10QSB

UNITED STATES 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 March 31, 2005

( ) 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 incorporation or organization)		(I.R.S. Employer Identification Number)
1691 Michigan Ave., Suite 435 Miami, FL		33139
(Address of principal executive offices)		(Zip Code)
	(305) 534-3383
	(Issuer’s telephone number, including area code)

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 May 9, 2005, 50,612,504 shares of the registrant's common stock (par value, $.001 per share) were outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]

Table of Contents

Item	Description	Page
Part I	FINANCIAL INFORMATION
1.	Financial Statements.	3
2.	Management’s Discussion and Analysis.	10
3.	Controls and Procedures.	14
Part II	OTHER INFORMATION
4.	Exhibits.	15

PART I. - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

DOR BioPharma, Inc.

Consolidated Balance Sheets

	March 31, 2005			December 31, 2004
		(Unaudited)
Assets Current assets:
Cash and cash equivalents	$	4,534,627		$	2,332,190
Accounts receivable		60,397			742,987
Prepaid expenses		94,279			59,604
Total current assets		4,689,303			3,134,781
Office and laboratory equipment, net		47,309			50,480
Intangible assets, net		2,002,763			1,882,454
Total assets	$	6,739,375		$	5,067,715
Liabilities and shareholders’ equity Current liabilities:
Accounts payable	$	1,258,059		$	1,668,958
Accrued royalties		-			100,000
Accrued compensation and other expenses		146,349			199,226
Notes payable		115,948			115,948
Total current liabilities		1,520,356			2,084,132
Shareholders’ equity:
Preferred stock, $.001 par value. Authorized 4,600,000
shares; none issued and outstanding		-			-
Common stock, $.001 par value. Authorized 100,000,000
shares; 50,612,504 and 42,418,404 issued and
outstanding, respectively		50,612			42,218
Additional paid-in capital		86,472,888			83,216,533
Accumulated deficit		(80,876,784	)		(79,847,471	)
		5,646,716			3,411,280
Less treasury stock (120,642 shares)		(427,697	)		(427,697	)
Total shareholders’ equity		5,219,019			2,983,583
Total liabilities and shareholders’ equity	$	6,739,375		$	5,067,715

The accompanying notes are an integral part of these financial statements

DOR BioPharma, Inc.

Consolidated Statements of Operations

For the years ended March 31,

	2005			2004
		(Unaudited)
Revenues:	$	113,540		$	66,095
Cost of revenues		(90,213	)		(59,486	)
Gross profit		23,327			6,609
Operating expenses:
Research and development		729,985			702,677
General and administrative		341,935			478,578
Total operating expenses		1,071,920			1,181,255
Loss from operations		(1,048,593	)		(1,174,646	)
Other incomes (expense):
Interest income		21,596			17,277
Interest expense		(2,318	)		(8,272	)
Total other income (expense)		19,278			9,005
Net loss		(1,029,315	)		(1,165,641	)
Preferred stock dividends		-			(503,195	)
Net loss applicable to common shareholders	$	(1,029,315	)	$	(1,668,836	)
Basic and diluted net loss per share applicable to common shareholders	$	( 0.02	)	$	( 0.05	)
Basic and diluted weighted average common shares outstanding		46,974,194			36,796,223

The accompanying notes are an integral part of these financial statements

DOR BioPharma, Inc.

Consolidated Statements of Cash Flows

For the years ending March 31,

	2005			2004
		(Unaudited)
Operating activities:
Net loss	$	(1,029,315	)	$	(1,165,641	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		65,517			137,738
Non-cash stock option compensation		(284,855	)		-
Change in operating assets and liabilities:
Accounts receivable		682,590			(66,096	)
Prepaid expenses		(34,676	)		90,152
Accounts payable		(563,776	)		(120,402	)
Total adjustments		(135,200	)		41,392
Net cash used by operating activities		(1,164,515	)		(1,124,249	)
Investing activities:
Intangible assets		(182,349	)		(128,750	)
Purchases of equipment		(2,856	)		(1,245	)
Net cash used by investing activities		(185,205	)		(129,995	)

