Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**Form 10-K**

 

**(Mark One)**

 
| **x**                                           | **ANNUAL REPORT UNDER SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
|-------------------------------------------------|---------------------------------------------------------------------------------------------------|
|                                            |                                                                                              |
| **FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009** |
|                                            |                                                                                              |
| **o**                                           | **TRANSITION REPORT UNDER  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**FOR THETRANSITION PERIOD FROM                TO             **

 

**COMMISSION FILENUMBER 333-142076**

 

**IRISBIOTECHNOLOGIES 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**

 

Securities registeredunder Section 12(b) of the Exchange Act: **None.**

 

Securities registered under Section 12(g) ofthe Exchange Act: **Common Stock, no par value**

 

Indicate by check mark isthe issuer is a well-known seasoned issuer, as defined in Rule 405 of theSecurities Act Yes o  No x

 

Indicate by check if theissuer is not required to file reports pursuant to Section 13 or 15(d) ofthe Exchange Act. Yes o  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 whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months(or such shorter period that the registrant was required to submit and postsuch files). Yes o  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 closing sale priceof $1.10 per share which was the last sale price of the common stock as of June 30,2009 was $3,461,786.

 

As of March 30, 2010, the issuer had 11,296,526 outstanding shares of Common Stock.

 

**DOCUMENTSINCORPORATED BY REFERENCE: NONE**

 

 

 

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TABLE OF CONTENTS

 
| ** **    | ** **                                                                                        | **Page** |
|---------------|---------------------------------------------------------------------------------------------------|----------|
|          |                                                                                              |     |
| PART I   |                                                                                              |
| Item 1.       | Business                                                                                          | 1        |
| Item  1A.     | Risk  Factors                                                                                     | 16       |
| Item 1B.      | Unresolved  Staff Comments                                                                        | 24       |
| Item  2.      | Properties                                                                                        | 24       |
| Item 3.       | Legal Proceedings                                                                                 | 24       |
| Item  4.      | Reserved                                                                                          | 24       |
|          |                                                                                              |     |
| PART II  |                                                                                              |
| Item 5.       | Market for  Common Equity, Related Stockholder Matters and Issuer Purchases of Equity  Securities | 24       |
| Item 6.       | Selected  Financial Data                                                                          | 26       |
| Item 7.       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations.      | 26       |
| Item 7A.      | Quantitative  and Qualitative Disclosures About Market Risk                                       | 31       |
| Item 8.       | Financial  Statements and Supplementary Data                                                      | 31       |
| Item 9.       | Changes In  and Disagreements with Accountants on Accounting and Financial Disclosure             | 31       |
| Item 9A(T).   | Controls and  Procedures                                                                          | 31       |
| Item 9B.      | Other Information                                                                                 | 32       |
|          |                                                                                              |     |
| PART III |
| Item 10.      | Directors,  Executive Officers, and Corporate Governance                                          | 32       |
| Item 11.      | Executive  Compensation                                                                           | 35       |
| Item 12.      | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters  | 36       |
| Item 13.      | Certain  Relationship and Related Transactions, and Director Independence                         | 37       |
| Item 14.      | Principal  Accountant Fees and Services                                                           | 37       |
| Item  15.     | Exhibits                                                                                          | 38       |
|          |                                                                                              |     |
| SIGNATURES    | 39                                                                                                |

 

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**PART I**

 

**ITEM 1. BUSINESS**

 

IrisBioTechnologies, a life sciences company located in Santa Clara,California, is an emerging leader in personalized and targetedmedicine, focusing on enabling the right medical treatment forthe right person at the right time. We were the recipient ofFrost and Sullivan’s 2008 North American Technology Innovation Award in Pharmacogenomics.According to Frost and Sullivan “Iris’s technology is a near-termopportunity, which would significantly transform the way in which personalizedmedication is currently being prescribed.”

 

Ourmission is to enable the practice of P4 medicine: personalized,predictive, preventive and participatory. We plan to determine the optimalmedical solution for each patient by categorizing individuals according totheir molecular signatures and personal profiles through its proprietaryNano-biochipsTM and BioWindowsTM medical informatics system. We plan topredict how best to maximize the quality and longevity of life through the useof our patented technologies.

 

Thehealth care bill, which became law on March 23, 2010, includes a sectioncreating an independent Patient-Centered Outcomes Research Institute. Theinstitute’s research will focus on the utility and effectiveness of medicalproducts and services differentiated by race, ethnicity, sex, age, co-morbidities,as well as genetic and molecular subtypes. This legislation is an historic votefor the principles of P4 medicine and we believe it is well aligned with ourBioWindowsTM medical informatics system.

 

Welaunched “Health Passport” in our BioWindowsTM 2.0 Informatics Systemfor Personalized and Targeted Medicine a year ago. BioWindowsTM is an artificialintelligent system, which includes apowerful database with molecular signatures, in-depth patient demographics andlifestyle information, family medical histories and treatment-response profilesfor many diseases.

 

HealthPassport is a HIPAA compliant, web based, medical information storage systemthat allows participants to grant selective or full sharing capabilities oftheir confidential medical and lifestyle information to physicians and/orfamily members anywhere in the world. This allows families to buildmulti-generational medical family trees that will help assure that they receivemore personalized care now and in the future — the right medical treatment forthe right patient at the right time.

 

Wealso developed a manufacturing system with the capabilities to producea variety of Nano-biochipsTM with a choice of mRNAs, microRNAs, proteins, orother biomarker probes for the diagnosis and prognosis of breast cancer, coloncancer, and many other diseases. Our Nano-biochip manufacturing and usagetracking process has been tested with 2D and 1D barcode scanners on bothlabeled and stamped products in conjunction with touch screen functions, and wehave streamlined the automated patient sample processing protocols.

 

Sincethe founding of the company, we have strived to grow in an economicallyefficient manner. We have invested approximately $7 million in productdevelopment. We have four patents granted in the United States and someof those are already granted in Canada, Europe, Asia, New Zealand andAustralia. With a strong managementteam and seasoned scientific advisory board, we are close to commercializingour BreastCancerChipTM and wellpositioned strategically and structurally to introduce future products such asthe ColonCancerChipTM, Comprehensive Cancer ChipTM, NeuroChipTM, CardioChipTM andMetabolicChipTM.

 

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Accordingto Frost and Sullivan, the US tissue diagnostics market reached $1 billion in2009. This is already a multi-billion-dollar market globally and it is continuingto grow exponentially.

 

Thereare more than 2 million breast cancer patients in the U.S., and more than amillion breast biopsies, lumpectomies, and mastectomies performed annually. In2009, approximately 180,000 American women were diagnosed with breast cancerand 2010 is expected to be the same. The market size for breast cancer tests inthe U.S. alone could exceed 1,000,000 tests per year.

 

Ourcompetitor, Genomic Health, is considered the “posterchild” for the emerging personalized medicine industry. Their strategy was toget to market first. Genomic Health performs approximately 40,000 breast cancerrecurrence prediction tests annually, and their annual revenue isapproximately $150 million. They use existing RT-PCR technology and haveincurred extremely high expenses to market their test broadly. We benefit fromthe fact that Genomic Health has begun the education of those in the healthcaresystem, paving the way for our company and other companies to penetrate themarket at an accelerated pace.

 

Ourstrategy has been to optimize return on investment for investors in the longrun by developing products and services that we believe should become theindustry standard in the future.

 

Wehave strategically positioned ourselves to be successful regardless of howand when the FDA decides to regulate complex molecular diagnostic andprognostic products. We have the capability to launch the clinicalBreastCancerChipTM, which can be marketed as a CLIA laboratory test without FDAapproval, similar to the Oncotype Dx test offered by Genomic Health. In thefuture, with FDA approval, we believe that all of our tests can be performed inany certified laboratory.

 

Thanksto cancer genetic and genomic studies, it is now well known that cancer is nota single disease but a collection of diverse yet related diseases. Differentcombinations of genes are altered in different forms of cancer and even inpatients that appear to have the same form of the disease.  Scientists have identified hundreds of genesthat are altered in cancers but each cancer ischaracterized not only by its own array of genetic variations but by anincrease or decrease in how they are expressed. Without a clinicallyaccurate tool to measure the relevant genetic/genomic malfunctions involved,cancer diagnosis is a trial and error process leading to unnecessary orill-directed therapy with unintended risks and adverse side effects.

 

Whileit is useful to study the inherited genetic variations, it is more important tomeasure the actual activity of genes (gene expression) and correlate thatinformation with life dynamics and drug response. The most complete genomictesting is about uncovering a tumor’s genetic signature by measuring the geneexpression activity that drives the aggressiveness of the tumor, itspossibility of recurrence and what specific type of therapeutic regimen wouldsave and optimize the patient’s quality of life.

 

Our nano-biochipsTM arespecial silicon chips with multiple functions. One of the applications is toenable 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.

 

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Split DNA has the uniqueability of reconnecting to its compliment, the other half ladder, veryprecisely under properly controlled conditions. This process is calledhybridization. Our chip uses this quality to act as a test probe to captureabnormal genetic information. The genetic material that is captured ismessenger RNA, and in an abnormal state is responsible for creating theconditions that lead to disease. This captured material is also referred to ascDNA and cRNA.

 

Messenger RNA (mRNA) isextracted and purified from collected tissue samples with commerciallyavailable automated machines, tagged with fluorescent molecules and processedinside the nano-biochip. The mRNAs of interest are captured by their respectiveprobes (half ladders) and energized, exciting the fluorescent tags to emitlight, which can be photographed and digitized. The intensity of the lightemitted from the fluorescent molecules is a measure of the genes activity. Thedigitized photograph is automatically encrypted and sent either to a localserver or over the Internet to our artificial intelligence system (BioWindowsTM)for analysis.

 

The captured information,referred to as “gene expression” or “a gene signature” is selectively comparedin our BioWindowsTM database, which is currently being compiled fromcorrelations between reference gene signatures, prior treatment strategies andclinical outcomes. The initial database is a collection of historical dataderived from the analysis of breast cancer tissues from other breast cancerpatients with the same or similar clinical and gene expression profiles. Afterthe gene signature comparison, a secure, confidential and clinically actionablereport is then generated and sent to the treating physician.

 

Choosingthe right combination of surgery, radiation, chemotherapies, hormonaltherapies, monoclonal antibody treatment, anti-angiogenic therapy, or othermedical treatment requires a solid molecular signature diagnosis along with theanalysis of life style dynamics. Where life critical medical decision-making andpatient care are concerned, physicians and patients are beginning torealize that personalizing healthcare is a choice and the future of medicine.

 

**OurSolution**

 

Our nano-biochipTMtechnology platform was developed using a convergence of scientific disciplinesin nanotechnology, semiconductor manufacturing, microfluidics, chemistry,molecular biology, genetics, genomics, and information technology. We expectthat our product platform will lead to more effective diagnosis and treatmentnot only for patients with breast cancer, but also for those with neurologicaldisorders, heart disease, diabetes and other gene-related metabolic problems.

 

Our technology platformincludes:

 

·                  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.

 

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Our products can bemarketed as CLIA laboratory tests without FDA approval, similar to GenomicHealth’s OncoType DX test or as 510(k) products approved 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. Human tissue study “in vitro”is sufficient for getting 510(k) approval from the FDA, which we will beseeking. This will enable us to sell our nano-biochip diagnostic kits on a worldwide basis directly tomajor hospital networks, clinicallaboratories, pharmaceutical companies, research institutions and individuals.

 

The Iris BioWindowsTMdatabase comprising data fields for patient demographic information, personalmedical history, family medical history, and gene expression information is inuse for storing actual patient information. Physicians, with the patient’sconsent, can view information by choosing any medical record from theirpersonal list of patients. Actual patient gene signature information will beadded to the database after we process each patient’s specimen through ournano-biochip for breast cancer and other diseases. In the future, our databasewill also contain information on protein signatures.

 

As the database grows, itwill become increasingly more powerful as patient cohorts become more refined.No individual drug successively serves every patient with a specific diseasebut different drugs are highly successful with specific groups of patients yetare toxic to others. The ability to empower the clinician to choose the besttreatment regimens for their patients is the heart of the Iris BioWindowsTM system.

 

With our manufacturingsystem, we plan to build medical products such as the BreastCancerChipTM,ColonCancerChipäTM, Comprehensive Cancer ChipTM, NeuroChipTM, CardioChipTM, and MetabolicChipTM,as well as chips for other applications including veterinary, agricultural andenvironmental problems. We also intend to use our BioWindowsTM database toenable drug development, stem cell research, and evolving clinicalapplications.

 

**Summaryof Medical Care**

 

Accordingto the Department of Health and Human Services (HHS), spending on nationalhealth care totaled $2.4 trillion, or 17 percent of G.D.P. in 2008 with theCongressional Budget Office estimating that without changes in federal law, itwill rise to 25 percent of the G.D.P in 2025. $1.1 billion in the economicstimulus bill is earmarked to compare the effectiveness of different treatmentsfor the same illness.

 

In 2010, it is estimated that approximately 180,000 American women willbe diagnosed with breast cancer, and one out of four will die from thisdisease.  A breast cancer patient, afterthe removal of the tumor, is usually treated with radiation and/or chemotherapyfollowed by additional therapies such as hormonal therapy or molecular antibodytreatment.

 

According to a study from the National Cancer Institute (NCI), theaverage cost of chemotherapy is about $31,000, and most patients that receivechemotherapy do not benefit from this painful treatment with its manyundesirable side effects. Some drugs to be taken after chemotherapy could cost$40,000-$80,000 per year. For some patients, the total cost of breast cancertreatment could exceed $150,000 in the first year.

 

Most of our current medical practice in this country is based on “standardsof care” which are determined by averaging responses over large groups of patientsbased on clinical trials. Another way to arrive at “standards of care” is togroup patients into cohorts (groups) based on their specific characteristics.Instead of looking for generalities within a large group of patients, medicalpractitioners can focus on specifics and what cohort best fits each individual.

 

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Which characteristics should be considered in building a subset orcohort? Many characteristics are obvious and are presently considered tooptimize treatment; gender, age, weight, height, ethnicity, family history anddisease history for instance. There are others that are not so obvious; diet,allergies, immunizations, obstetric history, stress and lifestyle as well asenvironmental factors including employment and residential history. Butprobably the most important are personal biomarkers.

 

In medicine, a biomarker is an indicator of a particular disease stateor a particular state of a patient; blood pressure and cholesterol are twofamiliar ones. Over the past few decades, major advances inmolecular analysis technologies have brought the definition of a biomarker tothe arena of the genome. The present biomarkers that medicine relies on fordisease diagnosis and prognosis are only a glimpse into the molecular basis ofcommon diseases. The addition of genomic analysis would allowmedicine to define diseases precisely, uniquely and unequivocally.

 

Ina February 16th 2009 AP article Dr. Richard Schilsky, AmericanSociety of Clinical Oncology (ASCO) president, was quoted as saying that “a badtest is as dangerous to a patient as a bad drug.” “The tricky part is to figureout which of those (genetic differences) are clinically important and which arejust variations that exist.” The most complete genomic testing is aboutuncovering a tumor’s genetic signature by measuring the gene expressionactivity that drives the aggressiveness of the tumor, its possibility ofrecurrence and what specific type of therapeutic regimen would save andoptimize the patient’s quality of life.

