UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

☑ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2015

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 333-142076

IRIS BIOTECHNOLOGIES INC.

(Name of small business issuer in its charter)

California	77-0506396
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

5201 Great America Parkway, Suite 320, Santa Clara, California 95054

(Address of principal executive offices) (Zip Code)

Issuer's telephone Number: (408) 867-2885

Securities registered under Section 12(b) of the Exchange Act: None.

Securities registered under Section 12(g) of the Exchange Act: Common Stock, no par value

Indicate by check mark is the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☑

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

Yes ☐ No ☑

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

Indicate by check mark if no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☑

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

The aggregate market value of the voting and non-voting common equity held by non-affiliates (based on a closing sale price of $0.60 per share which was the last sale price of the common stock as of June 30, 2015) was $4,753,915.

As of March 30, 2016, the issuer had 19,680,677 outstanding shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

TABLE OF CONTENTS

		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	22
Item 3.	Legal Proceedings	22
Item 4.	Mine Safety Disclosure	22

	PART II
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	24
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 8.	Financial Statements and Supplementary Data	29
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	29
Item 9A.	Controls and Procedures	29
Item 9B.	Other Information	29

	PART III
Item 10.	Directors, Executive Officers, and Corporate Governance	30
Item 11.	Executive Compensation	32
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	32
Item 13.	Certain Relationship and Related Transactions, and Director Independence	33
Item 14.	Principal Accountant Fees and Services	33
Item 15.	Exhibits	34

SIGNATURES		35

PART I

ITEM 1. BUSINESS

INTRODUCTION

Iris Biotechnologies Inc. is a life sciences company poised to help usher in the future of health care, the era of precision medicine. Precision medicine is as great a leap from our current system as modern scientific medicine was from the 19th-century country doctor. In conjunction with the increasing use of personal electronic devices the precision medicine revolution will empower us to actually identify and alter the causes of disease long before they manifest as symptoms or physical findings. This disruptive new paradigm will fundamentally alter the way we think about health and disease. Our understanding will, in turn, change physician-patient relationships, health care delivery practices, and the financial structure controlling health insurance payments for laboratory work and medical intervention.

With an aging population, especially the baby-boomers, the demand for more quality healthcare will only increase. Currently, the US GDP is approximately $18.5 trillion dollars and total government healthcare spending (Fed, State, and Local) is approximately $1.5 trillion, which is approximately 8% percent of GDP. According to the Center for Medicare and Medicaid Services (CMS), “average annual projected growth of 6.2 percent per year is projected for 2016 through 2022, largely as a result of the continued implementation of the ACA coverage expansions, faster projected economic growth, the aging of the population, and the end of the sequester. While projected growth is faster compared to recent experience, it is still slower than the growth experienced over the longer-term history. US healthcare spending is projected to be 19.9 percent of GDP by 2022 while spending on national health care totaled $3.0 trillion or 17.5 percent of GDP in 2014.”

We believe that the rate of increase in annual healthcare spending is not sustainable. Also, the total US government debt of $22.58 trillion is clearly a factor that will drive down healthcare reimbursement. The only way to deliver high quality healthcare, nearly on demand, at competitive prices, is through innovation. For more than a decade, we have focused on medical innovations, proceeding methodically with a reverence for patient safety, privacy, and intervention efficacy.

The global personalized medicine market by product (PM Diagnostics, PM Therapeutics, Personalized Medical Care, Personalized Nutrition & Wellness) is expected to reach $2,452.5 Billion in 2022, according to Grand View Research, Inc. PricewaterhouseCoopers, the largest professional services firm in the world, estimated that a more personalized approach to medicine and health is expected to grow to $452 billion in 2015. The core diagnostic and targeted therapeutic segment of the market is expected to grow by 10 percent annually, reaching $42 billion by 2015. With health care spending expected to be nearly 18.5% percent of GDP by 2017, companies developing personalized diagnostic products are expected to yield very good return on investment.

Why does a person stay healthy? Why does a person get sick?

In general, health and disease come down to five variables: 1) DNA sequence, 2) how protein coding genes are expressed, 3) how proteins are produced and folded, (4) life style and (5) the environment, in other words nature and nurture. Nature is what is happening with the DNA, RNA, genes and their expression, protein folding, etc. Nurture is everything else.

DNA, gene expression, and the interacting environment are connected by what is called the epigenome. The epigenome responds to the environment both internally and externally, regulating the turning off or on of the genes in the DNA through processes like methylation and acetylation. Disease may occur due to problems in any of these areas. Changing the sequence changes the way proteins fold, perhaps in critical ways so that "lock-and-key" interactions no longer fit. The Human Genome Project and DNA sequencing for various organisms was a necessary beginning in this new era of precision medicine but it is only the starting point. Discovering how our genes respond to ever-increasing environmental challenges and cause disease is the next essential step.

Most of the DNA and RNA in the body are located within cells, but a small amount of nucleic acids can also be found circulating freely in the blood. Liquid biopsies take advantage of the fact that when cells die, as they do routinely, they release DNA into the bloodstream. The DNA of a tumor cell is markedly different from normal DNA. A large number of cancer genome sequencing studies have collectively identified the genetic changes that make human tumors grow and progress. As a result of their findings, scientists have discovered that virtually all cancers carry somatic DNA mutations. Capturing DNA, RNA and small RNA molecules offers a non-invasive approach and unique opportunities for early diagnosis and prognosis of clinical conditions as well as follow-up tests especially in many different cancers.

Scientists and clinicians are starting to address the concept that the microbiome is crucial to health. For every one of the 50 to 70 trillion cells in an adult there are 10 times that number of microbes. That means that from a genomic perspective 99% of “our” DNA is microbial. What you eat and drink and the medicines you take may have an adverse effect on the trillions of microbes that live all over your body but are highly concentrated in your digestive tract. The genes they express and the proteins they produce work synergistically with our genes and proteins. Disorders in our internal ecosystem — a loss of diversity, or a proliferation of the “wrong” kind of microbes — may predispose us to a whole range of chronic diseases, as well as some infections. A growing realization in medicine is that we need to measure not only our DNA sequence and gene expression but the microbial genome as well.

Getting old is now the major risk factor for developing a major chronic condition. Cancer rates rise dramatically after the age of 40 and at 80 the odds are 50/50 to develop some type of cancer. Our immune systems are our major defense against disease including cancer. The immune system is always on patrol ridding the body of foreign invaders, such as viruses, bacteria or fungi. White blood cells, such as “T cells,” fight infection and cancer. When a foreign invader is detected, the entire immune system is alerted through chemical signals but as we age the system is less effective in recognizing our own cells that have mutated and are growing in an unregulated manner.

Cancer cells have ways of hiding themselves from being detected by our immune cells but scientists have discovered drugs that can block these evasive maneuvers allowing the immune system to do its job. Cancer immunotherapy attempts to stimulate the immune system to reject and destroy tumors. Combining immunotherapy and liquid biopsies is a very positive one-two punch in the fight against cancer.

According to PricewaterhouseCoopers (PwC), “The New Health Economy represents the most significant re-engineering of the U.S. health system since employers began covering workers in the 1930s.” Millions of Americans now have smart phones and are starting to access health apps as diagnostic tools and refilling prescriptions with mobile devices making the dream of medical care anywhere and anytime a reality. According to the 2016 PwC 2016 survey more Americans are willing to have a consult with a physician online and willing to share personal data with a health system not only to aid in diagnosing themselves but also others.

Precision medicine means Big Data and it is the willingness to share personal information about ourselves that will finally make precision medicine a reality. The giant data management companies readily grasp this situation: Amazon, Google, Microsoft, IBM and Apple are all showing where medicine is headed. These companies have been busy developing medical information hardware and software, including devices that convert biological information into a digital format, and systems to acquire, digitize, store and share information, while maintaining privacy. Some of them are also making acquisitions of key healthcare information companies.

Precision medicine will integrate exact genomic and proteomic information while including physical examination, laboratory and imaging information (upon which contemporary medicine rests) and evaluate this data against a vast and growing data bank of human populations and their maladies. Precision medicine requires highly sophisticated systems for collection, storage and integration of information from multiple data inputs. Unlike traditional medical textbooks, the background information in the population data bank will be as up-to- date as the most recent patient tested. More data means more predictive accuracy. The best systems will be open systems, essentially "educating" the data bank with a diverse and constantly growing collection of clinical information.

Better for Physicians

It may seem impossible for a physician to add a vast collection of genomic information to the already formidable task of diagnostic and treatment decision-making. It is the challenge for companies like Iris to correctly collect and analyze genomic and proteomic information, order and organize it meaningfully, and present it efficiently and "painlessly", giving the clinician increased confidence and power without further burdening their already overtaxed schedules. The promise of precision medicine includes better patient education, better compliance with care, earlier diagnosis and better outcomes. Although genomic sequencing has attracted considerable public interest, most of the clinical sequencing commercially available today is very limited in scope, expensive and inaccurate. In addition, fewer than 1% of physicians are equipped to meaningfully interpret the information.

Better for Patients:

Until now, the benefits of genomic information have been uncertain, and only available to a lucky few with either financial resources or access to clinicians with a special interest in this field. Until now, companies offering genomic information service have been working with only isolated pieces of the puzzle: One large company looks at gene expression; another looks at sequence variation and yet another focus on protein biomarkers. While these approaches may occasionally hit a "home run" for the patient, more often they will strike out, being based on only partial information. The Iris approach, in contrast, integrates all of the key pieces of the clinical puzzle, striving also to lower the cost to a level that will make the approach widely accessible for patients and clinicians alike.

Historical Overview

We are dedicated to making precision medicine a reality today. We will achieve this by (1) accurate and affordable analysis of nucleic acid (DNA, RNA) and proteomic information, and (2) integration of this information with a patient's personal and family medical, lifestyle, and environmental history. While several companies today are working in the field of genomic analysis, none has achieved the breadth and accuracy of integrated information needed to deliver the full promise of precision medicine. Merely analyzing gene expression or genomic sequence variation is not enough. Where other companies are looking at part of the picture, only Iris is looking at the whole picture.

Founded in 1999 we developed and refined our diagnostics technology and platform, culminating in 2008 when we received the North American Technology Innovation Award in Pharmacogenomics from Frost and Sullivan. In bestowing the award, Frost and Sullivan stated that, “Iris’s technology is a near-term opportunity, which would significantly transform the way in which personalized medication is currently being prescribed.”

2008 to Present: A major setback

In prosecuting the patent applications covering our core intellectual property, we suffered a four-year delay due to the failure and subsequent bankruptcy of Heller Ehrman, our legal counsel at that time. The failure of Heller Ehrman, a prominent law firm with more than 600 attorneys, resulted in communications from the USPTO going unanswered, including a response to a notice of allowance of Iris’s key patent.

This first and most critical failure occurred approximately three weeks after Iris’s patent attorney at Heller Ehrman and their entire intellectual property department in Menlo Park left the firm in March 2008.

Having discovered the Heller Ehrman failures through an outside law firm doing patent work for us in late 2011, we have regained our patent rights, having the key patents granted in 2012 and 2014, and now stands ready to move forward with patent enforcement and commercialization of our products.

And an Opportunity

From 2008 to present, we have continued to refine our technology and intellectual property; we now have six US patents and a portfolio of patents in the European Union, Canada, Asia, Australia and New Zealand. In 2015 we received a key patent in the European Union, and we continue to prosecute our patent applications in the US and abroad. We have expanded our network in both research and clinical realms; and we have avoided some of the pitfalls and burdens of developing a brand new market. During this time, our competitors have developed a significant market, and we are now well positioned to capitalize on this market through superior technology.

Iris Today

We have developed a technology platform to determine the most advanced and cost-effective approach to cancer diagnosis and treatment. In October 2010, the National Institutes of Health (NIH) reviewed our grant application, and we were awarded $245,000, the maximum amount given per grant under the US Qualifying Therapeutic Discovery Project (QTDP) Program. The QTDP grant provided recognition of Iris's patented Nano-Biochip™ and BioWindows™ Medical Informatics System for optimizing personalized and targeted medical treatment.

Our scientific advisory board includes leading cancer researchers from the University of Texas MD Anderson Cancer Center. MD Anderson (MDACC) has been ranked the No. 1 hospital for cancer care in the nation by U.S. News & World Report’s “Best Hospitals” survey (2015-2016). MDACC has ranked as one of the top two hospitals in cancer care every year since U.S. News & World Report began its annual “America’s Best Hospitals” survey in 1990. MDACC website states, “New and innovative therapies generally are available at MD Anderson several years before they become standard in the community. Our clinical trials incorporate state-of-the-art patient care, while evaluating the most recent developments in cancer medicine. MD Anderson ranks first in the number and amount of research grants awarded by the National Cancer Institute. By studying how cancer begins and responds to various treatments, we can help patients overcome disease and prevent recurrence.”

In 2014, we received the IAIR Award for Best Company for Leadership in Personalized Medicine. To date, we have invested over $12 million in preparation for the launch of multiple products and services based upon our patented Nano-biochip and BioWindows Medical Informatics System. We are now prepared to proceed with commercial scale manufacturing and the launch of multiple products. We have been keeping up and making adjustments to our products and technology, as well as intellectual property portfolio, to stay at the forefront of our market sector.

On March 17, 2016, in preparation for our multiple product launches, our board of directors unanimously approved the increase of our authorized shares of common and preferred stock from 20 million and 5 million to 100 million and 25 million respectively. On March 18, 2016, our Amendment to the Articles of Incorporation, regarding the increase in the authorized shares, was filed with the California Secretary of State. The State of California has approved and recorded the amendment.

With a team of people, who have a passion for making a difference in helping people through precision medicine, we have positioned ourselves well to offer our solution to the world as we prepare for dynamic growth. Making precision medicine a reality requires expertise in medicine, biotechnology, genomics, chemistry, nanotechnology, semiconductor manufacturing, mathematical algorithms, and information systems. Equally important for commercial success is expertise in business, insurance, health care policy and patent law.

Data Management

As of January 1, 2015, hospitals, medical clinics, surgery centers, and other medical providers are required by law to have electronic medical records in HL7 format. Unlike the pdf format, HL7 is a friendly format for data extraction into the Iris BioWindows System, which will expedite the process in enabling personalized precision medicine.

We recognized early on the critical role of data management in precision medicine and have been working with leaders in the field to develop the optimum platform for implementation of our technology. We have engaged with companies such as IBM, Dell, EMC, Fujitsu, Oracle, SAP, Amazon, Microsoft and others. Our goal is easy and seamless integration of genomic and proteomic information into clinical practice, informing and supporting both patient and clinician in making treatment decisions. Simplicity and affordability are critical if we expect to make the best practices available to all patients. Many companies and products are converging on this problem, making it possible to cull data from a person's genome, gene expression, protein expression, family history, environmental exposure, diet and lifestyle, together with real-time health data. The Iris BioWindows™ tool is specifically designed and perfectly positioned to integrate all sources of information to provide a complete and clinically relevant picture.

We have been continuing to build upon the 2009 launch of our “Health Passport” in our BioWindows™ 2.0 Informatics System. Health Passport is a HIPAA compliant, web based medical information storage system that allows participants to grant sharing capabilities of their confidential medical and lifestyle information to physicians and/or family members anywhere in the world. This allows families to build multi-generational medical family trees that will help assure that they receive more personalized care now and in the future – the right medical treatment for the right patient at the right time. In the future, the information within the BioWindows™ System will be used not only to optimize the choice of medical treatment, but also to develop personalized and targeted drugs with maximum efficacy and minimal side effects.

Summary of Medical Care

According to the Centers for Medicare and Medicaid Service (CMS), US healthcare spending is projected to be 19.9 percent of GDP by 2022 and spending on national health care totaled $3.0 trillion or 17.5 percent of GDP in 2014.

The American Cancer Society estimates that approximately 231,840 American women were diagnosed with invasive breast cancer in 2015, as well as an estimated 60,290 additional cases of in situ breast cancer. A breast cancer patient, after the removal of the tumor, is usually treated with radiation and/or chemotherapy followed by additional therapies such as hormonal therapy or molecular antibody treatment.

According to a study from the National Cancer Institute (NCI), the average cost of chemotherapy is about $31,000, and most patients that receive chemotherapy do not benefit from this painful treatment with its many undesirable side effects. Some drugs to be taken after chemotherapy could cost $40,000-$80,000 per year. For some patients, the total cost of breast cancer treatment could exceed $150,000 in the first year.

Most of our current medical practice in this country is based on “standards of care” which are determined by averaging responses over large groups of patients based on clinical trials. Another way to arrive at “standards of care” is to group patients into cohorts (groups) based on their specific characteristics. Instead of looking for generalities within a large group of patients, medical practitioners can focus on specifics and what cohort best fits each individual.

