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**UNITED STATES********SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-K**

 

**(Mark One)**

** **

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

** **

**FOR THEFISCAL YEAR ENDED DECEMBER 31, 2008**

 

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

** **

**FOR THETRANSITION PERIOD FROM             TO             **

 

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

 

**IRIS BIOTECHNOLOGIES INC.**

(Name of small businessissuer in its charter)

 

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

 

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

(Address of principalexecutive offices) (Zip Code)

 

Issuer’s telephoneNumber: **(408) 867-2885**

 

Securitiesregistered under Section 12(b) of the Exchange Act: None.

 

Securities registeredunder Section 12(g) of the Exchange Act: Common Stock, no par value

 

Indicate by check mark is the issuer is a well-knownseasoned issuer, as defined in Rule 405 of the Securities Act Yes o   No x

 

Indicate by check if the issuer is not required tofile reports pursuant to Section 13 or 15(d) of the Exchange Act. Yeso  No x

 

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

 

Indicate by check mark if no disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is notcontained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K. o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  See thedefinitions of “large accelerated filer”, “accelerated filer”, and “smallerreporting company” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer  o | Accelerated filer o          |
|----------------------------|------------------------------|
| Non-accelerated filer o    | Smaller reporting  company x |

 

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

 

The aggregate market value of the voting andnon-voting common equity held by non-affiliates (based on a sale price of $2.25per share which was the last sale price of the common stock as of March 30,2009 was $6,728,986.00.

 

State issuer’s revenues for its most recent fiscalyear: $0

 

Asof June 30, 2008, the aggregate market value of the common equity held bynon-affiliates of the registrant was $6,573,996.

 

As of March 30, 2009, the issuer had 10,961,274outstanding shares of Common Stock.

 

**DOCUMENTSINCORPORATED BY REFERENCE: NONE**

 

 

 

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TABLE OF CONTENTS

 
| ** **  | ** **                                                                                        | **Page** |
|-------------|---------------------------------------------------------------------------------------------------|----------|
|        | PART I                                                                                       |     |
| Item 1.     | Business                                                                                          | 3        |
| Item 1A.    | Risk  Factors                                                                                     | 14       |
| Item 1B.    | Unresolved  Staff Comments                                                                        | 19       |
| Item 2.     | Properties                                                                                        | 19       |
| Item 3.     | Legal Proceedings                                                                                 | 20       |
| Item 4.     | Submission  of Matters to a Vote of Security Holders                                              | 20       |
|        |                                                                                              |     |
|        | PART II                                                                                      |     |
| Item 5.     | Market for  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities | 20       |
| Item 6.     | Selected Financial  Data                                                                          | 22       |
| Item 7.     | Management’s  Discussion and Analysis of Financial Condition and Results of Operations.      | 22       |
| Item 7A.    | Quantitative  and Qualitative Disclosures About Market Risk                                       | 27       |
| Item 8.     | Financial Statements  and Supplementary Data                                                      | 27       |
| Item 9.     | Changes In  and Disagreements with Accountants on Accounting and Financial Disclosure             | 27       |
| Item 9A(T). | Controls and  Procedures                                                                          | 27       |
| Item 9B.    | Other Information                                                                                 | 28       |
|        |                                                                                              |     |
|        | PART III                                                                                     |     |
| Item 10.    | Directors, Executive  Officers, and Corporate Governance                                          | 28       |
| Item 11.    | Executive Compensation                                                                            | 30       |
| Item 12.    | Security Ownership  of Certain Beneficial Owners and Management and Related Stockholder Matters   | 31       |
| Item 13.    | Certain Relationship  and Related Transactions, and Director Independence                         | 32       |
| Item 14.    | Principal  Accountant Fees and Services                                                           | 32       |
| Item 15.    | Exhibits                                                                                          | 33       |
|        |                                                                                              |     |
| SIGNATURES  | 34                                                                                                |

 

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**PART I**

 

**ITEM 1.BUSINESS**

 

Iris BioTechnologies(OTCBB:IRSB) is an emerging leader in personalizedand targeted medicine, focusing on enabling the right medical treatment forthe right person at the right time.Since its founding in 1999, the Iris mission has been to predict how bestto maximize the quality and longevity of life using its patented nano-biochipsTMand BioWindowsTM informatics system. The company has four patents granted in theUnited States and some of those are already granted in Canada, Europe, Asia,New Zealand and Australia.

 

Iriswas the recipient of Frost and Sullivan’s 2008 North American TechnologyInnovation Award in Pharmacogenomics. According to Frostand Sullivan “Iris’s technology is a near-term opportunity, which wouldsignificantly transform the way in which personalized medication is currentlybeing prescribed.”

 

The Iris nano-biochipTM is a special silicon chip thatenables physicians to identify and analyze the DNA’s gene expression profileinvolved in a disease.  DNA is a ladderlike molecule that can be split into half ladders with a little bit of chemicalmanipulation. If you could look inside the nano-biochipsTM, you would see halfladders that represent specific genes anchored in separate wells on the siliconsubstrate. Each half ladder is a sequence of nucleotide bases calledoligonucleotides or peptide nucleic acids.

 

Split DNA has the unique ability of reconnecting toits compliment, the other half ladder, very precisely under properly controlledconditions. This process is called hybridization. Our chip uses this quality toact as a test probe to capture abnormal genetic information. The geneticmaterial that is captured is messenger RNA, and in an abnormal state isresponsible for creating the conditions that lead to disease. This capturedmaterial is also referred to as cDNA and cRNA.

 

Messenger RNA (mRNA) is extracted and purified fromcollected tissue samples with commercially available automated machines, taggedwith fluorescent molecules and processed inside the nano-biochip. The mRNAs ofinterest are captured by their respective probes (half ladders) and energized,exciting the fluorescent tags to emit light, which can be photographed anddigitized. The intensity of the light emitted from the fluorescent molecules isa measure of the genes activity. The digitized photograph is automaticallyencrypted and sent either to a local server or over the Internet to ourartificial intelligence system (BioWindowsTM) for analysis.

 

The captured information, referred to as “geneexpression” or “a gene signature” is selectively compared in our BioWindowsTMdatabase, which is currently being compiled from correlations between referencegene signatures, prior treatment strategies and clinical outcomes. The initialdatabase is a collection of historical data derived from the analysis of breastcancer tissues from other breast cancer patients with the same or similarclinical and gene expression profiles. After the gene signature comparison, asecure, confidential and clinically actionable report is then generated andsent to the treating physician.

 

Our competitors have introduced products to theclinical market that rely on older and more expensive technologies such aspolymerase chain reactions (PCR) or less sensitive research-based microarrays.Microarrays have the power and speed for genomic analyses of complex medicalconditions and thus have the potential to be a valuable clinical resource.However, current glass microarray technologies do not meet the clinical needsin being able to determine the best medical treatment regimen because theyoften lack the sensitivity required.

 

PCR and Real time PCR currently provide a highstandard for molecular analysis. Our management believes that while it doeswork, it is an expensive technology. It is a practical system to use forclinical diagnostic if it is used to detect only a few genes.

 

In2008, our competitor, Genomic Health, increased their revenue to $110.6 millionfrom $64.0 million in 2007. They use existing RT-PCR technology and areproviding their 21-gene test for $3,820. We feel that this is an excellentfirst phase for personalized medicine but it needs to go further since their 21gene test (including 5 control genes) only predicts the probable recurrence ofbreast cancer to determine whether or not a patient should be treated withchemotherapy. We believe that our test for determining the best medicaltreatment regimen would be preferred by physicians, patients, and insuranceproviders because it would save more patient lives and reduce the overall costof breast cancer treatment.

 

Choosing the rightcombination of surgery, radiation, chemotherapies, hormonal therapies,monoclonal antibody treatment, anti-angiogenic therapy, or other medicaltreatment requires a solid genomic-based diagnosis along with the analysis oflife style dynamics. Wherelife critical medical decision-making and patient care are concerned, webelieve that these approaches will ultimately prove to be clinically lesseffective and too expensive for large-scale use.Physicians and patients arebeginning to realize that personalizing healthcare is a choice and the futureof medicine. Our 100-gene test will be offered at the initialprice of $4,300.

 

OurBioWindows 2.0, which was launched on January 19,fits in well with the goals of the “Health Information Technology for Economicand Clinical Health Act.” The HITECH Actprovides a total of $20,000,000,000 for implementation of health informationtechnology programs, encouraging doctors andhospitals to use electronic record keeping and ordering systems. We believestrongly that Iris will be a part of the solution to help strengthen andtransform the healthcare system in our country.

 

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In February, American Recovery and Reinvestment Act of2009 became a reality. The Recovery Act has created a great opportunity forthose who are interested in investing in our company. Under the Act, taxpayerscould exclude 75% of the gain from the sale of small business stock held formore than five years. This applies to stock acquired after enactment and beforeJanuary 1, 2011. A small business is one with assets less than $50million.

 

**OurSolution**

 

Our nano-biochipTM technology platform was developedusing a convergence of scientific disciplines in nanotechnology, semiconductormanufacturing, microfluidics, chemistry, molecular biology, genetics, genomics,and information technology. We expect that our product platform will lead tomore effective diagnosis and treatment not only for patients with breastcancer, but also for those with neurological disorders, heart disease, diabetesand other gene-related metabolic problems.

 

Our technology platform includes:

 

·                  Oligonucleotide and peptide nucleic acid(PNA) probes with superior binding affinity and specificity that are the ideallength and highly purified

·                  A proprietary binding system to secureprobes to a soft metal chip surface

·                  Controlled probe spacing and chip surfacedesign to maximize sensitivity

·                  Microfluidics and the use of paramagneticlabels with a magnetic field to enhance hybridization speed. Microfluidicsdeals with the precise control and manipulation of microliter and nanolitervolumes of fluids.

·                  A flexible, low-cost chip design andmanufacturing process

·                  Use of robotics for precise automatedchip manufacturing

·                  An information technology system based onproprietary algorithms for analysis, correlation and classification of testresults.

 

Our products can be marketed as CLIA laboratory testswithout FDA approval, similar to Genomic Health’s OncoType DX test or as 510(k) productsapproved by the FDA, enabling our tests to be used in any certified laboratory.To get FDA approval, a human clinical “in vivo” trial is not required. Humantissue study “in vitro” is sufficient for getting 510(k) approval from theFDA, which we will be seeking. This will enable us to sell our nano-biochip diagnostic kits on aworldwide basis directly to major hospital networks, clinical laboratories, pharmaceutical companies,research institutions and individuals.

 

The Iris BioWindowsTM database comprising data fieldsfor patient demographic information, personal medical history, family medicalhistory, and gene expression information is in use for storing actual patientinformation. Physicians, with the patient’s consent, can view information bychoosing any medical record from their personal list of patients. Actualpatient gene signature information will be added to the database after weprocess each patient’s specimen through our nano-biochip for breast cancer andother diseases. In the future, our database will also contain information onprotein signatures.

 

As the database grows, it will become increasinglymore powerful as patient cohorts become more refined. No individual drugsuccessively serves every patient with a specific disease but different drugsare highly successful with specific groups of patients yet are toxic to others.The ability to empower the clinician to choose the best treatment regimens fortheir patients is the heart of the Iris BioWindowsTM system.

 

Iris is ready to build our BreastCancerChipTM forcommercialization and wellpositioned strategically and structurally to introduce future products such asthe Comprehensive Cancer ChipTM, NeuroChipTM, CardioChipTM, MetabolicChipTM, aswell as Chips for other applications including veterinary, agricultural andenvironmental problems. Iris also intends to use its BioWindowsTM database toenable drug development, stem cell research, and evolving clinicalapplications.

 

**Summary of Medical Care**

 

According to the Departmentof Health and Human Services (HHS), spending on national health care totaled$2.4 trillion, or 17 percent of G.D.P. in 2008 with the Congressional BudgetOffice estimating that without changes in federal law, it will rise to 25percent of the G.D.P in 2025. $1.1 billion in the economic stimulus bill isearmarked to compare the effectiveness of different treatments for the sameillness.

 

In2009, approximately 180,000 American women will be diagnosed with breastcancer, and one out of four will die from this disease.  A breast cancer patient, after the removal ofthe tumor, is usually treated with radiation and/or chemotherapy followed byadditional therapies such as hormonal therapy or molecular antibody treatment.

 

Accordingto a study from the National Cancer Institute (NCI), the average cost ofchemotherapy is about $31,000, and most patients that receive chemotherapy donot benefit from this painful treatment with its many undesirable side effects.Some drugs to be taken after 

 

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chemotherapy could cost $40-$80 thousands per year. For some patients,the total cost of breast cancer treatment could exceed $150,000 in the firstyear.

 

Most of our current medicalpractice in this country is based on “standards of care” which are determinedby averaging responses over large groups of patients based on clinical trials.Another way to arrive at “standards of care” is to group patients into cohorts(groups) based on their specific characteristics. Instead of looking forgeneralities within a large group of patients, medical practitioners can focuson specifics and what cohort best fits each individual.

 

Which characteristics shouldbe considered in building a subset or cohort? Many characteristics are obviousand are presently considered to optimize treatment; gender, age, weight,height, ethnicity, family history and disease history for instance. There areothers that are not so obvious; diet, allergies, immunizations, obstetrichistory, stress and lifestyle as well as environmental factors includingemployment and residential history. But probably the most important arepersonal biomarkers.

 

Inmedicine, a biomarker is an indicator of a particular disease state or aparticular state of a patient; blood pressure and cholesterol are two familiarones. Over the past few decades, major advances in molecular analysistechnologies have brought the definition of a biomarker to the arena of thegenome. The present biomarkers that medicine relies on for disease diagnosisand prognosis are only a glimpse into the molecular basis of common diseases. The addition ofgenomic analysis would allow medicine to define diseases precisely, uniquelyand unequivocally.

 

In a February 16th 2009AP article Dr. Richard Schilsky, American Society of Clinical Oncology(ASCO) president, was quoted as saying that “a bad test is as dangerous to apatient as a bad drug.” “The tricky part is to figure out which of those(genetic differences) are clinically important and which are just variationsthat exist.” The most complete genomic testing is about uncovering a tumor’sgenetic signature by measuring the gene expression activity that drives theaggressiveness of the tumor, its possibility of recurrence and what specifictype of therapeutic regimen would save and optimize the patient’s quality oflife.

 

Breast cancer, like alldiseases, is very complex involving an individual’s genome interacting with itsenvironment over time. Only 5% of breast cancers are due to inheritedmutations; the other 95% are due to acquired somatic mutations and improperlyregulated genes due to environmental factors. Why do some people getcancer and others don’t? Why is cancer more aggressive in some patientscompared to others? Why does the same drug cure some patients and cause severeside effects in others?  Why does someoneneed twice the standard dose to have a positive effect while others need onlyhalf? Existing diagnostic procedures cannot answer these questions.

 

The answer and solution toall these questions is the same, genomics and personalized medicine. With theinformation available in our BioWindowsTM informaticssystem physicians would be able to stratify patients into cohorts with common,yet unique, disease characteristics. When you add a new patients genomic andlife dynamics into the system for comparison they are added to groups thatshare the greatest number of similarities in all aspects. As the system growsyou move further and further away from “generic” treatments, based on outdatedclinical trials and trial and error medicine and enter the new era of trulypersonalized medicine.

 

**OurStrategy**

 

*ProductStrategy*

 

We have identified our products for development basedon the high prevalence, societal impact and economic consequences of certainserious medical conditions such as breast cancer. It has become apparent to us,with respect to breast cancer, that there remains an acute need for a robuststaging classification system, as well as more effective predictive, andprognostic tools to assist in medical treatment decisions. Recently, thecharacterization of gene mutations and gene expression patterns as they relateto this disease has become the prime focus of a great deal of research anddiscovery.

 

*Breast Cancer Chip*

 

The National Cancer Institute (NCI) estimates that182,460 women and 1,990 men will be diagnosed with and 40,480 women and 450 menwill die of cancer of the breast in 2008. That means a woman is diagnosed withbreast cancer every three minutes in the United States. NCI also estimates thatapproximately $8.1 billion is spent in the US each year on treatment of breastcancer and there are more than two million women alive in the United States whohad a history of cancer of the breast.

 

According to United States General Accounting OfficeReport to the Chairman, Special Committee on Aging, U.S. Senate issued April 2002and entitled “Mammography - Capacity Generally Exists to Deliver Services,” thenumber of mammograms provided to women age 40 and older increased by 15 percentbetween 1998 and 2000. 

 

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From October 1998 to 2001, the total number ofmachines and radiology technologists available to perform mammography servicesincreased 11 percent and 21 percent respectively.

 

With the increasing success of early mammographyscreening programs, a growing number of breast biopsies are being performed todetermine if suspicious growths are malignant or benign. Up until now,malignant tissue has been graded based on traditional tumor/nodal/metastasis(TNM). The current testing procedures also use immunohistochemical tissuestaining techniques for additional cancer cell sub-classification and staging,which is used for clinical decisions regarding treatment and prognosis.

 

Mammography can detect a breast tumor once it hasreached a certain size, but cannot tell if the tumor is benign or malignant. Abreast biopsy can determine if a tumor is cancer but cannot predict howaggressive the disease will be or how the patient will respond to the varioustreatment modalities. Starting at the point of a breast biopsy diagnosis ofcancer, the nano-biochip and BioWindowsTM artificial intelligence program aredesigned to enable a treating physician to quickly prescribe a personalizedtreatment regimen that will have the greatest probability of success for eachpatient’s particular type of cancer. This knowledge could be the differencebetween life and death in some cases and a better quality of life for allpatients.

 

*Future Products*

 

We are also working on gene markers for acomprehensive CancerChip TM and specific markers associated withprostrate, lung, liver, kidney and ovarian cancers. Certain genes associatedwith schizophrenia, Alzheimer disease, autoimmune system disorders, andmetabolic and drug metabolism disorders have also been reviewed. We arecontinuing to work on the selection of newly discovered genes to be included inother products such as the NeuroChip TM and CardioChip TM.

 

*Critical Performance Factors*

 

We have been developing our first product to analyzebreast tumors using 100 or more gene probes. By comparing the patient sample toour intended reference database, our test will identify the tumor gene profileas benign or malignant, predict the tumor’s aggressiveness, guide the physicianin selecting the most appropriate treatment and, subsequently, monitor the effectivenessof treatment.

 

We have developed our flexible and easily adaptablenano-biochip platform to address technology requirements that impact theclinical value of genomic information acquired.

 

·                  Probe Sensitivity - Sensitivity, as it applies to PNAchip probes, is the measure of how well the test nucleic acids hybridize tospecific and complimentary DNA and RNA sequences in a given sample. Theconsequence of low attraction (low sensitivity) is quantitatively low sequencehybridization and a resulting loss in the power and specificity of genomicanalysis, i.e. false negatives test results. A highly sensitive systemhas the ability to efficiently capture targeted gene sequences and accuratelymeasure small variations in their expression. Sensitivity is affected by probelength, design and binding affinity, purity, and concentration within each spotin an array.

