COMMISSION FILE NUMBER 0-24050

HEMOBIOTECH, INC.

(Exact name of Registrant as Specified in Its Charter)

DELAWARE		33-0995817
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
5001 SPRING VALLEY RD, SUITE 1040 - WEST
DALLAS, TEXAS		75244
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (972) 455-8950

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT:

COMMON STOCK, PAR VALUE $.001 PER SHARE

 

Indicate by check mark if the registrant is a well-known seasoned issuer.  ¨ Yes  þ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. ¨

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

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

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-KB is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

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

Large accelerated filer o     Accelerated filer o     Non-accelerated filer o       Smaller Reporting Company þ

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

 

As of May 26, 2010, 23,693,434 shares of the Registrant's common stock, par value $.001 per share, were outstanding.

Documents Incorporated By Reference: None.

 

 

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ITEM 1A. RISK FACTORS

You should consider the following matters when reviewing the information contained in this document. You also should consider the other information incorporated by reference in this document.

Risks Related to Our Business

 

We have a history of losses and our future profitability is uncertain.

 

Our financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  The Company has incurred cumulative losses of approximately $18,032,000 from inception through December 31, 2009, and has not generated any revenue, and has been dependent on funding operations through the private sale of convertible debt and equity securities.  These conditions indicate that there is substantial doubt that the Company will be able to continue as a going concern.  The auditors have issued a “Going Concern” opinion for our 2009 financial statements contained in this report.

 

We expect to continue to incur substantial losses and we do not except to generate significant revenue, if any, in the foreseeable future.  Our ability to generate revenue is dependent on obtaining additional financing, including, but not limited to, our current financing, for our future operations.  We need to raise at least $3 to $4 million in order to complete our planned operations which include implementing certain FDA recommendations.  Our immediate planned operations for the next twelve months include the payment of our general and administrative expenses (including salaries, legal and other professional fees, consulting and advisory fees), the costs associated with making certain upgrades to the HemoTech production facility, to begin the production of HemoTech, conduct animal studies, including preparation of our U.S. IND application.  At December 31, 2009, we had only $55,000 in unrestricted cash and cash equivalents.  The Company significantly reduced its actual and projected expenses and plans to aggressively manage costs which can be reduced at management’s discretion based on the Company’s available cash.

 

We are a development stage company with no revenues or profits.

 

We are in the development stage and, through December 31, 2009, have generated no sales revenue and have no prospects for revenue in the foreseeable future.  We currently have no source of operating revenue and there can be no assurance that we will be able to develop any revenue source or that our operations will become profitable, even if we are able to commercialize any products.  Further, as a development stage company, we have a limited relevant operating history on which an evaluation of our prospects can be made.  Such prospects must be considered in light of the risks, expenses and difficulties frequently encountered in establishing a new business in the evolving, heavily regulated biotechnology industry, which is characterized by an increasing number of market entrants, intense competition and a high failure rate.  In addition, significant challenges are often encountered by businesses shifting from developmental to commercial activities.

 

The next stage of our planned operations includes completion of and submission of our U.S. IND application to the FDA, commencement and completion of our Phase I, U.S. clinical trials if and when our application is approved.  Additional operations will include further research and development of HemoTech and payment of operational and overhead expenses that we will incur during our Phase I U.S. clinical trials, as well as preparation for Phase II clinical trials, assuming Phase I clinical trials are successful.  In order to complete these additional planned operations, we will need to raise additional capital.  If we fail to generate enough cash resources, either from future equity or operating debt sales, exercise of our outstanding warrants or from operating revenue, our ability to implement our business plan and complete these planned operations will be materially affected, and you may lose all or substantially all of your investment.

 

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We are reliant on the success of our two products which are in an early stage of product development and may not be successfully developed or, if successfully developed, may never become viable marketable products.

 

Our products are in early stage development and if we fail to successfully develop these products, we have no other products on which our business can be developed.  There can be no assurance that our research and development activities will result in any commercially viable products.  The development of our products will be subject to the risks of failure inherent in the development of products based on innovative technologies and the expense and difficulty of obtaining regulatory approvals.  One of our products is a human blood substitute which is currently under development and will require significant additional research and development and pre-clinical testing and clinical testing prior to submission of any regulatory application for commercial use. The development of our ORTH Technology will require, among other things, a comprehensive marketing strategy.  There can be no assurance that our product development efforts will be successfully completed, that our products currently under development will be successfully transformed into marketable products, that required regulatory approvals can be obtained, that the products can be manufactured at acceptable cost in accordance with regulatory requirements or that any of the approved products can be successfully marketed or achieve customer acceptance.

 

We depend on key personnel, and the loss of such personnel could significantly impair our ability to further develop HemoTech, implement our business plan or continue operations.

 

Our success depends on the continued contributions of our executive officers and scientific and technical personnel and consultants.  We are particularly dependent on Arthur P. Bollon, Ph.D., our President and Chief Executive Officer, Dr. Mario Feola, our Chief Medical Officer, and Dr. Jan Simoni, our Acting Vice President and Principal Investigator of Research and Development and Advisor. Drs. Feola and Simoni are the two principal TTUHSC researchers who developed HemoTech. Drs. Feola and Simoni continue to be the two main developers of HemoTech. Dr. Simoni is an employee of TTUHSC and his services have been made available to us under our Sponsored Research Agreement with TTUHSC.  Dr. Simoni’s activities related to research and development, production, regulatory and clinical testing of HemoTech are covered under the Sponsored Research Agreement with TTUHSC, which may be terminated at any time by either party on 90 days’ prior written notice and is currently subject to ongoing negotiations.

 

We currently have one full-time employee, our Chief Executive Officer, Dr. Bollon.  Although we have entered into employment agreements with both Dr. Bollon and Dr. Feola, the loss of services of either of these key employees could adversely affect our business.  We do not maintain “key person” life insurance on the lives of any executive officer and their death or incapacity would have a material adverse effect on us.  The competition for qualified personnel is intense, and the loss of services of certain key personnel would be expected to adversely affect our business.  See “Management.”

 

Some provisions of our CEO’s employment agreement contains obligations of the Company to make salary payments.

 

Certain provisions contained in the employment agreement with Dr. Bollon, our Chairman, President and Chief Executive Officer, obligates us to make certain salary payments including if his employment is terminated without just cause or due to a disability.  If Dr. Bollon’s employment is terminated without just cause or as a result of Dr. Bollon’s disability (which means Dr. Bollon’s inability to perform his duties under the agreement for three consecutive months due to injury, illness or disability (mental or physical), as determined by an independent physician selected by Dr. Bollon with our approval), we will be required to pay Dr. Bollon a severance payment equal to his base salary then in effect, payable in monthly installments until the expiration of the remainder of the term of his employment agreement or the expiration of 23 months, whichever is less. Dr. Bollon will be entitled to receive severance payments totaling not less than six months’ of his base salary.  Dr. Bollon has agreed to reduce his base salary in an effort to reduce cash expenditures of the Company.  The foregoing factors, together with the effective control of our outstanding Common Stock by our officers, directors and principal stockholders, may serve as an incentive for our officers and directors to discourage certain takeover transactions, possibly resulting in the entrenchment of management and consequently reducing the value of our Common Stock.

 

If our product offerings are not commercially successful, we will be unable to successfully generate revenue.

 

We expect a significant portion of our revenues will come from the production and distribution of our products. The success of these offerings depends primarily on their acceptance by the public, the medical community, and other third-party consumers and payers, which is difficult to predict. The commercial success of our products depends on the availability of alternative forms of technology and general economic conditions and other tangible and intangible factors, all of which can change quickly. If we fail to produce these products with broad industry appeal, we will be unable to successfully generate revenue.

 

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The market for our products is competitive and we may not be able to compete successfully against competitors that may be having substantially more development, marketing and sales resources than we do.

 

The market for our products is competitive and there can be no assurance that we will be able to compete successfully in these markets. We cannot be assured that some other competitive technologies have not been, or will not be, developed by either government, academic or private entities. Any competing technologies could make our technologies either obsolete or of lesser value. Many of our competitors have greater financial and other resources than we have, which may limit our ability to compete effectively.

 

Although the proposed products of our main competitors in the human blood substitute market have either been rejected by the FDA, have been abandoned or are not yet ready to submit their applications to the FDA for approval of their products, many of these competitors are continuing to develop and test their respective products. There can be no assurance that one or all of these products will not be approved by the FDA before our blood substitute product, HemoTech, ever receives FDA approval.

 

In-addition, our competitors also may generally be able to respond more quickly to new or emerging technologies or changes in the regulatory requirements. These competitors may also:

 

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benefit from greater economies of scale;

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offer more aggressive pricing;

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devote greater resources to the promotion of their products; and

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be better positioned to develop future technologies.

  

Our failure to complete the current financing may result in a change of our management and defaults under our license agreements with TTUHSC

 

Pursuant to a letter agreement dated October 26, 2009, by and between the Company and TTUHSC, the Company is required to raise a minimum of $3 million prior to February 19, 2010 which did not occur.  If the Company is unable to raise $3 million, unless such deadline is extended, of which there can be no assurance, the Company agreed that its Board of Directors “in cooperation with TTUHSC will replace the management team at HemoBioTech within 30 days and TTUS could decide on other causes of action related to the license agreements” with TTUS.”  As of the date of this report, TTUHSC has not taken any action to enforce its rights.  In addition, if we do not fund a $1.5 million major primate study out of the $3 million capital raised, or otherwise, the management team will be replaced under such terms described above and TTUS may pursue all rights and remedies under the 2002 and 2008 license agreements.