 

Breastcancer, like all diseases, is very complex involving an individual’s genomeinteracting with its environment over time. Only 5% of breast cancers are dueto inherited mutations; the other 95% are due to acquired somatic mutations andimproperly regulated genes due to environmental factors. Why do somepeople get cancer and others don’t? Why is cancer more aggressive in somepatients compared to others? Why does the same drug cure some patients andcause severe side effects in others?  Whydoes someone need twice the standard dose to have a positive effect whileothers need only half? Existing diagnostic procedures cannot answer thesequestions.

 

Theanswer and solution to all these questions is the same, genomics andpersonalized medicine. With the information available in our BioWindowsTM informatics system physicians would be able tostratify patients into cohorts with common, yet unique, diseasecharacteristics. When you add a new patients genomic and life dynamics into thesystem for comparison they are added to groups that share the greatest numberof similarities in all aspects. As the system grows you move further andfurther away from “generic” treatments, based on outdated clinical trials andtrial and error medicine and enter the new era of truly personalized medicine.

 

**Our Strategy**

 

*Product Strategy*

 

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.

 

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*Breast Cancer Chip*

 

The National Cancer Institute (NCI) estimates that192,370 women and 1,910 men will be diagnosed with and 40,170 women and 440 menwill die of cancer of the breast in 2009.. That means a woman is diagnosed withbreast cancer every three minutes in the U.S. NCI also estimates thatapproximately $8.1 billion is spent in the U.S. each year on treatment ofbreast cancer and there are more than two million women alive in the U.S. 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. 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 theeffectiveness of treatment.

 

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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 itapplies to PNA chip probes, is the measure of how well the test nucleic acidshybridize to specific and complimentary DNA and RNA sequences in a givensample. The consequence of low attraction (low sensitivity) is quantitativelylow sequence hybridization and a resulting loss in the power and specificity ofgenomic analysis, i.e. false negatives test results. A highly sensitivesystem has the ability to efficiently capture targeted gene sequences andaccurately measure small variations in their expression. Sensitivity isaffected by probe length, design and binding affinity, purity, andconcentration within each spot in an array.

 

·                  Probe Specificity - Specificity, as itapplies to PNA chip probes, is the ability for test nucleic acids toselectively hybridize to only those specific DNA and RNA sequences in a givensample to which hybridization is intended. The consequence of low selectivity(low specificity) is incorrect and erroneous hybridization, leading toimprecise genomic analysis, i.e. false positives test results. A highlyspecific system has the ability to capture only the relevant and intendedtarget gene sequences, which only then provides the ability to measure smallvariations in gene expression. Specificity is affected by probe length, designand purity.

 

·                  Hybridization Speed - The number oftests, large volume of analyses required for each test, and required responsetime in a clinical setting demands speed. Hybridization speed is affected byprobe binding affinity, spacing and density, steric hindrance (limited testspecimen accessibility to the probe due to a large amount of unwanted moleculesnear the probe), and proximity of test probes to the DNA sample. Test probesare specific gene sequences synthesized for the purpose of capturing specificgenes in each patient sample.

 

·                  Design Flexibility and Cost - A flexiblemanufacturing process and chip design allows for rapid development andmodification of chip products at a low chip cost. A low chip cost will enabledelivery of high margin products at a price point suitable for clinicalrequirements, and will help to encourage wide-scale adoption of high throughputgenomic diagnostic testing.

 

*Our Technological Solutions*

 

Our silicon biochip gene detection platform consistsof proprietary technologies incorporated into oligonucleotide and PNA chips,customized readers/scanners and our BioWindows genetic informationinterpretation system. The nano-biochip is built on a semiconductor substrateand contains oligonucleotide and/or PNA probes, which use hybridization toidentify specific genes in cells from patient tissue or blood samples. Thepools of cRNA or cDNA in patient samples are labeled with fluorescent moleculesand then circulated through the integrated microfluidics biochip wherecomplementary molecular binding takes place with the attached test probes. Theremaining uncomplimentary cRNA or cDNA is then washed away.

 

The fluorescence of the hybridized genes is analyzedby a laser scanner or a CCD reader (a microscope attached to a digital camera)which, with the assistance of the BioWindows software system, determines if therecognized genes, their mutation or expression patterns are representative ofthe specific disease optical pattern that the chip 

 

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is designed to detect. This analysis is performed bycomparing the detected hybridization patterns to our reference database ofhybridization profiles.

 

**Test Probes**

 

Our probes can be manufactured to exactingspecifications and varied in composition and length. Probes will bepre-synthesized and can be verified before attachment to ensure they arehomologous and highly purified. We can manufacture probes to their optimallength to ensure the appropriate probe length for each nano-biochip product.Sample DNA targets (gene sequences associated with cancer, infectious disease,and other metabolic or gene related disorders) vary in composition and length.Consequently, specific hybridization with a patient sample is enhanced whenprobes are designed for their specific targeted gene sequences.

 

PNA probes capture specific DNA and RNA (ribonucleicacid) sequences more efficiently than oligonucleotide and complimentary DNA(cDNA) probes. Unlike oligonucleotides, PNAs are synthesized analogs that lackpentose sugar phosphate structural backbone groups. The deoxyribose backbone isreplaced by a peptide backbone. The resulting hybridization to complementaryRNA or DNA has a higher affinity than corresponding nucleotides.

 

The stronger binding is attributed to the neutralityof the backbone, which results in the elimination of sub molecular electricalcharge repulsion that is present in unmodified DNA/DNA or RNA/RNA duplexes.This binding strength is confirmed by their higher melting temperatures (higherthermal stability). PNAs also have increased specificity for DNA binding. As aresult, a PNA/DNA mismatch is more destabilizing than a mismatch in a DNA/DNAduplex. PNA/DNA mismatches are therefore more likely to be degraded during thewashing cycle, resulting in more accurate and specific hybridization detectionand quantification.

 

Binding System

 

Our binding system utilizes a proprietary spacertechnology to bind oligonucleotides to soft metal wells on the surfaces of thechip. The technology is based on a “lock and key” molecular design thatincludes a stable anchor bond to the solid surface, a spacer arm which givesflexibility to the probe allowing it to interact with its environment in a waywhich minimizes steric hindrance (limited test specimen accessibility to theprobe due to a large amount of unwanted molecules near the probe), and areactive terminal molecule which binds to the probe. This technique provides areliable method to immobilize probe molecules with a robust, stable connectionto the chip-binding surface while optimizing their sensitivity and specificity.

 

Probes stand vertically, attached to the metal wellsurface on one end by the anchor. The connection ensures probe stability andintegrity during the hybridization and subsequent washing cycles. In addition,the spacer between the probe and metal base optimizes a probe’s ability to makecontact and bind with the sample cDNA and/or cRNA by distancing the probe fromthe chip surface.

 

Microfluidics

 

Wells on our chip, in which probes are secured, areinterconnected by a system of microchannels. A central fluidics stationdistributes the genetic target and washing solutions through the microchannelson the chip during the hybridization and washing 

 

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cycles. The controlled flow of solution enhanceshybridization by ensuring that the sample cDNA and/or cRNA come in contact withthe probes.

 

Magnetic Labels

 

Our biochip platform can currently complete thehybridization process in 20 minutes. We are also developing a proprietarytechnology that labels nucleic acid target molecules with paramagnetic labels.Activation of a magnetic field under the probe molecules induces and directsrapid migration of the charge-labeled molecules to a solid support and coulddramatically shorten the hybridization rate to five minutes.

 

*Nano-Biochip Fabrication*

 

Our approach to chip design is similar to that used inbuilding an “Application Specific Integrated Circuit (ASIC)”. We build a basesubstrate (requiring less than 10 mask layers) before depositing the probes asrequired. With the flexible ASCI chip design, a new mask set is not requiredwhich will reduce any retooling costs and considerably reduce chip modificationtime.

 

We have developed our Piezo ArrayerTM robotic micropump system and can precisely deliver different probe solutions simultaneously.

 

*BioWindows**TM*

 

Our bioinformatics provides an artificial intelligencesystem with proprietary algorithms for acquisition and analysis of genomichybridization information. This proprietary system optically readshybridization data from nano-biochips and analyzes results based on a varietyof statistical algorithms that suggest and evaluate test result hypotheses.

 

Hybridization information is compared with an Irisrepository of hybridization profiles, patient profiles, reference information,clinical information associated with hybridization profiles, and statisticalsummaries to provide appropriate treatment scenarios for a variety ofpathological conditions, ailments and diseases. The system will utilizenormalization and expression level controls when relevant to accommodatevariations in hybridization conditions, label intensity and other factors aswell as control for the overall health and metabolic activity of a cell.

 

**Competition**

 

The medical diagnostic industry is characterized byrapidly evolving technology and intense competition. Our competitors includemedical diagnostic companies, most of which have financial, technical andmarketing resources significantly greater than our resources. In addition,there are a significant number of biotechnology companies working on evolvingtechnologies that may supplant or make our technology obsolete. Academicinstitutions, governmental agencies and other public and private researchorganizations are also conducting research activities and seeking patentprotection and may commercialize products on their own or through jointventures. We are aware of certain development projects for products to preventor treat certain diseases targeted by us. The existence of these potentialproducts or other products or treatments of which we are not aware, or productsor treatments that may be developed in the future, may adversely affect themarketability of products developed.

 

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*Genomic Health Inc.*

 

The current test offered by our main competitor,Genomic Health Inc., is a “home-brew test” and is not an FDA approved kit. Thatmeans hospitals and clinical laboratories cannot purchase and run the test intheir own extensive network of laboratories.

 

Genomic Health’s strategywas to get to market first. They used existing RT-PCR technology and relied onexisting protocol to collect paraffin-preserved patient samples. Genomic Healthmarketed their test broadly and we believe that some physicians are beginningto protect themselves from potential malpractice lawsuits by offering the testto patients and asking them to sign a waiver if they choose not to have thetest done.

 

Complex diagnostic andprognostic tests generally require FDA approval. The test offered by GenomicHealth is not robust enough to be sold as an FDA-approved test kit. GenomicHealth intentionally launched their breast cancer recurrence prediction testwithout seeking FDA approval. The FDA retaliated furiously by issuing a draftguidance (regulation) in July 2007, making clear their intention toregulate the type of tests offered by Genomic Health and other companies.  This guidance was then finalized internallyat the FDA and within the Department of Health and Human Services. As of March 2010,the FDA still has not publicly issued their official guidance.

 

The Genomic Health test works only for a subset ofbreast cancer patients. We have focused on providing testing that can benefit allbreast cancer patients before they undergo any prescribed treatment. We believeour nano-biochip more precisely diagnoses and identifies the best medicaltreatment choices at the time of the initial biopsy. The significant advantageof early optimal medical intervention leads to reduced diagnostic and treatmentcosts over the life of the patient and an improvement in the patient’s qualityof life. We believe that our strategy of early diagnosis, prognosis andpersonalized care will grow rapidly to become the “de facto” model in thebreast cancer clinical market.

 

*Affymetrix Inc.*

 

Affymetrix’s microarray technology relies onsolid-phase chemical synthesis (stacking chemical molecules on top of eachother) of their test probes, which is not capable of producing a high yield ofpurified, immobilized molecules. Probes are immobilized using athree-dimensional nylon membrane support structure. Immobilization structuralchemistry lacks specificity and therefore increases the probability that targetsample DNA will bind nonspecifically to either the immobilized probe DNA or thesolid surface of the chip, resulting in erroneous false positive test results.

 

Also, the chemistry of probe support membranes variesamong batches, and these variances affect the amount of DNA material deposited.As a result of these limitations, Affymetrix requires the use of 10 mismatchquality control probes for every functional probe in a probe “group”.Hybridization results are analyzed based on findings within the control group.These technology constraints result in limitations of sensitivity andspecificity.

 

*Agilent/Agendia*

 

Like Affymetrix, Agilent can also make synthesizedoligo chips, and Agendia, a private company, buys this type of chip for theirtest. We believe that Agilent’s PROBE SENSITIVITY is about 16% compared to thatof 4 - 10% for Affymetrix. We believe 

 

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our PROBE SENSITIVITY could be 99% purified. Evenif Agilent were to copy our approach in probe design, synthesis, anddeposition, their chip performance would still be limited by their use of glassas a substrate. Glass lacks the necessary chemistry for advanced surface bindingand enhanced hybridization performance. Should Agilent also switch to asemiconductor substrate, our product would still have an advantage because ofits use of PNA probes, an advanced probe-binding system, and enhancedhybridization technologies discussed in elsewhere in this prospectus.

 

On February 6, 2007, the U.S. Food and DrugAdministration (FDA) approved Agendia’s 70-gene test for predicting breast cancerrecurrence. The clearance of Agendia’s ‘de novo 510(k)’application sets a precedent.  This willmake it easier and faster for us to get approval for our Nano-Biochip. Agendiahas previously received clearance from European authorities to market theirtest in Europe and they claim substantial progress in market acceptance andreimbursement. The Agendia test is not widely used in the U.S..

 

**Sales and Marketing**

 

We expect that our marketing efforts willcapitalize on the existing wide market acceptance as well as private andgovernmental health insurance reimbursement to provide for genomic and geneticsbreast cancer testing (Genomic Health, Agendia, and Myriad are active in thissector); however, while some of our competitors receive reimbursement forsimilar testing, until we begin our operations we cannot be certain that wewill similarly be reimbursed. Our sales and marketing will be done initiallythrough partners, distributors, and company representatives. In the UnitedStates, the initial customer base we wish to target once our products are readyto be introduced to the market includes leading clinical research institutionsand companies such as Stanford, UCSF, M.D. Anderson Cancer Center, the NationalCancer Institute (NIH), Quest Diagnostics, Laboratory Corporation, SutterMedical, and Kaiser Permanente.

 

Direct-to-consumer radiology service centersdemonstrate the growing popularity of self-reliance and a “need to know”philosophy in the management of personal health matters. Genomic diagnostictesting will, quite logically, be a part of this movement. We will be sellingour products into a new market segment in the field of medical diagnostics.

 

We have been covered by ABCNews, Forbes, CNBC, Yahoo Finance, Market Watch, US Pharmacist, Drug BenefitTrends and other publications here in the U.S. as well as media in the UK,France, Germany, Australia, Canada, and Asian countries.  Drug Benefit Trends is a publication formedical directors, pharmacy directors, and other managed care decision makers.This publication is peer reviewed and the three-page article thathighlights us and the current status of personalized medicine is on the frontcover of the March 2008 issue.

 

Our CEO, Simon Chin, hasalso been interviewed by radio shows in California and Florida. Since welauchched 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 realizes that one of the keyingredients to becoming a successful company is brand recognition so we willengage in more publicity campaigns. Customer and user training will also beprovided to facilitate the use of our products and services. As far as saleschannels are concerned, preliminary discussions have been made with majorhealth care providers and HMOs. We have also been working with various patientadvocacy groups as a part of our marketing outreach program.

 

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**Intellectual Property**

 

Our proprietary technologies reside in our US patentsand other patents that have been granted to us in many countries around theworld.

 

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 withparamagnetic labels and activating a magnetic field under probe molecules onthe chip, can accomplish rapid hybridization of complementary nucleic acidmolecules. Our patent 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.