Financing activities:
Net proceeds from issuance of common stock		3,552,157		3,045,500
Proceeds from exercise of options		-		61,972
Repayments of amounts due under line of credit, notes payable and capital lease obligations		-		(11,222	)
Net cash provided by financing activities		3,552,157		3,096,250
Net increase in cash and cash equivalents		2,202,437		1,842,006
Cash and cash equivalents at beginning of period		2,332,190		4,117,540
Cash and cash equivalents at end of period	$	4,534,627	$	5,959,546

Supplemental disclosure of cash flow:
Cash paid for interest	$	-	$	3,383
Non-cash transactions:
Non-cash stock options expense	$	-	$	467,183
Issuance of preferred stock dividend in kind	$	-	$	503,195
Issuance of common stock for intangible assets	$	-	$	32,778
Options for increase in subsidiary ownership	$	-	$	88,740

The accompanying notes are an integral part of these financial statements

DOR BioPharma, Inc.

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 note 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 for the year ended December 31, 2004. 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.

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 approximately 12.2 million and 7.5 million shares of our common stock outstanding at March 31, 2005, and 2004, 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 three months ended:

March 31,

	2005		2004
Net Loss applicable to common shareholders
As reported	$(1,029,315	)	$(1,668,836	)
Add stock-based employee compensation expense related to stock options determined under fair value method	(91,197	)	-
Add amounts charged to recovery of expense	(284,855	)	(575,817	)
Pro forma net loss according to SFAS 123	$ (1,405,367	)	$ ( 2,244,653	)
Net loss per share:
As reported, basic and diluted	$ ( 0.02	)	$ ( 0.05	)
Pro forma, basic and diluted	$ ( 0.03	)	$ ( 0.06	)

The weighted average fair value of options granted with an exercise price equal to the fair market value of the stock was $0.49 and $0.49 for 2005 and 2004, respectively.

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 128% and 129% in 2005 and 2004, respectively and average risk-free interest rates in 2005 and 2004 of 3.6% and 3.5%, respectively.

Stock compensation expense for options granted to nonemployees has been determined in accordance with SFAS 123 and Emerging Issues Task Force (“EITF”) 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," and represents the fair value of the consideration received, or the fair value of the equity instruments issued, whichever may be more reliably measured. For options that vest over future periods, the fair value of options granted to non-employees is periodically remeasured as the options vest.

INTANGIBLE ASSETS

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 patent and license costs at March 31, 2005 ranged from 11 to 16 years. The following is a summary of patent and license assets:

	Weighted Average Amortization period (years)	Cost	Accumulated Amortization	Net Book Value
March 31, 2005	10.7	$ 2,792,368	$ 789,605	$ 2,002,763
December 31, 2004	10.6	$ 2,611,195	$ 728,741	$ 1,882,454

Amortization expense was $62,040 for the three months ended March 31, 2005.

Based on the balance of the intangibles at March 31, 2005, the annual amortization expense for each of the succeeding five years is estimated to be as follows:

	Amortization Amount
2005	$ 193,000
2006	173,000
2007	173,000
2008	173,000
2009	173,000

Impairment of Long-Lived Assets

Office and laboratory equipment, and intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets or the business to which such assets relate. 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 significant judgment.

NOTES PAYABLE

Notes payable were as follows:

	March 31, 2005		December 31, 2004
Note payable to pharmaceutical company		$ 115,948		$ 115,948

On June 29, 2002, DOR and a pharmaceutical company signed an agreement for the dissolution of their joint ventures. Based on this agreement, DOR retained the joint venture entities, InnoVaccines and Newco. In connection with the settlement, the Company’s balance of $2,042,833 due to joint ventures at December 31, 2001 was restructured into payments totaling $1,104,242: $524,500 paid immediately in cash and the remaining $579,742 payments of principal and interest of $231,897 were due on June 30, 2003, $231,897 on June 30, 2004 and $115,948 on December 30, 2004, respectively.

The note payable to a pharmaceutical company was not paid as of its due date at the end of December 31, 2004. The note is in default.

