FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 2006
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to _____________
COMMISSION FILE NUMBER: 033-05384
IR BIOSCIENCES HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-3301899
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4021 N. 75th Street, Suite 201, Scottsdale, Arizona 85251
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (480) 922-3926
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months or for such shorter period that the Registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of Registrant's common stock as of August 4,
2006 was 69,624,851.
IR BIOSCIENCES HOLDINGS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet as of
June 30, 2006 (unaudited) ..................................F-1
Condensed Consolidated Statement of Losses for the
three and six months ended June 30, 2006 and 2005,
and for the period of inception (October 30, 2002)
to June 30, 2006 (unaudited) ................................F-2
Condensed Consolidated Statement of Stockholders'
Equity (Deficit)from date of inception (October
30, 2002) to June 30, 2006 (unaudited) ...............F-3 to F-6
Condensed Consolidated Statements of Cash Flows for
the six months ended June 30, 2006 and 2005, and for
the period of inception (October 30, 2002) to
June 30, 2006 (unaudited) ...........................F-7 to F-8
Notes to Condensed Consolidated Financial
Statements (Unaudited) ..............................F-9 to F-17
Item 2. Management's Discussion and Analysis of Financial
Condition or Plan of Operation ...................................3
Item 3. Controls and Procedures .........................................11
PART II OTHER INFORMATION
Item 1. Legal Proceedings ...............................................12
Item 2. Unregistered Sale of Equity Securities
and Use of Proceeds ..........................................12
Item 3. Defaults Upon Senior Securities .................................13
Item 4. Submission of Matters to a Vote of Securities Holders ...........13
Item 5. Other Information................................................14
Item 6. Exhibits.........................................................15
Signatures....................................................16
2
ITEM 1. FINANCIAL INFORMATION
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Balance Sheet as of June 30, 2006
(Unaudited)
June 30,
2006
------------
Assets
Current assets
Cash and cash equivalents $ 23,663
Prepaid services and other current assets (note 1) 17,370
------------
Total current assets 41,033
Deposits and other assets (note 1) 2,260
Furniture and equipment, net of
accumulated depreciation of $7,744 16,819
------------
Total assets $ 60,112
============
Liabilities and Deficiency in Stockholders' Equity
Current liabilities
Accounts payable and accrued liabilities (note 3) $ 779,795
Cash advance (note 4) 70,000
Note payable (note 5) 509,750
Warrant portion of penalty for late registration
of shares - with registration rights (note 6) 258,986
Common stock portion of penalty for late registration
of shares (note 6) 1,245,240
------------
Total current liabilities 2,863,771
Commitments and Contingencies
Deficiency in Stockholders' Equity
Preferred stock, 0.001 par value:
10,000,000 shares authorized,
no shares issued and outstanding -
Common stock, $0.001 par value; 100,000,000 shares
authorized; 69,624,851 shares issued and outstanding
at June 30, 2006 (note 7) 69,622
Additional paid-in capital (note 7) 9,546,403
Deficit Accumulated during the Development Stage (12,419,684)
------------
Total deficiency in stockholder's equity (2,803,659)
------------
Total liabilities and deficiency in stockholder's equity $ 60,112
============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-1
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statements of Losses
For the three months and six months
ended June 30, 2006 and 2005,
And for the period of inception
(October 30, 2002) to June 30, 2006
(Unaudited)
For the For the
Three Three Cumulative from
Months Months For the Six For the Six Inception (October
Ended June Ended June Months Ended Months Ended 30, 2002) to
30, 2006 30, 2005 June 30, 2006 June 30, 2005 June 30, 2006
------------ ------------ ------------ ------------ ------------
Revenues $ -- $ -- $ -- $ -- $ --
Operating expenses:
Selling, general and
administrative expenses 601,972 593,835 1,163,116 1,432,355 9,287,417
Merger fees and costs -- -- -- -- 350,000
Financing cost -- 1,493,256 -- 1,493,256 90,000
Impairment of intangible
asset costs -- -- -- -- 6,393
------------ ------------ ------------ ------------ ------------
Total operating expenses 601,972 2,087,091 1,163,116 2,925,611 9,733,810
Operating loss (601,972) (2,087,091) (1,163,116) (2,925,611) (9,733,810)
Other expense:
Cost of penalty for late
registration of shares (994,574) -- (438,601) -- 2,192,160
(Gain) loss from marketing to
market - warrant portion of
penalty for late registration
of shares (39,887) -- (46,755) -- (301,448)
(Gain) loss from marketing to
market - stock portion of
penalty for late registration
of shares (124,524) -- (72,101) -- (386,486)
Interest (income) expense 15,057 341 14,891 1,318 1,181,648
------------ ------------ ------------ ------------ ------------
Total other (income) expense (1,143,928) 341 (542,566) 1,318 2,685,874
Income (loss) before income taxes 541,956 (2,087,432) (620,550) (2,926,929) (12,419,684)
Provision for income taxes -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 541,956 $ (2,087,432) $ (620,550) $ (2,926,929) $(12,419,684)
============ ============ ============ ============ ============
Net income (loss) per share -
basic and diluted $ 0.01 $ (0.03) $ (0.01) $ (0.04) $ (0.29)
============ ============ ============ ============ ============
Weighted average shares outstanding
basic and diluted 69,632,567 69,039,111 69,554,432 65,968,335 43,073,567
============ ============ ============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-2
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to June 30, 2006
(Unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Balance at October 30, 2002 (date of inception) -- $ -- $ -- -- $ -- $ --
Shares of common stock issued at $0.0006
per share to founders for license of
proprietary right in December 2002 16,612,276 16,612 (7,362) -- -- 9,250
Shares of common stock issued at $0.0006 per
share to founders for services rendered in
December 2002 1,405,310 1,405 (623) -- -- 782
Shares of common stock issued at $0.1671 per
share to consultants for services rendered
in December 2002 53,878 54 8,946 (9,000) -- --
Sale of common stock for cash at $0.1671 per
share in December 2002 185,578 186 30,815 -- -- 31,001
Net loss for the period from inception
(October 30, 2002) to December 31, 2002 -- -- -- -- (45,918) (45,918)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2002 (reflective of
stock splits) 18,257,042 18,257 31,776 (9,000) (45,918) (4,885)
Shares granted to consultants at $0.1392 per
share for services rendered in January 2003 98,776 99 13,651 -- -- 13,750
Sale of shares of common stock for cash at
$0.1517 per share in January 2003 329,552 330 49,670 -- -- 50,000
Shares granted to consultants at $0.1392 per
share for services rendered in March 2003 154,450 154 21,346 -- -- 21,500
Conversion of notes payable to common stock
at $0.1392 per share in April 2003 1,436,736 1,437 198,563 -- -- 200,000
Shares granted to consultants at $0.1413 per
share for services rendered in April 2003 14,368 14 2,016 -- -- 2,030
Sale of shares of common stock for cash at
$0.2784 per share in May 2003 17,960 18 4,982 -- -- 5,000
Sales of shares of common stock for cash at
$0.2784 per share in June 2003 35,918 36 9,964 -- -- 10,000
Conversion of notes payable to common stock
at $0.1392 per share in June 2003 718,368 718 99,282 -- -- 100,000
Beneficial conversion feature associated with
notes issued in June 2003 -- -- 60,560 -- -- 60,560
Amortization of deferred compensation -- -- -- 9,000 -- 9,000
Costs of GPN Merger in July 2003 2,368,130 2,368 (123,168) -- -- (120,799)
Value of warrants issued with extended notes
payable in October 2003 -- -- 189,937 -- -- 189,937
Value of Company warrants issued in
conjunction with fourth quarter
notes payable issued October through
December 2003 -- -- 207,457 -- -- 207,457
Value of warrants contributed by founders
in conjunction with fourth quarter
notes payable issued October through
December 2003 -- -- 183,543 -- -- 183,543
Value of warrants issued for services in
October through December 2003 -- -- 85,861 -- -- 85,861
Net loss for the year ended
December 31, 2003 -- -- -- -- (1,856,702) (1,856,702)
----------- ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2003 23,431,300 $ 23,431 $ 1,035,441 -- $(1,902,620) $ (843,748)
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-3
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to June 30, 2006
(Unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Shares granted at $1.00 per share pursuant to
the Senior Note Agreement in January 2004 600,000 600 599,400 (600,000) -- --
Shares issued at $1.00 per share to a
consultant for services rendered in
January 2004 800,000 800 799,200 (800,000) -- --
Shares issued to a consultant at $0.62
per share for services rendered in
February 2004 40,000 40 24,760 (24,800) -- --
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 1,051,600 1,051 419,589 (420,640) -- --
Shares issued to a consultant at $0.50 per
share for services rendered in March 2004 500,000 500 249,500 (250,000) -- --
Shares sold for cash at $0.15 per share
in March, 2004 8,000 8 1,192 -- -- 1,200
Shares issued at $0.50 per share to
consultants for services rendered in
March 2004 20,000 20 9,980 -- -- 10,000
Shares issued to a consultant at $0.40 per
share for services rendered in March 2004 2,000 2 798 -- -- 800
Shares issued to consultants at $0.32 per
share for services rendered in March 2004 91,600 92 29,220 -- -- 29,312
Shares to be issued to consultant at $0.41 per
share in April 2004 for services to be
rendered through March 2005 -- -- -- (82,000) -- (82,000)
Shares granted pursuant to the New Senior Note
Agreement in April 2004 600,000 600 149,400 (150,000) -- --
Shares issued to officer at $0.32 per share for
services rendered in April 2004 200,000 200 63,800 -- -- 64,000
Conversion of note payable to common stock at
$0.10 per share in May 2004 350,000 350 34,650 -- -- 35,000
Beneficial Conversion Feature associated with
note payable in May 2004 -- -- 35,000 -- -- 35,000
Issuance of warrants to officers and founder
for services rendered in May 2004 -- -- 269,208 -- -- 269,208
Shares to a consultant at $0.20 per share as a
due diligence fee in May 2004 125,000 125 24,875 -- -- 25,000
Shares issued to a consultant at $1.00 per
share for services to be rendered over
twelve months beginning May 2004 500,000 500 499,500 (500,000) -- --
Beneficial Conversion Feature associated with
notes payable issued in June 2004 -- -- 3,000 -- -- 3,000
Issuance of warrants to note holders in April,
May, and June 2004 -- -- 17,915 -- -- 17,915
Issuance of warrants to employees and
consultants for services rendered in
April through June 2004 -- -- 8,318 -- -- 8,318
Shares issued in July to a consultant at
$0.10 for services to be rendered through
July 2005 250,000 250 24,750 (25,000) -- --
Shares issued to a consultant in July and
September at $0.41 per share for services
to be rendered through April 2005 200,000 200 81,800 -- -- 82,000
Shares issued to a consultant in September at
$0.12 to $0.22 for services rendered
through September 2004 127,276 127 16,782 -- -- 16,909
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-4
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to June 30, 2006
(Unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Shares issued in July to September 2004 as
interest on note payable 300,000 300 35,700 -- -- 36,000
Issuance of warrants with notes payable in
July and August 2004 -- -- 72,252 -- -- 72,252
Accrued deferred compensation in August 2004
to a consultant for 100,000 shares at $0.10
per share, committed but unissued -- -- -- (10,000) -- (10,000)
Shares issued in August 2004 at $0.14 to a
consultant for services to be performed
through October 2004 100,000 100 13,900 (14,000) -- --
Shares issued in August 2004 at $0.125 per
share for conversion of $30,000 demand loan 240,000 240 29,760 -- -- 30,000
Shares issued in August 2004 at $0.16 per