Which characteristics should be considered in building a subset or cohort? Many characteristics are obvious and are presently considered to optimize treatment; gender, age, weight, height, ethnicity, family history and disease history for instance. There are others that are not so obvious; diet, allergies, immunizations, obstetric history, stress and lifestyle as well as environmental factors including employment and residential history. But probably the most important are personal biomarkers.

In medicine, a biomarker is an indicator of a particular disease state or a particular state of a patient; blood pressure and cholesterol are two familiar ones. Over the past few decades, major advances in molecular analysis technologies have brought the definition of a biomarker to the arena of the genome. The present biomarkers that medicine relies on for disease diagnosis and prognosis are only a glimpse into the molecular basis of common diseases. The addition of genomic analysis would allow medicine to define diseases precisely, uniquely and unequivocally.

In a February 16th 2009 AP article Dr. Richard Schilsky, American Society of Clinical Oncology (ASCO) president, was quoted as saying that “a bad test is as dangerous to a patient as a bad drug.” “The tricky part is to figure out which of those (genetic differences) are clinically important and which are just variations that exist.” The most complete genomic testing is about uncovering a tumor’s genetic signature by measuring the gene expression activity that drives the aggressiveness of the tumor, its possibility of recurrence and what specific type of therapeutic regimen would save and optimize the patient’s quality of life.

Breast cancer, like all diseases, is very complex involving an individual’s genome interacting with its environment over time. Only 5% of breast cancers are due to inherited mutations; the other 95% are due to acquired somatic mutations and improperly regulated genes due to environmental factors. Why do some people get cancer and others don't? Why is cancer more aggressive in some patients compared to others? Why does the same drug cure some patients and cause severe side effects in others? Why does someone need twice the standard dose to have a positive effect while others need only half? Existing diagnostic procedures cannot answer these questions.

What sets Iris apart?

The answer and solution to all these questions is the same, genomics and personalized medicine. With the information available in our BioWindows^TM informatics system physicians would be able to stratify patients into cohorts with common, yet unique, disease characteristics. When you add a new patients genomic and life dynamics into the system for comparison they are added to groups that share the greatest number of similarities in all aspects. As the system grows you move further and further away from “generic” treatments, based on outdated clinical trials and trial and error medicine and enter the new era of truly personalized medicine.

Our intellectual property encompasses two key aspects: (1) the transformation of biological information into digital data, and (2) analysis of the data with our artificial intelligence system to optimize medical treatment. Consider the following hypothetical patient, with the conventional medical approach or with the precision medicine approach.

Clinical Example

Conventional Approach:

Imagine a patient just diagnosed with a possible breast cancer; the physical exam shows a mass which is confirmed by mammogram. Screening tests and bone scan show no evidence of metastatic spread. A needle biopsy is performed, and the tissue is examined under the microscope to classify the tumor by its appearance. Based primarily on its microscopic appearance, a treatment plan will be recommended. There are potential errors at each step.

A critical fact is that microscopic appearance is not always an accurate predictor of a tumor's behavior. In other words, the genotype (genetic code) and the phenotype (physical appearance) do not always match. Certain types of tumors respond to one treatment better than another. When it comes to chemotherapy, the best drug or combination of drugs cannot always be predicted by the microscopic appearance. All too often trial and error selects treatment. Other aspects of treatment, including diet, social support, and general fitness may be paid lip service, but are rarely given the same seriousness as the specific medical treatment. Almost always, the patient’s gut microbiome profile is rarely examined, even though the presence or absence of certain microbes can either help or hinder the efficacy of chemotherapy.

Iris precision medicine approach

Now imagine the same patient's treatment with precision medicine: As soon as the needle biopsy is done, the tissue is prepared and analyzed with the Iris Breast Cancer Chip, determining the genomic "fingerprint" of the tumor; (this is what matters, regardless of its microscopic appearance). The genomic information is then analyzed via the Iris Bio-Windows artificial intelligence system, integrating all clinical (which may or may not include next generation (NGS) DNA sequencing, RNA sequencing, liquid biopsy, protein expression, microbiome, and other information), family, diet and lifestyle information, and comparing the genomic "fingerprint" against all known cases of tumors with that "fingerprint,” their treatments, and their successes or failures. Further, other drugs or treatments in development thought to be of value for treatment of this particular patient can be analyzed for possible application. At the same time, nutritional, lifestyle and other factors are identified, quantifying their potential value in supporting medical treatment. This vast pool of information is integrated, summarized and provided to physician and patient, in plain language, to assist them in making clinical decisions. Our process can be flexible and can be used with less or more integrated information depending upon the situation.

The Evolution of the Iris Program

It took a worldwide effort of thousands of scientist working more than a decade at a cost of approximately $3 billion to complete a draft of a composite human genome in 2001. In 2016, a human genome can be sequenced in a day for $1,000. The cost and time required to sequence a human genome has finally come down low enough to make precision medicine a reality. Our patent portfolio and approach to precision medicine have evolved over a seventeen-year period. The development of cheaper, faster and far more accurate and complete genomic data acquisition has been challenging in this fast-moving clinical field.

Identifying and developing appropriate partners in clinical evaluation as well as data management is likewise an important part of Iris's program, and we continue to cultivate and refine these resources. In the meantime, companies which do not focus on seeing “the complete picture” in integrated analytics have done much of the costly and difficult work of raising public awareness and excitement about the promise of precision medicine and developing the early market for these services.

We have taken the time to fully understand the entire complex and time-consuming aspects of making personalized medicine accurate, affordable, and timely. We are now getting ready to launch multiple products in succession in 2016.

Our Strategy

Product Strategy

We have identified our products for development based on the high prevalence, societal impact and economic consequences of certain serious medical conditions such as breast cancer. It has become apparent to us, with respect to breast cancer, that there remains an acute need for a robust staging classification system, as well as more effective predictive, and prognostic tools to assist in medical treatment decisions. Recently, the characterization of gene mutations and gene expression patterns as they relate to this disease has become the prime focus of a great deal of research and discovery.

Breast Cancer Chip

According to The American Cancer Society, about 1,685,210 new cancer cases are expected to be diagnosed in 2016. This estimate does not include carcinoma in situ (noninvasive cancer) of any site except urinary bladder, and does not include basal cell and squamous cell skin cancers, which are not required to be reported to cancer registries. In 2016, about 595,690 Americans are expected to die of cancer, almost 1,632 people per day. Cancer is the second most common cause of death in the US, exceeded only by heart disease, accounting for nearly 1 of every 4 deaths. According to the World Health Organization (WHO), approximately 14 million people worldwide are diagnosed with cancer and there were 8.2 million cancer related deaths in 2012.

Our initial focus is helping the more than 2 million breast cancer patients in the US. Each year more than a million breast biopsies, lumpectomies, and mastectomies are performed. An estimated 246,660 new cases of invasive breast cancer are expected to be diagnosed among women in the US during 2016. About 60,290 new cases of carcinoma in situ (CIS) will be diagnosed (CIS is non-invasive and is the earliest form of breast cancer), and about 40,450 women will die from breast cancer. Excluding cancers of the skin, breast cancer is the most frequently diagnosed cancer in women.

A woman is diagnosed with breast cancer every three minutes in the U.S. The National Cancer Institute (NCI) estimates that more than $8 billion is spent in the U.S. each year on treatment of breast cancer and there are more than two million women alive in the U.S. who had a history of cancer of the breast.

With the increasing success of early mammography screening programs, a growing number of breast biopsies are being performed to determine if suspicious growths are malignant or benign. Up until now, malignant tissue has been graded based on traditional tumor/nodal/metastasis (TNM). The current testing procedures also use immunohistochemical tissue staining techniques for additional cancer cell sub-classification and staging, which is used for clinical decisions regarding treatment and prognosis.

Mammography can detect a breast tumor once it has reached a certain size, but cannot tell if the tumor is benign or malignant. A breast biopsy can determine if a tumor is cancer but cannot predict how aggressive the disease will be or how the patient will respond to the various treatment modalities. Starting at the point of a breast biopsy diagnosis of cancer, the nano-biochip and BioWindows™ artificial intelligence program are designed to enable a treating physician to quickly prescribe a personalized treatment regimen that will have the greatest probability of success for each patient’s particular type of cancer. This knowledge could be the difference between life and death in some cases and a better quality of life for all patients.

We have the capability to launch the clinical BreastCancerChip™ through CLIA laboratory certification without FDA approval, similar to the Oncotype Dx test offered by Genomic Health. We have strategically positioned ourselves to be successful regardless of how and when the FDA decides to regulate complex molecular diagnostic and prognostic products. The Iris Nano-Biochips are designed to be FDA-approved kits. With FDA approval, all of our tests can be performed in any certified laboratory.

Intellectual Property

Our core intellectual property covers patented technology for highly accurate genomic and proteomic analysis, refinements to enhance reaction speed and control, and the use of an algorithm to relate this information to a patient's comprehensive history to determine risks of disease, of recurrence, and prognosis with available or developing modes of treatment. We believe that all genetic and environmental elements must be integrated in order to achieve truly personalized, precision medicine. We are is the first company to offer such integration and we have been issued several patents.

Our IP is based on the technology of analysis. While we look at many specific genes, our intellectual property is not based upon patenting any specific genes, unlike some competitors. Our strategy has been borne out by the Supreme Court, which ruled on June 13, 2013 that genetic sequences themselves are natural products, and not patentable.

US 7,108,971 - Binding Chemistry: “Reversible binding of molecules to metal substrates through affinity interactions.” This patent application states that a testing probe binding system, utilizing a proprietary heterobifunctional spacer comprising a hydrocarbon, efficiently binds oligonucleotides to soft metal surfaces on the chip. The invention relates to the immobilization of ligands onto solid surfaces and their use in hybridization, purification, immunoassays, biosensors and other biochemical applications. Our patent protection expires on May 15, 2020.

US 6,852,493 - Enhanced Hybridization: “Magnetic field enhanced hybridization of target molecules to immobilize probes.” This patent claim states that labeling nucleic acid target molecules with paramagnetic labels and activating a magnetic field under probe molecules on the chip, can accomplish rapid hybridization of complementary nucleic acid molecules. Our patent protection expires on May 15, 2020.

US 7,270,954 - Peptide Nucleic Acids (PNAs): “Hybridization of target DNA with immobilized nucleic acid analogs.” This patent claim states that PNAs replace oligonucleotides and cDNA as probes in the detection of specific DNA and RNA sequences. Utilizing the company’s proprietary binding system and hybridization technology, PNA probes capture more efficiently specific DNA and RNA sequences than do oligonucleotide and cDNA probes. Our patent protection expires on June 30, 2020.

US 7,062,076 - BioWindows System: “Artificial intelligence system for genetic analysis.” This patent claim states that BioWindows provides a complete artificial intelligence system, utilizing proprietary algorithms, for acquisition and analysis of nucleic-acid array- hybridization information. This system reads data from nano-biochips, analyzes test results based on maintained parameters, evaluates patient risk for various ailments, and displays patient treatment alternatives. This system may utilize the Internet, via a secured encrypted web interface, for both transmission of nano-biochip hybridization data and the interpretation of this data. Our patent protection expires on August 28, 2020.

US 8,107,693 – This patent has broader claims than US 7,062,076 - BioWindows System: “Artificial intelligence system for genetic analysis.” This patent claim states that BioWindows provides a complete artificial intelligence system, utilizing proprietary algorithms, for acquisition and analysis of nucleic-acid array- hybridization information. This system reads data from nano-biochips, analyzes test results based on maintained parameters, evaluates patient risk for various ailments, and displays patient treatment alternatives. This system may utilize the Internet, via a secured encrypted web interface, for both transmission of nano-biochip hybridization data and the interpretation of this data. Our patent protection expires on August 28, 2020.

US 8,693,751 – The latest patent in a family of patents on our “Artificial intelligence system for genetic analysis.” This one has broader claims than US 8,107,693. Our patent protection expires on August 28, 2020.

Strengths

Core technology: Our business plan is based on our analytical technology, which is not in any way dependent upon licensing other technology. Our patents are thorough and comprehensive. Our investments are focused on patentable analytic technology to acquire, store and integrate information, and communicate it clearly and accessibly to patients and physicians. The key is relevant information, and we are flexible in acquiring information from any source, and means deemed appropriate.

We provide patient and physician with the information they need to make the best treatment decisions, but Iris does not in any way substitute for the physician's judgment. We do not make treatment recommendations ourselves. We provide actionable information but do not tell the doctor what to do. This is an important aspect of our business structure, avoiding both unnecessary cost and liability exposure for the company.

Scalability: We do not employ at present a direct "service" staff to the public, focusing instead on the most accurate and user-friendly ways to gather, integrate, search, reference and present actionable information to patient and physician. Resources not spent on an extended labor force can be concentrated on staying at the leading edge of a very rapidly evolving field, keeping our existing products up-to-date with the latest research, and expanding our product line. Our model is also easily scalable for global penetration.

The field changes rapidly, and our Nano-biochip can be updated easily to include new sequences and other molecules. Our analytical software can also be updated easily. Our flexible model provides a competitive advantage for Iris in offering up-to-date advanced medical tests.

Cost Savings: Precision medicine enables physicians to guide patients to better medical decisions, with better outcomes, at lower cost and with fewer undesirable effects from treatment. Government (CMS) and insurance companies are saved the cost of paying for ineffective treatments. Hospitals providing precision medicine benefit from an enhanced reputation for providing superior care. Innovative pharmaceutical and biotechnology companies, in the long run, will win by developing better working drugs that will be acceptable to a more knowledgeable medical industry in the future.

Competition

The line between competitors, collaborators, and suppliers is blurry at best in this emerging field of precision medicine. For example, Illumina supplies about 70% of the sequencing equipment. In the past few years, Illumina has moved into the space of actually providing clinical tests.

Recently, Nanthealth launched its Cancer Moonshot 2020 program to diagnose and treat cancer using next generation sequencing (NGS), protein profiling using expensive mass spectrophotometry, and immunotherapy. The collaboration between Blackberry and Nanthealth to create the Passport phone with a Genomic Browser is a great first step to build on. Blackberry is strong in cyber security and enabling productivity while Nanthealth is strong in its clinical operation system, medical expertise, and networking with the clinical community, government authorities, electronic health record system providers, and health insurance companies. There exists an opportunity for big data analytics of patient information to significantly change the way medicine is practiced. There are different opinions among experts, however, as to whether the “boil the ocean” approach or the “intelligent, sequentially targeted” approach to clinical studies makes more sense.

Currently there are no systems in which a physician can view important medical information and make correlations associated with millions of mutations and thousands of gene and protein expressions for different demographics groups. we have spent the past decade focusing on the integration of nanotechnology, semiconductor manufacturing, microfluidics, chemistry, molecular biology, genetics, genomics, and information technology. Since we understand the importance of the need for complete information, we have created a platform to enable physicians to make better, more informed medical decisions that will lead to more effective diagnosis and treatment, not only for patients with breast cancer, but also for those with neurological disorders, heart disease, diabetes and other gene-related metabolic problems.

During the J. P. Morgan Healthcare Conference in January 2016, it came through loud and clear that personalized medicine through big data analytics has become a competition and collaboration among billionaires such as Bill Gates, Jeff Bezos, Dr. Patrick Soon-Shiong, along with well funded and well known scientists such as Craig Venter through their respective companies and investments.

In fact, precision medicine is no longer just about competition among companies, but rather among networks of companies. Broadly speaking, it is among the affiliates of Illumina, Thermo Fisher Scientific, and a few others. Grail, a new company created with $100 million provided by Illumina, Arch Ventures, Bill Gates, Jeff Bezos, and Sutter Hill Ventures, is one to watch for the future. Nanthealth’s business model relies on using advanced DNA-sequencing systems from Illumina. Illumina has already announced that it would provide those systems to Grail at a deep discount. Jeff Bezos and Bill Gates already own the number one and number two cloud storage services respectively and they can dominate in cloud computing. Nanthealth’s business cannot succeed without strong cloud computing. Nanthealth and Illumina already have a strong network with pharmaceutical companies, universities, and hospitals.

Competitors and potential collaborators include but not limited to Myriad Genetics, Genomic Health, NanoString Technologies Inc., NeoGenomics, Novartis AG, Foundation Medicine, Guardant Health, Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, Roche Diagnostics, and Johnson & Johnson Company. Competitors also include other companies and academic and research institutions.