 

·                  Probe Specificity - Specificity, as it applies to PNAchip probes, is the ability for test nucleic acids to selectively hybridize toonly those specific DNA and RNA sequences in a given sample to whichhybridization is intended. The consequence of low selectivity (low specificity)is incorrect and erroneous hybridization, leading to imprecise genomicanalysis, i.e. false positives test results. A highly specific systemhas the ability to capture only the relevant and intended target genesequences, which only then provides the ability to measure small variations ingene expression. Specificity is affected by probe length, design and purity.

 

·                  Hybridization Speed - The number of tests, largevolume of analyses required for each test, and required response time in aclinical setting demands speed. Hybridization speed is affected by probebinding affinity, spacing and density, steric hindrance (limited test specimenaccessibility to the probe due to a large amount of unwanted molecules near theprobe), and proximity of test probes to the DNA sample. Test probes arespecific gene sequences synthesized for the purpose of capturing specific genesin each patient sample.

 

·                  Design Flexibility and Cost - A flexible manufacturingprocess and chip design allows for rapid development and modification of chipproducts at a low chip cost. A low chip cost will enable delivery of 

 

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high margin products at aprice point suitable for clinical requirements, and will help to encouragewide-scale adoption of high throughput genomic diagnostic testing.

 

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*OurTechnological Solutions*

 

Our silicon biochip genedetection platform consists of proprietary technologies incorporated intooligonucleotide and PNA chips, customized readers/scanners and our BioWindowsgenetic information interpretation system. The nano-biochip is built on asemiconductor substrate and contains oligonucleotide and/or PNA probes, whichuse hybridization to identify specific genes in cells from patient tissue orblood samples. The pools of cRNA or cDNA in patient samples are labeled withfluorescent molecules and then circulated through the integrated microfluidicsbiochip where complementary molecular binding takes place with the attachedtest probes. The remaining uncomplimentary cRNA or cDNA is then washed away.

 

The fluorescence of thehybridized genes is analyzed by a laser scanner or a CCD reader (a microscopeattached to a digital camera) which, with the assistance of the BioWindowssoftware system, determines if the recognized genes, their mutation orexpression patterns are representative of the specific disease optical patternthat the chip is designed to detect. This analysis is performed by comparingthe detected hybridization patterns to an Iris reference database ofhybridization profiles.

 

**TestProbes**

 

Our probes can bemanufactured to exacting specifications and varied in composition and length.Probes will be pre-synthesized and can be verified before attachment to ensurethey are homologous and highly purified. We can manufacture probes to theiroptimal length to ensure the appropriate probe length for each nano-biochipproduct. Sample DNA targets (gene sequences associated with cancer, infectiousdisease, and other metabolic or gene related disorders) vary in composition andlength. Consequently, specific hybridization with a patient sample is enhancedwhen probes are designed for their specific targeted gene sequences.

 

PNA probes capturespecific DNA and RNA (ribonucleic acid) sequences more efficiently thanoligonucleotide and complimentary DNA (cDNA) probes. Unlike oligonucleotides,PNAs are synthesized analogs that lack pentose sugar phosphate structuralbackbone groups. The deoxyribose backbone is replaced by a peptide backbone.The resulting hybridization to complementary RNA or DNA has a higher affinitythan corresponding nucleotides.

 

The stronger binding isattributed to the neutrality of the backbone, which results in the eliminationof sub molecular electrical charge repulsion that is present in unmodifiedDNA/DNA or RNA/RNA duplexes. This binding strength is confirmed by their highermelting temperatures (higher thermal stability). PNAs also have increasedspecificity for DNA binding. As a result, a PNA/DNA mismatch is moredestabilizing than a mismatch in a DNA/DNA duplex. PNA/DNA mismatches aretherefore more likely to be degraded during the washing cycle, resulting inmore accurate and specific hybridization detection and quantification.

 

Binding System

 

Our binding systemutilizes a proprietary spacer technology to bind oligonucleotides to soft metalwells on the surfaces of the chip. The technology is based on a “lock and key”molecular design that includes a stable anchor bond to the solid surface, aspacer arm which gives flexibility to the probe allowing it to interact withits environment in a way which minimizes steric hindrance (limited testspecimen accessibility to the probe due to a large amount of unwanted moleculesnear the probe), and a reactive terminal molecule which binds to the probe.This technique provides a reliable method to immobilize probe molecules with arobust, stable connection to the chip-binding surface while optimizing theirsensitivity and specificity.

 

Probes stand vertically,attached to the metal well surface on one end by the anchor. The connectionensures probe stability and integrity during the hybridization and subsequentwashing cycles. In addition, the spacer between the probe and metal baseoptimizes a probe’s ability to make contact and bind with the sample cDNAand/or cRNA by distancing the probe from the chip surface.

 

Microfluidics

 

Wells on our chip, inwhich probes are secured, are interconnected by a system of microchannels. Acentral fluidics station distributes the genetic target and washing solutionsthrough the microchannels on the chip during the hybridization and washingcycles. The controlled flow of solution enhances hybridization by ensuring thatthe sample cDNA and/or cRNA come in contact with the probes.

 

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Magnetic Labels

 

Our biochip platform cancurrently complete the hybridization process in 20 minutes. We are alsodeveloping a proprietary technology that labels nucleic acid target moleculeswith paramagnetic labels. Activation of a magnetic field under the probemolecules induces and directs rapid migration of the charge-labeled moleculesto a solid support and could dramatically shorten the hybridization rate to fiveminutes.

 

*Nano-BiochipFabrication*

 

Our approach to chipdesign is similar to that used in building an “Application Specific IntegratedCircuit (ASIC)”. We build a base substrate (requiring less than 10 mask layers)before depositing the probes as required. With the flexible ASCI chip design, anew mask set is not required which will reduce any retooling costs andconsiderably reduce chip modification time.

 

We have developed ourPiezo ArrayerTM robotic micro pump system and can precisely deliver differentprobe solutions simultaneously.

 

*BioWindows**TM*

 

Our bioinformaticsprovides an artificial intelligence system with proprietary algorithms foracquisition and analysis of genomic hybridization information. This proprietarysystem optically reads hybridization data from nano-biochips and analyzesresults based on a variety of statistical algorithms that suggest and evaluatetest result hypotheses.

 

Hybridization informationis compared with an Iris repository of hybridization profiles, patientprofiles, reference information, clinical information associated withhybridization profiles, and statistical summaries to provide appropriatetreatment scenarios for a variety of pathological conditions, ailments anddiseases. The system will utilize normalization and expression level controlswhen relevant to accommodate variations in hybridization conditions, labelintensity and other factors as well as control for the overall health andmetabolic activity of a cell.

 

**Competition**

 

The medical diagnosticindustry is characterized by rapidly evolving technology and intensecompetition. Our competitors include medical diagnostic companies, most ofwhich have financial, technical and marketing resources significantly greaterthan our resources. In addition, there are a significant number ofbiotechnology companies working on evolving technologies that may supplant ormake our technology obsolete. Academic institutions, governmental agencies andother public and private research organizations are also conducting researchactivities and seeking patent protection and may commercialize products ontheir own or through joint ventures. We are aware of certain developmentprojects for products to prevent or treat certain diseases targeted by us. Theexistence of these potential products or other products or treatments of whichwe are not aware, or products or treatments that may be developed in thefuture, may adversely affect the marketability of products developed.

 

*GenomicHealth Inc.*

 

The current test offeredby our main competitor, Genomic Health Inc., is a “home-brew test” and is notan FDA approved kit. That means hospitals and clinical laboratories cannotpurchase and run the test in their own extensive network of laboratories.

 

The Genomic Health testworks only for a subset of breast cancer patients. We have focused on providingtesting that can benefit all breast cancer patients before they undergoany prescribed treatment. We believe that our strategy of early diagnosis,prognosis and personalized care will grow rapidly to become the “de facto”model in the breast cancer clinical market.

 

We believe ournano-biochip more precisely diagnoses and identifies the best medical treatmentchoices at the time of the initial biopsy. The significant advantage of earlyoptimal medical intervention leads to reduced diagnostic and treatment costsover the life of the patient and an improvement in the patient’s quality oflife.

 

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*AffymetrixInc.*

 

Affymetrix’s microarraytechnology relies on solid-phase chemical synthesis (stacking chemicalmolecules on top of each other) of their test probes, which is not capable ofproducing a high yield of purified, immobilized molecules. Probes areimmobilized using a three-dimensional nylon membrane support structure.Immobilization structural chemistry lacks specificity and therefore increasesthe probability that target sample DNA will bind nonspecifically to either theimmobilized probe DNA or the solid surface of the chip, resulting in erroneousfalse positive test results.

 

Also, the chemistry ofprobe support membranes varies among batches, and these variances affect theamount of DNA material deposited. As a result of these limitations, Affymetrixrequires the use of 10 mismatch quality control probes for every functionalprobe in a probe “group”. Hybridization results are analyzed based on findingswithin the control group. These technology constraints result in limitations ofsensitivity and specificity.

 

*Agilent/Agendia*

 

Like Affymetrix, Agilentcan also make synthesized oligo chips, and Agendia buys this type of chip fortheir test. We believe that Agilent’s PROBE SENSITIVITY is about 16% comparedto that of 4 - 10% for Affymetrix. We believe our PROBE SENSITIVITYcould be 99% purified. Even if Agilent were to copy our approach in probedesign, synthesis, and deposition, their chip performance would still belimited by their use of glass as a substrate. Glass lacks the necessarychemistry for advanced surface binding and enhanced hybridization performance.Should Agilent also switch to a semiconductor substrate, our product wouldstill have an advantage because of its use of PNA probes, an advancedprobe-binding system, and enhanced hybridization technologies discussed inelsewhere in this prospectus.

 

On February 6, 2007,the US Food and Drug Administration (FDA) approved Agendia’s 70-gene test forpredicting breast cancer recurrence. The clearance of Agendia’s ‘denovo 510(k)’ application sets a precedent. This will make it easier and faster for Iris to get approval for itsNano-Biochip. Agendia has previously received clearance from European authoritiesto market their test in Europe and they claim substantial progress in marketacceptance and reimbursement.

 

**Salesand Marketing**

 

We expect thatour marketing efforts will capitalize on the existing wide marketacceptance as well as private and governmental health insurance reimbursementto provide for genomic and genetics breast cancer testing (Genomic Health,Agendia, and Myriad are active in this sector); however, while some of ourcompetitors receive reimbursement for similar testing, until we begin ouroperations we cannot be certain that we will similarly be reimbursed. Our salesand marketing will be done initially through partners, distributors, andcompany representatives. In the United States, the initial customer base wewish to target once our products are ready to be introduced to the marketincludes leading clinical research institutions and companies such as Stanford,UCSF, M.D. Anderson Cancer Center, the National Cancer Institute (NIH), QuestDiagnostics, Laboratory Corporation, Sutter Medical, and Kaiser Permanente.

 

Direct-to-consumerradiology service centers demonstrate the growing popularity of self-relianceand a “need to know” philosophy in the management of personal health matters.Genomic diagnostic testing will, quite logically, be a part of this movement.We will be selling our products into a new market segment in the field ofmedical diagnostics.

 

Irishas been covered by ABC News, Forbes, CNBC, Yahoo Finance, Market Watch, USPharmacist, Drug Benefit Trends and other publications here in the US as wellas media in the UK, France, Germany, Australia, Canada, and Asiancountries.  Drug Benefit Trends is apublication for medical directors, pharmacy directors, and other managed caredecision makers. This publication is peer reviewed and the three-page articlethat highlights the Company and the current status of personalized medicine ison the front cover of the March 2008 issue.

 

TheCompany’s CEO has also been interviewed by radio shows in California andFlorida. Since we launched our BioWindowsTM medical information system on May 11,2008, people have been entering their personal information into the system. Ourdesire is to launch BioWindowsTM worldwide, customized to meet the local needs.

 

Our management realizesthat one of the key ingredients to becoming a successful company is brandrecognition so we will engage in more publicity campaigns. Customer and usertraining will also be provided to facilitate the use of our products andservices. As far as sales channels are concerned, preliminary discussions have 

 

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been made with major health care providers and HMOs.We have also been working with various patient advocacy groups as a part of ourmarketing outreach program.

 

**IntellectualProperty**

 

Our proprietarytechnologies reside in our US patents and other patents that have been grantedto us in many countries around the world.

 

1.              US 7,108,971 - Binding Chemistry: “Reversiblebinding of molecules to metal substrates through affinity interactions.” Thispatent application states that a testing probe binding system, utilizing aproprietary heterobifunctional spacer comprising a hydrocarbon, efficientlybinds oligonucleotides to soft metal surfaces on the chip. The inventionrelates to the immobilization of ligands onto solid surfaces and their use inhybridization, purification, immunoassays, biosensors and other biochemicalapplications. Our patent protection expires on May 15, 2020.

 

2.              US 6,852,493 - Enhanced Hybridization: “Magneticfield enhanced hybridization of target molecules to immobilize probes.” Thispatent claim states that labeling nucleic acid target molecules with paramagneticlabels and activating a magnetic field under probe molecules on the chip, canaccomplish rapid hybridization of complementary nucleic acid molecules. Ourpatent protection expires on May 15, 2020.

 

3.              US 7,270,954 - Peptide Nucleic Acids(PNAs): “Hybridization of target DNA with immobilized nucleic acid analogs.”This patent claim states that PNAs replace oligonucleotides and cDNA as probesin the detection of specific DNA and RNA sequences. Utilizing the company’sproprietary binding system and hybridization technology, PNA probes capturemore efficiently specific DNA and RNA sequences than do oligonucleotide andcDNA probes. Our patent protection expires on June 30, 2020.

 

4.              US 7,062,076 - BioWindows System: “Artificialintelligence system for genetic analysis.” This patent claim states thatBioWindows provides a complete artificial intelligence system, utilizingproprietary algorithms, for acquisition and analysis of nucleic-acid array-hybridization information. This system reads data from nano-biochips, analyzestest results based on maintained parameters, evaluates patient risk for variousaliments, and displays patient treatment alternatives. This system may utilizethe Internet, via a secured encrypted web interface, for both transmission ofnano-biochip hybridization data and the interpretation of this data. Our patentprotection expires on August 28, 2020.

 

**GovernmentRegulation**

 

Regulation bygovernmental authorities in the United States and other countries will be asignificant factor in the production and marketing of any products that may bedeveloped by us. The nature and the extent to which such regulations may applywill vary depending on the nature of the products. *Our productscan be marketed as clinical laboratory tests according the government CLIAstandard without FDA approval, similar to Genomic Health’s Oncotype Dx test*or as 510(k) products approved by the FDA, enabling our tests to be usedin any certified laboratory. Agendia’s MammaPrint, which serves the samefunction as the Oncotype Dx, is approved by the FDA as a de novo 510(k) product.Human clinical trial was not required. Only human tissues were studied “invitro” using their MammaPrint microarrays.

 

Although clinicallaboratory services are not typically subject to FDA regulation, the FDA doesregulate the sale or distribution, in interstate commerce, of medical devices,including in vitro diagnostic test kits. In addition, reagents and equipmentused by clinical laboratories may be subject to FDA regulation. Clinical laboratorytests that are developed and validated by a laboratory for use in examinationsperformed by the lab itself are called “home brew” tests. Most home brew testsare currently not subject to premarket review by FDA although analyte-specificreagents or software provided to us by third parties and used by us to performhome brew tests may be subject to review by FDA prior to marketing. Devicessubject to FDA regulation must undergo premarket review prior tocommercialization unless the device is of a type exempted from such review.

 

All medical devices arecategorized by the FDA into three different classes. The class in which adevice is assigned determines the level of review required by the FDA to obtainapproval for the marketing of the device to the public. Class I medicaldevices are subject to the least regulatory control and present minimalpotential harm to the user. Class II medical devices include devices forwhich general controls alone are insufficient to assure safety andeffectiveness, and additional existing methods are available to provide suchassurances. Therefore, Class II devices are subject to special controls inaddition to the general controls of Class I devices. Special controls may 

 

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include special labeling requirements, mandatoryperformance standards, and postmarket surveillance. Devices in Class IIare held to a higher level of assurance than Class I devices that theywill perform as indicated and will not cause injury or harm to patient or user.Devices in this class are typically non-invasive and include x-ray machines,powered wheelchairs, infusion pumps, surgical drapes, surgical needles andsuture material, and acupuncture needles. Class III devices are devicesfor which there is insufficient information to determine the safety andeffectiveness of the device. Examples of Class III devices include heartvalves, breast implants, implantable pacemakers and generally all medicaldevices which are implanted in the body. Class III devices are held to ahigher level of assurance than Class II devices and require obtainingpremarket approval, or PMA, from the FDA.

 

Although biochips similarto the one we intend to market have previously been considered Class IIdevices and therefore are only subject to premarket notification, since ourproducts are   designed to enable a treating physician to prescribe apersonalized treatment regimen there is a possibility that the FDA may considerour products a Class III device for this intended use requiring PMA. Weintend to meet with the FDA to determine whether they will categorize ourproduct for its current intended use as a Class II or Class IIIdevice. If the FDA determines that the intended use of our products wouldcategorize our product as a Class II device we will submit a premarketnotification to the FDA. However, in the event that the FDA determines that theintended use of our product would categorize it as a Class III devicerequiring premarket approval, we intend to modify the intended use to initiallymarket our product as a test for predicting breast cancer recurrence and stillfile a 510(k) premarket notification. Then simultaneously with, orsubsequent to, the filing of a premarket notification we will also file a PMAfor use of our product by a treating physician to prescribe a personalizedtreatment regimen.

 

Premarketing notificationis accomplished by submitting a 510(k) to the FDA. A 510(k) notificationprovides data to show that the new device is substantially equivalent to otherdevices that were introduced into the marketplace prior to May 1976, orpre-amendment devices. In order to complete a 510(k) notification for theFDA we will need to collect safety and effectiveness data to support 510(k) notification.This data is normally obtained through an evaluation in a clinical studyprocess.

 

Premarket approval, orPMA, is the most stringent type of device marketing application required by theFDA and is based on a determination by the FDA that the PMA contains sufficientvalid scientific evidence to assure that the device is safe and effective forits intended use. A PMA application is therefore a scientific, regulatorydocument to the FDA to demonstrate the safety and effectiveness of the Class IIIdevice. If a PMA application lacks valid clinical information and scientificanalysis it will delay the FDA’s review and approval. Once a final applicationis prepared, FDA regulations provide that it has 180 days from the submissionof the application to review a PMA and make a determination, but the reviewtime can be longer. In addition, before approving or denying a PMA anappropriate FDA advisory committee may review the PMA at a public meeting andprovide the FDA with its recommendations. After an applicant is notified of itsapproval or denial by the FDA a notice is published on the Internet, whichprovides interested parties with an opportunity to petition the FDA forreconsideration within 30 days of the decisions.

 

When FDA approval of aclinical diagnostic device requires human clinical trials, and if the devicepresents a “significant risk” (as defined by the FDA) to human health, thedevice sponsor is required to file an investigational device exemption, or IDE,application with the FDA and obtain IDE approval prior to commencing the humanclinical trial. If the device is considered a “non-significant” risk, IDEsubmission to FDA is not required. Instead, only approval from the InstitutionalReview Board overseeing the clinical trial is required. We do not believe thatwe are required to obtain an IDE exemption since our products are not implantedin the body they would not be considered “significant risk devices.”