share to a consultant for services provided 125,000 125 19,875 -- -- 20,000
Shares issued in October 2004 to employees at
$0.16 to $0.25 per share 48,804 49 8,335 -- -- 8,384
Commitment to issue 100,000 shares of stock to
a consultant at $0.23 per share for services
to be provided through September 2005 -- -- -- (23,000) -- (23,000)
Sale of stock for cash in October at $0.125 per
share, net of costs of $298,155 18,160,000 18,160 1,345,763 -- -- 1,363,923
Value of warrants issued with sale of common
stock in October, net of costs -- -- 607,922 -- -- 607,922
Issuance of warrant to officer in October, 2004 -- -- 112,697 -- -- 112,697
Issuance of stock to investment bankers in
October 2004 for commissions earned 4,900,000 4,900 (4,900) -- -- --
Conversion of accounts payable to stock in
October at $0.125 per share 1,257,746 1,258 107,382 -- -- 108,640
Value of warrants issued with accounts
payable conversions -- -- 48,579 -- -- 48,579
Conversion of demand loan to stock in October
at $0.11 per share 93,300 93 10,170 -- -- 10,263
Forgiveness of notes payable in October 2004 -- -- 36,785 -- -- 36,785
Issuance of stock to officer and director at
$0.125 per share in October for conversion
of liability 1,440,000 1,440 122,493 -- -- 123,933
Value of warrants issued with officer and
director conversion of liabilities -- -- 56,067 -- -- 56,047
Conversion of debt and accrued interest to
common stock at $0.075 to $0.125 per share 6,703,151 6,703 417,514 -- -- 424,217
Value of warrants issued with conversion
of debt -- -- 191,111 -- -- 191,111
Conversion of note payable in October into
common stock at $0.075 per share 67,613 68 4,932 -- -- 5,000
Issuance of warrants to note holders in
October 2004 -- -- 112,562 -- -- 112,562
Value of shares issued to CFO as compensation 100,000 100 34,900 -- -- 35,000
Value of warrants issued to members of
advisory committees in November
and December -- -- 16,348 -- -- 16,348
Beneficial conversion feature associated with
notes payable -- -- 124,709 -- -- 124,709
Shares issued in error to be cancelled (9,002) (9) 9 -- -- --
Amortization of deferred compensation through
December 31, 2004 -- -- -- 2,729,454 -- 2,729,454
Loss for the year ended
December 31, 2004 -- -- -- -- (5,305,407) (5,305,407)
------------ ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2004 62,423,388 62,423 7,922,943 (169,986) (7,208,027) 607,353
------------ ----------- ----------- ------------ ----------- -----------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-5
IR Biosciences Holding, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity (Deficit)
From date of inception (October 30, 2002) to June 30, 2006
(Unaudited)
Common Stock Additional
------------------------ Paid-In Deferred Accumulated
Shares Amount Capital Compensation Deficit Total
----------- ----------- ----------- ------------ ----------- -----------
Sale of shares of common stock for cash at
$0.20 per share in Mar 2005 for warrant
exercise, net of costs 6,600,778 6,600 1,184,256 -- -- 1,190,856
Value of warrants issued to members
of advisory committees in March 2005 -- -- 137,049 -- -- 137,049
Deferred compensation in Feb 2005 to a
consultant for 50,000 shares of stock at
$0.65 per share. -- -- -- (32,500) -- (32,500)
Warrants exercised at $0.05 per share
in June 2003 80,000 80 3,920 -- -- 4,000
Value of warrants issued to members of
advisory committee in June 2005 -- -- 70,781 -- -- 70,781
Value of warrants issued to investors and
service providers in June 2005 -- -- 32,991 -- -- 32,991
Issuance of 232,153 shares of common
stock in July 2005 for conversion of
notes payable 232,153 232 64,771 -- -- 65,003
Issuance of 100,000 shares of common stock
in August 2005 to a consultant for
services provided 100,000 100 9,900 -- -- 10,000
Value of warrants issued to advisory
committee in September 2005 for services -- -- 20,491 -- -- 20,491
Amortization of deferred comp for the
twelve months ended December, 2005 -- -- -- 199,726 -- 199,726
Value of warrants issued in October
and December 2005 to investors and
service providers -- -- 18,399 -- -- 18,399
Loss for the year ended
December 31, 2005 -- -- -- -- (4,591,107) (4,591,107)
------------ ----------- ----------- ------------ ----------- -----------
Balance at December 31, 2005 69,436,319 69,435 9,465,501 (2,760) (11,799,134) (2,266,958)
------------ ----------- ----------- ------------ ----------- -----------
Issuance of 100,000 shares of common stock
in March 2006 to an officer,
previously accrued 100,000 100 41,316 -- -- 41,416
Value of warrants issued to advisory
committee in March 2006 for services -- -- 8,399 -- -- 8,399
Amortization of deferred comp for the
three months ended March 31, 2006 -- -- -- 2,760 -- 2,760
Loss for the three months ended
March 31, 2006 -- -- -- -- (1,162,506) (1,162,506)
------------ ----------- ----------- ------------ ----------- -----------
Balance at March 31, 2006 69,536,319 69,535 9,515,216 -- (12,961,640) (3,376,889)
------------ ----------- ----------- ------------ ----------- -----------
Issuance of common stock in May 2006
To a consultant for services provided 34,464 34 16,164 -- -- 16,198
Conversion of accrued interest to common
Stock at $0.125 per share in May 2006 19,288 19 2,392 -- -- 2,411
Conversion of accrued interest to common
Stock at $0.125 per share in May 2006 16,324 16 2,025 -- -- 2,041
Conversion of accrued interest to common
Stock at $0.10 per share in May 2006 13,456 13 1,342 -- -- 1,355
Common stock issued pursuant to the exercise
Of warrants at $0.09 per share in June 2006 5,000 5 445 -- -- 450
Value of warrants issued to members of
Advisory committee in June 2006 -- -- 8,819 -- -- 8,819
Income for three months ended June 30, 2006 -- -- -- -- 541,956 541,956
------------ ----------- ----------- ------------ ----------- -----------
Balance at June 30, 2006 69,624,851 69,622 9,546,403 -- (12,419,684) (2,803,659)
============ =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-6
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2006 and 2005,
and for the period of inception (October 30, 2002)
to June 30, 2006
(Unaudited)
Cumulative from
Inception
For the Six For the Six (October 30,
Months Ended Months Ended 2002) to June 30,
June 30, 2006 June 30, 2005 2006
---------------- --------------- -------------------
Cash flows from operating activities:
Net loss $ (620,550) $ (2,926,929) $ (12,419,684)
Adjustments to reconcile net loss to net
cash used in operating activities:
Non-cash compensation 45,926 426,279 3,966,779
Cost of penalty for late registration of shares -
stock portion (360,197) -- 1,631,726
Cost of penalty for late registration of shares -
warrant portion (78,404) -- 560,434
(Gain) loss from marking to market - stock portion
of penalty for late registration of shares (72,101) -- (386,486)
(Gain) loss from marking to market - warrant portion
of penalty for late registration of shares (46,755) -- (301,448)
Legal fees for note payable 10,125 -- 10,125
Placement fees for note payable 40,000 -- 40,000
Impairment of intangible asset -- -- 6,393
Interest expense -- 4,007 156,407
Amortization of discount on notes payable -- -- 1,006,935
Depreciation and amortization 3,882 1,202 33,100
Changes in operating assets and liabilities:
Prepaid services and other assets 17,137 (2,000) 20,371
Accounts payable and accrued expenses 324,890 1,489,453 980,843
----------------- ----------------- ------------------
Net cash used in operating activities (736,047) (1,007,988) (4,694,505)
Cash flows from investing activities:
Acquisition of property and equipment (16,475) -- (24,562)
----------------- ----------------- ------------------
Net cash used in investing activities (16,475) -- (24,562)
Cash flows from financing activities:
Proceeds from notes payable and cash advances 509,875 -- 1,743,375
Principal payments on notes payable and demand loans -- (14,997) (264,997)
Shares of stock sold for cash -- 1,190,857 3,259,902
Proceeds from exercise of warrant 450 4,000 4,450
Officer repayment of amounts paid on his behalf -- -- 19,880
Cash paid on behalf of officer -- -- (19,880)
----------------- ----------------- ------------------
Net cash provided by financing activities 510,325 1,179,860 4,742,730
Net increase (decrease) in cash and cash equivalents (242,197) 171,872 23,662
Cash and cash equivalents at beginning of period 265,860 970,114 --
----------------- ----------------- ------------------
Cash and cash equivalents at end of period $ 23,663 $ 1,141,986 $ 23,662
================= ================= ==================
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-7
IR BioSciences Holdings, Inc. and Subsidiary
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2006 and 2005,
and for the period of inception (October 30, 2002)
to June 30, 2006
(Unaudited)
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 438 $ 1,486 $ 43,991
============ ============ ============
Taxes $ -- $ -- $ --
============ ============ ============
Acquisition and capital restructure:
Assets acquired -- -- --
Liabilities assumed -- -- (120,799)
Common stock retained -- -- (2,369)
Adjustment to additional paid-in capital -- -- 123,168
Organization costs -- -- 350,000
------------ ------------ ------------
Total consideration paid $ -- $ -- $ 350,000
============ ============ ============
Common stock issued in exchange for proprietary rights $ -- $ -- $ 9,250
============ ============ ============
Common stock issued in exchange for services $ 16,198 $ -- $ 2,941,484
============ ============ ============
Common stock issued in exchange for previously incurred
debt and accrued interest $ 5,807 $ 65,003 $ 1,066,401
============ ============ ============
Common stock issued in exchange as interest $ -- $ -- $ 36,000
============ ============ ============
Amortization of beneficial conversion feature $ -- $ -- $ 223,269
============ ============ ============
Stock options and warrants issued in exchange for
services rendered $ -- $ 249,821 $ 772,381
============ ============ ============
Debt and accrued interest forgiveness from note holders $ -- $ -- $ 36,875
============ ============ ============
Common stock issued in satisfaction of amounts due
to an Officer and a Director $ -- $ -- $ 180,000
============ ============ ============
Common stock issued in satisfaction of accounts payable $ -- $ -- $ 157,219
============ ============ ============
Deferred compensation to a consultant accrued
in March 2005 $ -- $ -- $ 2,630,761
============ ============ ============
Amortization of deferred compensation $ 2,760 $ 171,624 $ 202,486
============ ============ ============
Fair Value of common stock and warrants payable in
connection with late filing of registration statement $ (994,574) $ 1,493,256 $ 1,636,187
============ ============ ============
Gaining from marking to market - stock portion of
penalty for late registration of shares $ (124,524) $ -- $ (442,909)
============ ============ ============
Gaining from marking to market - warrant portion of
penalty for late registration of shares $ (39,887) $ -- $ (294,580)
============ ============ ============
Impairment of intangible asset $ -- $ -- $ 6,393
============ ============ ============
Issuance of stock to Officer, previously accrued $ 41,416 $ -- $ 41,416
============ ============ ============
Value of warrants issued to members of advisory boards $ 17,219 $ -- $ 17,219
============ ============ ============
Consulting services received for note payable $ 9,750 $ -- $ 9,750
============ ============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
F-8
IR BIOSCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
General
-------
The accompanying unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-QSB, and therefore, do not include
all the information necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with accounting principles
generally accepted in the United States of America for a complete set of
financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results from operations for the three and six-month periods ended June 30, 2006
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2006. The unaudited condensed consolidated financial
statements should be read in conjunction with the December 31, 2005 financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB filed with the Securities and Exchange Commission on March 28, 2006 and
Form 10-KSB/A filed with the Securities and Exchange Commission on March 31,
2006.