Our Competitive Advantage

With such concentration of capital, scientific know-how and information-processing power in this area, different entities are competing to establish themselves as the “gold standard” for personalized medicine for the coming decades. There are also other competitors such as Verily (Google Life Sciences) that is poised to go far beyond Google Genomics. IBM is using Watson to analyze patient information to improve treatment and IBM’s collaboration with Apple brings strong enterprise security with computer devices and consumer applications. These developments dovetail with what we have been diligently working on for many years.

In addition to the prognostic testing capabilities, similar to the offerings by Genomic Health, Agendia, and NanoString, our tests predict the best, targeted therapy to maximize efficacy and minimize side effects by using gene expression test with additional genomic, proteomic, personal life style, family medical history, and environmental exposure information to optimize longevity and quality of life.

Breast cancer gene signatures have been used to segregate patients by prognosis and therapeutic indication. Those such as Oncotype DX, Mammaprint, and PAM50 classify breast tumors into subclasses (e.g., Luminal A, Luminal B, HER2, Basal) that are broadly predictive of recurrence after initial treatment/resection, without specifying an indicated treatment modality. Other signatures (e.g., Endopredict, immune response, Myc, p53) are prognostic within individual subclasses (e.g., ER-positive, triple negative) again without specifying indicated treatment modalities. Lastly, pathway signatures (e.g., RB, MEK, PTEN) predict tumor addiction to specific oncogenes and/or responsiveness to specific treatments. These latter pathway signatures may be selectively predictive in the context of particular tumor subclasses. For example, in ER-positive disease there was a highly significant association between high RB-loss signature expression and poor disease outcome, while in ER-negative disease the opposite trend was evident. Specifically, within the ER-negative subpopulation, the RB-loss signature was associated with improved response to chemotherapy and longer relapse-free survival.

While currently, most published signatures are merely prognostic, the advent of neoadjuvant therapies and adaptive trials will increasingly favor the development of signatures predictive of response to individual targeted therapies. However, publicly available clinical data for targeted therapies are still sparse. In lieu of such clinical data, some researchers have used the results of pre-clinical studies using cell lines and xenografts to derive predictive signatures. In one illustrative example, cell lines were used to define an 18-gene signature of MEK functional output, independent of tumor genotype. Where the MEK pathway was activated but the cells remained resistant to the MEK inhibitor selumetinib, a 13-gene signature was identified that indicated the existence of compensatory signaling. In another example, breast cell lines were used to define a 7-gene signature predictive of responsiveness to the drug olaparib, a specific inhibitor of Poly(ADP-ribose) polymerase (PARP) – an enzyme involved in DNA repair.

Our test is based upon a list of genes tailored for breast cancer signatures prognostic test with future predictive capabilities, including signatures of oncogenic pathways likely to be targeted by therapeutic drugs currently in various stages of development. We envision broad use of our artificial intelligence system for optimization of targeted therapeutic strategies and may incorporate data from next-generation sequencing (NGS) and other sources.

We have developed a manufacturing system with the capabilities to produce a variety of Nano-biochips™ with a choice of mRNAs, microRNAs, proteins, or other biomarker probes for the diagnosis and prognosis of breast cancer and many other diseases. Our Nano-biochip manufacturing and usage tracking process has been tested with 2D and 1D barcode scanners on both labeled and stamped products in conjunction with touch screen functions, and we have streamlined the automated patient sample processing protocols.

We have also been developing other new technologies, which we will share in the future, that have the potential to significantly impact healthcare.

We have been cultivating scientific knowledge and business relationships to better understand the correlations between human wellness and the nucleic acids and proteins of various organisms in a business environment where regulations and reimbursement are going through major changes while consumers, government, research scientists, and physicians are demanding timely access to vital information. With the pending merger of Aetna with Humana, Anthem with Cigna, they along with UnitedHealth will forever change the insurance landscape and drive the formation of more mega hospital systems. We are poised to succeed in contributing to precision medicine in the 21^st century, and those that partner with us will have an added competitive advantage.

For the next five to ten years, immunotherapy, liquid biopsy, gene-editing using clustered regularly-interspaced short palindromic repeats (CRSPR), among other scientific and medical advances, will be increasingly discussed at medical conferences as well as among the general public. In general, immunotherapy is more efficacious and has much fewer side effects when compared to chemotherapy. Immunotherapy has worked well not only for blood related cancers but also for diseases such as Melanoma.

On March 24, 2016, Dr. James P. Allison, who’s cancer research in the area of immunotherapy led to the successful development of “immune checkpoint therapy,” and FDA-approval of the immunotherapy drug Yervoy for the treatment of metastatic melanoma, talked about the need to do more basic research and not just translational research. The development of Yervoy was made possible by the basic research conducted by him at UC Berkeley as well as his collaborators. He holds the position of professor and chair of Immunology and executive director of immunotherapy platform at the M. D. Anderson Cancer Center. Dr. Allison will likely be a future Nobel Laureate.

Just like any business precision medicine involves strategic company alliances. People must address the issues of both privacy and widespread sharing, and information management is as important as the genomic technology itself. We have built a solid foundation to be a leader in the precision medicine industry and are now ready to bring superior technology to this marketplace.

Sales and Marketing

We expect that our marketing efforts will capitalize on the existing wide market acceptance as well as private and governmental health insurance reimbursement to provide for genomic and genetic breast cancer testing; however, while some of our competitors receive reimbursement for similar testing, until we begin our operations we cannot be certain that we will be similarly reimbursed. Our sales and marketing will be done initially through partners, distributors, and company representatives. In the United States, the initial customer base we wish to target once our products are ready to be introduced to the market includes leading clinical research institutions and companies such as Stanford, UCSF, M.D. Anderson Cancer Center, the National Cancer Institute (NIH), Quest Diagnostics, Laboratory Corporation, Sutter Medical, and Kaiser Permanente.

Direct-to-consumer radiology service centers demonstrate the growing popularity of self-reliance and a “need to know” philosophy in the management of personal health matters. Genomic diagnostic testing will, quite logically, be a part of this movement. We could be selling our products into a new market segment in the field of medical diagnostics.

Iris has been covered by ABC News, Forbes, CNBC, Yahoo Finance, Market Watch, US Pharmacist, Drug Benefit Trends and other publications here in the US as well as media in the UK, France, Germany, Australia, Canada, and Asian countries. Drug Benefit Trends is a publication for medical directors, pharmacy directors, and other managed care decision makers. This publication is peer reviewed and the three-page article that highlights the Company and the current status of personalized medicine is on the front cover of the March 2008 issue.

Our CEO, Simon Chin, has also been interviewed by radio shows in California and Florida. Since we launched our BioWindows™ medical information system on May 11, 2008, people have been entering their personal information into the system. Mr. Chin was also a speaker at various conferences such as the the world's largest annual gathering for laboratory medicine at the American Association for Clinical Chemistry (AACC) and the BIO International Convention, which is the world's largest biotech conference. Our desire is to launch BioWindows™ worldwide, customized to meet the local needs.

Our management realizes that one of the key ingredients to becoming a successful company is brand recognition so we will engage in more publicity campaigns. Customer and user training will also be provided to facilitate the use of our products and services. As far as sales channels are concerned, preliminary discussions have been made with major health care providers and HMOs. We have also been working with various patient advocacy groups as a part of our marketing outreach program.

In the Pipeline

Our Nano-Biochip™ product pipeline includes: CancerChip™, PrenatalChip™, NeuroChip™ (Alzheimer’s and Parkinson diseases), MetabolicChip™ (Diabetes), CardioChip™, BloodChip™ and Chips for veterinary, agricultural (e.g., biofuel development), environmental, and other applications. Our BioWindows™ artificial intelligence system provides big data and analysis for clinical applications, drug development, and stem cell research.

Government Regulation

Regulation by governmental authorities in the United States and other countries will be a significant factor in the production and marketing of any products that may be developed by us. The nature and the extent to which such regulations may apply will vary depending on the nature of the products. Our products can be marketed as clinical laboratory tests according to the government CLIA standard without FDA approval, similar to Genomic Health’s Oncotype Dx test or as 510(k) products approved by the FDA, enabling our tests to be used in any certified laboratory. Agendia’s MammaPrint, which serves the same function as the Oncotype Dx, is approved by the FDA as a de novo 510(k) product. Human clinical trial was not required. Only human tissues were studied “in vitro” using their MammaPrint microarrays.

Although clinical laboratory services are not typically subject to FDA regulation, the FDA does regulate the sale or distribution, in interstate commerce, of medical devices, including in vitro diagnostic test kits. In addition, reagents and equipment used by clinical laboratories may be subject to FDA regulation. Clinical laboratory tests that are developed and validated by a laboratory for use in examinations performed by the lab itself are called “home brew” tests. Most home brew tests are currently not subject to premarket review by FDA although analyte-specific reagents or software provided to us by third parties and used by us to perform home brew tests may be subject to review by FDA prior to marketing. Devices subject to FDA regulation must undergo premarket review prior to commercialization unless the device is of a type exempted from such review.

All medical devices are categorized by the FDA into three different classes. The class in which a device is assigned determines the level of review required by the FDA to obtain approval for the marketing of the device to the public. Class I medical devices are subject to the least regulatory control and present minimal potential harm to the user. Class II medical devices include devices for which general controls alone are insufficient to assure safety and effectiveness, and additional existing methods are available to provide such assurances. Therefore, Class II devices are subject to special controls in addition to the general controls of Class I devices. Special controls may include special labeling requirements, mandatory performance standards, and post market surveillance. Devices in Class II are held to a higher level of assurance than Class I devices that they will perform as indicated and will not cause injury or harm to patient or user. Devices in this class are typically non-invasive and include x-ray machines, powered wheelchairs, infusion pumps, surgical drapes, surgical needles and suture material, and acupuncture needles. Class III devices are devices for which there is insufficient information to determine the safety and effectiveness of the device. Examples of Class III devices include heart valves, breast implants, implantable pacemakers and generally all medical devices that are implanted in the body. Class III devices are held to a higher level of assurance than Class II devices and require obtaining premarket approval, or PMA, from the FDA.

Although biochips similar to the one we intend to market have previously been considered Class II devices and therefore are only subject to premarket notification, since our products are designed to enable a treating physician to prescribe a personalized treatment regimen there is a possibility that the FDA may consider our products a Class III device for this intended use requiring PMA. We intend to meet with the FDA to determine whether they will categorize our product for its current intended use as a Class II or Class III device. If the FDA determines that the intended use of our products would categorize our product as a Class II device we will submit a premarket notification to the FDA. However, in the event that the FDA determines that the intended use of our product would categorize it as a Class III device requiring premarket approval, we intend to modify the intended use to initially market our product as a test for predicting breast cancer recurrence and still file a 510(k) premarket notification. Then simultaneously with, or subsequent to, the filing of a premarket notification we will also file a PMA for use of our product by a treating physician to prescribe a personalized treatment regimen.

Premarketing notification is accomplished by submitting a 510(k) to the FDA. A 510(k) notification provides data to show that the new device is substantially equivalent to other devices that were introduced into the marketplace prior to May 1976, or pre-amendment devices. In order to complete a 510(k) notification for the FDA we will need to collect safety and effectiveness data to support 510(k) notification. This data is normally obtained through an evaluation in a clinical study process.

Premarket approval, or PMA, is the most stringent type of device marketing application required by the FDA and is based on a determination by the FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use. A PMA application is therefore a scientific, regulatory document to the FDA to demonstrate the safety and effectiveness of the Class III device. If a PMA application lacks valid clinical information and scientific analysis it will delay the FDA’s review and approval. Once a final application is prepared, FDA regulations provide that it has 180 days from the submission of the application to review a PMA and make a determination, but the review time can be longer. In addition, before approving or denying a PMA an appropriate FDA advisory committee may review the PMA at a public meeting and provide the FDA with its recommendations. After an applicant is notified of its approval or denial by the FDA a notice is published on the Internet, which provides interested parties with an opportunity to petition the FDA for reconsideration within 30 days of the decisions.

When FDA approval of a clinical diagnostic device requires human clinical trials, and if the device presents a “significant risk” (as defined by the FDA) to human health, the device sponsor is required to file an investigational device exemption, or IDE, application with the FDA and obtain IDE approval prior to commencing the human clinical trial. If the device is considered a “non-significant” risk, IDE submission to FDA is not required. Instead, only approval from the Institutional Review Board overseeing the clinical trial is required. We do not believe that we are required to obtain an IDE exemption since our products are not implanted in the body they would not be considered “significant risk devices.”

After we have completed the 510(k) process, but before we begin manufacturing and distributing our products, we will be required to register with the FDA, in a process known as establishment registration. This registration provides the FDA with the location of the facility manufacturing the medical device, but this registration does not establish approval of the device by the FDA. In addition, most medical device establishments registered with the FDA must also identify the device that they have in commercial distribution. This process is known as medical device listing and is a means for the FDA to keep apprised of the devices that are being manufactured and sold.

After the FDA permits a device to enter commercial distribution, numerous regulatory requirements apply. In addition to potential product specific post-approval requirements, all devices are subject to:

The Quality System Regulation, which requires manufacturers to follow comprehensive design, testing, control, documentation and other quality assurance procedures during the manufacturing process,

Labeling regulations,

The Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to reoccur.

We believe that the initial FDA approval of our premarketing notification could be obtained in approximately three months, once we have submitted our 510(k) to the FDA for review; however, obtaining approval can take significantly longer if the FDA requests additional information with respect to the filing submitted. Failure to comply with the applicable United States medical device regulatory requirements could result in, among other things, warning letters, fines, injunctions, civil penalties, repairs, replacements, refunds, recalls or seizures of products, total or partial suspension of production, the FDA’s refusal to grant future premarket clearances or approvals, withdrawals or suspensions of current product applications, suspension of export certificates and criminal prosecution.

With respect to post-market product advertising and promotion, the FDA imposes a number of complex regulations on entities that advertise and promote biologics, which include, among others, standards and regulations for direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional activities involving the Internet. The FDA has broad enforcement authority, and failure to abide by applicable FDA regulations can result in penalties including the issuance of a warning letter directing the entity to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.

We and our contract medical product manufacturers are subject to periodic inspection by the FDA and other authorities where applicable, and are required to comply with the applicable FDA current Good Manufacturing Practice regulations. Good Manufacturing Practice regulations include requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation, and provide for manufacturing facilities to be inspected by the FDA.

In addition, we will be subject to FDA regulations with respect to the import and export of any of our products. To the extent we may decide to utilize a foreign manufacturer, all foreign manufacturers must meet applicable United States medical device regulations in order to import devices. These requirements include registration of establishment, listing of devices, manufacturing in accordance with the quality system regulation and medical device reporting of adverse events. In addition, the foreign manufacturers must designate a United States agent. As with domestic manufacturers, foreign manufacturing sites are subject to FDA inspection. With respect to the exportation of our products, any medical device that is legally in the United States may be exported anywhere in the world without prior FDA notification or approval and the export restrictions only apply to unapproved devices, which have not been registered with the FDA. In addition, the United States exporter is required to comply with the laws of the importing country.

Furthermore, outside the United States, our ability to market our products is contingent upon obtaining International Standards Organization (ISO) certification, and in some cases receiving specific marketing authorization from the appropriate foreign regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. While we currently do not have any product registrations filed, in the future we intend to file an EU product registration, which would cover all member states. Foreign registration is an ongoing process as we register additional products and/or product modifications.

In addition, customers using diagnostic tests for clinical purposes in the United States are also regulated under the Clinical Laboratory Improvement Amendments of 1988, or CLIA. CLIA is intended to ensure the quality and reliability of all medical testing in laboratories in the United States by requiring that any healthcare facility in which testing is performed meets specified standards in the areas of personnel qualification, administration, participation in proficiency testing, patient test management, quality control, quality assurance, and inspections.

We are also subject to various state and local laws and regulations in the United States relating to laboratory practices and the protection of the environment. In each of these areas, as above, regulatory agencies have broad regulatory and enforcement powers, including the ability to levy fines and civil and criminal penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw approvals, any one or more of which could have a material adverse effect upon us. In addition, in the course of our business, we handle, store and dispose of chemicals. The environmental laws and regulations applicable to our operations include provisions that regulate the discharge of materials in the environment. Usually these environmental laws and regulations impose “strict liability,” rendering a person liable without regard to negligence or fault on the part of, or conditions caused by, others. We have not been required to expend material amounts in connection with our efforts to comply with environmental requirements. Because the requirements imposed by these laws and regulations frequently change, we are unable to predict the cost of compliance with these requirements in the future, or the effect of these laws on our capital expenditures, results of operations or competitive positions.

Employees

As of March 31, 2016 we have 7 full-time and part-time employees and 6 full-time and part-time consultants. As we prepare to transition from product development to commercialization, we are currently in contract negotiations to hire additional employees. We have not experienced any work stoppages and we consider relations with our employees to be good.

