THE 3 MONTHS ENDING
MARCH 31, 2010
Quarterly Report and Unaudited Consolidated Financial Statements
for 3 Months Ended
March 31, 2010
Documents incorporated by reference (includes all Exhibits and Attachments):
1. All filings including financial statements made on OTC News and Disclosure Network
, including those in this document.
2. All press releases issued by the Company.
3. Form 10-KSB for fiscal year ending December 31, 2006
4. Forms 10-QSB for quarters ending March 31, 2007, June 30, 2007 and September 30, 2007
5. Forms 8-K filed July 3, 2007, September 28, 2007, October 2, 2007, December 20, 2007,
July 8, 2008, August 8, 2008, September 2, 2008, November 18, 2008, February 17, 2009
Documents are available on SEC EDGAR at
"Filings", "Company Info", "News", and other tabs, and through various newswire services.
Documents include both current and non-current information. Except as described in this Initial
Disclosure Document and subsequent reports, news release, filings, and amendments, the
Documents listed above are believed to be accurate and complete as of the date affixed thereof.
FORWARD LOOKING STATEMENTS
This Initial Disclosure Document contains forward-looking statements that are subject to certain
risks, uncertainties or assumptions and may be affected by certain other factors, including but not
limited to the specific factors discussed in Part D, Item XVI under "Management's Discussion and
Analysis or Plan of Operation" and "Risks Associated With Our Business". In some cases, you can
identify forward-looking statements by terminology such as "may," "should," "could," "expects,"
"plans," "projected," "anticipates," "believes," "estimates," "predicts," "potential," or "continues," or
the negative of these terms or other comparable terminology. Should one or more of these risks,
uncertainties or other factors materialize, or should underlying assumptions prove incorrect, actual
results, performance or achievements of Viral Genetics may vary materially from any future results,
performance or achievements expressed or implied by such forward-looking statements.
Forward-looking statements are based on beliefs and assumptions of Viral Genetics' management
and on information currently available to such management. Forward-looking statements speak only
as of the date they are made, and Viral Genetics undertakes no obligation to update publicly any of
them in light of new information or future events. Undue reliance should not be placed on such
forward-looking statements, which are based on current expectations. Forward-looking statements
are not guarantees of performance.
Item 1 Name of Issuer and Address of Principal Executive Offices:
Viral Genetics, Inc.
2290 Huntington Drive, Suite 100, San Marino, CA, 91108
Tel: (626) 334-5310
Fax: (626) 334-5324
Investor and Media Relations Contact: Haig Keledjian, (626) 334-5310
Item 2 Number of Shares Outstanding for Each Class of Securities Authorized.
Period End Date
Number of Shares
Shares / Public
March 31, 2010
December 31, 2009
December 31, 2008
March 31, 2010
December 31, 2009
December 31, 2008
(1) As of March 31, 2010.
(2) Includes estimate of 1,500 non-objecting holders plus reported registered shareholders.
(3) Represents shares held in street form as reported by CEDE & Co. SEC definition of float (all
issued and outstanding shares, less those held by affiliates, officers and directors) is 480,245,702.
(4) Amount differs from table in Annual Report for year-ending December 31, 2009 due to timing
differences based on reconciliation of transfer agent reports and internal control records, which from
time to time differ from figures in consolidated financial statements.
Item 3 Interim Financial Statements
This Quarterly Update should be read in conjunction with the Consolidated Financial Statements
and Notes to Financial Statements of Viral Genetics, Inc., a development-stage enterprise, for the 3
months ending March 31, 2010 (filed as separate PDF file with this Quarterly Report). The
Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009.
Consolidated Statements of Operations for the 3 months ending March 31, 2010 and 2009,
and cumulative results of operations for the period from July 11, 1995 (inception) to March
Consolidated Statements of Stockholders' Equity (Deficit) for the 3 months ending March
Consolidated Statements of Cash Flows for the 3 months ending March 31, 2010 and the
year ended December 31, 2009, and cumulative for the period from July 11, 1995
(inception) to March 31, 2010.
