10QSB

SEC SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the Quarterly Period Ended June 30, 2004

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the transition period from ____________ to ____________

Commission File No. 1-14778

DOR BIOPHARMA, INC.

(Exact name of small business issuer as specified in its charter)

DELAWARE 41-1505029

(State or other jurisdiction of (I.R.S. Employer Identification

incorporation or organization) Number)

1691 Michigan Ave., Suite 435, Miami, FL 33139

(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code (305) 534-3383

Check whether the issuer: (1) filed all reports required to be filed by Section

13 or 15 (d) of the Securities Exchange Act during the past 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.

Yes [X] No [ ]

At August 1, 2004, 42,042,943 shares of the registrant's common stock

(par value, $.001 per share) were outstanding.

Transitional Small Business Disclosure Format (check one):

Yes [ ] No [X]

PART I. - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

DOR BioPharma, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
(unaudited)
	June 30,			December 31,
	2004			2003
Assets
Current assets:
Cash and cash equivalents	$	4,568,313		$	4,117,539
Receivable		-			20,954
Prepaid expenses		75,270			155,844
Total current assets		4,643,583			4,294,337
Equipment, net of accumulated depreciation of $152,757 and $141,650, respectively		55,361			60,795
Licenses and patent costs, net of accumulated amortization of $568,477 and $384,333, respectively		1,876,947			1,896,934
Total assets	$	6,575,891		$	6,252,066
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	455,297		$	211,587
Accrued royalties		100,000			320,000
Accrued compensation and other expenses		101,140			116,638
Notes Payable		115,948			359,067
Total current liabilities		772,385			1,007,292
Stockholders’ equity:
Series B convertible preferred stock, $.05 par value. Authorized 200,000 shares; 126,488 issued and outstanding in 2003, at liquidation value		-			12,648,768
Common stock, $.001 par value. Authorized 100,000,000 shares; 42,042,943 and 34,893,765 issued, 41,870,601 and 34,721,423 outstanding		42,044			34,894
Additional paid-in capital		82,841,870			67,005,276
Deficit accumulated during the development stage		(76,612,141	)		(73,975,897	)
		6,271,773			5,713,041
Less: Cost of 172,342 shares of common stock in treasury		(468,267	)		(468,267	)
Total stockholders’ equity		5,803,506			5,244,774
Total liabilities and stockholders’ equity	$	6,575,891		$	6,252,066
See accompanying notes to consolidated financial statements.

DOR BioPharma, Inc.
(A Development Stage Company)
Consolidated Statement of Operations
(unaudited)
	Three Months
	Ended June 30,
	2004			2003
Grant revenue	$	-		$	-
Expenses:
Proprietary research and development		990,013			748,767
General and administrative		498,894			(177,221	)
Total expenses		1,488,907			571,546
Loss from operations		(1,488,907	)		(571,546	)
Other income (expense):
Interest income		22,132			3,325
Interest expense		(6,901	)		(1,096	)
Other income		300			5,433
Total other income (expense)		15,531			7,662
Net loss	$	(1,473,376	)	$	(563,884	)
Preferred stock dividends		-			(233,596	)
Net loss applicable to common stockholders	$	(1,473,376	)	$	(797,480	)
Basic and diluted net loss per share applicable to common stockholders	$	(0.04	)	$	(0.03	)
Basic and diluted weighted average common shares outstanding		41,870,601			27,282,768
See accompanying notes to consolidated financial statements.

DOR BioPharma, Inc.
(A Development Stage Company)
Consolidated Statement of Operations
(unaudited)
							Cumulative Period
	Six Months						February 15, 1985
	Ended June 30,						(inception) to
		2004			2003		June 30, 2004
Grant revenue	$	66,095		$	-		$	249,912
Expenses:
Cost of revenue		59,486			-			221,851
Proprietary research and development		1,689,524			1,136,668			24,666,248
General and administrative		977,471			1,856,656			21,516,061
Write-off of acquired in-process research and development		-			-			10,181,000
Total expenses		2,726,481			2,993,324			56,585,160
Loss from operations		(2,660,386	)		(2,993,324	)		(56,335,248	)
Other income (expense):
Interest income		38,843			9,997			3,638,846
Interest expense		(15,173	)		(4,108	)		(437,394	)
Other income		525			5,433			237,025
Equity in joint ventures		-			-			(22,179,091	)
Total other income (expense)		24,195			11,322			(18,740,614	)
Net loss		(2,636,191	)		(2,982,002	)		(75,075,862	)
Preferred stock dividends		(503,195	)		(464,624	)		(7,763,826	)
Net loss applicable to common stockholders	$	(3,139,386	)	$	(3,446,626	)	$	(82,839,688	)
Basic and diluted net loss per share applicable to common stockholders	$	(0.08	)	$	(0.13	)
Basic and diluted weighted average common shares outstanding		39,100,797			27,176,773
See accompanying notes to consolidated financial statements.