ITEM 1A. RISK FACTORS

Risks Related to Our Financial Results

We May Never Commercialize Any Of Our Products Or Earn A Profit.

We have incurred losses since we were formed. We have incurred an accumulated deficit during development stage of $12,042,307 as of December 31, 2015. To date, we have experienced negative cash flow from development of our gene profiling medical treatment technology. We currently have no products ready for commercialization, have not generated any revenue from operations and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our technology. We cannot predict the extent of these future net losses, or when we may attain profitability, if at all. If we are unable to generate significant revenue or attain profitability, we will not be able to sustain operations.

We Will Need To Raise Additional Capital To Commercialize Our Nano-BioChip Technology, and Our Failure To Obtain Funding When Needed May Force Us To Delay, Reduce or Eliminate Our Product Development Programs.

We expect that our existing capital resources will be sufficient to fund our operations for the next 12 months. To expand at an accelerated growth rate, we will be required to raise additional capital to complete the development and commercialization of our current product candidates. The development of our business will require substantial additional capital in the future to conduct research and development and commercialize our nano-biochip technology. We have historically relied upon private sales of our equity to fund our operations. We currently have no credit facility or committed sources of capital. If our capital resources are insufficient to meet future requirements, we will have to raise additional funds to continue the development and commercialization of our nano-biochip technology. When we seek additional capital, we may seek to sell additional equity or debt securities or to obtain a credit facility, which we may not be able to do on favorable terms, or at all. Our ability to obtain additional financing will be subject to a number of factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our product candidates, restrict our operations or obtain funds by entering into agreements on unattractive terms.

If We Fail To Maintain Effective Internal Controls Over Financial Reporting, The Price Of Our Common Stock May Be Adversely Affected.

Our internal controls over financial reporting may have weaknesses and conditions that will need to be addressed, the disclosure of which may have an adverse impact on the price of our common stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely impact our public disclosures regarding our business, financial condition or operating results. In addition, management's assessment of our internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors.

Any actual or perceived weaknesses and conditions that need to be addressed in our internal controls over financial reporting or disclosure of management's assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

Risks Related To Our Business

The Commercial Success Of Our Products Will Depend On The Degree Of Market Acceptance Of These Products Among Physicians, Patients, Health Care Payors And The Medical Community.

The use of the nano-biochip gene expression kit has never been commercialized. Even if approved for sale by the appropriate regulatory authorities, physicians may not order diagnostic tests based on our nano-biochip gene technology, in which event we may be unable to generate significant revenue or become profitable. In addition, physicians and patients may not utilize the nano-biochip gene expression kit unless third-party payors, such as managed care organizations, Medicare and Medicaid, pay a substantial portion of the test’s price. There is significant uncertainty concerning third-party reimbursement of any test incorporating new technology. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that tests using our technologies are:

Not experimental or investigational,

Medically necessary,

Appropriate for specific patient,

Cost-effective, and

Supported by peer-reviewed publications.

Since each payor makes its own decision as to whether to establish a policy to reimburse for a test, seeking these approvals is a time-consuming and costly process. We cannot be certain that coverage for the nano-biochip gene expression kit will be provided by any third-party payors.

Our Financial Results Will Initially Depend On Sales Of One Product, The Nano-BioChip Gene Expression Kit And We Will Need To Generate Sufficient Revenues From This Product To Run Our Business.

For the near future, we expect to derive substantially all of our revenues from sales of one product, the nano-biochip gene expression kit. We are in the early stages of research and development for other products that we may offer as well as for enhancements to the current product. If we are unable to generate sales of the nano-biochip gene expression kit or to successfully develop and commercialize other products or product enhancements, our revenues and our ability to achieve profitability would be impaired, and the market price of our common stock could decline.

At Present, Our Success Depends Solely On the Successful Commercialization of Our Nano-Biochip Technology and BioWindows Artificial Intelligence System for Our Proposed Use As A Cancer Diagnostic Analysis Tool.

The successful commercialization of our nano-biochip based diagnostic kits is crucial for our success. Our proposed products and their potential applications are in an early stage of clinical and manufacturing/process development and face a variety of risks and uncertainties. Principally, these risks include the following:

Future clinical study results may show that the nano-biochip diagnostic kits is not an effective means of diagnosing the appropriate treatment for patients with cancer;

Future clinical study results may be inconsistent with our previous preliminary testing results and data from our earlier studies may be inconsistent with clinical data;

Even if we have determined that our nano-biochip diagnostic kits are safe and effective for their intended purposes we cannot predict with any certainty the amount of time necessary to obtain FDA approvals and whether any such approvals will ultimately be granted;

Even if our nano-biochip diagnostic kits are shown to be safe and effective for their intended purposes, we may face significant or unforeseen difficulties in obtaining or manufacturing sufficient quantities or at reasonable prices;

Our ability to complete the development and commercialization of nano-biochip diagnostic kits for our intended use is significantly dependent upon our ability to obtain and maintain experienced and committed partners to assist us with obtaining clinical and regulatory approvals for, and the manufacturing, marketing and distribution of, the nano-biochip diagnostic kits on a worldwide basis;

Even if nano-biochip diagnostic kits products are successfully developed, commercially produced and receive all necessary regulatory approvals, there is no guarantee that there will be market acceptance of the products; and

Our competitors may develop analytical methods which are superior or less costly than our own with the result that our products, even if they are successfully developed, manufactured and approved, may not generate significant revenues

If we are unsuccessful in dealing with any of these risks, or if we are unable to successfully commercialize our nano-biochip diagnostic kits products for some other reason, it would likely seriously harm our business.

If We Fail to Comply With FDA Requirements, Or Fail to Obtain Regulatory Approval, We May be Limited or Prohibited In Our Ability to Commercialize Our Products and May Be Subject to Stringent Penalties.

Although we may market our product as a CLIA test, similar to Genomic Health’s Oncotype Dx, it is our intent to obtain FDA pre-market clearance through the filing of a 501(k) for our products. Under the 510(k) pre-market clearance process the FDA generally has 90 days to review and make a decision on approving our 510(k); however, obtaining approval can take significantly longer if the FDA requests additional information with respect to the filing submitted. We cannot predict with any certainty the amount of time necessary to obtain such FDA approvals and whether any such approvals will ultimately be granted. Delays in obtaining FDA approvals of any proposed product and failure to receive such approvals would have an adverse effect on the product’s potential commercial success and on our business, prospects, financial condition, and results of operations.

In addition to the 510(k) pre-market clearance, we may be required to obtain pre-market approval (PMA) from the FDA. Although biochips similar to the one we intend to market have previously been exempt from obtaining pre-market approval from the FDA, since our products are designed to enable a treating physician to prescribe a personalized treatment regimen there is a possibility that the FDA may require our products to obtain pre-market approval. We will not know if pre-market approval will be required by the FDA until we make the appropriate filings. If the FDA does not view our products as exempt from pre-market approval, the use of our products could be delayed, halted or prevented, which would impair the commercialization of our products and could materially harm our business.

Moreover, in obtaining FDA marketing clearance and/or pre-market approval we would also be subject to a number of FDA requirements, including restrictions regarding performance claims as well as the FDA’s Quality System Regulation, which establishes extensive regulations for quality assurance and control as well as manufacturing procedures. Failure to comply with these regulations could result in enforcement action against us, our partners, or our contract manufacturers. Adverse FDA action in any of these areas would have a significant impact on our operations.

We believe that the biochip we intend to market does not require pre-market approval (PMA) from the FDA. Although we do not believe that our products would require pre-market approval, we cannot assure you that the FDA will view our products, as exempt from pre-market approval requirements. If the FDA does not view our products as exempt from pre-market approval, the use of our products could be delayed, halted or prevented and enforcement action could be initiated which could involve criminal or civil penalties, any of which would impair the commercialization of our products and materially harm our business.

If We Are Unable To Develop Products To Keep Pace With Rapid Medical And Scientific Change, Our Operating Results And Competitive Position Would Be Harmed.

In recent years, there have been numerous advances in technologies relating to the diagnosis and treatment of cancer. For advanced cancer, new chemotherapeutic strategies are being developed that may increase survival time and reduce toxic side effects. These advances require us continuously to develop new products and enhance existing products to keep pace with evolving standards of care. Our test could become obsolete unless we continually innovate and expand our product to demonstrate recurrence and treatment benefit in patients treated with new therapies. New treatment therapies typically have only a few years of clinical data associated with them, which limits our ability to perform clinical studies and correlate sets of genes to a new treatment’s effectiveness. If we are unable to demonstrate the applicability of our tests to new treatments, then sales of our tests could decline, which would harm our revenues.

Our Competitive Position Depends On Maintaining Intellectual Property Protection

Our ability to compete and to achieve and maintain profitability depends on our ability to protect our proprietary discoveries and technologies. We currently rely on a combination of patents to protect our intellectual property rights. We also rely upon unpatented know-how and continuing technological innovation to develop and maintain our competitive position.

We currently have four U.S. patents granted. Any patents that have been, or may be, issued to us might be challenged by third parties as being invalid or unenforceable, or third parties may independently develop similar or competing technology that avoids our patents. We cannot be certain that the steps we have taken will prevent the misappropriation and use of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States.

If We Are Unable To Compete Successfully, We May Be Unable To Generate Revenues Or Achieve Profitability.

Some of our competition comes from existing diagnostic methods used by pathologists and oncologists. These methods have been used for many years and are therefore difficult to change or supplement. We also face competition from companies, such as Genomic Health, that offers a 21-gene (including 5 control genes) signature “home-brew test” which is not FDA approved and Agendia B.V. that offers a 70-gene test for predicting breast cancer recurrence. Commercial laboratories with strong distribution networks for diagnostic tests, such as Genzyme Corporation, Laboratory Corporation of America Holdings and Quest Diagnostics Incorporated, may become competitors. Other potential competitors include companies that develop diagnostic tests such as Bayer Healthcare LLC, Celera Genomics, a business segment of Applera Corporation, Roche Diagnostics, a division of F. Hoffmann-La Roche Ltd, and Veridex LLC, a Johnson & Johnson company, other small companies and academic and research institutions. In addition, in December 2005, the federal government allocated a significant amount of funding to The Cancer Genome Atlas, a project aimed at developing a comprehensive catalog of the genetic mutations and other genomic changes that occur in cancers and maintaining the information in a free public database. As more information regarding cancer genomics becomes available to the public, we anticipate that more products aimed at identifying targeted treatment options will be developed and these products may compete with ours.

Many of our present and potential competitors have widespread brand recognition and substantially greater financial and technical resources and development, production and marketing capabilities than we do. Others may develop lower-priced, less complex tests that could be viewed by physicians and payors as functionally equivalent to our test, which could force us to lower the list price of our test and impact our operating margins and our ability to achieve profitability. If we are unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of our test, which could prevent us from increasing or sustaining our revenues or achieving or sustaining profitability and could cause the market price of our common stock to decline.

Our Research And Development Efforts Will Be Hindered If We Are Not Able To Contract With Third Parties For Access To Archival Tissue Samples.

Our clinical development relies on our ability to secure access to excised tumors or tumor biopsy samples, as well as information pertaining to their associated clinical outcomes. Others have demonstrated their ability to study archival samples and often compete with us for access. Additionally, the process of negotiating access to archived samples is lengthy since it typically involves numerous parties and approval levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, intellectual property ownership and research parameters. If we are not able to negotiate access to archival tumor tissue samples with hospitals or potential collaborators, or if other laboratories or our competitors secure access to these samples before us, our ability to research, develop and commercialize future products will be limited or delayed.

Changes In Healthcare Policy Could Subject Us To Additional Regulatory Requirements That May Interrupt Commercialization Of The Nano-BioChip Gene Expression Kit And Increase Our Costs.

Healthcare policy has been a subject of extensive discussion in the executive and legislative branches of the federal and many state governments. We developed our commercialization strategy for our nano-biochip gene expression kit based on existing healthcare policies. Changes in healthcare policy, such as the creation of broad limits for diagnostic products in general or requirements that Medicare patients pay for portions of tests or services received, could substantially interrupt the sales of our nano-biochip gene expression kit, increase costs and divert management’s attention. For example, in 1989, the U.S. Congress passed federal self-referral prohibitions commonly known as the Stark Law, significantly restricting, regulating and changing laboratories’ relationships with physicians. We cannot predict what changes, if any, will be proposed or adopted or the effect that such proposals or adoption may have on our business, financial condition and results of operations.

If We Cannot Enter Into Clinical Collaborations, Our Product Development Could Be Delayed.

In the past, we have entered into collaborations with medical researchers that were focused on the selection of genes for our breast cancer chip and on validation of our key technologies. In the future, we expect that we will need to rely on clinical collaborators to perform a substantial portion of our clinical trial functions. If any of our potential collaborators were to breach or terminate its agreement with us or otherwise fail to conduct its collaborative activities successfully and in a timely manner, the research, development or commercialization of the products contemplated by the collaboration could be delayed or terminated. If we were unable to enter into collaboration agreements with intended collaborators on acceptable terms, we would be required to seek alternative collaborations. We may not be able to negotiate collaborations on acceptable terms, if at all, and these collaborations may not be successful. Our success in the future depends in part on our ability to enter into agreements with leading cancer organizations. This can be difficult due to internal and external constraints placed on these organizations. Some organizations may limit the number of collaborations they have with any one company so as to not be perceived as biased or conflicted. Organizations may also have insufficient administrative and related infrastructure to enable collaborations with many companies at once, which can extend the time it takes to develop, negotiate and implement a collaboration. Additionally, organizations often insist on retaining the rights to publish the clinical data resulting from the collaboration. The publication of clinical data in peer-reviewed journals is a crucial step in commercializing and obtaining reimbursement for a test such as ours, and our inability to control when, if ever, results are published may delay or limit our ability to derive sufficient revenues from any product that may result from a collaboration.

From time to time we expect to engage in discussions with potential clinical collaborators that may or may not lead to collaborations. However, we cannot guarantee that any discussions will result in clinical collaborations or that any clinical studies which may result will be enrolled or completed in a reasonable time frame or with successful outcomes. Once news of discussions regarding possible collaborations are known in the medical community, regardless of whether the news is accurate, failure to announce a collaborative agreement or the entity’s announcement of a collaboration with an entity other than us may result in adverse speculation about us, our product or our technology, resulting in harm to our reputation and our business.

We Are Dependent Upon Key Personnel And Consultants And The Loss Of Any Key Member Of This Team Could Have A Material Adverse Effect On Our Business.

Our success is heavily dependent on the continued active participation of our current executive officers listed under the “Management” section of this Annual Report. Loss of the services of one or more of these officers could have a material adverse effect upon our business, financial condition or results of operations. Further, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among companies in the life sciences industry is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our activities, could have a materially adverse effect on us. Our inability to attract and retain the necessary personnel and consultants and advisors could have a material adverse effect on our business, financial condition or results of operations. We have depended upon our CEO, Simon Chin, for our funding and continue to rely upon him to support us.

We Are Controlled By Current Officers, Directors And Principal Stockholders

Our directors, executive officers and principal stockholders and their affiliates beneficially own 66.2% of the outstanding shares of our common stock. So long as our directors, executive officers and principal stockholders and their affiliates control a majority of our fully diluted equity, they will continue to have the ability to elect our directors and determine the outcome of votes by our stockholders on corporate matters, including mergers, sales of all or substantially all of our assets, charter amendments and other matters requiring stockholder approval. This controlling interest may have a negative impact on the market price of our common stock by discouraging third-party investors.

Provisions In Our Charter Documents Could Discourage A Takeover That Stockholders May Consider Favorable.

Provisions of our Articles of Incorporation could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. For example, stockholder meetings may be called only by our board of directors, the chairman of the board and the president and advance notice is required prior to stockholder proposals. Furthermore, we have authorized preferred stock that is undesignated, making it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of our company.

Risks Related To Our Common Stock

There Is Not Now, And There May Not Ever Be An Active Market For Shares Of Our Common Stock.

In general, there has been very little trading activity in shares of our common stock. The small trading volume will likely make it difficult for our stockholders to sell their shares as and when they choose. Furthermore, small trading volumes are generally understood to depress market prices. As a result, you may not always be able to resell shares of our common stock publicly at the time and prices that you feel are fair or appropriate.

Our Common Stock Is Subject To The "Penny Stock" Rules Of The SEC.

The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

That a broker or dealer approve a person's account for transactions in penny stocks; and

The broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

Obtain financial information and investment experience objectives of the person; and

Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

Sets forth the basis on which the broker or dealer made the suitability determination; and

That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES.