 

After we have completedthe 510(k) process, but before we begin manufacturing and distributing ourproducts, we will be required to register with the FDA, in a process known asestablishment registration. This registration provides the FDA with thelocation of the facility manufacturing the medical device, but thisregistration does not establish approval of the device by the FDA. In addition,most medical device establishments registered with the FDA must also identifythe device that they have in commercial distribution. This process is known asmedical device listing and is a means for the FDA to keep apprised of thedevices which are being manufactured and sold.

 

After the FDA permits adevice to enter commercial distribution, numerous regulatory requirementsapply. In addition to potential product specific post-approval requirements,all devices are subject to:

 

·                  the Quality System Regulation, whichrequires manufacturers to follow comprehensive design, testing, control,documentation and other quality assurance procedures during the manufacturingprocess,

·                  labeling regulations,

 

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·                  the Medical Device Reporting regulation,which requires that manufacturers report to the FDA if their device may havecaused or contributed to a death or serious injury or malfunctioned in a waythat would likely cause or contribute to a death or serious injury if it wereto reoccur.

 

We believe that theinitial FDA approval of our premarketing notification could be obtained inapproximately three months, once we have submitted our 510(k) to the FDAfor review; however, obtaining approval can take significantly longer if theFDA requests additional information with respect to the filing submitted.Failure to comply with the applicable United States medical device regulatoryrequirements could result in, among other things, warning letters, fines,injunctions, civil penalties, repairs, replacements, refunds, recalls orseizures of products, total or partial suspension of production, the FDA’srefusal to grant future premarket clearances or approvals, withdrawals orsuspensions of current product applications, suspension of export certificatesand criminal prosecution.

 

With respect topost-market product advertising and promotion, the FDA imposes a number ofcomplex regulations on entities that advertise and promote biologics, whichinclude, among others, standards and regulations for direct-to-consumer advertising,off-label promotion, industry sponsored scientific and educational activities,and promotional activities involving the Internet. The FDA has broadenforcement authority, and failure to abide by applicable FDA regulations canresult in penalties including the issuance of a warning letter directing theentity to correct deviations from FDA standards, a requirement that futureadvertising and promotional materials be pre-cleared by the FDA, and state andfederal civil and criminal investigations and prosecutions.

 

We and our contractmedical product manufacturers are subject to periodic inspection by the FDA andother authorities where applicable, and are required to comply with theapplicable FDA current Good Manufacturing Practice regulations. Good ManufacturingPractice regulations include requirements relating to quality control andquality assurance, as well as the corresponding maintenance of records anddocumentation, and provide for manufacturing facilities to be inspected by theFDA.

 

In addition, we will besubject to FDA regulations with respect to the import and export of any of ourproducts. To the extent we may decide to utilize a foreign manufacturer, allforeign manufacturers must meet applicable United States medical deviceregulations in order to import devices. These requirements include registrationof establishment, listing of devices, manufacturing in accordance with thequality system regulation and medical device reporting of adverse events. Inaddition, the foreign manufacturers must designate a United States agent. Aswith domestic manufacturers, foreign manufacturing sites are subject to FDAinspection. With respect to the exportation of our products, any medical devicethat is legally in the United States may be exported anywhere in the worldwithout prior FDA notification or approval and the export restrictions onlyapply to unapproved devices, which have not been registered with the FDA. Inaddition, the United States exporter is required to comply with the laws of theimporting country.

 

Furthermore, outside theUnited States, our ability to market our products is contingent upon obtainingInternational Standards Organization (ISO) certification, and in some casesreceiving specific marketing authorization from the appropriate foreignregulatory authorities. The requirements governing the conduct of clinicaltrials, marketing authorization, pricing and reimbursement vary widely fromcountry to country. While we currently do not have any productregistrations filed, in the future we intend to file an EU productregistration, which would cover all member states. Foreign registration isan ongoing process as we register additional products and/or productmodifications.

 

In addition, customersusing diagnostic tests for clinical purposes in the United States are alsoregulated under the Clinical Laboratory Improvement Amendments of 1988, orCLIA. CLIA is intended to ensure the quality and reliability of all medicaltesting in laboratories in the United States by requiring that any healthcarefacility in which testing is performed meets specified standards in the areasof personnel qualification, administration, participation in proficiencytesting, patient test management, quality control, quality assurance, andinspections.

 

We are also subject tovarious state and local laws and regulations in the United States relating tolaboratory practices and the protection of the environment. In each of theseareas, as above, regulatory agencies have broad regulatory and enforcementpowers, including the ability to levy fines and civil and criminal penalties,suspend or delay issuance of approvals, seize or recall products, and withdrawapprovals, any one or more of which could have a material adverse effect uponus. In addition, in the course of our business, we handle, store and dispose ofchemicals. The environmental laws and regulations applicable to our operationsinclude provisions that regulate the discharge of materials in the environment.Usually these environmental laws and regulations impose “strict liability,”rendering a person liable without regard to negligence or fault on the part of,or conditions caused by, others. We have not been required to expend materialamounts in connection with our efforts to comply with environmental requirements.Because the requirements imposed by these laws and regulations frequentlychange, we 

 

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are unable to predict the cost of compliance withthese requirements in the future, or the effect of these laws on our capitalexpenditures, results of operations or competitive positions.

 

**Employees**

 

As of March 30, 2009we have 5 full time and 10 part time employees. We have not experienced anywork stoppages and we consider relations with our employees to be good.

 

**ITEM 1A. RISK FACTORS**

 

**RisksRelated to Our Financial Results**

 

**We Are A Development Stage CompanyAnd May Never Commercialize Any Of Our Products Or Earn A Profit.**

 

We are a developmentstage company and have incurred losses since we were formed. We haveincurred  losses from operations of$5,959,405 as of December 31, 2008, from date of inception. To date, wehave experienced negative cash flow from development of our gene profilingmedical treatment technology. We currently have no products ready forcommercialization, have not generated any revenue from operations and expect toincur substantial net losses for the foreseeable future to further develop and commercializeour technology. We cannot predict the extent of these future net losses, orwhen we may attain profitability, if at all. If we are unable to generatesignificant revenue or attain profitability, we will not be able to sustainoperations.

 

**We Will Need To Raise AdditionalCapital To Commercialize Our Nano-BioChip Technology, and Our Failure To ObtainFunding When Needed May Force Us To Delay, Reduce or Eliminate Our ProductDevelopment Programs.**

 

We expect that ourexisting capital resources will not be sufficient to fund our operations, atthe accelerated growth rate, for the next 12 months. Consequently, we will berequired to raise additional capital to complete the development andcommercialization of our current product candidates. The development of ourbusiness will require substantial additional capital in the future to conductresearch and development and commercialize our nano-biochip technology. We havehistorically relied upon private sales of our equity to fund our operations. Wecurrently have no credit facility or committed sources of capital. If ourcapital resources are insufficient to meet future requirements, we will have toraise additional funds to continue the development and commercialization of ournano-biochip technology. When we seek additional capital, we may seek to selladditional equity or debt securities or to obtain a credit facility, which wemay not be able to do on favorable terms, or at all. Our ability to obtainadditional financing will be subject to a number of factors, including marketconditions, our operating performance and investor sentiment. If we are unableto raise additional capital when required or on acceptable terms, we may haveto significantly delay, scale back or discontinue the development and/orcommercialization of one or more of our product candidates, restrict ouroperations or obtain funds by entering into agreements on unattractive terms.

 

**If We Fail To Maintain EffectiveInternal Controls Over Financial Reporting, The Price Of Our Common Stock May BeAdversely Effected.**

 

Our management team haslittle experience in managing a public company. Accordingly, our internalcontrols over financial reporting, while they appear to be sufficient for ourneeds, may have weaknesses and conditions that will need to be addressed, thedisclosure of which may have an adverse impact on the price of our commonstock. We are required to establish and maintain appropriate internal controlsover financial reporting. Failure to establish those controls, or any failureof those controls once established, could adversely impact our publicdisclosures regarding our business, financial condition or operating results.In addition, management’s assessment of our internal controls over financialreporting may identify weaknesses and conditions that need to be addressed inour internal controls over financial reporting or other matters that may raiseconcerns for investors. Any actual or perceived weaknesses and conditions thatneed to be addressed in our internal controls over financial reporting ordisclosure of management’s assessment of our internal controls over financialreporting may have an adverse impact on the price of our common stock.

 

**RisksRelated To Our Business**

 

**The Commercial Success Of OurProducts Will Depend On The Degree Of Market Acceptance Of These Products AmongPhysicians, Patients, Health Care Payors And The Medical Community.**

 

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The use of thenano-biochip gene expression kit has never been commercialized. Even ifapproved for sale by the appropriate regulatory authorities, physicians may notorder diagnostic tests based on our nano-biochip gene technology, in whichevent we may be unable to generate significant revenue or become profitable. Inaddition, physicians and patients may not utilize the nano-biochip geneexpression kit unless third-party payors, such as managed care organizations,Medicare and Medicaid, pay a substantial portion of the test’s price. There issignificant uncertainty concerning third-party reimbursement of any testincorporating new technology. Reimbursement by a third-party payor may dependon a number of factors, including a payor’s determination that tests using ourtechnologies are:

 

·                  not experimental or investigational,

·                  medically necessary,

·                  appropriate for specific patient,

·                  cost-effective, and

·                  supported by peer-reviewed publications.

 

Since each payor makesits own decision as to whether to establish a policy to reimburse for a test,seeking these approvals is a time-consuming and costly process. We cannot becertain that coverage for the nano-biochip gene expression kit will be providedby any third-party payors.

 

**Our Financial Results Will InitiallyDepend On Sales Of One Product, The****Nano-BioChip GeneExpression Kit And We Will Need To Generate Sufficient Revenues From ThisProduct To Run Our Business.**

 

For the near future, weexpect to derive substantially all of our revenues from sales of one product,the nano-biochip gene expression kit. We are in the early stages of researchand development for other products that we may offer as well as forenhancements to the current product. If we are unable to generate sales of thenano-biochip gene expression kit or to successfully develop and commercializeother products or product enhancements, our revenues and our ability to achieveprofitability would be impaired, and the market price of our common stock coulddecline.

 

**At Present, Our Success DependsSolely On the Successful Commercialization of Our Nano-Biochip Technology forOur Proposed Use As A Cancer Diagnostic Analysis Tool.**

 

The successfulcommercialization of our nano-biochip based diagnostic kits is crucial for oursuccess. Our proposed products and their potential applications are in an earlystage of clinical and manufacturing/process development and face a variety ofrisks and uncertainties. Principally, these risks include the following:

 

·                  future clinical study results may showthat the nano-biochip diagnostic kits is not an effective means of diagnosingthe appropriate treatment for patients with cancer;

·                  future clinical study results may beinconsistent with our previous preliminary testing results and data from ourearlier studies may be inconsistent with clinical data;

·                  even if we have determined that ournano-biochip diagnostic kits are safe and effective for their intended purposeswe cannot predict with any certainty the amount of time necessary to obtain FDAapprovals and whether any such approvals will ultimately be granted;

·                  even if our nano-biochip diagnostic kitsare shown to be safe and effective for their intended purposes, we may facesignificant or unforeseen difficulties in obtaining or manufacturing sufficientquantities or at reasonable prices;

·                  our ability to complete the developmentand commercialization of nano-biochip diagnostic kits for our intended use issignificantly dependent upon our ability to obtain and maintain experienced andcommitted partners to assist us with obtaining clinical and regulatoryapprovals for, and the manufacturing, marketing and distribution of, thenano-biochip diagnostic kits on a worldwide basis;

·                  even if nano-biochip diagnostic kits productsare successfully developed, commercially produced and receive all necessaryregulatory approvals, there is no guarantee that there will be marketacceptance of the products; and

·                  our competitors may develop analyticalmethods which are superior or less costly than our own with the result that ourproducts, even if they are successfully developed, manufactured and approved,may not generate significant revenues

 

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Ifwe are unsuccessful in dealing with any of these risks, or if we are unable tosuccessfully commercialize our nano-biochip diagnostic kits products for someother reason, it would likely seriously harm our business.

 

**If We Fail to Comply With FDARequirements, Or Fail to Obtain Regulatory Approval, We May be Limited orProhibited In Our Ability to Commercialize Our Products and May Be Subjectto Stringent Penalties.**

 

Although we may market our product as a CLIA test,similar to Genomic Health’s Oncotype Dx, it is our intent to obtain FDApre-market clearance through the filing of a 501(k) for our products.Under the 510(k) pre-market clearance process the FDA generally has 90days to review and make a decision on approving our 510(k); however, obtainingapproval can take significantly longer if the FDA requests additionalinformation with respect to the filing submitted. We cannot predict with anycertainty the amount of time necessary to obtain such FDA approvals and whetherany such approvals will ultimately be granted. Delays in obtaining FDAapprovals of any proposed product and failure to receive such approvals wouldhave an adverse effect on the product’s potential commercial success and on ourbusiness, prospects, financial condition, and results of operations.

 

In addition to the 510(k) pre-market clearance,we may be required to obtain pre-market approval (PMA) from the FDA. Althoughbiochips similar to the one we intend to market have previously been exemptfrom obtaining pre-market approval from the FDA, since our products aredesigned to enable a treating physician to prescribe a personalized treatmentregimen there is a possibility that the FDA may require our products to obtain pre-marketapproval. We will not know if pre-market approval will be required by the FDAuntil we make the appropriate filings. If the FDA does not view our products asexempt from pre-market approval, the use of our products could be delayed,halted or prevented, which would impair the commercialization of our productsand could materially harm our business.

 

Moreover, in obtaining FDA marketing clearanceand/or  pre-market approval we would alsobe subject to a number of FDA requirements, including restrictions regardingperformance claims as well as the FDA’s Quality System Regulation, whichestablishes extensive regulations for quality assurance and control as well asmanufacturing procedures. Failure to comply with these regulations could resultin enforcement action against us, our partners, or our contract manufacturers.Adverse FDA action in any of these areas would have a significant impact on ouroperations.

 

We believe that the biochip we intend to market doesnot require pre-market approval (PMA) from the FDA. Although we do not believethat our products would require pre-market approval, we cannot assure you thatthe FDA will view our products, as exempt from pre-market approvalrequirements. If the FDA does not view our products as exempt from pre-marketapproval, the use of our products could be delayed, halted or prevented andenforcement action could be initiated which could involve criminal or civilpenalties, any of which would impair the commercialization of our products andmaterially harm our business.

 

**If We Are Unable To Develop ProductsTo Keep Pace With Rapid Medical And Scientific Change, Our Operating ResultsAnd Competitive Position Would Be Harmed.**

 

In recent years, there have been numerous advances intechnologies relating to the diagnosis and treatment of cancer. For advancedcancer, new chemotherapeutic strategies are being developed that may increasesurvival time and reduce toxic side effects. These advances require uscontinuously to develop new products and enhance existing products to keep pacewith evolving standards of care. Our test could become obsolete unless wecontinually innovate and expand our product to demonstrate recurrence andtreatment benefit in patients treated with new therapies. New treatmenttherapies typically have only a few years of clinical data associated withthem, which limits our ability to perform clinical studies and correlate setsof genes to a new treatment’s effectiveness. If we are unable to demonstratethe applicability of our tests to new treatments, then sales of our tests coulddecline, which would harm our revenues.

 

**Our Competitive Position Depends OnMaintaining Intellectual Property Protection.**

 

Our ability to compete and to achieve and maintainprofitability depends on our ability to protect our proprietary discoveries andtechnologies. We currently rely on a combination of patents to protect ourintellectual property rights. We also rely upon unpatented know-how andcontinuing technological innovation to develop and maintain our competitiveposition.

 

We currently have four US patents granted. Any patentsthat have been, or may be, issued to us might be challenged by third parties asbeing invalid or unenforceable, or third parties may independently developsimilar or competing technology that avoids our patents. We cannot be certainthat the steps we have taken will prevent the

 

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misappropriation and use of our intellectual property,particularly in foreign countries where the laws may not protect ourproprietary rights as fully as in the United States.

 

**If We Are Unable To CompeteSuccessfully, We May Be Unable To Generate Revenues Or AchieveProfitability.**

 

Some of our competition comes from existing diagnosticmethods used by pathologists and oncologists. These methods have been used formany years and are therefore difficult to change or supplement. We also facecompetition from companies, such as Genomic Health, that offers a 21-gene(including 5 control genes) signature “home-brew test” which is not FDAapproved and Agendia B.V. that offers a 70-gene test for predicting breastcancer recurrence. Commercial laboratories with strong distribution networksfor diagnostic tests, such as Genzyme Corporation, Laboratory Corporation ofAmerica Holdings and Quest Diagnostics Incorporated, may become competitors.Other potential competitors include companies that develop diagnostic testssuch as Bayer Healthcare LLC, Celera Genomics, a business segment of AppleraCorporation, Roche Diagnostics, a division of F. Hoffmann-La Roche Ltd,and Veridex LLC, a Johnson & Johnson company, other small companiesand academic and research institutions. In addition, in December 2005, thefederal government allocated a significant amount of funding to The CancerGenome Atlas, a project aimed at developing a comprehensive catalog of thegenetic mutations and other genomic changes that occur in cancers andmaintaining the information in a free public database. As more informationregarding cancer genomics becomes available to the public, we anticipate thatmore products aimed at identifying targeted treatment options will be developedand these products may compete with ours.

 

Many of our present and potential competitors havewidespread brand recognition and substantially greater financial and technicalresources and development, production and marketing capabilities than we do.Others may develop lower-priced, less complex tests that could be viewed byphysicians and payors as functionally equivalent to our test, which could forceus to lower the list price of our test and impact our operating margins and ourability to achieve profitability. If we are unable to compete successfullyagainst current or future competitors, we may be unable to increase marketacceptance for and sales of our test, which could prevent us from increasing orsustaining our revenues or achieving or sustaining profitability and couldcause the market price of our common stock to decline.

 

**Our Research And Development EffortsWill Be Hindered If We Are Not Able To Contract With Third Parties For AccessTo Archival Tissue Samples.**

 

Our clinical development relies on our ability tosecure access to excised tumors or tumor biopsy samples, as well as informationpertaining to their associated clinical outcomes. Others have demonstratedtheir ability to study archival samples and often compete with us for access.Additionally, the process of negotiating access to archived samples is lengthysince it typically involves numerous parties and approval levels to resolvecomplex issues such as usage rights, institutional review board approval,privacy rights, publication rights, intellectual property ownership andresearch parameters. If we are not able to negotiate access to archival tumortissue samples with hospitals or potential collaborators, or if otherlaboratories or our competitors secure access to these samples before us, our abilityto research, develop and commercialize future products will be limited ordelayed.

 

**Changes In Healthcare Policy CouldSubject Us To Additional Regulatory Requirements That May InterruptCommercialization Of The****Nano-BioChip Gene Expression Kit AndIncrease Our Costs.**

 

Healthcare policy has been a subject of extensivediscussion in the executive and legislative branches of the federal and manystate governments. We developed our commercialization strategy for ournano-biochip gene expression kit based on existing healthcare policies. Changesin healthcare policy, such as the creation of broad limits for diagnosticproducts in general or requirements that Medicare patients pay for portions oftests or services received, could substantially interrupt the sales of ournano-biochip gene expression kit, increase costs and divert management’sattention. For example, in 1989, the U.S. Congress passed federalself-referral prohibitions commonly known as the Stark Law, significantlyrestricting, regulating and changing laboratories’ relationships withphysicians. We cannot predict what changes, if any, will be proposed or adoptedor the effect that such proposals or adoption may have on our business,financial condition and results of operations.