Item 4 Management Discussion and Analysis or Plan of Operation
Plan of Operation
Over the 2010 fiscal year we expect to focus on completing animal safety and optimization studies
required to move our second-generation HIV/AIDS product, VGV-X, which we are also intending
to study for Lyme Disease under the name VGV-L, to human clinical trials in the US; to complete
additional preclinical testing on a Streptococcus and Staphylococcus infection candidate called
VGV-S and a Multiple Sclerosis product candidate; to continue to design, test and patent additional
peptides for use in other diseases; and to begin offering or licensing our services, know-how and
proprietary rights concerning both Targeted Peptides and Metabolic Disruption to other drug
companies who are already using or could benefit from them. We are also pursuing partnerships
with public, corporate and academic institutions for the development the biofuels and other
applications of the Metabolic Disruption technology.
We recently moved all research and development activities to our new laboratory in the life sciences
cluster in Georgetown, Texas. In conjunction with this, our lead scientist, Dr. M. Karen Newell,
who recently joined the faculty of Texas A&M University's College of Medicine, has received a
$750,000 grant from the Texas Emerging Technology Fund to study biofuel applications of the
We believe that there are several commercialized and development-stage drugs now in existence
that either materially rely on or would benefit from some our patents and know-how. Included in
this are products that we believe are directly violating our proprietary rights. As a result, we are
developing a strategy for pursuing these opportunities through licensing, partnership, or other
Our intention is to request permission from the FDA for an HIV/AIDS clinical trial of VGV-X by
filing an Investigational New Drug ("IND") application as soon as safety and optimization studies
are completed. The completion of the studies is contingent on funding, which we are now seeking.
Conditional on such funding and other factors, the studies themselves are expected to require 3-9
months to complete. If successful and if the FDA approves our IND application the clinical trial we
expect to conduct would likely be a Phase I study and require 9-12 months to conduct including
preparation, recruitment of study centers, contracting service providers, enrollment of patients,
treatment, follow up, and statistical evaluation.
We believe that the Targeted Peptides has directly enhanced our understanding of how our first
generation product worked in the past at reducing HIV viral load levels and how to improve upon
those results. As a result we believe that the second generation product, VGV-X, will have higher
levels of efficacy on a wider scope of patients, although there can be no guarantee of any specific
outcome of this research and it is possible that we do not succeed. In the past, we observed that
between 20-60% of patients treated with our earlier product experienced a statistically significant
reduction in their levels of HIV virus of 70-90%. In order to be approved as an HIV/AIDS drug in
the US and Western Europe, we believe that we must achieve a more consistent percentage of
successful patients on the order of 90%, and that we must reduce levels of HIV virus by at least 90-
As a direct result of our primary HIV/AIDS-focused research and development, we have and
continue to uncover new peptides for use with other diseases. We have designed and manufactured
products that we have tested in animal and in vitro models for Lyme Disease and Multiple Sclerosis.
We intend to press forward with both of these, and other, products in the next year with a goal of
developing a human clinical trial strategy for 2010. The Lyme Disease program will use the same
compound as the HIV/AIDS program, and we therefore expect it to commence ahead of the MS
In conjunction with our development of new treatments, we are also studying the diagnostic
applications of our Targeted Peptides. It is our belief that it is possible to detect various forms of
disease, including cancer, through application of the technology. In large part, this was the driving
force behind our acquisition of Carcinotek, Inc., which was formed by the original founders of Viral
Genetics to pursue cancer detection applications of our original technology. The further
development of diagnostic applications of the Targeted Peptide model, including for cancer, is
planned but we do not presently have a specific timeline for this program as we are primarily
focused on therapeutic research at this time.
All of our research programs are contingent on continued availability of funding, for which we can
provide no assurance or guarantees. We currently rely on private placements and support from long-
time shareholders of the Company for ongoing funding. We will have to raise approximately
$2,000,000 to $3,000,000 over the next year to achieve our goal of filing an IND with the FDA for
VGV-X, and completing the other objectives above including Phase 1 clinical trials that are alone
budgeted at approximately $2,000,000. We do not expect to hire any employees in the coming year
but we do anticipate increasing our use of third party consultants and service providers, especially in
the areas of preclinical testing. We do not expect to purchase or sell any plant or equipment.
We are also developing a strategy for development of the proprietary Metabolic Disruption
technology, to which we hold exclusive rights. There are currently human clinical trials underway
that are utilizing or are dependent upon the patents underlying this technology. We intend to pursue
these opportunities though partnership, collaboration, licensing, establishment of additional
subsidiaries or other actions. Further to this, we established our laboratory near Texas A&M
University where we believe additional collaboration, public funding and industry partnerships are
available due to the university's relationships with the Texas energy industry, and Dr. Newell
received a grant from Texas Emerging Opportunities Fund. Included in this research program are
development of a treatment for glioblastoma using MDT to cause the death of cancer cells through
deprivation of energy. In parallel, through manipulation of a similar metabolic pathway in algae and
other plant cells we seeking to further develop and commercialize augmentation of the production of
certain oils including refinable algae-oils for biofuels and agricultural oils such as corn and palm oil.