We currently have three facilities in California. Our headquarters is in Santa Clara and our laboratories are in San Leandro and Davis.

We lease our main office, which is located at 5201 Great America Parkway, Suite 320, Santa Clara, California 95054. The lease has a term of 12 months, which began on August 1, 2015 and expires on July 30, 2016. We currently pay rent and related costs of approximately $300 per month.

We also lease our laboratory, which is located at 1933 Davis Street, Suite 280, San Leandro, California 95054. The lease has a term of 12 months, which began on January 1, 2016 and expires on December 31, 2016. We currently pay rent and related costs of approximately $1,850 per month.

We also lease a laboratory and office space, which is located at 1949 5^th Street, Davis, California 95616. The lease has a term of 12 months, which began on July 1, 2015 and expires on June 30, 2016. The Company currently pays rent and related costs of $1,650 per month.

We are not dependent on a specific location for the operation of our business.

ITEM 3. LEGAL PROCEEDINGS.

On August 20, 2012, the Company, as plaintiff, filed a motion to allow late filing of a $100 million malpractice claim against Heller Ehrman LLP, discovered after claims bar date for not forwarding United State Patent and Trademark Office correspondence to the Company resulting in the abandonment of a critical patent, in the United States Bankruptcy Court, Northern District of California, San Francisco Division. On November 15, 2012, the Bankruptcy Court disallowed the motion to proceed with the claim. On December 5, 2012, the Company filed an appeal in the United District Court, Northern District of California, San Francisco Division seeking to have its $100 million malpractice claim against Heller Ehrman LLP reinstated. The Company presented case references and requested for the case to be reviewed objectively as a new case. The Appeal Court Judge affirmed the bankruptcy court decision on August 12, 2013. The Company has filed an appeal with the US Ninth Circuit Court. The final brief was filed on February 4, 2014. This matter has been fully briefed. A hearing was scheduled for November 17, 2015 in efforts to move the case forward. In November 2015, the US Ninth Circuit Court reaffirmed the bankruptcy court decision on August 12, 2013.

From time to time, the Company is involved in various litigation matters in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company’s financial position or results of operations.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

PART II

MARKET INFORMATION

Our common stock was initially quoted on the OTC Bulletin Board on August 5, 2008 under the symbol “IRSB”. The following table sets forth the quarterly high and low bid information for our common stock for the two year period ended December 31, 2015.

	High Bid		Low Bid
Year Ended December 31, 2015
First Quarter	$	1.27	$	0.15
Second Quarter	$	1.00	$	0.20
Third Quarter	$	0.90	$	0.20
Fourth Quarter	$	0.73	$	0.05

	High Bid		Low Bid
Year Ended December 31, 2014
First Quarter	$	0.27	$	0.25
Second Quarter	$	4.50	$	0.27
Third Quarter	$	2.30	$	1.70
Fourth Quarter	$	2.25	$	1.25

As of March 31, 2016, we had 19,680,677 shares of common stock issued and outstanding and approximately 199 stockholders of record of our common stock. Compared to 2014, we had more intellectual property and stronger personnel, and we were closer to multiple product launches in 2015. We believe that 2016 is a year of opportunity for Iris to grow significantly.

Dividend Policy

Our payment of dividends, if any, in the future rests within the discretion of the Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors. We have not paid any cash dividends since our inception and do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. However, if we enter into an agreement for debt financing in the future we may be restricted from declaring dividends.

Equity Compensation Plan Information

The following table shows information with respect to each equity compensation plan under which our common stock is authorized for issuance as of the fiscal year ended December 31, 2014.

EQUITY COMPENSATION PLAN INFORMATION

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders		1,957,571	$	1.22		1,262,514

Equity compensation plans not approved by security holders		-0-		-0-		-0-

Total		1,957,571	$	1.22		1,262,514

RECENT SALES OF UNREGISTERED SECURITIES

None

ITEM 6. SELECTED FINANCIAL DATA

N/A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.

The following discussion and analysis should be read in conjunction with our financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

Overview

Since inception on February 16, 1999 through December 31, 2015, we have sustained cumulative net losses of $12,042,307. Our losses have resulted primarily from research and development expenses, patent costs and legal and accounting expenses. As of December 31, 2015, we have convertible long-term debt of $26,000. From inception through December 31, 2015, we have not generated any revenue from operations. We expect to incur additional losses to perform further research and development activities. We have sufficient cash to operate for one year at the current burn rate with our CEO’s agreement to fund our operations, if needed. In order to accelerate our product introduction and to grow dynamically, we will need to raise additional funds. We do not currently have any commercial products. With additional funding, we expect to launch our nano-biochip products in less than a year.

In 2012, 2014, and 2015, we were granted key US and EU patents, which fortified and broadened our intellectual property position just in time to reap the benefit of the convergence of the recent technological breakthroughs in the life sciences industry and the affordability of highly intensive computational systems along with high storage capacity. With six US patents and a portfolio of international patents already granted, we expect to play a key role this year in helping to fulfill the promise of personalized medicine in a meaningful way.

As mentioned earlier, we are also working on incorporating affordable, next-generation (NGS) human genome sequencing, the genomes of microbes in living organisms, as well as protein biomarker profiling to make our technology platform even more powerful. It took more than $3 billion and thirteen years to complete the sequencing of the human genome. In 2016, it is possible to sequence a person’s genome for less than $1,000. Choosing the right combination of surgery, radiation, chemotherapies, hormonal therapies, monoclonal antibody treatment, anti-angiogenic therapy, or other medical treatment requires a solid molecular signature diagnosis along with the analysis of life style dynamics. Where life critical medical decision-making and patient care are concerned, physicians and patients are beginning to realize that personalizing healthcare is a choice and the future of medicine.

We believe we are at the right place at the right time with the right intellectual property to make a significant difference to improve healthcare and achieve attractive return on investment for our investors.

During 2016, we expect to spend about $50,000 for public relations in conjunction with our planned product launches, which would require additional fund raising. During the severe recession, we spend investor dollars efficiently on designing and building an advanced Nano-Biochip making system, streamlining the automated patient sample processing protocols and product tracking system, and interacting with physicians and patients to demonstrate the usefulness of Iris’s BioWindows medical informatics system.

Under the US Qualifying Therapeutic Discovery Project (QTDP) Program, the maximum amount of a grant application was $5 million, but the maximum amount that the government actually gave for any grant was $245,000. In 2011, we received the bulk of the $245,000 awarded to us in recognition of Iris's patented Nano-Biochip™ and BioWindows™ Medical Informatics System for optimizing personalized and targeted medical treatment.

The selection criteria includes a company's ability to diagnose diseases or conditions; to determine molecular factors related to diseases or conditions by developing molecular diagnostic guided therapeutic decisions; or to develop a product, process, or technology to further the delivery or administration of therapeutics. The award was given to projects that show reasonable potential to result in new therapies to treat areas of unmet medical needs or to prevent, detect or treat chronic or acute diseases and conditions; to reduce long-term health care costs in the U.S.; or to significantly advance the goal of curing cancer within the next 30 years.

There are some risks with respect to clinical testing, regulatory approval and review cycles and uncertainty of the costs. Net positive cash inflows from any products developed may take several years to achieve. Management plans to continue financing operations with a combination of equity issuances and debt arrangements. If adequate funds are not available, we may be required to delay, reduce the scope of, or eliminate our research or development programs, or cease operations.

History

We were incorporated in the State of California on February 16, 1999 and planned to sell theranostic (choosing therapy based upon personalized diagnostic results) products and services in the medical field. In an effort to develop that business, we set up operations in two locations in California - Headquarters in Santa Clara and Laboratory in San Leandro.

Beginning on March 11, 1999, Simon Chin, MBA, our founder, President and CEO, Secretary and principal shareholder, entered into Common Stock Purchase Agreements with various companies, investment groups and private individuals. On March 1, 2003, Daniel Farnum, M.D., an owner of Humboldt Orthopedics and a key shareholder, and Grace Osborne, MBA, President of GCO Recruiting, joined Mr. Chin on our board of directors. On April 9, 2003, the board approved a 2 for 1 stock split, changed the authorized shares of common stock from 10 million to 20 million, and the authorized preferred stock remained at 5 million shares. On November 14, 2014, Douglas Hendren, M.D., MBA, a Founding Partner of Hess Orthopaedics, a former owner of Humboldt Orthopedics and a key shareholder, replaced Daniel Farnum, M.D., on our board of directors. On March 17, 2016, in preparation for multiple product launches, the board changed the authorized shares of common stock from 20 million to 100 million, and the authorized preferred stock from 5 million to 25 million respectively.

Plan of Operation

We are a life science company focused on the development and commercialization of a nano-biochip gene expression kit and an artificial intelligence system to assist in establishing the foundation for personalized medicine, which will initially be utilized in the treatment of breast cancer. Although we may market our products as CLIA laboratory tests, we are designing them to be approved by the FDA, which can then be used in any certified laboratory. Starting at the point of a breast biopsy diagnosis of cancer, the nano-biochip and informatics program are designed to enable a treating physician to quickly prescribe a personalized treatment regimen that will have the greatest probability of success for each patient's particular type of cancer. Our product platform is expected to lead to more effective diagnosis and treatment not only for patients with breast cancer, but also for those with neurological disorders, heart disease, diabetes and other gene-related metabolic problems.

Product Research and Development

We anticipate spending, in order to accelerate our growth, which is contingent upon raising additional funds, at least $1,000,000 for product research and development activities related to our anticipated product launches during the next twelve months. The Company is at an inflection point, R&D Spending may exceed $5,000,000 under certain market conditions.

Acquisition of Plant and Equipment and Other Assets

We do not anticipate the sale of any material property, plant or equipment during the next 12 months. We do anticipate the acquisition of some material property, plant or equipment during the next 12 months, to accelerate our growth to fulfill the unmet needs of a large, growing market.

Number of Employees

From our inception through December 31, 2015, we have principally relied on the services of outside consultants and part-time employees for services. We currently have 7 full-time and part-time employees and 6 full-time and part-time consultants. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. We anticipate that it may become desirable to add additional full and or part time employees to discharge certain critical functions during the next 12 months. This projected increase in personnel is dependent upon our ability to generate revenues and obtain sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees. As we continue to expand, we will incur additional cost for personnel.

Results of Operations

To date, we have not generated revenues. The risks specifically discussed are not the only factors that could affect future performance and results. In addition to the discussion in this prospectus concerning us, our business and our operations contain forward-looking statements. Such forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. We do not have a policy of updating or revising forward-looking statements and thus it should not be assumed that silence by our Management over time means that actual events or results are occurring as estimated in the forward-looking statements herein.

We have yet to earn revenues from operations. We may experience fluctuations in operating results in future periods due to a variety of factors, including our ability to obtain additional financing in a timely manner and on terms favorable to us, our ability to successfully develop our business model, the amount and timing of operating costs and capital expenditures relating to the expansion of our business, operations and infrastructure and the implementation of marketing programs, key agreements, and strategic alliances, and general economic conditions specific to our industry.

As a result of limited capital resources and no revenues from operations since inception, we have relied on the issuance of equity securities to employees and non-employees in exchange for services. Our management enters into equity compensation agreements with non-employees if it is in our best interest under terms and conditions consistent with the requirements of Accounting Standards Codification Subtopic 505-50 Equity Based Payments to Non-Employees (ASC 505-50). In order to conserve our limited operating capital resources, we anticipate continuing to compensate non-employees with equity for services during the next twelve months. This policy may have a material effect on our results of operations during the next twelve months.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Revenues

We have generated no operating revenues from operations since our inception. We believe we will begin earning revenues from operations in 2016 from actual operations as we transition to an active growth stage company.

Costs and Expenses

From our inception through December 31, 2015, we have not generated any revenues and have incurred cumulative losses of $12,042,307. In addition, a significant part of the overall remaining costs are associated principally with equity-based compensation to employees and consultants, research and development costs and professional services rendered.

Selling, general and administrative (“SG&A”) expenses decreased by $128,265 from $987,878 in 2014 to $859,613 in 2015. SG&A expenses consisted of accounting, legal, consulting, public relations, startup and organizational expenses. SG&A expenses also included non-cash charges from the issuance of stock, warrants and stock options in the amounts of $718,367 for 2015 and $453,402 for 2014, a year-to-year increase of $264,965. The remaining SG&A expenses requiring cash amounted to $141,246 and $534,476 for 2015 and 2014, respectively. The decrease in our cash paid SG&A is primarily attributed to decreased operating costs in 2015. We used stock in lieu of cash to conserve our cash resources. Research and development costs decreased by $7,249 from $199,662 in 2014 to $192,413 in 2015.

Other income (expense)

During the year ended December 31, 2015, we had the possibility of exceeding common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. The accounting treatment of derivative financial instruments requires us to recognize the derivative liability thereby reclassifying the amount from equity to a liability at the fair values as of the date possible issuable shares exceeded the authorized level. At each subsequent balance sheet date the change in fair value is reflected in the statement of operations.

For the year ended December 31, 2015, we recorded a loss on change in fair value of these derivative liabilities of $112,919. We did not have a derivative in 2014.

We recorded interest expense of $2,058 for the year ended December 31, 2015 compared to interest expense of $1,714 for the same period, last year. Interest expense is comprised of interest on our long term convertible notes.

As a result of the above-mentioned expenses, net loss decreased by $18,935 from $1,192,018 in 2014 to $1,173,083 in 2015.

Liquidity and Capital Resources

As of December 31, 2015, we had working capital deficit of $465,116 as compared to working capital of $80,715 as of December 31, 2014. Our cash position was $19,839 as of December 31, 2015 compared to $322,929 as of December 31, 2014. For the year ended December 31, 2015, we have incurred an operating cash flow deficit of $451,280, which has been principally financed through advances from the Company’s CEO.

We expect to continue to incur additional losses and negative cash flows from operating activities for the next two years. After we launch multiple products, we will report more definitively on when we expect to make profit and have positive cash flow.

Our available working capital and capital requirements will depend upon numerous factors, including progress of our research and development programs, our progress in and the cost of pre-clinical and clinical testing, the timing and cost of obtaining regulatory approvals, the cost of filing and prosecuting patent claims and other intellectual property rights, completing technological and market developments, current and future licensing relationships, the status of our competitors, and our ability to establish collaborative arrangements with other organizations.

Our continued operations will depend on whether we are able to raise additional funds through various potential sources, such as equity and debt financing, collaborative and licensing agreements, strategic alliances, and our ability to realize the full potential of our technology in development. Such additional funds may not become available on acceptable terms, if at all, and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long term. Through March 31, 2015, virtually all of our financing has been through private placements of common stock, convertible notes and warrants. We intend to continue to fund operations from cash on-hand and through the similar sources of capital previously described for the foreseeable future. We believe that even though we will continue to incur net losses and have negative cash flows from operating activities for the remainder of the year. Based on the resources available to us on March 31, 2015, we can sustain the present burn rate for the next twelve months. However, for our mutilple product launches, we expect to raise additional funding.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Inflation

It is our opinion that inflation has not had a material effect on our operations.

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The following accounting policies are critical in fully understanding and evaluating our reported financial results:

Accounting for Stock-Based Compensation

We account for our stock options and warrants using the fair value method promulgated by Accounting Standards Codification Subtopic 718-10 Compensation (ASC 718-10), and 505-50 Equity Based Payments to Non-Employees (ASC 505-50) which address the accounting for transactions in which an entity exchanges its equity instruments for goods or services. Therefore, our results include non-cash compensation expense as a result of the issuance of stock options and warrants and we expect to record additional non-cash compensation expense in the future.

Derivative Liability

We account for derivatives in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2015 and 2014, we did not have any derivative instruments that were designated as hedges.

At December 31, 2015, we had the possibility of exceeding the common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions for all existing instruments that could be settled in shares. Issued shares never exceeded authorized shares and authorized shares were increased in March 2016.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

N/A

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We evaluated the design and operation of our disclosure controls and procedures to determine whether they are effective in ensuring that we disclose required information in a timely manner and in accordance with the Securities Exchange Act of 1934 (the "Exchange Act") and the rules and regulations promulgated by the SEC. The executive who serves as our President and Chief Financial Officer has participated in such evaluation. Management concluded, based on such review, that our disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were not effective as of the end of the period covered by this Annual Report on Form 10-K. The ineffectiveness of these disclosure controls is due to the matters described below in "Internal Control over Financial Reporting."

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Our disclosure controls and procedures are designed to provide a reasonable assurance of achieving their objectives and our President and Chief Financial Officer has concluded that such controls and procedures are not effective at the "reasonable assurance" level. The ineffectiveness of these disclosure controls is due to the matters described below in "Internal Control over Financial Reporting."