 

**If We Cannot Enter Into ClinicalCollaborations, Our Product Development Could Be Delayed.**

 

In the past, we have entered into collaborations withmedical researchers which were focused on the selection of genes for our breastcancer chip and on validation of our key technologies. In the future, we expectthat we will need to rely on clinical collaborators to perform a substantialportion of our clinical trial functions. If any of our potential collaboratorswere to breach or terminate its agreement with us or otherwise fail to conductits

 

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collaborative activities successfully and in a timelymanner, the research, development or commercialization of the productscontemplated by the collaboration could be delayed or terminated. If we areunable to enter into collaboration agreements with intended collaborators onacceptable terms, we would be required to seek alternative collaborations. Wemay not be able to negotiate collaborations on acceptable terms, if at all, andthese collaborations may not be successful. Our success in the future dependsin part on our ability to enter into agreements with leading cancerorganizations. This can be difficult due to internal and external constraintsplaced on these organizations. Some organizations may limit the number ofcollaborations they have with any one company so as to not be perceived asbiased or conflicted. Organizations may also have insufficient administrativeand related infrastructure to enable collaborations with many companies atonce, which can extend the time it takes to develop, negotiate and implement acollaboration. Additionally, organizations often insist on retaining the rightsto publish the clinical data resulting from the collaboration. The publicationof clinical data in peer-reviewed journals is a crucial step in commercializingand obtaining reimbursement for a test such as ours, and our inability tocontrol when, if ever, results are published may delay or limit our ability toderive sufficient revenues from any product that may result from acollaboration.

 

From time to time we expect to engage in discussionswith potential clinical collaborators which may or may not lead tocollaborations. However, we cannot guarantee that any discussions will resultin clinical collaborations or that any clinical studies which may result willbe enrolled or completed in a reasonable time frame or with successfuloutcomes. Once news of discussions regarding possible collaborations are knownin the medical community, regardless of whether the news is accurate, failureto announce a collaborative agreement or the entity’s announcement of acollaboration with an entity other than us may result in adverse speculationabout us, our product or our technology, resulting in harm to our reputationand our business.

 

**We Are Dependent Upon Key PersonnelAnd Consultants**** And The Loss Of Any Key Member Of This TeamCould Have A Material Adverse Effect On Our Business.**

 

Our success is heavily dependent on the continuedactive participation of our current executive officers listed under the “Management”section of this prospectus. Loss of the services of one or more of theseofficers could have a material adverse effect upon our business, financialcondition or results of operations. Further, our success and achievement of ourgrowth plans depend on our ability to recruit, hire, train and retain otherhighly qualified technical and managerial personnel. Competition for qualifiedemployees among companies in the life sciences industry is intense, and theloss of any of such persons, or an inability to attract, retain and motivateany additional highly skilled employees required for the expansion of our activities,could have a materially adverse effect on us. Our inability to attract andretain the necessary personnel and consultants and advisors could have amaterial adverse effect on our business, financial condition or results ofoperations.

 

**We Are Controlled By CurrentOfficers, Directors And Principal Stockholders.**

 

Our directors, executive officers and principalstockholders and their affiliates beneficially own approximately 75% of theoutstanding shares of our common stock. So long as our directors, executiveofficers and principal stockholders and their affiliates control a majority ofour fully diluted equity, they will continue to have the ability to elect ourdirectors and determine the outcome of votes by our stockholders on corporatematters, including mergers, sales of all or substantially all of our assets,charter amendments and other matters requiring stockholder approval.  This controlling interest may have a negativeimpact on the market price of our common stock by discouraging third-partyinvestors.

 

**Provisions In Our Charter DocumentsCould Discourage A Takeover That Stockholders May Consider Favorable.**

 

Provisions of our Articles of Incorporation could makeit more difficult for a third party to acquire us, even if doing so would be beneficialto our stockholders. For example, stockholder meetings may be called only byour board of directors, the chairman of the board and the president and advancenotice is required prior to stockholder proposals. Furthermore, we haveauthorized preferred stock that is undesignated, making it possible for ourboard of directors to issue preferred stock with voting or other rights orpreferences that could impede the success of any attempt to change control ofour company.

 

**Risks Related To Our Common Stock**

 

**There is not now, andthere may not ever be an active market for shares of our common stock.**

 

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In general, there has been very little tradingactivity in shares of our common stock. The small trading volume will likelymake it difficult for our stockholders to sell their shares as and when theychoose. Furthermore, small trading volumes are generally understood to depressmarket prices. As a result, you may not always be able to resell shares of ourcommon stock publicly at the time and prices that you feel are fair orappropriate.

 

**Our Common Stock Is Subject To The “PennyStock” Rules Of The SEC.**

 

The Securities and Exchange Commission has adopted Rule 15g-9which establishes the definition of a “penny stock,” for the purposes relevantto us, as any equity security that has a market price of less than $5.00 pershare or with an exercise price of less than $5.00 per share, subject tocertain exceptions. For any transaction involving a penny stock, unless exempt,the rules require:

 

·                  that a broker or dealer approve a person’saccount for transactions in penny stocks; and

·                  the broker or dealer receive from the investora written agreement to the transaction, setting forth the identity and quantityof the penny stock to be purchased.

 

In order to approve a person’s account fortransactions in penny stocks, the broker or dealer must:

 

·                  obtain financial information andinvestment experience objectives of the person; and

·                  make a reasonable determination that thetransactions in penny stocks are suitable for that person and the person hassufficient knowledge and experience in financial matters to be capable ofevaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, prior to anytransaction in a penny stock, a disclosure schedule prescribed by theCommission relating to the penny stock market, which, in highlight form:

 

·                  sets forth the basis on which the brokeror dealer made the suitability determination; and

·                  that the broker or dealer received asigned, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to executetransactions in securities subject to the “penny stock” rules. This may make itmore difficult for investors to dispose of our common stock and cause a declinein the market value of our stock.

 

Disclosure also has to be made about the risks ofinvesting in penny stocks in both public offerings and in secondary trading andabout the commissions payable to both the broker-dealer and the registeredrepresentative, current quotations for the securities and the rights andremedies available to an investor in cases of fraud in penny stocktransactions. Finally, monthly statements have to be sent disclosing recentprice information for the penny stock held in the account and information onthe limited market in penny stocks.

 

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

 

N/A

 

**ITEM 2. PROPERTIES.**

 

We currently have three facilities in California. Ourheadquarters is in Santa Clara, our laboratory is in San Leandro, and ourinformatics office is in Eureka.

 

We lease our main office, which is located at 5201Great America Parkway, Suite 320, Santa Clara, California 95054. The leasehas a term of 12 months, which began on August 1, 2008 and expires on July 31,2009. We currently pay rent and related costs of approximately $400.00 permonth.

 

We also lease our laboratory, which is located at 1933Davis Street, Suite 280, San Leandro, California 95054. The lease has aterm of 12 months, which began on January 1, 2009 and expires on December 31,2009. We currently pay rent and related costs of approximately $1,600.00 permonth.

 

We also lease our informatics office, which is locatedinside the Women’s Health Center at 2773 Harris Street, Eureka, CA 95503. Wecurrently pay rent and related costs of approximately $400.00 per month.

 

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We are not dependent on aspecific location for the operation of our business.

 

**ITEM 3. LEGAL PROCEEDINGS.**

 

None.

 

**ITEM 4. SUBMISSION OF MATTERS TO AVOTE OF SECURITY HOLDERS.**

 

None

 

**PART II**

 

**ITEM 5. MARKET FOR COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.**

 

**MARKET INFORMATION**

 

Our common stock wasinitially quoted on the OTC Bulletin Board on August 5, 2008 under thesymbol “IRSB”.  The following table setsforth the quarterly high and low bid information for our common stock for thetwo year period ended December 31, 2008 and through the interim period March 30,2009.

 
| ** **                                  | ** ** | **High Bid** | ** ** | **Low Bid** | ** ** |
|---------------------------------------------|------------|-------------------|------------|------------------|------------|
| Year Ended December 31, 2008           |       |              |       |             |       |
|                                        |       |              |       |             |       |
| Third Quarter                               |       | $                 | 4.10       |             | $          | 1.50 |   |
| Fourth Quarter                              |       | $                 | 2.00       |             | $          | 1.15 |   |
|                                        |       |              |       |             |       |
| Year Ended December 31, 2009           |       |              |       |             |       |
|                                        |       |              |       |             |       |
| First Quarter (through March 30, 2009) |       | $                 | 1.65       |             | $          | 1.01 |   |

 

As of March 30, 2009, we had 10,961,274 shares ofcommon stock issued and outstanding and approximately 102 stockholders ofrecord of our common stock.

 

**Dividend Policy**

 

Our payment of dividends, if any, in the future restswithin the discretion of the Board of Directors and will depend, among otherthings, upon our earnings, capital requirements and financial condition, aswell as other relevant factors. We have not paid any dividends since ourinception and do not intend to pay any cash dividends in the foreseeablefuture, but intend to retain all earnings, if any, for use in our business.There are no restrictions in our articles of incorporation or bylaws thatrestrict us from declaring dividends. However, if we enter into an agreementfor debt financing in the future we may be restricted from declaring dividends.

 

**Equity Compensation Plan Information**

 

The following table shows information with respect toeach equity compensation plan under which our common stock is authorized forissuance as of the fiscal year ended December 31, 2008.

 

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**EQUITYCOMPENSATION PLAN INFORMATION**

 
| **Plan category**                                          | ** ** | **Number of securities   to be issued upon   exercise of   outstanding options,   warrants and rights** | ** ** | **Weighted average   exercise price of   outstanding options,   warrants and rights** | ** ** | **Number of securities   remaining available for   future issuance under   equity compensation   plans (excluding   securities reflected in   column (a)** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                      | ** ** | **(a)**                                                                                                                                                                  | ** ** | **(b)**                                                                                                                            | ** ** | **(c)**                                                                                                                                                                                                                                         | ** ** |
| **Equity compensation plans approved by security  holders**     |       | 2,325,696                                                                                                                                                                |       | $                                                                                                                                  | 0.80.      |                                                                                                                                                                                                                                            | 240,188    |   |
|                                                            |       |                                                                                                                                                                     |       |                                                                                                                               |       |                                                                                                                                                                                                                                            |       |
| **Equity compensation plans not approved by  security holders** |       | -0-                                                                                                                                                                      |       | -0-                                                                                                                                |       | -0-                                                                                                                                                                                                                                             |       |
|                                                            |       |                                                                                                                                                                     |       |                                                                                                                               |       |                                                                                                                                                                                                                                            |       |
| **Total**                                                       |       | 2,325,696                                                                                                                                                                |       | $                                                                                                                                  | 0.80.      |                                                                                                                                                                                                                                            | 240,188    |   |

 

**RECENT SALES OF UNREGISTEREDSECURITIES**

 

During the Fiscal year ended December 31, 2008,we issued the below securities without registration under the Securities Act of1933, as amended (the “Securities Act”).

 

On January 16, 2008, we entered into a CommonStock Purchase Agreement with an accredited investor for the sale of 22,222shares of our common stock for an aggregate purchase price of $50,000.

 

On February 19, 2008, we entered into a CommonStock Purchase Agreement with an accredited investor for the sale of 11,111shares of our common stock for an aggregate purchase price of $25,000.

 

On March 4, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 9,333 shares ofour common stock for an aggregate purchase price of $21,000.

 

On March 5, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 1,778 shares ofour common stock for an aggregate purchase price of $4,000.

 

On March 24, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 12,500 shares ofour common stock for an aggregate purchase price of $28,125.

 

On March 26, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 44,444 shares ofour common stock for an aggregate purchase price of $100,000

 

On April 3, 2008, we entered into a Common StockPurchase Agreement with accredited investors for the sale of 22,222 shares ofour common stock for an aggregate purchase price of $50,000.

 

On April 18, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 7,778 shares ofour common stock for an aggregate purchase price of $17,500.

 

On May 27, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 22,222 shares ofour common stock for an aggregate purchase price of $50,000.

 

On June 26, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 22,222 shares ofour common stock for an aggregate purchase price of $50,000.

 

On July 9, 2008, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 35,555 shares ofour common stock for an aggregate purchase price of $80,000.

 

On September 26, 2008, we entered into a CommonStock Purchase Agreement with an accredited investor for the sale of 4,445shares of our common stock for an aggregate purchase price of $10,000.

 

On December 3, 2008, we entered into a CommonStock Purchase Agreement with accredited investors for the sale of 6,666 sharesof our common stock and warrants to purchase an additional 1,667 shares ofcommon stock, aggregate purchase price of $15,000.

 

On December 8, 2008, we entered into a CommonStock Purchase Agreement with an accredited investor for the sale of 4,444shares of our common stock and warrants to purchase an additional 1,111 sharesof common stock for an aggregate purchase price of $10,000.

 

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**ITEM 6. SELECTED FINANCIAL DATA**

 

N/A

 

**ITEM 7. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-LookingStatements**

 

The information in thisreport contains forward-looking statements. All statements other thanstatements of historical fact made in this report are forward looking. Inparticular, the statements herein regarding industry prospects and futureresults of operations or financial position are forward-looking statements.These forward-looking statements can be identified by the use of words such as “believes,”“estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,”“may,” “will,” or “should” or other variations or similar words. No assurancescan be given that the future results anticipated by the forward-lookingstatements will be achieved. Forward-looking statements reflect management’scurrent expectations and are inherently uncertain. Our actual results maydiffer significantly from management’s expectations.

 

The following discussion andanalysis should be read in conjunction with our financial statements, includedherewith. This discussion should not be construed to imply that the resultsdiscussed herein will necessarily continue into the future, or that anyconclusion reached herein will necessarily be indicative of actual operatingresults in the future. Such discussion represents only the best presentassessment of our management.

 

**Overview**

 

Since inception on February 16,1999 through December 31, 2008, we have sustained cumulative net losses of$5,955,850. Our losses have resulted primarily from research and developmentexpenses, patent costs and legal and accounting expenses. We have four issuedpatents, and we launched our BioWindows medical informatics system on May 11,2008. From inception through December 31, 2008, we have not generated anyrevenue from operations. We expect to incur additional losses to performfurther research and development activities. In 2009, we are planning to launchour BreastCancerChip, which can be marketed as a CLIA laboratory tests withoutFDA approval, similar to Genomic Health’s Oncotype Dx test, or as a 510(k) productapproved by the FDA, enabling our test to be used in any certified laboratory.In order to accelerate our product introduction and to grow dynamically, wewill need to raise additional funds. We do not currently have any commercialproducts. There are some risks with respect to clinical testing, regulatoryapproval and review cycles and uncertainty of the costs. Net positive cashinflows from any products developed may take several years to achieve.

 

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

 

**History**

 

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

 

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

 

As of December 31, 2008we had sold/issued 3,343,319 shares of common stock and 134,178 five-yearwarrants to 99 accredited investors. We received $2,789,943 on the sale ofcommon stock and $37,500 on exercise of options. We issued 7,200,000 of commonstock on transfer of technology worth $1,800,000 and issued 289,222 commonstock for services worth $194,650

 

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**Plan ofOperation**

 

We are a life sciencecompany focused on the development and commercialization of a nano-biochip geneexpression kit and an artificial intelligence system to assist in establishingthe foundation for personalized medicine, which will initially be utilized inthe treatment of breast cancer. Although we may market our products as CLIAlaboratory tests, we are designing them to be approved by the FDA, which canthen be used in any certified laboratory. Starting at the point of a breastbiopsy diagnosis of cancer, the nano-biochip and informatics program are designedto enable a treating physician to quickly prescribe a personalized treatmentregimen that will have the greatest probability of success for each patient’sparticular type of cancer. Our product platform is expected to lead to moreeffective diagnosis and treatment not only for patients with breast cancer, butalso for those with neurological disorders, heart disease, diabetes and othergene-related metabolic problems .

 

**ProductResearch and Development**

 

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

 

**Acquisitionof Plant and Equipment and Other Assets**

 

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

 

**Number ofEmployees**

 

From our inception throughthe period ended December 31, 2008, we have principally relied on theservices of outside consultants and part-time employees for services. Wecurrently have 5 full time employees and 10 part-time employees. In order forus to attract and retain quality personnel, we anticipate we will have to offercompetitive salaries to future employees. We anticipate that it may becomedesirable to add additional full and or part time employees to dischargecertain critical functions during the next 12 months. This projected increasein personnel is dependent upon our ability to generate revenues and obtainsources of financing. There is no guarantee that we will be successful inraising the funds required or generating revenues sufficient to fund theprojected increase in the number of employees. As we continue to expand, wewill incur additional cost for personnel.

 

**Results ofOperations**

 

We are in thedevelopment stage and to date have not generated revenues. The risksspecifically discussed are not the only factors that could affect futureperformance and results. In addition to the discussion in this prospectusconcerning us, our business and our operations contain forward-lookingstatements. Such forward-looking statements are necessarily speculative andthere are certain risks and uncertainties that could cause actual events orresults to differ materially from those referred to in such forward-lookingstatements. We do not have a policy of updating or revising forward-lookingstatements and thus it should not be assumed that silence by our Managementover time means that actual events or results are occurring as estimated in theforward-looking statements herein.

 

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

 

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

 

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**Year Ended December 31,2008 Compared to Year Ended December 31, 2007**

 

**Revenues**

 

We have generated nooperating revenues from operations from our inception. We believe we will beginearning revenues from operations in 2009 from actual operation as wetransition from a development stage company to that of an active growthstage company.

 

**Costs andExpenses**

 

From our inception through December 31, 2008, we have notgenerated any revenues and have incurred cumulative losses of $5,955,850. Inaddition, a significant part of the overall remaining costs are associatedprincipally with equity-based compensation to employees and consultants,research and development costs and professional services rendered.

 

Selling, general andadministrative (“SG&A”) expenses for year ended 2008 increased from$215,892 in 2007 to $691,376 in2008, or $475,484. SG&A expenses consisted of accounting, legal,consulting, public relations, startup and organizational expenses.  SG&A expenses also included non-cashcharges from the issuance of stock, warrants and stock options in the amountsof $200,115 for 2008 and $31,140 for 2007, a year-to-year increase of$168,975.  The remaining SG&Aexpenses required cash amounted to approximately $491,261 and $184,752 for 2008and 2007, respectively. The increase in our SG&A is primarily attributed toincreased costs in launching our BioWindowsÔ medical informatics system and preparing tolaunch our BreastCancerChipÔ resulting in professional fees andadditional staffing costs incurred in 2008. We used stock in lieu of cash to conserve our cash resources, Researchand development costs decreased from $182,507 in 2007 to $179,787 in 2008, or$2,720. The research & development costs have remained relativeconstant from year to year with a decrease of 1.5% as we develop our productfor market.

 

 As a result of the above-mentioned expenses,net losses increased from $396,953 in 2007 to $883,530 in 2008, or $486,577.