DOR BioPharma, Inc.
(A Development Stage Company)
Consolidated Statement of Cash Flows
(unaudited)
							Cumulative Period
	Six Months						February 15, 1985
	Ended June 30,						(inception) to
		2004			2003		June 30, 2004
Operating activities:
Net loss	$	(2,636,191	)	$	(2,982,002	)	$	(75,075,862	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		203,150			164,340			2,337,894
Gain on sale of marketable securities					-			(110,244	)
Non-cash stock compensation		104,528			1,010,414			2,228,082
Equity in (earnings) losses of joint ventures		-			-			22,179,091
Amortization of fair value of warrants		-			-			3,307,546
Gain on sale of assets		225			(5,433	)		21,747
Write-off patent issuance cost		-			-			499,065
Write-off of acquired research and development		-			-			10,181,000
Change in operating assets and liabilities:
Receivable from related party		20,954			-			-
Prepaid expenses		80,574			43,020			(75,270	)
Accounts payable and accrued expenses		8,212			(129,633	)		627,774
Accrued compensation		-			(96,760	)		29,000
Total adjustments		417,643			985,948			41,225,685
Net cash used by operating activities		(2,218,548	)		(1,996,054	)		(33,850,177	)
Investing activities:
Cash received in acquisition of CTD, net		-			-			1,392,108
Patent issuance costs		(172,281	)		(302,224	)		(1,997,832	)
Investment in joint ventures		-			-			(5,274,391	)
Purchases of leasehold improvements and equipment		(5,673	)		-			(1,893,725	)
Proceeds from assets sold		-			-			108,197
Purchases of marketable securities		-			-			(11,004,080	)
Proceeds from sale of marketable securities		-			-			11,114,324
Net cash used by investing activities		(177,954	)		(302,224	)		(7,555,399	)
Financing activities:
Net proceeds from issuance (costs incurred related to issuance) of common stock		3,040,086			(114,626	)		46,516,117
Proceeds from exercise of options		61,972			140,494			666,281
Proceeds from borrowings under line of credit		-			-			1,150,913
Repayment of amounts due under line of credit, notes payable and capital lease obligations		(254,783	)		(307,728	)		(1,689,187	)
Repayment of note payable issued in exchange for legal services		-			-			(71,968	)
Purchase and retirement of common stock		-			-			(130,000	)
Purchase of common stock for treasury		-			-			(468,267	)
Net cash provided by (used in) financing activities		2,847,275			(281,860	)		45,973,889
Net increase (decrease) in cash and cash equivalents		450,773			(2,580,138	)		4,568,313
Cash and cash equivalents at beginning of period		4,117,540			4,147,164			-
Cash and cash equivalents at end of period	$	4,568,313		$	1,567,026		$	4,568,313
Supplemental disclosure of cash flow:
Cash paid for interest	$	15,173		$	4,108
Supplemental disclosure of non-cash investing and financing activites:
Issuance of preferred stock dividends in kind	$	171,535		$	464,624
See accompanying notes to consolidated financial statements.

DOR BioPharma, Inc.

(A Development Stage Company)

Notes to Consolidated

Financial Statements

These unaudited interim consolidated financial statements of DOR BioPharma, Inc. ("we" or "us") were prepared under the rules and regulations for reporting on Form 10-QSB. Accordingly, we omitted some information and footnote disclosures normally accompanying the annual financial statements. You should read these interim financial statements and notes in conjunction with our audited consolidated financial statements and their notes included in our annual report on Form 10-KSB, as amended, for the year ended December 31, 2003.  In our opinion, the consolidated financial statements include all adjustments necessary for a fair statement of the results of operations, financial position and cash flows for the interim periods. All adjustments were of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results for the full fiscal year. Certain prior year amounts have been reclassified to conform to the current period presentation, specifically; the severance expense that was presented as a separate line item in the statement of operations for the three months and six months ended June 30, 2003, are now reported as a component of general and administrative costs.

NET LOSS PER SHARE

Net loss per share is presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 for the current and prior periods. We had a net loss for all periods presented, which resulted in diluted and basic earnings per share being the same for all of those periods presented. The potential impact of warrants and stock options outstanding was not included in the calculation because their inclusion would have been anti-dilutive.

STOCK BASED COMPENSATION

We have stock-based employee compensation plans. SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. We have chosen to continue using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, in accounting for our stock option plans.

We have potential common stock equivalents related to our outstanding stock options. These potential common stock equivalents were not included in diluted loss per share because the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share and the weighted average number of shares used in the computations are the same for each of the periods presented. There were options to purchase 8.4 million and 3.9 million shares of our common stock outstanding at June 30, 2004 and 2003, respectively.

Had compensation cost been determined based upon the fair value at the grant date for awards under the stock option plans based on the provisions of SFAS No. 123, our pro forma net loss and net loss per share would have been as follows for the six months ended June 30:

	2004			2003
Net loss applicable to common stockholders as reported	$	(3,139,386	)	$	(3,446,626	)
Stock-based compensation as reported		-			880,414
Stock-based employee compensation expense determined under fair value based method		(1,028,554	)		(460,714	)
Pro forma net loss	$	(4,167,940	)	$	(3,026,926	)
Net loss per share:
as reported, basic and diluted	$	(0.08	)	$	(0.13	)
pro forma, basic and diluted	$	(0.11	)	$	(0.11	)

The fair value of options in accordance with SFAS 123 was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions: dividend yield 0%, expected life of four years, volatility of 105% and 105% in 2004 and 2003, respectively, and average risk-free interest rates of 4.0% and 4.5% in 2004 and 2003, respectively.

In 2003, we granted options to employees and directors that were conditional upon stockholder approval of an amendment to our 1995 omnibus option plan, which occurred September 15, 2003. Accordingly, a measurement date did not exist until that approval occurred, and on a quarterly basis through the measurement date, we recorded expense or reversal of expense based on the difference between the exercise price and the current market price. This resulted in a charge of $880,414 being recorded in the first six months of 2003.