 

In either event described above the Company could be forced to cease or substantially curtail its operations which would be expected to result in a loss of your investment.

 

We depend on, and will continue to depend on, collaboration with and licenses from third parties, and if we are not able to enter into and/or continue such collaborations or licenses, we may not be able to further develop our products without substantial additional expenditures and delays, if at all.

 

In addition to maintaining our collaborative relationship with TTUHSC, our strategy for the development, clinical testing, manufacturing and commercialization of our proposed products includes entering into various collaborations with corporate partners, licensors, licensees and other third parties in the future, and is dependent on the subsequent success of these third parties in performing their responsibilities. We intend to seek to enter into additional arrangements with other collaborators, although there can be no assurance that we will be able to enter into such collaborations and licenses, or, to the extent that we do, that such collaborations will be successful. Further, there can be no assurance that any future arrangements we may enter into will lead to the development of our products with commercial potential, that we will be able to obtain proprietary rights or licenses for proprietary rights with respect to any technology developed in connection with these arrangements or that we will be able to insure the confidentiality of any proprietary rights and information developed in such collaborative arrangements or prevent the public disclosure thereof.

 

In general, collaborative agreements provide that they may be terminated under certain circumstances. There can be no assurance that we will be able to extend any of our product collaborative agreements on their termination or expiration, or that we will be able to enter into new collaborative agreements with existing or new partners in the future. To the extent we choose not to or are unable to establish any additional collaborative arrangements, it would require substantially greater capital to undertake research, development and marketing of our proposed products into certain markets or find that the development, manufacture or sale of our proposed products in such markets is adversely affected by the absence of such collaborative agreements.

 

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The FDA regulatory process is costly, lengthy and requires specific expertise, and even if we invest the time and money and other resources required to advance through the FDA approval process, we may never receive FDA approval for our products.

 

We will rely initially on consultants with prior experience working with the FDA. We expect to hire experienced employees and consultants to analyze, prepare and present and IND application to the FDA for our blood substitute product. The process of obtaining regulatory approvals can be extremely costly and time consuming and there is no guarantee of success. If we do not receive approval of our IND application, we will not be able to proceed with Phase I U.S. clinical testing. In addition, clinical testing is not predictable. Even if the FDA approves the IND application, we cannot guarantee that the FDA will approve our Phase I U.S. clinical results. Our failure to obtain required regulatory approvals would have a material adverse effect on our business, financial condition and results of operations and could require us to curtail or cease our operations.

 

Our licensed technology from TTUHSC titled Orthogonal Method for the Removal of Transmissible Spongiform Encephalopathy Agents from Biological Fluids (“ORTH Technology”) helps in the clearance and inactivation of infectious agents such as prions (which can cause Mad Cow Disease) and viruses. Such removal and inactivation is critical in the purification of animal products for human use. It can be used not only for HemoTech production, but also has the potential for generating sublicensing revenue from pharmaceutical, biotechnology and the cosmetic industries. We will rely on internal personnel and external consultants to analyze and present this product for appropriate approval in order to market this product. There can be no assurance that regulatory approval for this product will be obtained on a timely basis. In addition, our competitors also may generally be able to respond more quickly to similar and new or emerging technologies or changes in the regulatory requirements and get an approval before us.

 

The FDA and comparable agencies in foreign countries impose substantial requirements on the introduction of therapeutic and diagnostic pharmaceutical and biological products through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these requirements typically takes several years or more and varies substantially based on the type, complexity and novelty of the product. The regulatory review may result in extensive delay in the regulatory approval process. Regulatory requirements ultimately imposed could adversely affect our ability to clinically test, manufacture or market potential products. Government regulation also applies to the manufacture and marketing of pharmaceutical and biological products. The effect of government regulation may be to delay marketing of new products for a considerable period of time, to impose costly procedures on our activities and to furnish a competitive advantage to larger companies that compete with us.

 

There can be no assurance that FDA or other regulatory approval for any products developed by us will be granted on a timely basis or at all. Any such delay in obtaining, or failure to obtain, such approvals would adversely affect the marketing of any contemplated products and the ability to earn product revenue. Further, regulation of manufacturing facilities by state, local and other authorities is subject to change. Any additional regulation could result in limitations or restrictions on our ability to utilize any of our technologies, thereby adversely affecting our operations.

 

We have no marketing experience, are dependent on third parties for marketing services, and we may never be able to successfully market HemoTech, even if it receives FDA approval.

 

We have no marketing and sales personnel and no experience with respect to marketing biochemical or pharmaceutical products. Significant additional expenditures and management resources would be required to develop an internal sales force, and there can be no assurance that such funds would be available. Further, there can be no assurance that, with such a sales force, we would be successful in penetrating the markets for any products developed. We will seek to enter a partnership to develop and market our product. Under certain of these agreements, our marketing partner may have the responsibility for all or a significant portion of the development and regulatory approval. In the event that the marketing and development partner fails to develop a marketable product or fails to market a product successfully, our business may be adversely affected. The sale of certain products outside the United States will also be dependent on the successful completion of arrangements with future partners, licensees or distributors in each territory. There can be no assurance that we will be successful in establishing any additional collaborative arrangements, or that, if established, such future partners will be successful in commercializing products.

 

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We may be sued for product liability in the future, and since we currently maintain no product liability insurance, in the event of a successful suit against us, we may not be able to pay any awarded damages or, if we are able to do so, payment of any such awarded damages could significantly deplete our financial resources.

 

The use of our proposed HemoTech blood substitute product in clinical trials and the marketing of any product may expose us to product liability claims. We currently have no product liability insurance, however, will attempt to obtain such insurance prior to commencement of such trials, if any. We are required by our license agreement with TTUHSC to obtain such insurance. There can be no assurance that we will be able to obtain such insurance or, if obtainable, that such insurance can be acquired at a reasonable cost or will be sufficient to cover all possible liabilities. In the event of a successful suit against us, lack or insufficiency of insurance coverage could have a material adverse effect on us. Furthermore, certain distributors of pharmaceutical and biological products require minimum product liability insurance coverage as a condition precedent to purchasing or accepting products for distribution. Failure to satisfy such insurance requirements could impede our ability to achieve broad distribution of our proposed product, which would have a material adverse effect on our business and financial condition.

 

We currently use labs, equipment, personnel, research and development facilities and production facilities at TTUHSC, and if we ever seek to or need to find or build alternate facilities, we may not be able to do so at all or, if we are, it will be costly and may cause significant delays in the development and commercialization of HemoTech, which could materially impair our operations.

 

We do not currently own, lease or operate any laboratory, research and development or manufacturing facilities. Our current plans include using labs, equipment, personnel and an upgraded blood substitute production facility located at TTUHSC for the production of HemoTech under our Sponsored Research Agreement. After the completion of Phase I or Phase II U.S. clinical trials for HemoTech, the Company will consider establishing independent manufacturing facilities either alone, with TTUHSC, or through partnering. Establishing our own facilities would result in significant additional expenses and may result in potential delays in testing and production. Building and operating our own production facilities would require substantial additional funds and other resources of which there can be no assurance that we will be able to secure nor can there be any assurance that we would be able to enter into any arrangement with third parties to manufacture our product, if any, on acceptable terms or at all. Certain products outside the United States will also be dependent on the successful completion of arrangements with future partners, licensees or distributors in each territory. There can be no assurance that we will be successful in establishing any additional collaborative arrangements, or that, if established, such future partners will be successful in commercializing products.

 

Uncertainty over proposed health care reforms and whether the costs of using our proposed product will be reimbursed to consumer health insurance companies could cause our product to become unmarketable, which would result in our inability to generate revenue.

 

Our success in generating revenue from sales of our proposed HemoTech blood substitute product may depend, in part, on the extent to which reimbursements for the costs of such a product and related treatments will be available from government health administration authorities, private health insurers and other organizations. Significant uncertainty exists as to the reimbursement status of newly-approved health care products. There can be no assurance that adequate third-party insurance coverage will be available for us to establish and maintain price levels sufficient for realization of an appropriate return on our investment in developing new products. Government and other third-party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new therapeutic and diagnostic products approved for marketing by the FDA and by refusing, in some cases, to provide any coverage of uses of approved products for disease indications for which the FDA has not granted marketing approval. If adequate coverage and reimbursement levels are not provided by government and third-party payors for uses of our product, then market acceptance of these products would be adversely affected.

 

Current worldwide economic conditions could materially adversely affect the Company.

 

The Company’s operations and performance depend on worldwide economic conditions.  Uncertainty about current global economic conditions poses a risk as businesses have postponed spending in response to tighter credit, negative financial news and/or declines in income or asset values, which could have a material negative effect on the demand for the Company’s products and services.  Demand could also differ materially from the Company’s  expectations.  These and other economic factors could have a material adverse effect on demand for the Company’s products and services and on the Company’s financial condition and operating results.