 

**Liquidityand Capital Resources**

 

As of December 31,2008, we had working capital deficit of $35,141 as compared to working capitalof **$**141,588 as of December 31, 2007. Our cash position was $990as of December 31, 2008 compared to $179,617 as of December 31,2007.  From inception to December 31,2008 we have incurred an operating cash flow deficit of $2,637,838, which hasbeen principally financed through the private placement of our common stock of$2,789,943, the exercise of stock options of $37,500, and loans from relatedparty of $26,000.

 

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

 

From April 30, 2006through December 31, 2008, we completed the following financingtransactions and raised $1,379,226 by issuing 658,464 shares of common stock at$2.00 or $2.25 per share.

 
| a) |   | On May 31, 2006, we  issued 50,000 shares of common stock and 12,500 units of warrants to  investors and received net proceeds of $100,000. The warrants expire on  May 31, 2011 and have an exercise price of $2.00 per share;                  |
|----|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| b) |   | On September 26,  2006, we issued 10,000 shares of common stock and 5,000 units of warrants to  an investor and received net proceeds of $20,000. The warrants expire on  September 26, 2011 and have an exercise price of $2.00 per share; |
| c) |   | On October 16, 2006,  we issued 24,000 shares of common stock to an investor and received net  proceeds of $48,000;                                                                                                                                   |
| d) |   | On December 15, 2006,  we issued 14,800 shares of common stock and received net proceeds of $29,600;                                                                                                                                                  |

 

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| e)  |   | On January 24, 2007,  we issued 13,000 shares of common stock and 13,900 units of warrants to  an investor and received net proceeds of $26,000. The warrants expire on  January 24, 2012 and have an exercise price of $2.00 per share; |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| f)  |   | On February 7, 2007,  we issued 12,500 shares of common stock to an investor and received net  proceeds of $25,000;                                                                                                                                |
| g)  |   | On February 8, 2007,  we issued 50,000 shares of common stock to investors and received net  proceeds of $100,000;                                                                                                                                 |
| h)  |   | On February 9, 2007,  we issued 12,500 shares of common stock to an investor and received net  proceeds of $25,000;                                                                                                                                |
| i)  |   | On February 14, 2007,  we issued 25,000 shares of common stock to investors and received net  proceeds of $50,000;                                                                                                                                 |
| j)  |   | On February 15, 2007,  we issued 25,000 shares of common stock to investors and received net  proceeds of $50,000;                                                                                                                                 |
| k)  |   | On February 16, 2007,  we issued 12,500 shares of common stock to an investor and received net  proceeds of $25,000;                                                                                                                               |
| l)  |   | On February 20, 2007,  we issued 12,500 shares of common stock to an investor and received net  proceeds of $25,000;                                                                                                                               |
| m)  |   | On February 23, 2007,  we issued 12,500 shares of common stock to an investor and received net  proceeds of $25,000;                                                                                                                               |
| n)  |   | On March 1, 2007, we  issued 12,500 shares of common stock to an investor and received net proceeds  of $25,000;                                                                                                                                   |
| o)  |   | On March 15, 2007, we  issued 12,500 shares of common stock to an investor and received net proceeds  of $25,000;                                                                                                                                  |
| p)  |   | On March 20, 2007, we  issued 30,000 shares of common stock to an investor and received net proceeds  of $60,000;                                                                                                                                  |
| q)  |   | On March 22, 2007, we  issued 30,000 shares of common stock to an investor and received net proceeds  of $60,000;                                                                                                                                  |
| r)  |   | On March 23, 2007, we  issued 37,500 shares of common stock to an investor and received net proceeds  of $75,000; and                                                                                                                              |
| s)  |   | On April 11, 2007, we  entered into an agreement to issue 12,500 shares of common stock to an  investor for net proceeds of $25,000.                                                                                                          |
| t)  |   | On December 13, 2007,  we entered into agreements to issue 22,222 shares of common stock to investors  for net proceeds of $50,000.                                                                                                           |
| u)  |   | On January 16, 2008,  we entered into an agreement to issue 22,222 shares of common stock to  investors for net proceeds of $50,000.                                                                                                               |
| v)  |   | On February 19, 2008,  we entered an agreement to issue 11,111 shares of common stock to an investor  for net proceeds of $25,000.                                                                                                                 |
| w)  |   | On March 4, 2008, we  entered an agreement to issue 9,333 shares of common stock to an investor for  net proceeds of $21,000.                                                                                                                      |
| x)  |   | On March 5, 2008, we  entered an agreement to issue 1,778 shares of common stock to an investor for  net proceeds of $4,000.                                                                                                                       |
| y)  |   | On March 24, 2008, we  entered an agreement to issue 12,500 shares of common stock to an investor  for net proceeds of $28,125.                                                                                                                    |
| z)  |   | On April 3, 2008, we  entered an agreement to issue 22,222 shares of common stock to investors for  net proceeds of $50,000.                                                                                                                       |
| aa) |   | On April 18, 2008, we  entered an agreement to issue 7,778 shares of common stock to an investor for  net proceeds of $17,500.                                                                                                                     |
| bb) |   | On May 27, 2008, we  entered an agreement to issue 22,222 shares of common stock to an investor  for net proceeds of $50,000.                                                                                                                      |
| cc) |   | On June 26, 2008, we  entered an agreement to issue 22,222 shares of common stock to an investor  for net proceeds of $50,000.                                                                                                                     |
| dd) |   | On July 9, 2008, we  entered an agreement to issue 35,555 shares of common stock to an investor  for net proceeds of $80,000.                                                                                                                      |
| ee) |   | On September 26,  2008, we entered an agreement to issue 4,445 shares of common stock to an  investor for net proceeds of $10,000.                                                                                                                 |
| ff) |   | On December 3, 2008,  we entered an agreement to issue 6,666 shares of common stock and warrants to  purchase 1,667 shares of our common stock to investors for net proceeds of  $15,000.                                                          |
| gg) |   | On December 8, 2008,  we entered an agreement to issue 4,444 shares of common stock and warrants to  purchase 1,111 shares of our common stock to investors for net proceeds of  $10,000.                                                          |

 

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

 

Our continued operationswill depend on whether we are able to raise additional funds through variouspotential sources, such as equity and debt financing, collaborative andlicensing agreements, strategic alliances, and our ability to realize the fullpotential of our technology in development. Such additional funds may notbecome available on acceptable terms, if at all, and there can be no assurancethat any additional funding that we do obtain will be sufficient to meet ourneeds in the long term. Through March 30, 2009, virtually all of ourfinancing has been through private placements of common stock and warrants. Weintend to continue to fund operations from cash on-hand and through the similarsources of capital previously described for the foreseeable future. We can giveno assurances that any additional capital that we are able to obtain will besufficient to meet our needs. We believe that we will continue to incur netlosses and negative cash flows from operating activities for the next twoyears. Based on the resources available to us on March 30, 2009, wewill need additional equity or debt financing to meet our operating needs.

 

While we have raised capital to meet our working capital and financingneeds in the past, additional financing is required within the next 12 monthsin order to meet our current and projected cash flow deficits from operationsand development. We have sufficient funds to conduct our operations for severalmonths, but not for 12 months or more. There can be no assurance that financingwill be available in amounts or on terms acceptable to us, if at all.

 

By adjusting our operations anddevelopment to the level of capitalization, we believe we have sufficientcapital resources to meet projected cash flow deficits. However, if during thatperiod or thereafter, we are not successful in generating sufficient liquidityfrom operations or in raising sufficient capital resources, on terms acceptableto us, this could have a material adverse effect on our business, results ofoperations liquidity and financial condition.

 

We presently do not have any available credit, bank financing or otherexternal sources of liquidity. Due to our brief history and historicaloperating losses, our operations have not been a source of liquidity. We willneed to obtain additional capital in order to expand operations and becomeprofitable. In order to obtain capital, we may need to sell additional sharesof our common stock or borrow funds from private lenders. There can be noassurance that we will be successful in obtaining additional funding.

 

 We will still need additionalinvestments in order to continue operations to cash flow break even. Additionalinvestments are being sought, but we cannot guarantee that we will be able toobtain such investments. Financing transactions may include the issuance ofequity or debt securities, obtaining credit facilities, or other financingmechanisms. However, the trading price of our common stock and the downturn inthe U.S. stock and debt markets could make it more difficult to obtainfinancing through the issuance of equity or debt securities. Even if we areable to raise the funds required, it is possible that we could incur unexpectedcosts and expenses, fail to collect significant amounts owed to us, orexperience unexpected cash requirements that would force us to seek alternativefinancing. Further, if we issue additional equity or debt securities,stockholders may experience additional dilution or the new equity securitiesmay have rights, preferences or privileges senior to those of existing holdersof our common stock. If additional financing is not available or is notavailable on acceptable terms, we will have to curtail our operations.

 

**Off-BalanceSheet Arrangements**

 

Wedo not have any off-balance sheet arrangements.

 

**Inflation**

 

Itis our opinion that inflation has not had a material effect on our operations.

 

**CriticalAccounting Policies**

 

Our financial statements areprepared in accordance with accounting principles generally accepted in theUnited States of America, which requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financial 

 

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statements and the reportedamounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.

 

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

 

**Accountingfor Stock-Based Compensation**

 

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

 

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

 

N/A

 

**ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.**

 

All financial informationrequired by this Item is attached hereto at the end of this report beginning onpage F-1 and is hereby incorporated by reference.

 

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

 

None.

 

**ITEM 9A(T).CONTROLS AND PROCEDURES**

 

*Evaluation of Disclosure Controls and Procedures*. Under the supervision and with  the  participation  of  our  management,  including  our President,  Chief Financial Officer  and  Secretary,  we  evaluated  the  effectiveness  of the design and operation  of our  disclosure  controls  and  procedures  (as  defined  in  Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the  period  covered  by this  report.  Based  upon that evaluation,  our  President,  Chief Financial Officer and Secretary  concluded  that our disclosure  controls and  procedures as of the end of the period covered by this report were effective such that the  information  required to be disclosed by us in reports  filed under the  Securities  Exchange  Act of 1934 is (i)  recorded, processed,  summarized  and reported  within the time  periods  specified in the SEC’s rules and forms and (ii)  accumulated and  communicated to our management to allow timely decisions  regarding  disclosure.  A controls  system  cannot  provide  absolute assurance,  however,  that the objectives of the controls system are met, and no evaluation of controls can provide  absolute  assurance  that all control issues and  instances  of  fraud,   if  any,  within  a  company  have  been  detected.

 

*Management’s Annual Report on Internal Control over Financial Reporting*. Our management is responsible for establishing and maintaining adequate internal control over financial reporting  (as defined in Rule 13a-15(f) under the Exchange Act).  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

 

Our management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2008.  In making this assessment, our management used the Committee of Sponsoring Organisation of the Treadway Commission (“COSO”) framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management concluded that, as of December 31, 2008, our internal control over financial reporting was effective.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s  report was not subject to attestation by our registered  public 

 

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accounting firm pursuant to temporary rules of the SEC  that permit the company to provide  only  management’s report in this annual report.

 

*Changes.*  During the most recent quarter ended December 31, 2008, there has been no change in our internal control over  financial  reporting  (as defined in Rule  13a-15(f) and 15d-15(f) under the Exchange Act)  that has materially affected,  or is reasonably likely to materially affect, our internal control over financial reporting.

 

**ITEM 9B.OTHER INFORMATION.**

 

None.

 

**PART III**

 

**ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

 

**EXECUTIVEOFFICERS, DIRECTORS AND KEY EMPLOYEES**

 

The following table setsforth the names and ages of the members of our Board of Directors and ourexecutive officers and the positions held by each as of December 31, 2008.There are no family relationships among any of our Directors and ExecutiveOfficers except for Simon Chin and his sister, Grace Osborne.

** **
| **Name**                      | ** ** | **Age** | ** ** | **Position**                                                                           |
|-------------------------------|------------|---------|------------|----------------------------------------------------------------------------------------|
| Simon S. M.  Chin, MBA        |       | 49      |       | President,  Chief Executive Officer, Chief Financial Officer and Chairman of the Board |
|                          |       |    |       |                                                                                   |
| Ronald Mark  Gemberling, M.D. |       | 61      |       | Chief  Medical Officer                                                                 |
|                          |       |    |       |                                                                                   |
| Scott M.  Wheelwright, Ph.D.  |       | 54      |       | Vice  President, Operations                                                            |
|                          |       |    |       |                                                                                   |
| Ralph M.  Sinibaldi, Ph.D.    |       | 61      |       | Vice  President, Product Development                                                   |
|                          |       |    |       |                                                                                   |
| Grace  Osborne, MBA           |       | 41      |       | Vice  President, Business Development & Human Resources and Director          |
|                          |       |    |       |                                                                                   |
| Daniel  Farnum, M.D.          |       | 64      |       | Director                                                                               |

 

**ExecutiveBiographies**

 

**Simon Chin**, President, Chief Executive Officer, ChiefFinancial Officer and Director - Mr. Chin, the Founder, has served as ourPresident, Chief Executive Office and Chairman of the Board since February 1999and as our Chief Financial Officer since March 2007. Prior to ourfounding, Mr. Chin was the Chief Executive Officer and Founder of DNALaboratories where he developed key DNA chip technologies, and he also heldmanagement positions at leading companies such as Du Pont. Mr. Chinobtained an MBA from Santa Clara University in 1993 and a B.S. in chemicalengineering from the University of California, Berkeley in 1982.

 

**Ronald MarkGemberling**, ChiefMedical Officer - Dr. Gemberling has been our Chief Medical Officer since April 2004.In addition, Dr. Gemberling has had a medical practice in California forover thirty years. Dr. Gemberling obtained a B.A. in bacteriology at theUniversity of California, Los Angeles in 1969 and completed his medical studiesthere in 1973. Dr. Gemberling received his general surgery training at theUCLA-VA Affiliated Hospitals where he finished as Chief Resident in 1978. Dr. Gemberlingthen spent a year as a clinical research Burn Fellow at the LA County-USCMedical Center Burn Unit before entering his training in plastic andreconstructive surgery at the University of Michigan and Chief Residency at theUniversity of Louisville.

 

**Scott M.Wheelwright,** VicePresident, Operations - Dr. Wheelwright has been our Vice President ofOperation since January 2004. From 2002 to 2004, he was the VP ofBioProcessing at Genitope Corporation, a public company specializing in cancerimmunotherapy. He previously held various management positions at companiessuch as Chiron and Abbott Laboratories. In August 2004, he foundedStrategic Manufacturing Worldwide to offer his consulting services globally. Dr. Wheelwrightobtained a Ph.D. in chemical engineering from the University of California atBerkeley in 1982 and a B.S. in chemical engineering from the University of Utahin 1978.

 

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**Ralph M. Sinibaldi,** Vice President, Product Development - Dr. Sinibaldihas been our Vice President of Product Development since July 2003. He waspreviously the Vice President, Product Development, at Genospectra, amicroarray and reagent company. He was also a founding Vice President ofAgraQuest; Vice President, Scientific Affairs, at Operon Technologies, Inc.,the leading DNA manufacturing company, which was acquired by Qiagen, where hewas responsible for the Microarray Business Unit and the science involved. Dr. Sinibaldiobtained a Ph.D. in experimental biology from the University of Illinois in1978 and a M.S. (1974) and B.S. in biological sciences in 1970.

 

**Grace Osborne,** Vice President, Business Development &Human Resources and Director - Ms. Osborne has been our Vice President ofBusiness Development & Human Resources since January 2005 and amember of our Board of Directors since March 2003. From December 1998to May 2005, Ms. Osborne was the Founder and President of GCORecruiters, which served fortune 100 companies and other technology companies. Ms. Osborneobtained a B.A. in human development from the University of California, Davisin 1989 and a M.B.A. from the California State University at Hayward in 1993.

 

**Daniel Farnum,** Director - Dr. Farnum has been adirector since March 2003. Dr. Farnum has been a co-owner in theHumboldt Orthopedics Medical Group, Inc., a private medical practice,since 1995. Dr. Farnum obtained a B.S. in Medical Sciences from theUniversity of California, San Francisco, in 1972 and completed his medicalstudies there in 1975. Dr. Farnum did his surgical internship, generalsurgery residency, and residency in orthopedic surgery at the Harbor UCLAMedical Center. He was certified by the American Board of Orthopaedics Surgeryin 1983.

 

Compliance with Section 16(a) ofthe Exchange Act

 

Section 16(a) ofthe Securities Exchange Act of 1934 requires our officers and directors, and personswho own more than ten percent of a registered class of our equity securities,to file reports of ownership and changes in ownership with the Securities andExchange Commission.  Officers, directorsand greater than ten percent stockholders are required by SEC regulation tofurnish us with copies of all Section 16(a) forms they file.

Based on a reviewof the copies of such forms received, we believe that during 2008, all filingrequirements applicable to our officers, directors and greater than ten percentbeneficial owners were complied with, except that Simon Chin filed a Form 4late five times.

 

**Board of Directors**

 

Our Directors are elected by the vote of a majority ininterest of the holders of our voting stock and hold office until theexpiration of the term for which he or she was elected and until a successorhas been elected and qualified.

 

A majority of the authorized number of directorsconstitutes a quorum of the Board for the transaction of business. Thedirectors must be present at the meeting to constitute a quorum. However, anyaction required or permitted to be taken by the Board may be taken without ameeting if all members of the Board individually or collectively consent inwriting to the action.

 

Directors may receive compensation for their servicesand reimbursement for their expenses as shall be determined from time to timeby resolution of the Board. Each of our directors currently receives no cashcompensation for their service on the Board of Directors, but do receive asmall amount of stock options.

 

**Audit Committee**

 

We do not have a separately designated standing auditcommittee.

 

**Code of Ethics**

 

We have adopted a formal Code of Business Conduct andEthics applicable to all Board members, executive officers and employees.  Our Code of Business Conduct and Ethics hasbeen filed as Exhibit 14 to this Report and is available on our web siteat .

 

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**ITEM 11. EXECUTIVE COMPENSATION.**

 

The following table sets forth all compensation earnedin respect of our Chief Executive Officer and those individuals who receivedcompensation in excess of $100,000 per year, collectively referred to as thenamed executive officers, for our last two completed fiscal years.

 

**SummaryCompensation Table**

 
| **Name & Principal**

**Position** | ** ** | **Year** | ** ** | **Salary**

**($)** | ** ** | **Bonus**

**($)** | ** ** | **Stock**

**Awards**

**($)** | ** ** | **Option**

**Awards**

**($)** | ** ** | **Non-Equity**

**Incentive Plan**

**Compensation**

**($)** | ** ** | **Change in Pension**

**Value and Non-**

**Qualified Deferred**

**Compensation**

**Earnings ($)** | ** ** | **All**

**Other**

**Compensation**

**($)** | ** ** | **Total**

**($)** | ** ** |
|--------------------------------------------------|------------|----------|------------|---------------------|------------|--------------------|------------|--------------------------------|------------|---------------------------------|------------|--------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|--------------------|------------|
| None                                             |       | 2008     |       |                |       |               |       |                           |       |                            |       |                                                               |       |                                                                                                                                |       |                                          |       |               |       |
| None                                             |       | 2007     |       |                |       |               |       |                           |       |                            |       |                                                               |       |                                                                                                                                |       |                                          |       |               |       |

 

**Employment Agreements with ExecutiveOfficers**

 

We have not entered into employment agreements withour executive officers.