The grant Dr. Newell recently received is exclusively for research in this area.
Lastly, we are in contact with various third party drug development and marketing companies,
including companies with commercialized products that have products that are similar to or rely on
our Targeted Peptides. It is our belief that our know-how and proprietary knowledge in terms of
designing and optimizing peptides offers a tremendous opportunity for these companies to enhance
their existing products efficacy and also extend their own patents. We intend to solicit these
companies with our services, and we are now formulating our strategy for this.
We are actively and aggressively pursuing our counterclaim against Timothy and Thomas, LLC, and
its principals, Thomas J. Little and Timothy W. Wright, III for several claims we believe we have
against them in connection with the South African clinical trial and the Distribution Management
Agreement between us and T&T. The case recently completed the expert witness deposition phase,
and we are awaiting a trial date. In parallel with this case, we are aggressively pursuing our claim
against Harry Zhabilov, Jr., in connection with his alleged participation in the actions of Timothy
and Thomas, LLC, and its principals, Thomas J. Little and Timothy W. Wright, III, as well as other
claims. We are seeking damages in excess of $10 million for each case. We cannot predict any
specific outcome although we are confident in both.
Off-Balance Sheet Arrangements
Risks Associated With Our Business
Notwithstanding our efforts to foresee and mitigate the effects of changes in our business and
industry, we cannot predict with certainty all potential changes that might affect our business.
Consequently, our business is subject to a number of risks, some of which are as follows.
We have a history of operating losses. We expect to incur net losses and we may never achieve
or maintain profitability.
We have not been profitable since our inception. We reported net losses of approximately $7.3
million and $4.0 million for the years ended 2009 and 2008, respectively. As of March 31, 2010, we
had an accumulated deficit of approximately $70 million. We have not generated any revenue from
product sales or royalties from product sales to date, and it is possible that we will never have
significant product sales revenue or royalty revenue. We expect to continue to incur losses for at
least the next several years as we and collaborators pursue clinical trials and research and
development efforts. To become profitable, we, either alone or with our collaborators, must
successfully develop, manufacture, and market our current product candidates, particularly VGV-X
as well as continue to identify, develop, manufacture, and market new product candidates. It is
possible that we will never have significant product sales revenue or receive significant royalties on
our licensed product candidates.
We will need additional financing, but our access to capital funding is uncertain.
Our current and anticipated operations, particularly our product development and commercialization
programs, require substantial capital which we have not yet obtained in lump sum. We are
continually seeking funding for our ongoing operations, and we have funded operations through
series of small private placements and support from large shareholders. Until we are able to secure
long-term financial support or financing in sufficiently large quantity to fund operations for at least
18-24 months, our ability to operate is uncertain and a significant portion of management time is
devoted to fund-raising. However, these and future capital needs will depend on many factors,
including the extent to which we enter into collaboration agreements with respect to any of our
proprietary product candidates and make progress in our internally funded research, development
and commercialization activities. Our capital requirements will also depend on the magnitude and
scope of these activities, our ability to maintain existing and establish new collaborations, the terms
of those collaborations, the success of our collaborators in the future to develop and market products
under their respective collaborations with us, our success in producing clinical and commercial
supplies of our product candidates on a timely basis and in sufficient quantities to meet our
requirements, competing technological and market developments, the time and cost of obtaining
regulatory approvals, the extent to which we choose to commercialize our future products through
our own sales and marketing capabilities, and the cost of preparing, filing, prosecuting, maintaining
and enforcing patent and other rights. We do not have committed external sources of funding, and
we cannot assure you that we will be able to obtain additional funds on acceptable terms, if at all. If
adequate funds are not available, we may be required to:
Engage in equity financings that would be dilutive to current stockholders;
Delay, reduce the scope of, or eliminate one or more of our development programs;
Obtain funds through arrangements with collaborators or others that may require us to
relinquish rights to technologies, product candidates or products that we would otherwise
seek to develop or commercialize ourselves; or
License rights to technologies, product candidates, or products on terms that are less
favorable to us than might otherwise be available.
