  |

 

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**PART III –EXHIBITS TO FORM 10-Q**

 

 

**THE IMMUNE RESPONSE CORPORATION**

 

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**ExhibitIndex**

 
| **Exhibit  Number** |   | **Description  of Document**                                                                                                                                       |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |   |                                                                                                                                                               |
| 10.155              |   | Lease dated December 15, 1997 by and among the Company and The  Childs Family Investment Partnership, L.P. and The A. J. Gardner Family  Trust, U/T/A 3/5/81. |
|                |   |                                                                                                                                                               |
| 31.1                |   | Certification of the Principal Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|                |   |                                                                                                                                                               |
| 31.2                |   | Certification of the Principal Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                  |
|                |   |                                                                                                                                                               |
| 32.1                |   | Certification pursuant to Section 1350 of Chapter 63 of U.S.C.  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                    |
|                |   |                                                                                                                                                               |
| 32.2                |   | Certification pursuant to Section 1350 of Chapter 63 of U.S.C.  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                    |

 

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