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[Mick1968]

November 14, 2006

The Immune Response Corporation Settles Shareholder Class Action Lawsuit
Company Admits No Fault and Settlement is Covered by Insurance

CARLSBAD, Calif. – November 14, 2006 – The Immune Response Corporation (OTCBB: IMNR) announced today that the Company has reached an agreement with class counsel to settle the consolidated federal securities law class action litigation filed against the Company in 2001, as well as the related California state-court derivative lawsuit, without admitting to any wrongdoing, fault or liability. The settlements also include Company directors and officers who were named in the lawsuits.

The class action settlement, for approximately $9.6 million, will have no effect on the Company’s operations, cash flow or financial position, as it is within insurance limits. The settlement is conditioned on notice to the class members and court approval. The preliminary settlement approval hearing is scheduled to occur on December 4, 2006.

The shareholder derivative complaint was filed on July 5, 2005 against certain of the Company’s current and former officers and directors. The Company was also named as a nominal defendant in the complaint.

The $0.25 million settlement for the California state-court derivative lawsuit would also be funded entirely by the Company’s insurers. As anticipated by an agreement in principle for the settlement, the Company will also agree to adopt certain corporate governance requirements. The definitive state-court settlement agreement is conditioned on court approval and must be filed with the court by November 20, 2006. The settlement hearing is scheduled to occur on November 27, 2006.

About The Immune Response Corporation

The Immune Response Corporation (OTCBB:IMNR) is an immuno-pharmaceutical company focused on developing products to treat autoimmune and infectious diseases. The Company's lead immune-based therapeutic product candidates are NeuroVax™ for the treatment of multiple sclerosis (MS) and IR103 for the treatment of HIV infection. Both of these therapies are in Phase II clinical development and are designed to stimulate pathogen-specific immune responses aimed at slowing or halting the rate of disease progression.

NeuroVax™, which is based on the Company’s patented T-cell receptor (TCR) peptide vaccine technology, has shown potential clinical value in the treatment of relapsing forms of MS. NeuroVax™ has been shown to stimulate strong, disease-specific cell-mediated immunity in nearly all patients treated and appears to work by enhancing levels of FOXP3+ Treg cells that are able to down regulate the activity of pathogenic T-cells that cause MS. Increasing scientific findings have associated diminished levels of FOXP3+ Treg cell responses with the pathogenesis and progression of MS and other autoimmune diseases such as rheumatoid arthritis (RA), psoriasis and Crohn’s disease. In addition to MS, the Company has open Investigational New Drug Applications (IND) with the FDA for clinical evaluation of TCR peptide-based immune-based therapies for RA and psoriasis.

IR103 is based on the Company's patented, whole-inactivated virus technology, co-invented by Dr. Jonas Salk and indicated to be safe and immunogenic in extensive clinical studies of REMUNE®, the Company's first generation HIV product candidate. The federal class action litigation was based on the Company’s reporting of results from one of those clinical studies of REMUNE®. IR103 is a more potent formulation that combines its whole-inactivated antigen with a synthetic Toll-like receptor (TLR-9) agonist to create enhanced HIV-specific immune responses. The Company is currently testing IR103 in two Phase II clinical studies as a first-line treatment for drug-naive HIV-infected individuals not yet eligible for antiretroviral therapy according to current medical guidelines.
NeuroVax™ and IR103 are in clinical development by The Immune Response Corporation and are not approved by any regulatory agencies in any country at this time. Please visit The Immune Response Corporation at www.imnr.com.