Business and basis of presentation
----------------------------------
IR BioSciences Holdings, Inc. (the "Company," "we," or "us") formerly
GPN Network, Inc. ("GPN") is currently a development stage company under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 7. The
Company, which was incorporated under the laws of the State of Delaware on
October 30, 2002, is a biopharmaceutical company engaged in the research and
development of potential drugs through its wholly owned subsidiary, ImmuneRegen
BioSciences, Inc. Our goal is to develop therapeutics to be used for the
protection of the body from exposure to radiation and other harmful agents, such
as toxic chemicals and biological materials. Our current focus is on the
development of two potential applications, Radilex and Viprovex. We are
developing Radilex for use as a potential treatment for acute exposure to
radiation. Viprovex is being developed for use in potential treatments of
maladies caused by exposure to toxic chemicals, such as formalin, and biological
agents, such as anthrax and avian influenza. Our research and development
efforts are at a very early stage and Radilex and Viprovex have only undergone
pre-clinical testing in mice. From its inception through the date of these
financial statements, the Company has recognized no revenues and has incurred
significant operating expenses.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, ImmuneRegen BioSciences, Inc. Significant
intercompany transactions have been eliminated in consolidation.
Reclassification
----------------
Certain reclassifications have been made to conform to prior periods' data to
the current presentation. These reclassifications had no effect on reported
losses.
F-9
Stock based compensation
------------------------
Effective January 1, 2006, the Company adopted SFAS No. 123 (revised),
"Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R) we accounted for stock option grant in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees"
(the intrinsic value method), and accordingly, recognized compensation expense
for stock option grants.
Under the modified prospective approach, SFAS 123(R) applies to new awards and
to awards that were outstanding on January 1, 2006 that are subsequently
modified, repurchased or cancelled. Under the modified prospective approach,
compensation cost recognized in the first six months of fiscal 2006 includes
compensation cost for all share-based payments granted prior to, but not vested
as of January 1, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123, and compensation cost for
all share-based payments granted subsequent to January 1, 2006 based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). Prior periods were not restated to reflect the impact of adopting the
new standard.
As a result of adopting SFAS 123(R) on January 1, 2006, for the three and six
months ended June 30, 2006, there was no effect on our income before taxes and
net income as there were no stock options granted during this period, and there
were no outstanding but unvested options or grants at December 31, 2005.
Interim financial statements
----------------------------
The accompanying balance sheet as of June 30, 2006, the statements of operations
for the three and six months ended June 30, 2006 and 2005, and for the period of
inception (October 30, 2002) to June 30, 2006, and the statements of cash flows
for six months ended June 30, 2006 and 2005, and from the period of inception
(October 30, 2002) to June 30, 2006 are unaudited. These unaudited interim
financial statements include all adjustments (consisting of normal recurring
accruals), which, in the opinion of management, are necessary for a fair
presentation of the results of operations for the periods presented. Interim
results are not necessarily indicative of the results to be expected for a full
year.
Use of estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods. Actual results could materially differ from those
estimates.
F-10
Long-lived assets
-----------------
The Company accounts for its long-lived assets under the provision of Statements
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of." The Company's
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Events relating to recoverability may include significant
unfavorable changes in business conditions, recurring losses, or a forecasted
Inability to achieve break-even operating results over an extended period. The
Company evaluates the recoverability of long-lived assets based upon forecasted
undiscounted cash flows. Should an impairment in value be indicated, the
carrying value of intangible assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset.
Prepaid services and other current assets
-----------------------------------------
Prepaid services and other current assets at June 30, 2006 of $17,370 consist of
prepaid insurance in the amount of $9,507.
Deposits and other assets
-------------------------
Deposits and other assets at June 30, 2006 consist of a deposit on leased office
space in the amount of $2,260.
Furniture and equipment
-----------------------
Furniture and equipment are valued at cost. Depreciation and amortization are
provided over the estimated useful lives up to seven years using the
straight-line method. The estimated service lives of property and equipment are
as follows:
Computer equipment 3 years
Laboratory equipment 3 years
Furniture 7 years
The amounts depreciated for the three months ended June 30, 2006 and 2005 were
$1,941 and $568, respectively. The amounts depreciated for the six months ended
June 30, 2006 and 2005 were $3,882 and $738 respectively. The amount depreciated
from the date of inception (October 30, 2002) through June 30, 2006 was $7,744.
F-11
NOTE 2 - RELATED PARTY TRANSACTIONS
Consulting agreements
---------------------
In January 2006, the Company received correspondence from one of its founders
stating that he would terminate his consulting contract if his specific
requirements were not met. We subsequently accepted his termination effective
February 1, 2006. During the three months ended June 30, 2006, the Company
wrote-off the outstanding amount of $2,847 which had been accrued pursuant to
this consulting contract.
Cash Advance
------------
In March 2006, the Company received a cash advance from a Director in the amount
of $50,000. This advance bears interest at the rate of 12% per annum. During the
three months ended March 31, 2006 and three months ended June 30, 2006, the
Company accrued interest in the amount $164 and $1,660, respectively, on this
advance. The Company anticipates converting this advance to a note payable
during the quarter ending September 30, 2006.
NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
-------------------------------------------------
Accounts payable and accrued liabilities consisted of the following at June 30,
2006:
Accounts payable and accrued liabilities $ 721,230
Accounts payable - shell company 34,926
Interest payable 15,938
Insurance financing payable 4,501
State income tax payable 3,200
--------
$ 779,795
========
F-12
NOTE 4 - CASH ADVANCES
In March 2006, the Company received a cash advance from a Director in the amount
of $50,000. This advance bears interest at the rate of 12% per annum. During the
three months ended March 31, 2006 and three months ended June 30, 2006, the
Company accrued interest in the amount $164 and $1,660, respectively, on this
advance. The Company anticipates converting this advance to a note payable
during the quarter ending September 30, 2006.
In June of 2006, the Company received a cash advance from an individual
accredited investor in the amount of $20,000. This advance bears interest at the
rate of 12% per annum. During the three months ended June 30, 2006, the Company
accrued interest in the amount of $72 on this advance. The Company anticipates
converting this advance to a note payable during the quarter ending September
30, 2006.
NOTE 5 - NOTES PAYABLE
On April 13, 2006, the Company entered into an unsecured Senior
Promissory Note in the amount of $500,000 with an accredited
investor. Following the payment of commissions and expenses, the
Company received net proceeds of approximately $439,875. The
outstanding principal amount of the note, plus interest at the
rate of 12% per annum, is payable in cash on or before the
earlier of (i) April 12, 2007 or (ii) the date upon which the
Company sells any of its equity or debt securities in a financing
transaction, or a series of financings, with gross proceeds equal
to $1,000,000; provided, however, that a subsequent financing
transaction will not include (x) issuances of common stock to
employees, (y) the exercise of any options to purchase shares of
common stock that are outstanding as of the date hereof, or (z)
the grant, issuance or exercise of options or common stock under
the Company's stock, option, deferred stock and restricted stock
plan for the purpose of satisfying the Company's payables. In an
event of default, as defined in the note, the note shall become
immediately due and payable, and during the continuation of an
event of default, the Company must pay interest on the note in an
amount equal to 2% per month until the event of default is cured
or waived. During the three months ended June 30, 2006, the
Company accrued interest in the amount of $13,000 on this note. $500,000
In June 2006, the Company issued a note payable in the amount of
$9,750 in exchange for consulting services. This note bears
interest at the rate of 7% per annum. During the three months
ended June 30, 2006, the Company accrued interest in the amount
of $41 on this note. 9,750
Total notes payable as of June 30, 2006 (excluding interest) $509,750
--------
NOTE 6 - PENALTY FOR LATE REGISTRATION OF SHARES
During the three months ended March 31, 2006, the Company accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 shares of common stock pursuant to a penalty calculation with regard to
the late registration of shares sold in a private placement in October 2004.
During the three months ending June 30, 2006, the Company accrued no additional
shares of common stock or warrants pursuant to the penalty calculation pending
the conclusion of an agreement with the investors in the private placement of
October 2004 to limit the number of shares and warrants which the Company is
obligated to issue pursuant to the penalty calculation. The Company charged to
operations $456,588 and $105,339, respectively, during the three months ended
March 31, 2006 representing the fair value of these shares and warrants,
respectively. During the three months ended March 31, 2006, the Company also
marked to market the value of the 5,242,307 shares and warrants to purchase an
additional 2,064,187 shares which were outstanding at December 31, 2005. This
resulted in a charge to operations of $52,423 and a credit to operations of
$6,868 for these previously outstanding shares and warrants, respectively. At
March 31, 2006, the Company had obligations to issue an aggregate of 6,625,907
shares and warrants to purchase an additional 2,608,987 shares, respectively,
and had charged to operations the amount of $555,973 for the cost of issuance of
shares and warrants. The Company also charged to operations the amount of
$52,423 as a loss from marking to market the outstanding stock portion of the
penalty, and recognized a gain in the amount of $6,868 representing marking to
market the outstanding warrant portion of the penalty.