 

The current financial turmoil affecting the banking system and financial markets and the possibility that financial institutions may consolidate and more may go out of business have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency and equity markets.  There could be a number of follow-on effects from the credit crises on the Company’s business, including insolvency of clients and/or their inability to obtain credit to finance purchases of the Company’s products.

 

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Risks Related to Our Intellectual Property

 

Our success depends on our ability to protect our intellectual property.

 

We intend to protect our intellectual property through patents and trademarks. The patent positions of biotechnology companies generally are highly uncertain and involve complex legal and factual questions that will determine who has the right to develop a particular product or process. As a result, we cannot predict which of our patent applications will result in the granting of patents or the timing of the granting of the patents. Additionally, many of our competitors have significantly greater capital with which to pursue patent litigation. As of the date of this report, we have no threatened or pending intellectual property-related litigations, legal actions, investigations, court challenges, negotiations or similar activities. There can be no assurance that we would have the resources to defend any potential patents in the face of a lawsuit. Further, we rely on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, there can be no assurance that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. There is also the risk that our employees, consultants, advisors or others will not maintain confidentiality of our trade secrets or proprietary information, or that this information may become known in some other way or be independently developed by our competitors. We may also be exposed to future litigation by third parties based on claims that our patents, products or activities infringe on the intellectual property rights of others or that we have misappropriated the trade secrets of others. Any litigation or claims against us, whether or not valid, could result in substantial costs, could place a significant strain on our financial and managerial resources, and could harm our reputation. In addition, intellectual property litigation or claims could force us to do one or more of the following, any of which could have a material adverse effect on us or cause us to curtail or cease our operations:

 

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cease testing, developing, using and commercializing HemoTech;

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obtain a license from the holder of the infringed intellectual property right, which could also be costly or may not be available on reasonable terms; or

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reformulate HemoTech, which may be impossible or too costly.

The patents underlying our products, may expire prior to our receipt, if ever, of FDA or foreign approval.

 

We have obtained from TTUHSC exclusive worldwide rights to HemoTech under a U.S. patent issued in August 1995, as well as various foreign patents. The patent, U.S. Patent No. 5,439,882, entitled “Blood Substitute” and its foregoing counterparts claims various alternative compositions of the novel blood substitute based on hemoglobin of both bovine and human origin, as well as methods for its production and use. Protection under the U.S. patent expires on August 8, 2012, which may precede our receipt of FDA approval of HemoTech, to the extent FDA approval is granted at all. The Japanese patent and certain of the European patents may also expire on or after August 8, 2012. If the U.S. patent expires before we are able to commercialize our proposed HemoTech product, we may be able to utilize new potential patents related to HemoTech, such as the pending erythropoiesis (production of red blood cells) patent (US 2007/0270333A1) which was filed in 2006 and is actively being pursued, seek commercial exclusivity for a defined time with the FDA and utilize our trade secrets for manufacturing and use of HemoTech. If we are unable to obtain additional patent coverage in advance of the time the existing patent expires or at all, and we fail to receive additional patents, then our competitive position and our ability to successfully commercialize or generate revenues from sales of HemoTech would be materially and adversely affected.  A favorable response from the U.S. Patent Office for the pending erythropoiesis 2006 pending patent has been received.

 

We have filed for a patent for our newly licensed ORTH Technology from TTUHSC, although there can be no assurance that the patent will be obtained. Our failure to obtain the patent would adversely affect the marketing of any contemplated products and the ability to earn product revenue. In addition, our competitors also may generally be able to get a patent approval before us for comparable technologies.

 

Risks Related to Our Common Stock

 

The public market for our Common Stock is thin and subject to manipulation.

 

The market price of our Common Stock, which is traded on the OTC Bulletin Board, may fluctuate significantly in response to the following factors, most of which are beyond our control:

 

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variations in our quarterly operating results;

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changes in general economic conditions and in the healthcare industry;

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changes in market valuations of similar companies;

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announcements by us or our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital commitments;

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loss of a major customer, partner or joint venture participant; and

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the addition or loss of key managerial and collaborative personnel.

The equity markets have, on occasion, experienced significant price and volume fluctuations that have affected the market prices for many companies’ securities and that have often been unrelated to the operating performance of these companies. Any such fluctuations may adversely affect the market price of our Common Stock, regardless of our actual operating performance. As a result, stockholders may be unable to sell their shares, or may be forced to sell them at a loss.

Obtaining additional capital through the future sale of Common Stock and derivative securities will result in dilution of stockholder interests.

 

We plan to raise additional funds in the future by issuing additional shares of Common Stock or securities such as convertible notes, options, warrants or preferred stock that are convertible into Common Stock. Any such sale of Common Stock or other securities will lead to further dilution of the equity ownership of existing holders of our Common Stock.

 

We do not intend to pay cash dividends to our stockholders, so you will not receive any return on your investment in our Company prior to selling your interest in HemoBioTech.

 

We have never paid any dividends to our stockholders. We currently intend to retain any future earnings for funding growth and, therefore, do not expect to pay any cash dividends in the foreseeable future.  As a result, you will not receive any return on your investment prior to selling your shares in our Company and, for the other reasons discussed in this “Risk Factors” section, you may not receive any return on your investment even when you sell your shares in our Company.

 

We have agreed to indemnify our officers and directors and, if an indemnification claim is successfully made, we may be forced to use our working capital to pay our indemnification obligations, which could result in our inability to use such working capital for our operations.

 

Our certificate of incorporation includes certain provisions permitted under Delaware law allowing our officers and directors to be indemnified against certain liabilities. Our certificate of incorporation also limits, to the fullest extent permitted by Delaware law, a director’s liability for monetary damages for breach of fiduciary duty, including gross negligence, except liability for the following:

 

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breach of the director’s duty of loyalty;

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acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law;

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the unlawful payment of a dividend or unlawful stock purchase or redemption; and

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any transaction from which the director derives an improper personal benefit.

Delaware law does not eliminate a director’s duty of care and this provision has no effect on the availability of equitable remedies such as an injunction or rescission based on a director’s breach of the duty of care. In December 2004, we purchased a $5.0 million insurance policy providing coverage for certain liabilities of our officers and directors. In addition, we have entered into separate director and officer indemnification agreements with each of Arthur Bollon, Ghassan Nino, Robert Baron, Bernhard Mittemeyer, Mark Rosenblum (our former CFO) and Robert Comer, under which we agreed to indemnify and advance expenses to each of these directors and officers, as the case may be, against any losses arising out of or relating to any actual, alleged or suspected act or failure to act by such person in his capacity as a director, officer, employee or agent of HemoBioTech or any affiliated company, trust, joint venture, corporation, limited liability company or partnership for which such person was acting or had acted as a director, officer, employee or agent at HemoBioTech’s request. Further, in connection with Ghassan Nino’s resignation as an officer of HemoBioTech under an employment separation and release agreement dated as of July 15, 2004, we agreed to indemnify Mr. Nino and his heirs, executors, administrators and assigns, against all losses arising out of any claim made by a third party against Mr. Nino or HemoBioTech as a result of an action taken or not taken by Mr. Nino as an officer of HemoBioTech, so long as such actions or inactions were taken or not taken by Mr. Nino in good faith within the scope of his employment.

 

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Our Common Stock is considered a “penny stock” and is subject to regulations that limit or restrict the potential market for our stock.

 

Our Common Stock is deemed to be “penny stock” (as that term is defined under the Securities Exchange Act of 1934, as amended) resulting in increased risk to our investors and certain requirements being imposed on some brokers who execute transactions in our Common Stock. In general, a penny stock is an equity security that:

 

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is priced under $5.00;

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is not traded on a national securities exchange;

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may be listed in the “Pink Sheets” or the OTC Bulletin Board;

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is issued by a company that has less than $5.0 million in net tangible assets (if it has been in business less than three years) or has less than $2.0 million in net tangible assets (if it has been in business at least three years); and

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is issued by a company that has average revenues of less than $6.0 million for the past three years.

At any time the Common Stock qualifies as a penny stock, the following requirements, among others, will generally apply:

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certain broker-dealers who recommend penny stock to persons other than established customers and accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale.

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Prior to executing any transaction involving a penny stock, certain broker-dealers must deliver to certain purchasers a disclosure schedule explaining the risks involved in owning penny stock, the broker-dealer’s duties to the customer, a toll-free telephone number for inquiries about the broker-dealer’s disciplinary history and the customer’s rights and remedies in case of fraud or abuse in the sale.

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In connection with the execution of any transaction involving a penny stock, certain broker-dealers must deliver to certain purchasers the following:

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bid and offer price quotes and volume information;

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the broker-dealer’s compensation for the trade;

•

the compensation received by certain salespersons for the trade;

•

monthly accounts statements; and

•

a written statement of the customer’s financial situation and investment goals.

Should a broker-dealer required to provide the above disclosure or fail to deliver such disclosure on the execution of any transaction involving a penny stock in violation of federal or state securities laws, you may be able to cancel your purchase and get your money back. In addition, if the stocks are sold in a fraudulent manner, you may be able to sue the persons and firms that caused the fraud for damages. If you have signed an arbitration agreement, however, you may have to pursue your claim through arbitration. These requirements significantly add to the burden of the broker-dealer and limit the market for penny stocks. These regulatory burdens may severely affect our ability to create a market for our stock and the liquidity and market price for our Common Stock.