This news release contains forward-looking statements. Forward-looking statements are often signaled by forms of words such as should, could, will, might, plan, projection, forecast, expect, guidance, potential and developing. Actual results could vary materially from those expected due to a variety of risk factors, including whether the Company will continue as a going concern and successfully raise proceeds from financing activities sufficient to fund operations and additional clinical trials of NeuroVax™ or IR103, the uncertainty of successful completion of any such clinical trials, the fact that the Company has not succeeded in commercializing any drug, the risk that NeuroVax™ or IR103 might not prove to be effective as either a therapeutic or preventive vaccine, whether future trials will be conducted and whether the results of such trials will coincide with the results of NeuroVax™ or IR103 in preclinical trials and/or earlier clinical trials. A more extensive set of risks is set forth in The Immune Response Corporation's SEC filings including, but not limited to, its Annual Report on Form 10-K for the year ended December 31, 2005, and its subsequent Quarterly Reports filed on Form 10-Q. The Company undertakes no obligation to update the results of these forward-looking statements to reflect events or circumstances after today or to reflect the occurrence of unanticipated events.

REMUNE® is a registered trademark of The Immune Response Corporation. NeuroVax™ is a trademark of The Immune Response Corporation.

[Mick1968]

Der Entwicklungskurs zeigt steil nach oben!
Leser des Artikels: 235

In der aktuellen Ausgabe des PENNYSTOCK REPORTs empfehlen die Analysten die Immune Response Corp. (WKN: 765803 / ISIN: US45252T2050). Sie ist auf die Entwicklung von Produkten für infektiöse und immunbasierende Erkrankungen spezialisiert. Zum Unternehmen gehören unter anderem die patentgeschützten Produkte NeuroVAX™ und IR103. Beide Produkte befinden sich derzeit in Phase 2 und haben bereits beeindruckende Ergebnisse geliefert.
Die Produkte
NeuroVAX™ zielt auf die Einstellung bzw. Verlangsamung der Symptome der Multiplen Sklerose. Während der klinischen Tests wurde bei kaum einem der Patienten Nebenwirkungen festgestellt. Hierbei wurde eine Stärkung der so genannten FOXP3+ Zellen festgestellt, die für die Schwächung der pathogenen T-Zellen verantwortlich sind. Diese wiederum sind für Multiple Sklerose verantwortlich. Das Produkt IR103 hat in sicheren und immungenetischen Testverfahren hervorragende Ergebnisse geliefert. Es basiert auf der Kombination von inaktiven Antigenen und dem synthetischen Rezeptor TLR-9.

Newsflow
Am 30. Oktober 2006 wurde veröffentlicht, dass sich das Unternehmen auf der Rodman & Renshaw Gesundheitskonferenz präsentieren wird. Die Konferenz ist eine der wichtigsten Konferenzen in diesem Sektor.
Wie das Unternehmen am 10 Oktober 2006 bekannt gab, hat es eine Vereinbarung mit Accelsiors CRO & Consultancy Services unterschrieben. Das Unternehmen ist ein Spezialist in der klinischen Forschung von Multipler Sklerose und wird Immune Response Corp. bei deren weiteren Testläufen von NeuroVax™ beratend unterstützen.

Fazit
Immune Response Corp. besitzt zwei hervorragende Produkte nah an der Marktreife. Die Analysten des PENNYSTOCK REPORTs sehen ein starkes Kurspotential nach oben, sobald die Produkte in den Markt eingeführt werden können. Derzeit ist das Unternehmen mit einem Kurs von 0,016 EUR stark unterbewertet. Sie sehen ein Kursziel von 0,04 EUR.


Lesen Sie die komplette Analyse von Immune Response Corp. auf www.pennystock-report.de !