LICENSES AND PATENT COSTS

Patent costs, principally legal fees, are capitalized and, upon issuance of the patent, are amortized on a straight-line basis over the shorter of the estimated useful life of the patent or the regulatory life. Licenses of technology with alternative future use are capitalized and are amortized on a straight-line basis over the shorter of the estimated useful life or the regulatory life. Licenses of technology with no alternative future use are expensed as incurred. The useful lives of our licenses and patent costs at June 30, 2004 ranged from 11 to 16 years. The following is a summary of License and Patent assets:

	Weighted Average
	Amortization				Accumulated
June 30, 2004	Period		Cost		Amortization		Net
Patents and Licenses		11.40 years	$	2,445,424	$	568,477	$	1,876,947

	Weighted Average
	Amortization					Accumulated
December 31, 2003	Period			Cost		Amortization		Net
Patents and Licenses		11.85 years	$	2,281,267	$	384,333	$	1,896,934

Aggregate amortization expense for the six months ended June 30, 2004 was $184,143.

Estimated amortization for the years ending December 31:

2004	$	300,000
2005		135,000
2006		135,000
2007		135,000
2008		135,000

IMPAIRMENT OF LONG-LIVED ASSETS

Equipment, leasehold improvements, licenses and patent costs, and amortizable intangible assets are reviewed for impairment yearly and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and the carrying value of the related asset or group of assets. Such analyses necessarily involve the making of significant judgments.

STOCKHOLDERS’ EQUITY

On June 17, 2004, we purchased certain shares from a minority holder in our Enteron subsidiary. In exchange for the holder's shares, we issued warrants for the purchase of 200,000 shares of common stock at an exercise price of $0.58 and $11,141 in cash. In connection with this transaction the Company recorded a charge of approximately $105,000 which is recorded as a General and Adminstrative expense.

SUBSEQUENT EVENT

On July 9, 2004, we accepted the resignation of Ralph M. Ellison, M.D. as President, Chief Executive Officer, and a Director. Dr. Ellison was appointed CEO in March 2003 and resigned for personal reasons. The company anticipates a payments of approximately $200,000 in severence costs over the next two quarters, and will take a charge for the entire amount in the third quarter for these severence costs.

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS

The following discussion and analysis provides information to explain our results of operations and financial condition. You should also read our unaudited consolidated interim financial statements and their notes included in this Form 10-QSB, and the our audited consolidated financial statements and their notes and other information included in our Annual Report on Form 10-KSB, as amended, for the year ended December 31, 2003.  This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the safe-harbor created by that Section. Forward-looking statements within this Form 10-QSB are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" "plans" and other similar expression;, however, these words are not the exclusive means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are subject to significant risks, uncertainties and other factors, including those identified in Exhibit 99.1 "Risk Factors" filed with this Form 10-QSB, which may cause actual results to differ materially from those expressed in, or implied by, these forward-looking statements. Except aw expressly required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events, or circumstances or developments occurring subsequent to the filing of this Form 10-QSB with the SEC or for any other reason and you should not place undue reliance on these forward-looking statements.You should carefully review and consider the various disclosures the Company m akes in this report and our other reports filed with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.

Overview:

We are a biopharmaceutical company focused on the development of biodefense vaccines and oral therapeutic products intended for areas of unmet medical need.

Through our Biodefense Division, we are working to develop biomedical countermeasure vaccines for ricin toxin and botulinum toxin, both of which are considered bioterrorism threats by the Centers for Disease Control (CDC). With the recent passage of Project Bioshield Act 2004, which is legislation that offers incentives for companies to develop countermeasures to the CDC-identified bioterror threats including the creation of a Strategic National Stockpile, we hope to provide the U.S. Government with qualified vaccines for procurement and inclusion in the Strategic National Stockpile.

Through our Biotherapeutics Division, we are developing oral therapeutic products to treat unmet medical needs. Our lead product, orBec® (oral beclomethasone dipropionate), has recently completed enrollment in a multicenter, pivotal phase III clinical trial for the treatment of acute intestinal graft-vs-host disease, a form of serious and life-threatening gastrointestinal inflammation. Data from the pivotal clinical trial are expected in the fourth quarter of 2004. If the data are statistically and clinically significant, we plan to file a New Drug Application (NDA) with the Food and Drug Administration (FDA) in the first quarter of 2005. OrBec® is a highly potent, topically-active glucocorticoid. The indication has previously been designated fast track status and received Orphan Dr ug Designation by the FDA.

Plan of Operation:

Our business strategy is to (1) enhance the value of in-licensed technologies through research and development, specifically preclinical and clinical testing towards regulatory approval; (2) solicit and apply for support for our biodefense vaccine development programs in the form of government grants; (3) identify and acquire rights to new therapeutic compounds; (4) market biodefense vaccine products directly to the U.S. and European military and governmental agencies and; (5) sell or out-license therapeutic products that have reached an advanced state of development or no longer meet our strategic criteria.

orBec® (Oral Beclomethasone dipropionate)

As announced on July 14, 2004, we have completed enrollment in our Phase III pivotal clinical trial for our lead product orBec®, and the treatment phase will conclude in September 2004. We expect to release data from this trial in the fourth quarter of 2004. If the data from this trial are statistically and clinically significant, we plan to file an NDA with the FDA in the first quarter of 2005. Since our program involves a single pivotal trial, the filing of an NDA will be dependent upon the results of this Phase III trial. OrBec® is being developed to treat post-allogeneic bone marrow transplant-related Graft-versus-Host Disease with gastrointestinal involvement.