 

A significant number of our shares will be eligible for sale and their sale or potential sale may depress the market price of our Common Stock.

 

Sales of a significant number of shares of our Common Stock in the public market could harm the market price of our Common Stock. As of May 26, 2010, 23,693,434 shares of our Common Stock were issued and outstanding. In addition, as of the date of this report, an aggregate of 4,833,589 shares of our Common Stock may be issued in the future upon exercise of currently outstanding warrants, and 2,223,115  shares of our Common Stock may be issued in the future upon exercise of stock options or other awards granted under our 2003 Stock Option/Stock Issuance Plan and an additional 120,916 shares were available for grant under such plan.  As additional shares of our Common Stock become available for resale in the public market, the supply of our Common Stock will increase, which could decrease its price. Some or all of the shares of Common Stock may be offered from time to time in the open market under Rule 144, and these sales may have a depressive effect on the market for our shares of Common Stock. In general, a non-affiliates who have held restricted shares for a period of six months may sell our Common Stock into the market.

 

Our management and principal stockholders own a substantial amount of our Common Stock and have effective control of HemoBioTech, which may not always be in the best interests of all of our stockholders.

 

Our officers, directors and principal stockholders control approximately 59% of our outstanding Common Stock as of December 31, 2009.  If these stockholders act together, they will be capable of controlling our management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our Common Stock. This concentration of ownership may not be in the best interests of all our stockholders.

 

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Anti-Takeover, Limited Liability and Indemnification Provisions

 

Certificate of Incorporation and By-laws.

 

Under our certificate of incorporation, our Board of Directors may issue additional shares of common or preferred stock. Any additional issuance of Common Stock could have the effect of impeding or discouraging the acquisition of control of us by means of a merger, tender offer, proxy contest or otherwise, including a transaction in which our stockholders would receive a premium over the market price for their shares, and thereby protects the continuity of our management. Specifically, if in the due exercise of its fiduciary obligations, the Board of Directors were to determine that a takeover proposal was not in our best interest, shares could be issued by our Board of Directors without stockholder approval in one or more transactions that might prevent or render more difficult or costly the completion of the takeover by:

 

•

diluting the voting or other rights of the proposed acquirer or insurgent stockholder group,

•

putting a substantial voting block in institutional or other hands that might undertake to support the incumbent Board of Directors, or

•

effecting an acquisition that might complicate or preclude the takeover.

Our certificate of incorporation also allows our Board of Directors to fix the number of directors in the bylaws. Cumulative voting in the election of directors is specifically denied in our certificate of incorporation. The effect of these provisions may be to delay or prevent a tender offer or takeover attempt that a stockholder may determine to be in his or its best interest, including attempts that might result in a premium over the market price for the shares held by the stockholders.

 

Delaware Anti- Takeover Law.

 

We are subject to the provisions of Section 203 of the Delaware General Corporation Law concerning corporate takeovers. This section prevents many Delaware corporations from engaging in a business combination with any interested stockholder, under specified circumstances. For these purposes, a business combination includes a merger or sale of more than 10% of our assets, and an interested stockholder includes a stockholder who owns 15% or more of our outstanding voting stock, as well as affiliates and associates of these persons. Under these provisions, this type of business combination is prohibited for three years following the date that the stockholder became an interested stockholder unless:

 

•

the transaction in which the stockholder became an interested stockholder is approved by the Board of directors prior to the date the interested stockholder attained that status;

•

on consummation of the transaction that resulted in the stockholder’s becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction was commenced, excluding those shares owned by persons who are directors and also officers; or

•

on or subsequent to that date, the business combination is approved by the Board of Directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

This statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.

ITEM 2.  PROPERTIES

We currently do not own any property. We currently operate out of an approximately 4,000 square foot facility provided to us by Texas Tech under the sponsored research agreement. This facility is located in Lubbock, Texas. In June 2007, we signed a five year lease, which is renewable for approximately 2,000 square feet of office space in Dallas, Texas at the Providence Towers, 5001 Spring Valley Road, Suite 1040 West, Dallas, Texas 75244, which we use as our corporate headquarters.

 

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PART II

 

ITEM 5.

PRICE RANGE OF COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is quoted on the OTC Bulletin Board under the symbol “HMBT.OB.”

 

The range is high and low bid quotations for our common stock during each quarter of the fiscal years ended December 31, 2009 and 2008 is shown below.  Prices are inter-dealer quotations as reported by the FINRA and do not necessarily reflect transactions, retail markups, mark downs, or commissions.  The closing price of our Common Stock on April 30, 2010 was $0.70 per share.

 

		Years Ended December 31,
		2009								2008
		High				Low				High				Low
First		$	1.00			$	0.24			$	1.40			$	0.85
Second		$	0.70			$	0.30			$	1.40			$	1.00
Third		$	1.01			$	0.15			$	1.00			$	0.70
Fourth		$	0.75			$	0.18			$	1.03			$	0.21

 

HOLDERS OF RECORD

 

As of April 23, 2010, there were approximately 100 holders of record of our common stock.

 

DIVIDEND POLICY

 

We have never declared or paid dividends on our shares of common stock.  We currently intend to retain future earnings for use in our business and, therefore, do not anticipate paying any cash dividends on our shares of common stock in the foreseeable future.  Any future determination as to the payment of cash dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors including the General Corporation Law of the State of Delaware, which provides that cash dividends are only payable out of retained earnings or if certain minimum rations of assets to liabilities are satisfied.  The declaration of cash dividends on our common stock also may be restricted by the provisions of credit agreements that we may enter into from time to time.

 

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information regarding the status of our existing equity compensation plans at December 31, 2009.

Plan category		Number of shares of common stock to be issued on exercise of outstanding options, warrants and rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the previous columns)
Equity compensation plans approved by security holders  (1)			2,344,031			$	0.74				120,916
Equity compensation plans not approved by security holders			—				—				—
Total			2,344,031			$	0.74				120,916

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(1) Consists of our 2003 Stock Option/Stock Issuance Plan.

RECENT SALES OF UNREGISTERED SECURITIES

Bridge Financing

 

Between October 28 and November 25, 2009, the Company completed a bridge financing (the “Bridge Offering”) of $385,000 of Bridge Offering units (the “Bridge Unit”).  The Bridge Units consist of $385,000 principal amount of 10% Promissory Notes (“Bridge Notes”), and 1,540,000 shares of Common Stock, which were offered on a “best efforts” basis.  Meyers Associates, the Placement agent of this Offering and a principal stockholder of the Company, received approximately $55,000 in fees and expenses coincident with the Bridge Notes and Warrants to purchase an aggregate of 539,000 Shares of Common Stock from the Offering.  The Company received net proceeds of approximately $305,000 which are being used for working capital, including expenses of this Offering.  The Bridge Notes (but not the shares of Common Stock included in the Bridge Units) mature in one year from their dates of issuance, however, upon the sale of at least the minimum $1,500,000 in the Company’s current offering, the Bridge Notes shall be converted by the Company into Units at the Purchase Price.

The net proceeds from the Bridge Offering are being used by the Company for working capital purposes.

The Bridge Units were offered and sold in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, based on information provided in the investors’ subscription agreements.

STOCK OPTION GRANTS

The Company granted 676,000 stock options for the year ended December 31, 2009 under its Stock Option/Stock Issuance Plan at a weighted average exercise price of $0.40 per share. Information pertaining to these options is set forth in Note F(6) to the accompanying financial statements.

OPTIONS GRANTED IN 2009
MONTH	SHARES		OPTION PRICE / RANGE	TERM (IN YEARS)
JAN	15,000		$0.73	5 TO 10 YEARS
FEB	-		-	-
MAR	135,000		$0.30 - $0.51	5 TO 10 YEARS
APR	-		-	-
MAY	-		-	-
JUN	35,000		$0.55	5 TO 10 YEARS
JUL	-		-	-
AUG	-		-	-
SEP	-		-	-
OCT	280,000		$0.25	5 TO 10 YEARS
NOV	80,000		$0.40 - $0.44	5 TO 10 YEARS
DEC	131,000		$0.50 - $0.55	5 TO 10 YEARS
TOTAL	676,000

 

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers

The following descriptions provide information covering each executive officer and director of the Company as of the date of this Report.

Name		Age		Position
Robert Baron		70		Chairman of the Board
Arthur P. Bollon, Ph.D.		67		President, CEO and Director
Robert Comer, CPA, MBA		77		Interim Chief Financial Officer and Secretary and Director
Mario Feola, M.D.		83		Chief Medical Officer
Jan Simoni, Ph.D., DVM		59		Acting Vice President and Principal Investigator of Research and Development and Advisor
Ghassan Nino, CPA, CMA		42		Director
Robert E. Dragoo, Jr.		70		Director
Lt. General Bernhard Mittemeyer, M.D. (U.S. Army, retired)		79		Director

Robert Baron has served on the board of directors of the Company since November 2004, and as Chairman of the board since October 26, 2009.  Currently, Mr. Baron is a director of Opko Health, Inc., a publicly traded clinical stage biopharmaceutical company, Andover Medical, Inc., a publicly traded durable medical equipment distributor. Previously, Mr. Baron served as the President of Cash City, Inc. from 1999 to 2003. Cash City is a payday advance and check cashing business. From 1997 to 1999 Mr. Baron was the President of East Coast Operations for CSS/TSC, Inc., a distributor of blank t-shirts and fleece and accessories and a subsidiary of Tultex, Inc., a publicly held company. From 1986 to 1997, Mr. Baron was the chairman of T Shirt City, Inc., a privately held company.