BUSINESS SEGMENTS

The Company had two active segments for the three months ended March 31, 2005 and 2004: BioDefense and BioTherapeutics. Summary data for the three months ended:

	March 31,
	2005		2004
Net Revenues
BioDefense	$      113,540		$        66,095
BioTherapeutics	-		-
Total	$      113,540		$        66,095
Loss from Operations
BioDefense	$(315,708	)	$(246,784	)
BioTherapeutics	(285,754	)	(364,893	)
Corporate	(447,131	)	(562,969	)
Total	$( 1,048,593	)	$(1,174,646	)
Amortization and
Depreciation Expense
BioDefense	$       31,792		$       32,138
BioTherapeutics	30,712		102,650
Corporate	3,013		2,950
Total	$       65,517		$     137,738
	March 31, 2005		December 31, 2004
Identifiable Assets
BioDefense	$ 1,649,587		$ 2,192,097
BioTherapeutics	443,573		230,048
Corporate	4,646,215		2,645,570
Total	$ 6,739,375		$ 5,067,715

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 for the year ended December 31, 2004. 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 as 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 makes 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:

Business Overview and Strategy

We are a biopharmaceutical company focused on the development of biodefense vaccines and oral therapeutic products intended for areas of unmet medical need. Our business strategy is to (a) prepare the submission of a New Drug Application for orBec^® with the U.S. Food and Drug Administration for the treatment of acute Graft-versus-Host Disease with gastrointestinal involvement; (b) evaluate and possibly initiate additional clinical trials to explore the effectiveness of oral BDP (orBec^®) in other therapeutic indications involving inflammatory conditions of the gastrointestinal tract; (c) consider prophylactic use studies of orBec^®; (d) identify a marketing and sales partner for orBec^® in the U.S. and abroad; (e) secure government funding for each of our biodefense programs through grants and procurement contracts; (f) convert the biodefense vaccine programs from early stage development to advanced development and manufacturing; (g) transition the biodefense vaccine development programs from academic institutions into commercial manufacturing facilities with the goal of soliciting government contracts; (h) identify the development candidates for botulinum therapeutic screening program; and (i) acquire or in-license new clinical-stage compounds for development.

orBec^®

In order to accomplish our goal of a New Drug Application for orBec^® in 2005, we are implementing a number of strategies aimed at improving our FDA approval prospects. We have assembled an experienced team of employees and contractors who are currently working on all aspects of the New Drug Application preparation, including data management, data analysis, and biostatistics medical writing. Manufacturing of the requisite batches of drug product (registration batches) is ongoing and these batches are currently undergoing stability testing.

We have had strategic discussions with a number of pharmaceutical companies regarding the partnering or sale of orBec^®. It is our intent to seek a marketing partner in the U.S. and abroad in anticipation of commercialization of orBec^®. We also intend to seek a partner for the other potential indications of orBec^®.

RiVax™

The scientific development of our ricin vaccine has progressed significantly in the past year. With our partner the University of Texas Southwestern Medical Center, the initial goal was met for this program to file an Investigational New Drug application with the FDA for the purposes of conducting a Phase I clinical trial in healthy human volunteers. A Phase I safety and immunogenicity trial is currently being conducted. The current vaccine is being developed for intramuscular delivery. We are working on a formulation technology that could permit the vaccine to be delivered nasally, with the objective of providing immunity in the respiratory tract.

BT-VACC™

The botulinum vaccine program has made important strides in the last year and we have identified a lead antigen against one serotype (serotype A) of botulinum toxin. We are in the process of validating the data and creating a multivalent botulinum vaccine through a CRADA (Cooperative Research and Development Agreement) with the U.S. Army and Thomas Jefferson University. To date much of the work at Thomas Jefferson University has been funded by us, and we plan to continue to fund the development of additional antigens against other serotypes of botulinum toxin. In addition, we have applied for and intend to continue to apply for research grants from the U.S. government to fund the transition of the manufacturing of the lead antigen from the academic center to commercial facilities. The goal of our biodefense program is to supply the United States government with qualified countermeasures that will protect its citizens against ricin toxin and botulinum toxin exposure.