 

**Government Regulation**

 

Regulation by governmental authorities in the UnitedStates and other countries will be a significant factor in the production andmarketing of any products that may be developed by us. The nature and theextent to which such regulations may apply will vary depending on the nature ofthe products. Our products can be marketed as clinical laboratory testsaccording the government CLIA standard without FDA approval, similar to GenomicHealth’s Oncotype Dx test or as 510(k) products approved by the FDA,enabling our tests to be used in any certified laboratory. Agendia’sMammaPrint, which serves the same function as the Oncotype Dx, is approved bythe FDA as a de novo 510(k) product. Human clinical trial was notrequired. Only human tissues were studied “in vitro” using their MammaPrintmicroarrays.

 

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Although clinical laboratory services are nottypically subject to FDA regulation, the FDA does regulate the sale ordistribution, in interstate commerce, of medical devices, including in vitrodiagnostic test kits. In addition, reagents and equipment used by clinicallaboratories may be subject to FDA regulation. Clinical laboratory tests thatare developed and validated by a laboratory for use in examinations performedby the lab itself are called “home brew” tests. Most home brew tests arecurrently 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 are categorized by the FDA intothree different classes. The class in which a device is assigned determines thelevel of review required by the FDA to obtain approval for the marketing of thedevice to the public. Class I medical devices are subject to the leastregulatory control and present minimal potential harm to the user. Class IImedical devices include devices for which general controls alone areinsufficient to assure safety and effectiveness, and additional existingmethods are available to provide such assurances. Therefore, Class IIdevices are subject to special controls in addition to the general controls of Class Idevices. Special controls may 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 similar to the one we intend tomarket have previously been considered Class II devices and therefore areonly subject to premarket notification, since our products are   designedto enable a treating physician to prescribe a personalized treatment regimenthere is a possibility that the FDA may consider our products a Class IIIdevice for this intended use requiring PMA. We intend to meet with the FDA todetermine whether they will categorize our product for its current intended useas a Class II or Class III device. If the FDA determines that theintended use of our products would categorize our product as a Class IIdevice we will submit a premarket notification to the FDA. However, in theevent that the FDA determines that the intended use of our product wouldcategorize it as a Class III device requiring premarket approval, weintend to modify the intended use to initially market our product as a test forpredicting breast cancer recurrence and still file a 510(k) premarketnotification. Then simultaneously with, or subsequent to, the filing of apremarket notification we will also file a PMA for use of our product by atreating physician to prescribe a personalized treatment regimen.

 

Premarketing notification is accomplished bysubmitting a 510(k) to the FDA. A 510(k) notification provides datato show that the new device is substantially equivalent to other devices thatwere introduced into the marketplace prior to May 1976, or pre-amendmentdevices. In order to complete a 510(k) notification for the FDA we willneed to collect safety and effectiveness data to support 510(k) notification.This data is normally obtained through an evaluation in a clinical studyprocess.

 

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Premarket approval, or PMA, is the most stringent typeof device marketing application required by the FDA and is based on adetermination by the FDA that the PMA contains sufficient valid scientificevidence to assure that the device is safe and effective for its intended use.A PMA application is therefore a scientific, regulatory document to the FDA todemonstrate the safety and effectiveness of the Class III device. If a PMAapplication lacks valid clinical information and scientific analysis it willdelay the FDA’s review and approval. Once a final application is prepared, FDAregulations provide that it has 180 days from the submission of the applicationto review a PMA and make a determination, but the review time can be longer. Inaddition, before approving or denying a PMA an appropriate FDA advisorycommittee may review the PMA at a public meeting and provide the FDA with itsrecommendations. After an applicant is notified of its approval or denial bythe FDA a notice is published on the Internet, which provides interestedparties with an opportunity to petition the FDA for reconsideration within 30days of the decisions.

 

When FDA approval of a clinical diagnostic devicerequires human clinical trials, and if the device presents a “significant risk”(as defined by the FDA) to human health, the device sponsor is required to filean investigational device exemption, or IDE, application with the FDA andobtain IDE approval prior to commencing the human clinical trial. If the deviceis considered a “non-significant” risk, IDE submission to FDA is not required.Instead, only approval from the Institutional Review Board overseeing theclinical trial is required. We do not believe that we are required to obtain anIDE exemption since our products are not implanted in the body they would notbe considered “significant risk devices.”

 

After we have completed the 510(k) process, butbefore we begin manufacturing and distributing our products, we will berequired to register with the FDA, in a process known as establishmentregistration. This registration provides the FDA with the location of thefacility manufacturing the medical device, but this registration does notestablish approval of the device by the FDA. In addition, most medical deviceestablishments registered with the FDA must also identify the device that theyhave in commercial distribution. This process is known as medical devicelisting and is a means for the FDA to keep apprised of the devices which arebeing manufactured and sold.

 

After the FDA permits a device to enter commercialdistribution, numerous regulatory requirements apply. In addition to potentialproduct 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,

·                  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 the initial FDA approval of ourpremarketing notification could be obtained in approximately three months, oncewe have submitted our 510(k) to the FDA for review; however, obtainingapproval can take significantly longer if the FDA requests additionalinformation with respect to the filing submitted. Failure to comply with theapplicable United States medical device regulatory requirements could resultin, among other things, warning letters, fines, injunctions, civil penalties,repairs, replacements, refunds, recalls or seizures of products, total orpartial suspension of production, the FDA’s refusal to grant future premarketclearances or approvals, 

 

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withdrawals or suspensions of current productapplications, suspension of export certificates and criminal prosecution.

 

With respect to post-market product advertising andpromotion, the FDA imposes a number of complex regulations on entities thatadvertise and promote biologics, which include, among others, standards andregulations for direct-to-consumer advertising, off-label promotion, industrysponsored scientific and educational activities, and promotional activitiesinvolving the Internet. The FDA has broad enforcement authority, and failure toabide by applicable FDA regulations can result in penalties including the issuanceof a warning letter directing the entity to correct deviations from FDAstandards, a requirement that future advertising and promotional materials bepre-cleared by the FDA, and state and federal civil and criminal investigationsand prosecutions.

 

We and our contract medical product manufacturers aresubject to periodic inspection by the FDA and other authorities whereapplicable, and are required to comply with the applicable FDA current GoodManufacturing Practice regulations. Good Manufacturing Practice regulationsinclude requirements relating to quality control and quality assurance, as wellas the corresponding maintenance of records and documentation, and provide formanufacturing facilities to be inspected by the FDA.

 

In addition, we will be subject to FDA regulationswith respect to the import and export of any of our products. To the extent wemay decide to utilize a foreign manufacturer, all foreign manufacturers mustmeet applicable United States medical device regulations in order to importdevices. These requirements include registration of establishment, listing ofdevices, manufacturing in accordance with the quality system regulation andmedical device reporting of adverse events. In addition, the foreignmanufacturers must designate a United States agent. As with domesticmanufacturers, foreign manufacturing sites are subject to FDA inspection. Withrespect to the exportation of our products, any medical device that is legallyin the United States may be exported anywhere in the world without prior FDAnotification or approval and the export restrictions only apply to unapproveddevices, which have not been registered with the FDA. In addition, the UnitedStates exporter is required to comply with the laws of the importing country.

 

Furthermore, outside the United States, our ability tomarket our products is contingent upon obtaining International StandardsOrganization (ISO) certification, and in some cases receiving specificmarketing authorization from the appropriate foreign regulatory authorities.The requirements governing the conduct of clinical trials, marketingauthorization, pricing and reimbursement vary widely from country tocountry. While we currently do not have any product registrationsfiled, in the future we intend to file an EU product registration, whichwould cover all member states. Foreign registration is an ongoing processas we register additional products and/or product modifications.

 

In addition, customers using diagnostic tests forclinical purposes in the United States are also regulated under the ClinicalLaboratory Improvement Amendments of 1988, or CLIA. CLIA is intended to ensurethe quality and reliability of all medical testing in laboratories in theUnited States by requiring that any healthcare facility in which testing isperformed meets specified standards in the areas of personnel qualification,administration, participation in proficiency testing, patient test management,quality control, quality assurance, and inspections.

 

We are also subject to various state and local lawsand regulations in the United States relating to laboratory practices and theprotection of the environment. In each of 

 

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these areas, as above, regulatory agencies have broadregulatory and enforcement powers, including the ability to levy fines andcivil and criminal penalties, suspend or delay issuance of approvals, seize orrecall products, and withdraw approvals, any one or more of which could have amaterial adverse effect upon us. In addition, in the course of our business, wehandle, store and dispose of chemicals. The environmental laws and regulationsapplicable to our operations include provisions that regulate the discharge ofmaterials in the environment. Usually these environmental laws and regulationsimpose “strict liability,” rendering a person liable without regard tonegligence or fault on the part of, or conditions caused by, others. We havenot been required to expend material amounts in connection with our efforts tocomply with environmental requirements. Because the requirements imposed bythese laws and regulations frequently change, we are unable to predict the costof compliance with these requirements in the future, or the effect of theselaws on our capital expenditures, results of operations or competitivepositions.

 

**Employees**

 

As of March 28, 2010 we have 5 full time and 8part time employees. As we prepare to transition from product development tocommercialization, we are currently in contract negotiations to hire additionalemployees. We have not experienced any work stoppages and we considerrelations with our employees to be good.

 

**ITEM 1A. RISK FACTORS**

 

**Risks Related to Our FinancialResults**

 

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

 

We are a development stage company and have incurredlosses since we were formed. We have incurred operating losses of $7,050,491 asof December 31, 2009. To date, we have experienced negative cash flow fromdevelopment of our gene profiling medical treatment technology. We currentlyhave no products ready for commercialization, have not generated any revenuefrom operations and expect to incur substantial net losses for the foreseeablefuture to further develop and commercialize our technology. We cannot predictthe extent of these future net losses, or when we may attain profitability, ifat all. If we are unable to generate significant revenue or attainprofitability, we will not be able to sustain operations.

 

**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 our existing capital resources will notbe sufficient to fund our operations, at the accelerated growth rate, for thenext 12 months. Consequently, we will be required to raise additional capitalto complete the development and commercialization of our current productcandidates. The development of our business will require substantial additionalcapital in the future to conduct research and development and commercialize ournano-biochip technology. We have historically relied upon private sales of ourequity to fund our operations. We currently have no credit facility orcommitted sources of capital. If our capital resources are insufficient to meetfuture requirements, we will have to raise additional funds to continue thedevelopment and commercialization of our nano-biochip technology. When we seekadditional capital, we may seek to sell additional equity or debt securities orto obtain a credit facility, which we may not be able to do on favorable terms,or at all. Our ability to obtain 

 

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additional financing will be subject to a number offactors, including market conditions, our operating performance and investorsentiment. If we are unable to raise additional capital when required or onacceptable terms, we may have to significantly delay, scale back or discontinuethe development and/or commercialization of one or more of our productcandidates, restrict our operations or obtain funds by entering into agreementson unattractive terms.

 

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

 

Our management team has little experience in managinga public company. Accordingly, our internal controls over financial reporting,while they appear to be sufficient for our needs, may have weaknesses andconditions that will need to be addressed, the disclosure of which may have anadverse impact on the price of our common stock. We are required to establishand maintain appropriate internal controls over financial reporting. Failure toestablish those controls, or any failure of those controls once established,could adversely impact our public disclosures regarding our business, financialcondition or operating results. In addition, management’s assessment of ourinternal controls over financial reporting may identify weaknesses andconditions that need to be addressed in our internal controls over financialreporting or other matters that may raise concerns for investors. Any actual orperceived weaknesses and conditions that need to be addressed in our internalcontrols over financial reporting or disclosure of management’s assessment ofour internal controls over financial reporting may have an adverse impact onthe price of our common stock.

 

**Risks Related 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.**

 

The use of the nano-biochip gene expression kit hasnever been commercialized. Even if approved for sale by the appropriate regulatoryauthorities, physicians may not order diagnostic tests based on ournano-biochip gene technology, in which event we may be unable to generatesignificant revenue or become profitable. In addition, physicians and patientsmay not utilize the nano-biochip gene expression kit unless third-party payors,such as managed care organizations, Medicare and Medicaid, pay a substantialportion of the test’s price. There is significant uncertainty concerningthird-party reimbursement of any test incorporating new technology.Reimbursement by a third-party payor may depend on a number of factors,including a payor’s determination that tests using our technologies are:

 

·                  not experimental or investigational,

·                  medically necessary,

·                  appropriate for specific patient,

·                  cost-effective, and

·                  supported by peer-reviewed publications.

 

Since each payor makes its own decision as to whetherto establish a policy to reimburse for a test, seeking these approvals is atime-consuming and costly process. We cannot be certain that coverage for thenano-biochip gene expression kit will be provided by any third-party payors.

 

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**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, we expect to derive substantiallyall of our revenues from sales of one product, the nano-biochip gene expressionkit. We are in the early stages of research and development for other productsthat we may offer as well as for enhancements to the current product. If we areunable to generate sales of the nano-biochip gene expression kit or tosuccessfully develop and commercialize other products or product enhancements,our revenues and our ability to achieve profitability would be impaired, andthe market price of our common stock could decline.

 

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

 

The successful commercialization of our nano-biochipbased diagnostic kits is crucial for our success. Our proposed products andtheir potential applications are in an early stage of clinical andmanufacturing/process development and face a variety of risks anduncertainties. 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

 

If we are unsuccessful in dealing with any of theserisks, or if we are unable to successfully commercialize our nano-biochipdiagnostic kits products for some other reason, it would likely seriously harmour business.

 

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**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 obtainpre-market approval. We will not know if pre-market approval will be requiredby the FDA until we make the appropriate filings. If the FDA does not view ourproducts as exempt from pre-market approval, the use of our products could bedelayed, halted or prevented, which would impair the commercialization of ourproducts and could materially harm our business.

 

Moreover, in obtaining FDA marketing clearance and/or  pre-market approval we would also be subject to a number of FDArequirements, including restrictions regarding performance claims as well asthe FDA’s Quality System Regulation, which establishes extensive regulationsfor quality assurance and control as well as manufacturing procedures. Failureto comply with these regulations could result in enforcement action against us,our partners, or our contract manufacturers. Adverse FDA action in any of theseareas would have a significant impact on our operations.

 

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 treatment 

 

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therapies typically have only a few years of clinicaldata associated with them, which limits our ability to perform clinical studiesand correlate sets of genes to a new treatment’s effectiveness. If we areunable to demonstrate the applicability of our tests to new treatments, thensales of our tests could decline, which would harm our revenues.

 

**Our Competitive Position Depends On MaintainingIntellectual 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 our intellectualproperty rights. We also rely upon unpatented know-how and continuingtechnological innovation to develop and maintain our competitive position.

 

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 misappropriation and use of ourintellectual property, particularly in foreign countries where the laws may notprotect our proprietary rights as fully as in the United States.

 

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

 

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.

 

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**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, ourability to research, develop and commercialize future products will be limitedor delayed.