If funding is insufficient at any time in the future, we may not be able to develop or commercialize
our products, take advantage of business opportunities or respond to competitive pressures.
We have certain obligations and performance requirements in order to maintain ownership of
patent rights materially underlying our business and products, and for options to additional
such rights that we treat as confidential that could affect results of operations.
Under our Amended and Restated Exclusive License Agreement we obtained certain rights to
patents, patent applications, future improvements, new inventions, and fields of use. These rights
have certain performance obligations including financial requirements that we are required to
maintain in order to keep our rights within certain periods of time. Following commercialization of
any products deriving from the forgoing rights we have additional obligations and performance
requirements including payments of royalties and lump-sum "milestone" payments. For competitive
reasons we treat the majority of the details of all of this information as confidential. If we do not
meet these obligations we could lose our rights. This would prevent us from pursuing continued
development of products based on these rights.
Failure of T&T to obtain government approvals and implement distribution could affect our
ability to sell VGV-1 or VGV-X in Africa and adversely affect results of operations.
Under the Distribution Management Agreement with T&T we would be reliant on the efforts of
T&T to pursue clinical testing and governmental approvals and to establish distribution
arrangements in all of Africa for any products for the treatment or prevention of HIV/AIDS. Africa
represents a major market for VGV-X because of the epidemic proportions of HIV and AIDS in
Africa. The relationship with T&T deteriorated in 2006 to the point that a lawsuit was filed by T&T
in April 2006 against Viral Genetics alleging misrepresentations were made in connection with the
Distribution Management Agreement. Although Viral Genetics believes the claims are without
merit and has made counterclaims, the fact remains that the unresolved conflict between the parties
could have an adverse effect on establishing distribution of VGV-X in Africa. Assuming Viral
Genetics is able to obtain regulatory approvals for distribution of VGV-X in one or more African
nations, the ongoing dispute with T&T could effectively prevent Viral Genetics from taking
advantage of the opportunity until the dispute is resolved, which would likely have an adverse
impact on our results of operations and financial condition.
An adverse result in pending litigation with T&T or its continued existence could drain our
financial resources, which would likely hinder the development of our business.
On April 3, 2006, T&T filed a complaint against Viral Genetics in the United States District Court
for the Northern District of Illinois. The complaint alleges that Viral Genetics made false statements
regarding its ownership of certain intellectual property rights to the drug candidate for the treatment
of HIV/ AIDS that is the subject of the Distribution Management Agreement and that Viral Genetics
did not have the right to grant the distribution rights to T&T under the Distribution Management
Agreement because of rights T&T alleges were held by another party. The complaint seeks damages
in excess of $5 million. Viral Genetics has filed an answer to the complaint denying the substantive
allegations and asserting counterclaims that Viral Genetics believes it has against T&T for breach of
the Distribution Management Agreement for damages in excess of $10 million. Nevertheless, an
adverse result in the litigation would likely result in a substantial drain on the financial resources of
Viral Genetics, which would have a significant adverse affect on its ability to pursue the
development and commercialization of its drug candidate for the treatment of HIV/ AIDS and
consequently have a negative impact on results of operations. The ongoing costs of the litigation are
also substantial in themselves, and represent a significant financial drain on the financial resources
of Viral Genetics. Similarly, the time required from management to participate in and supervise the
litigation is substantial and may delay or otherwise negatively affect our ability to conduct our
business operations. Following completion of the expert witness deposition phase a motion for
summary dismissal of our counterclaim was filed by T&T and we filed a rebuttal to this motion.
T&T's motion claimed that we had not and were not able to establish quantifiable damages
attributable to our counterclaim. Our rebuttal established our basis for quantifying damaged. A
hearing date for the motions has not been set, but we do anticipate that it will be within the next
several months. We are not able to predict the outcome of this motion but remain confident in our
case and defense.
We have not developed any commercial drugs, and we may never develop any commercial
drugs or products that generate revenues.
Our existing product candidates will require significant additional development, clinical trials,
regulatory clearances and additional investment before they can be commercialized. Our product
development efforts may not lead to commercial drugs for a number of reasons, including the failure
of our product candidates to be safe and effective in clinical trials or because we have inadequate
financial or other resources to pursue the programs through the clinical trial process. We do not
expect to be able to market VGV-X for at least a year or longer, if at all.