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Management assessed the effectiveness of the internal controls over financial reporting as of December 31, 2015, using the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, our management concluded that, as of December 31, 2015, the internal controls over financial reporting were not effective. The reportable conditions and material weakness relate to a limited segregation of duties at the Company. Segregation of duties within our company is limited due to the small number of employees that are assigned to positions that involve the processing of financial information. Specifically, certain key financial accounting and reporting personnel had an expansive scope of duties that allowed for the creation, review, approval and processing of financial data without independent review and authorization for preparation of schedules and resulting financial statements and related disclosures. We did not maintain a sufficient depth of personnel with an appropriate level of accounting knowledge, experience and training in the selection and application of Generally Accepted Accounting Principles commensurate with financial reporting requirements. Accordingly, we place undue reliance on the finance team at corporate headquarters, specifically the executive who is our President and Chief Financial Officer along with outside accounting consulting. Accordingly, management has determined that this control deficiency constitutes a material weakness. This material weakness could result in material misstatements of significant accounts and disclosures that would result in a material misstatement to our interim or annual financial statements that would not be prevented or detected. In addition, due to limited staffing, the Company is not always able to detect minor errors or omissions in reporting.

Going forward, management anticipates that additional staff will be necessary to mitigate these weaknesses, as well as to implement other planned improvements. Additional staff will enable us to document and apply transactional and periodic controls procedures, permit a better review and approval process and improve quality of financial reporting. However, the potential addition of new staff is contingent on obtaining additional financing, and there is no assurance that the Company will be able to do so.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

Changes in Internal Control Over Financial Reporting

As required by Rule 13a-15(d) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation of the internal control over financial reporting to determine whether any changes occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, our principal executive officer and principal financial officer concluded there were no such changes during the quarter ended December 31, 2015.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each as of December 31, 2015. There are no family relationships among any of our Directors and Executive Officers except for Simon Chin and his sister, Grace Osborne.

Name	Age		Position
Simon S. M. Chin, MBA		56	President, Chief Executive Officer, Chief Financial Officer and Chairman of the Board
Ronald Mark Gemberling, M.D.		68	Chief Medical Officer
Paul Yaswen, Ph.D.		57	Chief Scientific Officer
James LeBlanc, MBA		69	Vice President, Operations
Ralph M. Sinibaldi, Ph.D.		68	Vice President, Product Development
Grace Osborne, MBA		48	Vice President, Business Development & Human Resources and Director
Douglas Hendren, M.D., MBA		65	Director

Executive Biographies

Simon Chin, President, Chief Executive Officer, Chief Financial Officer and Director - Mr. Chin, the Founder, has served as our President, Chief Executive Office and Chairman of the Board since February 1999 and as our Chief Financial Officer since March 2007. Prior to our founding, Mr. Chin was the Chief Executive Officer and Founder of DNA Laboratories where he developed key DNA chip technologies, and he also held management positions at leading companies such as Du Pont. He currently serves on the Industrial Advisory Board of the University of Pacific’s Thomas J. Long School of Pharmacy and Health Sciences.

Mr. Chin obtained an MBA from Santa Clara University in 1993 and a B.S. in Chemical Engineering from the University of California, Berkeley in 1982. Mr. Chin’s technological and management expertise qualifies him to serve as a director of our company.

Ronald Mark Gemberling, Chief Medical Officer - Dr. Gemberling has been our Chief Medical Officer since April 2004. In addition, Dr. Gemberling has had a medical practice in California for over thirty years. Dr. Gemberling obtained a B.A. in bacteriology at the University of California, Los Angeles in 1969 and completed his medical studies there in 1973. Dr. Gemberling received his general surgery training at the UCLA-VA Affiliated Hospitals where he finished as Chief Resident in 1978. Dr. Gemberling then spent a year as a clinical research Burn Fellow at the LA County-USC Medical Center Burn Unit before entering his training in plastic and reconstructive surgery at the University of Michigan and Chief Residency at the University of Louisville.

Paul Yaswen, Chief Scientific Officer – Dr. Yaswen has been our Chief Scientific Officer since October 2013. He has over two decades of experience performing breast cancer research at the Lawrence Berkeley National Laboratory. Dr. Yaswen has over 70 peer-reviewed publications, including many in high-impact journals. He also has a history of productive and rewarding interactions with breast cancer advocates, both as an instructor for the National Breast Cancer Coalition Project Lead, and as a participant in an NCI/NIEHS sponsored Breast Cancer and the Environment Research Center. Dr. Yaswen earned his Ph.D. in Cell and Molecular Biology from Brown University and his B.S. in Biology from Tuft University. He was also a NRSA Fellow in the Dept. of Cell & Molecular Biology at the Dana-Farber Cancer Institute, which is a major affiliate of Harvard Medical School.

James LeBlanc, Vice President, Operations – Mr. LeBlanc has been serving as our Operations Consultant since March 2006 and became our Vice President, Operations on May 8, 2009. He has more than thirty years of experience in U.S. and international management in quality assurance, manufacturing, materials, supply chain management, global distribution, regulatory compliance, product integrity and process engineering. . Prior to Iris BioTechnologies, Mr. LeBlanc has held various senior management positions in companies such as Packeteer, Inc. and Northrop Grumman Missions Systems. He has served on core management teams that implemented Six Sigma, ISO 9000 and CMMI level 3 initiatives. Mr. LeBlanc has an MBA from Santa Clara University (1977) and a B.S. in Industrial Technology from San Jose State University (1973).

Ralph M. Sinibaldi, Vice President, Product Development - Dr. Sinibaldi has been our Vice President of Product Development since July 2003. He was previously the Vice President, Product Development, at Genospectra, a microarray and reagent company. He was also a founding Vice President of AgraQuest; Vice President, Scientific Affairs, at Operon Technologies, Inc., the leading DNA manufacturing company, which was acquired by Qiagen, where he was responsible for the Microarray Business Unit and the science involved. Dr. Sinibaldi obtained a Ph.D. in experimental biology from the University of Illinois in 1978 and a M.S. (1974) and B.S. in biological sciences in 1970.

Grace Osborne, Vice President, Business Development & Human Resources and Director - Ms. Osborne has been our Vice President of Business Development & Human Resources since January 2005 and a member of our Board of Directors since March 2003. From December 1998 to May 2005, Ms. Osborne was the Founder and President of GCO Recruiters, which served fortune 100 companies and other technology companies. Ms. Osborne obtained a B.A. in human development from the University of California, Davis in 1989 and a M.B.A. from the California State University at Hayward in 1993. Ms. Osborne’s management expertise qualifies her to serve as a director of our company.

Douglas Hendren, Medical and Business Strategy Advisor - Dr. Hendren has been our Medical and Business Strategy Advisor since October 2013. Dr. Hendren was a partner at Humboldt Orthopedics 1989-1996. He was a founding partner of Hess Orthopaedics 1996-2010, managing partner 2001-2010 and designer and first director of the Hess surgical facility 2008-2010. Dr. Hendren obtained a B.A. in Social Relations from Harvard University in 1973, an M.D. from Case Western Reserve University in 1982, completed the Harvard Orthopaedic Program in 1988, and an M.B.A. in Sustainable Business from Bainbridge Graduate Institute in 2011.Dr. Hendren’s medical industry and management expertise qualifies him to serve as a director of our company.

Director or Officer Involvement in Certain Legal Proceedings

Our directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.

Board Leadership Structure and Role in Risk Oversight

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in our best interests and our shareholders to combine these roles. Simon Chin has served as our Chairman since February 1999. Due to our small size and early stage, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined.

Our Board of Directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. Our Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensure that risks undertaken by us are consistent with the Board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.

Based on a review of the copies of such forms received, we believe that during 2015, all filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.

Board of Directors

Our Directors are elected by the vote of a majority in interest of the holders of our voting stock and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.

A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action.

Directors may receive compensation for their services and reimbursement for their expenses as shall be determined from time to time by resolution of the Board. Each of our directors currently receives no cash compensation for their service on the Board of Directors, but do receive a small amount of stock and stock options.

Audit Committee

We do not have a separately designated standing audit committee.

Code of Ethics

We have adopted a formal Code of Business Conduct and Ethics applicable to all Board members, executive officers and employees. Our Code of Business Conduct and Ethics has been filed as Exhibit 14 to this Annual Report and will be provided free of charge upon request to: Secretary, Iris Biotechnologies Inc., 5201 Great America Parkway, Suite 320, Santa Clara, California 95054.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth all compensation earned in respect of our Chief Executive Officer and those individuals who received compensation in excess of $100,000 per year, collectively referred to as the named executive officers, for our last two completed fiscal years.

Summary Compensation Table

Name and Principal Position	Fiscal Year		Salary		Stock Award			Option Awards			Non-Equity Incentive Plan Compensation	Change in Pension Value and Non Qualified Deferred Compensation Earnings	All Other Compensation	Total
			($)		($)			($)			($)	($)	($)	($)
Simon Chin,		2015		41,667		208,333	(1)		465,407	(2)					715,407
President, CEO and CFO		2014		250,000											250,000

(1)

In 2015, Mr. Chin was issued an aggregate of 4,048,463 shares of common stock in payment of $208,333 accrued salary.

(2)

In 2015, Mr. Chin was issued 400,000 options to purchase the Company’s common stock at $1.25 for five years, vesting over 48 months.

Employment Agreements with Executive Officers

We have not entered into any employment agreements with our executive officers.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

Director Compensation

We did not grant of options to purchase our common stock to our non-employee directors in 2015.

The following table sets forth summary information concerning total compensation paid to our non-employee directors in 2015 for services to our company.

Name	Stock Awards (1)		Total
Douglas Hendren MD		58,495		58,495

(1) represent aggregate grant date fair value for fiscal year 2015 of awards granted in 2015 under ASC Topic 718 as discussed in Note 6 Accounting for Share-Based Payments of the Notes to our Financial Statements included elsewhere in this report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information, as of March 31, 2016 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

Name of Beneficial Owner (1)	Number of Shares Beneficially Owned (2)	Percentage of Common Stock Beneficially Owned (2)
Simon Chin (3)	11,641,510	58.8
Ronald Mark Gemberling (4)	142,696	0.7
Paul Yaswen (5)	60,417	0.3
James LeBlanc	125,539	0.6
Ralph M. Sinibaldi (6)	85,000	0.4
Grace Osborne (7)	672,290	3.4
Douglas Hendren (8)	290,343	1.5
All Executive Officers and Directors as a Group (7 persons) (9)	13,017,795	65.9

Name of

Beneficial Owner (More than 5% owner, not an officer or director)

Number of Shares

Beneficially Owned

Percentage of Common Stock Beneficially Owned (2)

Daniel Farnum, MD

1,211579

6.2

(1)	Except as otherwise indicated, the address of each beneficial owner is c/o Iris BioTechnologies Inc., 5201 Great America Parkway, Suite 320, Santa Clara, California 95054.
(2) (3)	Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to the shares shown. Except where indicated by footnote and subject to community property laws where applicable, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them. Applicable percentage ownership as of March 31, 2015 is based upon 19,680,677 shares of common stock outstanding. Consists of options to purchase 125,000 shares of common stock, which are currently vested, but does not include options to purchase an aggregate of 275,000 shares of common stock.
(4)	Consists of options to purchase 142,696 shares of common stock, which are currently vested.
(5)	Consists of options to purchase 60,417 shares of common stock, which are currently vested, but does not include options to purchase an aggregate of 39,583 shares of common stock.
(6)	Includes options to purchase 85,000 shares of common stock, which are currently vested.
(7)	Includes 36,665 shares owned by her spouse and options to purchase 131,290 shares of common stock, which are currently vested, but does not include options to purchase an aggregate of 68,750 shares of common stock.
(8)	Includes 75,190 shares owned by his spouse
(9)	Includes options to purchase 705,488 shares of common stock.

On an ongoing basis Simon Chin, our President, Chief Executive Officer, Chief Financial Officer and Chairman of our Board of Directors, provided us with interim financing, which we fully repay when funds are available.

We believe that the terms of all of the above transactions were commercially reasonable and no less favorable to us than we could have obtained from an unaffiliated third party on an arm’s length basis. Our policy requires that all related parties recuse themselves from negotiating and voting on behalf of our company in connection with related party transactions.

Board Determination of Independence

Our board of directors has determined that Douglas Hendren is “independent” as that term is defined by NASDAQ, but that neither Simon Chin nor Grace Osborne can be deemed “independent” in light of their employment as our executive officers.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

The aggregate fees billed by our independent auditor for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2015 and 2014 were $27,500 and $27,500, respectively.

Audit-Related Fees

There were no other independent auditor related fees for the fiscal years ended December 31, 2015 and 2014, respectively.

All Other Fees

There were no other fees billed for products and services provided by our independent auditor for the fiscal years ended December 31, 2015 and 2014, respectively.

Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors

We currently do not have a designated Audit Committee, and accordingly, our Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to our Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.

ITEM 15. EXHIBITS.

Exhibit Number	Description of Exhibit
3.1	Registrant’s Articles of Incorporation (incorporated by reference to the exhibits to Registrant’s Form SB-2 filed on April 12, 2007).
3.2	Registrant’s 2003 Certificate of Amendment of Articles of Incorporation (incorporated by reference to the exhibits to Registrant’s Form SB-2 filed on April 12, 2007).
3.3	Registrant’s 2016 Certificate of Amendment of Articles of Incorporation (incorporated by reference to the exhibits to Registrant’s Form SB-2 filed on June 20, 2007).
3.4	Registrant’s Amended and Restated By-Laws (incorporated by reference to the exhibits to Registrant’s Form SB-2 filed on June 20, 2007).
10.1	1999 Stock Option Plan (incorporated by reference to the exhibits to Registrant’s Form SB-2 filed on April 12, 2007).
10.2	2009 Stock Option Plan (incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-K filed on March 31, 2009).
14	Code of Ethics (incorporated by reference to the exhibits to the Registrant’s Form 10-KSB filed on March 31, 2008)
21	List of Subsidiaries
31.1	Certifications required by Rule 13a-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Principal Accounting Officer pursuant to 18 U.S.C.§ 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	IRIS BIOTECHNOLOGIES INC.

Date: March 30, 2015	By:	/s/ Simon Chin
		Simon Chin
		President, Chief Executive Officer, Chief Financial Officer and Director (Principal Executive Officer, Principal Accounting Officer and Principal Financial Officer)

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

SIGNATURE	TITLE	DATE

/s/ Simon Chin	President, Chief Executive Officer, Chief Financial Officer and Director (Principal	March 30, 2015
Simon Chin	Executive Officer, Principal Accounting Officer and Principal Financial Officer)

/s/ Grace Osborne	Vice President, Business Development and	March 30, 2015
Grace Osborne	Director

/s/ Douglas Hendren	Director	March 30, 2015
Douglas Hendren, M.D.

IRIS BIOTECHNOLOGIES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm		F-2

Consolidated Balance Sheets as of December 31, 2015 and 2014		F-3

Consolidated Statements of Operations for the years ended December 31, 2015 and 2014		F-4

Consolidated Statement of Stockholders’ Equity (Deficit) for the two years ended December 31, 2015		F-5 - F-9

Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014		F-10

Notes Consolidated to Financial Statements		F-11 - F-24

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Iris Biotechnologies, Inc.