Arthur P. Bollon has served on a full-time basis as our President and Chief Executive Officer since April 8, 2003.  Until October 2009, he also served as Chairman of the Board.  Dr. Bollon has over 25 years of experience in biotechnology as an executive, scientist and entrepreneur. In 2003 he co-founded Biogress, LLC, a biotechnology service company. Between 1991 and 2002, Dr. Bollon was Chairman, President and Chief Executive Officer of Cytoclonal Pharmaceutics, a publicly traded biotechnology company which he co-founded in 1991. Cytoclonal Pharmaceutics completed an initial public offering in 1995. In 1987, Dr. Bollon was a founder of Wadley Biosciences Inc./Lymphokine Partners, a partnership between Wadley Cancer Center and Philips Petroleum. Between 1987 and 1990, Dr. Bollon was Chairman and CEO of the Wadley Biosciences Inc. Between 1979 and 1987, Dr. Bollon served as Chairman of the Department of Molecular Genetics and Director of Genetic Engineering at the Wadley Cancer Center. Between 1972 and 1979, Dr. Bollon served as an Assistant Professor at the University of Texas Health Science Center in Dallas. He has also served as Adjunct Professor at the University of Texas at Dallas. He received his Ph.D. in Molecular Genetics from Rutgers University and was a Post Doctorate Fellow at Yale University.

 

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Robert Comer has served as Interim Chief Financial Officer and Secretary since January 1, 2010 and as a director since April 6, 2005. Mr. Comer served as Chairman of the Audit Committee and is a member of the Nominating and Corporate Governance Committee. From 1994 to the present, Mr. Comer has been involved in contract consulting and served as our Acting Chief Financial Officer between November 18, 2004 and April 1, 2005. From 1991 to 1994, he served as Chief Financial Officer of Banc One Management and Consulting Corporation. From 1987 to 1991, Mr. Comer was Managing Partner of Robert W. Comer & Associates. From 1985 to 1987, Mr. Comer was a Director of Financial Management Services of InterFirst Corporation. From 1969 to 1981, Mr. Comer was an audit partner with Arthur Andersen & Co. Mr. Comer received his B.S. and M.B.A. degrees from Indiana University.

Mario Feola is a co-inventor of HemoTech and has been our full-time Chief Medical Officer since November 1,2004. From December 14, 2003 through October 31,2004, Dr. Feola served as our Chief Medical Officer on a part-time basis. Between 1994 and 2004, Dr. Feola served as the Chief of Surgery at the Veteran's Affairs Hospital in Amarillo, Texas and since 1977, Dr. Feola has served as a Professor of Surgery at Texas Tech. Dr. Feola has authored or co-authored more than 100 papers, book chapters and research abstracts. Dr. Feola has been a speaker at many national and international blood substitute conferences and is a member of numerous scientific and professional organizations. He received his M.D. degree from the University of Naples, Italy.

Jan Simoni is a co-inventor of HemoTech and has served as our Acting Vice President and Principal Investigator of Research and Development since 2002. On July 13, 2005, the Company entered into an advisory agreement with Dr. Simoni to receive advisory services on technical, medical and market issues related to HemoBioTech, including its second-generation blood substitute, HemoTech. Since 1993, Dr. Simoni has also served as the Blood Substitute Group Leader and now as Research Professor in the Department of Surgery at Texas Tech, where he co-invented HemoTech. Since 2004, he holds a joint appointment as Research Associate Professor in the Department of Internal Medicine, being involved in the cardiology and nephrology fellows education process. Between 1990 and 2002, Dr. Simoni served as Assistant Research Professor and from 2002 to 2007 as Associate Research Professor of Surgery at Texas Tech. Between 1985 and 1990, Dr. Simoni was a Research Instructor in the Department of Surgery at Texas Tech. Previously, Dr. Simoni served as a Research Scientist and Senior Lecturer in the Department of Pathophysiology at Wroclaw University of Environmental and Life Sciences. Dr. Simoni is the author or co-author of more than 250 scientific publications including 86 papers and book chapters, 156 abstracts and several patents. He was an invited speaker at many national and international blood substitute conferences and has organized and chaired many blood substitute sessions. Dr. Simoni is a member of a number of scientific and professional organizations, including the National Research Honor Society, the American Society for Artificial Internal Organs (ASAIO), the International Society for Artificial Cells, Blood Substitutes and Immobilization Biotechnology and the American Veterinary Medical Association. Dr. Simoni is an Editorial Board member of the ASAIO Journal and a reviewer for the Journal of Pharmacology and Experimental Therapeutics, Pharmacological Biochemistry, ASAIO Journal, Artificial Organs, Nature Biotechnology, Medicinal Research Reviews and Oncogene. Dr. Simoni received his veterinary medical degree (D.V.M.) and doctoral degree (Ph.D.) from Wroclaw University of Environmental and Life Sciences. Dr. Simoni is compensated directly by Texas Tech in accordance with the terms of our sponsored research agreement with Texas Tech, for which the Company reimburses Texas Tech.

Ghassan Nino has served as our Vice Chairman of the Board since October 6, 2003. Mr. Nino founded our predecessor-in-interest, HemoBioTech, Inc., a Texas corporation, in December 2001. Between October 6, 2003 and July 15, 2004, Mr. Nino served as our Vice Chairman and Acting Chief Financial Officer. Mr. Nino resigned as an employee and officer of the Company, effective as of July 15, 2004, and continues to serve as our non-executive Vice Chairman of the Board. In April 2003, Mr. Nino co-founded Biogress LLC, a biotech service company, and has served as its managing director since that time. In April 2002, Mr. Nino founded Pave Systems Inc., a technology software company, and has served as its managing director since that time. In August 1998, Mr. Nino founded Ascend Mobility, Inc., a business and technology advisory company, and served as a director of Ascend until March 2004. Mr. Nino expects to continue devoting time to these and other ventures during his tenure with us. Between 1997 and 1998, Mr. Nino was a Practice Development Director at Deloitte Touche Tohmatsu.  Mr. Nino received his M.B.A. degree from California State, Fullerton.

Robert E. Dragoo, Jr. has served as a director since January 28, 2009. Mr. Dragoo currently serves as the Chief Operating Officer and Senior Vice President for Administration and Finance at Texas Tech University which is a significant shareholder of the Company. Prior to Texas Tech, Mr. Dragoo was a Senior Vice President for Temple Inland Corporation and is a former Senior Partner of Ernst and Young’s Center for Business Innovation located in Cambridge Mass. Mr. Dragoo has over 35 years experience in business management and business performance improvement. He holds a B.S. in Mechanical Engineering from Texas Tech University, and completed an Executive MBA program at Harvard University.

 

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Lt. General Bernhard Mittemeyer, M.D. (U.S. Army, retired) has served as a member of our Board of Directors since December 10, 2004, and currently serves on each of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. Dr. Mittemeyer served as our Advisory Board Chairman from November 5, 2003 to December 9, 2004. Dr. Bernhard T. Mittemeyer currently serves as Professor of Urological Surgery in the Department of Urology of the School of Medicine at the Texas Tech University Health Sciences Center. During his 21 years at Texas Tech, Dr. Mittemeyer served the institution in several positions; most recently as Interim President of the Health Sciences Center, Interim Dean of the School of Medicine and as Chief of the Division of Urology. Before joining Texas Tech in 1986, Dr. Mittemeyer served 28 years in the Army, rising to the rank of Lieutenant General and retiring in 1985 as Army Surgeon General, the highest position open to Army physicians. As Surgeon General of the Army from 1981 to 1985, he was Chief Executive Officer of the Army Medical Department and Senior Medical Staff Advisor to the Chief of Staff of the Army and the Secretary of the Army. Prior to his assignment as the Army Surgeon General, Dr. Mittemeyer served as Commander and Chief Executive Officer of Walter Reed Army Medical Center, the military’s largest tertiary care, research and teaching hospital. Other key Army assignments have included: Chief of the Army Medical Corps and Chief of Professional Services; Commander of the U.S. Army Medical Command in Korea; Army Division Surgeon and Medical Battalion Commander of the 101st Airborne Division in Vietnam. Dr. Mittemeyer holds numerous military decorations and citations, including the Distinguished Service Medal, the Army’s highest peacetime award, as well as the Distinguished Flying Cross and Bronze Star Medal for valor in combat. Non-military honors include an honorary Doctor of Law from Movarian College, an honorary Doctor of Science from William Jewell College and the Alumni Achievement Award in Health Policy from Temple University School of Medicine. Dr. Mittemeyer received his Doctor of Medicine Degree from the Temple University School of Medicine in Philadelphia. He has authored or co-authored more than 40 publications and has made numerous presentations in the areas of Urology, Surgery, Health Care Administration and Leadership over his more than 50 year career in medicine.