[Mick1968]

14-Nov-2006

Quarterly Report



Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion contains forward-looking statements concerning our liquidity, capital resources, financial condition, results of operation and timing of anticipated revenues and expenditures. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Factors that could cause or contribute to such differences include those discussed under "Risk Factors," as well as those discussed elsewhere in this Form 10-Q. The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-Q. Except for our ongoing obligation to disclose material information as required by federal securities laws, we undertake no obligation to publicly release the result of any revisions to these forward-looking statements that may be indicated in order to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Overview
We are an immuno-pharmaceutical company whose products are in the development stage. We have a critical need to raise cash both in the near term and the medium term. Nonetheless, we believe our products could prove to have substantial value as part of a therapy for patients afflicted with MS or HIV. We caution investors not to be misled by the net income we reported for the nine months ended September 30, 2006. This was entirely due to a "phantom" gain on warrant liability marked to fair value. Our operations are not profitable. Indeed, our operations used slightly more than $10 million of cash in the first nine months of 2006, just as they did in the first nine months of 2005. Liquidity and Capital Resources
We have had to engage in several financing transactions in 2006 and 2005 (as well as prior years) to obtain enough cash to maintain our operations. As of September 30, 2006, we had an accumulated deficit of $150,330,000. We have not generated revenues from the commercialization of any product. We expect to continue to incur substantial net losses from operations over the next several years, which would imperil our ability to continue operations. We may not be able to generate sufficient product revenue to become profitable on a sustained basis, or at all, and do not expect to generate significant product revenue before the beginning of 2012, if at all. We have operating and liquidity concerns due to our significant net losses and negative cash flows from operations. As a result of these and other factors, our independent registered public accountants, Levitz, Zacks & Ciceric, indicated, in their report on the 2005 financial statements, that there is substantial doubt about our ability to continue as a going concern. We believe, in fact, that although we were essentially out of cash at December 31, 2005, our current cash resources, including the Private Placement of $8,000,000 in convertible debt completed in March 2006 and the $9,911,000 of gross proceeds from warrant exercises during the second and third quarters of 2006, are sufficient to fund our planned operations into the first quarter of 2007.
As part of the 2006 Private Placement we issued all of the note holders a total of 1,200,000,000 warrants to purchase our common stock at $0.02 per share. These warrants were divided into two 600,000,000 share tranches. Unexercised warrants in the first tranche of warrants expired on August 7, 2006. The second tranche of warrants became exercisable on October 16, 2006 and will expire on March 1, 2007 unless exercised by that date.
We will need to raise additional capital, from second tranche warrant exercises or otherwise, before the second quarter of 2007. In 2005 our common stock was delisted from the Nasdaq SmallCap Market, which is now known as the Nasdaq Capital Market.
Since our inception in 1986, we have financed our activities primarily from public and private sales of equity, funding from collaborations with corporate partners, investment income and the issuance of capital stock, convertible notes and warrants to Cheshire Associates LLC ("Cheshire") and other entities affiliated with or related to Kevin Kimberlin, who is one of our directors and our principal stockholder, and also to Cornell Capital Partners, LP ("Cornell Capital").
On February 8, 2006, we entered into a Note Exchange Agreement and a Note Revision Agreement with Cheshire. These agreements pertained to an 8% secured convertible note previously issued by us and held by Cheshire, with a principal balance (before the agreements) of $5,741,000 (the "Mortgage Note"). Under the Note Exchange Agreement, we issued 53,425,204 shares of newly- issued common stock to Cheshire at $0.02 per share in exchange for $1,005,000 of principal and $63,000 of accrued interest on the Mortgage Note.