5201 Great America Parkway

Santa Clara, California 95054

We have audited the accompanying balance sheets of Iris BioTechnologies, Inc. (the Company) as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2015. The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Iris BioTechnologies, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ Fiondella, Milone and LaSaracina LLP

Glastonbury, CT

March 30, 2016

F-2

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2015 AND 2014

		2015			2014
ASSETS
Current assets:
Cash	$	19,839		$	322,929
Prepaid expenses		3,625			—
Total current assets		23,464			322,929

Property, plant and equipment, net of accumulated depreciation of $243,437 and $237,357 as of December 31, 2015 and 2014, respectively		29,617			8,887

Total assets	$	53,081		$	331,816

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	124,298		$	237,014
Convertible note payable		—			5,000
Advances, related party		175,200			200
Derivative liabilities		169,082			—
Total current liabilities		468,580			242,214

Long term debt:
Convertible notes payable		26,000			26,000
Total debt		494,580			268,214

Commitments and contingencies		—			—

STOCKHOLDERS' (DEFICIT) EQUITY
Preferred stock, no par; 5,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, no par; 20,000,000 shares authorized; 19,607,177 and 15,194,436 shares issued and outstanding as of December 31, 2015 and 2014, respectively		8,850,789			8,355,741
Additional paid in capital		2,878,394			2,705,460
Common stock subscription receivable		(128,375	)		(128,375	)
Accumulated deficit		(12,042,307	)		(10,869,224	)
Total stockholders' (deficit) equity		(441,499	)		63,602

Total liabilities and stockholders' (deficit) equity	$	53,081		$	331,816

The accompanying notes are an integral part of these financial statements

F-3

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS

	Year ended December 31,
	2015			2014
Operating expenses:
Selling, general and administrative	$	859,613		$	987,878
Research and development (Note 1)		192,413			199,662
Depreciation		6,080			2,764
Total operating expenses		1,058,106			1,190,304

Net loss from operations		(1,058,106	)		(1,190,304	)

Other income (expense):
Loss on change in fair value of derivative liabilities		(112,919	)		—
Interest income (expense)		(2,058	)		(1,714	)
Total other income (expense)		(114,977	)		(1,714	)

Net loss before provision for income taxes		(1,173,083	)		(1,192,018	)

Income taxes		—			—

Net loss	$	(1,173,083	)	$	(1,192,018	)

Loss per common share - basic and diluted	$	(0.07	)	$	(0.08	)

Weighted average number of common shares outstanding - basic and diluted		15,739,418			14,764,202


The accompanying notes are an integral part of these financial statements

F-4

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 2015

	Preferred shares				Common shares				Additional Paid in		Subscription			Accumulated
		Stock		Amount		Stock		Amount		Capital		Receivable			Deficit			Total
Balance, December 31, 2013		—	$	—		13,579,223	$	7,122,546	$	2,498,986	$	(128,375	)	$	(9,677,206	)	$	(184,049	)
Common stock issued in January 2014 at $0.24 per share for services rendered		—		—		8,000		1,920		—		—			—			1,920
Sale of common stock in January 2014 at $0.80 per share		—		—		20,000		16,000		—		—			—			16,000
Common stock issued in February 2014 at $0.22 per share for services rendered		—		—		38,500		8,470		—		—			—			8,470
Sale of common stock in February 2014 at $0.80 per share		—		—		725,730		580,584		—		—			—			580,584
Common stock issued in March 2014 at $0.26 per share for services rendered		—		—		9,000		2,340		—		—			—			2,340
Common stock issued in connection with options exercised at $0.15 per share		—		—		400,000		60,000		—		—			—			60,000
Sale of common stock in March 2014 at $2.00 per share		—		—		5,000		10,000		—		—			—			10,000
Common stock issued in March 2014 at $0.27 per share for services rendered		—		—		8,000		2,160		—		—			—			2,160
Common stock issued in April 2014 at $0.27 per share for services rendered		—		—		46,000		12,291		—		—			—			12,291
Common stock issued in May 2014 at $0.64 per share for services rendered		—		—		8,500		5,448		—		—			—			5,448
Common stock issued in June 2014 at $1.60 per share for services rendered		—		—		8,500		13,578		—		—			—			13,578
Subtotal		—	$	—		14,856,453	$	7,835,337	$	2,498,986	$	(128,375	)	$	(9,677,206	)	$	528,742

The accompanying notes are an integral part of these financial statements

F-5

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 2015

	Preferred shares				Common shares				Additional Paid in		Subscription			Accumulated
		Stock		Amount		Stock		Amount		Capital		Receivable			Deficit			Total
Balance forward		—	$	—		14,856,453	$	7,835,337	$	2,498,986	$	(128,375	)	$	(9,677,206	)	$	528,742
Common stock issued in June 2014 in connection with exercise of warrants at $0.13 per share		—		—		40,000		5,200		—		—			—			5,200
Common stock issued in June 2014 at $1.00 per share in settlement of note payable and accrued interest		—		—		22,898		22,898		—		—			—			22,898
Common stock issued in July 2014 at $2.26 per share for services rendered		—		—		9,000		20,344		—		—			—			20,344
Common stock issued in July 2014 at $1.50 per share for services rendered		—		—		37,500		56,234		—		—			—			56,234
Common stock issued in August 2014 at $2.11 per share for services rendered		—		—		9,000		19,015		—		—			—			19,015
Sale of common stock in August 2014 at $1.75 per share		—		—		100,000		175,000		—		—			—			175,000
Common stock issued in September 2014 at $1.86 per share for services rendered		—		—		9,000		16,774		—		—			—			16,774
Sale of common stock in September 2014 at $2.00 per share		—		—		17,500		35,000		—		—			—			35,000
Common stock issued in September 2014 at $1.00 per share in settlement of note payable and accrued interest		—		—		11,585		11,585		—		—			—			11,585
Common stock issued in October 2014 at $1.93 per share for services rendered		—		—		37,500		72,222		—		—			—			72,222
Common stock issued in October 2014 at $1.79 per share for services rendered		—		—		9,000		16,132		—		—			—			16,132
Sale of common stock in October 2014 at $2.00 per share		—		—		35,000		70,000		—		—			—			70,000
Fair value of vesting warrants for services		—		—		—		—		62,615		—			—			62,615
Fair value of vesting options		—		—		—		—		143,859		—			—			143,859
Net loss		—		—		—		—		—		—			(1,192,018	)		(1,192,018	)
Balance, December 31, 2014		—	$	—		15,194,436	$	8,355,741	$	2,705,460	$	(128,375	)	$	(10,869,224	)	$	63,602

The accompanying notes are an integral part of these financial statements

F-6

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 2015

	Preferred shares				Common shares				Additional Paid in		Subscription			Accumulated
		Stock		Amount		Stock		Amount		Capital		Receivable			Deficit			Total
Balance, December 31, 2014		—	$	—		15,194,436	$	8,355,741	$	2,705,460	$	(128,375	)	$	(10,869,224	)	$	63,602
Common stock issued in January 2015 at $2.11 per share for services rendered		—		—		9,000		19,017		—		—			—			19,017
Common stock issued in January 2015 at $1.96 per share for services rendered		—		—		9,000		17,645		—		—			—			17,645
Common stock issued in January 2015 at $1.44 per share for services rendered		—		—		1,000		1,445		—		—			—			1,445
Common stock issued in February 2015 at $0.92 per share for services rendered		—		—		1,000		917		—		—			—			917
Common stock issued in February 2015 at $1.45 per share for services rendered		—		—		8,000		11,556		—		—			—			11,556
Common stock issued in February 2015 at $1.84 per share for services rendered		—		—		37,500		68,924		—		—			—			68,924
Common stock issued in March 2015 at $0.92 per share for services rendered		—		—		8,000		7,336		—		—			—			7,336
Common stock issued in March 2015 at $0.71 per share for services rendered		—		—		1,000		711		—		—			—			711
Common stock issued in March 2015 at $0.66 per share for services rendered		—		—		37,500		24,676		—		—			—			24,676
Common stock issued in April 2015 at $0.75 per share for services rendered		—		—		9,000		6,733		—		—			—			6,733
Common stock issued in April 2015 at $0.38 per share for services rendered		—		—		1,000		377		—		—			—			377
Common stock issued in April 2015 at $0.71 per share for services rendered		—		—		8,000		5,684		—		—			—			5,684
Sub total		—	$	—		15,324,436	$	8,520,762	$	2,705,460	$	(128,375	)	$	(10,869,224	)	$	228,623

The accompanying notes are an integral part of these financial statements

F-7

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 2015

	Preferred shares				Common shares				Additional Paid in		Subscription			Accumulated
		Stock		Amount		Stock		Amount		Capital		Receivable			Deficit			Total
Balance forward		—	$	—		15,324,436	$	8,520,762	$	2,705,460	$	(128,375	)	$	(10,869,224	)	$	228,623
Common stock issued in May 2015 in settlement of note payable and accrued interest at $1.00 per share		—		—		3,467		3,467		—		—			—			3,467
Common stock issued in May 2015 at $0.72 per share for services rendered		—		—		2,000		1,439		—		—			—			1,439
Common stock issued in May 2015 at $0.61 per share for services rendered		—		—		24,000		14,533		—		—			—			14,533
Common stock issued in June 2015 at $0.73 per share for services rendered		—		—		37,500		27,313		—		—			—			27,313
Common stock issued in June 2015 at $0.74 per share for services rendered		—		—		9,000		6,689		—		—			—			6,689
Common stock issued in June 2015 at $0.69 per share for services rendered		—		—		9,000		6,221		—		—			—			6,221
Common stock issued in August 2015 in settlement of note payable and accrued interest at $1.00 per share		—		—		2,311		2,311		—		—			—			2,311
Common stock issued in August 2015 at $0.56 per share for services rendered		—		—		9,000		5,040		—		—			—			5,040
Common stock issued in August 2015 at $0.6178 per share for services rendered		—		—		9,000		5,560		—		—			—			5,560
Subtotal		—	$	—		15,429,714	$	8,593,335	$	2,705,460	$	(128,375	)	$	(10,869,224	)	$	301,196

The accompanying notes are an integral part of these financial statements

F-8

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
TWO YEARS ENDED DECEMBER 31, 2015

	Preferred shares				Common shares				Additional Paid in			Subscription			Accumulated
		Stock		Amount		Stock		Amount		Capital			Receivable			Deficit			Total
Balance forward		—	$	—		15,429,714	$	8,593,335	$	2,705,460		$	(128,375	)	$	(10,869,224	)	$	301,196
Common stock issued in October 2015 at $0.575 per share for services rendered		—		—		46,500		26,760		—			—			—			26,760
Common stock issued in October 2015 at $0.549 per share for services rendered		—		—		9,000		4,944		—			—			—			4,944
Common stock issued in October 2015 at $0.415 per share for services rendered		—		—		9,000		3,735		—			—			—			3,735
Common stock issued in November 2015 at $0.047 per share as compensation		—		—		2,659,574		125,000		—			—			—			125,000
Common stock issued in December 2015 at $0.062 per share for services rendered		—		—		9,000		560		—			—			—			560
Common stock issued in December 2015 at $0.223 per share for services rendered		—		—		55,500		13,122		—			—			—			13,122
Common stock issued in December 2015 at $0.06 per share as compensation		—		—		1,388,889		83,333		—			—			—			83,333
Net reclassification of common stock equivalents issued in excess of aggregate authorized availability		—		—		—		—		(56,163	)		—			—			(56,163	)
Fair value of vesting warrants for services		—		—		—		—		19,073			—			—			19,073
Fair value of vesting options		—		—		—		—		210,024			—			—			210,024
Net loss		—		—		—		—		—			—			(1,173,083	)		(1,173,083	)
Balance, December 31, 2015		—	$	—		19,607,177	$	8,850,789	$	2,878,394		$	(128,375	)	$	(12,042,307	)	$	(441,499	)

The accompanying notes are an integral part of these financial statements

F-9

IRIS BIOTECHNOLOGIES, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,173,083	)	$	(1,192,018	)
Adjustments to reconcile net loss to cash (used in) operating activities:
Depreciation		6,080			2,765
Change in fair value of derivative liabilities		112,919			—
Common stock issued in exchange for services rendered		280,937			246,928
Common stock issued in payment of officer compensation		208,333			—
Options and warrants issued in exchange for services rendered		229,097			206,474
Changes in operating liabilities:
Prepaid expenses		(3,625	)		—
Accounts payable and accrued liabilities		(111,938	)		95,453
Net cash used in operating activities:		(451,280	)		(640,398	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment		(26,810	)		(7,445	)
Net cash used in investing activities:		(26,810	)		(7,445	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock		—			886,584
Proceeds from related party advances		175,000			—
Exercise of common stock options and warrants		—			65,200
Net cash provided by financing activities		175,000			951,784

(Decrease) increase in cash and cash equivalents		(303,090	)		303,941
Cash and cash equivalents beginning of period		322,929			18,988
Cash and cash equivalents end of period	$	19,839		$	322,929

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	—		$	—
Cash paid during the period for income taxes	$	—		$	—

Non-cash investing and financing activities:
Common stock issued in settlement of notes payable and accrued interest	$	5,778		$	34,483


The accompanying notes are an integral part of these financial statements

F-10

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

Business and Basis of Presentation

Iris Biotechnologies Inc. (the “Company”, “we”, “us”, “our”) was incorporated on February 16, 1999 under the laws of the State of California. The Company efforts are principally devoted to developing solutions for the detection and monitoring of monogenic and complex genomic diseases. The Company has not generated any revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise.

On April 9, 2014, the Company formed Iris Wellness Labs, Inc., a wholly owned subsidiary and Delaware Corporation, for the purpose of developing certain business lines. As of December 31, 2015 and 2014, there were no significant assets or liabilities in Iris Wellness Labs, Inc, or operations since its formation.

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Liquidity and Dependency of Key Management

To date the Company has generated no revenues, has incurred expenses, and has sustained losses. As shown in the accompanying consolidated financial statements, the Company incurred a loss of $1,173,083 and $1,192,018 during the years ended December 31, 2015 and 2014, respectively. For the period from February 16, 1999 (date of inception) through December 31, 2015, the Company has accumulated losses of $12,042,307. Consequently, its operations are subject to all risks inherent in the establishment of a new business enterprise.

The Company's primary source of operating funds since inception has been cash proceeds from the private placements of common stock and proceeds from private placements of convertible debt. The Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its development activities or sustain operations.

The future success or failure of the Company is dependent primarily upon the Company raising funds from third parties, and the continued efforts and financial support of Simon Chin, the Company’s Chief Executive Officer, Chief Financial Officer and the majority shareholder. As in the past, Mr. Chin has committed to provide all necessary funding if needed to the meet the Company’s financial obligations through 2016. Additionally, management feels that the Company's fixed cash obligations can be reduced to approximately $100,000 if necessary.

Cash

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings. For financial statement purposes, property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives of 3 to 5 years.

F-11

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. Significant estimates include the recoverability and useful lives of long-lived assets, the fair value of the Company’s stock, stock-based compensation and the valuation allowance related to deferred tax assets. Actual results may differ from these estimates.

Long-Lived Assets

The Company follows Accounting Standards Codification subtopic 360-10, Property, plant and equipment (“ASC 360-10”). The Statement requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Net Income (loss) Per Common Share

The Company computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.

The computation of basic and diluted loss per share as of December 31, 2015 and 2014 excludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the average market price of the common stock during the period.

Potentially dilutive securities excluded from the computation of basic and diluted net income (loss) per share are as follows:

	2015		2014
Convertible notes		26,000		31,000
Options to purchase common stock		1,957,571		1,804,571
Warrants to purchase common stock		120,300		120,300
Totals		2,103,871		1,955,871

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consists primarily of cash. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit. The Company does not have accounts receivable at December 31, 2015 and December 31, 2014.

F-12

Income Taxes

The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.

Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial. As of December 31, 2015 and 2014 the Company has provided a 100% valuation allowance against the deferred tax benefits.

Fair Values

Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

The carrying value of the Company’s cash, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value because of their short-term maturity.

As of December 31, 2015 or 2014, the Company did not have any items that would be classified as level 1 or 2 disclosures.

F-13

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed in Note 5. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed in Note 5 are that of volatility and market price of the underlying common stock of the Company.

Stock based compensation

The Company measures the cost of services received in exchange for an award of equity instruments based on the fair value of the award. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which services are required to be provided in exchange for the award, usually the vesting period. Stock-based compensation expense is recorded by the Company in the same expense classifications in the statements of operations, as if such amounts were paid in cash.

As of December 31, 2015, there were outstanding stock options to purchase 1,957,571 shares of common stock, 1,402,467 shares of which were vested. As of December 31, 2014, the Company had 1,804,571 options outstanding to purchase shares of common stock, of which 1,609,779 were vested.

Derivative Liability

The Company accounts for derivatives in accordance with ASC 815, which establishes accounting and reporting standards for derivative instruments and hedging activities, including certain derivative instruments embedded in other financial instruments or contracts and requires recognition of all derivatives on the balance sheet at fair value, regardless of hedging relationship designation. Accounting for changes in fair value of the derivative instruments depends on whether the derivatives qualify as hedge relationships and the types of relationships designated are based on the exposures hedged. At December 31, 2015 and 2014, the Company did not have any derivative instruments that were designated as hedges.

At December 31, 2015, the Company did have a derivative liability due to the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions for all existing instruments that could be settled in shares. See Note 5.

Research and development costs

The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $192,413 and $199,662 for the year ended December 31, 2015 and 2014, respectively.

F-14

Recent Accounting Pronouncements

In August 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40) (ASU 2014-15). ASU 2014-15 requires that an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). ASU 2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the impact of this update.

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The amendments in the update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The update is effective for fiscal years beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of this update.