 

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

 

The healthcare industryis undergoing fundamental changes resulting from political, economic andregulatory influences.  In the United States, comprehensive programshave been proposed that seek to increase access to healthcare for theuninsured, to control the escalation of healthcare expenditures within theeconomy and to use healthcare reimbursement policies to balance the federalbudget.  On March 23, 2010, health reform legislation wasapproved by Congress and has been signed into law.  The reformlegislation provides that most individuals must have health insurance, willestablish new regulations on health plans, create insurance pooling mechanismsand other expanded public health care measures, and impose new taxes on salesof medical devices and pharmaceuticals.  Since this legislation isrecently enacted and will require the adoption of implementing regulations, wecannot predict the effect, if any, that it will have on our business, but thislegislation and similar federal and state initiatives may have the effect oflowering reimbursements for our proposed products, reducing medical procedurevolumes, increasing our taxes and otherwise adversely affect our business,possibly materially.

 

We expect that Congress and state legislatures willcontinue to review and assess healthcare proposals, and public debate of theseissues will likely continue.  We cannot predict which, if any, ofsuch reform proposals will be adopted and when they might beadopted.  Other countries also are considering healthcarereform.  Significant changes in healthcare systems could have asubstantial impact on the manner in which we conduct our business and couldrequire us to revise our strategies.

 

**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 collaborators wereto breach or terminate its agreement with us or otherwise fail to conduct itscollaborative activities successfully and in a timely manner, the research,development or commercialization of the products contemplated by thecollaboration could be delayed or terminated. If we are unable to enter intocollaboration agreements with intended collaborators on acceptable terms, wewould be required to seek alternative collaborations. We may not be able tonegotiate collaborations on acceptable terms, if at all, and thesecollaborations may not be successful. Our success in the future depends in parton our ability to enter into agreements with leading cancer organizations. Thiscan be difficult due to internal and external constraints placed on theseorganizations. Some organizations may limit the number of collaborations theyhave with any one company so as to not be perceived as biased or conflicted.Organizations may also have insufficient administrative and relatedinfrastructure to enable collaborations with many companies at once, which canextend the time it takes to develop, negotiate and implement a collaboration.Additionally, organizations often insist on retaining the rights to publish theclinical data resulting from the collaboration. The publication of clinicaldata in peer-reviewed journals is a crucial step in commercializing andobtaining reimbursement for a 

 

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test such as ours, and our inability to control when,if ever, results are published may delay or limit our ability to derivesufficient revenues from any product that may result from a collaboration.

 

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**** ****AndThe Loss Of Any Key Member Of This Team Could Have A Material Adverse Effect OnOur Business.**

 

Our success is heavily dependent on the continuedactive participation of our current executive officers listed under the “Management”section of this Annual Report. Loss of the services of one or more ofthese officers could have a material adverse effect upon our business,financial condition or results of operations. Further, our success andachievement of our growth plans depend on our ability to recruit, hire, trainand retain other highly qualified technical and managerial personnel.Competition for qualified employees among companies in the life sciencesindustry is intense, and the loss of any of such persons, or an inability toattract, retain and motivate any additional highly skilled employees requiredfor the expansion of our activities, could have a materially adverse effect onus. Our inability to attract and retain the necessary personnel and consultantsand advisors could have a material adverse effect on our business, financialcondition or results of operations.

 

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

 

Our directors, executive officers and principalstockholders and their affiliates beneficially own approximately 74.0% 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 negative impact on the market price of ourcommon stock by discouraging third-party investors.

 

**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 bebeneficial to our stockholders. For example, stockholder meetings may be calledonly by our board of directors, the chairman of the board and the president andadvance notice 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.

 

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**Risks Related To Our Common Stock**

 

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

 

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 theinvestor a written agreement to the transaction, setting forth the identity andquantity of 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 execute transactionsin securities subject to the “penny stock” rules. This may make it moredifficult for investors to dispose of our common stock and cause a decline inthe 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 

 

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securities and the rights and remedies available to aninvestor in cases of fraud in penny stock transactions. Finally, monthlystatements have to be sent disclosing recent price information for the pennystock held in the account and information on the limited market in pennystocks.

 

**ITEM 1B. UNRESOLVED STAFF COMMENTS**

 

N/A

 

**ITEM 2. PROPERTIES.**

 

We currently have two facilities in California. Ourheadquarters is in Santa Clara and our laboratory is in San Leandro.

 

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, 2009 and expires on July 31,2010. We currently pay rent and related costs of approximately $300.00 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 31,2010. We currently pay rent and related costs of approximately $1,457.00 permonth.

 

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

 

**ITEM 3. LEGAL PROCEEDINGS.**

 

From time to time, we may become involved in litigationrelating to claims arising out of its operations in the normal course ofbusiness. We are not involved in any pending legal proceeding or litigationand, to the best of our knowledge, no governmental authority is contemplatingany proceeding to which we are a party or to which any of our properties issubject, which would reasonably be likely to have a material adverse effect onus.

 

**ITEM 4. RESERVED.**

 

**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, 2009.

 
| ** **                         | ** ** | **High  Bid** | ** ** | **Low  Bid** | ** ** |
|------------------------------------|------------|---------------|------------|--------------|------------|
| Year Ended  December 31, 2009 |       |          |       |         |       |
| First Quarter                      |       | $             | 1.70       |         | $          | 0.88 |   |
| Second Quarter                     |       | $             | 1.40       |         | $          | 0.10 |   |
| Third Quarter                      |       | $             | 1.01       |         | $          | 0.05 |   |
| Fourth Quarter                     |       | $             | 0.99       |         | $          | 0.21 |   |

 

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| ** **                         | ** ** | **High  Bid** | ** ** | **Low  Bid** | ** ** |
|------------------------------------|------------|---------------|------------|--------------|------------|
| Year Ended  December 31, 2008 |       |          |       |         |       |
|                               |       |          |       |         |       |
| Third Quarter                      |       | $             | 4.10       |         | $          | 1.50 |   |
| Fourth Quarter                     |       | $             | 2.00       |         | $          | 1.15 |   |

 

As of March 30, 2010, we had 11,296,526 shares of common stock issued andoutstanding and approximately 150 stockholders of record 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 cash 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, 2009.

 

**EQUITY COMPENSATION 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    |   |

 

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**RECENT SALES OF UNREGISTEREDSECURITIES**

 

During the fiscal year ended December 31, 2009,we issued the below securities without registration under the Securities Act of1933, as amended (the “Securities Act”).

 

On March 14, 2009, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 5,622 shares ofour common stock for an aggregate purchase price of $12,650.

 

On March 30, 2009, we entered into a Common StockPurchase Agreement with an accredited investor for the sale of 4,444 shares ofour common stock for an aggregate purchase price of $10,000.

 

**ITEM 6. SELECTED FINANCIAL DATA**

 

N/A

 

**ITEM 7. MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Forward-Looking Statements**

 

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

 

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

 

**Overview**

 

Since inception on February 16, 1999 through December 31,2009, we have sustained cumulative net losses of $7,050,491. Our losses haveresulted primarily from research and development expenses, patent costs andlegal and accounting expenses. We have four issued patents, and we launched ourBioWindows medical informatics system on May 11, 2008. From inceptionthrough December 31, 2009, we have not generated any revenue fromoperations. We expect to incur additional losses to perform further researchand development activities. In 2010, we are planning to launch ourBreastCancerChip, which can be marketed as a CLIA laboratory tests without FDAapproval, 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.

 

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

 

**History**

 

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

 

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

 

As of December 31, 2009 we had sold/issued3,353,385 shares of common stock and 95,029 five-year warrants to 101accredited investors. We received $2,812,593 on the sale of common stock and$42,500 on exercise of 120,000 options. We issued 7,200,000 of common stock ontransfer of technology worth $1,800,000 and 380,891 common stock for servicesworth $264,939.

 

**Plan of Operation**

 

We are a life science company focused on thedevelopment and commercialization of a nano-biochip gene expression kit and anartificial intelligence system to assist in establishing the foundation forpersonalized medicine, which will initially be utilized in the treatment ofbreast cancer. Although we may market our products as CLIA laboratory tests, weare designing them to be approved by the FDA, which can then be used in anycertified laboratory. Starting at the point of a breast biopsy diagnosis ofcancer, the nano-biochip and informatics program are designed to enable atreating physician to quickly prescribe a personalized treatment regimen thatwill have the greatest probability of success for each patient’s particulartype of cancer. Our product platform is expected to lead to more effectivediagnosis and treatment not only for patients with breast cancer, but also forthose with neurological disorders, heart disease, diabetes and othergene-related metabolic problems.

 

**Product Research and Development**

 

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

 

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**Acquisition of Plant and Equipmentand Other Assets**

 

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

 

**Number of Employees**

 

From our inception through the period ended December 31,2009, we have principally relied on the services of outside consultants andpart-time employees for services. We currently have 5 full time employees and 8part-time employees. In order for us to attract and retain quality personnel,we anticipate we will have to offer competitive salaries to future employees.We anticipate that it may become desirable to add additional full and or parttime employees to discharge certain critical functions during the next 12months. This projected increase in personnel is dependent upon our ability togenerate revenues and obtain sources of financing. There is no guarantee thatwe will be successful in raising the funds required or generating revenuessufficient to fund the projected increase in the number of employees. As wecontinue to expand, we will incur additional cost for personnel.

 

**Results of Operations**

 

We are in the development stage and to date havenot generated revenues. The risks specifically discussed are not the only factorsthat could affect future performance and results. In addition to the discussionin this prospectus concerning us, our business and our operations containforward-looking statements. Such forward-looking statements are necessarilyspeculative and there are certain risks and uncertainties that could causeactual events or results to differ materially from those referred to in suchforward-looking statements. We do not have a policy of updating or revisingforward-looking statements and thus it should not be assumed that silence byour Management over time means that actual events or results are occurring asestimated in the forward-looking statements herein.

 

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

 

As a result of limited capital resources and norevenues from operations since inception, we have relied on theissuance of equity securities to employees and non-employees in exchange forservices. Our management enters into equity compensation agreements withnon-employees if it is in our best interest under terms and conditionsconsistent with the requirements of Accounting Standards Codification Subtopic718-10 Compensation (ASC 718-10). In order to conserve our limitedoperating capital resources, we anticipate continuing to compensatenon-employees with equity for services during the next twelve months. Thispolicy may have a material effect on our results of operations during thenext twelve months.

 

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**Year Ended December 31,2009 Compared to Year Ended December 31, 2008**

 

**Revenues**

 

We have generated no operating revenues fromoperations from our inception. We believe we will begin earning revenues fromoperations in 2010 from actual operations as we transition from adevelopment stage company to that of an active growth stage company.

 

**Costs and Expenses**

 

From our inception through December 31, 2009, we have notgenerated any revenues and have incurred cumulative losses of $7,050,491. 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 increased $352,261 from $692,176 in 2008 to$1,044,437 in 2009. 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 $862,128 for 2009 and $200,115 for 2008, a year-to-year increase of$662,013.  The remaining SG&Aexpenses requiring cash amounted to approximately $182,309 and $492,061 for2009 and 2008, respectively. The increase in our SG&A is primarilyattributed to increased costs in launching our BioWindowsÔ medical informatics system and preparing to launchour BreastCancerChipÔ resulting inprofessional fees and additional staffing costs incurred in 2009.  We used stock in lieu of cash to conserve ourcash resources. Research and development costs decreased $147,920 from $179,787in 2008 to $31,867 in 2009. The research & development costs weremainly compensated in stock options as we prepare our product for market.

 

Asa result of the above-mentioned expenses, net losses increased $211,111 from$883,530 in 2008 to $1,094,641 in 2009.

 

**Liquidity and Capital Resources**

 

As of December 31, 2009, we had working capitaldeficit of $176,510 as compared to working capital deficit of **$**35,141as of December 31, 2008. Our cash position was $442 as of December 31,2009 compared to $990 as of December 31, 2008.  From inception to December 31, 2009 wehave incurred an operating cash flow deficit of $2,784,560, which has beenprincipally financed through the private placement of our common stock of$2,812,593, the exercise of stock options of $42,500, and loans from relatedparty of $151,500.

 

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

 

For 2008 and 2009 we completed the following financingtransactions and during  2009 we raised$22,650 by issuing 10,066 shares of common stock at $2.25 per share.

 

a)              On January 16, 2008, we entered into an agreementto issue 22,222 shares of common stock to investors for net proceeds of$50,000.

b)             On February 19, 2008, we entered an agreement toissue 11,111 shares of common stock to an investor for net proceeds of $25,000.

 

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c)              On March 4, 2008, we entered an agreement toissue 9,333 shares of common stock to an investor for net proceeds of $21,000.

d)             On March 5, 2008, we entered an agreement toissue 1,778 shares of common stock to an investor for net proceeds of $4,000.

e)              On March 24, 2008, we entered an agreement toissue 12,500 shares of common stock to an investor for net proceeds of $28,125.

f)                On April 3, 2008, we entered an agreement toissue 22,222 shares of common stock to investors for net proceeds of $50,000.

g)             On April 18, 2008, we entered an agreement toissue 7,778 shares of common stock to an investor for net proceeds of $17,500.

h)             On May 27, 2008, we entered an agreement to issue22,222 shares of common stock to an investor for net proceeds of $50,000.

i)                 On June 26, 2008, we entered an agreement toissue 22,222 shares of common stock to an investor for net proceeds of $50,000.

j)                 On July 9, 2008, we entered an agreement to issue35,555 shares of common stock to an investor for net proceeds of $80,000.

k)              On September 26, 2008, we entered an agreement toissue 4,445 shares of common stock to an investor for net proceeds of $10,000.

l)                 On December 3, 2008, we entered an agreement toissue 6,666 shares of common stock and warrants to purchase 1,667 shares of ourcommon stock to investors for net proceeds of $15,000.

m)           On December 8, 2008, we entered an agreement toissue 4,444 shares of common stock and warrants to purchase 1,111 shares of ourcommon stock to investors for net proceeds of $10,000.

n)             On March 14, 2009, we entered into an agreementto issue 5,622 shares of common stock to an investor for net proceeds of$10,650.

o)             On March 30, 2009, we entered into an agreementto issue 4,444 shares of common stock to an investor for net proceeds of$10,000.

 

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

 

Our continued operations will depend on whether we areable to raise additional funds through various potential sources, such asequity and debt financing, collaborative and licensing agreements, strategicalliances, and our ability to realize the full potential of our technology indevelopment. Such additional funds may not become available on acceptableterms, if at all, and there can be no assurance that any additional fundingthat we do obtain will be sufficient to meet our needs in the long term.Through March 30, 2010, virtually all of our financing has been throughprivate placements of common stock and warrants. We intend to continue to fundoperations from cash on-hand and through the similar sources of capitalpreviously described for the foreseeable future. We can give no assurances thatany additional capital that we are able to obtain will be sufficient to meetour needs. We believe that we will continue to incur net losses and negativecash flows from operating activities for the next two years. Based on theresources available to us on March 30, 2010, we cannot sustain thepresent burn rate for one year and will need additional equity or debtfinancing to continue through 2010. We may need additional financingthereafter.

 

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**Off-Balance Sheet Arrangements**

 

We do not have anyoff-balance sheet arrangements.