RiVax™ (Ricin Toxin Vaccine)

With respect to our ricin vaccine program, work to date has been funded by us through a sponsored research agreement with the University of Texas Southwestern Medical Center (UT Southwestern), as well as a $2.6 million National Institute of Allergy and Infectious Diseases (NIAID) grant previously awarded to UT Southwestern. It is our intent to fund further development of the vaccine through government research grants and/or a strategic partnership with a commercial partner; however, in the event that neither of these funding strategies is available, we will consider other options, including additional funding from us. Currently the vaccine is being developed for intramuscular delivery; there is however a parallel development program, which was funded through a Phase I Small Business Inno vations Research grant (SBIR), in which oral and nasal administration of the vaccine candidate is being explored. Our academic development partners, UT Southwestern, intend to initiate a Phase I clinical trial for the injected vaccine in healthy human volunteers this year. The ultimate goal of the RiVax™ program is to develop a qualified countermeasure for ricin toxin, and to solicit a procurement contract from the U.S. Government for addition of the vaccine to the Strategic National Stockpile pursuant to the new legislation Project Bioshield Act 2004.

BT-VACC™ (Botulinum Toxin Vaccine)

Our botulinum vaccine program is focused on the development of an orally- or nasally-delivered, multivalent vaccine to potentially prevent botulism. We have previously demonstrated that our vaccine candidate for botulinum neurotoxin serotype A has shown efficacy in animals after nasal inoculation. Oral administration of the same antigen has shown promising results. We are continuing to evaluate both the oral and nasal route of delivery of this antigen, and our intent is to file an Investigational New Drug application for the purposes of conducting a Phase I clinical trial in healthy volunteers. In order to advance the development of a potential oral or nasal multivalent botulinum vaccine, we recently entered into a collaboration with the U.S. Army Medical Research Institute of Infectious Dise ases (USAMRIID). Under this agreement, USAMRIID will provide Dr. Lance Simpson of Thomas Jefferson University (TJU) with previously manufactured antigens for testing oral and nasal administration in animals. The collaboration with USAMRIID and TJU may expedite the development of an alternate route of delivery for the vaccine, potentially truncating the time to clinical testing. We are pursuing the funding of future work through federal grants, and we are continuing to discuss partnerships for the purpose of selecting a manufacturer. The ultimate goal of our BT-VACC™ program is to develop a preventative countermeasure for the biothreat botulinum toxin, and to solicit a procurement contract from the U.S. Government for addition of the vaccine to the Strategic National Stockpile.

Critical Accounting Policies:

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates and judgments. Currently, the most significant estimate or judgment that we make is whether to capitalize or expense patent and license costs. We make this judgment based on whether the technology has alternative future uses, as defined in SFAS 2, "Accounting for Research and Development Cost s." Based on this consideration, we have capitalized all outside legal and filing costs incurred in the procurement and defense of patents, as well as amounts paid in licensing additional methods of vaccine delivery through the Southern Research Institute patents, and amounts paid to University of Texas Southwestern Medical Center giving us the option to license certain patents related to a vaccine protecting against ricin toxin. These intangible assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and the carrying value of the related asset or group of assets.

Results of Operations:

We are a development stage company and to date have not generated any revenues from operating activities.

For the three months ended June 30 2004, we had a net loss of $1,473,376, which represented an increase in net loss of $909,492, or 161%, as compared to a net loss of $563,884 for the same period in 2003. After giving effect to dividends on preferred stock, which were paid-in-kind in the form of additional shares of preferred stock, net loss available to common stockholders increased $675,896, or 85%, to $1,473,376, or $0.04 per share, for the three months ended June 30, 2004, compared to $797,480, or $0.03 per share, for the same period of the prior year. For the six months ended June 30, 2004, we had a net loss of $2,636,191, which represented a decrease in net loss of $345,811, or 12%, as compared to a net loss of $2,982,002 for the same period in 2003. After giving effect to d ividends on preferred stock, which were paid-in-kind in the form of additional shares of preferred stock, net loss available to common stockholders decreased $307,240, or 9%, to $3,139,386, or $0.08 per share, for the three months ended June 30, 2004, compared to $3,446,626, or $0.13 per share, for the same period of the prior year.

Research and development expenses increased $241,246, or 32%, to $990,013, for the three months ended June 30, 2004, compared to $748,767 for the corresponding period ended June 30, 2003. Research and development expenses increased $552,856, or 48%, to a $1,689,524, for the six months ended June 30, 2004, compared to $1,136,668 for the corresponding period ended June 30, 2003. The second quarter of 2004 increase resulted from payments due to study sites as we completed enrollment in our phase III clinical trial, as well as a toxicology study for safety in ricin. The year to date increase includes the addition of our ricin and botulinum programs.

General and administrative expenses increased $676,115, to $498,894 for the three months ended June 30, 2004, as compared to a credit of $177,221 for the three months ended June 30, 2003. General and administrative expenses decreased $879,185, to $977,471, or 47%, for the six months ended June 30, 2004, as compared to $1,856,656 for the six months ended June 30, 2003. The increase in the second quarter of 2004 was due to $104,528 non-cash charge for the purchase of shares in a subsidiary from one of its minority stockholders, as well as a stock compensation credit of $599,165 for the three months ended June 30, 2003. This expense resulted from non-cash charges associated with options granted to employees, directors, and consultants that did not have a measurement date until approv al by stockholders at our 2003 annual meeting of stockholders. The year to date decrease resulted primarily from a 2003 stock compensation expense of $880,414.