All directors hold office until the next annual meeting of stockholders or until their successors have been elected and qualified.  There are no family relationships among our directors or executive officers. No director has been a general partner or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it. No director has been convicted of a criminal offense or is the subject of a pending criminal proceeding. No director has been the subject of any order, judgment, or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities. No director has been found by a court to have violated a federal or state securities or commodities law.

Under the terms of the Company’s Sponsored Research Agreement, dated July 18, 2002, with Texas Tech University Health Sciences Center, pursuant to which Texas Tech agreed to assist the Company in continuing to develop the Company’s HemoTech product as a potential viable human blood substitute, Texas Tech has the right to designate to our Nominating and Corporate and Governance Committee one person for consideration by the committee for nomination as a director of our Board. Dr. Mittemeyer is Texas Tech’s Board designee. Texas Tech’s right to designate a Board nominee candidate terminated on October 13, 2006.

Under the terms of our October 2004 private placement, Meyers Associates, L.P. has the right to designate to our Nominating and Corporate and Governance Committee one person for consideration by the committee for nomination as a director of our Board or alternatively, at its option, to designate one person to attend all meetings of the Board. Robert Baron is Meyers Associates, L.P.’s Board designee. Meyers Associates’, L.P. right to designate a Board nominee candidate was to terminate when Meyers Associates, L.P. no longer owned at least 10% of our outstanding capital stock, however, that right will continue upon completion of the pending Offering.

Board Committees

 

The Company has a standing Audit Committee, which was formed in April, 2005, a standing Compensation Committee, which was formed in April, 2005, and a standing Nominating and Corporate Governance Committee, which was formed in May 2006.

The Audit Committee currently consists of Bernhard Mittemeyer, Robert Baron and Robert E. Dragoo, Jr. (Chairman) who joined the committee on January 28, 2009. The Audit Committee has adopted a formal written charter, which is available on the Company’s website at www.hemobiotech.com.  Each of Messrs. Mittemeyer, Baron and Dragoo is “independent” under Rule 10A-3(b)(1)(ii) under the Exchange Act, and Messrs. Mittemeyer, Baron and Dragoo are “independent” under Rule 4200(a)(15) of the Financial Industry Regulating Authority (“FINRA”).  In addition, the Board of Directors has determined that Mr. Dragoo qualifies as an “audit committee financial expert” within the meaning of the SEC rules.

The Compensation Committee currently consists of Bernhard Mittemeyer, Robert Baron (Chairman) and [Robert Comer]. The Compensation Committee has adopted a formal written charter, a copy of which is available on the Company’s website at www.hemobiotech.com.  Dr. Mittemeyer is independent under Rule 4200(a)(15) of the FINRA.

The Nominating and Corporate Governance Committee consists of Bernhard Mittemeyer, Robert Baron (Chairman), Robert Comer and Robert E. Dragoo, Jr. who joined the committee on January 28, 2009.  The Nominating and Corporate Governance Committee has adopted a formal written charter, a copy of which is available on the Company’s website at www.hemobiotech.com.  Dr. Mittemeyer is independent under Rule 4200(a)(15) of the FINRA.

 

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The membership of and information about each of our Board committees is shown below.

Committee/Current Members

 

Audit Committee

Dr. Mittemeyer

Mr. Baron

Mr. Dragoo (Chairman)

Committee Functions

 

·	Oversees financial and operational matters involving accounting, corporate finance, internal and independent auditing, internal control over financial reporting, compliance, and business ethics.

·	Oversees other financial audit and compliance functions as assigned by the Board.

·	Reviews areas of potential significant financial risk to the Company.

·	Has the sole authority to select, evaluate, replace and oversee the Company’s independent registered public accounting firm.

·	Has the sole authority to approve non-audit services to be performed by the independent registered public accounting firm.

·	Monitors the independence and performance of the independent registered public accounting firm.

·	Provides an avenue of communications among the independent registered public accounting firm, management and the Board of Directors.

·	Determines whether “related party transactions” are permissible.

Compensation Committee

Mr. Baron (Chairman)

Dr. Mittemeyer

Robert Comer

Committee Functions

·	Reviews the performance of Company officers and establishes overall executive compensation policies and programs.

·	Reviews and approves compensation elements such as base salary, bonus awards, stock option grants and other forms of long–term incentives for Company officers (no member of the committee may be a member of management or eligible for compensation other than as a director).

·	Reviews succession plans for Company officers.

·	Reviews Board compensation and stock ownership matters.

 

Nominating and Corporate Governance Committee

Mr. Baron (Chairman)

Dr. Mittemeyer

Mr. Comer

Mr. Dragoo

 

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Committee Functions

 

·	Develops criteria to determine the qualifications and appropriate tenure of directors.

·	Reviews such qualifications and makes recommendations to the Board regarding the nomination of current directors for re-election to the Board as well as new nominees to fill vacancies on the Board.

·	Considers stockholder recommendations for Board nominees, as described below.

·	Recommends to the Board the chairmanship and membership of each Board committee.

·	Considers applicable social and ethical issues and other matters of significance in areas related to corporate public affairs.

 

Nominating and Corporate Governance Committee Matters

 

The Nominating and Corporate Governance Committee expects, as minimum qualifications, that nominees to the Board (including incumbent directors) will enhance the Board’s management, finance and/or scientific expertise, will not have a conflict of interest and will have a high ethical standard and, with respect to new members of the Board, a willingness to serve at least an initial three-year term for the committee to recommend them to the Board of Directors. A director nominee’s knowledge and/or experience in areas such as, but not limited to, the medical, pharmaceutical, biotechnology, biopharmaceutical or life sciences industry, equity and debt capital markets and financial accounting are likely to be considered both in relation to the individual’s qualification to serve on our Board of Directors and the needs of the Board as a whole. Other characteristics, including, but not limited to, the director nominee’s material relationships with the Company, time availability, service on other boards of directors and their committees, or any other characteristics which may prove relevant at any given time as determined by the Nominating and Corporate Governance Committee shall be reviewed for purposes of determining a director nominee’s qualification.

 

Candidates for director nominees are evaluated by the Nominating and Corporate Governance Committee in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of the Company’s stockholders. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee would be considered “independent” under Rule 4200(a)(15) of the NASD, applicable SEC rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee then uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible candidates after considering the function and needs of the Board. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews such directors’ overall service to the Company during their term, including the number of meetings attended, level of participation, quality of performance, and any other relationships and transactions that might impair such directors’ independence. The Nominating and Corporate Governance Committee meets to discuss and consider such candidates’ qualifications and then selects a nominee for recommendation to the Board by majority vote. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates candidates, including the minimum criteria set forth above, based on whether the candidate was recommended by a stockholder or not. To date, the Nominating and Corporate Governance Committee has not paid a fee to any third party to assist in the process of identifying or evaluating director candidates.

 

The Nominating and Corporate Governance Committee will evaluate and recommend each of the directors currently standing for re-election at the next Annual Meeting.

 

The Board of Directors does not impose term limits or a mandatory retirement age for directors. While it is believed that a director’s knowledge and/or experience can continue to provide benefit to the Board of Directors following a director’s retirement from his or her primary work affiliation, it is recognized that a director’s knowledge of and involvement in ever changing business environments can weaken, and therefore his or her ability to continue to be an active contributor to the Board of Directors shall be reviewed. Upon a director’s change in employment status, he or she is required to notify the Chairman of the Board of Directors and the Chair of the Nominating and Corporate Governance Committee of such change and to offer his or her resignation for review.

 

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Stockholder Nomination Policy

 

It is our policy to review and consider all candidates for nomination and election as directors who may be suggested by any director or executive officer of the Company. Our policy is also to refer to the Nominating and Corporate Governance Committee for consideration any director candidate recommended by any stockholder if made in accordance with the Company’s charter, bylaws and applicable law. To be considered, a recommendation for director nomination should be submitted in writing to: HemoBioTech, Inc., Nominating and Corporate Governance Committee, Attention: Chief Financial Officer, 5001 Spring Valley Road, Suite 1040 - West, Dallas, Texas 75244.

 

Code of Business Conduct and Ethics and Guidelines on Governance Issues

 

Our Board has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees, a copy of which is available on the Company’s website at www.hemobiotech.com. The Company will provide a copy of this code to any person, without charge, upon request, by writing to the Company at HemoBioTech, Inc., Attention: Chief Financial Officer, 5001 Spring Valley Road, Suite 1040 - West, Dallas, Texas 75244. We intend to satisfy the disclosure requirement under Item 5.05   of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics by posting such information on our website at the address specified above.

 

Communications with the Board

 

Stockholders may communicate in writing with our Board of Directors, any of its committees, or with any of its non-management directors by sending written communications addressed to: HemoBioTech, Inc., Attention: Chief Financial Officer, 5001 Spring Valley Road, Suite 1040 - West, Dallas, Texas 75244. Our Chief Financial Officer will review each communication and will forward such communication to the Board or to any individual director to whom the communication is addressed unless the communication is unduly hostile, threatening or similarly inappropriate, in which case, the Chief Financial Officer shall discard the communication.