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Under the Note Revision Agreement, the maturity date of the Mortgage Note was extended from May 31, 2007 to January 1, 2009 and in consideration for that extension we reduced the conversion price of the remaining $4,736,000 principal amount of the Mortgage Note to $0.02 per share of common stock. Accrued interest on the Mortgage Note will also be convertible at $0.02 per share of common stock. Before the Note Exchange Agreement, the conversion price of the Mortgage Note had been $0.70 per share. The difference between conversion of $4,736,000 at $0.70 per share and conversion of $4,736,000 at $0.02 per share is 229,997,600 additional shares of common stock.
On February 9, 2006, we entered into and consummated a Securities Purchase Agreement with Qubit Holdings, LLC ("Qubit"), which is owned and managed by independent trustees for the children of Mr. Kimberlin, to lend us $250,000. We issued to Qubit a $250,000 promissory note, secured by substantially all of our assets, bearing interest at 8% per annum, maturing on January 1, 2008, and convertible into our common stock at $0.02 per share, plus 37,500,000 short-term warrants to purchase our common stock at $0.02 per share. Qubit also granted us the right to, until August 8, 2006, put to Qubit another $250,000 secured convertible note of like tenor and another 37,500,000 short-term warrants of like tenor, and to thereupon receive another $250,000 cash. We did not exercise this right, and it has expired. On August 2, 2006, Qubit exercised a portion of its short-term warrants by paying the exercise price of $250,000 for 12,500,000 shares of our common stock. Qubit held another 6,250,000 warrants that expired unexercised on August 7, 2006.
Cheshire separately agreed in February 2006 to convert a total of another $1,700,000 of principal and accrued interest on the Mortgage Note into 85,000,000 shares of common stock at $0.02 per share, which took place on April 11, 2006, when we amended our certificate of incorporation to increase the authorized common stock to 3,500,000,000 shares.
As of September 30, 2006, we had outstanding approximately $3,384,000 (net of discount of $705,000, plus accrued interest of $383,000) of convertible, related party secured debt, namely the Mortgage Note and the note issued to Qubit. The Note Exchange and Note Revision transactions resulted in antidilution adjustments under the terms of some of the outstanding derivative securities. Most notably, as a result of "ratchet" antidilution provisions in the Debenture and common stock warrants held by Cornell Capital, the conversion price and exercise price of those securities were reduced to $0.02 per share. As a result the $500,000 outstanding principal balance of the Debenture, which had previously been convertible into 791,765 shares of common stock (at $0.6315 per share), became convertible into 25,000,000 shares of common stock; and the warrants, which had previously been exercisable for 500,000 shares of common stock (at $0.924 per share), became exercisable for 23,100,000 shares of common stock. Through April, 2006, Cornell Capital partially converted the Debenture into 12,583,500 shares of common stock and we paid off the remainder of the Debenture in May 2006. As of September 30, 2006 following the partial exercise of the warrant, the warrant was exercisable for 22,600,000 shares of common stock.
Our 2006 Private Placement of secured convertible notes and warrants to accredited investors, which began on February 10, 2006 and successfully raised gross proceeds of $8,000,000, had its final closing on March 7, 2006. In the 2006 Private Placement, pursuant to subscription agreements, we issued notes with an aggregate principal amount of $8,000,000, convertible into an aggregate of 400,000,000 shares of common stock at $0.02 per share. The notes mature on January 1, 2008, bear interest at 8% per annum, and share (with Cheshire and Qubit, for their previously secured notes), a first-priority security interest in substantially all of our assets. A designated $6,000,000 of the 2006 Private Placement notes sold (other than to our directors) are further supported by a recourse interest limited to the value of the proceeds of certain shares of private-company preferred stock owned by Spencer Trask Intellectual Capital Company LLC ("STIC"), an affiliate of Kevin Kimberlin. We agreed to issue warrants in consideration for such support.
In addition, we issued to all of the note holders a total of 1,200,000,000 warrants to purchase our common stock at $0.02 per share. As discussed above, these warrants were designed to expire in two tranches. The unexercised warrants from the first tranche expired on August 7, 2006. The second tranche of warrants became exercisable on October 16, 2006 and will expire on March 1, 2007 unless exercised by that date.
By virtue of all the transactions described above, nine outstanding warrants owned by Cheshire, which by their terms had been exercisable for an aggregate of 9,947,335 shares of common stock at a blended price of $1.05 per share, became exercisable instead for an aggregate of 107,896,395 shares of common stock at a blended price of $0.096 per share as of September 30, 2006, via the operation of the warrants' weighted-average antidilution adjustment provisions.