Interest income for the three months ending June 30, 2004 was $22,132, an increase of $18,807, or 566%, as compared to $3,325 for the same period in 2003. Interest income for the six months ending June 30, 2004 was $38,843, an increase of $28,846, or 289%, as compared to $9,997 for the same period in 2003. Both of these increases were due to higher cash balances in 2004, as well as an increased interest rate on investment instruments.

FINANCIAL CONDITION AND LIQUIDITY:

On June 30, 2004, we had cash and cash equivalents of $4,568,313, compared to $4,117,539 at December 31, 2003. Our working capital was $3,871,198 at June 30, 2004, compared to $3,287,045 at December 31, 2003.

For the first six months of 2004, our cash outflows decreased by $69,347, or 3%, to $2,651,285 compared to $2,720,632 for the same period in 2003. The overall decrease resulted primarily from an decrease in our patent issuance costs of $129,943, partially offset by an increase in prepaid expenses of $37,554.

On March 12, 2004, we completed a private placement of 4,113,924 shares of common stock at $0.79 per share for total net proceeds of $3,040,086. In addition, each investor received a warrant to purchase 0.25 shares of common stock at an exercise price of $0.87 per share along with each share of common stock purchased in the placement. We also paid a commission to our placement agent of $162,500 in cash and warrants to purchase 257,120 shares of common stock at an exercise price of $0.87 per share.

Based on our current rate of cash outflows, we believe that our cash of $4,568,313 at June 30, 2004 will not be sufficient to meet our anticipated cash needs for working capital and capital expenditures for the next 12 months. We anticipate that we will seek additional capital in the private and/or public equity markets, strategic partnerships, or other alternative financing sources to support our operations, to respond to competitive pressures, and to support new strategic partnership expenditures.  If we receive additional funds through the issuance of equity or equity-linked securities, stockholders may experience significant dilution and these equity securities may have rights, preferences or privileges senior to those of our common stock. The terms of any debt financing may c ontain restrictive covenants which limit our ability to pursue certain courses of action. Further, we may not be able to obtain additional financing when needed or on acceptable terms. If we are unable to obtain additional financing when needed, or to do so on acceptable terms, we may be unable to develop our products, take advantage of business opportunities, respond to competitive pressures or continue our operations.

ITEM 4. Controls and Procedures

Our Chief Executive Officer and Controller (our principal executive officer and principal financial officer, respectively) concluded, based on an evaluation of our disclosure controls and procedures performed by our management, with the participation of our Chief Executive Officer and Controller, that as of June 30, 2004 our disclosure controls, and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.

Any control system, no matter how well designed and operated, can provide only reasonable (not absolute) assurance that its objectives will be met. Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

There was not any change in our internal control over financial reporting during the quarter ended June 30,2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. - OTHER INFORMATION

Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities

On June 17, 2004 we purchased the certain shares from a minority holder in our Enteron subsidiary. In exchange for the holder's shares, we issued warrants for the purchase of 200,000 shares of common stock at an exercise price of $0.58 and $11,141 in cash. In connection with this transaction the Company recorded a charge of approximately $105,000 which is recorded as a General and Administrative expense.

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

An annual meeting of stockholders was held on June 11, 2003.

Our stockholders voted as follows with respect to a proposal to elect eight directors to serve until the next annual meeting of stockholders or until their successors are duly elected and qualified:

DIRECTORS	FOR	AUTHORITY WITHHELD
Alexander M. Haig Jr.	25,763,890	558,965
Steve H. Kanzer	25,791,041	532,814
Ralph M. Ellison	25,766,127	556,728
Larry Kessel	25,791,041	532,814
Arthur Asher Kornbluth	25,791,041	532,814
Evan Myrianthopoulos	25,791,027	532,828
Peter Salomon	25,791,034	532,821
James Kuo	25,791,041	532,814
Stuart Sedlack	21,791,025	532,830

The Company's stockholders voted as follows with respect to a proposal to ratify the appointment of Sweeney, Gates & Co. as our independent auditors for the year ending December 31, 2004.

FOR	AGAINST	ABSTENTIONS	BROKER NON-VOTES
26,046,933	231,846	44,076	n/a

Item 6 - Exhibits and Reports on Form 8-K

(a) Exhibits

31.1	Certification of Chief Executive Officer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002).
31.2	Certification of Principal FinancialOfficer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002).
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Risk Factors

(b) Reports on Form 8-K:  

We did not file any reports on Form 8-K during the three months ended June 30, 2004.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DOR BioPharma, Inc
August 13, 2004	By:	/s/ Geoff Green
		President and Acting Chief Executive Officer

August 13, 2004	By:	/s/ William Milling
		Controller (principal financial and accounting officer)

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Geoff Green, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of DOR BioPharma, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer‘s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer‘s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

	DOR BioPharma, Inc.
Date: 08/13/2004	By:	/s/Geoff Green
		President and Acting Chief Executive Officer
		Title

 

EX-31.2

Exhibit 31.2

CERTIFICATION

I, William D. Milling, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of DOR BioPharma, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The small business issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer‘s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer‘s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

	DOR BioPharma, Inc.
Date: 08/13/2004	By:	/s/ William D. Milling
		Chief Accounting Officer
		Title

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DOR BioPharma, Inc. (the "Company") on Form 10-QSB for the period that ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Geoff Green, Acting Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	DOR BioPharma, Inc.
Date: 08/13/2004	By:	/s/ Geoff Green
		Acting Chief Executive Officer
		Title

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DOR BioPharma, Inc. (the "Company") on Form 10-QSB for the period that ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William D. Milling, Controller of the Company, certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	DOR BioPharma, Inc.
Date: 08/13/2004	By:	/s/ William D. Milling
		Chief Accounting Officer
		Title

EX-99.1 CHARTER

Risk Factors

You should carefully consider the risks, uncertainties and other factors described below because they could materially and adversely affect our business, financial condition, operating results and prospects and could negatively impact the market price of our common stock. Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not yet know of, or that we currently think are immaterial, may also impair our business operations. You should also refer to the other information contained in and incorporated by reference into this Form 10-Q, including our financial statements and the related notes.