 

**Inflation**

 

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

 

**Critical Accounting Policies**

 

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

 

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

 

**Accounting for Stock-BasedCompensation**

 

We account for our stock options and warrants usingthe fair value method promulgated by Accounting Standards Codification Subtopic718-10 Compensation (ASC 718-10) which addresses the accounting fortransactions in which an entity exchanges its equity instruments for goods orservices. Therefore, our results include non-cash compensation expense as aresult of the issuance of stock options and warrants and we expect to recordadditional non-cash compensation expense in the future.

 

**ITEM 7A. QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

N/A

 

**ITEM 8. FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA.**

 

All financial information required by this Item isattached hereto at the end of this report beginning on page F-1 and ishereby incorporated by reference.

 

**ITEM 9. CHANGES IN AND DISAGREEMENTSWITH 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 

 

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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, 2009.  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, 2009, 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 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, 2009, there has been no change in our internal control over financial reporting  (as defined in Rule 13a-15(f) and 15d-15(f) under the 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, EXECUTIVEOFFICERS AND CORPORATE GOVERNANCE**

 

**EXECUTIVE OFFICERS, DIRECTORS AND KEYEMPLOYEES**

 

The following table sets forth the names and ages ofthe members of our Board of Directors and our executive officers and thepositions held by each as of December 31, 2009. There are no familyrelationships among any of our Directors and Executive Officers except forSimon Chin and his sister, Grace Osborne.

 

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| **Name**                     | ** ** | **Age** | ** ** | **Position**                                                                           |
|------------------------------|------------|---------|------------|----------------------------------------------------------------------------------------|
| Simon S. M. Chin, MBA        |       | 50      |       | President, Chief Executive Officer, Chief Financial  Officer and Chairman of the Board |
| Ronald Mark Gemberling, M.D. |       | 62      |       | Chief Medical Officer                                                                  |
| James LeBlanc, MBA           |       | 63      |       | Vice President, Operations                                                             |
| Ralph M. Sinibaldi, Ph.D.    |       | 62      |       | Vice President, Product Development                                                    |
| Grace Osborne, MBA           |       | 42      |       | Vice President, Business Development &  Human Resources and Director          |
| Daniel Farnum, M.D.          |       | 65      |       | Director                                                                               |

 

**Executive Biographies**

 

**Simon Chin**, President, Chief Executive Officer,Chief Financial Officer and Director - Mr. Chin, the Founder, has servedas our President, 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.  Mr. Chin’s technological and managementexpertise qualifies him to serve as a director of our company.

 

**Ronald Mark Gemberling**, Chief Medical Officer - Dr. Gemberlinghas been our Chief Medical Officer since April 2004. In addition, Dr. Gemberlinghas had a medical practice in California for over thirty years. Dr. Gemberlingobtained a B.A. in bacteriology at the University of California, Los Angeles in1969 and completed his medical studies there in 1973. Dr. Gemberlingreceived his general surgery training at the UCLA-VA Affiliated Hospitals wherehe finished as Chief Resident in 1978. Dr. Gemberling then spent a year asa clinical research Burn Fellow at the LA County-USC Medical Center Burn Unitbefore entering his training in plastic and reconstructive surgery at theUniversity of Michigan and Chief Residency at the University of Louisville.

 

**James LeBlanc,** Vice President, Operations — Mr. LeBlanchas been serving as our Operations Consultant since March 2006 and becameour Vice President, Operations in 2009. He has more than thirty yearsof experience in U.S. and international management in quality assurance,manufacturing, materials, supply chain management, global distribution,regulatory compliance, product integrity and process engineering. . Prior toIris BioTechnologies, Mr. LeBlanc has held various senior managementpositions in companies such as Packeteer, Inc. and Northrop GrummanMissions Systems. He has served on core management teams that implemented SixSigma, ISO 9000 and CMMI level 3 initiatives. Mr. LeBlanc has an MBA fromSanta Clara University (1977) and a B.S. in Industrial Technology from San JoseState University (1973).

 

**Ralph M. Sinibaldi,** Vice President, Product Development - Dr. Sinibaldihas been our Vice President of Product Development since July 2003. He waspreviously the 

 

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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 in1993.  Ms. Osborne’s managementexpertise qualifies her to serve as a director of our company.

 

**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.  Dr. Farnum’s medical andmanagement expertise qualifies him to serve as a director of our company.

 

**Director or Officer Involvementin Certain Legal Proceedings**

 

Our directors andexecutive officers were not involved in any legal proceedings as described inItem 401(f) of Regulation S-K in the past ten years.

 

**BoardLeadership Structure and Role in Risk Oversight**

 

Althoughwe have not adopted a formal policy on whether the Chairman and Chief ExecutiveOfficer positions should be separate or combined, we have traditionallydetermined that it is in our best interests and our shareholders to combinethese roles.  Simon Chin has served asour Chairman since February 1999. Due to our small size and early stage, we believe it is currently mosteffective to have the Chairman and Chief Executive Officer positions combined.

 

OurBoard of Directorsreceives and reviews periodic reports from management, auditors, legal counsel,and others, as considered appropriate regarding our company’s assessment ofrisks. Our Board of Directors focuses on the most significant risks facing ourcompany and our company’s general risk management strategy, and also ensurethat risks undertaken by us are consistent with the Board’s appetite for risk.While the Board oversees our company’s risk management, management isresponsible for day-to-day risk management processes. We believe this divisionof responsibilities is the most effective approach for addressing the risksfacing our company and that our Board leadership structure supports thisapproach.

 

**Compliance with Section 16(a) of theExchange Act**

 

Section 16(a) of the Securities Exchange Actof 1934 requires our officers and directors, and persons who own more than tenpercent of a registered class of our equity 

 

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securities, to file reports of ownership and changesin ownership with the Securities and Exchange Commission.  Officers, directors and greater than tenpercent stockholders are required by SEC regulation to furnish us with copiesof all Section 16(a) forms they file.Based on a review of the copies of such formsreceived, we believe that during 2009, all filing requirements applicable toour officers, directors and greater than ten percent beneficial owners werecomplied with, except that Simon Chin filed a Form 4 late twelve times,Grace Osborn filed a Form 4 late one time and Daniel Farnum filed a Form 4late one time..

 

**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 and stock options.

 

**Audit Committee**

 

We do not have aseparately designated standing audit committee.

 

**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 Annual Report and will be provided freeof charge upon request to: Secretary, Iris BioTechnologies, Inc., 5201Great America Parkway, Suite 320, Santa Clara, California 95054..

 

**ITEM 11. EXECUTIVE COMPENSATION.**

 

The following table sets forth all compensation earnedwith respect to our Chief Executive Officer for fiscal year 2009.  None of our other executive officers earnedany compensation in excess of $100,000 during fiscal year 2009. 

 

Summary CompensationTable

 
| **Name  & Principal   Position** | ** ** | **Option    Awards ($)** | ** ** | **Total    $** | ** ** |
|--------------------------------------|------------|--------------------------|------------|----------------|------------|
| Simon  Chin, CEO                     |       | 520,000                  | (1)        | 520,000        |       |

 

----

| (1) |   | Amount represents  aggregate grant date fair value in accordance with FASB ASC Topic 718 as  discussed in the Notes to our Financial Statements included elsewhere in this  annual report. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

**Employment Agreements with ExecutiveOfficers**

 

We have not entered intoany employment agreements with our executive officers.

 

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**OUTSTANDINGEQUITY AWARDS AT FISCAL YEAR END**

 

The following table sets forth with respect to grantsof options to purchase our common stock to the named executive officers as of December 31,2009.

 
| **Name**    | ** ** | **Number  of Securities Underlying Unexercised Options********#********Exercisable** | ** ** | **Option  Exercise  Price********$** | ** ** | **Option  Expiration  Date** | ** ** |
|-------------|------------|--------------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------------------------|------------|
| Simon  Chin |       | 400,000                                                                              |       | 0.15                                 |       | 6/18/14                      |       |

 

****DirectorCompensation****

 

The following table sets forth summary informationconcerning the total compensation paid to our non-employee directors in 2009for services to our company.

 
| **Name**      | ** ** | **Stock Awards********($)** | ** ** | **Total  ($)** | ** ** |
|---------------|------------|-----------------------------|------------|----------------|------------|
| Daniel Farnum |       | 11,000                      | (1)        | 11,000         |       |

 

----

| (1) |   | Amount represents  aggregate grant date fair value in accordance with FASB ASC Topic 718 as  discussed in the Notes to our Financial Statements included elsewhere in this  annual report. |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

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

 

**SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND MANAGEMENT**

 

The following table sets forth certain information, asof March 30, 2010 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)                                                   |       | 7,522,447                                          |       | 64.3                                                     |
| Ronald Mark Gemberling (4)                                       |       | 190,402                                            |       | 1.7                                                      |
| James LeBlanc (5)                                                |       | 210,000                                            |       | 1.8                                                      |
| Ralph M. Sinibaldi (6)                                           |       | 110,000                                            |       | *                                                        |
| Grace Osborne (7)                                                |       | 214,665                                            |       | 1.9                                                      |
| Daniel Farnum (8)                                                |       | 876,892                                            |       | 7.8                                                      |
| All Executive Officers and Directors as a Group (6  persons) (9) |       | 9,124,406                                          |       | 74.3                                                     |

 

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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. Applicable percentage ownership as of March 30, 2010 is based  upon 11,296,526 shares of common stock outstanding. |
| (3) | Includes options to purchase 400,000 shares of common  stock, which are currently vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (4) | Consists of options to purchase 190,402 shares of  common stock, which are currently vested, but does not include options to  purchase an aggregate of 77,294 shares of common stock.                                                                                                                                                                                                                                                                                                                                                                                                  |
| (5) | Includes options to purchase 110,000 shares of  common stock, which are currently vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| (6) | Consistsof options to purchase 110,000 shares of  common stock, which are currently vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (7) | Includes 36,665 shares owned by her spouse and  options to purchase 129,875 shares of common stock, which are currently  vested.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (8) | Includes 42,000 shares owned by his spouse, 210,000  shares co-owned with his spouse and includes options to purchase 6,875 shares  of common stock, which are currently vested, and warrants to purchase 27,806  shares of common stock.                                                                                                                                                                                                                                                                                                                                              |
| (9) | Includes options to purchase 947,152 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, 2009, Mr. Chinadvanced an aggregate of $102,400 in 12 separate fundings and we had repaid Mr. Chinan aggregate of $34,900. We do not pay any interest on the money loaned to usby Mr. 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 

 

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regulatory filings or engagements for the fiscal yearsended December 31, 2009 and 2008 were $41,000 and $42,000, respectively.

 

**Audit-RelatedFees**

 

The aggregate fees billedby our principal accountant for assurance and advisory services that wererelated to the performance of the audit or review of our financial statementsfor the fiscal years ended December 31, 2009 and 2008 were $33,000 and$33,500, respectively.

 

**All Other Fees**

 

The aggregate fees billedfor products and services provided by our principal accountant for the fiscalyears ended December 31, 2009 and 2008 were $6,000 and $6,000,respectively.

 

**Policy on Audit Committee Pre-Approval of Audit andPermissible Non-Audit Services of Independent Auditors**

** **

Wecurrently do not have a designated Audit Committee, and accordingly, our Boardof Directors’ 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 our Board of Directors regarding the extent of servicesprovided by the independent auditors in accordance with this pre-approval, andthe fees for the services performed to date. The Board of Directors may alsopre-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 (incorporated by reference to  Exhibit 10.2 to Registrant’s Form 10-K filed on March 31,  2009).                                               |
| 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 with Section 13 or 15(d) ofthe Exchange Act, the registrant caused this report to be signed on its behalfby the undersigned, thereunto duly authorized.

 
|                      | IRIS BIOTECHNOLOGIES INC.                                                                                                                                               |
|---------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |                                                                                                                                                                    |
|                      | /s/ Simon Chin                                                                                                                                                          |
|  March 31, 2010 | Simon Chin                                                                                                                                                              |
|                      | President, Chief Executive Officer, Chief Financial

Officer and Director (Principal Executive Officer,

Principal Accounting Officer and

Principal Financial Officer) |

 

In accordance with the Exchange Act, this report hasbeen signed below by the following persons on behalf of the registrant and inthe capacities and on the dates indicated.

 

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

Financial Officer and Director (Principal |       | March 31, 2010 |
| Simon Chin          |       | Executive Officer, Principal Accounting

Officer and Principal Financial Officer)    |       |                |
|                |       |                                                                                 |       |                |
| /s/ Grace Osborne   |       | Vice President, Business Development and                                             |       | March 31, 2010 |
| Grace Osborne       |       | Director                                                                             |       |                |
|                |       |                                                                                 |       |                |
| /s/ Daniel Farnum   |       | Director                                                                             |       | March 31, 2010 |
| Daniel Farnum, M.D. |       |                                                                                 |       |                |

 

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****IRIS BIOTECHNOLOGIES, INC.****

 

****INDEX TO FINANCIAL STATEMENTS****

 
| **** ****                                                                                                                                                     | **** **** | ****Page**** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------|--------------|
| Report  of Independent Registered Public Accounting Firm                                                                                                           |           | F-2          |
|                                                                                                                                                               |           |         |
| Balance Sheets as of  December 31, 2009 and 2008                                                                                                              |           | F-3          |
|                                                                                                                                                               |           |         |
| Statements of Losses  for the years ended December 31, 2009 and 2008 and the period  February 16, 1999 (date of inception) to December 31, 2009     |           | F-4          |
|                                                                                                                                                               |           |         |
| Statement of Stockholders’ Equity (Deficit) for the  period February 16, 1999 (date of inception) to December 31, 2009                              |           | F-5-F-11     |
|                                                                                                                                                               |           |         |
| Statements  of Cash Flows for the years ended December 31, 2009 and 2008 and the  period February 16, 1999 (date of inception) to December 31, 2009 |           | F-12         |
|                                                                                                                                                               |           |         |
| Notes to Financial Statements                                                                                                                                      |           | F-13-F-29    |

 

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**RBSM LLP**

**CERTIFIED PUBLIC ACCOUNTANTS**

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Boardof Directors

IrisBioTechnologies Inc.

SantaClara, California

 

Wehave audited the accompanying balance sheets of**Iris BioTechnologies Inc.** as of December 31,2009 and 2008, and the related statements of losses, deficiency instockholder’s equity and cash flows for each of the two years in the periodended December 31, 2009 and the period February 16, 1999 (date ofinception) through December 31, 2009 for the year then ended. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

Wehave conducted our audits in accordance with auditing standards of the PublicCompany Accounting Oversight Board (United States of America). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. The Companyis not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting. Our audits included consideration ofinternal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinion. An auditincludes examining on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe ouraudits provide 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, 2009 and 2008 and the results of itsoperations and its cash flows for the each of the two years in the period endedDecember 31, 2009 and the period February 16, 1999 (date ofinception) through December 31, 2009 in conformity with accountingprinciples generally accepted in the United States of America.