We are substantially dependent on our ability to successfully and timely complete clinical
trials and obtain regulatory approval to market our most advanced product candidate, VGV-
X. Our business will be materially harmed and our stock price adversely affected if regulatory
approval is not obtained with respect to this product candidate.
We completed a clinical trial of the predecessor product to VGV-X in South Africa. We hope to file
an IND with the FDA for VGV-X. We are conducting laboratory testing and research to support the
filing of the IND. Our success will depend, to a great degree, on our ability to obtain the requisite
regulatory approval to market VGV-X overseas and in the US. The process of obtaining regulatory
approvals is costly, time consuming, uncertain, and subject to unanticipated delays. In order to
obtain the necessary regulatory approval, we must demonstrate with substantial evidence from well-
controlled clinical trials and to the satisfaction of the applicable regulatory reviewing agency that
VGV-X is both safe and efficacious. While we have completed clinical trials of the predecessor
product in China, Mexico, Bulgaria, and South Africa, there is no assurance that any regulatory
agency will accept and rely on the results of these studies and determine that the applicable
regulatory requirements for approval have been met. We cannot predict the ability of our third party
service providers to collect the data from our trials with VGV-X, analyze the data, and deliver their
final reports to us. There may be significant delays in this process. Regulatory authorities may
require additional testing for safety and efficacy, which would result in a substantial delay in the
regulatory approval process. If we fail to successfully obtain regulatory approvals for VGV-X or we
face significant delays, our business will be materially harmed and our stock price will be adversely
We depend on various suppliers to supply VGV-X and our other products. We believe these
suppliers can produce sufficient material to support ongoing study of VGV-X. If approved, we will
have to source a manufacturer with significantly larger capacity. While we believe there are a
number of alternative sources for our product, it is possible that the failure of these suppliers to
supply product would cause a disruption of our research and development, and, upon approval, sales
until alternative sources were located. Any such disruptions, if they continue too long, could
materially harm our business and financial condition.
Clinical trials are long, expensive and uncertain processes and overseas regulators and the
FDA may ultimately not approve any of our product candidates.
We cannot assure you that data collected from preclinical studies and clinical trials of our product
candidates will be sufficient to support approval by overseas regulators or the FDA, the failure of
which could delay our profitability and adversely affect our stock price.
All of our research and development programs are at an early stage.
Clinical trials are long, expensive, and uncertain processes. Clinical trials may not be commenced or
completed on schedule, and government regulators may not ultimately approve our product
candidates for commercial sale. Further, even if the results of our preclinical studies or clinical trials
are initially positive, it is possible that we will obtain different results in the later stages of drug
development or that results seen in clinical trials will not continue with longer-term treatment.
Drugs in late stages of clinical development may fail to show the desired safety and efficacy traits
despite having progressed through initial clinical testing. For example, positive results in early
Phase I or Phase II clinical trials may not be repeated in larger Phase II or Phase III clinical trials.
All of our potential drug candidates are prone to the risks of failure inherent in drug development.
The clinical trials of any of our drug candidates, including VGV-X, could be unsuccessful, which
would prevent us from commercializing the drug. Our failure to develop safe, commercially viable
drugs would substantially impair our ability to generate revenues and sustain our operations and
would materially harm our business and adversely affect our stock price.
If we fail to maintain our existing or establish new collaborative relationships, or if our collaborators
do not devote adequate resources to the development and commercialization of our licensed drug
candidates, we may have to reduce our rate of product development and may not see products
brought to market or be able to achieve profitability.
Our primary strategy for distributing our products is to enter into various relationships with other
firms or companies overseas with the resources to pursue the process of obtaining regulatory
approvals and implement marketing and distribution. We have not settled on any strategy for
distribution in the US and do not expect to formulate a strategy until an IND is approved and/or
clinical trials in the US have progressed. We have granted exclusive commercialization and
marketing rights to T&T in Africa for HIV/AIDS treatment and prevention products and will likely
establish similar arrangements for other parts of the world. T&T has, and our other collaborators
will likely have, substantial control over those efforts in their territories and the resources they
commit to the programs, except for initial funding requirements imposed on our collaborators to
fund the regulatory approval process. Accordingly, the success of the commercialization of our
products in those territories substantially depends on their efforts and is to a degree beyond our
control. For us to receive any significant revenues from sale of our products, our collaborators must
advance drugs through clinical trials, establish the safety and efficacy of our drug candidates, obtain
regulatory approvals and achieve market acceptance of those products. As a result, if a collaborator
elects to terminate its efforts, our ability to commercialize our products in the collaborator's territory
may be significantly impaired.