In November 2015, the FASB issued (ASU) 2015-17, Balance Sheet Classification of Deferred Taxes. Currently deferred taxes for each tax jurisdiction are presented as a net current asset or liability and net noncurrent asset or liability on the balance sheet. To simplify the presentation, the new guidance requires that deferred tax liabilities and assets for all jurisdictions along with any related valuation allowances be classified as noncurrent in a classified statement of financial position. This guidance is effective for interim and annual reporting periods beginning after December 15, 2016, and early adoption is permitted. The Company has adopted this guidance in the fourth quarter of the year ended December 31, 2015 on a retrospective basis. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows, and did not have any effect on prior periods due to the full valuation allowance against the Company’s net deferred tax assets.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

There are various other updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company's financial position, results of operations or cash flows.

NOTE 2 - PROPERTY, PLANT, AND EQUIPMENT

Property, plant and equipment at December 31, 2015 and 2014 are as follows:

	2015			2014
Computer equipment	$	87,112		$	74,249
Office equipment		1,728			1,728
Furniture and fixtures		4,952			4,764
Manufacturing equipment		179,262			165,503
		273,054			246,244
Less: accumulated depreciation		(243,437	)		(237,357	)
	$	29,617		$	8,887

F-15

NOTE 3 - LONG TERM CONVERTIBLE NOTE PAYABLE

Long-term debt at December 31, 2015 and 2014 are as follows:

	2015		2014
Note payable, dated June 22, 2012		15,000		15,000
Note payable, dated December 4, 2012		2,000		2,000
Note payable, dated January 17, 2013		—		3,000
Note payable, dated February 1, 2013		4,000		4,000
Notes payable, dated April 4, 2013		4,000		4,000
Note payable, dated June 21, 2013		—		2,000
Note payable, dated September 24, 2013		1,000		1,000
Total		26,000		31,000
Less: current portion		—		(5,000	)
Long term portion	$	26,000	$	26,000

On June 21, 2012, the Company issued a $20,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due two years from date of issuance. The note was convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note. On June 18, 2014, the Company issued 22,898 shares of its common stock in settlement of the convertible note payable and accrued interest, based upon the original terms of conversion.

On June 22, 2012, the Company issued a $15,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note was convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note.

On September 12, 2012, the Company issued a $10,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due two years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note. On September 21, 2014, the Company issued 11,585 shares of its common stock in settlement of the convertible note payable and accrued interest, based upon the original terms of conversion.

On December 4, 2012, the Company issued a $2,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note.

On January 17, 2013, the Company issued a $3,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due two years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note. On May 6, 2015, the Company issued 3,467 shares of its common stock in settlement of the convertible note payable and accrued interest, based upon the original terms of conversion.

On February 1, 2013, the Company issued a $4,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The notes are convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note.

F-16

On April 4, 2013, the Company issued an aggregate of $4,000 notes to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note.

On June 21, 2013, the Company issued a $2,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due two years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note. On August 10, 2015, the Company issued 2,311 shares of its common stock in settlement of the convertible note payable and accrued interest, based upon the original terms of conversion.

On September 24, 2013, the Company issued a $1,000 note to an unrelated party, unsecured and bearing an interest rate of 7.5% per annum, due five years from date of issuance. The note is convertible into the Company’s common stock at a conversion rate of $1.00 per share. Based upon the value of the stock an embedded beneficial conversion feature was not present in the note.

NOTE 4 — RELATED PARTY TRANSACTIONS

Officer Advances

The Company’s President and shareholders have advanced funds on a non-interest-bearing basis to the Company for working capital purposes since the Company’s inception in February 1999. No formal repayment terms or arrangements exist. During 2015, the Company's President advanced funds of $175,000 to the Company. There were $175,200 and $200 outstanding at December 31, 2015 and 2014.

NOTE 5 — DERIVATIVE LIABILITIES

Excessive committed shares

Beginning on December 29, 2015 through December 31, 2015, in connection with the previously issued convertible debt, stock options and warrants, the Company had the possibility of exceeding their common shares authorized when considering the number of possible shares that may be issuable to satisfy settlement provisions of these agreements after consideration of all existing instruments that could be settled in shares. This resulted in a derivative liability as a result of the Company having a potential to settle the obligation to issue these excess shares. The accounting treatment of derivative financial instruments required that the Company reclassify the derivative from equity to a liability at their fair values as of the date possible issuable shares exceeded the authorized level and at fair value as of each subsequent balance sheet date.

The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price of the underlying common stock of the Company.

On December 29, 2015, the fair value of the net derivative liabilities reclassified from equity of $56,163 was determined using the Black Scholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 384.60%; risk free rate: 0.23% to 2.32%; and expected life: 0.21 to 9.02 years.

At December 31, 2015, the fair value of the derivative liabilities of $169,082 was determined using the Black Scholes Option Pricing model with the following assumptions: dividend yield: 0%; volatility: 400.79%; risk free rate: .16% to 2.27%; and expected life: 0.20 to 9.01 years.

F-17

The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of year ended December 31, 2015:

	Excess Share Derivative
Balance, December 31, 2014	$	—
Transfers in of Level 3 liability upon exceeding authorized shares		56,163
Mark-to-market at December 31, 2015:		112,919
Balance, December 31, 2015	$	169,082

Net loss for the period included in earnings relating to the liabilities held at December 31, 2015	$	(112,919	)

Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. The Company’s stock price increased by 100% from December 29, 2015 to December 31, 2015. As the stock price increases for each of the related derivative instruments, the value to the holder of the instrument generally increases, therefore increasing the liability on the Company’s consolidated balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would result in approximate 8% to 11% change in our Level 3 fair value.

NOTE 6 - STOCKHOLDER EQUITY

Preferred stock

The Company is authorized to issue 5,000,000 shares of no par preferred stock. From date of inception through December 31, 2015, the Company has not issued any preferred shares.

Common stock

The Company is authorized to issue 20,000,000 shares of no par value common stock. As of December 31, 2015 and 2014 the Company has 19,607,177 and 15,194,436 shares of common stock issued and outstanding, respectively.

During the year ended December 31, 2014, the Company sold an aggregate of 903,230 shares of common stock for net proceeds of $886,584.

During the year ended December 31, 2014, the Company issued an aggregate of 237,500 shares of common stock for services in the amount of $246,928.

During the year ended December 31, 2014, the Company issued 400,000 shares of common stock for exercise of employee options at $0.15 per share, aggregate proceeds of $60,000.

During the year ended December 31, 2014, the Company issued 40,000 shares of common stock for exercise of warrants at $0.13 per share, aggregate proceeds of $5,200.

During the year ended December 31, 2014, the Company issued 34,483 shares of common stock in settlement of notes payable and accrued interest at $1.00 per share.

F-18

On May 6, 2015, the Company issued 3,467 shares of its common stock in conversion of a note payable and accrued interest.

On August 10, 2015, the Company issued 2,311 shares of its common stock in conversion of a note payable and accrued interest.

During the year ended December 31, 2015, the Company issued an aggregate of 358,500 shares of common stock for services in the amount of $280,937 based on quoted market prices at the time of issuance.

During the year ended December 31, 2015, the Company issued an aggregate of 4,048,463 shares of common stock as payment for officer compensation in the amount of $208,333 based on quoted market prices at the time of issuance.

All common stock issued for services was valued based upon the quoted market price at the time of the issuances.

NOTE 7 – WARRANTS AND OPTIONS

Warrants

The following table summarizes warrants outstanding and related prices for the shares of the Company’s common stock issued at December 31, 2015:

Exercise Price		Number Outstanding		Warrants Outstanding Weighted Average Remaining Contractual Life (years)		Weighted Average Exercise price		Number Exercisable		Warrants Exercisable Weighted Average Exercise Price
$	1.00		60,100		2.81	$	1.00		60,100	$	1.00
	2.00		60,200		3.81		2.00		60,200		2.00
			120,300		3.31		1.50		120,300	$	1.50

Transactions involving the Company’s warrant issuance are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2013		100,100		$	0.65
Issued		60,200			2.00
Exercised		(40,000	)		(0.13	)
Expired		—			—
Outstanding at December 31, 2014		120,300		$	1.50
Issued		—			—
Exercised		—			—
Expired		—			—
Outstanding at December 31, 2015		120,300		$	1.50

F-19

On October 21, 2014, the Company issued an aggregate of 60,200 warrants for services with an exercise price of $2.00 with all 60,200 warrants vested over one year and expiring five years from issuance. For employees and directors, the fair value of the award is measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value of the vested warrants during the year ended December 31, 2015 and 2014 of $19,073 and $62,615, respectively, (as determined as described below) was charged to operations.

The fair value of these warrants issued and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:

Significant assumptions:
Risk-free interest rate at grant date	0.95% to 1.78	%
Expected stock price volatility	86.22% to 400.79	%
Expected dividend payout	—
Expected option life-years (a)	3.81 to 4.56

__________________________

(a) The expected option life is based on contractual expiration dates

Options

Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from using the Company’s historical stock prices. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of options based on the contractual life of options for non-employees. For employees, the Company accounts for the expected life of options based on remaining contractual expiration dates.

The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. The fair value of stock-based payment awards during the year ended December 31, 2015 was estimated using the Black-Scholes pricing model.

In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating the Company’s forfeiture rate, the Company analyzed its historical forfeiture rate, the remaining lives of unvested options, and the number of vested options as a percentage of total options outstanding. If the Company’s actual forfeiture rate is materially different from its estimate, or if the Company reevaluates the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what the Company has recorded in the current period.

Based on no historical forfeitures, the Company estimated forfeitures related to option grants at a weighted average annual rate of 0% per year based on historical data, for options granted during the year ended December 31, 2015 and 2014.

F-20

Employee Options

The following table summarizes options outstanding and the related prices for the shares of the Company’s common stock issued to employees under a stock option plan at December 31, 2015

	Options Outstanding					Options Exercisable
	Exercise Prices (S)	Number Outstanding	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price (S)	Number Exercisable		Weighted Average Exercise Price
$	0.80	85,000	5.20	$	0.80	85,000	$	0.80
	1.00	649,875	1.45		1.00	591,646		1.00
	1.11	100,000	5.00		1.11	100,000		1.11
	1.25	600,000	5.67		1.25	150,000		1.25
	2.25	162,696	2.40		2.25	162,696		2.25
		1,597,571	3.55	$	1.22	1,089,342	$	1.22

Transactions involving employee stock options issued are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2013:		1,879,571		$	0.90
Granted		—			—
Exercised		(400,000	)		(0.15	)
Canceled or expired		(40,000	)		(1.00	)
Outstanding at December 31, 2014		1,439,571		$	1.10
Granted		600,000			1.25
Exercised		—			—
Expired		(442,000	)		(0.88	)
Outstanding at December 31, 2015:		1,597,571		$	1.22

During the year ended December 31, 2014, the Company issued 400,000 shares of common stock for exercise of employee options at $0.15 per share, aggregate proceeds of $60,000.

On January 1, 2015, the Company granted 600,000 employee stock options with an exercise price of $1.25 vesting over four years and expiring five years from issuance for 400,000 options and ten years for 200,000 options. The fair value (as determined as described below) of $710,752 is charged ratably over the vesting term of the options.

The fair value of these stock options granted and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:

Significant assumptions:
Risk-free interest rate at grant date		1.61% to 2.12	%
Expected stock price volatility		186.74	%
Expected dividend payout		—
Expected option life-years (a)	3.75 to 6.25

__________________________

(a) The expected option life is based on “simplified” method.

The fair value of the vested portion previously granted employee options of $196,948 and $81,982 was charged during the year ended December 31, 2015 and 2014, respectively.

F-21

Non-employee options

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to non-employees under a stock option plan at December 31, 2015:

	Options Outstanding					Options Exercisable
	Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price	Number Exercisable		Weighted Average Exercise Price
$	1.00	255,000	4.32	$	1.00	208,125	$	1.00
	1.40	105,000	3.23		1.40	105,000		1.40
		360,000	4.00	$	1.12	313,125	$	1.13

Transactions involving non-employee stock options issued are summarized as follows:

	Number of Shares			Weighted Average Price Per Share
Outstanding at December 31, 2013:		365,000		$	1.12
Granted		—			—
Exercised		—			—
Expired		—			—
Outstanding at December 31, 2014:		365,000		$	1.12
Granted		—			—
Exercised		—			—
Expired		(5,000	)		(1.00	)
Outstanding at December 31, 2015:		360,000		$	1.12

The fair value of the vested portion of previously granted non-employee options of $13,076 and $61,876 was charged during the year December 31, 2015 and 2014, respectively.

The fair value of these options issued and the significant assumptions used to determine those fair values, using a Black-Scholes option-pricing model are as follows:

Significant assumptions:
Risk-free interest rate at grant date	1.71% to 2.09	%
Expected stock price volatility	86.22% to 400.79	%
Expected dividend payout	—
Expected option life-years (a)	7.24 to 7.99

NOTE 8 - LOSSES PER SHARE

The following table presents the computation of basic and diluted losses per share:

	2015			2014
Net loss available to Common stockholders	$	(1,173,083	)	$	(1,192,018	)
Basic and diluted loss per share	$	(0.07	)	$	(0.08	)
Weighted average common shares outstanding		15,739,418			14,764,202

F-22

NOTE 9 - INCOME TAXES

The Company has adopted Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences primarily include stock compensation and other equity-related non-cash charges, capitalized financing costs, the basis difference of derivative liabilities and certain accruals.

At December 31, 2015, the Company has available for federal and California income tax purposes net operating loss carry forwards of approximately $8,200,000, expiring through the year 2035, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the deferred tax assets, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Due to possible significant changes in the Company’s ownership, the future use of its existing net operating losses may be limited. The periods from December 31, 2012 to December 31, 2014 remain open to examination by the U.S. Internal Revenue Service and state authorities.

Deferred net tax assets consist of the following at December 31, 2015 and 2014:

	2015			2014
Stock Compensation	$	166,222		$	153,509
Net Operating Losses		3,463,941			3,137,409
Less valuation allowance		(3,630,163	)		(3,290,918	)
Net deferred tax asset	$	0		$	0

The provision for Federal taxes differs from Federal statutory rates primarily due to state taxes, shortfalls on stock compensation and the change in the valuation allowance.

The Company follows the provision of uncertain tax positions as addressed in FASB Accounting Standards Codification 740-10-65-1. The Company recognized no liability for unrecognized tax benefits. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. No such interest or penalties were recognized during the periods presented. The Company had no accruals for interest and penalties at December 31, 2015 and 2014.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company’s main office is located in Santa Clara, California. The lease had a term of 12 months, which began on August 1, 2015 and expires on July 31, 2016. The Company currently pays rent and related costs of $300.00 per month.

Additionally, the Company leases a laboratory, in San Leandro, California. The lease has a term of 12 months, which began on January 1, 2016 and expires on December 31, 2016. The Company currently pays rent and related costs of $1,800 per month.

Additionally, the Company leases a laboratory and office space, in Davis, California. The lease has a term of 12 months, which began on July 1, 2015 and expires on June 30, 2016. The Company currently pays rent and related costs of $1,650 per month.

F-23

Litigation

On August 20, 2012, the Company, as plaintiff, filed a motion to allow late filing of a $100 million malpractice claim against Heller Ehrman LLP, discovered after claims bar date for not forwarding United State Patent and Trademark Office correspondence to the Company resulting in the abandonment of a critical patent, in the United States Bankruptcy Court, Northern District of California, San Francisco Division. On November 15, 2012, the Bankruptcy Court disallowed the claim. On December 5, 2012, the Company filed an appeal in the United District Court, Northern District of California, San Francisco Division seeking to have its $100 million malpractice claim against Heller Ehrman LLP reinstated. The Company presented case references and requested for the case to be reviewed objectively as a new case. The Appeal Court Judge affirmed the bankruptcy court decision on August 12, 2013. The Company has filed an appeal with the US Ninth Circuit Court. The final brief was filed on February 4, 2014. This matter has been fully briefed. A hearing was scheduled for November 17, 2015 in efforts to move the case forward. In November 2015, the US Ninth Circuit Court reaffirmed the bankruptcy court decision on August 12, 2013.

NOTE 11 - SUBSEQUENT EVENTS

On March 18, 2016, the Company filed an amendment to its Articles of Incorporation with the California Secretary of State effecting an increase in the Company’s authorized shares of common and preferred stock from 20 million and 5 million to 100 million and 25 million respectively.

In January 2016, the Company issued an aggregate of 95,000 warrants to purchase the Company’s common stock at $1.00 for five years, vesting monthly over one year, to three consultants for consulting services.

In March 2016, the Company issued 24,000 shares of common stock for legal fees, 12,000 shares of common stock for consulting services and 37,500 shares of common stock as board fees.

F-24

IRIS BIOTECHNOLOGIES INC 10-K