In August 2006, the Company reached an agreement with the investors in the
private placement of October 2004 which limits the number of warrants and shares
which the Company is obligated to issue pursuant to the penalty calculation to
an aggregate of 18% of the number of original shares and warrants issued in the
F-13
October 2004 private placement. This agreement limits the number of shares and
warrants issuable pursuant to the penalty calculation to an aggregate of
4,150,800 shares and warrants to purchase an additional 1,634,400 shares,
respectively. This results in a decrease in the number of shares issuable of
2,475,107 (with a fair value of $816,785) and a decrease in the number of
warrant shares issuable of 974,587 (with a fair value of $177,789). This results
in a net realized gain of $994,574 during the three months ended June 30, 2006.
During the three months ended June 30, 2006, the Company also marked to market
the value of the previously issued penalty shares and warrants, which resulted
in realized gains of $72,101 and $46,755, respectively.
On July 10, 2006 the Company, pursuant to Rule 477 of Regulation C of the
Securities Act of 1933, as amended, applied for an order granting the immediate
withdrawal of its Registration Statement on Form SB-2. The registration
statement was originally filed with the Securities and Exchange Commission on
November 24, 2004, and amended by pre-effective amendments no. 1, 2, 3 and 4 on
July 20, 2005, November 16, 2005, February 22, 2006 and April 7, 2006,
respectively.
NOTE 7 - EQUITY
Common stock
------------
In March 2006, the Company issued 100,000 shares of common stock to its Chief
Financial Officer. These shares had been earned, and were accrued, during the
year ended December 31, 2005.
In May 2006, the Company issued 34,464 shares of S-8 common stock at $0.47 per
share to a consultant for services provided. These shares were issued pursuant
to a consulting agreement between the Company and the consultant dated April 1,
2004.
In May 2006, the Company issued 19,288 shares of common stock at $0.125 per
share to an investor for the conversion of accrued interest through March 31,
2005, the conversion date, per the terms of a convertible note dated November 1,
2002.
In May 2006, the Company issued 16,324 shares of common stock at $0.125 per
share to an investor for the conversion of accrued interest on a note dated
September 26, 2003. By agreement in April 2004, interest accrued through
November 10, 2004, the conversion date.
In May 2006, the Company issued 13,454 shares of common stock at $0.10 per share
to an investor for the conversion of accrued interest through October 15, 2004,
the conversion date, per the terms of a convertible note dated December 12,
2003.
In June 2006, the Company issued 5,000 shares of common stock at $0.09 per share
for the exercise of warrants by an investor.
Warrants
--------
During the three months ended March 31, 2006, the Company issued warrants to
purchase 61,500 shares of common stock at prices ranging from $0.125 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $8,399 to operations
during the three months ended March 31, 2006.
During the three months ended June 30, 2006, the Company issued warrants to
purchase 84,653 shares of common stock at prices ranging from $0.20 to $1.00 to
consultants for services performed. The Company valued these warrants using the
Black-Scholes valuation model, and charged the amount of $8,819 to operations
during the three months ended June 30, 2006.
Also during the three months ended June 30, 2006, an investor exercised a
warrant to purchase 5,000 shares of the Company's common stock at a price of
$0.09 per share.
Warrants outstanding do not include the warrants to be issued pursuant to the
penalty for late registration of shares - see Note 4.
F-14
The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company's common stock issued to
non-employees of the Company. These warrants were granted in lieu of cash
compensation for services performed or financing expenses and in connection with
placement of convertible debentures.
Warrants Outstanding Warrants Exercisable
----------------------------------- --------------------------------------
Weighted Weighted
Average Weighted Average
Remaining Average Remaining
Exercise Number Contractual Exercise Number Contractual
Prices Outstanding Life (years) Price Exercisable Life (years)
-------- ----------- ------------ --------- ----------- ------------
$ .05-.10 514,780 2.89 $.05-.10 514,780 2.89
.125-.22 952,819 2.96 .125-.22 952,819 2.96
.25-.56 9,301,405 3.07 .25-.56 9,301,405 3.07
1.00 903,811 1.63 1.00 903,811 1.63
2.00 85,203 2.82 2.00 85,203 2.82
----------- ------------ ----------- -----------
11,758,018 2.94 11,758,018 2.94
=========== ============ =========== ===========
Transactions involving warrants are summarized as follows:
Number of Shares Weighted Average
(post-split) Price Per Share
(post-split)
--------------- ------------------
Outstanding at December 31, 2005 11,616,865 .46
Granted 61,500 .67
Exercised -- --
Cancelled or expired -- --
----------- ---------
Outstanding at March 31, 2006 11,678,365 .46
Granted 84,653 .67
Exercised (5,000) .09
Canceled or expired -- --
---------- --------
Outstanding at June 30, 2006 11,758,018 .46
========== ========
The estimated value of the compensatory warrants granted to non-employees in
exchange for services and financing expenses was determined using the
Black-Scholes pricing model and the following assumptions:
2006 2005
---- ----
Significant assumptions (weighted-average):
Risk-free interest rate at grant date 4.5% to 4.75% 3.75%
Expected stock price volatility 73% to 75% 93% to 179%
Expected dividend payout -- --
Expected option life-years (a) 3 3 to 5
Options
-------
There were no options granted during the six months ended June 30, 2006
The following table summarizes the changes in options outstanding and the
related prices for the shares of the Company's common stock issued to employees
of the Company under a non-qualified employee stock option plan.
Options Outstanding Options Exercisable
----------------------------------- --------------------------------------
Weighted Weighted
Average Weighted Average
Remaining Average Remaining
Exercise Number Contractual Exercise Number Contractual
Prices Outstanding Life (years) Price Exercisable Life (years)
-------- ----------- ------------ --------- ----------- ------------
$25.00 63,212 3.75 $25.00 63,212 3.75
0.31 1,000 4.45 0.31 1,000 4.45
0.33 103,030 4.11 0.33 103,030 4.11
0.44 150,000 3.84 0.44 150,000 3.84
------- -------
317,242 317,242
======= =======
F-15
Transactions involving stock options issued to employees are summarized as
follows:
Weighted Average
Number of Shares Price Per Share
---------------- ----------------
Outstanding at December 31, 2005 317,242 $ 5.30
Granted -- --
Exercised -- --
Expired -- --
---------------- ----------------
Outstanding at March 31, 2006 317,242 $ 5.30
Granted -- --
Exercise -- --
Expired -- --
---------------- ----------------
Outstanding at June 30, 2006 317,242 $ 5.30
================ ================
Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------
During the three months ended March 31, 2006, the Company accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 shares of common stock pursuant to a penalty calculation with regard to
the late registration of shares sold in a private placement in October 2004.
During the three months ending June 30, 2006, the Company accrued no additional
shares of common stock or warrants pursuant to the penalty calculation pending
the conclusion of an agreement with the investors in the private placement of
October 2004 to limit the number of shares and warrants which the Company is
obligated to issue pursuant to the penalty calculation. The Company charged to
operations $456,588 and $105,339, respectively, during the three months ended
March 31, 2006 representing the fair value of these shares and warrants,
respectively. During the three months ended March 31, 2006, the Company also
marked to market the value of the 5,242,307 shares and warrants to purchase an
additional 2,064,187 shares which were outstanding at December 31, 2005. This
resulted in a charge to operations of $52,423 and a credit to operations of
$6,868 for these previously outstanding shares and warrants, respectively. At
March 31, 2006, the Company had obligations to issue an aggregate of 6,625,907
shares and warrants to purchase an additional 2,608,987 shares, respectively,
and had charged to operations the amount of $555,973 for the cost of issuance of
shares and warrants. The Company also charged to operations the amount of
$52,423 as a loss from marking to market the outstanding stock portion of the
penalty, and recognized a gain in the amount of $6,868 representing marking to
market the outstanding warrant portion of the penalty.
In August 2006, the Company reached an agreement with the investors in the
private placement of October 2004 which limits the number of warrants and shares
which the Company is obligated to issue pursuant to the penalty calculation to
an aggregate of 18% of the number of original shares and warrants issued in the
October 2004 private placement. This agreement limits the number of shares and
warrants issuable pursuant to the penalty calculation to an aggregate of
4,150,800 shares and warrants to purchase an additional 1,634,400 shares,
respectively. This results in a decrease in the number of shares issuable of
2,475,107 (with a fair value of $816,785) and a decrease in the number of
warrant shares issuable of 974,587 (with a fair value of $177,789). This results
in a net realized gain of $994,574 during the three months ended June 30, 2006.
During the three months ended June 30, 2006, the Company also marked to market
the value of the previously issued penalty shares and warrants, which resulted
in realized gains of $72,101 and $46,755, respectively.
On July 10, 2006 the Company, pursuant to Rule 477 of Regulation C of the
Securities Act of 1933, as amended, applied for an order granting the immediate
withdrawal of its Registration Statement on Form SB-2. The registration
statement was originally filed with the Securities and Exchange Commission on
November 24, 2004, and amended by pre-effective amendments no. 1, 2, 3 and 4 on
July 20, 2005, November 16, 2005, February 22, 2006 and April 7, 2006,
respectively.
NOTE 8 - SUBSEQUENT EVENTS
On July 10, 2006 the Company, pursuant to Rule 477 of Regulation C of the
Securities Act of 1933, as amended, applied for an order granting the immediate
withdrawal of its Registration Statement on Form SB-2. The registration
statement was originally filed with the Securities and Exchange Commission on
November 24, 2004, and amended by pre-effective amendments no. 1, 2, 3 and 4 on
July 20, 2005, November 16, 2005, February 22, 2006 and April 7, 2006,
respectively.
F-16
On July 14, 2006, pursuant to the term of his employment agreement our Board of
Directors granted a one-time nonstatutory option to purchase 1,896,970
discretionary incentive stock options to our President and Chief Executive
Officer, Michael K. Wilhelm, per his employment agreement. The options have a
per share exercise price of $0.231, 110% of the closing price on the date of the
grant, and a term of five years. The options were granted in furtherance of a
resolution by our Board on August 8, 2005 pursuant to which the options were to
be granted at such time that the Company's 2003 Stock Plan is amended to
authorize additional shares, which was effected by approval of our shareholders
on June 28, 2006.