Because of the uncertainty of pharmaceutical pricing, reimbursement, and healthcare reform
measures, we may be unable to sell our products profitably.
The availability of reimbursement by governmental and other third-party payors affects the market
for any pharmaceutical product. These third-party payors continually attempt to contain or reduce
the costs of healthcare. There have been a number of legislative and regulatory proposals to change
the healthcare system and further proposals are likely. Significant uncertainty exists with respect to
the reimbursement status of newly approved healthcare products. In addition, third-party payors are
increasingly challenging the price and cost-effectiveness of medical products and services. We
might not be able to sell our products profitably or recoup the value of our investment in product
development if reimbursement is unavailable or limited in scope.
As a result of intense competition and technological change in the pharmaceutical industry,
the marketplace may not accept our products, and we may not be able to complete
successfully against other companies in our industry and achieve profitability.
Many of our competitors have drug products that have already been approved or are in
development, and operate large, well-funded research and development programs in these fields.
Many of our competitors have substantially greater financial and management resources, superior
intellectual property positions and greater manufacturing, marketing and sales capabilities, areas in
which we have limited or no experience. In addition, many of our competitors have significantly
greater experience than we do in undertaking preclinical testing and clinical trials of new or
improved pharmaceutical products and obtaining required regulatory approvals. Consequently, our
competitors may obtain FDA and other regulatory approvals for product candidates sooner and may
be more successful in manufacturing and marketing their products than we or our collaborators.
Existing and future products, therapies and technological approaches will compete directly with the
products we seek to develop. Current and prospective competing products may provide greater
therapeutic benefits for a specific problem, may offer easier delivery or may offer comparable
performance at a lower cost. Any product candidate that we develop and that obtains regulatory
approval must then compete for market acceptance and market share. Our product candidates may
not gain market acceptance among physicians, patients, healthcare payors and the medical
community. Further, any products we develop may become obsolete before we recover any
expenses we incurred in connection with the development of these products. As a result, we may
never achieve profitability.
We may be unable to obtain patents to protect our technologies from other companies with
competitive products, and patents of other companies could prevent us from manufacturing,
developing or marketing our products.
The patent positions of pharmaceutical and biotechnology firms are uncertain and involve complex
legal and factual questions. The U.S. Patent and Trademark Office has not established a consistent
policy regarding the breadth of claims that it will allow in biotechnology patents. If it allows broad
claims, the number and cost of patent interference proceedings in the U.S. and the risk of
infringement litigation may increase. If it allows narrow claims, the risk of infringement may
decrease, but the value of our rights under our patents, licenses and patent applications may also
decrease. In addition, the scope of the claims in a patent application can be significantly modified
during prosecution before the patent is issued. Consequently, we cannot know whether our pending
applications will result in the issuance of patents or, if any patents are issued, whether they will
provide us with significant proprietary protection or will be circumvented, invalidated, or found to
be unenforceable. Until recently, patent applications in the United States were maintained in secrecy
until the patents issued, and publication of discoveries in scientific or patent literature often lags
behind actual discoveries. Patent applications filed in the United States after November 2000
generally will be published 18 months after the filing date unless the applicant certifies that the
invention will not be the subject of a foreign patent application. We cannot assure you that, even if
published, we will be aware of all such literature. Accordingly, we cannot be certain that the named
inventors of our products and processes were the first to invent that product or process or that we
were the first to pursue patent coverage for our inventions.
Our commercial success depends in part on our ability to maintain and enforce our
If third parties engage in activities that infringe our proprietary rights, our management's focus will
be diverted and we may incur significant costs in asserting our rights. We may not be successful in
asserting our proprietary rights, which could result in our patents being held invalid or a court
holding that the third party is not infringing, either of which would harm our competitive position.
In addition, we cannot assure you that others will not design around our patented technology.
Moreover, we may have to participate in interference proceedings declared by the United States
Patent and Trademark Office or other analogous proceedings in other parts of the world to
determine priority of invention and the validity of patent rights granted or applied for, which could
result in substantial cost and delay, even if the eventual outcome is favorable to us. We cannot
assure you that our pending patent applications, if issued, would be held valid or enforceable.