 

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

 

**New York, New York**

**March 30, 2010**

 

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**BALANCE SHEETS**

**DECEMBER31, 2009 AND 2008**

 
| ** **                                                                                                                                                               | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ASSETS                                                                                                                                                                   |       |       |       |       |       |
| Current  assets:                                                                                                                                                         |       |       |       |       |       |
| Cash                                                                                                                                                                     |       | $          | 442        |       | $          | 990 |   |
| Total  current assets                                                                                                                                                    |       | 442        |       | 990        |       |
|                                                                                                                                                                     |       |       |       |       |       |
| Property,  plant and equipment, net of accumulated depreciation of $183,130 and $165,334  as of December 31, 2009 and 2008, respectively                            |       | 48,888     |       | 59,382     |       |
|                                                                                                                                                                     |       |       |       |       |       |
| Total  assets                                                                                                                                                            |       | $          | 49,330     |       | $          | 60,372 |   |
|                                                                                                                                                                     |       |       |       |       |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)                                                                                                                     |       |       |       |       |       |
| Current  liabilities:                                                                                                                                                    |       |       |       |       |       |
| Accounts  payable and accrued liabilities                                                                                                                                |       | $          | 78,452     |       | $          | 10,131 |   |
| Notes  payable, related party                                                                                                                                            |       | 98,500     |       | 26,000     |       |
| Total  current liabilities                                                                                                                                               |       | 176,952    |       | 36,131     |       |
|                                                                                                                                                                     |       |       |       |       |       |
| Long  term debt:                                                                                                                                                         |       |       |       |       |       |
| Notes  payable, related party                                                                                                                                            |       | 53,000     |       | —     |       |
|                                                                                                                                                                     |       |       |       |       |       |
| STOCKHOLDERS’  EQUITY (DEFICIT)                                                                                                                                     |       |       |       |       |       |
| Preferred  stock, no par value; 5,000,000 shares authorized; no shares issued and  outstanding as of December 31, 2009 and 2008                                     |       | —     |       | —     |       |
| Common  stock, no par value; 20,000,000 shares authorized; 11,230,526 and 10,932,541  shares issued and outstanding as of December 31, 2009 and 2008,  respectively |       | 5,028,781  |       | 4,822,092  |       |
| Additional  paid in capital                                                                                                                                              |       | 1,949,838  |       | 1,277,363  |       |
| Common  stock subscription receivable                                                                                                                                    |       | (108,750   | )          | —     |       |
| Deferred  compensation                                                                                                                                                   |       | —     |       | (119,364   | )          |
| Deficit  accumulated during development stage                                                                                                                            |       | (7,050,491 | )          | (5,955,850 | )          |
| Total  stockholders’ equity (deficit)                                                                                                                               |       | (180,622   | )          | 24,241     |       |
|                                                                                                                                                                     |       |       |       |       |       |
| Total  liabilities and stockholders’ equity (deficit)                                                                                                               |       | $          | 49,330     |       | $          | 60,372 |   |

 

 The accompanying notes are an integral part ofthese financial statements

 

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**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**STATEMENTS OF LOSSES**

 
| ** **                                                                    | ** ** | **For the year ended December 31,** | ** ** | **For the period from  February 16, 1999 (date  of inception) through** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------|------------|------------------------------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **2009**                                 | ** ** | **2008**                                                                     | ** ** | **December 31, 2009** | ** ** |
| Operating  expenses:                                                          |       |                                     |       |                                                                         |       |   |   |
| Selling,  general and administrative                                          |       | $                                        | 1,044,437  |                                                                         | $          | 692,176 |   | $ | 3,662,623 |   |
| Research  and development (Note 1)                                            |       | 31,867                                   |       | 179,787                                                                      |       | 1,377,538 |   |
| Impairment  of intellectual property                                          |       | —                                   |       | —                                                                       |       | 1,838,250 |   |
| Depreciation                                                                  |       | 17,470                                   |       | 14,148                                                                       |       | 182,804 |   |
| Total  operating expenses                                                     |       | 1,093,774                                |       | 886,111                                                                      |       | 7,061,215 |   |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Net  loss from operations                                                     |       | (1,093,774                               | )          | (886,111                                                                     | )          | (7,061,215 | ) |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Other  income (expense)                                                       |       |                                     |       |                                                                         |       |   |   |
| Interest  income (expense)                                                    |       | (867                                     | )          | 2,581                                                                        |       | 10,724 |   |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Net  loss before provision for income taxes                                   |       | (1,094,641                               | )          | (883,530                                                                     | )          | (7,050,491 | ) |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Income  taxes                                                                 |       | —                                   |       | —                                                                       |       | — |   |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Net  Loss                                                                     |       | $                                        | (1,094,641 | )                                                                            | $          | (883,530 | ) | $ | (7,050,491 | ) |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Loss  per common share-basic and fully diluted                                |       | $                                        | (0.10      | )                                                                            | $          | (0.08 | ) | $ | (0.73 | ) |
|                                                                          |       |                                     |       |                                                                         |       |   |   |
| Weighted  average number of common shares outstanding-basic and fully diluted |       | 11,122,470                               |       | 10,829,525                                                                   |       | 9,598,102 |   |

 

 The accompanying notes are an integral part ofthese financial statements

 

F-4

----

Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OFSTOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**
| ** **                                                                                          | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | ** **               | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|----------------------|------------|----------------|------------|------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                                                          | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit  accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                                          | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**         | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                          | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in  Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**   | ** ** | **Total**  | ** ** |
| Common stock issued in February 1999 in  exchange for intellectual property at $0.25 per share |       | —                |       | $                  | —     |           | 7,200,000  |             | $          | 1,800,000            |       | $              | —     |             | $          | —                   |       | $          | —     |   | $ | — |   | $ | 1,800,000 |   |
| Common stock issued in March 1999 in exchange  for services rendered at $0.25 per share        |       | —                |       | —             |       | 120,000        |       | 30,000           |       | —               |       | —         |       | —           |       | —                   |       | 30,000     |       |
| Sale of common stock in March 1999 at $0.25  per share                                         |       | —                |       | —             |       | 220,000        |       | 55,000           |       | —               |       | —         |       | —           |       | —                   |       | 55,000     |       |
| Fair value of options issued in March 1999 in  exchange for services rendered                  |       | —                |       | —             |       | —         |       | —           |       | 9,240                |       | —         |       | —           |       | —                   |       | 9,240      |       |
| Common stock issued in April 1999 in exchange  for services rendered at $0.25 per share        |       | —                |       | —             |       | 33,000         |       | 8,250            |       | —               |       | —         |       | —           |       | —                   |       | 8,250      |       |
| Sale of common stock in April 1999 at $0.25  per share                                         |       | —                |       | —             |       | 107,000        |       | 26,750           |       | —               |       | —         |       | —           |       | —                   |       | 26,750     |       |
| Exercise of options in April  1999 at $0.25  per share                                         |       | —                |       | —             |       | 50,000         |       | 12,500           |       | —               |       | —         |       | —           |       | —                   |       | 12,500     |       |
| Sale of common stock in August 1999 at $0.25  per share                                        |       | —                |       | —             |       | 50,000         |       | 25,000           |       | —               |       | —         |       | —           |       | —                   |       | 25,000     |       |
| Fair value of options issued in September 1999  in exchange for services rendered              |       | —                |       | —             |       | —         |       | —           |       | 16,612               |       | —         |       | —           |       | —                   |       | 16,612     |       |
| Sale of common stock in November 1999 at $0.25  per share                                      |       | —                |       | —             |       | 50,000         |       | 12,500           |       | —               |       | —         |       | —           |       | —                   |       | 12,500     |       |
| Exercise of options in November 1999 at $0.50  per share                                       |       | —                |       | —             |       | 50,000         |       | 25,000           |       | —               |       | —         |       | —           |       | —                   |       | 25,000     |       |
| Net loss                                                                                            |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | —           |       | (2,087,103               | )          | (2,087,103 | )          |
| Balance at December 31, 1999                                                                   |       | —                |       | $                  | —     |           | 7,880,000  |             | $          | 1,995,000            |       | $              | 25,852     |             | $          | —                   |       | $          | —     |   | $ | (2,087,103 | ) | $ | (66,251 | ) |

 

The accompanying notes are an integral part of these financialstatements

 

F-5

----

Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**
|                                                                                           |       |                  |       |               |       |           |       |             |       |                 |       |           |       |             |       |                     |       |       |       |
|------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|----------------------|------------|----------------|------------|------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                                                     | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit  accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                                     | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**         | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                     | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in  Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**   | ** ** | **Total**  | ** ** |
| Balance forward                                                                                |       | —                |       | $                  | —     |           | 7,880,000  |             | $          | 1,995,000            |       | $              | 25,852     |             | $          | —                   |       | $          | —     |   | $ | (2,087,103 | ) | $ | (66,251 | ) |
| Sale of common stock in June 2000 at $0.50 per  share                                     |       | —                |       | —             |       | 100,000        |       | 50,000           |       | —               |       | —         |       | —           |       | —                   |       | 50,000     |       |
| Sale of common stock in July 2000 at $0.50 per  share                                     |       | —                |       | —             |       | 250,000        |       | 125,000          |       | —               |       | —         |       | —           |       | —                   |       | 125,000    |       |
| Sale of common stock in August 2000 at $0.50  per share                                   |       | —                |       | —             |       | 164,000        |       | 82,000           |       | —               |       | —         |       | —           |       | —                   |       | 82,000     |       |
| Common stock issued in August 2000 at $0.50  per share in exchange for services rendered  |       | —                |       | —             |       | 20,000         |       | 10,000           |       | —               |       | —         |       | —           |       | —                   |       | 10,000     |       |
| Sale of common stock in September 2000 at  $0.50 per share                                |       | —                |       | —             |       | 250,000        |       | 125,000          |       | —               |       | —         |       | —           |       | —                   |       | 125,000    |       |
| Sale of common stock in November 2000 at $0.50  per share                                 |       | —                |       | —             |       | 100,000        |       | 50,000           |       | —               |       | —         |       | —           |       | —                   |       | 50,000     |       |
| Net loss                                                                                       |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | —           |       | (378,039                 | )          | (378,039   | )          |
| Balance at December 31, 2000                                                              |       | —                |       | —             |       | 8,764,000      |       | 2,437,000        |       | 25,852               |       | —         |       | —           |       | (2,465,142               | )          | (2,290     | )          |
| Fair value of options issued in January 2000  in exchange for services rendered           |       | —                |       | —             |       | —         |       | —           |       | 57,852               |       | —         |       | —           |       | —                   |       | 57,852     |       |
| Sale of common stock in January 2001 at $0.50  per share                                  |       | —                |       | —             |       | 244,000        |       | 122,000          |       | —               |       | —         |       | —           |       |                     |       | 122,000    |       |
| Net loss                                                                                       |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | —           |       | (266,224                 | )          | (266,224   | )          |
| Balance at December 31, 2001                                                              |       | —                |       | —             |       | 9,008,000      |       | 2,559,000        |       | 83,704               |       | —         |       | —           |       | (2,731,366               | )          | (88,662    | )          |
| Common stock issued in January 2002 at $0.50  per share in exchange for services rendered |       | —                |       | —             |       | 20,000         |       | 10,000           |       | —               |       | —         |       | —           |       | —                   |       | 10,000     |       |
| Sale of common stock in March 2002 at $0.50  per share                                    |       | —                |       | —             |       | 50,000         |       | 25,000           |       | —               |       | —         |       | —           |       | —                   |       | 25,000     |       |
| Sale of common stock in April 2002 at $0.50  per share                                    |       | —                |       | —             |       | 200,000        |       | 100,000          |       | —               |       | —         |       | —           |       | —                   |       | 100,000    |       |
| Fair value of options issued in May 2002 in  exchange for services rendered               |       | —                |       | —             |       | —         |       | —           |       | 17,892               |       | —         |       | —           |       | —                   |       | 17,892     |       |
| Sale of common stock in May 2002 at $0.50 per  share                                      |       | —                |       | —             |       | 60,000         |       | 30,000           |       | —               |       | —         |       | —           |       | —                   |       | 30,000     |       |
| Sale of common stock in July 2002 at $0.50 per  share                                     |       | —                |       | —             |       | 80,000         |       | 40,000           |       | —               |       | —         |       | —           |       | —                   |       | 40,000     |       |
| Sale of common stock in August 2002 at $0.50  per share                                   |       | —                |       | —             |       | 55,400         |       | 27,700           |       | —               |       | —         |       | —           |       | —                   |       | 27,700     |       |
| Sale of common stock in September 2002 at  $0.50 per share                                |       | —                |       | —             |       | 50,000         |       | 25,000           |       | —               |       | —         |       | —           |       | —                   |       | 25,000     |       |
| Sale of common stock in October 2002 at $0.50  per share                                  |       | —                |       | —             |       | 50,000         |       | 25,000           |       | —               |       | —         |       | —           |       | —                   |       | 25,000     |       |
| Sale of common stock in November 2002 at $0.50  per share                                 |       | —                |       | —             |       | 144,000        |       | 72,000           |       | —               |       | —         |       | —           |       | —                   |       | 72,000     |       |
| Net loss                                                                                       |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | —           |       | (184,721                 | )          | (184,721   | )          |
| Balance at December 31, 2002                                                              |       | —                |       | $                  | —     |           | 9,717,400  |             | $          | 2,913,700            |       | $              | 101,596    |             | $          | —                   |       | $          | —     |   | $ | (2,916,087 | ) | $ | 99,209 |   |

 

The accompanying notes are an integral part of these financialstatements

 

F-6

----

Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

** STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**

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

 

The accompanying notes are an integral part of these financialstatements

 

F-7

----

Table ofContents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

** STATEMENT OFSTOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**

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

 

The accompanying notes are an integral part of these financialstatements

 

F-8

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Table of Contents

 

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**

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

 

The accompanying notes are an integral part of these financialstatements

 

F-9

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****Tableof Contents****

**** ****

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | ** **               | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|----------------------|------------|----------------|------------|------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit  accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                                       | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**         | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                       | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in  Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**   | ** ** | **Total**  | ** ** |
| Balance forward                                                                                  |       | —                |       | $                  | —     |           | 10,831,209 |             | $          | 4,603,692            |       | $              | 1,222,347  |             | $          | —                   |       | $          | (161,063   | ) | $ | (5,072,320 | ) | $ | 592,656 |   |
| Fair value of vested options issued in exchange for  services rendered                           |       | —                |       | —             |       | —         |       | —           |       | 55,016               |       | —         |       | —           |       | —                   |       | 55,016     |       |
| Sale of common stock in June 2008 at $2.25 per  share                                       |       | —                |       | —             |       | 22,222         |       | 50,000           |       | —               |       | —         |       | —           |       | —                   |       | 50,000     |       |
| Common stock issued in July 2008 at $2.25 per  share in exchange for services rendered      |       | —                |       | —             |       | 8,000          |       | 18,000           |       | —               |       | —         |       | —           |       | —                   |       | 18,000     |       |
| Sale of common stock in July 2008 at $2.25 per  share                                       |       | —                |       | —             |       | 35,555         |       | 80,000           |       | —               |       | —         |       | —           |       | —                   |       | 80,000     |       |
| Common stock issued in September 2008 at $2.00  per share in exchange for services rendered |       | —                |       | —             |       | 4,000          |       | 8,000            |       | —               |       | —         |       | —           |       | —                   |       | 8,000      |       |
| Sale of common stock in September 2008 at  $2.25 per share                                  |       | —                |       | —             |       | 4,445          |       | 10,000           |       | —               |       | —         |       | —           |       | —                   |       | 10,000     |       |
| Common stock issued in October 2008 at $1.35  per share in exchange for services rendered   |       | —                |       | —             |       | 4,000          |       | 5,400            |       | —               |       | —         |       | —           |       | —                   |       | 5,400      |       |
| Common stock issued in November 2008 at $1.95  per share in exchange for services rendered  |       | —                |       | —             |       | 8,000          |       | 15,600           |       | —               |       | —         |       | —           |       | —                   |       | 15,600     |       |
| Sale of common stock in December 2008 at $2.25  per share                                   |       | —                |       | —             |       | 11,110         |       | 25,000           |       |                 |       | —         |       |             |       |                     |       | 25,000     |       |
| Common stock issued in December 2008 at $1.60  per share in exchange for services rendered  |       | —                |       | —             |       | 4,000          |       | 6,400            |       | —               |       | —         |       | —           |       | —                   |       | 6,400      |       |
| Amortization of deferred compensation                                                            |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | 41,699           |       | —                   |       | 41,699     |       |
| Net Loss                                                                                         |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | —           |       | (883,530                 | )          | (883,530   | )          |
| Balance, December 31, 2008                                                                  |       | —                |       | $                  | —     |           | 10,932,541 |             | $          | 4,822,092            |       | $              | 1,277,363  |             | $          | —                   |       | $          | (119,364   | ) | $ | (5,955,850 | ) | $ | 24,241 |   |