On July 14, 2006, we issued a warrant to our President and Chief Executive
Officer, Michael K. Wilhelm, to purchase 300,000 shares at a price of $0.25 per
share for personal collateralizations for the benefit of our company extended on
three notes totaling $101,000 between October and November 2003. In addition,
pursuant to the term of his employment agreement, we issued to our Chief
Financial Officer, John N. Fermanis, 62,500 common stock purchase warrants. The
warrants have a per share exercise price of $0.158, 75% of the closing price on
the date of issue, and expire five years after date of issuance.
Effective July 25, 2006, the Company entered into an unsecured senior promissory
note in the amount of $250,000 with an accredited investor. Following the
payment of commissions and expenses, the Company received net proceeds of
approximately $210,000. Effective August 1, 2006, the Company converted two cash
advances into unsecured senior promissory notes, in the respective amounts of
$50,000 and $20,000, with individual accredited investors, one of whom was a
Director. Following the payment of fees and expenses, the Company received net
proceeds of approximately $68,600. The outstanding principal amount of each
note, plus interest at the rate of 12% per annum, is payable in cash on or
before the earlier of (i) one year from the date of such note or (ii) the date
upon which the Company sells any of its equity or debt securities in a financing
transaction, or a series of financings, with gross proceeds equal to $1,000,000
or more; provided, however, that a subsequent financing transaction will not
include (x) issuances of common stock to employees of the Company, (y) the
exercise of any options to purchase common stock of the Company that are
outstanding as of the date hereof, or (z) the grant, issuance or exercise of
options or common stock of the Company under the Company's stock, option,
deferred stock and restricted stock plan for the purpose of satisfying the
Company's payables.
In August 2006, the Company reached an agreement with the investors in the
private placement of October 2004 which limits the number of warrants and shares
which the Company is obligated to issue pursuant to the penalty calculation to
an aggregate of 18% of the number of original number of shares and warrants
issued in the October 2004 private placement. This agreement limits the number
of shares and warrants issuable pursuant to the penalty calculation to an
aggregate of 4,150,800 shares and warrants to purchase an additional 1,634,400
shares, respectively. See note 7.
F-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Special Note Regarding Forward-looking Statements
Some of the statements under "Risk Factors," "Business" and elsewhere in this
Quarterly Report on Form 10-QSB constitute forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity,
performance, or achievements expressed or implied by such forward-looking
statements. Such factors include, among other things, those described under
"Risk Factors" and elsewhere in this Quarterly Report on Form 10-QSB and in the
"Risk Factors" section of our annual report on Form 10-KSB filed with the
Securities and Exchange Commission on March 28, 2006 and Form 10-KSB/A filed
with the Securities and Exchange Commission on March 30, 2006.
In some cases, you can identify forward-looking statements by terminology such
as "may," "will," "should," "could," "expects," "plans," "intends,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue" or
the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this report.
The following information should be read in conjunction with the financial
statements and the notes thereto. The analysis set forth below is provided
pursuant to applicable Securities and Exchange Commission regulations and is not
intended to serve as a basis for projections of future events.
Overview
--------
IR BioSciences Holdings, Inc. is a biopharmaceutical company engaged in
the research and development of potential drugs through its wholly owned
subsidiary, ImmuneRegen BioSciences, Inc. Our goal is to develop therapeutics to
be used for the protection of the body from exposure to radiation and other
harmful agents, such as toxic chemicals and biological materials.
Our drug development efforts are based on patents for the use of Sar9,
Met (O2)11-Substance P, an analog of the naturally occurring human neuropeptide
Substance P. We use the generic name Homspera to refer to the synthetic Sar9,
Met (O2)11-Substance P peptide. All of our research and development efforts are
early, pre-clinical stage and Homspera has only undergone exploratory studies to
evaluate its biological activity in small animals.
Our current focus is on the development of two potential applications
based on the use of Sar9, Met (O2)11-Substance P, Radilex and Viprovex. We are
developing Radilex for use as a potential treatment for acute exposure to
radiation. Viprovex is being developed for use in potential treatments of
maladies caused by exposure to toxic chemicals, such as formalin, and biological
agents, such as anthrax and avian influenza. To date we have sponsored seven
studies and co-sponsored three radiation studies all of which were conducted
utilizing rodents and have conducted limited preclinical studies with regard to
the development of Viprovex.
We have filed patent applications and provisional patent applications,
where applicable, for the use of the active ingredient Sar9, Met
(O2)11-Substance P in applications that we are researching. We own two issued
U.S. and two issued foreign patents and two pending Patent Cooperation Treaty
(PCT) applications, nine pending U.S. provisional patent applications and 16
pending foreign provisional patent applications.
Our potential drug candidates, Radilex and Viprovex and other
technologies based on the use of Homspera, are at early stages of development
and may not be shown to be safe or effective and may never receive regulatory
approval. Neither Radilex nor Viprovex nor our technologies based on the use of
Homspera have yet been tested in large animals or humans. There is no guarantee
that regulatory authorities will ever permit large animal or human testing of
Radilex, Viprovex or any other potential products derived from Homspera. Even if
such testing is permitted, none of Radilex, Viprovex or any other potential drug
candidates, if any, derived from Homspera may be successfully developed or shown
to be safe or effective.
3
The results of our pre-clinical studies and clinical trials may not be
indicative of future clinical trial results. A commitment of substantial
resources to conduct time-consuming research, pre-clinical studies and clinical
trials will be required if we are to develop any commercial applications using
Homspera or any derivatives thereof. Delays in planned patient enrollment in our
future clinical trials may result in increased costs, program delays or both.
None of our potential applications or technologies may prove to be safe or
effective in clinical trials. Approval of the FDA, or other regulatory
approvals, including export license permissions, may not be obtained and even if
successfully developed and approved, our potential applications may not achieve
market acceptance. Any potential applications resulting from our programs may
not be successfully developed or commercially available for a number of years,
if at all.
To date, we have not obtained regulatory approval for or commercialized
any applications based on the use of Homspera or any of its derivatives. We have
incurred significant losses since our inception and we expect to incur annual
losses for at least the next three years as we continue with our drug research
and development efforts.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2006 AND JUNE
30, 2005
Revenue
-------
We have not generated any revenues from operations from our inception.
We believe we will begin earning revenues from operations during calendar year
2009 as we transition from a development stage company.
Sales, General, and Administrative Expenses
-------------------------------------------
Sales, general, and administrative expenses ("SG&A") were $601,972 for
the three months ended June 30, 2006, an increase of $8,137 or approximately 1%
compared to SG&A of $593,835 during the three months ended June 30, 2005. The
decrease is primarily due to lower costs of non-cash compensation. For the three
months ended June 30, 2006, this amount consisted primarily of officer
compensation of $97,250, research and development of $21,619, legal and
accounting fees of $152,822, other consulting fees of $75,951, payroll and
related costs of $40,267, public relations and marketing of $22,526, and
non-cash compensation costs of $8,819.
The Company expects SG&A to increase during the coming twelve months as
we continue to build out the Company's infrastructure and to develop the
Company's line of potential products.
Interest (Income)/Expense (net)
-------------------------------
Interest expense (net) was $15,057 for the three months ended June 30,
2006, an increase of $14,716 or approximately 4,315% compared to interest
expense of $341 for the three months ended June 30, 2005. Interest expense was
increased because the Company entered into notes payable during the three months
ended June 30, 2006.
The Company expects interest expense to remain at low levels during the
coming twelve months.
Net Loss
--------
For the reasons stated above and a one-time adjustment to Other Income
for $1,158,985 relating to the cost of penalty for late registration of shares
our net gain for the three months ended June 30, 2006 was $541,956, or $0.01 per
share an increase of $2,629,388 or approximately 126% compared to a net loss of
$2,087,432 for the three months ended June 30, 2005.
Our independent certified public accountants have stated in their
report included in SEC Form 10-KSB/A that we have incurred a net loss and
negative cash flows from operations of $4,591,107 and $1,884,113, respectively,
for the year ended December 31, 2005. This loss, in addition to a lack of
operational history, raises substantial doubt about our ability to continue as a
going concern. In the absence of significant revenue and profits, and since we
do not expect to generate significant revenues in the foreseeable future, we, in
order to fund operations, will be completely dependent on additional debt and
4
equity financing arrangements. There is no assurance that any financing will be
sufficient to fund our capital expenditures, working capital and other cash
requirements for the fiscal year ending December 31, 2006. No assurance can be
given that any such additional funding will be available or that, if available,
can be obtained on terms favorable to us. If we are unable to raise needed funds
on acceptable terms, we will not be able to develop or enhance our products,
take advantage of future opportunities or respond to competitive pressures or
unanticipated requirements. A material shortage of capital will require us to
take drastic steps such as reducing our level of operations, disposing of
selected assets or seeking an acquisition partner. If cash is insufficient, we
will not be able to continue operations.
The Company expects losses to increase during the coming twelve months.
The Company does not expect to begin to generate revenue in the coming twelve
months, and our costs are likely to increase as continue our research and
development efforts on our early, pre-clinical stage products and build out our
corporate infrastructure.
Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------
During the three months ended March 31, 2006, the Company accrued the
issuance of 1,383,600 shares of common stock and warrants to purchase an
additional 544,800 shares of common stock pursuant to a penalty calculation with
regard to the late registration of shares sold in a private placement in October
2004. During the three months ending June 30, 2006, the Company accrued no
additional shares of common stock or warrants pursuant to the penalty
calculation pending the conclusion of an agreement with the investors in the
private placement of October 2004 to limit the number of shares and warrants
which the Company is obligated to issue pursuant to the penalty calculation. The
Company charged to operations $456,588 and $105,339, respectively, during the
three months ended March 31, 2006 representing the fair value of these shares
and warrants, respectively. During the three months ended March 31, 2006, the
Company also marked to market the value of the 5,242,307 shares and warrants to
purchase an additional 2,064,187 shares which were outstanding at December 31,
2005. This resulted in a charge to operations of $52,423 and a credit to
operations of $6,868 for these previously outstanding shares and warrants,
respectively. At March 31, 2006, the Company had obligations to issue an
aggregate of 6,625,907 shares and warrants to purchase an additional 2,608,987
shares, respectively, and had charged to operations the amount of $555,973 for
the cost of issuance of shares and warrants. The Company also charged to
operations the amount of $52,423 as a loss from marking to market the
outstanding stock portion of the penalty, and recognized a gain in the amount of
$6,868 representing marking to market the outstanding warrant portion of the
penalty.