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 Costs". Based on this consideration, we capitalized all outside legal and filing costs incurred in the procurement of patents, as well as amounts paid allowing us to license additional methods of vaccine delivery through the Southern Research Institute patents, shares issued to acquire Élan’s interest in the Innovaccine's Joint Venture, and amounts paid to University of Texas Southwestern Medical Center allowing us the ability to license certain patents related to a vaccine protecting against ricin toxin. These intangible assets are reviewed for impairment 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.

Material Changes in Results of Operations

We are a research and development company. For the three months ended March 31, 2005 we had grant revenue of $113,540 as compared to $66,095 in the three months ended March 31, 2004. We also incurred expenses related to that revenue in 2005 and 2004 of $90,213 and $59,486, respectively. The 2005 revenue and associated expense was due to a National Institute of Health (NIH) Grant we received in September 2004 and the 2004 revenue and associated expense was due to a Small Business Innovation Research (SBIR) grant we received in September 2003 both for further research associated with our ricin vaccine. The total amount of NIH grant is $5,173,298 and the SBIR grant was $149,912.

For the three months ended March 31, 2005, we had a net loss applicable to common stockholders of $1,029,315 as compared to a $1,668,836 net loss applicable to common stockholders for the three months ended March 31, 2004, a decrease of $639,521, or 38%. Net loss applicable to common stockholders included the impact of preferred stock dividends, which was zero in 2005, as compared to $503,195 in 2004. The decrease in preferred stock dividends was due to the conversion of all outstanding Series C preferred stock to 1.25 million shares of common stock in March 2004.

Research and development spending increased $27,308, or 4%, to $729,985, for the three months ended March 31, 2005 as compared to $702,677 for the corresponding period ended March 31, 2004. This increase was a result of an increase in expenses related to our ricin and botulinum programs.

General and administrative expenses decreased $136,643, or 29%, to $341,935 for the three months ended March 31, 2005, as compared to $478,578 for the corresponding period ended March 31, 2004. This decrease is attributed to a recovery of stock option expense for the variable accounting treatment of options for employees under the stock option plan this recovery was $284,855. Netting out this difference, overall there was an increase which is in part attributed to increased legal costs for the financing completed and costs associated with program management and corporate governance. In addition, there are more administrative personnel than in the first three months of 2004.

Interest and other income for the three months ended March 31, 2005 was $21,596 as compared to $17,277 for the three months ended March 31, 2004, an increase of $4,319 or 25%. This increase was primarily due to the increase in number of days of available cash balances to earn interest from the completed financing in February 8, 2005 compared to 2004, completed financing in March 12, 2004.

Interest expense for the three months ended March 31, 2005 was $2,318 as compared to $8,272 for the three months ended March 31, 2004, a decrease of $5,954 or 72%. The decrease was due to a reduction in accrued interest expense related to the decrease in the balance payable of our note payable.

FINANCIAL CONDITION:

As of March 31, 2005, we had cash and cash equivalents of $4,534,627 as compared to $2,332,190 as of December 31, 2004 and working capital of $3,168,947 as compared to $1,050,649 as of December 31, 2004. For the three months ended March 31, 2005, our cash used in operating activities was approximately $1.3 million, versus approximately $1.2 million for the three months ended March 31, 2004.

We expect our research and development expenditures for 2005, under existing product development agreements and license agreements pursuant to letters of intent and option agreements, to approximate $2.9 million. We anticipate grant revenues to offset manufacturing and research expenditures for the development of our ricin vaccine in the amount of approximately $2.5 million, pending completion of certain milestones.

As of March 31, 2005, we had a note due of $115,948, which represents the remaining amount payable to a pharmaceutical company in connection with our joint ventures in which we were required to make payments of $231,897 in June 2004 and $115,948 in December 2004. As of the date of this report we have not made the final payment. The note is in default.

The following summarizes our contractual obligations at March 31, 2005, and the effect those obligations are expected to have on our liquidity and cash flow in future periods.