 

The accompanying notes are an integral part of these financialstatements

 

F-10

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****Table of Contents****

**** ****

**IRIS BIOTECHNOLOGIES, INC**

**(a development stage company)**

**STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)**

**FROM FEBRUARY 16, 1999 (DATE OF INCEPTION) THROUGHDECEMBER 31, 2009**
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | ** **               | ** ** | ** ** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------|------------|----------------|------------|------------------|------------|----------------------|------------|----------------|------------|------------------|------------|--------------------------|------------|------------|------------|
| ** **                                                                                       | ** ** | ** **            | ** ** | ** **         | ** ** | ** **     | ** ** | ** **       | ** ** | ** **           | ** ** | ** **     | ** ** | ** **       | ** ** | **Deficit  accumulated** | ** ** | ** ** | ** ** |
| ** **                                                                                       | ** ** | **Preferred  shares** | ** ** | **Common  shares** | ** ** | **Additional** | ** ** | **Subscription** | ** ** | **Deferred**         | ** ** | **during**     | ** ** | ** **       | ** ** |
| ** **                                                                                       | ** ** | **Stock**             | ** ** | **Amount**         | ** ** | **Stock**      | ** ** | **Amount**       | ** ** | **Paid in  Capital** | ** ** | **Receivable** | ** ** | **Compensation** | ** ** | **Development  stage**   | ** ** | **Total**  | ** ** |
| Balance forward                                                                                  |       | —                |       | $                  | —     |           | 10,932,541 |             | $          | 4,822,092            |       | $              | 1,277,363  |             | $          | —                   |       | $          | (119,364   | ) | $ | (5,955,850 | ) | $ | 24,241 |   |
| Common stock issued in March 2009 at $1.03 per  share in exchange for services rendered     |       | —                |       | —             |       | 18,667         |       | 19,227           |       | —               |       | —         |       | —           |       | —                   |       | 19,227     |       |
| Sale of common stock in March 2009 at $2.25  per share                                      |       | —                |       | —             |       | 10,066         |       | 22,650           |       | —               |       | —         |       | —           |       | —                   |       | 22,650     |       |
| Fair value of vested options for services rendered                                               |       | —                |       | —             |       | —         |       | —           |       | 739,839              |       | —         |       | —           |       | —                   |       | 739,839    |       |
| Cancelled outstanding non vested warrants for  services                                          |       | —                |       | —             |       | —         |       | —           |       | (119,364             | )          | —         |       | 119,364          |       | —                   |       | —     |       |
| Fair value of warrants issued for services rendered                                              |       | —                |       | —             |       | —         |       | —           |       | 52,000               |       | —         |       | —           |       | —                   |       | 52,000     |       |
| Common stock issued in April 2009 at $1.39 per  share in exchange for services rendered     |       | —                |       | —             |       | 6,154          |       | 8,554            |       | —               |       | —         |       | —           |       | —                   |       | 8,554      |       |
| Common stock issued in April 2009 for options  exercised                                    |       | —                |       | —             |       | 176,250        |       | 108,750          |       | —               |       | (108,750       | )          | —           |       | —                   |       | —     |       |
| Common stock issued in May 2009 at $1.30 per  share in exchange for services rendered       |       | —                |       | —             |       | 6,154          |       | 8,000            |       | —               |       | —         |       | —           |       | —                   |       | 8,000      |       |
| Common stock issued in May 2009 for options  exercised                                      |       | —                |       | —             |       | 20,000         |       | 5,000            |       | —               |       | —         |       | —           |       | —                   |       | 5,000      |       |
| Common stock issued in June 2009 at $1.30 per  share in exchange for services rendered      |       | —                |       | —             |       | 7,273          |       | 9,455            |       | —               |       | —         |       | —           |       | —                   |       | 9,455      |       |
| Common stock issued in July 2009 at $0.46 per  share in exchange for services rendered      |       | —                |       | —             |       | 8,421          |       | 3,873            |       | —               |       | —         |       | —           |       | —                   |       | 3,873      |       |
| Common stock issued in August 2009 at $1.00  per share in exchange for services rendered    |       | —                |       | —             |       | 8,000          |       | 8,000            |       | —               |       | —         |       | —           |       | —                   |       | 8,000      |       |
| Common stock issued in September 2009 at $0.21  per share in exchange for services rendered |       | —                |       | —             |       | 8,000          |       | 1,680            |       | —               |       | —         |       | —           |       | —                   |       | 1,680      |       |
| Common stock issued in October 2009 at $0.38  per share in exchange for services rendered   |       | —                |       | —             |       | 13,000         |       | 4,940            |       | —               |       | —         |       | —           |       | —                   |       | 4,940      |       |
| Common stock issued in December 2009 at $0.41  per share in exchange for services rendered  |       | —                |       | —             |       | 16,000         |       | 6,560            |       | —               |       | —         |       | —           |       | —                   |       | 6,560      |       |
| Net Loss                                                                                         |       | —                |       | —             |       | —         |       | —           |       | —               |       | —         |       | —           |       | (1,094,641               | )          | (1,094,641 | )          |
| Balance, December 31, 2009                                                                  |       | —                |       | $                  | —     |           | 11,230,526 |             | $          | 5,028,781            |       | $              | 1,949,838  |             | $          | (108,750                 | )          | $          | —     |   | $ | (7,050,491 | ) | $ | (180,622 | ) |

 

The accompanying notes are an integral part of these financialstatements

 

F-11

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Table of Contents

 

**IRISBIOTECHNOLOGIES, INC**

**(adevelopment stage company)**

**STATEMENTS OF CASH FLOWS**

 
| ** **                                                                 | ** ** | **For the year ended December 31,** | ** ** | **For the period from  February 16, 1999 (date of   inception) through** | ** ** |
|----------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                                 | ** ** | **2009**                            | ** ** | **2008**                                                                      | ** ** | **December 31, 2009** | ** ** |
| CASH  FLOWS FROM OPERATING ACTIVITIES:                                     |       |                                |       |                                                                          |       |   |   |
| Net  loss                                                                  |       | $                                   | (1,094,641 | )                                                                             | $          | (883,530 | ) | $ | (7,050,491 | ) |
| Adjustments  to reconcile net loss to cash (used in) operating activities: |       |                                |       |                                                                          |       |   |   |
| Depreciation                                                               |       | 17,470                              |       | 14,148                                                                        |       | 182,804 |   |
| Amortization  of deferred compensation                                     |       | —                              |       | 41,699                                                                        |       | 46,926 |   |
| Common  stock issued in exchange for services rendered                     |       | 70,289                              |       | 103,400                                                                       |       | 264,939 |   |
| Impairment  of intellectual property                                       |       | —                              |       | —                                                                        |       | 1,800,000 |   |
| Options  and warrants issued in exchange for services rendered             |       | 791,839                             |       | 55,016                                                                        |       | 1,902,912 |   |
| Increase  (decrease) in:                                                   |       |                                |       |                                                                          |       |   |   |
| Accounts  payable and accrued liabilities                                  |       | 68,321                              |       | (26,760                                                                       | )          | 68,350 |   |
| Net  cash (used in) operating activities:                                  |       | (146,722                            | )          | (696,027                                                                      | )          | (2,784,560 | ) |
|                                                                       |       |                                |       |                                                                          |       |   |   |
| CASH  FLOWS FROM INVESTING ACTIVITIES:                                     |       |                                |       |                                                                          |       |   |   |
| Acquisition  of property, plant and equipment                              |       | (6,976                              | )          | (19,226                                                                       | )          | (221,591 | ) |
| Net  cash (used in) investing activities:                                  |       | (6,976                              | )          | (19,226                                                                       | )          | (221,591 | ) |
|                                                                       |       |                                |       |                                                                          |       |   |   |
| CASH  FLOWS FROM FINANCING ACTIVITIES:                                     |       |                                |       |                                                                          |       |   |   |
| Sale  of common stock                                                      |       | 22,650                              |       | 510,626                                                                       |       | 2,812,593 |   |
| Exercise  of common stock options                                          |       | 5,000                               |       | —                                                                        |       | 42,500 |   |
| Net  proceeds, related party notes payable                                 |       | 125,500                             |       | 26,000                                                                        |       | 151,500 |   |
| Net  cash provided by financing activities                                 |       | 153,150                             |       | 536,626                                                                       |       | 3,006,593 |   |
|                                                                       |       |                                |       |                                                                          |       |   |   |
| (Decrease)  increase in cash and cash equivalents                          |       | (548                                | )          | (178,627                                                                      | )          | 442 |   |
| Cash  and cash equivalents beginning of period                             |       | 990                                 |       | 179,617                                                                       |       | — |   |
| Cash  and cash equivalents end of period                                   |       | $                                   | 442        |                                                                          | $          | 990 |   | $ | 442 |   |
|                                                                       |       |                                |       |                                                                          |       |   |   |
| Supplemental  disclosures of cash flow information:                        |       |                                |       |                                                                          |       |   |   |
| Cash  paid during the period for interest                                  |       | $                                   | —     |                                                                          | $          | — |   | $ | 277 |   |
| Cash  paid during the period for taxes                                     |       | $                                   | —     |                                                                          | $          | — |   | $ | — |   |
| Non  cash investing and financing activities:                              |       |                                |       |                                                                          |       |   |   |
| Common  stock issued in exchange for intellectual property                 |       | $                                   | —     |                                                                          | $          | — |   | $ | 1,800,000 |   |

 

The accompanyingnotes are an integral part of these financial statements

 

F-12

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

****NOTES TO THE FINANCIALSTATEMENTS****

****DECEMBER 31, 2009 AND 2008****

 

****NOTE 1 - SUMMARYOF SIGNIFICANT 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 Accounting Standards Codification subtopic 915-10 Development StageEntities and its efforts are principally devoted to developing solutions forthe detection and monitoring of monogenic and complex genomic diseases. TheCompany has not generated any revenue to date and consequently its operationsare subject to all risks inherent in the establishment of a new businessenterprise. For the period from inception through December 31, 2009, theCompany has accumulated losses of $7,050,491.

 

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.

 

Expenditures for repairand maintenance which do not materially extend the useful lives of property andequipment are charged to operations.  When property or equipment is soldor otherwise disposed of, the cost and related accumulated depreciation areremoved from the respective accounts with the resulting gain or loss reflectedin operations.  Management periodically reviews the carrying value of itsproperty and equipment for impairment

 

Long-Lived Assets

 

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

 

F-13

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

**** ****

****NOTE 1 - SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)****

 

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.

 

Income Taxes

 

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

 

Net Income (loss) PerCommon Share

 

The Company computesearnings per share under Accounting Standards Codification subtopic 260-10,Earnings Per Share (“ASC 260-10”). Net loss per common share is computed bydividing net loss by the weighted average number of shares of common stock anddilutive common stock equivalents outstanding during the year. Dilutivecommon stock equivalents consist of shares issuable and the exercise of theCompany’s stock options and warrants (calculated using the treasury stockmethod). For the year ended December 31, 2009 and 2008 common stockequivalents derived from shares issuable in the exercise of options andwarrants are not considered in the calculation of the weighted averagenumber of common shares outstanding because they would be anti-dilutive,thereby decreasing the net loss per share.

 

Reclassifications

 

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

 

F-14

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

****NOTE 1 - SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)****

 

Research and Development

 

The Company accounts forresearch and development costs in accordance with the Accounting StandardsCodification subtopic 730-10, Research and Development (“ASC 730-10”). UnderASC 730-10, all research and development costs must be charged to expense asincurred. Accordingly, internal research and development costs are expensed asincurred. Third-party research and developments costs are expensed when thecontracted work has been performed or as milestone results have been achieved.Company-sponsored research and development costs related to both present andfuture products are expensed in the period incurred. The Company incurredresearch and development expenditures of $31,867 and $179,787 for the yearsended December 31, 2009 and 2008, respectively; and $1,377,538 from theperiod from February 16, 1999 (date of inception) to December 31,2009. The Company primarily uses stock or stock option for compensation, andkey R&D equipment expenses were incurred in the second half of 2008.

 

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 31,2009 and 2008.

 

Dependencyon key management

 

Thefuture success or failure of the Company is dependent primarily upon thecontinued efforts and financial support of Simon Chin, the Company’s ChiefExecutive Officer, Chief Financial Officer and the majority sharehold**e**r****(see Note 10). He has agreed tofund the deficit for December 31, 2010 which currently is estimated at$100,000.

 

Fair Value of FinancialInstruments

 

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

 

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

 

F-15

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

****NOTE 1 - SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)****

 

Stock Based Compensation

 

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

 

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

 

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

 

For the year ended December 31,2009, the Company granted 480,000 employee options to purchase the Company’scommon stock at $0.13 - $0.15 per share over five - ten years, vestingimmediately and 105,000 non-employee options to purchase the Company’s commonstock at $1.40 per share over ten years, vesting in three years. The fair valueof the vested portion was charged to current period operations.

 

F-16

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

****NOTE 1 - SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)****

 

Recent AccountingPronouncements

 

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

 

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

 

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

 

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

 

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

****NOTE 1 - SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES (continued)****

 

Recent AccountingPronouncements (continued)

 

Effective April 1,2009, the Company adopted FASB ASC 855-10, *SubsequentEvents — Overall*(“ASC 855-10”). ASC 855-10 establishes generalstandards of accounting for and disclosure of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued. It requires the disclosure of the date through which anentity has evaluated subsequent events and the basis for that date — that is,whether that date represents the date the financial statements were issued orwere available to be issued. This disclosure should alert all users offinancial statements that an entity has not evaluated subsequent events afterthat date in the set of financial statements being presented. Adoption of ASC855-10 did not have a material impact on the Company’s results of operations orfinancial condition. The Company has evaluated subsequent events through March 30,2010, the date the financial statements were available to be issued.