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We could raise an additional $10,800,000 (net of commissions) if all the second tranche warrants issued in our 2006 Private Placement are exercised for cash. It is, in fact, absolutely essential for us that, as a first step, most or all of these warrants be exercised by March 1, 2007. However, there can be no assurances that all or any portion of the warrants will be exercised by the initial purchasers or by any subsequent holders.
As we use our current cash balances, we continue to look for alternative sources of funding beyond the 2006 Private Placement warrants which, even if available, may be on terms substantially less favorable. If we are unable to raise adequate capital, we may be required to delay, or reduce the scope of, our research or development of NeuroVax™, IR103 and Remune®, or take other measures to cut costs, which would have a material adverse effect on us and in any event would ultimately probably not enable us to continue as a going concern. We will need to raise very substantial additional funds over several years to conduct research and development, preclinical studies and clinical trials necessary to bring potential products to market and to establish manufacturing and marketing capabilities. We anticipate that for the foreseeable future, the scale-up of the manufacturing process for NeuroVax™, IR103 and Remune® and the cost of producing clinical supplies for ongoing and future NeuroVax™, IR103 and Remune® studies will continue to represent a significant portion of our overall expenditures. Overall, future NeuroVax™, IR103 and Remune® research and development expenditures are expected to increase from current levels in the event additional financing is obtained. Future spending for research and development may further increase if we enter into additional collaborations, but there can be no assurance that we will enter into any such collaborations. We anticipate additional capital improvements of approximately $2,000,000 to scale-up and improve the manufacturing process for IR103 and Remune® through 2008. Other anticipated costs with respect to NeuroVax™, IR103 and Remune®, including investment in inventory, will depend on many factors including the need for additional clinical trials and other factors, which will influence our determination of the appropriate continued investment of our financial resources in these programs.
Other capital requirement factors include continued scientific progress in our research and development programs, the scope and results of preclinical studies and clinical trials, the time and costs involved in obtaining regulatory approvals, the costs involved in filing, prosecuting and enforcing patent claims, the costs involved in paying any settlements or judgments in class actions, competing technological and market developments, the cost of manufacturing scale-up and inventories, effective commercialization activities and arrangements and other factors not within our control. We intend to seek additional funding through additional research and development agreements with suitable corporate collaborators and through public or private financing, if available. However, we cannot provide assurance that such collaboration arrangements or any public or private financing will be available on acceptable terms, if at all. If we raise funds through future equity arrangements, significant further dilution to stockholders might result. Our 2006 Private Placement diluted the interest of our prior stockholders to an extreme degree. Results of Operations
Three and Nine Months Ended September 30, 2006 Compared to Three and Nine Months Ended September 30, 2005.
Emerging Issues Task Force ("EITF") No. 00-19, "Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock" addresses accounting for equity derivative contracts indexed to, and potentially settled in a company's own stock, or equity derivatives, by providing guidance for distinguishing between permanent equity, temporary equity and assets and liabilities. Under EITF No. 00-19, to qualify as permanent equity certain criteria must be met, including the following: (i) the company must have sufficient authorized and unissued shares available to settle the contract after considering all other commitments that may require the issuance of stock during the maximum period the derivative contract could remain outstanding. Equity derivatives not qualifying for permanent equity accounting are recorded at their fair value using a Black-Scholes option-pricing model and are remeasured at each reporting date until the warrants are exercised or expired. Changes in the fair value of the warrants are reported in the consolidated statements of operations as non-operating income or expense. The fair value of the warrants as calculated using a Black-Scholes option-pricing model is subject to significant fluctuation based on changes in our stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. As a result of the transactions described above in "Liquidity and Capital Resources", beginning in the first quarter of 2006 we were in a position where we did not have enough authorized but unissued common stock to enable exercise or conversion of the derivative instruments issued in such transactions, nor of certain previously-outstanding derivative instruments. Pursuant to EITF No. 00-19, we recorded a $250,927,000 liability (as an offset to equity) for the insufficient number of underlying common shares committed for all free-standing derivative instruments valued at the date of each such event, with most warrants initially valued as of March 7, 2006. This initial liability was calculated using a Black-Scholes option-pricing model with the following assumptions:



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March 7, March 31, June 30, September 30,
2006 2006 2006 2006

Dividend yield 0.0 % 0.0 % 0.0 % 0.0 %
Expected volatility - based on the
Company's three year historical rate 135.58 % 139.61 % 162.62 % 243.95 %
Risk-free interest rate 4.79 % 4.83 % 5.13 % 4.62 %
Company common stock price $ 0.2400 $ 0.1100 $ 0.0225 $ 0.0170




The liability was remeasured at March 31, 2006, June 30, 2006, and September 30, 2006 using a Black-Scholes option-pricing model with the respective assumptions in the preceding table.
On April 11, 2006, we amended our certificate of incorporation to increase the authorized common stock to 3,500,000,000 shares, thereby providing enough common stock to enable the exercise or conversion of all of our derivative securities, subject to the Registration Rights Agreement matters described below. In conjunction with the 2006 Private Placement, we entered into a Registration Rights Agreement with certain investors in the 2006 Private Placement. Pursuant to the terms of the Registration Rights Agreement, we filed a registration statement with the SEC covering the resale of the underlying shares of common stock for the convertible notes and warrants. The registration statement was declared effective on June 13, 2006 and remained effective as of September 30, 2006.
The Registration Rights Agreement further provides that if we fail to maintain the effectiveness of the registration statement, then, in addition to any other rights the holders may have, we will be required to pay each investor an amount (payable in cash or in additional shares as determined by each investor), as liquidated damages, equal to 1% per month of the aggregate amount invested by each investor. We are not in default under the Registration Rights Agreements and, due to our historical ability to maintain the effectiveness of numerous previous registrations over several years, we expect to meet the registration requirements. Accordingly, the value of the liability associated with the registration rights was deemed to be de minimis.
However, if we fail to maintain an effective registration statement, we might be required to pay damages in the form of stock - more stock, theoretically, than our charter authorizes us to issue. Therefore, we are required to continue to classify the derivative instruments as a liability until the earlier of their exercise or their expiration date, at which time the warrant liability will be reclassified into stockholders' equity. Until that time, the warrant liability will be recorded at fair value based on the methodology described above. Changes in fair value during each period will be recorded as non-operating income or expense. As a result, if our common stock price falls during a reporting period we will record non-operating income during that reporting period. At September 30, 2006 the fair value of the warrants decreased to $9,323,000, using a Black-Scholes option pricing model with the respective assumptions in the preceding table, resulting in a gain of $4,621,000 and $230,801,000 for the three and nine months ended September 30, 2006. These gains are an artifice of GAAP accounting and have nothing to do with our operations or cash requirements. Further, this gain does not create any tax liability and will not impact our federal or state tax net operating loss carry forwards. The primary reason for the gains is the decrease in the fair value of our underlying common stock from the initial valuation date to March 31, 2006 and thence to September 30, 2006, combined with an increase in our expected volatility.
We recorded revenues for the three and nine months ended September 30, 2006 of a mere $6,000 and $28,000, respectively, which is comparable to the $11,000 and $33,000 recorded for the corresponding period in 2005. We have not received any revenues from the sale of products and do not expect to derive revenue from the sale of any products earlier than the beginning of 2012, if at all. Our research and development expenditures for the three and nine months ended September 30, 2006 were $2,551,000 and $7,959,000, respectively, as compared to $2,511,000 and $7,980,000 for the corresponding period in 2005. General and administrative expenses for the three and nine months ended September 30, 2006 were $1,415,000 and $3,743,000 respectively, as compared to $794,000 and $2,541,000 for the corresponding period in 2005. These figures include $195,000 and $742,000 of expense for the three and nine months ended September 30, 2006, respectively, related to the share-based accounting for employee and consultant stock options as compared to $29,000 and $12,000 of expense related to the variable accounting for employee and consultant stock options for the three and nine months ended September 30, 2005, respectively. Aside from the increase in the expense associated with the share-based accounting, other major causes of the increase in general and administrative expenses for the three and nine months ended September 30, 2006 were increased investor relations activities in connection with our 2006 Private Placement, and increases in compensation and related expenses paid to officers and employees.