 

Policies on Reporting Certain Concerns Regarding Accounting and Other Matters

 

We have adopted policies on the reporting of concerns regarding accounting, internal accounting controls or auditing matters to the Audit Committee. Any person who has a concern regarding accounting, internal accounting controls and auditing controls and auditing matters may submit that concern to: HemoBioTech, Inc., Attention: Chief Financial Officer, 5001 Spring Valley Road, Suite 1040 - West, Dallas, Texas 75244. Employees may communicate all concerns regarding accounting, internal accounting controls and auditing matters to the Audit Committee on a confidential and anonymous basis through the Company’s compliance officer: complianceofficer@hemobiotech.com. This e-mail address is checked routinely and any information is recorded and reported to the Audit Committee Chairman.

 

Board Compensation and Benefits

 

Retainer, Fees and Expenses. Non-employee directors are entitled to receive retainers in quarterly increments based on an annualized rate of $15,000 a year.  Cash compensation of $7,500 was paid during the year ended December 31, 2009 to each non-employee director.

 

Further, we will reimburse our directors for reasonable accommodations, coach travel and other miscellaneous and customary expenses relating to such director’s attendance of Board meetings, payable promptly on submission of actual receipts for such expenses.

 

No directors currently receive consulting fees from the Company. Directors who are also employees of the Company (currently, only Dr. Bollon and Mr. Comer) receive no additional compensation for service on the Board.

 

Stock Options. On joining the Board, each non-employee director receives an option to purchase 15,000 shares of common stock, which will vest immediately, and will become eligible to receive, at the end of each calendar quarter, an additional option to purchase 7,000 shares of common stock, all of which will vest immediately.  The exercise price of these options for our directors owning less than 5% of our common stock will be the fair market value of our common stock as of the last Friday of each quarter and have a term of ten years.  For all directors with a 5% or greater ownership in our common stock, the exercise price shall be 110% of the fair market value at the date of grant and the option term will be five years.

 

38

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Director Compensation Table

During the year ended December 31, 2009, our Directors each received $7,500 cash compensation.  Our non-employee directors earned option grants to purchase 28,000 shares of common stock and options granted at fair market value to purchase $15,000 of Common Stock.  The financial statement compensation cost for stock option awards granted to five non-employee directors during 2009 was $110,685 and was recognized in our statement of operations for the year 2009.  The compensation cost is based on the fair value of the stock option grants as estimated using the Black-Scholes option pricing model.  The assumptions used to estimate fair value are discussed in Note F(6) to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009.

As of December 31, 2009, the non-employee Directors held (or were entitled to receive) options to purchase the following numbers of shares of our common stock: Mr. Baron: 154,000; Mr. Comer: 149,000; Dr. Mittemeyer: 186,582; Mr. Nino: 136,000 and Mr. Dragoo: 78,000.

ITEM 11.  EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following table sets forth certain summary information for the two years ended December 31, 2009, indicated with respect to the compensation awarded to, earned by, or paid to our Chief Executive Officer and each of the other most highly compensated executive officers of HemoBioTech whose total annual salary and bonus exceeded $100,000. We refer to these executive officers in this proxy statement as the “Named Executive Officers.”

 

Name and Principal Position		Year		Salary ($)			Bonus ($)		Option Awards ($) (1)				Non-Equity Incentive Plan Compensation ($)(2)				All Other Compensation ($)				Total ($)
Arthur P. Bollon, Ph.D.,
Chairman of the Board, Chief Executive Officer & President		2009		$	136,241					23,751				—				0				159,992
		2008			230,957					54,707				—				0				285,664
Mark J. Rosenblum, C.P.A.,
Chief Financial Officer & Secretary		2009		$	101,104					47,305				—				0				148,409
		2008			161,360					97,929				—				0				259,289
Mario Feola, M.D.,
Chief Medical Officer		2009		$	-					0				—				0				-0-
		2008			58,461					0				—				0				58,461
Jan Simoni, Ph.D., DVM,
Acting Vice President and Principal Investigator of Research and Development		2009		$	-					39,787				—				0				39,787
		2008			54,575					71,443				—				0				126,018

Footnotes

(1)

The amounts in this column equal the financial statement compensation cost for stock option awards as recognized in our statement of operations for the year 2008 and 2009.  The compensation cost is based on the fair value of the stock option grants as estimated using the Black-Scholes option pricing model.  The assumptions used to estimate fair value are discussed in Note F(6) to our consolidated financial statements included in our Annual Report on Form 10-K for the years ended December 31, 2009 and 2008.

 

39

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(2)	We awarded bonuses to the Named Executive Officers based on our achievement of certain performance targets and the Executive Officers’ employment agreements. Accordingly, bonus amounts are reported in the Non-Equity Incentive Plan Compensation column.

Stock Option Grants and Exercises

 

The Company may grant options to its executive officers under the Amended and Restated 2003 Stock Option/Stock Issuance Plan (the “Plan”). As of December 31, 2009, options to purchase a total of 2,223,115 shares were outstanding under the Plan and options to purchase 120,916 shares remained available for grant under the Plan. Generally, the exercise price per share for the options granted under the Plan will not be less than the fair market value of the stock on the date of grant.

 

Our Compensation Committee administers the Plan. Subject to the terms of the Plan, the Compensation Committee determines the recipients, the number and type of stock options to be granted, the exercise price and the terms and conditions of the stock options.

 

Outstanding Equity Awards at Fiscal Year End

 

The following table shows information regarding grants of stock options held by our Named Executive Officers at December 31, 2009.  We have never granted any stock appreciation rights.

		Option Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable				Number of Securities Underlying Unexercised Options (#) Unexercisable				Option Exercise Price ($)			Option Expiration Date
Arthur P. Bollon, Ph.D.			80,558				30,554				1.25		April 24, 2013
Mario Feola, M.D.			271,528				0				.18		December 15, 2013
Jan Simoni, Ph.D., DVM			271,528				0				.18		July 13, 2015

Other Benefits

 

We offer medical insurance for all of our employees. The cost to the Company for providing these benefits in 2009 for our Named Executive Officers was approximately $42,202.

The Company does not presently sponsor a defined contribution 401(k) savings plan for its employees and does not maintain any other retirement or pension plan for its employees.

Change in Control Arrangements

 

Our 2003 Plan provides that each grant may provide for the earlier exercise of an option right in the event of a "Change-in-Control" or similar event. For this purpose, a "Change-in-Control" includes (1) a stockholder-approved merger, consolidation or other reorganization in which securities representing more than 50% of the total combined voting power of the Company's outstanding securities are beneficially owned, directly or indirectly, by a person or persons different from the person or persons who beneficially owned those securities immediately prior to such transaction; (2) a stockholder-approved sale, transfer or other disposition of all or substantially all of the Company's assets; or (3) the acquisition, directly or indirectly, by any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company), of beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than 50% of the total combined voting power of the Company's outstanding securities from a person or persons other than the Company. Following specified Change-in-Control transactions, the vesting and exercise of specified equity awards generally will be accelerated only if the awardee's award agreement so specifies. The standard form of stock option agreement provides for the option to become fully vested and exercisable immediately prior to the effective date of a Change-in-Control; provided that the option will not become exercisable on an accelerated basis if and to the extent: (i) the option is to be assumed by the successor corporation (or parent thereof) or is otherwise to be continued in full force and effect pursuant to the terms of the Change-in-Control transaction or (ii) the option is to be replaced with a cash incentive program of the successor corporation which preserves the spread existing on the option shares covered by the option at the time of the Change-in-Control and provides for the subsequent payout of that spread no later than the time the option shares would have otherwise become exercisable.

 

40

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Our employment agreements with our Named Executive Officers contain provisions triggered by a change in control. See "Employment Agreements and Other Arrangements" below.

Employment Agreements and Other Arrangements

 

Employment Agreement with Arthur P. Bollon. On October 6, 2003, we entered into an amended employment agreement with Dr. Bollon, under which Dr. Bollon agreed to serve as our Chairman of the Board, President and Chief Executive Officer for an initial term of three years, automatically renewable for one-year periods unless otherwise terminated by either party on at least 90 days' prior written notice. In exchange for his services, we agreed to pay Dr. Bollon an annual base salary of $265,000 plus annual cost-of-living increases and health benefits. The parties agreed that payment of Dr. Bollon's base salary and benefits would be deferred until such time as the Company raised at least $4.0 million. On July 15, 2004, Dr. Bollon agreed to forgive all deferred compensation and benefits accrued and owing as of October 13, 2004, the date of the closing of the minimum offering of our private placement financing. Commencing as of October 13, 2004 and through such time as we complete a subsequent financing of $10.0 million, Dr. Bollon has agreed to an adjusted base salary at the rate of $150,000 per annum, payable in accordance with his employment agreement. In addition to Dr. Bollon's base salary and benefits package agreed to in October 2003, we granted to Dr. Bollon an option to purchase 651,668 shares of our common stock at an exercise price of $.20, all of which were fully vested and exercisable as of April 23, 2007.

(6) Incorporated by reference to the Registrant's Current Report on Form 8-K filed with the Commission on March 9, 2009.

(7) Incorporated by reference to the Registrant’s Form 10-K for the year ended December 31, 2008.