Additionally, many of our foreign patent applications have been published as part of the patent
prosecution process in such countries. Protection of the rights revealed in published patent
applications can be complex, costly and uncertain.
We also rely on trade secrets, know-how and confidentially provisions in our agreements with
our collaborators, employees and consultants to protect our intellectual property. However,
these and other parties may not comply with the terms of their agreements with us, and we might be
unable to adequately enforce our rights against these people or obtain adequate compensation for the
damages caused by their unauthorized disclosure or use. Our trade secrets or those of our
collaborators may become known or may be independently discovered by others.
Our products and product candidates may infringe the intellectual property rights of others, which
could increase our costs and negatively affect our profitability.
Our success also depends on avoiding infringement of the proprietary technologies of others.
In particular, there may be certain issued patents and patent applications claiming subject matter that
we or our collaborators may be required to license in order to research, develop or commercialize
our product candidates. In addition, third parties may assert infringement or other intellectual
property claims against us based on our patents or other intellectual property rights. An adverse
outcome in these proceedings could subject us to significant liabilities to third parties, require
disputed rights to be licensed from third parties or require us to cease or modify our use of the
technology. If we are required to license such technology, we cannot assure you that a license under
such patents and patent applications will be available on acceptable terms or at all. Further, we may
incur substantial costs defending ourselves in lawsuits against charges of patent infringement or
other unlawful use of another's proprietary technology.
We are subject to extensive government regulations that may cause us to cancel or delay the
introduction of our products to market.
Our research and development activities and the clinical investigation, manufacture, distribution and
marketing of drug products are subject to extensive regulation by governmental authorities in the
United States and other countries. Prior to marketing in the United States, a drug must undergo
rigorous testing and an extensive regulatory approval process implemented by the FDA under
federal law, including the Federal Food, Drug and Cosmetic Act. To receive approval, we or our
collaborators must, among other things, demonstrate with substantial evidence from well-controlled
clinical trials that the product is both safe and effective for each indication where approval is sought.
Depending upon the type, complexity and novelty of the product and the nature of the disease or
disorder to be treated, that approval process can take several years and require substantial
expenditures. Data obtained from testing are susceptible to varying interpretations that could delay,
limit or prevent regulatory approvals of our products. Drug testing is subject to complex FDA rules
and regulations, including the requirement to conduct human testing on a large number of test
subjects. We, our collaborators, or the FDA may suspend human trials at any time if a party believes
that the test subjects are exposed to unacceptable health risks. We cannot assure you that any of our
product candidates will be safe for human use. Other countries also have extensive requirements
regarding clinical trials, market authorization and pricing. These regulatory schemes vary widely
from country to country, but, in general, are subject to all of the risks associated with United States
If any of our products receive regulatory approval, the approval will be limited to those
disease states and conditions for which the product is safe and effective, as demonstrated
through clinical trials.
In addition, results of pre-clinical studies and clinical trials with respect to our products could
subject us to adverse product labeling requirements that could harm the sale of such products. Even
if regulatory approval is obtained, later discovery of previously unknown problems may result in
restrictions of the product, including withdrawal of the product from the market. Further,
governmental approval may subject us to ongoing requirements for post-marketing studies. Even if
we obtain governmental approval, a marketed product, its respective manufacturer and its
manufacturing facilities are subject to unannounced inspections by the FDA and must comply with
the FDA's cGMP and other regulations. These regulations govern all areas of production, record
keeping, personnel and quality control. If a manufacturer fails to comply with any of the
manufacturing regulations, it may be subject to, among other things, product seizures, recalls, fines,
injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal
prosecution. Other countries also impose similar manufacturing requirements.
If product liability claims are brought against us or we are unable to obtain or maintain
product liability insurance, we may incur substantial liabilities that could reduce our financial
The clinical testing and commercial use of pharmaceutical products involves significant exposure to
product liability claims. We have obtained limited product liability insurance coverage for some of
our clinical trials on humans, however, our insurance coverage may be insufficient to protect us
against all product liability damages. Further, liability insurance coverage is becoming increasingly
expensive and we might not be able to obtain or maintain product liability insurance in the future on
acceptable terms or in sufficient amounts to protect us against product liability damages. Regardless
of merit or eventual outcome, liability claims may result in decreased demand for a future product,
injury to reputation, withdrawal of clinical trial volunteers, loss of revenue, costs of litigation,
distraction of management and substantial monetary awards to plaintiffs. Additionally, if we are
required to pay a product liability claim, we may not have sufficient financial resources to complete
development or commercialization of any of our product candidates and our business and results of
operations will be adversely affected.