 

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**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END**

 

The followingtable sets forth with respect to grants of options to purchase our common stockto the named executive officers as of December 31, 2008.

 
| **Name**          | ** ** | **Number of  Securities  Underlying  Unexercised  Options  #  Exercisable** | ** ** | **Number of  Securities  Underlying  Unexercised  Options  #  Unexercisable** | ** ** | **Equity Incentive  Plan Awards:  Number of  Securities  Underlying  Underexercised  Unearned Options  #** | ** ** | **Option  Exercise  Price  $** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of  Shares  or Units  of Stock  That  Have  Not  Vested  #** | ** ** |
|-------------------|------------|-----------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|------------------------------|------------|------------------------------------------------------------------------|------------|
| Simon Chin        |       | 400,000                                                                     |       | 0                                                                             |       | 0                                                                                                          |       | 0.25                           |       | 8/28/09                      |       | 0                                                                      |       |
| Ron Gemberling    |       | 40,000                                                                      |       | 0                                                                             |       | 0                                                                                                          |       | 1.00                           |       | 10/2/14                      |       | 0                                                                      |       |
| Ron Gemberling    |       | 58,438                                                                      |       | 0                                                                             |       | 26,562                                                                                                     |       | 1.00                           |       | 9/26/16                      |       | 26,562                                                                 |       |
| Ron Gemberling    |       | 26,756                                                                      |       | 0                                                                             |       | 115,941                                                                                                    |       | 2.25                           |       | 9/16/18                      |       | 115,941                                                                |       |
| Grace Osborne     |       | 27,500                                                                      |       | 0                                                                             |       | 0                                                                                                          |       | 0.50                           |       | 9/23/13                      |       | 0                                                                      |       |
| Grace Osborne     |       | 18,906                                                                      |       | 0                                                                             |       | 8,594                                                                                                      |       | 1.00                           |       | 9/26/16                      |       | 8,594                                                                  |       |
| Grace Osborne     |       | 38,000                                                                      |       | 0                                                                             |       | 0                                                                                                          |       | 1.00                           |       | 9/26/16                      |       | 0                                                                      |       |
| Grace Osborne     |       | 58,438                                                                      |       | 0                                                                             |       | 26,562                                                                                                     |       | 1.00                           |       | 9/26/16                      |       | 26,562                                                                 |       |
| Ralph Sinibaldi   |       | 25,000                                                                      |       | 0                                                                             |       | 0                                                                                                          |       | 1.00                           |       | 9/26/16                      |       | 0                                                                      |       |
| Ralph Sinibaldi   |       | 58,438                                                                      |       | 0                                                                             |       | 26,562                                                                                                     |       | 1.00                           |       | 9/26/16                      |       | 26,562                                                                 |       |
| Scott Wheelwright |       | 10,000                                                                      |       | 0                                                                             |       | 0                                                                                                          |       | 1.00                           |       | 9/26/16                      |       | 0                                                                      |       |
| Scott Wheelwright |       | 58,438                                                                      |       | 0                                                                             |       | 26,562                                                                                                     |       | 1.00                           |       | 9/26/16                      |       | 26,562                                                                 |       |

 

****Director Compensation****

 

During the fiscal year ended December 31, 2008,the directors of the Company did not receive any compensation, except for thevesting of stock options previously granted to them.

 

**ITEM 12. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

 

**SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT**

 

The following table sets forth certain information, asof March 30, 2009 with respect to the beneficial ownership of theoutstanding common stock by (i) any holder of more than five (5%) percent;(ii) each of our executive officers and directors; and (iii) ourdirectors and executive officers as a group. Except as otherwise indicated,each of the stockholders listed below has sole voting and investment power overthe shares beneficially owned.

 
| **Name of**

**Beneficial Owner (1)**            | ** ** | **Number of Shares**

**Beneficially Owned (2)** | ** ** | **Percentage of**

**Common Stock**

**Beneficially**

**Owned (2)** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| Simon Chin (3)                                                  |       | 7,534,252                                                            |       | 66.34                                                                               | %          |
| Ronald Mark Gemberling (4)                                      |       | 139,424                                                              |       | 1.26                                                                                | %          |
| Scott M. Wheelwright (5)                                        |       | 93,750                                                               |       | *                                                                                   |       |
| Ralph M. Sinibaldi (6)                                          |       | 88,750                                                               |       | *                                                                                   |       |
| Grace Osborne (7)                                               |       | 186,540                                                              |       | 1.68                                                                                | %          |
| Daniel Farnum (8)                                               |       | 855,628                                                              |       | 7.76                                                                                | %          |
| All Executive Officers and Directors as a Group (6 persons) (9) |       | 8,898,344                                                            |       | 74.87                                                                               | %          |

 

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----

* Less than 1%
| (1) | Except as  otherwise indicated, the address of each beneficial owner is c/o Iris  BioTechnologies Inc., 5201 Great America Parkway, Suite 320, Santa  Clara, California 95054 .                                                                                                                                                                                                                                                                           |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Beneficial ownership  is determined in accordance with the rules of the Securities and  Exchange Commission and generally includes voting or investment power with  respect to the shares shown. Except where indicated by footnote and subject  to community property laws where applicable, the persons named in the table  have sole voting and investment power with respect to all shares of voting  securities shown as beneficially owned by them. |
| (3) | Includes options  to purchase 400,000 shares of common stock, which are currently vested.                                                                                                                                                                                                                                                                                                                                                                      |
| (4) | Consists of  options to purchase 139,424 shares of common stock, which are currently  vested, but does not include options to purchase an aggregate of 128,272  shares of common stock.                                                                                                                                                                                                                                                                        |
| (5) | Includes options  to purchase 73,750 shares of common stock, which are currently vested, but  does not include options to purchase an aggregate of 21,250 shares of common  stock.                                                                                                                                                                                                                                                                             |
| (6) | Includes options  to purchase 88,750 shares of common stock, which are currently vested, but  does not include options to purchase an aggregate of 21,250 shares of common  stock.                                                                                                                                                                                                                                                                             |
| (7) | Includes 36,665  shares owned by her spouse, options to purchase 149,875 shares of common  stock, which are currently vested, but does not include options to purchase  an aggregate of 28,125 shares of common stock.                                                                                                                                                                                                                                         |
| (8) | Includes 42,000  shares owned by his spouse, 210,000 shares co-owned with his spouse and  includes options to purchase 48,125 shares of common stock, which are  currently vested, and warrants to purchase 27,806 shares of common stock, but  does not include options to purchase an aggregate of 6,875 shares of common  stock.                                                                                                                            |
| (9) | Includes options  to purchase 899,924 shares of common stock and warrants to purchase 27,806  shares of common stock.                                                                                                                                                                                                                                                                                                                                          |

** **

**ITEM 13. CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

On an ongoing basis Simon Chin, our President, ChiefExecutive Officer, Chief Financial Officer and Chairman of our Board ofDirectors, has been providing us with interim financing, which we repay whenfunds are available. During the year ended December 31, 2008, Mr. Chinadvanced an aggregate of $30,000 in 4 separate fundings and we had repaid Mr. Chinan aggregate of $4,000. We do not pay any interest on the money loaned to us byMr. Chin.

 

We believe that the terms of all of the abovetransactions are commercially reasonable and no less favorable to us than wecould have obtained from an unaffiliated third party on an arm’s length basis.Our policy requires that all related parties recuse themselves from negotiatingand voting on behalf of our company in connection with related partytransactions.

 

**BoardDetermination of Independence**

 

Our board of directors has determined that DanielFarnum is “independent” as that term is defined by the National Association ofSecurities Dealers Automated Quotations (“NASDAQ”), but that neither Simon Chinnor Grace Osborne can be deemed “independent” in light of their employment asour executive officers.

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEESAND SERVICES.**

 

**Audit Fees**

 

The aggregate fees billed by our principal accountantfor the audit of our annual financial statements, review of financialstatements included in the quarterly reports and other fees that are normallyprovided by the accountant in connection with statutory and regulatory filingsor engagements for the fiscal years ended December 31, 2008 and 2007 were$42,000 and $39,500, respectively.

 

**Tax Fees**

 

The aggregate fees billedfor professional services rendered by our principal accountant for taxcompliance, tax advice and tax planning for the fiscal years ended December 31,2008 and 2007 were $750 and $750, respectively. These fees related to thepreparation of federal income and state franchise tax returns.

 

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**Policyon Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services ofIndependent Auditors**

** **

The Company currently doesnot have a designated Audit Committee, and accordingly, the Company’s Board ofDirectors’ policy is to pre-approve all audit and permissible non-auditservices provided by the independent auditors. These services may include auditservices, audit-related services, tax services and other services. Pre-approvalis generally provided for up to one year and any pre-approval is detailed as tothe particular service or category of services and is generally subject to aspecific budget. The independent auditors and management are required toperiodically report to the Company’s Board of Directors regarding the extent ofservices provided by the independent auditors in accordance with thispre-approval, and the fees for the services performed to date. The Board ofDirectors may also pre-approve particular services on a case-by-case basis.

 

**ITEM 15. EXHIBITS.**

 
| **Exhibit**

**Number** | ** ** | **Description of Exhibit**                                                                                                                                                     |
|-------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                                                                                                     |
| 3.1                     |       | Registrant’s  Articles of Incorporation (incorporated by reference to the exhibits to  Registrant’s Form SB-2 filed on April 12, 2007).                              |
| 3.2                     |       | Registrant’s  Certificate of Amendment of Articles of Incorporation (incorporated by  reference to the exhibits to Registrant’s Form SB-2 filed on  April 12, 2007). |
| 3.3                     |       | Registrant’s  Amended and Restated By-Laws (incorporated by reference to the exhibits to  Registrant’s Form SB-2 filed on June 20, 2007).                            |
| 10.1                    |       | 1999 Stock  Option Plan (incorporated by reference to the exhibits to Registrant’s  Form SB-2 filed on April 12, 2007).                                                   |
| 10.2                    |       | 2009 Stock  Option Plan.                                                                                                                                                                 |
| 14                      |       | Code of Ethics  (incorporated by reference to the exhibits to the Registrant’s Form 10-KSB  filed on March 31, 2008)                                                      |
| 31.1                    |       | Certifications required by Rule 13a-14, as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                 |
| 31.2                    |       | Certification of Chief Executive Officer and  Principal Accounting Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant  to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

 

In accordance withSection 13 or 15(d) of the Exchange Act, the registrant caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                       | IRIS  BIOTECHNOLOGIES INC.                                                                                                                                             |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       |                                                                                                                                                                   |
|                       | /s/ Simon Chin                                                                                                                                                         |
|  March 31,  2009 | Simon Chin                                                                                                                                                             |
|                       | President, Chief  Executive Officer, Chief Financial Officer and Director (Principal Executive  Officer, Principal Accounting Officer and Principal Financial Officer) |

 

In accordance withthe Exchange Act, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.

 
| **SIGNATURE**        | ** ** | **TITLE**                                                                              | ** ** | **DATE**             |
|----------------------|------------|----------------------------------------------------------------------------------------|------------|----------------------|
|                 |       |                                                                                   |       |                 |
| /s/ Simon  Chin      |       | President, Chief  Executive Officer, Chief

Financial  Officer and Director (Principal |       | March 31,  2009 |
| Simon Chin           |       | Executive  Officer, Principal AccountingOfficer                                        |       |                 |
|                 |       | and Principal  Financial Officer)                                                      |       |                 |
|                 |       |                                                                                   |       |                 |
| /s/ Grace  Osborne   |       | Vice President,  Business Development and                                              |       | March 31,  2009 |
| Grace Osborne        |       | Director                                                                               |       |                 |
|                 |       |                                                                                   |       |                 |
| /s/ Daniel  Farnum   |       | Director                                                                               |       | March 31,  2009 |
| Daniel Farnum,  M.D. |       |                                                                                   |       |                 |

 

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****IRISBIOTECHNOLOGIES, INC.****

 

****INDEX TO FINANCIALSTATEMENTS****

 
| **** ****                                                                                                                                                     | **** **** | ****Page**** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|--------------|
| Report of Independent  Registered Public Accounting Firm                                                                                                           |           | F-2          |
|                                                                                                                                                               |           |         |
| Balance Sheets as of  December 31, 2008 and 2007                                                                                                              |           | F-3          |
|                                                                                                                                                               |           |         |
| Statements of Losses for the years ended  December 31, 2008 and 2007 and the period February 16, 1999 (date  of inception) to December 31, 2008     |           | F-4          |
|                                                                                                                                                               |           |         |
| Statement of  Deficiency in Stockholders’ Equity for the period February 16, 1999 (date  of inception) to December 31, 2008                         |           | F-5-F-10     |
|                                                                                                                                                               |           |         |
| Statements of Cash Flows  for the years ended December 31, 2008 and 2007 and the period  February 16, 1999 (date of inception) to December 31, 2008 |           | F-11         |
|                                                                                                                                                               |           |         |
| Notes to Financial Statements                                                                                                                                      |           | F-12-F-23    |

 

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****RBSM LLP****

****CERTIFIED PUBLICACCOUNTANTS****

 

****REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM****

 

Board of Directors

Iris BioTechnologies Inc.

Santa Clara, California

 

We have audited theaccompanying balance sheets of**IrisBioTechnologies Inc.** as of December 31, 2008 and 2007, andthe related statements of losses, deficiency in stockholder’s equity and cashflows for each of the two years in the period ended December 31, 2008 andthe period February 16, 1999 (date of inception) through December 31,2008 for the year then ended. These financial statements are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements based on our audits.

 

We have conductedour audits in accordance with auditing standards of the Public CompanyAccounting Oversight Board (United States of America). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit includes examiningon a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe our auditsprovide a reasonable basis for our opinion.

 

In our opinion, thefinancial statements referred to above present fairly, in all materialrespects, the financial position of Iris BioTechnologies Inc. (a developmentstage company) at December 31, 2008 and 2007 and the results of itsoperations and its cash flows for the each of the two years in the period endedDecember 31, 2008 and the period February 16, 1999 (date ofinception) through December 31, 2008 in conformity with accountingprinciples generally accepted in the United States of America.

 

 
|       |       | /s/ RBSM LLP                  |
|------------|------------|-------------------------------|
| ** ** | ** ** | **RBSM LLP**                  |
|       |       | Certified Public  Accountants |

 

 

**NewYork, New York**

**March 30,2009**

 

F-2

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Table of Contents

 

**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**BALANCE SHEETS**

**DECEMBER31, 2008 AND 2007**

 
| ** **                                                                                                                                                                                 | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ASSETS                                                                                                                                                                                     |       |       |       |       |       |
| Current assets:                                                                                                                                                                            |       |       |       |       |       |
| Cash                                                                                                                                                                                       |       | $          | 990        |       | $          | 179,617 |   |
| Total current assets                                                                                                                                                                       |       | 990        |       | 179,617    |       |
|                                                                                                                                                                                       |       |       |       |       |       |
| Property, plant and equipment, net of accumulated depreciation of  $165,334 and $151,186 as of December 31, 2008 and 2007, respectively  (Note B)                                     |       | 59,382     |       | 55,442     |       |
|                                                                                                                                                                                       |       |       |       |       |       |
| Total assets                                                                                                                                                                               |       | $          | 60,372     |       | $          | 235,059 |   |
|                                                                                                                                                                                       |       |       |       |       |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                  |       |       |       |       |       |
| Current liabilities:                                                                                                                                                                       |       |       |       |       |       |
| Accounts payable and accrued liabilities (Note C)                                                                                                                                          |       | $          | 10,131     |       | $          | 38,029 |   |
| Notes payable, related party                                                                                                                                                               |       | 26,000     |       | —     |       |
| Total current liabilities                                                                                                                                                                  |       | 36,131     |       | 38,029     |       |
|                                                                                                                                                                                       |       |       |       |       |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                                                  |       |       |       |       |       |
| Preferred stock, no par or stated value; 5,000,000 shares authorized;  no shares issued and outstanding as of December 31, 2008 and 2007 (Note E)                                     |       | —     |       | —     |       |
| Common stock, no par or stated value; 20,000,000 shares authorized;  10,932,541 and 10,655,377 shares issued and outstanding as of  December 31, 2008 and 2007, respectively (Note E) |       | 4,822,092  |       | 4,208,066  |       |
| Additional paid in capital                                                                                                                                                                 |       | 1,277,363  |       | 1,222,347  |       |
| Deferred compensation                                                                                                                                                                      |       | (119,364   | )          | (161,063   | )          |
| Deficit accumulated during development stage                                                                                                                                               |       | (5,955,850 | )          | (5,072,320 | )          |
| Total stockholders’ equity                                                                                                                                                            |       | 24,241     |       | 197,030    |       |
|                                                                                                                                                                                       |       |       |       |       |       |
| Total liabilities and stockholders’ equity                                                                                                                                            |       | $          | 60,372     |       | $          | 235,059 |   |

 

The accompanyingnotes are an integral part of these financial statements

 

F-3

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Table of Contents

 

**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**STATEMENTS OF LOSSES**

 
| ** **                                                                    | ** ** | ** **                                                   | ** ** | **For the period from** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                    | ** ** | ** **                                                   | ** ** | ** **                             | ** ** | **February 16, 1999 (date of** | ** ** |
| ** **                                                                    | ** ** | **For the year ended December 31,** | ** ** | **inception) through**            | ** ** |
| ** **                                                                    | ** ** | **2008**                                                     | ** ** | **2007**                               | ** ** | **December 31, 2008** | ** ** |
| Operating expenses:                                                           |       |                                                         |       |                                   |       |   |   |
| Selling, general and administrative                                           |       | $                                                            | 691,376    |                                   | $          | 215,892 |   | $ | 2,610,150 |   |
| Research and development (Note A)                                             |       | 179,787                                                      |       | 182,507                                |       | 1,345,671 |   |
| Impairment of intellectual property                                           |       | —                                                       |       | —                                 |       | 1,838,250 |   |
| Depreciation                                                                  |       | 14,148                                                       |       | 6,963                                  |       | 165,334 |   |
| Total operating expenses                                                      |       | 885,311                                                      |       | 405,362                                |       | 5,959,405 |   |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Net loss from operations                                                      |       | (885,311                                                     | )          | (405,362                               | )          | (5,959,405 | ) |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Other income (expense)                                                        |       |                                                         |       |                                   |       |   |   |
| Interest income (expense)                                                     |       | 2,581                                                        |       | 9,277                                  |       | 11,591 |   |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Net loss before provision for income taxes                                    |       | (882,730                                                     | )          | (396,085                               | )          | (5,947,814 | ) |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Income taxes                                                                  |       | 800                                                          |       | 868                                    |       | 8,036 |   |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Net Loss                                                                      |       | $                                                            | (883,530   | )                                      | $          | (396,953 | ) | $ | (5,955,850 | ) |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Loss per common share-basic and fully diluted                                 |       | $                                                            | (0.08      | )                                      | $          | (0.04 | ) | $ | (0.63 | ) |
|                                                                          |       |                                                         |       |                                   |       |   |   |
| Weighted average number of common shares outstanding-basic and fully  diluted |       | 10,829,525                                                   |       | 10,583,504                             |       | 9,443,806 |   |