Risks Related to our Industry

We have had significant losses and anticipate future losses; if additional funding cannot be obtained, we may reduce or discontinue our product development and commercialization efforts and we may be unable to continue our operations.

We are a development stage company that has experienced significant losses since inception and have a significant accumulated deficit. We expect to incur additional operating losses in the future.  All of our products are currently in development, preclinical studies or clinical trials, and we have not generated any revenues from sales or licensing of these products. Through July 31, 2004, we had expended approximately $4.7 million developing our current product candidates for preclinical research and development and clinical trials, and we currently have commitments to spend at least $2.5 million over the next two years in connection with development of our vaccines and therapeutic products, licenses, employee agreements, and consulting agreements. Unless and until we are able to generate licensing revenue from orBec®, our leading product candidate, or another one of our product candidates, we will require additional funding to meet these commitments, sustain our research and development efforts, provide for future clinical trials, and continue our operations. We may not be able to obtain additional required funding on terms satisfactory to our requirements, if at all. If we are unable to raise additional funds when necessary, we may have to reduce or discontinue development, commercialization or clinical testing of some or all of our product candidates or take other cost-cutting steps that could adversely affect our ability to achieve our business objectives. If additional funds are raised by our issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If additional funds are raised by the issuance of debt, we may be subject to limitations on our operations.

If we are unsuccessful in developing our products, our ability to generate revenues will be significantly impaired.

To be profitable, our organization must, along with our corporate partners and collaborators, successfully research, develop and commercialize our technologies or product candidates. Our current product candidates are in various stages of clinical and preclinical development and will require significant further funding, research, development, preclinical and/or clinical testing, regulatory approval and commercialization, and are subject to the risks of failure inherent in the development of products based on innovative or novel technologies. Specifically, each of the following is possible with respect to orBec®, RiVax™, BT-VACC™, or any of our other product candidates:

• that we will not be able to maintain our current research and development schedules;
• that we will encounter problems in clinical trials; or
• that the technology or product will be found to be ineffective or unsafe.

If any of the risks set forth above occurs, or if we are unable to obtain the necessary regulatory approvals as discussed below, we may not be able to successfully develop our technologies and product candidates and our business will be seriously harmed. Furthermore, for reasons including those set forth below, we may be unable to commercialize or receive royalties from the sale of orBec® or any other technology we develop, even if it is shown to be effective, if:

• it is uneconomical or the market for the product does not develop or diminishes;
• we are not able to enter into arrangements or collaborations to manufacture and/or market the product;
• the product is not eligible for third-party reimbursement from government or private insurers;
• others hold proprietary rights that preclude us from commercializing the product;
• others have brought to market similar or superior products; or
• the product has undesirable or unintended side effects that prevent or limit its commercial use.

Our business is subject to extensive governmental regulation, which can be costly, time consuming and subjects us to unanticipated delays.

All of our product offerings, as well as the processes and facilities by which they are manufactured, are subject to very stringent United States, federal, foreign, state and local government laws and regulations, including the Federal Food, Drug and Cosmetic Act, the Environmental Protection Act, the Occupational Safety and Health Act, and state and local counterparts to these acts. These laws and regulations may be amended, additional laws and regulations may be enacted, and the policies of the FDA and other regulatory agencies may change.

The regulatory process applicable to our products requires pre-clinical and clinical testing of any product to establish its safety and efficacy. This testing can take many years and require the expenditure of substantial capital and other resources. We may be unable to obtain, or we may experience difficulties and delays in obtaining, necessary domestic and foreign governmental clearances and approvals to market a product. Also, even if regulatory approval of a product is granted, that approval may entail limitations on the indicated uses for which the product may be marketed. Clinical trials of our lead product candidate orBec® began in 2001 and are expected to be completed in the next three months.

Following any regulatory approval, a marketed product and its manufacturer are subject to continual regulatory review. Later discovery of problems with a product or manufacturer may result in restrictions on such product or manufacturer. These restrictions may include withdrawal of the marketing approval for the product. Furthermore, the advertising, promotion and export, among other things, of a product are subject to extensive regulation by governmental authorities in the United States and other countries. If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and/or criminal prosecution.

We will be dependent on government funding, which is inherently uncertain, for the success of our biodefense operations.

We are subject to risks specifically associated with operating in the biodefense industry, which is a new and unproven business area. We do not anticipate that a significant commercial market will develop for our biodefense products. Because we anticipate that the principal potential purchasers of these products, as well as potential sources of research and development funds, will be the U.S. government and governmental agencies, the success of our biodefense division will be dependent in large part upon government spending decisions. The funding of government programs is dependent on budgetary limitations, congressional appropriations and administrative allotment of funds, all of which are inherently uncertain and may be affected by changes in U.S. government policies resulting from various po litical and military developments.

Our products, if approved, may not be commercially viable due to health care changes and third party reimbursement limitations.