Contractual Obligations	Year 2005	Year 2006	Year 2007
Non-cancelable obligations (1)	$      66,914	$    52,628	-
Debt (2)	115,948	-	-
TOTALS	$ 182,862	$ 52,628	$ -

(1) 3 year lease on corporate office entered into in 2003 and expiring in 2006

(2) Debt consists of payment due to Élan as part of the dissolution of previous joint ventures

In March 2004, we supplemented our cash position by the issuance and sale of 4,113,924 shares of our common stock at $0.79 per share in a private placement to institutional investors. We also issued to such investors warrants to purchase an aggregate of 1,645,570 shares of our common stock at an exercise price of $0.87 per share. Our proceeds after related expenses and closing costs, were approximately $3.0 million.

In February 2005, we further supplemented our cash position by the issuance and sale of 8,396,100 shares of our common stock at $0.45 per share in a private placement to institutional investors. Such investors also received warrants to purchase an aggregate of 6,297,075 shares of our common stock at an exercise price of $0.505 per share. Our proceeds after related expenses and closing costs, were approximately $3.5 million. Based on our current rate of cash outflows, we believe that our cash of $4,534,627 at March 31, 2005 will be sufficient to meet our anticipated cash needs for working capital and capital expenditures through the end of 2005. However, within the next six to twelve months we will be required to secure cash in order to secure the required cash flow for the next 12 months and avoid going concern considerations. We anticipate that within this 12 month period it is possible that in order to raise the required capital, we will seek additional capital in the private and/or public equity markets to support our operations, to respond to competitive pressures, to develop new products and services and to support new strategic partnership expenditures. It is also possible that we receive capital pursuant to one or more corporate partnerships relating to orBec^®. 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 contain restrictive covenants which limit our ability to pursue certain courses of action. We may not be able to obtain such financing on acceptable terms or at all. If we are unable to obtain such 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 3 -_CONTROLS AND PROCEDURES

Our Chief Executive Officer and our Chief Financial Officer (the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures. Such officers have concluded (based upon their evaluations of these controls and procedures as of the end of the period covered by this report) that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in this report is accumulated and communicated to management, including the Certifying Officers as appropriate, to allow timely decisions regarding required disclosure.

The Certifying Officers have also indicated that there were no significant changes in our internal controls over financial reporting or other factors that could significantly affect such controls subsequent to the date of their evaluation, and there were no significant deficiencies and material weaknesses.

Our management, including the Certifying Officers, does not expect that our disclosure controls or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any systems of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of these inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

PART II - OTHER INFORMATION.

ITEM 4 - EXHIBITS

31.1Certification of Chief Executive Officer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002)

31.2Certification of Principal FinancialOfficer pursuant to Exchange Act rule 13(a)-14(a) (under Section 302 of the Sarbanes-Oxley Act of 2002).

32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1Risk Factors

______________

Reports on Form 8-K:

We filed a Current Report on Form 8-K on March 14, 2005 announcing the press release issued for the results of operations for the fourth quarter 2004.

We filed a Current Report on Form 8-K on February 9, 2005 announcing the completed issuance and sale of 8,396,100 shares of common stock at $0.45 and that the investors also received warrants to purchase an aggregate of 6,297,075 shares of common stock at $.505.

We filed a Current Report on Form 8-K on February 3, 2005 announcing that we had entered into a Securities Purchase Agreement for the sale of 8,396,100 shares of common stock at $0.45 and that the investors also received warrants to purchase an aggregate of 6,297,075 shares of common stock at $.505.

We filed a Current Report on Form 8-K on January 25, 2005 announcing the acceptance of the compliance plan by the American Stock Exchange and the extension to gain compliance until July 12, 2005.

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.