 

The accompanying notes are an integral part of these financialstatements

 

F-4

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Table of Contents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

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

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2008**

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

 

The accompanyingnotes are an integral part of these financial statements

 

F-5

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Table of Contents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

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

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2008**

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

 

The accompanyingnotes are an integral part of these financial statements

 

F-6

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Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

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

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2008**

 
| ** **                                                                                   | ** ** | ** **                | ** ** | ** **             | ** ** | ** **     | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **       | ** ** | **Deficit  accumulated**   | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|------------------------|------------|----------------|------------|--------------|------------|-------------------------------|------------|------------------|------------|----------------------------|------------|------------|------------|
| ** **                                                                                   | ** ** | **Preferred shares** | ** ** | **Common shares** | ** ** | **Additional** | ** ** | **Deferred** | ** ** | **during**                    | ** ** | ** **       | ** ** |
| ** **                                                                                   | ** ** | **Stock**                 | ** ** | **Amount**             | ** ** | **Stock**      | ** ** | **Amount**   | ** ** | **Paid in Capital** | ** ** | **Compensation** | ** ** | **Development stage** | ** ** | **Total**  | ** ** |
| Balance forward                                                                              |       | —                    |       | $                      | —     |           | 9,717,400  |         | $          | 2,913,700                     |       | $                | 101,596    |                       | $          | —     |       | $ | (2,916,087 | ) | $ | 99,209 |   |
| Sale of common stock in January 2003 at $0.50 per share                                 |       | —                    |       | —                 |       | 35,378         |       | 17,689       |       | —                        |       | —           |       | —                     |       | 17,689     |       |
| Common stock issued in February 2003 at $0.50 in exchange for  services rendered        |       | —                    |       | —                 |       | 20,000         |       | 10,000       |       | —                        |       | —           |       | —                     |       | 10,000     |       |
| Sale of common stock in March 2003 at $0.50 per share                                   |       | —                    |       | —                 |       | 100,000        |       | 50,000       |       | —                        |       | —           |       | —                     |       | 50,000     |       |
| Common stock issued in March 2003 at $0.50 per share in exchange  for services rendered |       | —                    |       | —                 |       | 6,000          |       | 3,000        |       | —                        |       | —           |       | —                     |       | 3,000      |       |
| Sale of common stock in July 2003 at $1.00 per share                                    |       | —                    |       | —                 |       | 63,080         |       | 63,080       |       | —                        |       | —           |       | —                     |       | 63,080     |       |
| Sale of common stock in September 2003 at $1.00 per share                               |       | —                    |       | —                 |       | 25,000         |       | 25,000       |       | —                        |       | —           |       | —                     |       | 25,000     |       |
| Sale of common stock in December 2003 at $1.00 per share                                |       | —                    |       | —                 |       | 32,597         |       | 32,597       |       | —                        |       | —           |       | —                     |       | 32,597     |       |
|                                                                                         |       |                      |       |                   |       |           |       |         |       |                          |       |             |       |                       |       |       |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —       |       | —                        |       | —           |       | (216,804                   | )          | (216,804   | )          |
|                                                                                         |       |                      |       |                   |       |           |       |         |       |                          |       |             |       |                       |       |       |       |
| Balance at December 31, 2003                                                            |       | —                    |       | —                 |       | 9,999,455      |       | 3,115,066    |       | 101,596                       |       | —           |       | (3,132,891                 | )          | 83,771     |       |
| Sale of common stock in August 2004 at $1.00 per share                                  |       | —                    |       | —                 |       | 2,000          |       | 2,000        |       | —                        |       | —           |       | —                     |       | 2,000      |       |
| Sale of common stock in September 2004 at $1.00 per share                               |       | —                    |       | —                 |       | 20,000         |       | 20,000       |       | —                        |       | —           |       | —                     |       | 20,000     |       |
| Sale of common stock in November 2004 at $1.00 per share                                |       | —                    |       | —                 |       | 30,000         |       | 30,000       |       | —                        |       | —           |       | —                     |       | 30,000     |       |
| Sale of common stock in December 2004 at $1.00 per share                                |       | —                    |       | —                 |       | 73,500         |       | 73,500       |       | —                        |       | —           |       | —                     |       | 73,500     |       |
|                                                                                         |       |                      |       |                   |       |           |       |         |       |                          |       |             |       |                       |       |       |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —       |       | —                        |       | —           |       | (205,640                   | )          | (205,640   | )          |
|                                                                                         |       |                      |       |                   |       |           |       |         |       |                          |       |             |       |                       |       |       |       |
| Balance at December 31, 2004                                                            |       | —                    |       | —                 |       | 10,124,955     |       | 3,240,566    |       | 101,596                       |       | —           |       | (3,338,531                 | )          | 3,631      |       |
| Sale of common stock in December 2005 at $1.00 per share                                |       | —                    |       | —                 |       | 28,900         |       | 28,900       |       | —                        |       | —           |       | —                     |       | 28,900     |       |
|                                                                                         |       |                      |       |                   |       |           |       |         |       |                          |       |             |       |                       |       |       |       |
| Net loss                                                                                     |       | —                    |       | —                 |       | —         |       | —       |       | —                        |       | —           |       | (197,277                   | )          | (197,277   | )          |
| Balance at December 31, 2005                                                            |       | —                    |       | $                      | —     |           | 10,153,855 |         | $          | 3,269,466                     |       | $                | 101,596    |                       | $          | —     |       | $ | (3,535,808 | ) | $ | (164,746 | ) |

 

The accompanyingnotes are an integral part of these financial statements

 

F-7

----

Tableof Contents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

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

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2008**

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

 

The accompanying notes are an integral part of these financialstatements

 

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Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

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

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2008**

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

 

The accompanyingnotes are an integral part of these financial statements

 

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Table ofContents

** **

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

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

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2008**

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

 

The accompanyingnotes are an integral part of these financial statements

 

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Table of Contents

 

**IRIS BIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                 | ** ** | ** **                                                   | ** ** | **For the period from** | ** ** |
|----------------------------------------------------------------------------|------------|--------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                 | ** ** | ** **                                                   | ** ** | ** **                             | ** ** | **February 16, 1999 (date** | ** ** |
| ** **                                                                 | ** ** | **For the year ended December 31,** | ** ** | **of inception) through**    | ** ** |
| ** **                                                                 | ** ** | **2008**                                                     | ** ** | **2007**                               | ** ** | **December 31, 2008** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                      |       |                                                         |       |                                   |       |   |   |
| Net loss                                                                   |       | $                                                            | (883,530   | )                                      | $          | (396,953 | ) | $ | (5,955,850 | ) |
| Adjustments to reconcile net loss to cash (used in) operating  activities: |       |                                                         |       |                                   |       |   |   |
| Depreciation                                                               |       | 14,148                                                       |       | 6,963                                  |       | 165,334 |   |
| Amortization of deferred compensation                                      |       | 41,699                                                       |       | 5,227                                  |       | 46,926 |   |
| Common stock issued in exchange for services rendered                      |       | 103,400                                                      |       | —                                 |       | 194,650 |   |
| Common stock issued in exchange for intellectual property                  |       | —                                                       |       | —                                 |       | 1,800,000 |   |
| Options and warrants issued in exchange for services rendered              |       | 55,016                                                       |       | 25,913                                 |       | 1,111,073 |   |
| (Increase) decrease in:                                                    |       |                                                         |       |                                   |       |   |   |
| Prepaid expenses                                                           |       | —                                                       |       | 13,393                                 |       | — |   |
| Increase (decrease) in:                                                    |       |                                                         |       |                                   |       |   |   |
| Accounts payable and accrued liabilities                                   |       | (26,760                                                      | )          | (26,052                                | )          | 29 |   |
| Net cash (used in) operating activities:                                   |       | (696,027                                                     | )          | (371,509                               | )          | (2,637,838 | ) |
|                                                                       |       |                                                         |       |                                   |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                      |       |                                                         |       |                                   |       |   |   |
| Acquisition of property, plant and equipment                               |       | (19,226                                                      | )          | (41,541                                | )          | (214,615 | ) |
| Net cash (used in) investing activities:                                   |       | (19,226                                                      | )          | (41,541                                | )          | (214,615 | ) |
|                                                                       |       |                                                         |       |                                   |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                      |       |                                                         |       |                                   |       |   |   |
| Sale of common stock                                                       |       | 510,626                                                      |       | 671,000                                |       | 2,789,943 |   |
| Exercise of common stock options                                           |       | —                                                       |       | —                                 |       | 37,500 |   |
| Net proceeds (payments), related party                                     |       | 26,000                                                       |       | (92,000                                | )          | 26,000 |   |
| Net cash provided by financing activities                                  |       | 536,626                                                      |       | 579,000                                |       | 2,853,443 |   |
|                                                                       |       |                                                         |       |                                   |       |   |   |
| (Decrease) increase in cash and cash equivalents                           |       | (178,627                                                     | )          | 165,950                                |       | 990 |   |
| Cash and cash equivalents beginning of period                              |       | 179,617                                                      |       | 13,667                                 |       | — |   |
| Cash and cash equivalents end of period                                    |       | $                                                            | 990        |                                   | $          | 179,617 |   | $ | 990 |   |
|                                                                       |       |                                                         |       |                                   |       |   |   |
| Supplemental disclosures of cash flow information:                         |       |                                                         |       |                                   |       |   |   |
| Cash paid during the period for interest                                   |       | $                                                            | —     |                                   | $          | — |   | $ | 277 |   |
| Cash paid during the period for taxes                                      |       | $                                                            | 800        |                                   | $          | 825 |   | $ | 1,625 |   |
| Common stock issued in exchange for services                               |       | $                                                            | 103,400    |                                   | $          | — |   | $ | 194,650 |   |
| Common stock issued in exchange for intellectual property                  |       | $                                                            | —     |                                   | $          | — |   | $ | 1,800,000 |   |
| Options and warrants issued in exchange for services rendered              |       | $                                                            | 55,016     |                                   | $          | 25,913 |   | $ | 1,111,073 |   |

 

The accompanyingnotes are an integral part of these financial statements

 

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Table ofContents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THE FINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

****NOTE A - SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES****

 

A summary of thesignificant accounting policies applied in the preparation of the accompanyingfinancial statements follows.

 

Business and Basis ofPresentation

 

Iris Biotechnologies Inc.(the “Company”) was incorporated on February 16, 1999 under the laws ofthe State of California. The Company is in the development stage as definedunder Statement on Financial Accounting Standards No.7, Development StageEnterprises (“SFAS No.7”) and its efforts are principally devoted to developingsolutions for the detection and monitoring of monogenic and complex genomicdiseases. The Company has not generated any revenue to date and consequentlyits operations are subject to all risks inherent in the establishment of a newbusiness enterprise. For the period from inception through December 31,2008, the Company has accumulated losses of $5,955,850.

 

Cash and Cash Equivalents

 

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

 

Property and Equipment

 

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

 

Long-Lived Assets

 

The Company has adoptedStatement of Financial Accounting Standards No. 144 (“SFAS 144”). TheStatement requires that long-lived assets and certain identifiable intangiblesheld and used by the Company be reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of an asset may notbe recoverable. Events relating to recoverability may include significantunfavorable changes in business conditions, recurring losses, or a forecastedinability to achieve break-even operating results over an extended period. TheCompany evaluates the recoverability of long-lived assets based upon forecastedundiscounted cash flows. Should impairment in value be indicated, the carryingvalue of intangible assets will be adjusted, based on estimates of futurediscounted cash flows resulting from the use and ultimate disposition of theasset. SFAS No. 144 also requires assets to be disposed of be reported atthe lower of the carrying amount or the fair value less costs to sell.

 

Income Taxes

 

The Company followsStatement of Financial Accounting Standard No.109, Accounting for Income Taxes(SFAS No.109) for recording the provision for income taxes. Deferred tax assetsand liabilities are computed based upon the difference between the financialstatement and income tax basis of assets and liabilities using the enactedmarginal tax rate applicable when the related asset or liability is expected tobe realized or settled. Deferred income tax expenses or benefits are based onthe changes in the asset or liability during each period. If available evidencesuggests that it is more likely than not that some portion or all of thedeferred tax assets will not be realized, a valuation allowance is required toreduce the deferred tax assets to the amount that is more likely than not to berealized. Future changes in such valuation allowance are included in theprovision for deferred income taxes in the period of change. Deferred incometaxes may arise from temporary differences resulting from income and expenseitems reported for financial accounting and tax purposes in different periods.Deferred taxes are classified as current or non-current, depending on theclassification of assets and liabilities to which they relate. Deferred taxesarising from temporary differences that are not related to an asset or liabilityare classified as current or non-current depending on the periods in which thetemporary differences are expected to reverse.

 

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****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

****NOTE A - SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued)****

 

Net Income (loss) PerCommon Share

 

The Company computesearnings per share under Financial Accounting Standard No. 128, “Earningsper Share” (“SFAS 128”). Net loss per common share is computed by dividing netloss by the weighted average number of shares of common stock and dilutivecommon stock equivalents outstanding during the year. Dilutive commonstock equivalents consist of shares issuable and the exercise of the Company’sstock options and warrants (calculated using the treasury stock method). Forthe years ended December 31, 2008 and 2007 common stock equivalentsderived from shares issuable in the exercise of options and warrants are notconsidered in the calculation of the weighted average number of common sharesoutstanding because they would be anti-dilutive, thereby decreasing the net lossper share.

 

Use of Estimates

 

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

 

Reclassifications

 

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

 

Research and Development

 

The Company accounts forresearch and development costs in accordance with the Financial AccountingStandards Board’s Statement of Financial Accounting Standards No. 2 (“SFAS2”), “Accounting for Research and Development Costs”. Under SFAS 2, allresearch and development costs must be charged to expense as incurred.Accordingly, internal research and development costs are expensed as incurred.Third-party research and developments costs are expensed when the contractedwork has been performed or as milestone results have been achieved.Company-sponsored research and development costs related to both present andfuture products are expensed in the period incurred. The Company incurredexpenditures of $179,787, $182,507 and $1,345,671 on research and productdevelopment for the years ended December 31, 2008, 2007, and the periodfrom February 16, 1999 (date of inception) to December 31, 2008,respectively.

 

Liquidity

 

To date the Company hasgenerated no revenues, has incurred expenses, and has sustained losses. Asshown in the accompanying financial statements, the Company incurred a net lossof $883,530 during the year ended December 31, 2008 and $396,953 duringthe year ended December 31, 2007. The Company used $696,027, $371,509 and$2,637,838 in cash for operating activities for the years ended December 31,2008, 2007, and the period from February 16, 1999 (date of inception) to December 31,2008, respectively. For the period from inception through December 31,2008, the Company has accumulated losses of $5,955,850. Consequently, its operationsare subject to all risks inherent in the establishment of a new businessenterprise.

 

Concentrations of CreditRisk

 

Financial instruments andrelated items, which potentially subject the Company to concentrations ofcredit risk, consist primarily of cash, cash equivalents and related partyreceivables. The Company places its cash and temporary cash investments withcredit quality institutions. At times, such investments may be in excess of theFDIC insurance limit. The Company periodically reviews its trade receivables indetermining its allowance for doubtful accounts. The Company does not haveaccounts receivable and allowance for doubtful accounts at December 31,2008 and 2007.

 

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Table ofContents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

****NOTE A - SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES (continued)****

 

Dependency on key management

 

The future success or failure of the Company isdependent primarily upon the continued efforts and financial support of SimonChin, the Company’s Chief Executive Officer , Chief Financial Officer and themajority sharehold**er** (see Note J). 

 

Fair Value of FinancialInstruments

 

Statement of FinancialAccounting Standards No. 107, “Disclosures About Fair Value of FinancialInstruments,” requires disclosure of the fair value of certain financialinstruments. The carrying value of cash and cash equivalents, accountsreceivable, accounts payable and short-term borrowings, as reflected in thebalance sheets, approximate fair value because of the short-term maturity ofthese instruments.

 

Stock Based Compensation

 

Effective January 1,2006, the beginning of the Company’s first fiscal quarter of 2006, the Companyadopted the fair value recognition provisions of SFAS 123R, using themodified-prospective transition method. Under this transition method,stock-based compensation expense was recognized in the financial statements forgranted, modified, or settled stock options. Compensation expense recognizedincluded the estimated expense for stock options granted on and subsequent to January 1,2006, based on the grant date fair value estimated in accordance with theprovisions of SFAS 123R, and the estimated expense for the portion vesting inthe period for options granted prior to, but not vested as of January 1,2006, based on the grant date fair value estimated in accordance with theoriginal provisions of SFAS 123. Results for prior periods have not beenrestated, as provided for under the modified-prospective method.

 

SFAS 123(R) requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates. In theCompany’s pro forma information required under SFAS 123 for the periods priorto fiscal 2006, the Company accounted for forfeitures as they occurred.

 

Upon adoption of SFAS123(R), the Company is using the Black-Scholes option-pricing model as itsmethod of valuation for share-based awards granted beginning in fiscal 2006,which was also previously used for the Company’s pro forma information requiredunder SFAS 123. The Company’s determination of fair value of share-basedpayment awards on the date of grant using an option-pricing model is affectedby the Company’s stock price as well as assumptions regarding a number ofhighly complex and subjective variables. These variables include, but are notlimited to the Company’s expected stock price volatility over the term of theawards, and certain other market variables such as the risk free interest rate.

 

For the year ended December 31,2007, the Company granted 100,000 warrants to purchase the Company’s commonstock with exercise prices of $2.25 per share vesting over four years andexpiring five years from date of issuance. The fair value of the options wasdetermined using the Black-Scholes option pricing model with the followingassumptions: expected dividend yield: 0%; volatility of 95.17%; risk freeinterest rate from 3.71%. The fair value of $166,290 was recorded as deferredcompensation and is amortized ratably over the four years to earnings. For theyears ended December 31, 2008 and 2007, the Company recorded amortizationof $41,699 and $5,227, respectively.

 

For the year ended December 31,2008, the Company granted 167,696 employee options to purchase the Company’scommon stock at $2.25 per share over ten years, vesting in four years. The fairvalue of the vested portion of $55,016 was charged to current periodoperations.

 

Fair Values

 

In the first quarter offiscal year 2008, the Company adopted Statement of Financial AccountingStandards (SFAS) No. 157, “Fair Value Measurements” (SFAS No. 157) asamended by FASB Statement of Position (FSP) FAS 157-1 and FSP FAS 157-2. SFAS No. 157defines fair value, establishes a framework for measuring fair value, andenhances fair value measurement disclosure. FSP FAS 157-2 delays, until thefirst quarter of fiscal year 2009, the effective date for SFAS 157 for allnon-financial assets and non-financial liabilities, except those that arerecognized or disclosed at fair value in the financial statements on arecurring basis (at least annually). The adoption of SFAS No. 157 did nothave a material impact on the Company’s financial position or operations.