Recent initiatives to reduce the federal deficit and to change health care delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, price controls on pharmaceuticals, and other fundamental changes to the health care delivery system. Any changes of this type could negatively impact the commercial viability of our products, if approved. Our ability to successfully commercialize our product candidates, if they are approved, will depend in part on the extent to which appropriate reimbursement codes and authorized cost reimbursement levels of these products and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health maintenance organizations. In the absence of national Medicare coverage determination, local contractors that administer the Medicare program may make their own coverage decisions. Any of our product candidates, if approved and when commercially available, may not be included within the then current Medicare coverage determination or the coverage determination of state Medicaid programs, private insurance companies or other health care providers. In addition, third-party payers are increasingly challenging the necessity and prices charged for medical products, treatments and services.

We may not be able to retain rights licensed to us by third parties to commercialize key products or to develop the third party relationships we need to develop, manufacture and market our products.

We currently rely on license agreements from, the University of Texas Southwestern Medical Center, The University of Texas Medical Branch at Galveston, Thomas Jefferson University, Southern Research Institute, the University of Alabama Research Foundation, and George B. McDonald M.D. for the rights to commercialize key product candidates. We may not be able to retain the rights granted under these agreements or negotiate additional agreements on reasonable terms, or at all. We have also entered into a letter of intent with the University of Texas Southwestern Medical Center, under which we plan to license issued patent and pending patent applications for technologies relating to nasal delivery of ricin vaccine. Although this letter of intent provides for defined business terms, we may not be ab le to come to definitive agreements with the institutions and, as a result, may not obtain critical intellectual property rights on which we expect to rely.

Furthermore, we currently have very limited product development capabilities and no manufacturing, marketing or sales capabilities. For us to research, develop and test our product candidates, we need to contract or partner with outside researchers, in most cases with or through those parties that did the original research and from whom we have licensed the technologies. If products are successfully developed and approved for commercialization, then we will need to enter into collaboration and other agreements with third parties to manufacture and market our products. We may not be able to induce the third parties to enter into these agreements, and, even if we are able to do so, the terms of these agreements may not be favorable to us. Our inability to enter into these agreements could delay o r preclude the development, manufacture and/or marketing of some of our product candidates or could significantly increase the costs of doing so. In the future, we may grant to our development partners rights to license and commercialize pharmaceutical and related products developed under the agreements with them, and these rights may limit our flexibility in considering alternatives for the commercialization of these products. Furthermore, third-party manufacturers or suppliers may not be able to meet our needs with respect to timing, quantity and quality for the products.

Additionally, if we do not enter into relationships with third parties for the marketing of our products, if and when they are approved and ready for commercialization, we would have to build our own sales force. Development of an effective sales force would require significant financial resources, time and expertise. We may not be able to obtain the financing necessary to establish a sales force in a timely or cost effective manner, if at all, and any sales force we are able to establish may not be capable of generating demand for our product candidates, if they are approved.

We may suffer product and other liability claims; we maintain only limited product liability insurance, which may not be sufficient.

The clinical testing, manufacture and sale of our products involves an inherent risk that human subjects in clinical testing or consumers of our products may suffer serious bodily injury or death due to side effects, allergic reactions or other unintended negative reactions to our products. As a result, product and other liability claims may be brought against us. We currently have clinical trial and product liability insurance with limits of liability of $5 million , which may not be sufficient to cover our potential liabilities. Because liability insurance is expensive and difficult to obtain, w e may not be able to maintain existing insurance or obtain additional liability insurance on acceptable terms or with adequate coverage against potential liabilities. Furthermore, if any claims are brought against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity.

We may not be able to compete successfully with our competitors in the biotechnology industry.

The biotechnology industry is intensely competitive, subject to rapid change and sensitive to new product introductions or enhancements. Virtually all of our existing competitors have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience in developing products and conducting clinical trials. Our competition is particularly intense in the gastroenterology and transplant areas and is also intense in the therapeutic area of inflammatory bowel disease. We face intense competition in the area of biodefense from various public and private companies and universities as well as governmental agencies, such as the U.S. Army, which may have their own proprietary technologies that may directly compete with our technologies. In addition , there may be other companies that are currently developing competitive technologies and products or that may in the future develop technologies and products that are comparable or superior to our technologies and products. We may not be able to compete successfully with our existing and future competitors.

We may be unable to commercialize our products if we are unable to protect our proprietary rights, and we may be liable for significant costs and damages if we face a claim of intellectual property infringement by a third party.

Our success depends in part on our ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary rights of others. In the absence of patent and trade secret protection, competitors may adversely affect our business by independently developing and marketing substantially equivalent or superior products and technology, possibly at lower prices. We could also incur substantial costs in litigation and suffer diversion of attention of technical and management personnel if we are required to defend ourselves in intellectual property infringement suits brought by third parties, with or without merit, or if we are required to initiate litigation against others to protect or assert our intellectual property rights. Moreover, any such litigation may not be resolved in our favor.

Although we and our licensors have filed various patent applications covering the uses of our product candidates, patents may not be issued from the patent applications already filed or from applications that we might file in the future. Moreover, the patent position of companies in the pharmaceutical industry generally involves complex legal and factual questions, and recently has been the subject of much litigation. Any patents we have obtained, or may obtain in the future, may be challenged, invalidated or circumvented. To date, no consistent policy has been developed in the United States Patent and Trademark Office regarding the breadth of claims allowed in biotechnology patents.