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Interest expense increased to $1,929,000 and $6,791,000 for the three and nine months ended September 30, 2006 as compared to $366,000 and $1,521,000 for the corresponding period in 2005. The increase for the three and nine months ended September 30, 2006 is attributable to discount accretion on the notes issued in the 2006 Private Placement combined with the loan fees associated with the STIC warrants, plus the relatively small 8% stated interest on the face of the 2006 Private Placement convertible notes. The increase was partially offset by a decrease in interest expense on the Cheshire debt as a result of the partial conversion by Cheshire of $1,005,000 of principal of the 8% Mortgage Note in February 2006, and decreased interest and discount accretion on the $1,000,000 Debenture issued to Cornell Capital in August 2005 at a 12% interest rate that was paid off in May 2006.
The Note Exchange and Note Revision transactions resulted in a non-cash charge to operations in the first quarter of 2006 for $14,095,000 representing beneficial inducement cost.
Critical Accounting Policies and Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.
Warrant Liability
In applying EITF No. 00-19 to determine the fair value of the warrant liability, we use the Black-Scholes option-pricing model with the following assumptions: an expected life equal to the remaining contractual term of each of the derivative instruments; no dividends; a risk free interest rate equal to the three year treasury yield; and the three year volatility rate of our stock. In addition, we use the closing market price of our stock on each valuation date. The fair value of the warrants as calculated using a Black-Scholes option-pricing model is subject to significant fluctuation based on changes in our stock price, expected volatility, expected life, the risk-free interest rate and dividend yield. Registration Rights
We are not in default under the Registration Rights Agreements and, due to our historical ability to maintain the effectiveness of numerous previous registrations over several years, we expect to meet the registration requirements. Accordingly, the value of the liability associated with the registration rights was deemed to be de minimis. Share-Based Compensation
In December 2004, the FASB issued FAS No. 123R, "Share-Based Payment." This statement is a revision to FAS No. 123, "Accounting for Stock-Based Compensation," and it supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." Generally the approach in FAS No. 123R is similar to the approach described in FAS No. 123. However, FAS No. 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. We adopted FAS No. 123R on January 1, 2006.
Previously, we measured stock-based employee compensation using the intrinsic value method of accounting in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Because we established the exercise price based on the fair market value of our common stock at the date of grant, the options had no intrinsic value upon grant, and therefore generally no expense was recorded. Equity instruments issued to non-employees for goods or services were and are accounted for at fair value and are marked to market until service is complete or a performance commitment date is reached. Intangibles and Other Long-Lived Assets
We believe that patents and other proprietary rights are important to our business. Licensed technology is recorded at cost and is amortized over its estimated useful life. In December 1999, we acquired licenses to certain patent technology, which are being amortized over seven years. Changes in our estimates of useful lives may have a material effect on our financial statements.



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We evaluate potential impairment of long-lived assets in accordance with FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." FAS No. 144 requires that certain long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable based on expected undiscounted cash flows that result from the use and eventual disposition of the asset. The amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.
Item 3. Quantitative and Qualitative Disclosures about Market Risk We invest our excess cash primarily in U.S. government securities and money market accounts. These instruments have maturities of three months or less when acquired. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions. Furthermore, our debt is at fixed rates. Accordingly, we believe that, while the instruments we hold are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive instruments.
Item 4. Controls and Procedures
Dr. Joseph F. O'Neill, our principal executive officer, and Michael K. Green, our principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) have concluded that, as of September 30, 2006, our disclosure controls and procedures are effective.