In August 2006, the Company reached an agreement with the investors in
the private placement of October 2004 which limits the number of warrants and
shares which the Company is obligated to issue pursuant to the penalty
calculation to an aggregate of 18% of the number of original shares and warrants
issued in the October 2004 private placement. This agreement limits the number
of shares and warrants issuable pursuant to the penalty calculation to an
aggregate of 4,150,800 shares and warrants to purchase an additional 1,634,400
shares, respectively. This results in a decrease in the number of shares
issuable of 2,475,107 (with a fair value of $816,785) and a decrease in the
number of warrant shares issuable of 974,587 (with a fair value of $177,789).
This results in a net realized gain of $994,574 during the three months ended
June 30, 2006. During the three months ended June 30, 2006, the Company also
marked to market the value of the previously issued penalty shares and warrants,
which resulted in realized gains of $72,101 and $46,755, respectively.
On July 10, 2006 the Company, pursuant to Rule 477 of Regulation C of
the Securities Act of 1933, as amended, applied for an order granting the
immediate withdrawal of its Registration Statement on Form SB-2. The
registration statement was originally filed with the Securities and Exchange
Commission on November 24, 2004, and amended by pre-effective amendments no. 1,
2, 3 and 4 on July 20, 2005, November 16, 2005, February 22, 2006 and April 7,
2006, respectively.
RESULTS OF OPERATIONS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2006 AND JUNE 30,
2005
Revenue
-------
We have not generated any revenues from operations from our inception.
We believe we will begin earning revenues from operations during calendar year
2009 as we transition from a development stage company.
5
Selling, general and administrative expenses
--------------------------------------------
Selling, general and administrative expenses were $1,163,116 for the
six months ended June 30, 2006 which is a decrease of $269,239 or 19% compared
to SG&A of $1,432,355 for the six months ended June 30, 2005. The decrease is
primarily due to lower costs of non-cash compensation. This expense is primarily
comprised of non-cash compensation of $17,219, legal and accounting fees of
$348,579, payroll and related costs of $68,952, consulting fees of $129,068,
public relations and marketing costs of $45,142, research and development costs
of $116,035 , and officer's compensation of $190,500.
Interest expense (net)
----------------------
Interest expense was $14,891 for the six months ended June 30, 2006, an
increase of $13,573 compared to interest expense of $1,318 for the six months
ended June 30, 2005. Interest expense was increased because the Company entered
into notes payable during the thee months ended June 30, 2006.
The Company expects interest expense to remain at low levels during the
coming twelve months.
Net loss
--------
For the reasons above, primarily lower SG&A expenses and the one-time
adjustment forthe late registration penalty, the net loss for the six months
ended June 30, 2006 was $620,550, a decrease of $2,306,379 or 79% compared to a
net loss of $2,926,929 for the six months ended June 30, 2005.
Shares and warrants issuable due to late filing of registration statement
-------------------------------------------------------------------------
During the three months ended March 31, 2006, the Company accrued the
issuance of 1,383,600 shares of common stock and warrants to purchase an
additional 544,800 shares of common stock pursuant to a penalty calculation with
regard to the late registration of shares sold in a private placement in October
2004. During the three months ending June 30, 2006, the Company accrued no
additional shares of common stock or warrants pursuant to the penalty
calculation pending the conclusion of an agreement with the investors in the
private placement of October 2004 to limit the number of shares and warrants
which the Company is obligated to issue pursuant to the penalty calculation. The
Company charged to operations $456,588 and $105,339, respectively, during the
three months ended March 31, 2006 representing the fair value of these shares
and warrants, respectively. During the three months ended March 31, 2006, the
Company also marked to market the value of the 5,242,307 shares and warrants to
purchase an additional 2,064,187 shares which were outstanding at December 31,
2005. This resulted in a charge to operations of $52,423 and a credit to
operations of $6,868 for these previously outstanding shares and warrants,
respectively. At March 31, 2006, the Company had obligations to issue an
aggregate of 6,625,907 shares and warrants to purchase an additional 2,608,987
shares, respectively, and had charged to operations the amount of $555,973 for
the cost of issuance of shares and warrants. The Company also charged to
operations the amount of $52,423 as a loss from marking to market the
outstanding stock portion of the penalty, and recognized a gain in the amount of
$6,868 representing marking to market the outstanding warrant portion of the
penalty.
In August 2006, the Company reached an agreement with the investors in
the private placement of October 2004 which limits the number of warrants and
shares which the Company is obligated to issue pursuant to the penalty
calculation to an aggregate of 18% of the number of originalshares and warrants
issued in the October 2004 private placement. This agreement limits the number
of shares and warrants issuable pursuant to the penalty calculation to an
aggregate of 4,150,800 shares and warrants to purchase an additional 1,634,400
shares, respectively. This results in a decrease in the number of sharea
issuable of 2,475,107 (with a fair value of $816,785) and a decrease in the
number of warrant shares issuable of 974,587 (with a fair value of $177,789).
This results in a net realized gain of $994,574 during the three months ended
June 30, 2006. During the three months ended June 30, 2006, the Company also
marked to market the value of the previously issued penalty shares and warrants,
which resulted in realized gains of $72,101 and $46,755, respectively.
On July 10, 2006 the Company, pursuant to Rule 477 of Regulation C of
the Securities Act of 1933, as amended, applied for an order granting the
immediate withdrawal of its Registration Statement on Form SB-2. The
registration statement was originally filed with the Securities and Exchange
Commission on November 24, 2004, and amended by pre-effective amendments no. 1,
2, 3 and 4 on July 20, 2005, November 16, 2005, February 22, 2006 and April 7,
2006, respectively.
PLAN OF OPERATIONS
We expect to continue to incur increasing operating losses for the
foreseeable future, primarily due to our continued research and development
activities attributable to Radilex, Viprovex or any other proposed product, if
any, derived from Homspera and general and administrative activities.
6
Product Research and Development
--------------------------------
We incurred an expense of $116,035 for the six months ended June 30,
2006 in research and development activities related to the development of
Radilex and Viprovex versus an expense of $25,419 for the six months ended June
30, 2005. Due to our liquidity and limited cash available, our spending on
research and development activities was limited. From our inception in October
2002, we have spent $422,829 in research and development activities. These costs
only include the manufacture and delivery of our drug by third party
manufacturers and payments to Contract Research Organizations for consulting
related to our studies and costs of performing such studies. Significant costs
relating to research and development, such as consulting fees for Drs. Witten
and Siegel, among others, have been classified in consulting fees for
consistency of financial reporting.
We anticipate that during the next 12 months we will increase our
research and development spending to a total of approximately $3,500,000 in an
effort to further develop Radilex and Viprovex. If we are unable to raise
additional capital, our research and development activities may be lessened. The
drug development, clinical trial and regulatory process is lengthy, expensive
and uncertain and subject to numerous risks.
The basis for our research and development efforts in regard to the
potential uses of Homspera is derived from observations made during research
funded by the Air Force Office of Scientific Research in early 1994 by our
co-founders Dr. Mark Witten and Dr. David Harris. During this research it was
observed that the exposure of animals to jet fuel (JP-8) resulted in
pathological changes in the lungs and immune systems of those exposed. Based on
the results of these studies, we believe that the administration of Sar9,
Met(O2)11-Substance P prevented and reversed the effects of JP-8 jet fuel
exposure in the lungs, as well as protected and regenerated the immune system.
However, there is no guarantee that our interpretation of the results of these
studies will prove to be accurate after further testing.
Further, we believe that Sar9, Met(O2)11-Substance P , Homspera, may
also be used to treat the effects on the body caused by exposure to radiation,
as well as, some toxic chemicals and harmful biological materials, including
respiratory viruses. We continue to explore the multiple potential capabilities
of Sar9, Met (O2)11-Substance P and to better understand the mechanisms by which
this compound can potentially provide protection against gamma radiation,
respiratory viruses and chemical and biological agents.
Our major research and development projects include:
Research and Development for the use of Radilex in
Radiological Exposure Applications.
------------------------------------------------------------
On January 14, 2004, we received a Pre-Investigational New Drug
Application (PIND) number for the use of Radilex (PIND No. 63,255) in the
treatment of acute radiation syndrome.
To date we have sponsored seven studies and co-sponsored three
radiation studies all of which were conducted utilizing rodents to determine
dose response to radiation, the maximum efficacious dose of Radilex, the impact
on survival and to distinguish survival response between aerosol delivery versus
intra muscular delivery. In each of these studies mice were exposed to varying
levels of radiation. In the opinion of management, these studies have
demonstrated in C57BL/6 mouse model studies that Radilex-treated mice exhibited
survival rates of up to 50% at 90 days post-radiation exposure to an otherwise
lethal dose of whole body ionizing radiation. Additionally, we believe the
results indicated that these mice had normal immune system function at the
90-day post-radiation time point compared to longitudinal control mice. If these
results can be reproduced in further studies, including large animal studies, we
believe that our treatment could potentially increase an individual's chance of
survival in the event of exposure to radiation. There is not assurance that our
interpretaion of the results of the studies will prove to be accurate after
further testing.
Research and Development for the use of Viprovex in Chemical and
Biological Exposure Applications.
------------------------------------------------------------
On November 29, 2005 we applied for a PIND from the Department of
Health and Human Services (HHS) for the use of Viprovex in the treatment of
avian influenza. The PIND number for the use of Viprovex in treating avian flu
was issued on December 19, 2005 (PIND No. 73,709). We applied for a PIND from
the HHS for the use of Viprovex in treating chemical exposure on November 28,
2005.
7
We are researching the efficacy of Viprovex as a potential treatment
for exposure to various chemical agents, including formalin, and biological
agents, including influenza and anthrax. In addition to our early pilot studies,
we have recently completed three studies on anthrax, one on avian influenza. We
believe the results of these studies indicated the potential effects of Viprovex
on the immune system, including protection and replenishment, increased
cytokines that reflect system activation, enhanced phagocytotic activity,
potential dendritic cell/T cell activation, inhibition of apoptosis and
increased T cell mitogenesis. It is the opinion of management that these results
may underlie the potential ability of Viprovex to enhance flu therapies,
minimize the respiratory impact of influenza infection and augment the
capability of vaccination to induce a protective immune response. There is not
assurance that our interpretation of the results of the studies will prove to be
accurate after further testing.
If product development or approval does not occur as scheduled our time
to reach market will be lengthened and our costs will substantially increase.
Additionally, we may be requested to expand our findings to gather additional
data or we may not achieve the desired results. If so, we may have to design new
protocols and conduct additional studies. This will increase our costs and delay
the time to market for Radilex for use as a possible therapeutic for exposure to
acute radiation and Viprovex for use as a the potential treatment for exposure
to chemical and biological agents. Any of these occurrences would have a
material negative impact on our business and our liquidity as it may cause us to
seek additional capital sooner than expected and allow our competitors to
successfully enter the market ahead of us.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements as of June 30, 2006.