 

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

 

EffectiveJuly 1, 2009, the Company adopted FASB 107-1 (ASU No. 825) whichamends FASB 107, *Disclosures about Fair Value of FinancialInstruments*(SFAS 107) to require entities to disclose, among otherthings, the methods and significant assumptions used to estimate the fair valueof financial instruments in both interim and annual financial statements.  This FSP also amends APB Opinion No. 28,*Interim Financial Reporting*(Opinion 28)to require those disclosures in summarized financial information at interimreporting periods. Adoptionof FASB 107-1 did not have a material impact on the Company’s results ofoperations or financial condition.

 

F-18

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Table of Contents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

 

**NOTE 2 -PROPERTY, PLANT, AND EQUIPMENT**

 

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

 
| ** **                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Computer  equipment             |       | $        | 61,201     |     | $          | 61,201 |   |
| Office  equipment               |       | 1,728    |       | 1,728    |       |
| Furniture  and fixtures         |       | 3,586    |       | 3,586    |       |
| Manufacturing  equipment        |       | 165,503  |       | 158,201  |       |
|                            |       | 232,018  |       | 224,716  |       |
| Less:  accumulated depreciation |       | (183,130 | )          | (165,334 | )          |
|                            |       | $        | 48,888     |     | $          | 59,382 |   |

 

During the years ended December 31,2009 and 2008, depreciation expense charged to operations was $17,470 and$14,148, respectively.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 3 —RELATED PARTY TRANSACTIONS**

 

The Company’s Presidentand shareholders have advanced funds to the Company for working capitalpurposes since the Company’s inception in February 1999.  No formalrepayment terms or arrangements exist. The net amount outstanding at December 31,2009 and 2008 was $98,500 and $26,000, respectively.

 

**NOTE 4 —LONG TERM DEBT**

 

Long term debt at December 31,2009 and 2008:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Notes  payable, related party  |       | $        | 38,000     |     | $          | — |   |
| Note  payable, unrelated party |       | 15,000   |       |     |       |
|                                |            |          |            |          |            |  |  |

 

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

 

On October 9, 2009,the Company issued a $5,000 note to an unrelated party, unsecured and bearingan interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of$2.25 per share.

 

On December 23,2009, the Company issued a $10,000 note to an unrelated party, unsecured andbearing an interest rate of 7.5% per annum, due five years from date ofissuance.  The note is convertible into the Company’s common stock at aconversion rate of $2.25 per share.

 

**NOTE 5 —STOCKHOLDER EQUITY**

 

Preferred stock

 

The Company is authorizedto issue 5,000,000 shares of no par preferred stock. From date of inceptionthrough December 31, 2009, the Company has not issued any preferredshares.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 5 —STOCKHOLDER EQUITY (continued)**

 

Common stock

 

The Company is authorizedto issue 20,000,000 shares of no par value common stock. As of December 31,2009 the Company has 11,230,526 shares of common stock issued andoutstanding.

 

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

 

In February 1999,the Company issued 7,200,000 shares of common stock in exchange forintellectual property 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.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 5 —STOCKHOLDER EQUITY (continued)**

 

Common stock (continued)

 

During the year ended December 31,2009, the Company issued 91,669 shares of common stock for services in theamount of $70,289. All valuations of common stock issued for services werebased upon the fair value of the Company’s common stock during the period theservices were rendered.

 

**NOTE 6 —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 31,2009:

 
| **Exercise Price** | ** ** | **Number  Outstanding** | ** ** | **Warrants Outstanding  Weighted Average  Remaining Contractual  Life (years)** | ** ** | **Weighted  Average  Exercise price** | ** ** | **Number  Exercisable** | ** ** | **Warrants Exercisable  Weighted  Average  Exercise Price** | ** ** |
|-------------------------|------------|-------------------------|------------|-----------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------|------------|-----------------------------------------------------------------------|------------|
| $                       |  0.13 |                    | 40,000     |                                                                                                | 4.47       |                                       | $          | 0.13                    |       | 40,000                                                                |       | $ | 0.13 |   |
| $                       |  2.00 |                    | 31,400     |                                                                                                | 1.70       |                                       | $          | 2.00                    |       | 31,400                                                                |       | $ | 2.00 |   |
| $                       |  2.25 |                    | 23,629     |                                                                                                | 3.14       |                                       | $          | 2.25                    |       | 23,629                                                                |       | $ | 2.25 |   |
|                    |       | 95,029                  |       |                                                                                                |       |                                       |       | 95,029                  |       |                                                                  |       |

 

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

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

 

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

 

During the year ended December 31,2009, in connection with the sale of the Company’s common stock; the Companyissued an aggregate of 2,517 warrants to purchase the Company’s common stock ata exercise price of $2.25 per share for five years.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 6 —WARRANTS AND OPTIONS (continued)**

 

Warrants

 

During the year ended December 31,2009, 81,666 non-vested warrants previously issued in connection with serviceswere returned and canceled. The balance unamortized fair value of the warrantof $119,364 recognized as contra equity which was transferred to Additionalpaid in capital during the current year.

 

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

 

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

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

 

----

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

 

Options

 

Employee Options

 

The following tablesummarizes the changes in options outstanding and the related prices for theshares of the Company’s common stock issued to employees under a stock optionplan at December 31, 2009:

 
| ** **               | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                         | ** ** |
|--------------------------|------------|------------------------------|------------|----------------------------------------------------------------------|------------|
| **Exercise  Prices (S)** | ** ** | **Number  Outstanding**      | ** ** | **Weighted Average  Remaining  Contractual Life  (Years)** | ** ** | **Weighted  Average  Exercise  Price (S)** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $                        |  0.13 |                         | 80,000     |                                                                 | 9.47       |   | $ | 0.13 |   | 80,000 |   | $ | 0.13 |   |
| 0.15                     |       | 400,000                      |       | 4.47                                                                 |       | 0.15 |   | 400,000 |   | 0.15 |   |
| 0.50                     |       | 91,000                       |       | 1.17                                                                 |       | 0.50 |   | 91,000 |   | 0.50 |   |
| 1.00                     |       | 950,750                      |       | 5.26                                                                 |       | 1.00 |   | 911,688 |   | 1.00 |   |
| 2.25                     |       | 167,696                      |       | 8.40                                                                 |       | 2.25 |   | 66,380 |   | 2.25 |   |
|                     |       | 1,689,446                    |       |                                                                 |       | 0.85 |   | 1,549,068 |   | 0.76 |   |
|                          |            |                              |            |                                                                      |            |  |  |  |  |  |  |  |  |  |

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 6 —WARRANTS AND OPTIONS (continued)**

 

Employee Options(continued)

 

Transactions involvingemployee stock options issued are summarized as follows:

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

 

During the year ended December 31,2008, the Company granted 167,696 employee stock options with an exercise priceof $2.25 vesting over four years and expiring ten years from issuance. The fair value of the vested portion (determined as described below) of $94,314and $55,016 was charged during the year ended December 31, 2009 and 2008,respectively.

 

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

 

For year ended December 31,2008:

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

 

----

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

 

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

 

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

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 6 —WARRANTS AND OPTIONS (continued)**

 

Employee Options(continued)

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

 

----

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

 

Non employee options

 

The following tablesummarizes the changes in options outstanding and the related prices for theshares of the Company’s common stock issued to non employees under a stockoption plan at December 31, 2009:

 
| ** **           | ** ** | **Options Outstanding** | ** ** | **Options Exercisable**                                         | ** ** |
|----------------------|------------|------------------------------|------------|----------------------------------------------------------------------|------------|
| **Exercise  Prices** | ** ** | **Number  Outstanding**      | ** ** | **Weighted Average  Remaining  Contractual Life  (Years)** | ** ** | **Weighted  Average  Exercise  Price** | ** ** | **Number  Exercisable** | ** ** | **Weighted  Average  Exercise  Price** | ** ** |
| $                    | 0.50       |                         | 160,000    |                                                                 | 1.34       |   | $ | 0.50 |   | 160,000 |   | $ | 0.50 |   |
| 1.00                 |       | 110,000                      |       | 6.20                                                                 |       | 1.00 |   | 110,000 |   | 1.00 |   |
| 1.40                 |       | 105,000                      |       | 9.24                                                                 |       | 1.40 |   | 26,250 |   | 1.40 |   |
|                 |       | 375,000                      |       |                                                                 |       | 0.90 |   | 296,250 |   | 0.77 |   |
|                      |            |                              |            |                                                                      |            |  |  |  |  |  |  |  |  |  |

 

Transactions involvingnon employee stock options issued are summarized as follows:

 
| ** **                              | ** ** | **Number of Shares** | ** ** | **Weighted Average  Price Per Share** | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|------------------------------------------------------|------------|
| Outstanding  at December 31, 2007: |       | 410,000                        |       | $                                                    | 0.60       |   |
| Granted                                 |       | —                         |       | —                                               |       |
| Exercised                               |       | —                         |       | —                                               |       |
| Canceled  or expired                    |       | —                         |       | —                                               |       |
| Outstanding  at December 31, 2008  |       | 410,000                        |       | $                                                    | 0.60       |   |
| Granted                                 |       | 105,000                        |       | 1.40                                                 |       |
| Exercised                               |       | (20,000                        | )          | (0.25                                                | )          |
| Canceled  or expired                    |       | (120,000                       | )          | (0.38                                                | )          |
| Outstanding  at December 31, 2009: |       | 375,000                        |       | $                                                    | 0.90       |   |

 

During the year ended December 31,2009, the Company granted 105,000 non employee stock options with an exerciseprice of $1.40 vesting over three years and expiring ten years fromissuance.  The fair value of the vested portion (determined as describedbelow) of $21,525 was charged to current period earnings.

 

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****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

**NOTE 6 —WARRANTS AND OPTIONS (continued)**

 

Nonemployee options (continued)

 

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

 
| **Significant assumptions :** |   |           |   |
|-----------------------------------------|--------|----------------|--------|
| Risk-free  interest rate at grant date  |   | 3.31%-3.85     | %      |
| Expected  stock price volatility        |   | 452.13%-509.93 | %      |
| Expected  dividend payout               |   | —         |   |
| Expected  option life-years (a)         |   | 9.24-9.74      |   |

 

----

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

 

****NOTE 7 - LOSSESPER SHARE****

 

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

 
| ** **                                        | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|
| Net  income loss available to Common stockholders |       | $          | (1,094,641 | )          | $          | (883,530 | ) |
| Basic  and diluted earning (loss) per share       |       | $          | (0.10      | )          | $          | (0.08 | ) |
| Weighted  average common shares outstanding       |       | 11,122,470 |       | 10,829,525 |       |

 

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 8 - INCOMETAXES****

 

ASC 740-10 requires therecognition of deferred tax liabilities and assets for the expected future taxconsequences of events that have been included in the financial statement ortax returns. Under this method, deferred tax liabilities and assets are determinedbased on the difference between financial statements and tax bases of assetsand liabilities using enacted tax rates in effect for the year in which thedifferences are expected to reverse. Temporary differences between taxableincome reported for financial reporting purposes and income tax purposes areinsignificant.

 

For income tax reportingpurposes, the Company’s aggregate unused net operating losses approximate$7,000,000 which expires through 2029, subject to limitations of Section 382of the Internal Revenue Code, as amended. The deferred tax asset related to thecarry forward is approximately $2,450,000. 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.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009 AND 2008****

 

****NOTE 9 - INCOMETAXES (continued)****

 

Components of deferredtax assets as of December 31, 2009 are as follows:

 
| Noncurrent:                       |   |       |      |
|-----------------------------------|--------|------------|-----------|
| Net  operating loss carry forward |   | $          | 2,450,000 |   |
| Valuation  allowance              |   | (2,450,000 | )         |
| Net  deferred tax asset           |   | $          | —    |   |

 

****NOTE 10 - COMMITMENTSAND CONTINGENCIES****

 

Lease Commitments

 

TheCompany currently has two facilities in California. Our headquarters is inSanta Clara, our laboratory is in San Leandro, and our informatics office is inEureka.

 

Future minimum lease andrelated payments are as follows:

 
| 2010            |   | $   | 18,882 |   |
|-----------------|--------|-----|--------|--------|
| 2011            |   | -0- |   |
| 2012            |   | -0- |   |
| 2013  and after |   | -0- |   |

 

TheCompany’s main office is located at 5201 Great America Parkway, Suite 320,Santa Clara, California. The lease had a term of 12 months, which began on August 1,2009 and expires on July 31, 2010.  We currently pay rent and relatedcosts of approximately $300.00 per month.

 

Additionally,the Company leases our laboratory, which is located at 1933 Davis Street, Suite 280,San Leandro, California 95054. The lease has a term of 12 months, which beganon January 1, 2009 and expires on December 31, 2010. We currently payrent and related costs of approximately $1,457.00 per month.

 

Employment and ConsultingAgreements

 

The Company agreed tocompensate its two board members at a rate of 50,000 shares of the Company’scommon stock per year.

 

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Table ofContents

 

****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009AND 2008****

 

**NOTE 11- FAIR VALUE OF FINANCIAL INSTRUMENTS**

 

ASC 825-10 defines fairvalue as the price that would be received from selling an asset or paid totransfer a liability in an orderly transaction between market participants atthe measurement date. When determining the fair value measurements for assetsand liabilities required or permitted to be recorded at fair value, the Companyconsiders the principal or most advantageous market in which it would transactand considers assumptions that market participants would use when pricing theasset or liability, such as inherent risk, transfer restrictions, and risk ofnonperformance. ASC 825-10 establishes a fair value hierarchy that requires anentity to maximize the use of observable inputs and minimize the use ofunobservable inputs when measuring fair value. ASC 825-10 establishes threelevels of inputs that may be used to measure fair value:

 

Level1 - Quoted prices in active markets for identical assets or liabilities.

 

Level2 - Observable inputs other than Level 1 prices such as quoted prices forsimilar assets or liabilities; quoted prices in markets with insufficientvolume or infrequent transactions (less active markets); or model-derived valuationsin which all significant inputs are observable or can be derived principallyfrom or corroborated by observable market data for substantially the full termof the assets or liabilities.

 

Level3 - Unobservable inputs to the valuation methodology that are significant tothe measurement of fair value of assets or liabilities.

 

To the extent thatvaluation is based on models or inputs that are less observable or unobservablein the market, the determination of fair value requires more judgment. In certaincases, the inputs used to measure fair value may fall into different levels ofthe fair value hierarchy. In such cases, for disclosure purposes, the level inthe fair value hierarchy within which the fair value measurement is disclosedis determined based on the lowest level input that is significant to the fairvalue measurement.

 

The company doesn’t haveany items recorded or measured at fair value on a recurring basis as of December 31,2009.

 

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****IRIS BIOTECHNOLOGIES INC.****

****(A development stage company)****

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

****DECEMBER 31, 2009AND 2008****

 

**NOTE 12 -SUBSEQUENT EVENTS**

 

In themonth of January 2010, the Company issued an aggregate of 33,000 shares ofits common stock for services rendered and accrued in year 2009 and issued along term convertible note payable for $10,000 due five years from the date ofissuance at 7.5% interest per annum. The note is convertible at $2.25 per shareof common stock.

 

In the month of February 2010,the Company issued an aggregate of 8,000 shares of its common stock forservices rendered.

 

In the month of March 2010,the Company issued an aggregate of 25,000 shares of its common stock inexchange for cash of $25,000.

 

Subsequent events havebeen evaluated through March 30, 2010, the date that the financialstatements were issued.

 

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