If we issue additional shares of common stock in the future, it will result in the dilution of our
Our articles of incorporation authorize the issuance of 750,000,000 shares of common stock. Our
board of directors has the authority to issue additional shares of common stock up to the authorized
capital stated in the articles of incorporation. Our board of directors may choose to issue some or all
of such shares of common stock to acquire one or more businesses, to provide additional financing
in the future, to compensate for services, to settle debt or for other purposes. The issuance of any
such shares of common stock will result in a reduction of the book value or market price of the
outstanding shares of our common stock. If we do issue any such additional shares of common
stock, such issuance also will cause a reduction in the proportionate ownership and voting power of
all other stockholders. Further, any such issuance may result in a change of control of our
corporation. Additionally, as of April 12, 2010 the total number of common share equivalents,
assuming the exercise or conversion of all outstanding warrants, options, convertible debt, and
preferred shares, is approximately 916 million whereas our authorized common share capital is
750,000,000. As such, although it is unlikely that all holders of these securities will elect to exercise
their rights to obtain common shares, we do not currently have enough common shares under our
current authorized share structure to meet these demands. If we were to address this, we would have
to increase our authorized share capital, effect a reverse stock split, or in some other manner change
the capital structure of the Company. This could have a dilutive or otherwise detrimental effect on
current common shareholders.
Trading on the Pink Sheets over-the-counter market may be volatile and sporadic, which
could depress the market price of our common stock and make it difficult for our stockholders
to resell their shares.
There is currently a limited market for our common stock. Our common stock is quoted on the Pink
Sheets over-the-counter market. Trading in stock quoted on the Pink Sheets over-the-counter market
is often thin and characterized by wide fluctuations in trading prices, due to many factors that may
have little to do with our operations or business prospects. This volatility could depress the market
price of our common stock for reasons unrelated to operating performance. Moreover, the Pink
Sheets over-the-counter market is not a stock exchange, and trading of securities there is often more
sporadic than the trading of securities listed on a quotation system like Nasdaq or a stock exchange
like Amex. There is no assurance that a sufficient market will develop or remain stable in the stock,
in which case it could be difficult for our stockholders to resell their stock.
Our stock is a penny stock. Trading of our stock may be restricted by the Securities and
Exchange Commission's penny stock regulations that may limit a stockholder's ability to buy
and sell our stock.
Our stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9
which generally defines "penny stock" to be any equity security that has a market price (as defined)
less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose additional sales
practice requirements on broker-dealers who sell to persons other than established customers and
"accredited investors". The term "accredited investor" refers generally to institutions with assets in
excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-
dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the Securities and Exchange
Commission that provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or with the customer's confirmation.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise
exempt from these rules, the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the
transaction. These disclosure requirements may have the effect of reducing the level of trading
activity in the secondary market for the stock that is subject to these penny stock rules.
Consequently, these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.
The Financial Industry Regulatory Authority sales practice requirements may also limit a
stockholder's ability to buy and sell our stock.
In addition to the "penny stock" rules described above, the Financial Industry Regulatory Authority
or FINRA has adopted rules that require that in recommending an investment to a customer, a
broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer's
financial status, tax status, investment objectives and other information. Under interpretations of
these rules, FINRA believes that there is a high probability that speculative low-priced securities
will not be suitable for at least some customers. The FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which may limit your
ability to buy and sell our stock and have an adverse effect on the market for shares of our common
Item 5 Legal Proceedings.
No new information to disclose. See prior filings for information on current legal matters.
Item 6 Defaults Upon Senior Securities.
Item 7 Other Information.
Item 8 Exhibits.
Item XXI Issuer's Certifications.
I, Haig Keledjian, certify that:
1. I have reviewed this Quarterly Update of Viral Genetics Inc.;
2. Based on my knowledge, this disclosure statement does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period
covered by this disclosure statement; and
3. Based on my knowledge, the financial statements, and other financial information included or
incorporated by reference in this disclosure statement, fairly present in all material respects the
financial condition, results of operations and cash flows of the issuer as of, and for, the periods
presented in this disclosure statement.
Date: May 24, 2010
Haig Keledjian, President