REVENUES
We have not generated any revenues from operations from our inception.
We believe we will begin earning revenues from operations during calendar year
2009 as we transition from a development stage company.
COSTS AND EXPENSES
From our inception through June 30, 2006, we have incurred losses of
$12,419,685. These expenses were associated principally with equity-based
compensation to employees and consultants, cost of penalty for late registration
of shares, product development costs and professional services.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2006, we had current assets of $41,033 consisting of cash
of $23,663 and other current assets of $17,370. At June 30, 2006, we also had
current liabilities of $2,863,771, consisting of accounts payable and accrued
liabilities of $779,795, notes payable of $579,750 and accrued cost of penalty
for late registration of shares of $1,504,226. This resulted in net working
capital deficit at June 30, 2006 of $2,822,739. During the six months ended June
30, 2006, the Company used cash in operating activities of $736,047. From the
date of inception (October 30, 2002) to June 30, 2006, the Company has had a net
loss of $12,419,684 and has used cash of $4,694,505 in operating activities.
We have never generated revenue. There is no guarantee that our
business model will be successful, or that we will be able to generate
sufficient revenue to fund future operations. As a result, we expect our
operations to continue to use net cash, and that we will be required to seek
additional debt or equity financings during the coming quarters. Since
inception, we have financed our operations through debt and equity financing.
While we have raised capital to meet our working capital and financing needs in
the past, additional financing is required in order to meet our current and
projected cash flow deficits from operations and development of our product
line. We met our cash requirements from our inception through June 30, 2006 via
the private placement of $3,263,902 net of costs of our common stock, $1,195,307
of this was from the exercise of common stock purchase warrants net of costs. An
additional $1,478,378 was received from the issuance of notes payable, net of
repayments.
In March 2006, the Company received a cash advance from a Director in
the amount of $50,000. This advance bears interest at the rate of 12% per annum.
During the three months and twelve months ended June 30, 2006, the Company
accrued interest in the amount $164 and $1,660, respectively, on this advance.
The Company anticipates converting this advance to a note payable during the
quarter ending September 30, 2006.
In June of 2006, the Company received a cash advance from an individual
accredited investor in the amount of $20,000. This advance bears interest at the
rate of 12% per annum. During the three months ended June 30, 2006, the Company
accrued interest in the amount of $72 on this advance. The Company anticipates
converting this advance to a note payable during the quarter ending September
30, 2006.
Pursuant to our employment agreement with Michael Wilhelm, our
President and Chief Executive Officer, dated December 16, 2002, we paid an
annual salary of $125,000 and $175,000 to Mr. Wilhelm during the first and
8
second years of his employment, respectively. Thereafter we paid through August
10, 2005, an annual salary of $250,000. On August 10, 2005, we entered into a
new employment agreement with Mr. Wilhelm. The new employment agreement calls
for a salary at the rate of $275,000 per annum and provides for bonus
incentives. Mr. Wilhelm's salary is payable in regular installments in
accordance with the customary payroll practices of our company.
Pursuant to our employment agreement with John Fermanis, our Chief
Financial Officer, dated February 15, 2005, we paid an annual salary of $60,000
until the company completed a financing of $500,000 or more. This occurred on
March 4, 2005 when the company completed a Tender Offer for warrants totaling
$1,211,000 net of fees. From March 4, 2005, until December 31, 2005, we paid an
annual salary of $85,000. Thereafter, we will pay an annual salary of $98,000
for the second year ending December 31, 2006 and an annual salary of $112,000
for the third year ending December 31, 2007. Mr. Fermanis' salary is payable in
regular installments in accordance with the customary payroll practices of our
company.
Since our inception, we have been seeking additional third-party
funding. During such time, we have retained a number of different investment
banking firms to assist us in locating available funding; however, we have not
yet been successful in obtaining any of the long-term funding needed to make us
into a commercially viable entity. During the period from October 2004 to June
2006, we were able to obtain financing of $3,590,136 from a series of private
placements of our securities (which resulted in net proceeds to us of
$3,263,902). Based on our current plan of operations all of our current funding
is expected to be depleted by the end of August 2006. If we are not successful
in generating sufficient liquidity from operations or in raising sufficient
capital resources, it would have a material adverse effect on our business,
results of operations, liquidity and financial condition.
While we have successfully raised capital to meet our working capital and
financing needs in the past through debt and equity financings, additional
financing will be required in order to implement our business plan and to meet
our current and projected cash flow deficits from operations and development.
There can be no assurance that we will be able to consummate future debt or
equity financings in a timely manner on a basis favorable to us, or at all. If
we are unable to raise needed funds on acceptable terms, we will not be able to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures or unanticipated requirements. A material
shortage of capital will require us to take drastic steps such as reducing our
level of operations, disposing of selected assets or seeking an acquisition
partner. If cash is insufficient, we will not be able to continue operations.
Until such time, if at all, as we receive adequate funding, we intend to
continue to defer payment of all of our obligations which are capable of being
deferred, which actions have resulted in some vendors demanding cash payment for
their goods and services in advance, and other vendors refusing to continue to
do business with us. In the event that we are successful in obtaining
third-party funding, we do not expect to generate a positive cash flow from our
operations for at least several years, if at all, due to anticipated
expenditures for research and development activities, administrative and
marketing activities, and working capital requirements and expect to continue to
attempt to raise further capital through one or more further private placements.
Based on our operating expenses and anticipated research and development
activities, we believe that we will require an additional $5 million to meet our
expenses over the next 12 months.
Acquisition or Disposition of Plant and Equipment
-------------------------------------------------
We did not dispose or acquire any significant property, plant or
equipment during the second quarter ended June 30, 2006. We do not anticipate
the sale of any significant property, plant or equipment during the next twelve
months.
Number of Employees
-------------------
From our inception through the period ended June 30, 2006, we have
relied on the services of outside consultants for services and currently have
four full-time employees. Our full-time employees are Michael K. Wilhelm, our
Chief Executive Officer; John N. Fermanis, our Chief Financial Officer; and, the
third and fourth serve in administrative roles. In order for us to attract and
retain quality personnel, we anticipate we will have to offer competitive
salaries to future employees. We do not anticipate our employment base will
significantly change during the next twelve months, other than the addition of
one senior level appointment to the position of Senior Vice President of
Scientific Development. As we continue to expand, we will incur additional cost
for personnel. This projected increase in personnel is dependent upon our
generating revenues and obtaining sources of financing. There is no guarantee
that we will be successful in raising the funds required or generating revenues
sufficient to fund the projected increase in the number of employees.
9
Trends, Risks and Uncertainties
-------------------------------
We have sought to identify what we believe to be the most significant
risks to our business, but we cannot predict whether, or to what extent, any of
such risks may be realized nor can we guarantee that we have identified all
possible risks that might arise. Investors should carefully consider all of such
risk factors before making an investment decision with respect to our Common
Stock.
RISK FACTORS
Other than with respect to the following risk factors, which have been updated
and restated in their entirety below, there have been no material changes from
the risk factors disclosed in the "Risk Factors" section of our the "Risk
Factors" section of our annual report on Form 10-KSB filed with the Securities
and Exchange Commission on March 28, 2006 and Form 10-KSB/A filed with the
Securities and Exchange Commission on March 30, 2006.
RISKS RELATED TO OUR FINANCIAL RESULTS
WE HAVE LIMITED CASH RESOURCES, AN ACCUMULATED DEFICIT, ARE NOT CURRENTLY
PROFITABLE AND EXPECT TO INCUR SIGNIFICANT EXPENSES IN THE NEAR FUTURE.
As of June 30, 2006, we had a working capital deficit of $2,822,739.
This amount consists of cash of $23,662 and current assets of $17,370, accounts
payable and accrued current liabilities of $779,795, including notes payable
$579,750 and an accrued current liability of $1,504,226 related to a penalty for
the late registration of the securities sold in our October 2004 private
placement. We anticipate settling this late registration penalty in additional
shares of common stock and warrants to purchase additional shares of common
stock. If this non-cash liability were to be removed from our working capital
position as of June 30, 2006, we would have a working capital deficit of
$1,318,513. We have incurred a substantial net loss for the period from our
inception in October 2002 to June 30, 2006, and are currently experiencing
negative cash flow. We expect to continue to experience negative cash flow and
operating losses through at least 2009 and possibly thereafter. As a result, we
will need to generate significant revenues to achieve profitability.
WE MAY FAIL TO BECOME AND REMAIN PROFITABLE OR WE MAY BE UNABLE TO FUND OUR
CONTINUING LOSSES, IN WHICH CASE OUR BUSINESS MAY FAIL.
We are focused on product development and have not generated any
revenue to date. We do not believe we will begin earning revenues from
operations until the calendar year 2009 as we transition from a development
stage company. We have incurred operating losses since our inception. Our net
gain for the six months ended June 30, 2006 was $541,956 due to the penalty
share adjustment. As of June 30, 2006, we had an accumulated deficit of
$12,419,684.
WE WILL BE REQUIRED TO RAISE ADDITIONAL CAPITAL TO FUND OUR OPERATIONS. IF WE
CANNOT RAISE NEEDED ADDITIONAL CAPITAL IN THE FUTURE, WE WILL BE REQUIRED TO
CEASE OPERATIONS.
Based on our current plans, we believe our existing financial
resources, and interest earned thereon, will be sufficient to meet our operating
expenses and capital requirements through August 2006. However, changes in our
research and development plans or other events affecting our operating expenses
may result in the expenditure of such cash before that time. We estimate that we
will require approximately $5 million over the next 12 months in order to
finance our research and development efforts, fund operating expenses, pursue
regulatory clearances and prosecute and defend our intellectual property rights.
We may seek such additional funding through public or private financing or
through collaborative arrangements with strategic partners.
10
You should be aware that in the future:
o we may not obtain additional financial resources when necessary or
on terms favorable to us, if at all; and
o any available additional financing may not be adequate.
If we cannot raise additional funds when needed, or on acceptable
terms, we will not be able to continue our drug discovery efforts. We require
substantial working capital to fund our operations. Since we do not expect to
generate significant revenues in the foreseeable future, in order to fund
operations, we will be completely dependent on additional debt and equity
financing arrangements. There is no assurance that any financing will be
sufficient to fund our capital expenditures, working capital and other cash
requirements beyond August 2006. Our working capital deficit as of June 30, 2006
was $1,318,513 net of the accrual of securities pursuant to the penalty
provision of our October 2004 private placement. No assurance can be given that
any such additional funding will be available or that, if available, can be
obtained on terms favorable to us. If we are unable to raise needed funds on
acceptable terms, we will not be able to develop or enhance our products, take
advantage of any future opportunities or respond to competitive pressures or
unanticipated requirements. A material shortage of capital will require us to
take drastic steps such as reducing our level of operations, disposing of
selected assets or seeking an acquisition partner. If cash is insufficient, we
will not be able to continue operations.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures.
Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
As of the end of the period covered by this Quarterly Report, we
conducted an evaluation, under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, of our disclosure controls
and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange
Act). Based on that evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that, as of June 30, 2006, such disclosure controls and
procedures were effective in ensuring that required information will be
disclosed on a timely basis in our periodic reports filed under the Exchange
Act.
(b) Changes in internal controls
There have been no changes in our internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Rule 13a-15 or 15d-15 under the Exchange Act that occurred during the quarter
ended June 30, 2006 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
11
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings. Please
refer to the Company's report on Form 10-K/A Amendment No. 1 for 2005 regarding
litigation and claims as of December 31, 2005.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
In June 2006, the Company issued 5,000 shares of common stock at $0.09
per share for the exercise of warrants by an investor.
On December 12, 2003, the Company entered into a $20,000 promissory
note bearing 8% interest per year to an individual accredited investor. On
October 15, 2004 in accordance with the terms of the promissory note, accrued
interest of $1,354 was converted into 13,454 shares of our common stock
releasing the Company from any further obligation under the note. From the date
of the note's conversion, these shares were accrued for by the Company and the
certificate representing the shares was issued in May 2006. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the Note. The investor represented to the Company that the investor was
purchasing the Note for the investor's own account and not with a present view
towards the distribution thereof. In addition, the investor acknowledged and
agreed that the Note and the underlying securities had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On September 26, 2003, the Company entered into a $30,000 promissory
note bearing 8% interest per year to an individual accredited investor. On
November 10, 2004 in accordance with an agreement with the investor, accrued
interest of $2,041 was converted into 16,324 shares of our common stock
releasing the Company from any further obligation under the note. From the date
of the note's conversion, these shares were accrued for by the Company and the
certificate representing the shares was issued in May 2006. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the Note. The investor represented to the Company that the investor was
purchasing the Note for the investor's own account and not with a present view
towards the distribution thereof. In addition, the investor acknowledged and
agreed that the Note and the underlying securities had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
On November 1, 2002, the Company entered into a $15,000 convertible
promissory note bearing 8% interest per year to an individual accredited
investor. On March 31, 2005 in accordance with the terms of the promissory note,
accrued interest of $2,410 was converted into 19,288 shares of our common stock
releasing the Company from any further obligation under the note. From the date
of the note's conversion, these shares were accrued for by the Company and the
certificate representing the shares was issued in May 2006. No general
solicitation or advertising was undertaken in connection with the offer and sale
of the Note. The investor represented to the Company that the investor was
purchasing the Note for the investor's own account and not with a present view
towards the distribution thereof. In addition, the investor acknowledged and
agreed that the Note and the underlying securities had not been registered under
the Securities Act and may not be offered or sold unless subsequently registered
and/or offered, sold or transferred pursuant to an exemption from the
registration requirements. Therefore, the Company believes that the securities
were offered and sold in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
During the three months ended March 31, 2006, the Company accrued the issuance
of 1,383,600 shares of common stock and warrants to purchase an additional
544,800 shares of common stock pursuant to a penalty calculation with regard to
the late registration of shares sold in a private placement in October 2004.
During the three months ending June 30, 2006, the Company accrued no additional
shares of common stock or warrants pursuant to the penalty calculation pending
the conclusion of an agreement with the investors in the private placement of
October 2004 to limit the number of shares and warrants which the Company is
obligated to issue pursuant to the penalty calculation. The Company charged to
operations $456,588 and $105,339, respectively, during the three months ended
March 31, 2006 representing the fair value of these shares and warrants,
respectively. During the three months ended March 31, 2006, the Company also
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marked to market the value of the 5,423,307 shares and warrants to purchase an
additional 2,064,187 shares which were outstanding at December 31, 2005. This
resulted in a charged to operations of $52,423 and a credit to operations of
$6,868 for these previously outstanding shares and warrants, respectively. At
March 31, 2006, the Company had obligations to issue an aggregate of 6,625,907
shares and warrants to purchase an additional 2,608,987 shares, respectively,
and had charged to operations the amount of $555,973 for the cost of issuance of
shares and warrants. The Company also charged to operations the mount of $52,423
as a loss from marking to market the outstanding stock portion of the penalty,
and recognized a gain in the amount of $6,868 representing marking to market the
outstanding warrant portion of the penalty.
During the three months ended March 31, 2006 we have accrued the
issuance of 84,653 common stock purchase warrants to members of our Bioterrorism
Advisory Board and Scientific Advisory Board for participation during the
quarter. These warrants were issued pursuant to the terms of their respective
agreements with us. The exercise prices of these warrants range from $0.125 to
$1.00 per share. The warrants expire three years after date of issuance. The
warrants will bear a restrictive legend regarding the sale or transfer of such
or the underlying securities. The warrants were issued in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933, as amended, and Rule 506 promulgated thereunder. There were less than
35 investors and each investor had such knowledge and experience in financial
and business matters that the investor was capable of evaluating the merits and
risks of investing in the warrants. No general solicitation or advertising was
undertaken in connection with the offer and sale of these shares. Each investor
was also provided with access to our Exchange Act reports including our annual
report on Form 10-KSB and our quarterly reports on Form 10-QSB.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
On June 28, 2006, we held our 2005 Annual Meeting of Stockholders (the
"Stockholder Meeting"). At the Stockholder Meeting, our shareholders voted to:
(i) elect Hal N. Siegel as director and to re-elect Michael K.
Wilhelm and Theodore E. Staahl as directors;
Which was approved by a vote of 30,536,006 votes for and 6,300 votes against,
9,606,806 votes withheld, 9,463,931 abstained votes and 20,002,585 were broker
non-votes;
(ii) approve an amendment to our Certificate of Incorporation, as
amended, to increase the number of authorized shares of Common
Stock from 100,000,000 to 250,000,000;
Which was approved by a vote of 40,130,228 votes for and 1,302,912 votes
against, 0 votes withheld, 8,179,903 abstained votes and 20,002,585 were broker
non-votes;
(iii) approve an amendment to our 2003 Stock Option, Deferred Stock
and Restricted Stock Plan (the "Plan") to increase the number
of shares of our Common Stock reserved and available for
issuance under the Plan from 3,600,000 to 20,000,000; and
Which was approved by a vote of 30,944,255 votes for and 10,431,210 votes
against, 0 votes withheld, 8,237,578 abstained votes and 20,002,585 were broker
non-votes;
(iv) ratify the appointment of Russell Bedford Stefanou Mirchandani
LLP as the Company's independent public accountants for the
fiscal year ending December 31, 2006;
Which was approved by a vote of 32,198,656 votes for and 8,803,306 votes
against, 0 votes withheld, 8,611,081 abstained votes and 20,002,585 were broker
non-votes.
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ITEM 5: OTHER INFORMATION
ImmuneRegen BioSciences Asia PTE. LTD.
--------------------------------------
ImmuneRegen BioSciences Asia PTE. LTD. ("ImmuneRegen Asia"), a
Singaporean company, is an affiliate of IR BioSciences Holdings, Inc.
Approximately 94% of the company is owned equally between our Chief Executive
Officer and Chairman, Michael K. Wilhelm, and our former Director and
co-founder, Mark Witten. IR BioSciences Holdings, Inc. holds less than 1%
ownership in the company.
ImmuneRegen Asia has not conducted any business since its creation in
May 2004. On March 23, 2006, per shareholder and Board approval, ImmuneRegen
Asia was struck off the register of companies and dissolved. A notice of such
action was published in the Governmental Gazette on April 7, 2006.
Withdrawal from Registration
On July 10, 2006 the Company, pursuant to Rule 477 of Regulation C of
the Securities Act of 1933, as amended, applied for an order granting the
immediate withdrawal of its Registration Statement on Form SB-2. The
registration statement was originally filed with the Securities and Exchange
Commission on November 24, 2004, and amended by pre-effective amendments no. 1,
2, 3 and 4 on July 20, 2005, November 16, 2005, February 22, 2006 and April 7,
2006, respectively.
Unsecured senior promissory notes
---------------------------------
Effective July 25, 2006, the Company entered into an unsecured senior promissory
note in the amount of $250,000 with an accredited investor. Following the
payment of commissions and expenses, the Company received net proceeds of
approximately $210,000. Effective August 1, 2006, the Company converted two cash
advances into unsecured senior promissory notes, in the respective amounts of
$50,000 and $20,000, with individual accredited investors, one of whom was a
Director. Following the payment of fees and expenses, the Company received net
proceeds of approximately $68,600. The outstanding principal amount of each
note, plus interest at the rate of 12% per annum, is payable in cash on or
before the earlier of (i) one year from the date of such note or (ii) the date
upon which the Company sells any of its equity or debt securities in a financing
transaction, or a series of financings, with gross proceeds equal to $1,000,000
or more; provided, however, that a subsequent financing transaction will not
include (x) issuances of common stock to employees of the Company, (y) the
exercise of any options to purchase common stock of the Company that are
outstanding as of the date hereof, or (z) the grant, issuance or exercise of
options or common stock of the Company under the Company's stock, option,
deferred stock and restricted stock plan for the purpose of satisfying the
Company's payables.
Agreement to limit the number of shares and warrants issuable pursuant to the
penalty calculation for late registration
In August 2006, the Company reached an agreement with the investors in the
private placement of October 2004 which limits the number of warrants and shares
which the Company is obligated to issue pursuant to the penalty calculation to
an aggregate of 18% of the number of original number of shares and warrants
issued in the October 2004 private placement. This agreement limits the number
of shares and warrants issuable pursuant to the penalty calculation to an
aggregate of 4,150,800 shares and warrants to purchase an additional 1,634,400
shares, respectively.
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ITEM 6. EXHIBITS
(a) Exhibits
31.1 Certification of Chief Executive Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Item
601(b)(31) of Regulation S-B, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of Chief Executive Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32.2 Certifications of Chief Financial Officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
o * This exhibit shall not be deemed "filed" for purposes
of Section 18 of the Securities Exchange Act of 1934 or
otherwise subject to the liabilities of that section,
nor shall it be deemed incorporated by reference in any
filing under the Securities Act of 1933 or the
Securities Exchange Act of 1934, whether made before or
after the date hereof and irrespective of any general
incorporation language in any filings.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 14, 2006.
IR BioSciences Holdings, Inc.
By: /s/ Michael K. Wilhelm
----------------------------------
Michael K. Wilhelm
President, Chief Executive Officer
16