 

F-14

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Table ofContents

 

****IRIS BIOTECHNOLOGIESINC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

****NOTE A-SUMMARY OFACCOUNTING POLICIES (continued)****

 

Revenue Recognition

 

The Company recognizesrevenue in accordance with Staff Accounting Bulletin No. 104, REVENUERECOGNITION (“SAB104”), which superseded Staff Accounting Bulletin No. 101,REVENUE RECOGNITION IN FINANCIAL STATEMENTS (“SAB101”). SAB 101 requires thatfour basic criteria must be met before revenue can be recognized: (1) persuasiveevidence of an arrangement exists; (2) delivery has occurred; (3) theselling price is fixed and determinable; and (4) collectibility isreasonably assured. Determination of criteria (3) and (4) are basedon management’s judgments regarding the fixed nature of the selling prices ofthe products delivered and the collectibility of those amounts. Provisions fordiscounts and rebates to customers, estimated returns and allowances, and otheradjustments are provided for in the same period the related sales are recorded.The Company defers any revenue for which the product has not been delivered oris subject to refund until such time that the Company and the customer jointlydetermine that the product has been delivered or no refund will be required.

 

SAB 104 incorporatesEmerging Issues Task Force 00-21 (“EITF 00-21”), MULTIPLE-DELIVERABLE REVENUEARRANGEMENTS. EITF 00-21 addresses accounting for arrangements that may involvethe delivery or performance of multiple products, services and/or rights to useassets. The effect of implementing EITF 00-21 on the Company’s financialposition and results of operations was not significant.

 

From the date ofinception through December 31, 2008, the Company has not generated anyrevenue.

 

Recent accountingpronouncements

 

In February 2007,the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assetsand Financial Liabilities.”  SFAS 159 permits entities to choose tomeasure many financial instruments, and certain other items, at fairvalue.  SFAS 159 applies to reporting periods beginning after November 15,2007. The adoption of SFAS 159 is not expected to have a material impact on theCompany’s financial condition or results of operations.

 

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

 

In December 2007,the FASB issued SFAS No. 160, *“NoncontrollingInterest in Consolidated Financial Statements, an amendment of ARB No. 51”*(“SFAS No. 160”), which will change the accounting and reporting forminority interests, which will be recharacterized as noncontrolling interestsand classified as a component of equity within the consolidated balance sheets.SFAS No. 160 is effective as of the beginning of the first fiscal yearbeginning on or after December 15, 2008. Earlier adoption is prohibitedand the Company is currently evaluating the effect, if any that the adoptionwill have on its financial position results of operations or cash flows.

 

In December 2007,the FASB ratified the consensus in Emerging Issues Task Force (EITF) Issue No. 07-1,“Accounting for Collaborative Arrangements” (EITF 07-1). EITF 07-1defines collaborative arrangements and requires collaborators to present theresult of activities for which they act as the principal on a gross basis andreport any payments received from (made to) the other collaborators based onother applicable authoritative accounting literature, and in the absence ofother applicable authoritative literature, on a reasonable, rational andconsistent accounting policy is to be elected. EITF 07-1 also provides fordisclosures regarding the nature and purpose of the arrangement, the entity’srights and obligations, the accounting policy for the arrangement and theincome statement classification and amounts arising from the agreement.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIESINC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

****NOTE A-SUMMARY OFACCOUNTING POLICIES (continued)****

 

Recent accountingpronouncements (continued)

 

EITF 07-1 will beeffective for fiscal years beginning after December 15, 2008, which willbe the Company’s fiscal year 2009, and will be applied as a change inaccounting principle retrospectively for all collaborative arrangementsexisting as of the effective date. The Company has not yet evaluated the potentialimpact of adopting EITF 07-1 on our financial position, results ofoperations or cash flows.

 

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

 

In April 2008, theFASB issued FSP No. FAS 142-3,*”Determinationof the Useful Life of Intangible Assets”.* This FSP amends thefactors that should be considered in developing renewal or extensionassumptions used to determine the useful life of a recognized intangible assetunder SFAS No. 142,*“Goodwill and OtherIntangible Assets”.*  The Company is required to adopt FSP142-3 on September 1, 2009, earlier adoption is prohibited.  Theguidance in FSP 142-3 for determining the useful life of a recognizedintangible asset shall be applied prospectively to intangible assets acquiredafter adoption, and the disclosure requirements shall be applied prospectivelyto all intangible assets recognized as of, and subsequent to,adoption.  The Company is currently evaluating the impact of FSP142-3 on its financial position, results of operations or cash flows.

 

In May 2008, theFASB issued SFAS No. 162, “*TheHierarchy of Generally Accepted Accounting Principles*” (“SFAS No. 162”).  SFAS No. 162 identifies the sources ofaccounting principles and the framework for selecting the principles used inthe preparation of financial statements of nongovernmental entities that arepresented in conformity with generally accepted accounting principles (theGAAP hierarchy).  SFAS No. 162 will become effective60 days following the SEC’s approval of the Public Company AccountingOversight Board amendments to AU Section 411, “The Meaning of PresentFairly in Conformity With Generally Accepted Accounting Principles.”  TheCompany does not expect the adoption of SFAS No. 162 to have amaterial effect on its financial position, results of operations or cash flows.

 

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

 

In June 2008, theFASB issued FSP Emerging Issues Task Force (EITF) No. 03-6-1, “*Determining Whether Instruments Granted inShare-Based Payment Transactions Are Participating Securities*.”Under the FSP, unvested share-based payment awards that contain rights toreceive nonforfeitable dividends (whether paid or unpaid) are participatingsecurities, and should be included in the two-class method of computing EPS.The FSP is effective for fiscal years beginning after December 15, 2008,and interim periods within those years. The Company does not expect theadoption of FSP EITF No. 03-6-1 to have a material effect on its financialposition, results of operations or cash flows.

 

Other recent accountingpronouncements issued by the FASB (including its Emerging Issues Task Force),the AICPA, and the SEC did not, or are not believed by management to, have amaterial impact on the Company’s present or future financial statements.

 

F-16

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Table ofContents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

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

 

Property, plant andequipment at December 31, 2008 and 2007 are as follows:

 
| ** **                     | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Computer equipment             |       | $        | 61,201     |     | $          | 55,190 |   |
| Office equipment               |       | 1,728    |       | 1,728    |       |
| Furniture and fixtures         |       | 3,586    |       | 1,806    |       |
| Manufacturing equipment        |       | 158,201  |       | 147,904  |       |
|                           |       | 224,716  |       | 206,628  |       |
| Less: accumulated depreciation |       | (165,334 | )          | (151,186 | )          |
|                           |       | $        | 59,382     |     | $          | 55,442 |   |

 

During the years ended December 31,2008 and 2007, depreciation expense charged to operations was $14,148 and$6,963, respectively.

 

****NOTE C - ACCOUNTS PAYABLEAND ACCRUED LIABILITIES****

 

Accounts payable andaccrued liabilities at December 31, 2008 and 2007 are as follows:

 
| ** **                            | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Accounts payable and accrued expenses |       | $        | 10,131     |     | $          | 38,029 |   |
|                                       |            |          |            |          |            |  |  |

 

****NOTE D - RELATED PARTYTRANSACTIONS****

 

The Company’s President hasadvanced funds to the Company for working capital purposes since the Company’sinception in February 1999. No formal repayment terms or arrangementsexist. The net amount of outstanding at December 31, 2008 and 2007 were$26,000 and $-0-, respectively, net of cash repayments. The Company has notaccrued any interest on these notes.

 

****NOTE E - STOCKHOLDEREQUITY****

 

Preferred stock

 

The Company is authorizedto issue 5,000,000 shares of no par or stated value preferred stock. From dateof inception through December 31, 2008, the Company has not issued anypreferred shares.

 

Common stock

 

The Company is authorizedto issue 20,000,000 shares of no par or stated value common stock. As of December 31,2008 and 2007; the Company has 10,932,541 and 10,655,377 shares of common stockissued and outstanding, respectively.

 

On April 9, 2003,the Company effected a two-for-one (2 for 1) stock split of its outstandingshares of common stock, no par or stated value. All references in the financialstatements and the notes to financial statements, number of shares, and shareamounts have been retroactively restated to reflect the split.

 

F-17

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Table of Contents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008AND 2007****

 

****NOTE E - STOCKHOLDEREQUITY (continued)****

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

**NOTE F –WARRANTS AND OPTIONS**

 

Warrants

 

The following tablesummarizes the changes in warrants outstanding and related prices for theshares of the Company’s common stock issued to shareholders at December 31,2008:

 
| ** **              | ** ** | ** **      | ** ** | **Warrants Outstanding**  | ** ** | ** **              | ** ** | ** **      | ** ** | **Warrants Exercisable** | ** ** |
|-------------------------|------------|-----------------|------------|--------------------------------|------------|-------------------------|------------|-----------------|------------|-------------------------------|------------|
| ** **              | ** ** | ** **      | ** ** | **Weighted Average**      | ** ** | **Weighted**            | ** ** | ** **      | ** ** | **Weighted**                  | ** ** |
| ** **              | ** ** | **Number**      | ** ** | **Remaining Contractual** | ** ** | **Average**             | ** ** | **Number**      | ** ** | **Average**                   | ** ** |
| **Exercise Price** | ** ** | **Outstanding** | ** ** | **Life (years)**          | ** ** | **Exercise price** | ** ** | **Exercisable** | ** ** | **Exercise Price**       | ** ** |
| $                       | 2.00       |            | 31,400     |                           | 2.71       |                    | $          | 2.00            |       | 31,400                        |       | $ | 2.00 |   |
| 2.25                    |       | 102,778         |       | 3.91                           |       | 2.25                    |       | 25,299          |       | 2.25                          |       |
|                    |       | 134,178         |       |                           |       |                    |       | 56,699          |       |                          |       |
|                         |            |                 |            |                                |            |                         |            |                 |            |                               |            |  |  |  |

 

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Tableof Contents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008 AND 2007****

 

**NOTE F –WARRANTS AND OPTIONS**

 

Warrants (continued)

 

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

 
| ** **                            | ** ** | **Number of  Shares** | ** ** | **Weighted  Average  Price Per Share** | ** ** |
|---------------------------------------|------------|----------------------------|------------|--------------------------------------------------|------------|
| Outstanding at December 31, 2006 |       | 17,500                     |       | $                                                | 2.00       |   |
| Granted                               |       | 113,900                    |       | 2.22                                             |       |
| Exercised                             |       | —                     |       | —                                           |       |
| Canceled or expired                   |       | —                     |       | —                                           |       |
| Outstanding at December 31, 2007 |       | 131,400                    |       | $                                                | 2.19       |   |
| Granted                               |       | 2,778                      |       | 2.25                                             |       |
| Exercised                             |       | —                     |       | —                                           |       |
| Canceled or expired                   |       | —                     |       | —                                           |       |
| Outstanding at December 31, 2008 |       | 134,178                    |       | $                                                | 2.20       |   |

 

Warrants granted duringthe year ended December 31, 2007 totaling 13,900 were issued for servicesrendered. The warrants are exercisable until five years after the date ofissuance at a purchase price of $2.00 per share.  The fair value(determined as described below) of $25,913 was charged to current periodearnings.

 

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

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

 

----

(a)The expected warrantlife is based on contractual expiration dates.

 

During the year ended December 31,2007, the Company granted 100,000 stock options with an exercise price of $2.25vesting over four years and expiring five years from issuance.  The fairvalue (as described below) of $166,290 was recorded as deferred compensation andis amortized ratably over the four years to earnings. For the year ended December 31,2008 and 2007, the Company recorded amortization of $41,699 and $5,227,respectively.

 

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

 

F-19

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Table ofContents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008 AND 2007****

 

**NOTE F –WARRANTS AND OPTIONS**

 

Warrants (continued)

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

 

----

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

 

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

 

Options

 

Employee Options

 

The following tablesummarizes the changes in options outstanding and the related prices for theshares of the Company’s common stock issued to employees under a non qualifiedstock option plan at December 31, 2008:

 
| ** **   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **                   | ** ** | **Weighted Average**    | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **   | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Exercise** | ** ** | **Number**                   | ** ** | **Contractual Life**    | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Prices**   | ** ** | **Outstanding**              | ** ** | **(Years)**                  | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $            | 0.25       |                         | 400,000    |                         | 0.16       |   | $ | 0.25 |   | 400,000 |   | $ | 0.25 |   |
| 0.50         |       | 356,000                      |       | 1.84                         |       | 0.50 |   | 356,000 |   | 0.50 |   |
| 1.00         |       | 992,000                      |       | 6.30                         |       | 1.00 |   | 779,500 |   | 1.00 |   |
| 2.25         |       | 167,696                      |       | 9.41                         |       | 2.25 |   | 24,456 |   | 2.25 |   |
|         |       |                         |       |                         |       |   |   |   |   |   |   |
|         |       | 1,915,696                    |       |                         |       | 0.86 |   | 1,559,956 |   | 0.86 |   |
|              |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |

 

Transactions involvingemployee stock options issued are summarized as follows:

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

 

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Table ofContents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008 AND 2007****

 

**NOTE F –WARRANTS AND OPTIONS**

 

Employee Options(continued)

 

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

 

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

 

For year ended December 31,2008:

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

 

----

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

 

Non employee options

 

The following tablesummarizes the changes in options outstanding and the related prices for theshares of the Company’s common stock issued to non employees under a nonqualified stock option plan at December 31, 2008:

 
| ** **   | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|--------------|------------|------------------------------|------------|------------------------------|------------|
| ** **   | ** ** | ** **                   | ** ** | **Weighted Average**    | ** ** | **Weighted** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **   | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Exercise** | ** ** | **Number**                   | ** ** | **Contractual Life**    | ** ** | **Exercise** | ** ** | **Number** | ** ** | **Exercise** | ** ** |
| **Prices**   | ** ** | **Outstanding**              | ** ** | **(Years)**                  | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $            | 0.25       |                         | 60,000     |                         | 0.39       |   | $ | 0.25 |   | 60,000 |   | $ | 0.25 |   |
| 0.50         |       | 240,000                      |       | 1.71                         |       | 0.50 |   | 240,000 |   | 0.50 |   |
| 1.00         |       | 110,000                      |       | 7.21                         |       | 1.00 |   | 101,250 |   | 1.00 |   |
|         |       |                         |       |                         |       |   |   |   |   |   |   |
|         |       | 410,000                      |       |                         |       | 0.60 |   | 245,000 |   | .60 |   |
|              |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |

 

Transactions involvingnon employee stock options issued are summarized as follows:

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

 

F-21

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Table ofContents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008 AND 2007****

 

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

 

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

 
| ** **                                       | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|--------------------------------------------------|------------|------------|------------|------------|------------|
| Net income loss available to Common stockholders |       | $          | (883,530   | )          | $          | (396,953 | ) |
| Basic and diluted earning (loss) per share       |       | $          | (0.08      | )          | $          | (0.04 | ) |
| Weighted average common shares outstanding       |       | 10,829,525 |       | 10,583,504 |       |

 

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

 

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

 

Financial AccountingStandard No. 109 requires the recognition of deferred tax liabilities andassets for the expected future tax consequences of events that have beenincluded in the financial statement or tax returns. Under this method, deferredtax liabilities and assets are determined based on the difference betweenfinancial statements and tax bases of assets and liabilities using enacted taxrates in effect for the year in which the differences are expected to reverse.Temporary differences between taxable income reported for financial reportingpurposes and income tax purposes are insignificant.

 

For income tax reportingpurposes, the Company’s aggregate unused net operating losses approximate$5,000,000 which expires through 2026, subject to limitations of Section 382of the Internal Revenue Code, as amended. The deferred tax asset related to thecarry forward is approximately $1,750,000. The Company has provided a valuationreserve against the full amount of the net operating loss benefit, because inthe opinion of management based upon the earning history of the Company; it ismore likely than not that the benefits will not be realized. Due to significantchanges in the Company’s ownership, the Company’s future use of its existingnet operating losses may be limited.

 

In June 2006, theFASB issued FASB Interpretation No. 48, Accounting for Uncertainty inIncome Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”). FIN48 prescribes a recognition threshold and measurement attribute for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, treatment of interest and penalties, anddisclosure of such positions. Effective January 1, 2007, the Companyadopted the provisions of FIN 48, as required. As a result of implementing FIN48, there has been no adjustment to the Company’s financial statements and theadoption of FIN 48 did not have a material effect on the Company’s financial statementsfor the year ending December 31, 2008.

 

Components of deferredtax assets as of December 31, 2008 are as follows:

 
| Non current:                    |   |       |      |
|---------------------------------|--------|------------|-----------|
| Net operating loss carryforward |   | $          | 2,085,000 |   |
| Valuation allowance             |   | (2,085,000 | )         |
| Net deferred tax asset          |   | $          | —    |   |

 

****NOTE I - COMMITMENTS ANDCONTINGENCIES****

 

Lease Commitments

 

We currently have three facilities in California. Ourheadquarters is in Santa Clara, our laboratory is in San Leandro, and ourinformatics office is in Eureka.

 

F-22

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Tableof Contents

 

****IRISBIOTECHNOLOGIES INC.****

****(A developmentstage company)****

****NOTES TO THEFINANCIAL STATEMENTS****

****DECEMBER 31, 2008 AND 2007****

 

****NOTE I - COMMITMENTS AND CONTINGENCIES(continued)****

 

Future minimum lease andrelated payments are as follows:

 
| 2009           |   | $   | 28,800 |   |
|----------------|--------|-----|--------|--------|
| 2010           |   | -0- |   |
| 2011           |   | -0- |   |
| 2012           |   | -0- |   |
| 2013 and after |   | -0- |   |

 

We lease our main office,which is located at 5201 Great America Parkway, Suite 320, Santa Clara,California 95054. The lease has a term of 12 months, which began on August 1,2008 and expires on July 31, 2009. We currently pay rent and related costsof approximately $400.00 per month.

 

We also lease ourlaboratory, which is located at 1933 Davis Street, Suite 280, San Leandro,California 95054. The lease has a term of 12 months, which began on January 1,2009 and expires on December 31, 2009. We currently pay rent and relatedcosts of approximately $1,600.00 per month.

 

We also lease our informaticsoffice, which is located inside the Women’s Health Center at 2773 HarrisStreet, Eureka, CA 95503. We currently pay rent and related costs ofapproximately $400.00 per month.

 

Employment and ConsultingAgreements

 

The Company has variousconsulting agreements with consultants who have rendered services to theCompany.

 

The Company does not havean employment agreement with the Company’s President and Chief ExecutiveOfficer.

 

**NOTE J -****SUBSEQUENTEVENTS******

 

On February 27,2009, the Board of Directors approved the 2009 Stock Option Plan (the “Plan”)whereby the Plan is intended as an incentive, to retain in the employ of and asdirectors, officers, consultants, advisors and employees of the Company. In thesame meeting the Board approved the extension of the expiration period of theexisting stock options by six months.

 

As of March 27, 2009the Company issued 105,000 nonqualified stock options to the Company’sscientific advisory board. The options were granted at $1.40 and have a 3-yearvesting period.

 

As of March 30,2009, subsequent to the date of the financial statements, the Company issued anaggregate of 10,066 shares of restricted common stock in exchange for cash at$2.25 per share along with 2,517 warrants to purchase common stock at anexercise price of $2.25 per share for five years and 18,667 shares ofrestricted common stock in exchange for services valued at $2.25 per share.Also, the Company’s majority shareholder and CEO had loaned the Company $27,500to cover the Company’s operating expenses.

 

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