 

50

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ITEM 8. FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm	F-2
Balance Sheets as of December 31, 2009 and 2008 (restated)	F-3
Statements of Operations for the years ended December 31, 2009 and 2008 (restated), and the cumulative period from October 3, 2001 (inception) through December 31, 2009	F-4
Statements of Stockholders' Equity for the years ended December 31, 2009 and 2008 (restated)	F-5
Statements of Cash Flows for the years ended December 31, 2009 and 2008 (restated), and the cumulative period from October 3, 2001 (inception) through December 31, 2009	F-7
Notes to Financial Statements	F-8

 

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

HemoBioTech, Inc.

Dallas, Texas

 

We have audited the accompanying balance sheets of HemoBioTech, Inc. as of December 31, 2009 and 2008, and the related statements of operations, stockholders' deficiency and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of HemoBioTech, Inc. as of December 31, 2009 and 2008, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note B to the financial statements, the Company has suffered recurring losses from operations which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/M&K CPAS, PLLC

www.mkacpas.com

Houston, Texas

May 26, 2010

 

F-2

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HemoBioTech. Inc.

(A Development Stage Company)

Balance Sheets

(Rounded to the nearest thousand)

		December 31,
		2009				2008
						(Restated)
ASSETS
Current assets:
Cash and cash equivalents		$	55,000			$	443,000
Prepaid and other assets			83,000				269,000
Total current assets			138,000				712,000
Equipment, net			25,000				41,000
Restricted cash			55,000				55,000
Total Assets		$	218,000			$	808,000
LIABILITIES
Current Liabilities
Accounts payable and accrued expenses		$	529,000			$	538,000
Notes Payable			270,000				-
Total current liabilities			799,000				538,000
Deferred rent			37,000				38,000
Total Liabilities			836,000				576,000
STOCKHOLDERS' EQUITY
Common Stock —— $.001 par value
23,493,434 in 2009 and 20,642,125 in 2008 shares issued and outstanding			24,000				21,000
Additional paid-in capital			17,169,000				15,683,000
Deficit accumulated during the development stage			(18,032,000	)			(15,693,000	)
Common stock payable			221,000				221,000
			(618,000	)			232,000
Total Equity		$	218,000			$	808,000

 

F-3

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HemoBioTech. Inc.

(A Development Stage Company)

Statements of Operations

(Rounded to the nearest thousand)

 

		Years ended December 31,								(Unaudited) Cumulative from October 3, 2001 Through December 31,
		2009				2008				2009
						(Restated)
Revenue		$	-			$	-			$	-
Operating expenses:
Research and development			442,000				1,540,000				4,053,000
General and administrative			1,855,000				2,327,000				12,184,000
Other (income) expenses:
Interest expense			47,000				-				2,158,000
Interest income			(5,000	)			(35,000	)			(363,000	)
Net Loss		$	(2,339,000	)		$	(3,832,000	)		$	(18,032,000	)
Basic and diluted loss per share common share		$	(0.11	)		$	(0.19	)
Shares outstanding — basic and diluted			21,441,059				19,953,543

 

F-4

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HemoBioTech. Inc.

(A Development Stage Company)

Statements of Changes in Stockholders' Equity (Capital Deficiency)

(Rounded to the nearest thousand)

(Unaudited)

																										Deficit
														Note												Accumulated
										Additional				Receivable				Common								During the
		Common								Paid-In				Placement				Stock				Unearned				Development
		Shares				Amount				Capital				Agreement				Payable				Compensation				Stage				Total
Issuance of shares to Texas Tech University Health Service Center (January 22, 2002) ($.001)			678,820			$	1,000			$				$				$				$				$				$	1,000
Issuance of shares to Ghassan Nino (January 30, 2002 ($.001)			1,086,113				1,000				1,000																				2,000
Estimated fair value of stock granted for services (January 30, 2002) ($.001)			217,223								1,000																				1,000
Issuance of shares to Ghassan Nino (January 31, 2002) ($.001)			2,715,280				3,000				2,000																				5,000
Issuance of shares to Marlin and Evilene Nino (February 07, 2002) ($.001)			678,820				1,000																								1,000
Net loss for the year																											(235,000	)			(235,000	)
Balance- December 31, 2002			5,376,256				6,000				4,000																(235,000	)			(225,000	)
Issuance of shares to Munir Nino (January 20, 2003) ($.001)			217,224
Estimated fair value of stock granted for compensation (April 8, 2003) ($.001)			977,502				1,000				1,000																				2,000
Estimated fair value of stock granted for services (April 14, 2003) ($.001)			217,223								1,000																				1,000
Issuance of shares to Evilene Nino (October 31, 2003) ($.001)			108,613
Expenses paid by stockholder											10,000																				10,000
Net loss for the year																											(617,000	)			(617,000	)
Balance – December 31, 2003			6,896,818				7,000				16,000																(852,000	)			(829,000	)
Contribution of note and related interest (July 15, 2004)											155,000																				155,000
Contribution of deferred salary (July 15, 2004)											564,000																				564,000
Expenses paid by stockholder											4,000																				4,000
Estimated fair value of shares to Texas Tech University Health Service Center (May 22, 2004) ($.85)			135,765								115,000																				115,000
Return of shares (July 15, 2004) Note F[4]			(1,086,113	)			(1,000	)			1,000
Shares issued to placement agent (August 19, 2004) (Note H)			1,500,000				2,000				13,000				(15,000	)
Issuance of shares and warrants in Private Placement net of expenses of $528,000 (October 13, 2004 and October 27, 2004)			2,647,080				2,000				2,575,000																				2,577,000
Contribution of Salary (October 13, 2004)											11,000																				11,000
Contribution of notes and related interest (October 13, 2004)											125,000																				125,000
Unearned compensation											13,000												(13,000	)
Estimated fair value of vested options granted to Board of Advisors											22,000																				22,000
Collection of note (October 13, 2004)															15,000																15,000
Valuation of placement agent’s warrants and shares attributable to debt (see F[3])											803,000																				803,000
Net loss for the year																											(1,259,000	)			(1,259,000	)
Balance – December 31, 2004			10,093,550				10,000				4,417,000												(13,000	)			(2,111,000	)			2,303,000
Amortization																							6,000								6,000
Estimated fair value of options vested issued to Board of Advisors											25,000																				25,000
Estimated fair value of options issued to Advisor – July 13, 2005											109,000																				109,000
Estimated fair value of warrants issued to consultant – July 28, 2005											27,000																				27,000
Estimated fair value of warrants issued to consultant – September 13, 2005											7,000																				7,000
Conversion of promissory notes into Common Stock net of unamortized discount of $58,000 (at a conversion price of $1.06 per share) – August 17, 2005			765,132				1,000				752,000																				753,000
Conversion of promissory notes into Common Stock net of unamortized discount of $7,000 (at a conversion price of $1.06 per share) – September 16, 2005			205,451								211,000																				211,000
Conversion of promissory notes into Common Stock net of unamortized discount of $1,000 (at a conversion price of $1.06 per share) – October 21, 2005			66,122								69,000																				69,000
Conversion of promissory notes into Common Stock (at a conversion price of $1.06 per share) – October 27, 2005			507,785				1,000				538,000																				539,000
Net loss for the year																											(3,454,000	)			(3,454,000	)
Balance – December 31, 2005			11,638,040				12,000				6,155,000												(7,000	)			(5,565,000	)			595,000
Elimination of unvested compensation											(7,000	)											7,000
Stock based compensation – board of advisors and consultant											110,000																				110,000
Stock based compensation – employees and directors											178,000																				178,000
Conversion of promissory notes into Common Stock -March, 2006			128,264								251,000																				251,000
Conversion of promissory notes into Common Stock -April, 2006			14,548								35,000																				35,000
Exercise of warrants, net of expenses of $99,000 – January, 2006			1,868,544				2,000				1,880,000																				1,882,000
Exercise of warrants, net of expenses of $1,000 – February, 2006			9,412								8,000																				8,000
Exercise of warrants, net of expenses of $19,000 – April, 2006			355,885								358,000																				358,000
Exercise of warrants, net of expenses of $5,000 - May, 2006			97,118								98,000																				98,000
Exercise of warrants, net of expenses of $28,000 – June, 2006			534,652				1,000				537,000																				538,000
Exercise of warrants, net of expenses of $121,000 – July, 2006			2,290,424				2,000				2,304,000																				2,306,000
Shares issued to financial advisor (September 12, 2006) See Note I[3]			1,500,000				2,000				298,000																				300,000
Net Loss for the year																											(2,571,000	)			(2,571,000	)
Balance – December 31, 2006			18,436,887				19,000				12,205,000																(8,136,000	)			4,088,000
Net Loss for the period																											(3,725,000	)			(3,725,000	)
Stock based compensation – board of advisors and consultant											107,000																				107,000
Stock based compensation – employees and directors											276,000																				276,000
Stock based compensation relating to shares issued to financial advisor											855,000																				855,000
Estimated fair value of warrants issued to consultant – October 1, 2007											57,000																				57,000
Issuance of shares and warrants in Private Placement net of expenses of $106,000 (December 31, 2007)			707,120								686,000																				686,000
Balance – December 31, 2007			19,144,007			$	19,000			$	14,186,000			$				$				$				$	(11,861,000	)		$	2,344,000

 

F-5

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