      May 16, 2005 by /s/  Michael T. Sember

Michael T. Sember

President and Interim Chief Executive Officer

      May 16, 2005 by /s/  Evan Myrianthopoulos

Evan Myrianthopoulos

Chief Financial Officer

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

In connection with the Quarterly Report of DOR BioPharma, Inc. (the “Company”) on Form 10-QSB for the fiscal year ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof, I, Michael T. Sember, President and Chief Executive Officer of the Company, certify, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, that:

1. I have reviewed the Quarterly Report on Form 10-QSB of the Company for the fiscal year ended March 31, 2005;

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 registrant’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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’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 the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: May 16, 2005 By: /s/  Michael T. Sember

Michael T. Sember

    President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a)/15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

In connection with the Quarterly Report of DOR BioPharma, Inc. (the “Company”) on Form 10-KSB for the fiscal year ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof, I, Evan Myrianthopoulos, Chief Financial Officer of the Company, certify, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, that:

1. I have reviewed the Quarterly Report on Form 10-QKSB of the Company for the fiscal year ended March 31, 2005;

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 registrant’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 registrant 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 registrant, 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 registrant’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 registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’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 the registrant’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 registrant’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 registrant’s internal control over financial reporting.

Date: May 16, 2005 By: /s/     Evan Myrianthopoulos

Evan Myrianthopoulos

  Chief Financial Officer

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 Quarterly Report on Form 10-QSB of DOR BioPharma, Inc. (the “Company”) for the fiscal quarter ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350:

(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 results of operations of the Company.

Date: May 16, 2005 By: /s/     Michael T. Sember

Michael T. Sember

       President and Chief Executive Officer

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 Quarterly Report on Form 10-QSB of DOR BioPharma, Inc. (the “Company”) for the fiscal quarter ended March 31, 2005, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350:

(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 results of operations of the Company.

Date: May 16, 2005 By: /s/          Evan Myrianthopoulos

Evan Myrianthopoulos

          Chief Financial Officer

EX-99.1

Risk Factors

You should carefully consider the risks, uncertainties and other factors described below before you decide whether to buy shares of our common stock. Any of the factors 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 report, 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 company that has experienced significant losses since inception and have a significant accumulated deficit. We expect to incur additional operating losses in the future and expect our cumulative losses to increase. As of March 31, 2005 we had approximately $4.5 million in cash available. We expect that we may need additional sources of funding to meet our cash requirements for the next twelve months. In addition, through the NIH grant a portion of our personnel and overhead expenditures will be supported. 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 March 31, 2005, we had expended approximately $7.0 million developing our current product candidates for preclinical research and development and clinical trials, and we currently have commitments to spend at least $6.5 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 sales or 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 through the issuance of 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 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 any of our other product candidates:

·   that we will not be able to maintain our current research and development

schedules;

·   we may be unsuccessful in our efforts to secure profitable procurement contracts from the U.S. government or others for our biodefense products;

·   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 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. The pivotal clinical trial of our product candidate orBec^® began in 2001. In December of 2004, we announced top line results for our pivotal Phase III trial of orBec^® in iGVHD, in which orBec^® demonstrated a highly statistically significant reduction in mortality during the prospectively defined Day 200 post-transplant period and positive trends on its primary endpoint. While orBec^® did not achieve statistical significance in its primary endpoint of time to treatment failure at Day 50 (p-value 0.1177), orBec^® did achieve a 70% reduction in mortality compared to placebo. We plan to file a new drug application with the FDA. Additional clinical trials may be necessary prior to either submission of a marketing application or approval by the FDA of a marketing application.

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.

There may be unforeseen challenges in developing biodefense products.

For development of biodefense vaccines and therapeutics, the FDA has instituted policies that are expected to result in accelerated approval. This includes approval for commercial use using the results of animal efficacy trials, rather than efficacy trials in humans. However, we will still have to establish that the vaccine and countermeasures it is developing are safe in humans at doses that are correlated with the beneficial effect in animals. Such clinical trials will also have to be completed in distinct populations that are subject to the countermeasures; for instance, the very young and the very old, and in pregnant women, if the countermeasure is to be licensed for civilian use. Other agencies will have an influence over the risk benefit scenarios for deploying the countermeasures and in establishing the number of doses utilized in the Strategic National Stockpile. We may not be able to sufficiently demonstrate the animal correlation to the satisfaction of the FDA, as these correlates are difficult to establish and are often unclear. Invocation of the two animal rule may raise issues of confidence in the model systems even if the models have been validated. For many of the biological threats, the animal models are not available and we may have to develop the animal models, a time-consuming research effort. There are few historical precedents, or recent precedents, for the development of new countermeasure for bioterrorism agents. Despite the two animal rule, the FDA may require large clinical trials to establish safety and immunogenicity before licensure and it may require safety and immunogenicity trials in additional populations. Approval of biodefense products may be subject to post-marketing studies, and could be restricted in use in only certain populations.