In addition, because patent applications in the United States are maintained in secrecy until patents issue, and because publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we and our licensors are the first creators of inventions covered by any licensed patent applications or patents or that we or they are the first to file. The Patent and Trademark Office may commence interference proceedings involving patents or patent applications, in which the question of first inventorship is contested. Accordingly, the patents owned or licensed to us may not be valid or may not afford us protection against competitors with similar technology, and the patent applications licensed to us may not result in the issuance of patents.

It is also possible that our patented technologies may infringe on patents or other rights owned by others, licenses to which may not be available to us. We are aware of at least one issued U.S. patent assigned to the U.S. Government relating to one component of one of our vaccine candidates that we may be required to license in order to commercialize those vaccine candidates. We may not be successful in our efforts to obtain a license under such patent on terms favorable to us, if at all. We may have to alter our products or processes, pay licensing fees or cease activities altogether because of patent rights of third parties.

In addition to the products for which we have patents or have filed patent applications, we rely upon unpatented proprietary technology and may not be able to meaningfully protect our rights with regard to that unpatented proprietary technology. Furthermore, to the extent that consultants, key employees or other third parties apply technological information developed by them or by others to any of our proposed projects, disputes may arise as to the proprietary rights to this information, which may not be resolved in our favor.

Our business could be harmed if we fail to retain our current personnel or if they are unable to effectively run our business.

We have only eight employees; we depend upon these eight employees to manage the day-to-day activities of our business. Because we have such limited personnel, the loss of any of them or our inability to attract and retain other qualified employees in a timely manner would likely have a negative impact on our operations. Furthermore, these few employees on whom our business depends have limited experience in managing and operating our business. Geoff Green, our President and Acting Chief Executive Officer, was hired in July 2003 as our Vice President of Clinical Operation; Dr. Gregory Davenport, the President of BioDefense Division, was hired in December 2003 as or Vice President of Business Development; William Milling, our Controller, Treasurer and Corporate Secretary was hired in September 2 002; and Dr. Robert Brey, our Chief Scientific Officer was hired in December 2002. In addition, Alexander Haig, our Chairman of the Board, was appointed in January 2003. Because of this inexperience in operating our business, there continues to be significant uncertainty as to how our management team will perform. We will not be successful if this management team cannot effectively manage and operate our business.

Risks Related to our Common Stock

Our stock price is highly volatile.

The market price of our common stock, like that of many other development stage public pharmaceutical and biotechnology companies, has been highly volatile and may continue to be so in the future due to a wide variety of factors, including, actual or anticipated fluctuations in our results of operations, announcements of innovations by us or our competitors, additions or departures of key personnel or general market conditions. For example, when ricin was discovered in an apartment in London and we announced that we had retained Mr. Haig as our Chairman of the Board on January 7, 2003; our stock price increased from $0.58 per share to $1.05 per share in one day and has fluctuated between $0.38 per share and $1.57 per share from that date through July 31, 2004. From July 1, 2000 through July 31, 2004, the per share price of our common stock ranged from a high of $9.44 per share to a low of $0.11 per share, including a high of $2.10 per share and low of $0.11 per share since the beginning of 2002. The fluctuation in the price of our common stock has sometimes been unrelated or disproportionate to our operating performance.

Our stock may not remain listed on the American Stock Exchange

Because we continue to incur losses from continuing operations in fiscal 2004, the stockholders’ equity standard applicable to us of the American Stock Exchange’s continued listing requirements is $6 million at the end of each fiscal year. Moreover, our net equity of $2.3 million as of June 30, 2003 did not satisfy the $4 million minimum stockholders’ equity requirement that was applicable to calendar quarters ending during 2003, and we received notification from the AMEX that we were no longer in compliance with their minimum listing requirements. On August 4, 2003 we submitted a compliance plan, and the AMEX accepted our plan and allowed us 18 months to regain compliance in accordance with the terms of our plan.  As of June 30, 2004 our stockholders' equity continues to be below the minimum listing requirements in accordance with our plan.  If we do not conform to our plan, including, without limitation, the requirement that we meet the minimum listing requirements by December 26, 2004, we may be delisted from the AMEX.  Furthermore, we cannot assure you that we will continue to satisfy other requirements necessary to remain listed on the AMEX or that the AMEX will not take additional actions to delist our common stock. If for any reason, our stock were to be delisted from the AMEX, we may not be able to list our common stock on another national exchange or market. If our common stock is not listed on a national exchange or market, the trading market for our common stock may become illiquid. Upon any such delisting, our common stock would become subject to the penny stock rules of the SEC, which generally are applicable to equity securities with a price of less than $5.00 per share, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with bid and ask quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, before a transaction in a penny stock that is not otherwise exempt from such rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. As a result of these requirements, if our common stock were to become subject to the penny stock rules, it is likely that the price of our common stock would decline and that our stockholders would find it more difficult to sell their shares.

Stockholders may suffer substantial dilution.

We have a number of agreements or obligations that may result in dilution to investors. These include:

• warrants to purchase a total of approximately 15.6 million shares of our common stock at a current weighted average exercise price of approximately $ 1.35; 
•  anti-dilution rights associated with a portion of the above warrants which can permit purchase of additional shares and/or lower exercise prices under certain circumstances; and 
•  options to purchase approximately 8.5 million shares of our common stock of a current weighted average exercise price of approximately $0.72.

To the extent that anti-dilution rights are triggered, or warrants or options are exercised, our stockholders will experience substantial dilution and our stock price may decrease.