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 political 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.

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 or 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, we 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. Most 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 that vaccine candidate. 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 ten employees and we depend upon these 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. Michael Sember, Chief Executive Officer, was hired in December 2004; Evan Myrianthopoulos, our Chief Financial Officer, was hired in November 2004, although he was on the Board for two years; Dr. Gregory Davenport, the President of BioDefense Division, was hired in December 2003; James Clavijo, our Controller, Treasurer and Corporate Secretary was hired in October 2004; Dr. Robert Brey, our Chief Scientific Officer was hired in 1996; and Dr. George Robertson was hired in March 2005. In the fourth quarter of 2004, Alexander P. Haig was appointed Chairman of the Board replacing his father General (Ret.) Alexander M. Haig, Jr., who resigned from our Board and joined our BioDefense Strategic Advisory Board. In addition, our President and Acting Chief Executive Officer, Geoff Green and our Controller, William Milling, resigned in the fourth quarter of 2004. 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. Several members of our board of directors are associated with other companies in the biopharmaceutical industry. Stockholders should not expect an obligation on the part of these board members to present product opportunities to us of which they become aware outside of their capacity as members of our board of directors.

Risks Related to our Common Stock

Our stock price is highly volatile.

The market price of our common stock, like that of many other research and development 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:

·   announcements of technological innovations, more important bio-threats or new commercial therapeutic products by us, our collaborative partners or our present or potential competitors;

·   our quarterly operating results and performance;

·   announcements by us or others of results of pre-clinical testing and clinical trials;

·   developments or disputes concerning patents or other proprietary rights;

·   acquisitions;

·   litigation and government proceedings;

·   adverse legislation;

·   changes in government regulations;

·   economic and other external factors; and

·   general market conditions

Our stock price has fluctuated between April 1, 2001 through March 31, 2005, the per share price of our common stock ranged between a high of $2.10 per share to a low of $0.11 per share. As of May 5, 2005 our common stock traded at $0.35. 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 operations in fiscal 2005, the stockholders’ equity standard applicable to us of the American Stock Exchange’s (AMEX) continued listing requirements is $6 million. As of February 7, 2005 on the raising of approximately $3.77 million through a private equity placement we were in compliance with the standard. However in order to continue to be in compliance with the listing standard we must execute the compliance plan submitted on December 30, 2004 with AMEX and approved by them on January 19, 2005. Despite our current compliance, AMEX may require that we also demonstrate continued compliance with all listing requirements by July 12, 2005, including minimum stockholders’ equity of at least $6 million at such time. As of March 31, 2005, we had stockholders’ equity of $5,219,019. Based upon our forecasted cash expenditures, we will not satisfy such requirement at such time absent one or more transactions having the effect of increasing our current stockholders’ equity.

In June 30, 2003, our net equity of $2.3 million 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. Our deadline to meet the plan was December 26, 2004, to avoid delisting from the AMEX. Although we did not meet the plan submitted, AMEX provided us with the opportunity to submit a new plan of compliance with the listing standard, which we submitted on December 30, 2004. On January 24, 2005 AMEX accepted the compliance plan and provided us until July 12, 2005 to comply with the continued listing standard of section 1003 (a) (iii) of the AMEX company guide. However, 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.

Shareholders 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 22.2 million shares of our common stock at a current weighted average exercise price of approximately $0.93;

·   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 12.2 million shares of our common stock of a current weighted average exercise price of approximately $0.63.

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.